Economic freedom hit a record high in 2019—but then came 2020. That’s when government shutdowns limited economic freedom, with devasting impacts to people’s lives and livelihoods.
According to the 2021 Economic Freedom of the World Report, which measures economic freedom according to a number of economic variables, the global average for economic freedom hit a new high at 7.04 out of 10 in 2019, the most recent comprehensive data. But that’s going to fall in 2020 data from COVID-related restrictions and sky-high government spending.
Let’s first consider the benefits of economic freedom.
The top quarter freest nations have annual GDP per person over $50,000 (purchasing power adjusted), compared to under $6,000 in the quarter least free nations. The average income of the poorest 10% in the freest nations is more than $14,000, compared to the least free nations at under $1,600. In the least free nations, one out of every three people lives in extreme poverty ($1.90 a day) compared to less than 1% in the most-free nations.
And economically free nations have increased life expectancy, better health care, more educational achievement, and higher levels of happiness. Research has shown that happiness is driven even more by economic freedom than the increased prosperity it generates. People care about self-sufficiency, and the opportunities to attain it are more plentiful in places with more economic freedom.
During the financial crisis of 2007-2008, economic freedom declined globally. Governments responded with increased spending (as they would later respond to the COVID-19 pandemic), though with noticeable differences between advanced and emerging economies. For example, from 2007 to 2010, advanced global spending increased by 16% compared to 53% in other economies.
As the financial crisis receded, economic freedom recovered and moved to new heights. In 2007, the average economic freedom score was at its highest level ever, 6.90. It fell to 6.86 in 2009 as governments expanded their powers and spending in response to the crisis. By 2011 it had recovered to 6.93, edging out the score at the beginning of the crisis, and continued to increase.
Global growth resumed as economic freedom recovered.
While comprehensive 2020 data aren’t available yet, fiscal projections by the International Monetary Fund (IMF) indicate economic freedom took a huge hit from the extraordinary actions by governments.
Excessive government spending reduces economic freedom by crowding out people’s decisions in the productive private sector. To fund deficits now or later, governments consider raising taxes or just printing more money. Unfortunately, these actions make the problem worse, especially to the neediest among us, as the answer should be more opportunities to prosper through less spending—the true burden of government.
The IMF’s data show advanced economies being more profligate than other economies in spending this time around. Average spending increased by 28% between 2019 and 2021 in advanced economies while developing economies lagged at 12% for a world average of 21%.
Overall, government deficits increased by 280% in the advanced world, and 71% elsewhere, doubling global deficits. Gross government debt rose from 104% of GDP to 123% in advanced economies and from 54% to 64% elsewhere. These results threaten human flourishing worldwide.
In the U.S., America had a record low poverty rate and record high median household income in 2019. This was a result of increased economic freedom from the last administration’s deregulatory and tax cutting efforts. The unemployment rate reached new lows for almost every demographic and the overall rate was at 3.5% in February 2020.
As shutdowns happened across the country, the national unemployment rate skyrocketed to 14.8% in April 2020 and remains higher at 5.2% today. And many of those who have a job have seen their purchasing power fall due to higher inflation. Costly shutdowns and excessive spending have hit Americans’ lives and livelihoods hard, and these will have long-lasting effects.
Clearly, control by government through shutdowns over the last year caused much economic destruction. The already-passed $6 trillion in spending since the shutdown recession started is more spending than every economy except the U.S. and China. And this excess spending already contributed to a tripling of the deficit to $3.1 trillion in 2020.
After the Biden administration passed its excessive $1.9 trillion American Rescue Plan Act, it’s calling for an additional $6 trillion in “infrastructure” proposals (something Americans can’t afford).
Fortunately, we have a sound blueprint of what works well for increased opportunities to let people prosper: economic freedom through free-market capitalism. We need more of it now.
OVERVIEW: Governments’ forced business closures and mandates in response to COVID-19 since March 2020 resulted in much economic destruction during the “shutdown recession.” A return to normal is essential for the recovery of economic growth and, more importantly, for the flourishing of people’s lives and livelihoods. However, more government
intervention in response to the Delta variant and reckless fiscal and monetary policies out of D.C. are hindering the recovery. The labor market has been improving more slowly than expected even though Congress has authorized
$6 trillion since the pandemic started and may soon authorize another $6 trillion, while the Federal Reserve has doubled its balance sheet to $8.4 trillion. The federal unemployment “bonuses,” which finally ended recently, and even more
in handouts, which have reduced incentives to work, resulted in the record high number of job openings exceeding the number of unemployed and added to the recovery’s uncertainty. Instead, we need a pro-growth approach.
The economic success of the Texas Model’s limited government framework demonstrates that institutions matter for prosperity. But Texas must improve to remain competitive and support greater flourishing
If you’re poor and reside where there’s little economic freedom, then you have fewer opportunities to improve your livelihood compared with those living in more economically free places. The freedom to have the flexibility to control your future and leave a legacy to future generations with little influence by government supports human flourishing.
This too-often overlooked fact is supported by the just-released study, “Economic Freedom Promotes Upward Income Mobility,” published by Canada’s Fraser Institute and prepared by Justin Callais, Texas Tech University, and Vincent Geloso, George Mason University.
Income inequality continues to be a divisive economic issue, with opponents of freedom blaming free markets for it. Yet, income inequality is no more prevalent in economically free nations than nations dominated by government intervention.
But there is a crucial difference that separates economically free nations from others—one at the heart of fairness and equity. And that is opportunity. The Institute’s new research shows income and social mobility are significantly stronger in free than in unfree places.
The study looks at 82 nations, utilizing mobility data from the World Bank and World Economic Forum, and freedom data from the Institute’s “Economic Freedom of the World Index.” The conclusions match other data noting that prosperity is much higher and poverty much lower in economically free nations.
The average per-person output in a top-quarter economically free nation is more than $50,000 (purchasing power adjusted) compared to under $6,000 in the quarter of least-free nations. The average income of the poorest 10% in the freest nations is over $14,000, compared to the same numbers in the least free nations reported to be just 11% of the freest nations at under $1,600.
While the study examines income mobility internationally, economic freedom spurs greater income mobility among the U.S. states. The higher level of in-migration to economically free states is best explained by people moving to seek greater opportunity.
The Fraser index includes several factors necessary for economic freedom, but the two most important for income mobility are the rule of law and reasonable regulation. Since the rule of law is relatively—if not completely—uniform across U.S. states, regulatory burdens help tell the story of migration flows.
The U.S. ranks 6th most economically free among 162 jurisdictions considered worldwide. Rankings among the largest states in terms of population and economic output (California, Texas, Florida, and New York) reveal a stark difference.
Both Texas and Florida, with their approaches of more limited government, rank in the top four among U.S. states in terms of economic freedom, whereas California and New York, which choose a heavy-handed governing philosophy, fall in the bottom 4 states.
Narrowing down the broader ranking to just the regulatory burden, which the study finds influences income mobility, the rankings are similar for these states. Ranking near the top are Texas at second best and Florida at 10th while California is at 35th and New York ranks 44th. Government spending per person is also much lower in these red states.
Taking these factors along with better fiscal policy into consideration, and no wonder people are moving in droves for improved opportunities from these dark blue states to these dark red states. This has also meant increases in state income and wealth from migration. Interestingly, despite what’s commonly suggested, polling data show that this migration isn’t soon to flip Texas blue soon.
Regulations too often exclude people from work and opportunity. They may require workers to purchase occupational licenses or train to acquire credentials before they can work. This takes time and money, which lower-income earners may not possess, creating a barrier that prevents them from fully participating and advancing in the labor market.
Such regulations slow wage growth for lower-income workers. And particularly, occupational licensing tends to hurt income growth among the poor more than those with higher incomes. Onerous business and hiring regulations can also slam the door shut on poor entrepreneurs who simply do not have the resources to satisfy government’s many hurdles.
Yet, many seem to believe free markets victimize people. But that’s simply false. Free market capitalism best lets people prosper.
Just look around the world. Where would a person rather live, even if they were poor? In economically free places like the U.S., Canada, Denmark, Texas, or Florida or unfree places like Russia, Egypt, California, or New York, or socialist basket-cases, Venezuela and Cuba?
Free markets continue to face many challenges following the 2009 recession, the COVID-19 pandemic, expansion of government overreach, and the evidence-free imaginings of free-market critics. Hopefully, the facts like those in this report will win out—people are more prosperous, less poor, and blessed with opportunity where economic freedom prevails.
Many Americans have historically associated “socialism” with things like the Red Scare, Nazism, the Cold War, and McCarthyism. Today, that fear has largely faded—particularly among young people—and has instead become a love affair.
A recent Axios/Movement poll found that 51% of 18 to 34 year-olds view socialism positively, though the share is only 41% for all Americans. That poll also found that 49% of young adults viewed capitalism favorably—a decrease from 58% in 2019. However, across all Americans there is 57% support for capitalism with just 36% having a negative view of it, which is a slight decrease from the 61% to 36% split in 2019.
Many reasons explain these trends, but the fact that capitalism has lifted more than one billion people worldwide out of poverty is irrefutable.
Despite this reality, the alarming rise in support for socialism, particularly among young adults, begs the question: Do proponents of “socialism” really understand it, and will it ever invade America?
In short, institutions matter and we should understand them, because when we do, we have a better appreciation for capitalism and will reject socialism, even as socialism metastasizes throughout many sectors of our economy.
Socialism is an economic system in which government owns the means of production. Socialism is an extractive economic institution with redistribution of resources—not with market prices but rather by elite politicians who supposedly understand the collective desires of society.
Capitalism, on the other hand, derives its success from an inclusive economic institution with private ownership of the means of production in a free enterprise system. This institutional framework has strong private property rights allowing for a well-functioning price system in markets that allow efficient allocation of resources to those who desire things most with a profit-loss calculation to increase prosperity.
Many supporters of socialism believe society would be best served by a big government that oversees things like health care, food, employment, and transportation, with college and housing at no charge. Socialism’s enthusiasts also claim government-run societies would decrease income inequality and give workers a greater voice.
However, socialists fail to recognize the truth that nothing is free.
More precisely, scarcity means there are always costs, whether realized or unrealized. Free college and universal health care could be fantastic services if they were truly free, but the government doesn’t have its own money—it must extract resources from Peter to give to Paul, and “free” provisions like these have poor outcomes.
Moreover, the ideas of “tax the rich” and “give to the poor” are fallacies that don’t support lower poverty or less income inequality, as they reduce opportunities for success in the productive private sector while contributing to greater dependency on costly government redistribution. This intervention stifles consumer power, eliminates competition, and oftentimes contributes to greater poverty and income inequality.
History shows us that socialism has never worked and will never work well.
Cuba—a socialist country located only 90 miles south of Florida—first embraced socialism over 60 years ago under Fidel Castro. Cubans yielded enormous liberties to Castro’s government in exchange for promises of a better life. As Cuba now grapples with shortages of COVID-19 vaccinations, food, and other critical supplies, even President Biden recently denounced Cuba and its economic system as a failure.
Despite the growing disdain for capitalism in the United States, data from the Economic Freedom of the World report confirms that capitalist, free-market policies lead to the greatest prosperity.
Greater economic freedom under capitalism provides for a more robust economy and a well-functioning price system that yields higher life expectancies, higher incomes, greater per-capita GDP, and less poverty. And capitalism is also morally superior to socialism as it empowers people to make decisions that meet their needs rather than being told what to do through subjective determinations from elite politicians. Furthermore, socialism requires the immoral violation of personal property rights and individual freedoms.
Government is not intended to dictate the lives of each individual, nor it is it supposed to control a society’s factors of production.
As former President Trump said, “America will never be a socialist county.” Socialism did not make America great, nor will it provide for a more perfect union. While we’ve moved further toward socialism in many sectors of our economy, which explains their poor outcomes, Americans should appreciate the many benefits of capitalism so that we can right the course toward more human flourishing.
The economic policies of the Biden administration—Bidenomics—is conspicuously marked by lofty rhetoric, grand promises, and the best of intentions. It espouses helping the poorest among us, along with amorphous but attractive values like “fairness.” But the results of these policies do not live up to their intentions. Here are just a few examples.
The American Relief Plan does not provide relief for Americans. Instead, it threatens states’ sovereignty and prevents Americans from receiving tax relief.
The American Jobs Plan does not create jobs, but green-energy flimflams. It stifles real job creation through perverse incentives and burdensome regulations. The expansion of unemployment payments is contributing to 6 million fewer jobs, because many people are making more on unemployment than they did while working.
The American Family Plan does not strengthen families, but government dependency. It weakens families by making people reliant on federal programs instead of each other. It also provides health care subsidies without accounting for income, meaning that the very wealthy can receive taxpayer-subsidized health insurance.
The idea of fairness has taken a conspicuous role in the current administration’s agenda, yet its proposed tax changes will result in lower wages, fewer jobs, and less savings, burdens which will fall disproportionately on low-income households.
Inside this Trojan Horse of fairness, Bidenomics seeks higher marginal tax rates on wages, dividends, and corporate income, along with higher death taxes, taxes on unrealized capital gains, taxes on retirement savings, and more.
Infrastructure is a key pillar of Bidenomics, but not the infrastructure you’re probably thinking of. The administration’s proposal allocates only a few percent of its infrastructure dollars to roads, bridges, electrical grids, water and sewer mains, etc. It pours money into green-energy boondoggles, and even seeks to bulldoze highways in perfect condition if they are too close to minority neighborhoods, among other outlandish plans.
To pay for record-breaking spending, Bidenomics relies on funding from the federal reserve, a surefire way to produce inflation. Nothing in this life is free, and we are witnessing those trillions of dollars in government spending fuel rising prices. Inflation is decreasing real wages, particularly among low- and moderate-income households. The very people whom these policies are supposed to help are instead being undermined economically.
If these policies worked only half as well as the names of the bills imply, economic growth would be breaking records, and no one would remain in poverty. Instead, these policies are holding back the recovery like a choke collar, and welfare rolls are swelling. Real private GDP is still about $200 billion below Q4-2019 levels, despite pouring previously unimagined quantities of money into the economy.
We should not be surprised by these results; the policies of Bidenomics—higher marginal tax rates, more government spending and regulation, excessive money creation—have been tried before and found wanting. Nevertheless, many so-called experts continue to push this agenda.
The experts were expecting almost a million jobs in the last jobs report, but we saw only a quarter of that. The experts were expecting 3.6% inflation, but we saw 4.2%. The experts were expecting Keynesianism to revive the economy, but we are seeing the economy sputter. When it comes to Bidenomics, the experts seem to be always wrong but never in doubt.
An activist in economist’s clothing favorably characterized Bidenomics as “heads down, block out the noise, deliver timely help to the American people.” They have their “heads down” alright—like an ostrich with its head in the sand, oblivious to empirical evidence all around. And what is characterized as “noise” is not irrelevant distraction, but the practical feedback that should inform policy decisions. Lastly, the “timely help” is late to the game, with funds allocated in March not actually being spent or sent out to Americans until July.
It is reminiscent of the funding for “shovel-ready jobs” described in the 2009 rescue packages. Even former President Obama admitted that the funds he authorized took years to be spent, arriving far too late to achieve their stated objective.
While some economic policies, good and bad, take years to bear fruit, we are seeing the effects of Bidenomics sooner rather than later. Those effects do not at all match the goals and intentions of the policies, so we must judge according to effects, not the intentions. As the aphorism says, you shall know a tree by its fruit.
To learn more about Bidenomics, click here.
Many Americans are recovering after the economic collapse that began in March due to the COVID-19 pandemic and shutdowns by state and local governments.
While the strength of that recovery has weakened, a sound policy approach will help support a safe, expedited, and less debt-riddled rebound so Americans have more opportunities to prosper.
We at the Texas Public Policy Foundation are saddened to learn of the passing of economist Walter E. Williams.
“Walter Williams’s journey from the projects of Philadelphia to a professorship in economics at George Mason University—and becoming one of the most recognized and respected conservative voices of our time—was remarkable,” said TPPF Executive Director Kevin Roberts. “His great gift was communicating complex economic principles in everyday language. Always a cheerful combatant—yet one who would ‘Suffer No Fools,’ as the title of a documentary about him pointed out—Walter was an effective advocate for freedom.”
“There are few people who so eloquently explained how people can prosper—given scarce resources and limited government involvement—than the free market economist Walter Williams,” said TPPF Chief Economist Vance Ginn. “It was a pleasure to read and learn from his many academic publications, commentaries, and books over the years. While it’s a day to mourn his loss, let’s also celebrate his many gifts to us and continue to build on them, so that every person has the best chance to thrive in life—like he did.”
Could you have imagined, just a few short months ago when we had one of the best U.S. economies on record, that we would be facing one of the worst today?
It’s difficult to do.
But the disruptions caused by fear of COVID-19 and the shutdowns ordered by state and local governments have dramatically changed our lives — so much so that it’s difficult for many to have hope in a prosperous future. This recession should be called the Great Disruption.
But we can look to that roaring economic situation in February for guidance in finding the path to increasing our freedoms and flourishing now, no matter the circumstance.
This begins with responsibly ending the shutdowns ASAP.
We should look at the data and understand there is still a need to protect our vulnerable populations — but our kids should get back to school and us healthy adults should get back to work.
We take on risk every day, and even the shutdowns aren’t without risk. The data keep pouring in, demonstrating that in this case, the cure has been worse than the disease.
Researchers from top institutions looked at the data on fatalities related to COVID-19 and those losses of life from unemployment and missed health care due to the shutdowns. What they find is startling: “the disease has been responsible for 800,000 lost years of life so far” while the lockdowns are responsible for a conservative estimate of “at least 700,000 lost years of life every month, or about 1.5 million so far.”
In other words, the costs of the shutdowns on lost life-years is almost double that from COVID-19.
The value of life is hard to measure because each one is beautiful. That’s why it’s disturbing that the deaths from issues related to the shutdowns seem to be far exceeding those directly related to the disease.
Economist Casey Mulligan, who is a Professor at the University of Chicago and was recently the Chief Economist at the White House’s Council of Economic Advisers, has been tracking the daily cumulative costs of the COVID-19 pandemic at pandemiccosts.com.
Mulligan notes that these costs were at least $1.3 trillion in total, or $10,954 per household through May 22. This includes mortality costs and market and nonmarket costs of shutting down the economy.
And this is just through May 22.
Consider the lost economic output on an annualized basis of -5 percent in the first quarter of 2020 and of a projected record -40 percent in the second. Compare this with the growth we could have had if pro-growth policies in President Trump’s budget that I helped craft had been implemented, and that’s roughly $2 trillion in lost prosperity.
If you add the more than $9 trillion Congress has approved in financial assistance packages, then you’re talking about nearly half of the economy being redistributed in some capacity — in a very short period.
This is certainly the greatest disruption ever and the swiftest redistribution ever — both of which will cause massive distortions throughout our livelihoods, including for future generations, and will need to be corrected soon.
And now, states are asking for more federal bailouts (when they’ve already been authorized to get about $1 trillion).
Bailouts will only enable blue states to extend their costly shutdowns and continue their poor fiscal policies, which long predate the pandemic. Yet House Democrats are prepared to grant the states’ requests, as they have passed another $1 trillion in state bailouts in the HEROES Act.
We must not let this happen.
Let’s not let this COVID-19 crisis go to waste, though. Let’s learn from our mistake — shutting down the economy is a cure clearly worse than the disease.
What should the path forward look like? Responsibility, not restrictions. Social distancing, not shutdowns. And governments and civil society must be better prepared for major costly events.
After ending the shutdowns, a way to ensure this is by passing the Workplace Recovery Act.
This Act would direct federal funds to assist any business that experienced losses due to the shutdowns out of their control. It would provide the operating cash businesses need to survive and employ workers. And while I’d prefer not one more dime be authorized, this proposal would work as a targeted automatic stabilizer until normality returns where businesses hire workers to not waste taxpayer money.
And if there’s a double-dip recession caused by shutdowns due to another wave of COVID-19, then Congress doesn’t need to pass more massive spending bills that bankrupt future generations. The WRA isn’t a silver bullet, but it will help give Americans confidence that no other legislation yet has.
We’ve had a natural experiment on how to deal with a pandemic. There were the best of intentions. But as Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
The results show we have much to learn, but an important one is governments should never shutdown our freedoms again.
Vance Ginn, Ph.D., is Chief Economist at the Texas Public Policy Foundation in Austin, Texas. He is the former Associate Director for Economic Policy of the Office of Management and Budget at the Executive Office of the President.
In this Let People Prosper episode, we discuss the key elements of real property tax cuts (slower growth rates and lasting tax reductions), movement afoot to eliminate civil asset forfeiture, and potential expansions in local liberty that are being discussed at the Texas Legislature. As we get closer to the end of session, these are critical aspects that you don't want to miss.
The latest BLS state-level jobs report for February shows that Texas continues to lead the way in job creation for the last 12 months and keeps the state's near record low unemployment rate of 3.8%. Here's the statement by the Texas Workforce Commission.
The presentation below provides an overview of Texas’ economic, labor market, and fiscal situation while also comparing Texas with other large states. There are also policy recommendations to strengthen the Texas Model of limited government so that it can foster more individual liberty and economic prosperity.
My prior research on how institutions matter takes a deeper dive into these figures. I recommend reading it along with watching my vlog on the subject. To summarize, Texas should increase economic freedom by eliminating unnecessary government barriers to competition to let people prosper.
Watch my explanation of previous state-level labor reports and other videos at my YouTube channel: Vance Ginn Economics.
In this Let People Prosper episode, James Quintero, Dr. Derek Cohen, and I discuss today's release of reports on the U.S. and Texas jobs picture, movement on annexation reform (HB 347), and various issues related to criminal justice reforms (HB 63). Find more of TPPF's work at www.txlegehub.com.
In this Let People Prosper episode 75, Chance Weldon of TPPF's Center for the American Future joins James Quintero and me to discuss today's Supreme Court ruling that's a win for people and for TPPF. James discusses his recent testimony before the Texas House Public Education Committee in support of House Bill 134 that increases bond transparency. I discuss my recent testimony before the Texas House Ways & Means Committee at the 45-minute mark here (written testimony) on ways to strengthen the Texas Model.
Amazon Favoritism Problem, TX Property Tax Update, & Committee Org Meetings: Let People Prosper Ep 74
In this Let People Prosper episode, James Quintero, Derek Cohen, and I discuss key topics this week for Current Events Friday.
More to come on Monday. #LetPeopleProsper
It's Current Events Friday!
In this Let People Prosper episode 72, James Quintero, Dr. Derek Cohen, and I discuss this week's current events. The big stories this week are Governor Abbott's State of the State, President Trump's State of the Union, and property tax hearing held by the Texas Senate Committee on Property Taxes. We dive into each of these issues to consider which government actions preserve liberty and which ones don't.
Regarding property taxes, there's some hope in sight! Senate Bill 2 could provide historic property tax reform (read my written testimony and watch testimony at time 1:13:10) that would put in place a 2.5% property tax revenue rate that would trigger an automatic election in November for a local government that wanted to increase their revenue above that point. This reform is an essential element for any property tax relief of lowering property tax bills like TPPF’s plan to eliminate the school M&O property tax over time by slowing spending growth.
In this Let People Prosper episode 69, I sit down with James Quintero, director of the Think Local Liberty project, and Dr. Derek Cohen, director of the Right On Crime project, to discuss the Texas budget, ban-the-box, and annexation.
You don't want to miss this first episode of many where we'll address a number of good, bad, and pretty good bills that influence our prosperity throughout session while giving you a heads up on which bills will be heard in committee so you can make your voice heard.
In this episode we discuss the state's recommended budgets by the House and Senate and how they compare with the Conservative Texas Budget, bad bill of HB 495 related to criminal history, and a prosperity-enhancing bill of HB 347 related to annexation that builds on passage of SB 6 during the 2017 special session.
In this Let People Prosper episode 67, let's discuss the importance of sustaining and improving the Texas Model of no personal income tax, relatively low taxes, relatively less government spending, and sensible regulation that allow entrepreneurs opportunities not available elsewhere. This can be boiled down to: Institutions Matter. Let's recall previous discussions highlighting these key points while noting how Texas led the way in job creation again in 2018.
In this Let People Prosper episode, I am interviewed by Liz Wheeler on her show the Tipping Point on One America News.
We discuss the high cost of deficits and debt and the need for government spending relief along with the latest farm bill which continues the expansion of welfare.
In this Let People Prosper episode 57, let's discuss the following: 1) latest news on the stock market volatility from uncertainty regarding international trade and the Federal Reserve actions; 2) my latest co-authored piece at the Dallas Morning News on the economic freedom of Buc-ees and what could be done to increase prosperity; and 3) what's next for Texas' rainy day fund.
In this Let People Prosper episode, let's discuss my recent trip to Washington D.C., where I spoke at the American Legislative Exchange Council's meetings about the importance of institutions and did an interview with Freedomworks, and then discussed the federal budget with Russ Vought, who is the Deputy Director of the White House's Office of Management and Budget.
Let's also discuss the latest economic reports about the continued strength of the U.S. economy in terms of GDP growth and personal income, and examine trade issues being discussed at the G-20 Summit.
Below are a few pictures from my recent trip to D.C.
Below is the file for my presentation before the American Legislative Exchange Conference's Fiscal Policy Reform Working Group in Washington, D.C. This presentation is based on my TPPF research paper titled "Do Institutions Matter for Prosperity in Texas and Beyond."
I've also provided a more in-depth presentation in this episode of my YouTube series "Let People Prosper" at the channel "Vance Ginn Economics."
Eliminating Property Taxes in Texas Starts With Limiting Government Spending: Let People Prosper Episode 53
In this Let People Prosper episode, let's discuss one of the things that's on most Texans' mind: property taxes. I recently testified before the Texas Commission on Public School Finance's Revenue Workgroup on the problem and solutions to wretched property taxes in Texas. Here's my written testimony and you can watch my oral testimony at time 59:45 here.
Texas’ property tax system has turned property owners into renters, where government is their landlord and Texans who struggle to pay annual tax bills face confiscation of their properties. Additionally, the growth of government is harming taxpayers and the economy through higher taxes and more regulation.
The goal must be to eliminate all property taxes as they violate property rights, destroy economic growth, and disproportionately hurt the poor while being subjectively determined as they support excessive local government spending. A good place to start down that road is by ending nearly half of the property tax burden in Texas through the elimination of the school maintenance and operations (M&O) property tax, which is supported by the 18 groups in the Conservative Texas Budget Coalition. This is relatively easier than other local tax jurisdiction because the state already determines the school finance formulas and has a way to distribute funds to school districts.
First, we must identify the problem.
From 1996 to 2016, total property taxes across the state have increased by 233% while the school portion of the property tax increased by 201%. Personal income has increased by 199%; however, the best metric of the average Texan's ability to pay taxes is measured by the compounded growth of population plus inflation for that period, which was only 123%. This means that the total tax levy increased by 1.9 times more than pop+inf and the school district tax levy increased by 1.6 times more than the average Texan's ability to pay.
It's no wonder that many people are being forced out of their homes and businesses because of skyrocketing property taxes. This is a travesty what government is doing to people who are trying to leave a legacy for their kids and grandkids.
This points to the disease of the symptom of high taxes: excessive government spending. Taxes (and deficits) are always and everywhere a spending problem. To gain control of skyrocketing taxes, we must first get control of the driver of the problem in excessive government spending.
This brings us to a solution: By limiting state and local government spending, Texas can use taxpayer dollars collected at the state level to eliminate the school maintenance and operations (M&O) property tax, which is nearly half of the property tax burden, very soon. While other options have been tried in the past, like raising the homestead exemption and swapping the property tax with a reformed franchise tax ("margins tax"), those didn't permanently reduce property taxes--making those attempts a failure in the eyes of most taxpayers.
Fortunately, there are solutions.
One option is to permanently buy down the school M&O property tax with state surplus dollars until it is eliminated. Here's how:
Another option is to replace the school M&O property tax by broadening the sales tax base and limiting state and local government spending. Here's how that could work:
Clearly there is no silver bullet. This will be a difficult hill to climb whichever option is chosen.
Recently, two economists from Rice University estimated that if the buy down option or the swap option over time was chosen, the Texas economy could expand by about $12.5 billion above expected growth and private sector job creation could increase by 183,000 net jobs above expected growth soon after reform.
The Texas Model is strong, but there's more that must be done. These options would provide a clear path to more prosperity and less of a burden of holding property until you can finally own it when property taxes are eliminated entirely.
In this Let People Prosper episode, let's discuss how the recent election gives us insight on how we need more civil discourse to find ways to strengthen institutions so people can flourish.
My recent paper on how institutions matter provides a good overview of what I discuss in this episode along with economic data to support the theory. Here is a graphic that explains rather well the ecology of human development.
The data provide overwhelming evidence that the Texas Model of inclusive institutions with a relatively low tax-and-spend burden, no individual income tax, and sensible regulation provides an institutional framework supporting more job growth, higher wages, lower income inequality, and less poverty than in comparable states and the U.S., in most cases. Texas is doing something right. Other states and D.C. would be wise to consider adopting Texas’ inclusive economic and political institutions that champion individual liberty, free enterprise, and personal responsibility.
This is a path to providing an economic environment that allows entrepreneurs the greatest opportunity to thrive and for prosperity to be generated for the greatest number of people. Despite this success, improvements are needed to keep the Texas Model competitive and create even more opportunities for all to flourish. These improvements to Texas’ institutional framework include:
• limiting the growth in government spending,
• eliminating the state’s onerous business franchise tax,
• reducing barriers to international trade,
• reducing the escalating burden of property taxes, and
• relieving Texans from burdensome occupational licenses.
Even with these improvements, the data overwhelmingly show it was not a miracle in Texas, but rather abundant prosperity generated by Texans from a proven institutional framework called the Texas Model.
By strengthening institutions to let people prosper, we can also engage in more civil discourse so that we have many opportunities to work together.
In this Let People Prosper episode, let's discuss Nobel prize-winning economist Paul Krugman's recent concern about the $779 billion budget deficit in FY 2018 under President Trump. Unfortunately, he wasn't worried about the 4 years of more than $1 trillion in deficits under President Obama and he in fact wanted even higher deficit spending. This episode provides a lesson in economics on the aggregate demand-aggregate supply model of how these policies should work in theory but how this mainstream view misses a lot that actually results in my preferred mainstream view of how the economy actually works and the burden higher government spending and resulting deficits put on economic activity and our prosperity.
Last Friday the Bureau of Economic Analysis reported that there was an increase of 3.5% in real GDP growth in the third quarter of 2018, indicated that 2018 may be above 3% growth for the first time in more than a decade. This issue along with the rising deficit gave rise to Krugman's tweet below.
Here's what Krugman tweeted: "Reaction to the GDP numbers: quarterly growth rates don't mean much. For one thing they fluctuate a lot -- e.g. rapid growth in 2014, signifying little. For another, you can always juice the numbers for a few quarters by running big deficits. What about the long term"?
Here was my tweeted response to his tweet that received a lot of attention: "Who is this @paulkrugman who wasn’t worried about budget deficits during #Obama’s 4 years of more than $1 TR deficit but is worried about #Trump’s $779 B? Recall #Krugman was in favor of LARGER deficit spending to “stimulate” the economy under #Obama. Principles matter."
I recommend going to my tweeted response and viewing the comments and discussion. It was a rather lively discussion with some good info in there along the way, but much of it was just noise.
This recent WSJ opinion piece by Nobel prize-winning economist Edmund Phelps explains the fantasy of fiscal stimulus quite well along with the nice figure below that shows stimulus doesn't correlate with faster economic growth.
What we really need for more prosperity is a government that simply sets the rules of the game such that the institutional framework allows for civil society to flourish along with the resulting prosperity for people. Government under presidents of each main party have fallen victim to the "stimulus" argument when in fact it should be about providing the most pro-growth economic environment while running balanced budgets. A good model would be to look at Texas.
OPINION: CALIFORNIA IS A FAILED MODEL NO MATTER HOW YOU LOOK AT IT
Vance Ginn and Elliott Raia | Director and Research Associate, Center for Economic Prosperity
When you have to begin an argument with “depending on how you look at it,” you’re not arguing from a strong position. Yet such has become the answer to the question of, “Is California a good role model?” posed recently in The New York Times.
Even its defenders say California’s prosperity is relative. The good news is that those seeking more concrete progress need only to look to the state that inspired the lone star in the upper-left corner of the Golden State’s flag: Texas.
While the Texas Model of limited government needs improving, it has already proven to be a more sustainable catalyst for job creation and economic prosperity than in California.
Although the idea of limited government may be foreign to many Californians, the Texas Model embraces the principle of reengaging institutions such as family, community, and free markets — institutions that are often undermined by an over-burdensome state.
This is not to say the government has no place in Texas; it does. Nor is this to say that those who have fallen through the cracks don’t deserve help in their times of need; they do.
Rather, the model revives the notion that government’s primary responsibility is to preserve the liberties of families and individuals, instead of attempting to supplant them. In the case of Texas, this also means allowing employers to operate with freedom and without onerous regulation.
The outcome of Texas’ limited government approach is empirically clear. In creating jobs, no one messes with Texas as one in four jobs added nationwide were created in the Lone Star State in the last decade since the Great Recession.
But it’s an even longer period of prosperity. Consider that the average unemployment (U3) rate since 2000 was 5.8 percent in Texas compared with 7.7 percent in California and 6.4 percent nationwide.
Perhaps more telling of the complete picture is the average underutilization(U6) rate, which includes the unemployed, underemployed, and discouraged workers. Given the data available since 2003, Texas averaged 10.5 percent while California averaged 14.3 percent and the United States averaged 11.6 percent.
And poverty is lower in Texas. The Census Bureau’s supplemental poverty index that adjusts for regional costs of living differences and government transfer payments places California’s 19 percent poverty rate the highest nationwide whereas Texas’ rate of 14.7 percent is near the U.S. average of 14.1 percent.
With a relatively light tax burden on employers in Texas compared with California, Texas’ employers have the freedom to innovate and grow. Although the current level of taxation is a stark departure from West Coast philosophy, Texans already see where improvement can be made as efforts to corral skyrocketing property taxes are underway to maintain their economic canter.
While taxes play a role in overall government intrusion, burdensome regulations do, too. The Texas Model, while still not free of all unnecessary regulation and corporate welfare, places more faith and decision-making in markets, where individuals — not politicians — decide the best way to satisfy their desires.
Consider the energy industry in Texas.
While the state has yet to completely eliminate its wind subsidies, it has, in general, taken a more moderated position on industry regulation than the California model. Instead of coercing consumers towards a source of energy favored by bureaucrats and politicians, Texas strengthens its power generation, reliability and cost efficiency by allowing consumers to access a wide energy portfolio.
As a result, Texans pay half the price for their electricity than their Californian counterparts, while also not having to contend with potential rolling blackouts whenever the sun doesn’t shine and the wind doesn’t blow.
While energy is just one example, the California Model’s policies highlight why the state has nearly 20 percent of its population in poverty. No matter how well-intentioned, when government entangles itself in the lives of individuals and tries to supersede other institutions that may be more effective, tribulation soon follows.
Will the nation follow California down a road to serfdom, or, more recently, follow Texas down a road to liberty? That question remains undecided.
But if the mass migration of individuals and businesses out of California and into Texas is any indication, the trend is clear that institutions matter. When institutions in civil society are strengthened by limiting government, people prosper.
Vance Ginn, Ph.D., is director of the Center for Economic Prosperity and senior economist. Elliott Raia is a research associate. Both work at the Texas Public Policy Foundation. Read the Foundation’s latest report for more.
Vance Ginn, Ph.D.