Illiterate and innumerate Americans earn as much as average British workers (and average workers in other G-7 nations)

See The United States vs. Europe, Part VI by Dan Mitchell.

"What’s the best public policy:

1. A small-sized welfare state such as Singapore?
2. A medium-sized welfare state such as the United States?
3. A large-sized welfare state such as those in Europe?

I prefer Option #1. Sadly, almost nobody in Washington is pushing for that choice.

The debate in D.C. is about whether the U.S. should expand the burden of government (per-child handouts, Medicare-for-all, green new deal, etc) and become more like Europe (option #3).

I’ve written a five-part series (here, here, here, here, and here) explaining why that’s a bad idea.

All of those columns cite data showing that the United States is richer than Europe and that the gap is growing. The should-be obvious takeaway is that it would be a mistake for the U.S. to copy the policies that have resulted in lower levels of prosperity.

Today’s column will be Part VI in this series and it’s motivated by two amazing charts from the U.K.-based Financial Times. As you can see, illiterate and innumerate Americans earn as much as average British workers.

 

The charts also show that Americans at all levels of literacy and numeracy out-earn their British counterparts.

And it’s not just that the United States is out-performing the United Kingdom.

Here’s the same data for the G-7 nations (the major countries of Europe plus Canada and Japan). All of those countries, even Germany, lag way behind the United States at every level of literacy and numeracy.

 

The numbers for Italy and Japan are especially shocking. Illiterate and innumerate Americans have higher wages than university-level workers in those two nations.

But the data for the other G-7 nations is also underwhelming. Americans with the lowest level of education earn more than average workers in England, France, and Canada. And they almost earn as much as average workers in Germany (based on what’s happening in Germany, I expect that nation’s numbers to deteriorate in the future).

Looking at all this data, I’ll ask a different version of the questions I presented at the start of today’s column: If the goal is higher wages for workers, especially workers with limited skills, is it better to have smaller government or bigger government?"

The McNamara Fallacy Returns: How Inequality Metrics Distract From the Real Causes of Poverty

By David Youngberg. He is an associate professor of economics at Montgomery College. Excerpt:

"Complaints about inequality that rely on political influence are really complaints about cronyism. Cronyism defies easy measurement, but it is what matters, and as long as the focus is on what’s easy to measure, we avoid tackling the underlying issue and the “solutions” just create bigger distortions.

But what about redistribution? Critics of inequality typically pair their concerns with some kind of tax-and-transfer system, and those funds would certainly help struggling families. If you take $1,000 from the rich and give it to the poor, the gap shrinks while the poor’s plight improves. Transfers, funded by taxing the super-wealthy, have a certain logic to them.

Even if the math worked, it’s not so simple. High taxes discourage work and encourage tax avoidance and evasion. The rich spend money on accountants (to find legal workarounds) or lawyers (to defend them if the government catches their illegal workarounds) rather than building new companies and ideas. They eschew high-risk investments when the high rewards that usually go with them are cut to a fraction. Getting rich is sometimes a matter of nepotism or corruption, and sometimes it’s a matter of hard work, thoughtful risk-taking, intelligence, out-of-the-box thinking, and all the things we associate with creating a more prosperous world. Punish that with higher taxes, and society suffers.

Economists call this the equity-efficiency trade-off. The economic pie can shrink as it’s cut more equally, so redistribution can leave the poorest people worse off, not better.

There are super-rich people who got their wealth completely from cronyism, and there are super-rich people who made their fortunes completely by creating and investing in things that make society wealthier. Most are in the vast gray area between: they have created companies that genuinely improved people’s lives but have also used governments to secure protections against competition. How much of each billionaire’s wealth grew the economic pie and how much was due to cronyism? The answer is as hard to measure as Viet Cong morale.

When the emphasis is on the gap between the rich and poor, hurting “the rich” becomes a goal in itself and leads to misidentified threats and misplaced efforts. For example, it’s not just the rich that benefit from cronyism. Occupational licensing restricts competition in jobs nowhere near the top of the income ladder: cosmetologists, taxi drivers, athletic trainers, travel guides, and countless others all drive up prices for everyone, low-income households included.

Unfortunately, tackling this particular problem won’t shrink the income gap because licensed salaries don’t reach the stratosphere. As long as anger is directed at the big numerical gaps, this very real problem doesn’t resonate. But taxing the super-rich, the very-rich, or even the somewhat-rich will “improve” inequality even as investment predictably falls. Inequality metrics decrease as the stated goals are quietly ignored. 

Progressives often tout Europe’s low income inequality as evidence of the success of its generous social programs and broad, heavy taxes that pay for them. Those taxes, paired with a mangled mess of regulation, also stifle entrepreneurship and stunt firms that would otherwise grow. The end result is sobering. After factoring in both taxes and benefits, including health benefits, the median incomes of the largest European economies are 14 to 45 percent lower than America’s. Income might be more equal, but the typical person is worse off.

 

The focus on shrinking the measurable gap makes it harder to achieve much-needed regulatory reform. Robin Hood policies of redistribution might not help the poor, but they will definitely reduce inequality, and as long as that’s what’s prioritized, the real problems linger." 

The Deadly Focus on Income and Wealth Inequality

Wealth Inequality, Sylvia Nasar, Jeff Bezos, Elon Musk, Bernard Madoff, LBJ

By David R Henderson. 

"Readers under age fifty-five might not realize this, but economic inequality was not a large issue in American political discussions until 1992. After that year, discussions of the issue ebbed and flowed. So much of what has been said by opponents of inequality is simple assertion. What has been missing in the statements of those who want government to reduce inequality is much information about why it exists and any sense of why some kinds of inequality are good.

Unfortunately, a single-minded focus on reducing inequality will lead to bad outcomes, even death. That conclusion follows from standard economic reasoning about the causes of economic growth. Reducing inequality by lopping off wealth from the wealthiest would lead to less economic growth; lower economic growth makes death rates higher than otherwise.

You might think that the focus on wealth inequality has come about because of the huge growth in wealth of the 100 or so wealthiest people in the world, many of whom live in the United States. While that surely has made the issue more prominent, the upset about inequality began well before that. I date it at 1992. In 1992, Jeff Bezos, whose wealth is close to $300 billion, had not yet even started Amazon, the source of his wealth. He and his then-wife MacKenzie Scott started Amazon two years later, in a rented garage. In 1992, Elon Musk, now the world’s wealthiest man, was a twenty-one-year-old undergraduate at Queen’s University in Kingston, Ontario, who was about to transfer to the University of Pennsylvania.

So, if not the wealth of Bezos and Musk, what did lead to the focus on economic inequality? Two key factors were an article in the New York Times and a politician running for the Democratic nomination for president who picked up on that article.

The New York Times article was reporter Sylvia Nasar’s “The 1980’s: A Very Good Time for the Very Rich,” March 5, 1992. In that article, Nasar reported data from the Congressional Budget Office on income gains at various percentiles of the income distribution. She quoted Paul Krugman’s exaggerated statement that “it [the additional income from a growing economy] all went to the very top.” As a good reporter, she also gave balance. She quoted Lawrence Lindsey, who, in his book The Growth Experiment, had noted that the early 1980s drop in the top federal income tax rate from 70 percent to 50 percent encouraged high-income people to use fewer tax loopholes and thus show more taxable income on their tax forms. One important example, which Nasar didn’t mention, was municipal bonds. Interest on those bonds was exempt from the federal income tax and so that interest income was not reported on tax forms. But when the top rate fell to 50 percent, high-income people shifted much of their investment away from tax-exempt municipals to other investments whose income was subject to the federal tax. The income from those investments showed up on their tax forms, making it look as if their income had risen substantially; in many cases, it hadn’t.

These are the opening paragraphs of my latest Hoover article, “The Deadly Focus on Income and Wealth Inequality,” Defining Ideas, August 6, 2026.

And:

The other main myth is that the rich don’t deserve their wealth. It’s true that a small percent of them didn’t or don’t deserve their wealth. If they obtained their wealth through fraud or by using the political system to get special treatment, then they are undeserving. Exhibit A for someone who got his wealth through fraud is Bernard Madoff, who ran a Ponzi scheme to take wealth from strangers and even from friends.

Exhibit A of someone who got his wealth as an insider in the political system is Lyndon B. Johnson. In the 1940s, after he had defended the budget of the Federal Communications Commission, an official at the FCC suggested that the Texas congressman’s wife buy a license to operate a radio station in the Austin market. She did so and only a few weeks later, applied for a better part of the spectrum and for longer hours of operation. Both requests were granted within weeks. The FCC also was slow to grant licenses for other radio stations to compete in the lucrative Austin market. By the time LBJ ran for president in 1964, the market value of his and his wife’s net worth was between $9 million and $15 million, over half of which was the value of their media holdings. To put that in perspective, $14 million in 1964, when adjusted for inflation, would be $151 million today."

 

 

Did Elon Musk Sentence Millions to Death by Dismantling USAID?

The study cited by Rep. Ro Khanna as the basis for that claim is statistical nonsense

By Aaron Brown of Reason. Aaron Brown teaches statistics at New York University and at the University of California at San Diego. Excerpts:

"As I explained when I first wrote about the Lancet study for Reason in July of last year, with some basic arithmetic and a bit of common sense, you can see why the study's topline figures are nonsense. Just put the claim that nearly 92 million people were saved by USAID between 2001 and 2021 into perspective: During this period, the world's total death rate fell substantially. If the death rate prior to 2001 had remained steady for the next 20 years, about 79 million additional people would have died, according to data from the United Nations.

So how could USAID have saved 92 million lives? That's more than 100 percent of the global mortality decline, meaning that not only was USAID responsible for saving all 79 million people who didn't die thanks to the fall in the total death rate, but it saved an additional 13 million who otherwise would have died if not for USAID's charitable efforts.

Since I wrote about this study, its authors have effectively backed away from their number. The Lancet published formal critiques and a non-response reply. None of this produced a correction, a retraction, or a single follow-up story in the outlets that ran the 92 million figure. The number is still in circulation, still being cited by Khanna, and still generating threats of litigation from Musk.

Reason emailed several of the study's co-authors, laying out the criticisms cited in this article and video. They didn't respond.

The study's authors failed to establish that USAID saved any lives at all because they built a statistical model based entirely on correlation: Funding for USAID doubled during the study period. Since global mortality fell over the same time span, the two trends correlate, which is all their evidence adds up to. The authors did do a lot of complex statistical hocus-pocus, which they explained in a dense, technical online appendix, making the analysis look sophisticated. But all they were doing was correlating two lines with no evidence that one affected the other."

"On February 2, 2026, Lancet Global Health, a sister journal of The Lancet, published by the same house, ran a paper titled "The Impact of Two Decades of Humanitarian and Development Assistance and the Projected Mortality Consequences of Current Defunding to 2030.""

"The new paper looks at all official development assistance: every donor country, every agency, roughly $250 billion in 2023—and found it associated with a 23 percent reduction in age-standardized all-cause mortality across low- and middle-income countries. The original paper looked at USAID alone, which, at its peak, was somewhere around a sixth of global official development assistance, and found it associated with a 15 percent reduction.

These estimates don't square. The same research group, using the same technique, has now credited one agency with roughly two-thirds of the mortality effect of all foreign aid on Earth."

Related post:

Did USAID Really Save 90 Million Lives? Not Unless It Raised the Dead: A Lancet study’s inflated numbers are being used to push a partisan narrative, not inform public policy (2026) 

Birthright Citizenship and Youth Crime

Evidence from Germany

From Jeffrey Miron.  

"A study of German immigration reform provides evidence for the debate over immigrant assimilation.

The study looked at the

Act to Reform Nationality Law … [under which] children born in Germany on or after January 1, 2000, automatically acquired citizenship if at least one parent had legally resided in Germany for at least eight years at the time of birth.

Researchers found

a sharp decline in offenses committed by non-Germans born after the reform. … [T]he actual increase in offenses committed by Germans was smaller than the decline in offenses committed by non-Germans, suggesting that birthright citizenship reduced crime among immigrant children. Specifically, [the] calculations reveal a 70 percent reduction in youth crime among children who obtained citizenship because of the reform.

Altogether, these

findings suggest that inclusive citizenship policies can reduce crime and its associated costs, which could strengthen social cohesion. Moreover, other research has shown that the German reform improved the educational outcomes of immigrant children and promoted their social integration."

The Binmen of Birmingham (equal pay laws make it harder to find garbage men while the refuse piles up)

By Alex Tabarrok.

"I was on the British CapX Podcast talking about the Equality Act, riffing off my two posts Equality Act 2010 and The Apples and Oranges Tribunal. One thing I discussed in the podcast which I haven’t blogged on is the amazing Birmingham dustbin dispute.

In 2010 an employment tribunal ruled that Birmingham City Council had discriminated against thousands of female workers — cooks, cleaners, care assistants, caretakers — who were denied bonuses paid to the mostly male binmen, gardeners, and gravediggers. Why were the binmen given bonuses? Well, refuse collection is filthy, heavy, outdoor work and not many people want to be gravediggers. Thus, these jobs command a premium for exactly the reason Adam Smith gave in 1776 — compensating differentials. Or was it sexism? Well, note first that there is nothing stopping women from becoming “binpersons” and indeed there are female binpersons and they earn the same bonuses as their male counterparts (just as with the Next case). Moreover, we can test the sexism versus compensating differentials theory. Let’s see what happened.

Here’s the problem, which contributed to Birmingham going bankrupt in 2023. The council employs roughly 400 binmen and something like 6,000 women in comparable graded roles. Every extra pound paid to a binman therefore implied about fifteen pounds owed to the cooks and cleaners. The council simply didn’t have the money to pay everyone binman wages so they cut the binmen’s wages. But the market wage for collecting rubbish is what it is, so when Birmingham finally deleted the premium in January 2025, the binmen went on strike — and they are still on strike, nearly eighteen months later. The rubbish piled up, 17,000 tonnes of it, and the city declared a major incident.

Here’s the most amazing part. The council hired an outside contractor to take over its rubbish collection and it now pays roughly triple its pre-strike outsourcing bill–more than it was paying its own employees. So much for sexism. Apparently the premium wasn’t a favor to men; it was the price of the job. If you want your rubbish picked up and your graves dug, you must pay the market wage. This was pure regulatory arbitrage, of course. Because the new binmen were contractors they legally had a different employer than the Council’s female caregivers and the Act’s comparator rules stop at the employer’s nexus.

The government mandarins, of course, want to close the “loophole” adding yet another bureaucratic requirement to push the equal pay madness up the supply chain. The rubbish piles up."

Related posts:

The Apples and Oranges Tribunal (2026)

The Equal Pay Madness Just Got Madder (2026) 

How to Escape the Productivity Slump

Removing policy barriers can unleash a new era of productivity and abundance. 

By Jeremy Horpedahl. 

"Summary: For the past half-century, much of the developed world has experienced a puzzling slowdown in productivity growth—the rate at which workers and businesses become more efficient over time. While digital technologies have advanced at a remarkable pace, innovation in the physical world has slowed considerably. The problem is not a lack of scientific breakthroughs or a shortage of good ideas. Rather, it is a failure to translate discoveries into products, infrastructure, and services that improve everyday life. This slowdown is largely the result of policy choices. By reforming outdated permitting systems, using innovation incentives such as R&D prizes and Advance Market Commitments, and reducing barriers created by protected local monopolies, we can accelerate the spread of new technologies and usher in a new era of prosperity.

---

In a previous exploration of the housing affordability crisis, I observed a sobering reality: artificial scarcity is often a policy choice. We have placed arbitrary limits—mostly through local governments—on our ability to build homes, driving up costs and restricting opportunity. But this pattern of self-imposed constraint does not stop at the edges of our neighborhoods. It extends into the institutions and policies that shape economic growth. It is one of the primary reasons why, despite living in an age of extraordinary digital innovation, we remain stuck in a decades-long productivity slump.

Economists often measure technological progress using a concept called Total Factor Productivity (TFP). In simple terms, TFP measures how efficiently an economy turns labor, land, and capital into goods and services. When TFP rises, society discovers better ways to produce more with the same resources.

From the 1920s through the early 1970s, TFP in the United States and much of the developed world grew at more than 2 percent per year. This was the era that gave us commercial aviation, widespread electrification, antibiotics, and the Apollo program. The physical world was transformed in a single generation.

Since the early 1970s, however, productivity growth has slowed dramatically to less than 1 percent in most years. As investor Peter Thiel famously quipped, “We wanted flying cars; instead, we got 140 characters.” Digital technologies have advanced rapidly, while progress in energy, transportation, infrastructure, and advanced manufacturing has been far slower. We can send vast amounts of information across the globe in milliseconds, yet we often struggle to build major infrastructure projects on time or on budget.

A 2020 paper by Nicholas Bloom and co-authors argues that good ideas are getting harder to find – that is, more investment in research and development has become necessary for each new patentable idea. However, more recent research by Teresa Fort and co-authors (currently in working paper form) suggests that this is not the case. The Bloom et al. result may, in fact, be an artifact of focusing on manufacturing firms, which were dominant from about 1970 to 1990. Fort and her co-authors show that patenting and innovation have shifted in recent decades, becoming dominated by firms in information, management, and professional services.

Because manufacturing is a physical process, it is much more likely to be subject to, for example, environmental regulations, whereas an IT firm operates in a much less regulated sector. So, our relative stagnation may not be the result of a scientific drought after all. Universities and research laboratories continue to produce remarkable discoveries. We are not failing at invention; we are failing at diffusion, the process of turning new discoveries into widely used products and services.

The Diffusion Deficit and the Permitting Veto

Innovation does not benefit society until it escapes the laboratory and enters the marketplace. The journey from a peer-reviewed paper to a consumer-ready product is long, expensive, and uncertain. Over time, policymakers have added layer upon layer of regulatory complexity to that journey.

Physical innovation requires physical construction. New technologies need testing facilities, advanced laboratories, semiconductor fabrication plants, energy infrastructure, and transportation networks. Yet building almost anything of significance in the modern West often requires navigating years of environmental reviews, public-comment periods, and multi-agency approvals.

Laws such as the National Environmental Policy Act (NEPA) and state-level counterparts such as the California Environmental Quality Act (CEQA) were originally intended to prevent environmental harm. Over time, however, they have increasingly become tools for the delay of progress. Because these laws frequently allow opponents to challenge projects on procedural grounds, they have contributed to what political scientist Francis Fukuyama calls a “vetocracy”—a system in which many actors can block decisions but few can make them. Average NEPA environmental impact statements now take almost four years to complete, with many extending far beyond a decade. Thankfully, the median is a bit shorter, but still about 2.5 years.

Consider the recent push to reshore semiconductor manufacturing. While the government has allocated billions of dollars in subsidies to build these vital factories, the physical construction is bottlenecked by years of permitting and environmental reviews. A state-of-the-art fabrication plant (commonly called a “fab”) that takes 18 months to build in Taiwan or South Korea can take three to five years just to obtain a permit in the United States.

The result is predictable: projects take longer, cost more, and become less attractive to investors. Even when governments provide subsidies for strategic industries such as semiconductor manufacturing, years of permitting can slow implementation. Time is money, and prolonged regulatory uncertainty discourages investment in capital-intensive industries.

The solution is straightforward, even if politically difficult. Critical infrastructure, advanced manufacturing facilities, and research laboratories should face streamlined approval processes. If projects satisfy clearly defined environmental and safety standards, they should be approved in months rather than years.

Pull Mechanisms: R&D Prizes and Commercialization

Reducing regulatory barriers is only part of the solution. We must also rethink how innovation is encouraged and financed.

In addition to corporate financing, most governments try to support innovation through “push” funding. Researchers receive grants to conduct experiments, purchase equipment, and explore new ideas. This model, some economists argue, can be effective for basic science, especially when commercial applications may be years away.

Commercialization presents a different challenge. Many promising technologies fall into what innovators call the “Valley of Death” – the difficult period between a successful laboratory demonstration and a commercially viable product. At this stage, development costs rise sharply while uncertainty remains high.

That is where “pull” mechanisms become valuable. Instead of paying for research inputs, policymakers reward successful outputs. An Advance Market Commitment (AMC), for example, guarantees that a buyer will purchase a product if it is successfully developed. Rather than funding every possible approach, the sponsor commits to paying for results.

Economist Michael Kremer helped pioneer this approach through vaccine development programs. More recently, Operation Warp Speed demonstrated its effectiveness. The government did more than fund vaccine research; it guaranteed large future purchases for successful vaccines. By reducing market risk, policymakers encouraged firms to accelerate development and manufacturing simultaneously. The result was one of the fastest vaccine-development efforts in history.

Consider other approaches. Throughout history, prizes have also stimulated innovation. The Longitude Prize helped solve a critical navigation problem for maritime trade, while the Ansari X Prize helped launch the private spaceflight industry. Pull mechanisms align private incentives with public goals by rewarding success rather than political connections or grant-writing skill.

Breaking Local Monopolies and Regulatory Capture

When people hear the word “monopoly,” they often think of large technology companies. Yet some of the most significant barriers to innovation exist at the local level.

The electric utility sector provides a clear example of how regulatory design shapes technological adoption. Because most utilities operate as regulated monopolies with government-guaranteed rates of return on capital investments, their business model relies on continuous, large-scale infrastructure growth. 

Put simply, utilities make more money the bigger power plants and power lines they build, so they usually prefer huge projects over things like rooftop solar panels that let people generate their own power without the utility having to build as much infrastructure.

Decentralized energy technologies—such as local battery storage, micro-grids, and advanced management software—directly threaten this model by optimizing the existing grid and reducing the need for new capital projects. As a result, studies from the MIT Energy Initiative and industry financial analysts indicate that utilities frequently leverage legacy regulatory processes to delay or block these decentralized innovations from integrating into the wider network.

Similar dynamics exist elsewhere. State dealership franchise laws frequently restrict direct-to-consumer automobile sales, making it more difficult for new manufacturers to enter the market. Occupational licensing requirements now affect roughly one-fifth of American workers and can create barriers to entry that limit competition and labor mobility.

Innovation depends on what economist Joseph Schumpeter called “creative destruction” – the replacement of older, less efficient business models with better ones. When established interests use regulation to shield themselves from competition, they slow technological adoption and reduce future productivity growth. Encouraging competition and reducing regulatory barriers at the state and local level would help accelerate the diffusion of new ideas throughout the economy.

Choosing Abundance

The productivity slowdown is not an immutable law of nature. It is, at least in part, the consequence of policy choices. Human ingenuity remains as powerful as ever. We have more scientists, more capital, and better tools than any previous generation. The challenge is not generating ideas; it is allowing those ideas to spread.

By streamlining permitting processes, expanding the use of R&D prizes and Advance Market Commitments, and reducing barriers created by protected local monopolies, we can accelerate innovation in the physical world.

An additional one or two percentage points of annual productivity growth may sound insignificant. Yet when compounded over decades, the effects are transformative. Higher productivity means higher incomes, better health outcomes, more abundant energy, and greater opportunities for future generations. The ideas already exist. The question is whether we will allow them to flourish."