Don’t Blame American Express for the Plight of the Poor

By Diego Zuluaga of Cato.

"Yesterday, the Supreme Court ruled that credit card provider American Express’ long-standing policy of including anti-“steering” clauses in its contracts with merchants was not anti-competitive.

Steering is the practice whereby merchants discourage customers from paying with comparably high-cost cards like Amex and to use Visa or Mastercard instead. Importantly, anti-steering agreements do not limit merchants’ ability to favor debit cards or cash in their dealings with customers. The majority opinion, drafted by Justice Clarence Thomas, argues that there was no evidence of consumer harm in the form of higher prices or reduced output as a result of Amex’ anti-steering requirements.

The Court notes that the credit-card market is a market for transaction services and is two-sided, involving two distinct and interdependent sets of customers: merchants (who sell goods and pay fees to credit-card providers) and buyers (who use credit cards to pay for merchants’ goods).

Two-sided markets require a somewhat more sophisticated analysis in antitrust cases because of the interdependence of each side. For example, in a one-sided market, increasing merchant fees might be regarded as evidence of an abuse of monopoly power. In a two-sided market, such a fee increase can in fact be pro-competitive if it leads credit-card providers to offer better service to the other side of the market (buyers) thus increasing their purchases from merchants.

The peculiarities of two-sided markets have been noted by a long line of economists, including the 2014 Nobel Prize laureate Jean Tirole. His analysis, among others, was cited by Justice Thomas in his opinion.

Indeed, the evidence suggests that competition in the credit-card market is thriving. Take-up of cards has boomed since the 1970s. There is an endless variety of offerings among the various providers, with different (or no) annual charges, a diverse menu of rewards programs, and of course a range of interest rates on outstanding balances. In March, Amex in fact announced that it would cut its merchant fees to better compete with lower-cost providers. Since 2004, Amex fees have dropped by 10 percent.

However, even allowing that anti-steering agreements are not anti-competitive, could it be true nonetheless that anti-steering agreements hurt particular groups of consumers? Brookings’ Aaron Klein thinks so. In a piece published in the wake of yesterday’s ruling, he argues that “[the U.S.] payment system […] rewards the wealthy while penalizing the poor” and “functions as a hidden method of increasing income inequality.”

Klein’s argument is that anti-steering agreements lead merchants to increase prices. But because only Amex cardholders secure the countervailing benefits –  in the form of rewards programs and an increased ability to use their cards in daily purchases – and because Amex cardholder incomes tend to be higher than average, there is a regressive impact on lower-income households. They get the higher prices induced by Amex fees but cannot share in the benefits.

Leave aside for a moment that anti-steering agreements, as Justice Thomas observed, only apply to credit cards and not to other forms of payment, which means that merchants can in fact price-discriminate by setting minimum purchase thresholds and surcharges for using credit cards (as many do). Even ignoring this possibility, which Klein leaves unacknowledged, his claim of regressivity is not as straightforward as might at first be apparent, for several reasons.

1. Merchants’ decision to sign anti-steering agreements is voluntary.

Merchants do not forcibly sign anti-steering agreements with Amex. They only do so if they believe it is in their benefit to accept Amex cardholders, which is a function, first, of the fees charged by Amex compared to other card networks, and, second, of the share of purchases paid for with Amex cards which would not happen if the merchants refused to take Amex.

The emphasis is important because many cardholders multi-home, meaning that they hold Visa or Mastercard as well as Amex for instances in which one might not be accepted. My dry cleaner does not take Amex but that has not yet deprived her of my custom.

Thus, merchants will only agree to the anti-steering conditions if the income earned from Amex purchases which could not otherwise be earned exceeds the cost of higher Amex fees. Many merchants will find accepting Amex worthwhile, but some will not. Indeed, there are still many outlets where all credit cards but Amex (and possibly Discover) are accepted.

In a competitive market with many providers and low switching and search costs (all of which broadly characterize most American retail markets), merchants will ask for the same price, adjusted for convenience factors such as the acceptance of Amex cards. Those who buy at Amex-positive outlets will pay a premium for it, while those who forgo the opportunity to buy with Amex can opt for other providers, who – other things being equal – will offer lower prices.

2. Amex cardholders and non-cardholders are different people, buying different things.

As Klein’s piece notes, lower-income households tend to have fewer credit card options, if any, than higher-income households. But to infer that the worse-off are therefore subsidizing the better-off because all pay the same price, but only cardholders get the rewards, is one simplification too many.
Households with different incomes differ not only in their likelihood of holding an Amex card, but also in the kinds of stores they patronize and the kinds of products they buy. This means that merchants have some means to make Amex cardholders internalize the price externality they would otherwise impose on non-cardholders, by passing on the Amex fees mainly, or exclusively, to those products that Amex cardholders buy.

Any pass-through will be crude because there is always overlap between the products bought by each of the two groups, but the homogeneous price increase for all customers posited by Klein is unlikely to reflect merchants’ reaction in practice.

3. There may be progressive redistribution among Amex cardholders.

Klein objects to the supposedly regressive impact of anti-steering agreements on those who do not hold Amex cards. But the existence of Amex rewards programs made possible by the anti-steering rules may be progressive, that is, it may redistribute benefits from higher-income to lower-income cardholders.

To see how this can be the case, consider that Amex cards tend to come with a “welcome bonus” involving, usually, a disproportionate amount of rewards (air miles, or gas points, or something else) for the first $1,000 spent on the card. These rewards are presumably as costly for Amex to give as any other rewards, so that the welcome gift must be subsidized from Amex’ ongoing business. The more households spend on their card above and beyond the first $1,000, the more they are subsidizing other cardholders. Furthermore, because card expenditure is broadly correlated with income, it is plausible that higher-income cardholders subsidize lower-income cardholders, for whom the first $1,000 are a bigger share of lifetime card expenditure.

This redistribution would offset the regressivity of steering restrictions on other buyers, to the extent there is any.

4. Innovation depends on a share of initial customers’ paying higher prices.

Innovations are always costlier at first. F.A. Hayek noted in The Constitution of Liberty that, without intending it, the rich who can afford new innovations help to make them progressively more accessible by encouraging investment and competition in the provision of the innovative good or service. From the personal computer to the smartphone to the transatlantic passenger flight, modern life is rich with examples of such gradual expansion in people’s access to new goods and services.
Credit cards are no exception. Justice Thomas noted that, since the 1950s when credit cards were first introduced, merchant fees have dropped by more than half. Because of the network effects characteristic of two-sided markets, every decrease in fees has likely disproportionately increased the amount of merchants accepting cards and the number of cardholders. The result is higher welfare for all and more widely shared affluence.

But this virtuous cycle depends on the ability of competitors to offer different price and quality options to prospective customers. Amex’ business model of higher merchant fees in exchange for more generous rewards programs is one form that such competition can take.

Klein concludes his piece by noting that financial technology can resolve the “inefficiencies of the current payment system [which] cry out for new financial technological solutions.” In this he is doubtless correct, if the history of financial innovation is anything to go by. Yet, to blame American Express for the remaining imperfections in the payment system would not just be wrong — it would be counterproductive."

U.S. Maritime Sector Among the Jones Act’s Biggest Victims

By Colin Grabow of Cato.

"Monday of this week marked the Day of the Seafarer, an occasion meant to recognize the critical role played by mariners in the global economy. American seafarers, however, increasingly find little to celebrate. A large source of their travails is the Jones Act. Signed into law 98 years ago this month, the law mandates that cargo transported between two domestic ports be carried on ships that are U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-crewed.

The harm caused by this law is well documented. By reducing competition from foreign shipping options and mandating the use of domestically built ships that are vastly more expensive than those constructed elsewhere, the Jones Act has raised transportation costs and served as a de facto tax on the economy.

Too often overlooked is that the Jones Act has also presided over the decimation of the U.S. maritime sector, the very industry whose fortunes it was meant to promote (an age-old story in the annals of protectionism). The numbers speak for themselves. Since 2000 the number of oceangoing vessels of at least 1,000 tons which meet the Jones Act’s requirements has shrunk from 193 to 99. A mere three U.S. shipyards are capable of producing oceangoing vessels for commercial shipping, and one of them, the Philly Shipyard, is facing a possible shutdown. Europe, in contrast, has roughly 60 major shipyards capable of building vessels of at least 150 meters in length, while the United States has a total of seven such shipyards when those producing military vessels are included.

Both the declining number of Jones Act ships and the struggles of the shipyards that build them are in large part explained by the vastly inflated cost of ships constructed in the United States. According to the Congressional Research Service, American-built coastal and feeder ships—the types of ships commonly used in domestic sea transport—cost between $190 and $250 million, whereas similar vessels constructed in a foreign shipyard cost about $30 million.

One unsurprising consequence of such stratospheric costs is a reluctance on the part of domestic shipping firms to invest in new ships, with U.S. seafarers forced to work aboard vessels that are significantly older than those found in other countries. Excluding tankers (these vessels were subject to a requirement in the wake of the Exxon Valdez oil spill that they be double-hulled by 2015, thus encouraging the purchase of new ships and decreasing their average age), the Jones Act fleet averages 30 years of age—fully 11 years older than the average age of a ship in the merchant fleet of other developed countries. For context, the maximum economic life of a ship in the world market is typically 20 years.

International comparisons of specific ship types are even more eye-opening. Jones Act containerships, for example, average more than 30 years old. The international average is 11.5. The only two bulk ships in the Jones Act fleet average 38 years old, while the international average is 8.8. General cargo ships average 34 years of age compared to an international average of 25.2.

Struggling shipyards, a dwindling fleet of old ships, and fewer jobs are now the order of the day in the maritime sector. As Mark H. Buzby, head of the U.S. Maritime Administration, testified before Congress earlier this year, “over the last few decades, the U.S. maritime industry has suffered losses as companies, ships, and jobs moved overseas.” Also addressing members of Congress, one senior union official admitted that “the pool of licensed and unlicensed mariners has shrunk to a critical level.”

This is not a new story. During Operations Desert Shield and Desert Storm, the United States was so desperate for civilian mariners to crew transport vessels that it enlisted the services of two octogenarians and one 92-year-old. Its search for ships was equally frantic, resulting in two requests to borrow a ship from the Soviet Union—and two rejections. Notably, during this conflict a much larger share of U.S. military equipment and supplies was carried by foreign-flagged vessels (26.6 percent) than U.S.-flagged commercial vessels (12.7 percent).

Supporters of the Jones Act often claim the law is vital to assure a strong merchant marine capable of answering the country’s call in times of war or national emergency. Should the Jones Act be repealed, they warn that the maritime industry will enter a dangerous downward spiral. But the record clearly shows that their nightmare scenario, in fact, describes the status quo. It’s time for this law to go, or be significantly reformed.

Toward that end the Cato Institute has unveiled its Project on Jones Act Reform, which will feature a series of policy papers exposing the fallacies and realities of this archaic law. This first of these policy analyses, The Jones Act: A Burden America Can No Longer Bear, is now available and provides an overview of the law, its history, and myriad shortcomings. More such policy analyses will follow both this year and next, along with other commentary pieces about this failed law, so be sure to check back for the latest updates."

The Level and Trend of Poverty in the United States, 1939-1979

By Christine Ross, Sheldon Danziger and Eugene Smolensky. Published in Demography, Vol. 24, No. 4 (Nov., 1987), pp. 587-600.

"Abstract

A detailed record of the number and characteristics of persons in poverty is available since 1959. This paper provides measures for 1939 and 1949 that correspond as closely as possible to the official poverty statistics. Poverty, as officially measured, fell from 40.5 percent of all persons in 1949 to 13.1 percent in 1979, declining most among the elderly and least among female-headed households. We estimate the effects on the aggregate poverty rate of changes between 1940 and 1980 in the distribution of the population by selected demographic characteristics of household heads and by the employment status of head and spouse. Some changes, such as the increasing proportion of two-earner families, were poverty reducing, whereas others were poverty increasing."

See also Poverty in the United States by Gwendolyn Mink & Alice M. O'Connor. Click here to see inside the book. If you click on the first picture, the numbers are clearer. Here is a table from their book:

Puerto Rico has been an example of the consequences of minimum wage laws

See FDR's 'fair labor standards' have been killing jobs in Puerto Rico and elsewhere for 80 years by Michael Farren of Mercatus Center at George Mason University. Excerpt:

"The commonwealth [Puerto Rico] offers a series of unhappy illustrations of how a minimum wage can destroy jobs by raising the cost of labor above its productive value, just as the economic theory suggests.

The first federal minimum wage was only 25 cents and affected less than 1 percent of the mainland U.S. workforce. But Puerto Rico’s lower wages meant that most jobs were covered by the new law. The second-largest industry on the island, home needlework, paid average wages of 3 to 4 cents per hour. Rather than operate at a loss due to unprofitable wages—because customers will only pay so much for the final product—employers curtailed the piecework they contracted out and needlework exports dropped by 75 percent in less than three years.  Poor Puerto Rican families were deprived of a critical source of income as the unintended consequence.

After realizing its mistake, Congress passed emergency legislation replacing the single federal minimum wage with local boards that established minimum wages for each industry, temporarily sparing Puerto Rican jobs from the worst of the bite of the minimum wage.

But history was to repeat itself in the 1950s. Mainland employers and garment unions complained about “unfair competition” from low-wage Puerto Ricans, and demanded that Puerto Rico’s minimum wages be raised. After the Minimum Wage Administration did indeed raise the minimum wage, home needlework employment again fell by over 75 percent on the island.

The minimum wage increases, combined with agricultural reform programs designed to push Puerto Rico’s economy more toward manufacturing, led to a large loss of jobs and subsequent massive outmigration to mainland cities like New York and Miami. Over the course of the decade, 10-20 percent of Puerto Ricans fled their home.

Unfortunately, Puerto Rico’s trouble with the FLSA wasn’t done yet. Amendments in 1974 repeated the FLSA’s initial mistake by gradually raising the local minimum wages until they met the level of the federal minimum wage. Because the average wage in Puerto Rico was only two-thirds of that in the mainland U.S., the federal minimum wage affected a much larger number of jobs there.

The result was an 8 to 10 percent decrease in Puerto Rico’s total employment, with low-wage industries losing up to 32 percent of jobs. This motivated another outmigration of Puerto Ricans, with government surveys reporting that 80 percent of migrants were specifically leaving to find employment elsewhere.

Unfortunately, Puerto Rico is far from the only example of how a minimum wage can destroy jobs.

Relatively few mainland jobs were directly impacted when the FLSA was first passed in 1938, but the large majority of those affected were in Southern manufacturing industries. The Department of Labor estimated that FLSA destroyed 30,000-50,000 jobs, mostly in the bagging, pecan shelling, and tobacco stemming industries.

Research by Andrew Seltzer, an economic historian at Royal Holloway, University of London, finds that the Southern seamless hosiery and lumber industries were also affected. The former decreased its demand for labor through increased mechanization—a key prediction of economic theory. Meanwhile, the higher cost of production meant the latter lost business to the more-industrialized, less labor-dependent northern lumber industry, another expected outcome.

More recently, Congress required that American Samoa and the Northern Mariana Islands gradually implement the 2007 FLSA amendment that raised the federal minimum wage to $7.25. These remote territories’ economies generally comprise low-wage jobs in the garment and fishing industries. Just as in Puerto Rico in the 1970s, implementing the federal minimum wage caused extreme hardship: The Government Accountability Office found that by 2012 total employment had dropped by 11 percent in American Samoa (after one of two tuna canneries closed) and by an eye-watering 45 percent in the Northern Mariana Islands (primarily due to  the “complete exodus” of garment factories)."

On the So-called “China Shock”

From Don Boudreaux.

Here’s a letter to the Washington Post:

Megan McArdle is correct that free traders have so far failed to convince the public of the merits of free trade (“How free-traders blew it,” June 27). However, she errs in pointing to the so-called “China shock” as real-world evidence against economists’ case for free trade.

The econometricians who advanced this thesis claim to have found that U.S. trade with China reduced overall employment in the U.S. by 2.4 million from 1999 through 2011. That’s an average net monthly job loss, over the span of those 13 years, of 15,385. Put this figure in perspective: each month in the U.S., since the end of the Great Recession, on average about 1.7 million non-farm jobs are destroyed. (Typically, even larger numbers of jobs are created, thus resulting in net monthly increases in total employment.) So even accepting the so-called “China shock” thesis on its face, U.S. trade with China was responsible for less than one percent of all job destruction. Most jobs are destroyed just as most jobs are created: by the ordinary churn of competitive, innovative markets, often having nothing much to do with international trade. Why would Americans calmly accept as a matter of course the economic forces responsible for 99 percent of all job destruction but become tormented and lured to populism by a force that is responsible for no more than one percent of job destruction?

Moreover, the vanishingly small size of the “China shock” figure combines with the fact that the time span covered by the study includes the Great Recession to suggest that it is impossible to conclude that trade with China is responsible for any net reduction in U.S. employment. Because non-China forces in the U.S. economy monthly destroy close to 1.7 million jobs – and also because during each typical month slightly more than 1.7 million jobs are created – there is simply no way that the “China shock” authors, regardless of their brilliance at using econometrics, can single out trade with China as being responsible for a net average monthly reduction, over the course of 13 years, of a mere 15,385 jobs.

It might well be that there are today 2.4 million fewer jobs in the U.S. than there would have been had employment trends up to 1999 held steady. But if so, it is impossible to credibly pin the blame on one force – trade with China – among the countless forces that regularly destroy and create jobs in the U.S. economy.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030"

 Cafe Hayek also posted an excerpt from an article by Veronique de Rugy.

"My intrepid Mercatus Center colleague Veronique de Rugy busts foundational myths about U.S. trade with China. A slice:

Also puzzling is the constant refrain about China producing more than it needs. Even if this overcapacity were a boon for China, it would still be to the benefit of millions of American consumers. It lowers costs for thousands of small U.S. manufacturers and steel consumers. But in reality, this “overproduction” is a tragedy for the Chinese people because their government’s subsidization of steel production inevitably diverts resources from other areas of the Chinese economy. I don’t hear Americans and Europeans complaining about all the stuff China isn’t producing because its government stupidly wants to produce a lot of steel. So the next time you encounter someone lamenting China’s overcapacity, shed a tear or two for the Chinese people and recognize that some American non-steel production might fall if (and when) Beijing stops diverting so many resources into Chinese steel factories."

The historical evidence in favor of free minds and free markets is there for everyone to see

See Data as History: Charting the Last 2000 Years of Progress by Marian L. Tupy of Cato.

"Angus Maddison, the late professor of economics at the University of Groningen, never won a Nobel Prize for economics, but he did leave behind an enduring legacy in the form of his income estimates going back to the time of Christ (or, for the secularly-inclined, Caesar Augustus). On a previous occasion, I discussed the graph below, which shows the painfully slow (almost non-existent) growth in average per capita incomes prior to the Industrial Revolution and the extraordinary growth that humanity has experienced over the last two-and-half centuries. Adjusted for inflation, an average inhabitant of the planet is today roughly ten times as rich as she or he was just two centuries ago.

Considering that Homo sapiens only emerged as a unique species of hominids some 200,000 years ago, our experience with prosperity is incredibly short, amounting to no more than 0.1 percent of our time on Earth. The remarkable novelty of our present abundance may, perhaps, explain our unease with it ("all good things must come to an end") and our eschatological obsessions ranging from overpopulation to out-of-control global warming.

Continued human progress does, of course, depend on maintaining policies, institutions and ideas (intellectual enlightenment, classical liberalism and free exchange) that made it possible in the first place.

I was reminded of that fact on the death of my grandfather who, having been born in 1922, frequently mused about the relative prosperity of his native Czechoslovakia between the wars. A life-long anti-communist (for decades, he was prevented from practicing law, because he married the wrong kind of a girl; no, not a prostitute, but the daughter of a wealthy family), he always maintained that Czechoslovakia could have been as wealthy as Austria "if it hadn't been for the Bolshevik putsch of 1948."

Maddison's remarkable data allows us to see such "what ifs" very clearly. Czechoslovakia emerged as an independent nation from the ruins of the Austro-Hungarian Empire following the conclusion of the Great War in 1918. In 1920, the country's per capita income was 80 percent of that of Austria (the industrialized Czech lands were probably as wealthy as Austria, but the average was brought down by rural and poorer Slovakia) and kept up with Austria until the early 1950s. During the communist period, Czechoslovakia fell far behind Austria. When communism fell, income in the former amounted to a mere 54 percent of the latter.

Similar comparisons can be made between North and South Korea, East and West Germany, Argentina and Chile, or Zimbabwe and Botswana. The historical evidence in favor of "free minds and free markets," is there for everyone to see. Unfortunately, evidence does not appear to be sufficient to prevent socialism's continued appeal, as witnessed by the humanitarian catastrophe unfolding in Venezuela or periodic outbreaks of stupidity on American campuses."

The effective marginal tax rate when a person moves from the bottom to the middle quintile is 76 percent

See An Effective Marginal Tax Rate by Greg Mankiw. 

"Interesting numbers from Phil Gramm and Robert B. Ekelund Jr.:

The bottom quintile earned 2.2% of all earned income in 2013, but after adjusting for taxes and transfer payments, its share of spendable income rose to 12.9%—six times its proportion of earnings. The second quintile’s share more than doubled, rising from 7% of earned income to 13.9% of spendable income. For the third quintile, middle-income Americans, the increase was much smaller, from 12.6% to 15.4%.

To put it another way, the effective marginal tax rate when a person moves from the bottom to the middle quintile is 1 - (15.4-12.9)/(12.6-2.2), or 76 percent."

Report Finds All European Union Countries Failing Paris Climate Targets

By Myron Ebell of CEI.

"CANEurope (Climate Action Network Europe) released a report this month that finds that all 28 member nations of the European Union are failing to meet the solemn obligations they undertook in ratifying the Paris climate treaty to reduce greenhouse gas emissions. 

The report begins: “The ranking shows that all EU countries are off target: they are failing to increase their climate action in line with the Paris Agreement goal. No single EU country is performing sufficiently in both ambition and progress in reducing carbon emissions. Countries can and must to do more to achieve the goals of the Paris Agreement.”

Sweden achieved the highest grade of 77%, with Portugal, France, the Netherlands, and Luxembourg scoring between 66 and 56. At the bottom of the rankings were Cyprus, Malta, Bulgaria, Estonia, Ireland, and Poland, which was dead last at only 16.   

Ironically, several of these EU members were among twenty-two countries that released a statement this week announcing that they “planned to lead from the front” by setting new, more ambitious goals to reduce emissions by 2020. According to Alister Doyle reporting for Reuters, the countries signing the statement included EU members Sweden, Germany, Britain, Denmark, Spain, and the Netherlands. Also signing were Argentina, Canada, Chile, Colombia, Costa Rica, Ethiopia, Fiji, Finland, Maldives, Marshall Islands, Mexico, Monaco, New Zealand, Norway, Rwanda, and Saint Lucia."

Stemming the demographic tide on U.S. entrepreneurship

By Steven Globerman and Jason Clemens of The Fraser Institute. 

"Entrepreneurship is part of the American DNA and broadly recognized as the basis for improved living standards through innovation and technological progress. Unfortunately policymakers in Washington and across the country, and average Americans more broadly, seem unaware of the decline in entrepreneurship over the past two decades and one of the causes of the decline—demographics.

Most Americans are aware that their population is aging. The effect of an aging population on entrepreneurship, however, is not generally understood. As a population ages, the share of the population best positioned to be successful entrepreneurs—individuals in their late-20s through to their early-40s—will shrink. People in this age group are key to entrepreneurship because they are willing to take risks to start businesses or develop new products, while also possessing business experience, which increases the likelihood of success.

The share of Americans between the ages of 30 and 39 has already declined by more than 17 per cent since the 1980s. It’s projected to decline by an additional 4.5 per cent by the 2040s. And small business startup rates, a key measure of entrepreneurship, declined by 18.6 per cent when comparing the six years (2001-07) before the Great Recession to the following six years (2008-14), the most recent data available.

The United States is not unique in experiencing both an aging population and declines in entrepreneurship, as measured by small business start-ups. For example, Canada experienced an 8.5 per cent decline over the same period while the United Kingdom suffered a 7.5 cent decline.
It’s also important to recognize that total factor productivity growth in many OECD countries, including the U.S., has declined along with the fall in entrepreneurship, highlighting the critical role of entrepreneurship as a driving force for economic progress.

There are obviously country-specific explanations for the declines in entrepreneurship across the OECD. However, the fact that all industrialized countries are experiencing population aging at the same time that entrepreneurship is declining points to the influence demographic changes exert on entrepreneurship.

Of course, governments can do very little to stem the aging of their populations, however, a number of policy levers exist that can improve entrepreneurial incentives and increase the chances of successful new business start-ups. A recent set of essays by leading scholars in the U.S., Canada and Europe explored a number of policy reforms to promote and improve entrepreneurship.

One of the central policy reforms suggested is tax relief—specifically, reductions in marginal tax rates for individuals and businesses and reductions (or even the elimination) of capital gains taxes. While the U.S. has taken steps in this direction over the last year with fairly sweeping tax reforms, more can be done. Namely, further rate reductions and the elimination of capital gains taxes would strengthen the incentives for people to start and grow businesses (i.e. take risks) and increase the availability of entrepreneurial capital.

Another key reform the U.S. has made progress on over the last year is reducing the amount and cost of regulations imposed on businesses to make it easier to start and operate businesses.

Changes to banking and financial regulations that would make it easier for entrepreneurs to access financial capital and policies encouraging increased immigration of professionals, skilled workers and those with entrepreneurial abilities, were both seen as additional reforms that could improve entrepreneurship.

Finally, in one of the more provocative essays, internationally-recognized economists Deirdre McCloskey and Art Carden explained the positive effects of a culture that values and promotes enterprise and entrepreneurship. The importance of their essay cannot be overstated given the pro-business nature of the current U.S. administration—at least when compared to countries such as Canada and in much of Europe.

The policy reforms explored in the essays to improve entrepreneurship apply to different countries in varying degrees. It’s clear, however, that all developed countries, including the U.S., face a long-term decline in entrepreneurship that is at least partially driven by demographics. Since demographic trends cannot be easily reversed, the U.S. and other countries must improve the environment in which entrepreneurs and businesses operate, to encourage more and better entrepreneurs. And while the U.S. has made gains in this area, more is clearly needed."

Now Even Swedes Are Questioning the Welfare State

Now Even Swedes Are Questioning the Welfare StateNationalists are gaining support as more people complain about the sustainability of the cradle-to-grave system.

By Amanda Billner, Rafaela Lindeberg and Niklas Magnusson of Bloomberg. Excerpts:

"Sweden is a nation in surplus and the government has still been raising taxes, with the top marginal rate now reaching 60 percent."

"Paying some of the world’s highest income-tax rates has been the cornerstone of Scandinavia’s social contract, with the political consensus in Sweden to save money for when the economy is less healthy. Yet the country is showing strains all too familiar in other parts of Europe with nationalists gaining support and Swedes increasingly questioning the sustainability of their fabled cradle-to-grave welfare system.

Resentment has built over the influx of more than 600,000 immigrants over the past five years, many from war-ravaged countries like Afghanistan and Syria, a huge number for a country of 10 million people."

"There are also soaring crime rates, gang violence, complaints about education and pregnant mothers even being turned away from maternity wards due to a lack of capacity. The number of people waiting longer than 90 days for an operation or specialist treatment has tripled over the past four years.

“The Swedish social contract needs to be reformed,” a dozen entrepreneurs including Nordea Bank AB Chairman Bjorn Wahlroos and Kreab Founder Peje Emilsson wrote in an op-ed in the Dagens Industri newspaper on May 31. “Despite high taxes, politics isn’t delivering its part of the contract in important areas. We get poor value for money.”"

"With elections due on Sept. 9, polls show a slump in support for the governing Social Democrats, in power since 2014, though an alliance of four other parties may be able to form a minority government.

But with immigration and healthcare topping surveys as the biggest issues facing the country, a party with neo-Nazi roots, the Sweden Democrats, has surged and may hamper any efforts to form a functioning government. In some polls, the Sweden Democrats have even overtaken the Social Democrats as the country’s biggest party, with backing from more than 25 percent of voters.

Sweden provides heavily subsidized health care, free education and more than a year of paid parental leave. If people get sick or lose their jobs, the premium they have paid into the welfare system via their taxes is returned in benefits.

Most Swedes are comfortable with what they pay and what they get, though a survey by pollster Demoskop published in February showed that the proportion of respondents who thought taxes were too high jumped to 45 percent, up from just 27 percent in 2014."

"In the southern part of Lapland, one police car covers an area almost the size of Denmark."

"Money isn’t the issue. Sweden’s finances are in enviable shape by European standards. The economy grew 3.3 percent on an annual basis in the first quarter, among the fastest in western Europe.

The Social Democrat-led government reversed some income-tax cuts instigated by the previous leadership. That enabled it to post surpluses every year since it came to power.

The total tax burden in Sweden rose to 44.1 percent of gross domestic product in 2016, from 42.6 percent at the end of the previous government’s tenure in 2014. That’s the fifth-highest level among 35 OECD countries.

“An important priority we’ll make is that we won’t lower taxes in the coming years, precisely because of the need to finance welfare,” Fredrik Olovsson, a leading Social Democrat and chairman of the parliament’s finance committee, said at a seminar in Stockholm.  “I don’t think the level of taxes we have today is the absolutely highest we can have.”"

The White House’s Misleading & Error Ridden Narrative on Immigrants and Crime

By Alex Nowrasteh of Cato. 

"President Trump recently held an event with some of the relatives of people killed by illegal immigrants in the United States.  Afterward, the White House sent out a press release with some statistics to back up the President’s claims about the scale of illegal immigrant criminality.  The President’s claims are in quotes and my responses follow.

According to a 2011 government report, the arrests attached to the criminal alien population included an estimated 25,000 people for homicide.

Criminal aliens is defined as non-U.S. citizen foreigners, which includes legal immigrants who have not naturalized and illegal immigrants.  The 25,064 homicide arrests he referred to occurred from August 1955 through April 2010 – a 55-year period.  During that time, there were about 934,000 homicides in the United States.  As a side note, I had to estimate the number of homicides for 1955-1959 by working backward.  Assuming that those 25,064 arrested aliens actually were convicted of 25,064 homicides, then criminal aliens would have been responsible for 2.7 percent of all murders during that time period.  During the same time, the average non-citizen resident population of the United States was about 4.6 percent per year.  According to that simple back of the envelope calculation, non-citizen residents were underrepresented among murderers.

In Texas alone, within the last seven years, more than a quarter million criminal aliens have been arrested and charged with over 600,000 criminal offenses.  

We recently published a research brief examining the Texas data on criminal convictions and arrests by immigration status and crime.  In 2015, Texas police made 815,689 arrests of native-born Americans, 37,776 arrests of illegal immigrants, and 20,323 arrests of legal immigrants. For every 100,000 people in each subgroup, there were 3,578 arrests of natives, 2,149 arrests of illegal immigrants, and 698 arrests of legal immigrants.  The arrest rate for illegal immigrants was 40 percent below that of native-born Americans. The arrest rate for all immigrants and legal immigrants was 65 percent and 81 percent below that of native-born Americans, respectively.  The homicide arrest rate for native-born Americans was about 5.4 per 100,000 natives, about 46 percent higher than the illegal immigrant homicide arrest rate of 3.7 per 100,000.  Related to this, the United States Citizenship and Immigration Services recently released data that showed the arrest rate for DACA recipients about 46 percent below that of the resident non-DACA population.

More important than arrests are convictions.  Native-born Americans were convicted of 409,063 crimes, illegal immigrants were convicted of 13,753 crimes, and legal immigrants were convicted of 7,643 crimes in Texas in 2015. Thus, there were 1,749 criminal convictions of natives for every 100,000 natives, 782 criminal convictions of illegal immigrants for every 100,000 illegal immigrants, and 262 criminal convictions of legal immigrants for every 100,000 legal immigrants. As a percentage of their respective populations, there were 56 percent fewer criminal convictions of illegal immigrants than of native-born Americans in Texas in 2015. The criminal conviction rate for legal immigrants was about 85 percent below the native-born rate.

Murder understandably garners the most attention.  There were 951 total homicide convictions in Texas in 2015. Of those, native-born Americans were convicted of 885 homicides, illegal immigrants were convicted of 51 homicides, and legal immigrants were convicted of 15 homicides. The homicide conviction rate for native-born Americans was 3.88 per 100,000, 2.9 per 100,000 for illegal immigrants, and 0.51 per 100,000 for legal immigrants.  In 2015, homicide conviction rates for illegal and legal immigrants were 25 percent and 87 percent below those of natives, respectively.

Murderers should be punished severely no matter where they are from or what their immigration status is.  There are murderers and criminals in any large population, including illegal immigrants.  But we should not tolerate the peddling of misleading statistics without context.  What matters is how dangerous these subpopulations are relative to each other so the government can allocate resources to prevent the greatest number of murders possible.  Thus, enforcing immigration law more harshly is a very inefficient way to punish a population that is less likely to murder or commit crimes than native-born Americans.  Illegal immigrants, non-citizens, and legal immigrants are less likely to be incarcerated, convicted, or arrested for crimes than native-born Americans are."