By 1900 27 percent of black farmers in the entire South had become owners.

Don Boudreaux.

"from page 254 of the late Wesleyan University economic historian Stanley Lebergott’s great 1984 book, The Americans: An Economic Record (footnote deleted):

And by 1900 27 percent of black farmers in the entire South had become owners.  Surely that rise constituted a spectacular achievement on their part.  The figures become still more striking for those who adopt the hypothesis that the heritage of slavery inevitably destroyed the freedmen’s competence, or the hypothesis that the Ku Klux Klan represented a unified view of the white South.

Black ownership was the outcome of wide-ranging experience in private markets.

DBx: Of course, Jim Crow legislation – note that I emphasize that Jim Crow was the result of action by legislatures – was used to tamp down the competitive market forces that were making possible blacks’ escape from the legacy of slavery and the consequences of racism.  (See also Bob Higgs’s indispensable study, Competition and Coercion: Blacks in the American Economy, 1865-1914.)"

Raj Chetty's Non Sequitur (on income inequaliry)

By David Henderson.

"Stanford economics professor Raj Chetty, who studies income inequality, has put out on the web a rich array of PowerPoints and videos as part of his Equality of Opportunity project. I haven't looked at them all yet--the sheer number of PowerPoints and videos is daunting.

But I did look at the first few slides in his Lecture 1 and the first few minutes of his YouTube video where he discusses these slides.

In them, there's an important non sequitur and a narrow definition of success.

Take a look at the PowerPoint for Lecture 1, slides 4 and 5. Slide 4 gives the probability of a child born to parents (and it's probably more accurate, although he doesn't say it, to use the singular form, "parent") in the bottom fifth of the income distribution making it to the top fifth. It's "only" 7.5 percent. The probability in my native Canada, by contrast, is a much-higher 13.5%. On slide 4, he says incorrectly, although, admittedly this usage has become common, that "Chances of achieving the 'American Dream' are almost two times higher in Canada than in the U.S." What he means of course, is that they are almost two times as high. They're actually 80 percent higher.

But everyone's used to that usage and that's not my main criticism.

Here's my main criticism: In the very next slide, his first statement is:

Central policy question: why are children's chances of escaping poverty so low in America?

See the problem? His slides showing nothing about a child's chance of escaping poverty in America. His slides, rather, show that a child has a 7.5% chance of making it to the top fifth, which is a multiple of the number that would get the child out of poverty.

Because the percent of households in poverty in the United States is typically about 13 to 14 percent, simply being in the top third of the bottom fifth would mean you are not poor. And being in the second fifth from the bottom would definitely mean you are not poor.

Wondering if I might see him make this point in the YouTube video, I went to that video and saw that he makes the same non sequitur: he treats the data as if he has shown the odds of an American child escaping poverty.

He also has a strange definition of success. At about the 2:50 point, he asks what we can do, policy-wise, to raise a poor child's chance of "succeeding." It's clear from context that to Raj Chetty, "succeeding" means making it into the top fifth. Yet I would wager that many, many children born to poor families in America would be thrilled to make it into the middle class. What's middle class? If we take the word "middle" seriously, it should mean the middle quintile plus, at most, the 2nd and 4th quintiles. I would wager also, that Chetty's data would show that well over half--and probably something like 70%--of children born into the lowest quintile make it into the next 4 quintiles."

A monetary policy of competitive devaluation is a source of instability in the global economy

From John Taylor.

"This week I gave the Swiss National Bank’s  Annual Karl Brunner Lecture in Zurich, and I thank Thomas Jordan who introduced me and the hundreds of central bankers, bankers, and academics who filled the big auditorium. Karl was a brilliant, innovative economist who thought seriously about both policy ideas and institutions. For the lecture, I focused on ideas and institutions for international monetary policy.

Since Karl died in 1989, we can only wonder what he would think about monetary policy in the past dozen years. But we can get some hints from his former student, collaborator, friend, and great economist Allan Meltzer, who died earlier this year.

About one year ago at the annual monetary conference in Jackson Hole, Meltzer argued that the Fed’s “quantitative easing” was in effect a monetary policy of “competitive devaluation,” and he added that “other countries have now followed and been even less circumspect about the fact that they were engaging in competitive devaluation. Competitive devaluation was tried in the 1930s, and unsuccessfully, and the result was that around that time major countries agreed they would not engage in competitive devaluation ever again.”

In the lecture, I examined this idea empirically, and I found striking results. A monograph with the details will soon be published by the MIT Press, but a very short taste of the results can be given here.

I began by introducing a simple modelling framework which captures key features of recent economic policy. I focused on the balance sheet operations of the Federal Reserve, the European Central Bank, and the Bank of Japan. I concentrated on the liability side and, in particular, on reserve balances which are used to finance asset purchases, as a measure of the balance sheet operations. For the three central banks this gives R_U which measures the Fed’s reserve balances in millions of dollars, R_J which measures the BOJ’s current account balances in 100s of million yen, and R_E  which measures the ECB’s current account plus deposit facility in millions of euros. I also considered the central bank in a relatively small open economy—the Swiss National Bank.

To examine the impact of the balance sheet operations of the central banks in the three large areas I estimated the following equations.

X_JU = α₀ + α₁R_J + α₂R_U + α₃R_E
X_JE = β₀ + β₁R_J + β₂R_U + β₃R_E
X_UE = γ₀ + γ₁R_J + γ₂R_U + γ₃R_E 

where X_JU is the yen per dollar exchange rate; X_JE is the yen per euro exchange rate; and X_UE is the dollar per euro  exchange rate.

All the estimated coefficients are significant, and they showed that:

• An increase in reserve balances R_J at the Bank of Japan causes X_JU and X_JE to rise, or, in other words, causes the yen to depreciate against the dollar and the euro.
• An increase in reserve balances R_U at the Fed causes X_JU to fall and X_UE to rise, or, in other words, causes the dollar to depreciate against the yen and the euro.
• An increase in reserve balances R_E at the ECB causes X_JE and X_UE to fall, or, in other words, causes the euro to depreciate against the yen and the dollar.

The charts below show the patterns of reserve balances and the corresponding exchange rate movements: first there is the increase in reserve balances at the Fed with a depreciation of the dollar; second there is an increase in reserve balances at the BOJ with a depreciation of the yen; and third there is increase in reserve balances at the ECB and a depreciation of the euro.



In other words, there are significant exchange rate effects of balance sheet operations for the large advanced countries.  In the lecture I then went on to show that there are similar effects for the Swiss National Bank, as in other central banks in small open economies that have little choice but to react to prevent these unwanted moves in their own exchange rates.

These exchange rate effects are likely to be a factor behind balance sheet actions taken by central banks and the reason for the policy contagion in recent years as countries endeavor to counteract other countries’ actions to influence exchange rates. In this sense, there is a “competitive devaluation” aspect to these actions as argued by Allan Meltzer—whether they are intentional or not.

The resulting movements in exchange rates can be a source of instability in the global economy as they affect the flow of goods and capital and interfere with their efficient allocation. They also are a source of political instability as concerns about currency manipulation are heard from many sides.

They are another reason to normalize and reform the international monetary system. In my view a rules-based international system is the way to go, as I discussed in the lecture at the Swiss National Bank referring to earlier work here."

FAIR’s “Fiscal Burden of Illegal Immigration” Study is Fatally Flawed

By Alex Nowrasteh of Cato.

"The Federation for American Immigration Reform (FAIR) is devoted to reducing legal and illegal immigration. Its recent report, “The Fiscal Burden of Illegal Immigration on United States Taxpayers (2017)” by Matthew O’Brien, Spencer Raley, and Jack Martin, estimates that the net fiscal costs of illegal immigration to U.S. taxpayers is $116 billion. FAIR’s report reaches that conclusion by vastly overstating the costs of illegal immigration, undercounting the tax revenue they generate, inflating the number of illegal immigrants, counting millions of U.S. citizens as illegal immigrants, and by concocting a method of estimating the fiscal costs that is rejected by all economists who work on this subject.

FAIR’s Errors

Merely using the correct numbers when it comes to the actual size of the illegal immigrant population, the correct tax rates, and the effect of immigrants on property values lowers the net fiscal cost by 87 percent to 97 percent, down to $15.6 billion or $3.3 billion, respectively.  Below is a list of FAIR’s errors and how the correct numbers affect the results:

1. FAIR assumes that there are 12.5 million illegal immigrants, over a million more than other organizations estimate (FAIR is inconsistent here as the number of illegal immigrants they report on page 34 is 12.6 million).  Pew estimates there are 11.3 million illegal immigrants, the Center for Migration Studies (CMS) estimates that there are 11 million illegal immigrants, and the Center for Immigration Studies (CIS) estimates there are 11.43 million illegal immigrants.  FAIR’s estimate of the number of illegal immigrants is more than a million more than that of their sister organization, the Center for Immigration Studies, that also shares their goal of reducing immigration.  Using the average number of illegal immigrants as estimated by Pew, CMS, and CIS instead of FAIR’s number lowers their report’s estimated cost by $11.6 billion.
2. FAIR counts the benefits consumed by the U.S. born American citizen children of illegal immigrants.  This means that FAIR also doesn’t count the taxes paid by these U.S. born citizens when they start working.  Counting the benefits consumed but ignoring the tax revenue they pay (or will do so in the future) is one way FAIR gets such a negative result for this report.  If FAIR counts the welfare consumed by the U.S. born children of illegal immigrants then it must also count the taxes that that cohort pays, but it does not.  In this way, the FAIR report biases its results to increase the value of benefits received and diminish the value of taxes paid. Workers with higher education earn more money and pay more in tax dollars.  Counting education entirely as a cost without any effort to actually measure the boosted tax revenue that should result from such a system counts only the fiscal costs.  FAIR argues that those U.S. citizen children should be counted as illegal immigrants for their fiscal cost analysis because they would not be here without their illegal immigrant parents.  It’s a mystery, then, why FAIR does not count the fiscal costs incurred and taxes paid by all of the descendants of illegal immigrants back to when the Federal government first created immigration restrictions in 1875.  Furthermore, does this mean that FAIR will seek to count the fiscal costs and tax revenue of the grandchildren of the illegal immigrants as well?  If they decide to do that then they should use a dynamic generational accounting model rather than their flawed static model.  Using the actual number of illegal immigrant children who are in school lowers FAIR’s estimated education costs borne on the state and local level by $31.7 billion.
3. FAIR blames the cost of immigration enforcement on illegal immigrants.  FAIR’s argument here comes down to “The U.S. needs to enforce our immigration laws better because the cost of enforcing immigration laws is so high.”  We suggest an easy remedy to this problem – cut immigration enforcement.  In all seriousness, this is silly.  If FAIR was serious about this argument, they would estimate how many illegal immigrants are deterred by immigration enforcement programs and compare that to their bogus budget figures to see the fiscal return on enforcement.  Excluding the costs of immigration enforcement, with the exception of the amount spent on incarceration, lowers FAIR’s estimate by $11.9 billion.
4. FAIR overcounts welfare benefits consumed by illegal immigrants by including benefits consumed by their U.S. citizen children.  They especially overstate Medicaid benefits by counting U.S. citizen children.  FAIR also relies on old data for the amount claimed by illegal immigrants in Child Tax Credits that overstates the 2015 number by $800 million.  Adjusting downward welfare benefits consumed by eligibility rules reduces FAIR’s estimate by $12.3 billion.
5. On healthcare issues besides Medicaid benefits, FAIR estimates that illegal immigrants consume an amount of healthcare proportional to their share of the population.  This is a vast overstatement in costs.  Overall, all immigrants consume 55 percent less in healthcare dollars per capita than natives.  According to the National Academy of Sciences report on the integration and assimilation of immigrants, illegal immigrants are “less likely than native-born or other immigrants to have a usual source of care, visit a medical professional in an outpatient setting, use mental health services, or receive dental care. (Derose et al., 2009; Pourat et al., 2014; Rodriguez et al., 2009). Per capita health care spending has been found to be lower for all immigrants, including the undocumented, than it was for the native-born (Derose et al., 2009; DuBard and Massing, 2007; Stimpson et al., 2010).”  Adjusting for lower immigrant per capita health care spending by 55 percent lowers FAIR’s estimate of the uncompensated hospital expenditures, Medicaid births, and Medicaid fraud costs on all levels of government by $13.9 billion.
6. FAIR also undercounts the tax revenue generated by illegal immigrants.  The first and most egregious undercount is that they ignore how increased housing demand raises the value of all real estate per county which also raises property tax revenue.  According to research by economist Jacob Vigdor, each immigrant raises the value of all homes in their county by 11.5 cents.  The average immigrant also lives in a county with 800,000 housing units.  The locations of illegal and legal immigrants are closely correlated so we can assume that the typical illegal immigrant also lives in a county with 800,000 housing units.  If the typical illegal immigrant increases the value of all housing unit prices by 11.5 cents, then illegal immigrants increase nationwide housing values by about $1 trillion.  Using the 1.15 percent average annual property tax rate, the increase in housing values created by illegal immigrants results in $12.2 billion in additional tax revenue.  Adjusting for the extra property taxes paid by property owners as a result of illegal immigration boosting housing values increases tax revenue by $11.2 billion over FAIR’s estimate.
7. FAIR also ignores the incidence of taxation when it comes to calculating their Social Security and Medicare contributions.  In law, employers and employees are supposed to evenly split Social Security and Medicare contributions but the reality is more complicated.  A recent literature survey on the incidence of taxation for social programs found that workers pay for 66 percent of all Social Security and Medicare taxes through lower salaries.  Thus, 66 percent of all contributions to those programs are actually paid by the workers.  FAIR also made a mistake.  They claimed that the worker and employer each pay a 2.9 percent tax rate for Medicare when, in reality, the worker and the employer each pay 1.45 percent.  Correcting for FAIR’s error, adjusting for the actual tax rate for Medicare, and including the incidence of taxation boosts illegal immigrant tax revenue by $6.2 billion.  If you include all of Social Security and Medicare taxes paid as a result of illegal immigrant employment, even if employers do pay the actual cost, then it would increase their tax contributions by $18.5 billion
8. FAIR probably undercounts sales tax revenue.  I write “probably” because one of the sentences on page 54 of their report does not make any sense grammatically or mathematically.  About 30 percent of personal income is spent on sales-taxable goods.  The average combined state and local sales tax rate was 6.44 percent in 2016 but adjusting for states where illegal immigrant live according to FAIR’s estimate, it is 7.6 percent.  FAIR claims that illegal immigrants keep $28,800 in pay after remittances.  Adjusting sales tax revenue for the tax rate and the amount of income spent on taxable goods increases illegal immigrant sales tax revenue by $1.6 billion over  FAIR’s estimate.

Merely using the actual numbers in a correct way reduces FAIR’s estimates fiscal cost of illegal immigrants from $116 billion to $3.3 to $15.6 billion – and that doesn’t even touch their flawed static approach to counting how illegal immigrants impact the economy.

FAIR’s Methodological Errors

FAIR’s biggest methodological error is that it does not consider the extra economic activity generated by illegal immigrants that would not occur otherwise.  The tax revenue collected through that extra activity cannot be adequately measured by looking at IRS forms but must include the taxes paid by U.S. citizens who also have higher incomes as a result.  Since the economy is not a fixed pie, removing millions of illegal immigrant workers, consumers, and business owners would leave a gaping economic hole that would reduce tax revenue.  The authors of the FAIR study concocted their own methodology that is uninfluenced by the vast empirical, theoretical, and peer-reviewed economics literature that estimates the fiscal cost of immigration.

The authors in that literature find that there are three main ways to estimate the fiscal impact of immigration. The first method is by using macroeconomic models—variants of general equilibrium models—to predict the economic effects of immigration relative to a pre-immigration trend line, additional tax revenue, and additional government expenditure. The second is through generational accounting that pays particular attention to the government’s intertemporal budget constraints. The third is through a net transfer profile that starts with a static accounting model in a base year and then builds a lifecycle net transfer profile for individual immigrants. These are only quasi-rigid categories with the possibility of mixing and matching certain characteristics of each methodology, but each one has its own benefits, drawbacks, and several studies that employ each method, sometimes mixing them.  FAIR does not use any of these approaches in constructing their fiscal cost estimate.

The recent National Academy of Science (NAS) study on the fiscal and economic cost of immigrants accounts for the temporal nature of tax revenue and government benefits (people pay taxes at certain parts of their lives and consume more in benefits in others).  In order to properly account for the temporal nature of taxes and expenditures requires reducing the lifetime value of both and discounting it to the present value.  NAS table 8-14 does just that for federal, state, and local governments (displayed in Figure 1).  That Figure does not include public goods like national defense which is unaffected by illegal immigrants (the U.S. states does not require another aircraft carrier if there are 50 million more immigrants here).

Based on the age of arrival and education, immigrants with less than a high school degree who entered before their 24^th birthday pay more in taxes than they receive in benefits.  Illegal immigrants are potentially even better for public budgets in the short run because their consumption of government benefits is more curtailed than their tax payments (including the incidence of taxation) due to their legal status.  Illegal immigrants do not likely consume more in tax benefits than they pay in taxes but, if they do, the figure is small.

Figure 1:  NPV Fiscal Impact on Federal, State, and Local Government, CBO Long-Term Budget Outlook, by Age at Entry and Eventual Education.  Source: NAS Table 8-14.

Age at Entry	Less than HS	HS Only	Some College	Bach	More than Bachelors
0-24	$35,000	$239,000	$401,000	$495,000	$446,000
25-64	-$225,000	-$42,000	$157,000	$504,000	$994,000
65+	-$257,000	-$164,000	-$155,000	-$160,000	-$100,000

Conclusion

FAIR’s report argues for increased immigration restrictions as a way to address the federal budget deficit.  However, it relies on poor methodology and contains numerous errors that undermine its credibility.  Many years ago, I wrote a criticism of an earlier version this report by FAIR.  It’s disheartening to see that this later version written by different authors is even more sloppy and makes more errors than the older version.  The immigration debate deserves higher quality research than this recent FAIR report."   

Kill the Jones Act Now!

From Alex Tabarrok.

"The purpose of the 1920 Jones Act was to protect American shipping interests by giving them a monopoly on US port-to-port traffic. The Act requires that all ships transporting goods between U.S. ports have to be constructed in the United States and owned and crewed by U.S. citizens (or permanent residents).

The Act, however, wasn’t enough to save the US industry. As a result, we have the worst possible situation. Extremely expensive US port-to-port shipping and only a tiny US shipping industry to show for it. By one account, there are less than one hundred Jones-Act-eligible ships.

The expense of US water transport pushes shippers to move goods by air and coastal highway which is wasteful but usually not deadly. But as Salim Furth points out the Jones Act could be deadly for Puerto Rico:

Even though Trump granted a brief waiver from the Jones Act following Hurricanes Harvey and Irma, the Department of Homeland Security announced last week that it would not grant a Jones Act waiver to Puerto Rico. It justified its decision on the basis that the Jones Act fleet is sufficient to the task.
But the Jones Act fleet already imposes much higher shipping costs on Puerto Rico than on nearby islands, and it operates near capacity in normal times. To involve mainland American workers and businesses in Puerto Rico’s recovery requires a rapid increase in capacity and speed—something far beyond the ability of America’s moribund crony capitalist shippers.

If the cost to Puerto Rico doesn’t get President Trump’s attention then perhaps this will–The Jones Act benefits socialist Venezuela!

Puerto Rico’s badly damaged energy sector relies on oil imports from Venezuela, a socialist dictatorship that uses its revenue to prop up anti-Americanism in Latin America. If issued a waiver, Puerto Rico could switch to cheaper, cleaner natural gas from sources such as Pennsylvania and Texas.

The Jones Act shouldn’t be temporarily lifted, the Jones Act should be killed."

Now that tax reform is on the table, let’s review the tax reform of an early ‘supply-sider’ – JFK – in the 1960s

From Mark Perry.

"Now that tax reform is on the table, with proposals to nearly double the standard deduction, lower the top federal income tax rate for corporations from 35% to 20%, and for individuals from nearly 40% to 35%, it seems like a good time to recycle a CD post from 2013 “Let’s not forget the decade the liberals love to hate: The 1960s and President Kennedy’s successful, supply-side tax cuts.”

In the video above from August 13, 1962, when the highest marginal individual income tax rate was 91% and the highest marginal corporate tax rate was 52%, early supply-sider President John F. Kennedy announced his plan to introduce permanent, across-the-board tax cuts for both individuals and corporations. Kennedy argued that both “logic and equity” demanded tax relief for Americans and that the dollars released from taxation would create new jobs, new salaries, and spur economic growth and an expanding American economy, thereby creating more tax revenues.
Kennedy’s supply-side tax cuts were passed, and by 1964 the top personal tax rate was 77%, dropping further to 70% in 1965. In 1965, the corporate tax rates were reduced to 22% and 48%, from previous rates of 30% and 52%. The Kennedy tax cuts did help expand the economy, resulting in a 106-month economic expansion during the 1960s, which was the longest expansion in US history until the 120-month expansion from 1991-2001. During that tax-cut-fueled economic expansion in the 1960s, real GDP growth averaged nearly 5%, with economic growth topping 10% in two quarters (1965: Q1 and 1966: Q1) and 8% in eight quarters. US payrolls increased by 32% during the 1960s, the highest growth in jobs of any decade during the postwar period. Government tax revenues grew by 65% from 1965 to 1970.

Even though President Kennedy’s supply-side approach with across-the-board cuts in tax rates was incredibly successful at generating economic growth and jobs, and increasing both middle-class prosperity and tax revenues, all we ever seem to hear about today is the alleged post-war prosperity of the 1950s, and a recurring class warfare approach of raising taxes on the wealthy to bring down the deficit and reduce rising income inequality.

Or as Larry Kudlow explains in a recent column “Obama Skips the Kennedy Tax Cuts,” the success of Kennedy’s supply-side cuts in marginal tax rates in the 1960s has been “rubbed out” and replaced by a “liberal vision of powerful unions and high tax rates on the rich.” Here’s Larry:

Speaking in Galesburg, Ill., this summer, Obama served up a convenient historical fairy tale: “In the period after World War II, a growing middle class was the engine of our prosperity.” Presumably he was thinking of a time when high taxes on the rich and industrial-union rule had the middle class soaring. The trouble is, Obama’s history is wrong.
From 1944 to 1960, with a top tax rate of 91%, the U.S. economy expanded at an anemic 2.1% annual pace. And during the Eisenhower years, the economy grew at a subpar 2.4% yearly rate, including three recessions.
But then came the 1960s, the decade liberals love to hate. Why? Because the path-breaking supply-side tax cuts of John F. Kennedy generated one of the greatest booms in economic history.
Conveniently, John Kennedy’s powerful tax-cut slashing on business, individuals, and investors doesn’t exist in the Left’s post-war, economic narrative. It’s been rubbed out of history, replaced by a liberal vision of powerful unions and high tax rates on the rich, which is supposed to create growth. And expectedly, Obama and the Left never make the connection between the Kennedy tax cuts and the Reagan tax cuts 20 years later, which essentially copied the JFK model.
Not only did Reagan copy JFK’s across-the-board rate reduction, he even dusted off his rhetoric. Reagan frequently talked about a rising tide lifting all boats, after-tax incentives to keep more of what you earn, and how lower tax rates produce higher tax revenues. In fact, Reagan credited Kennedy when the 1980’s tax cuts got the economy moving again.
When President Obama talks about a grand bargain for corporate tax reform to raise more revenues to be used for more stimulus spending, or a budget that would end the sequester and its budget caps and stick it to the well to do with a near $1 trillion tax hike, he completely skips the Kennedy-Reagan growth story. Even accounting for his huge policy differences with JFK and Reagan, Obama should do us all the courtesy of getting his history straight.

Update: So as we consider tax reform, let’s not forget the phenomenal economic growth that followed the Kennedy tax cuts of the early 1960s."

The Law Of Increasing Opportunity Cost And The Problem Of Big Government

Imagine a country that produces two kinds of goods, public goods and private goods.

Public goods are things like national defense. They benefit everyone and it is hard to stop non-payers from getting it (it would be hard to stop a non-payer from getting defended).

Private goods are those that only one person can enjoy and you can keep non-payers from getting it. A Big Mac for example. If you don't pay, you don't get it and if I eat a particular Big Mac, no one else can eat it.

What I am going to show is that as government gets bigger, it will actually get more expensive in terms of what we have to give up in the private sector. The bigger government gets, the more costly it is.

Now also imagine that this country has 5 workers. Some are better at making private goods (their skills are more entrepreneurial) and some are better at making public goods (their skills are more bureaucratic). The table below shows how much of each good each worker can make in a day if they only produced that good.

Notice that worker I is very good at making private goods, but not so good at making public goods (so he is more entrepreneurial and not so bureaucratic). Worker V is the opposite.

These kinds of numbers make sense-we know in the real world people don't all have the same abilities. There is a best plumber, a best doctor, etc. The best doctor is not likely to be a good plumber and vice-versa.

The next table will show all the combinations of private goods and public goods that we can produce if we are at full-employment. That is, if we use all workers.

If we started with all workers making private goods, we make 25 (and 0 public goods). But if we want to make some public goods, we need to move a worker. The best move is to have worker V start making public goods. We give up only 3 private goods and we gain 7 public goods.

If we want more public goods, we would then move worker IV, then worker III and so on.

But each time we do this, we give up a different and increasing number of private goods for each public good gained. The next table shows this.

At first, the cost of each public good is .429 private goods (3/7). We lose the 3 private goods that worker V makes and gain the 7 public goods he can make. But then when we move worker IV, we give up 4 to get 6. So that cost .667.

The more public goods we produce, the more costly they will be in terms of the private goods we have to give up. This is what makes the growing size of government so alarming. We can't see this so easily in the real world. Notice that the last public good costs 2.333 private goods, much more than the first one.

Here are some basic terms that economists use to discuss this issue:

Opportunity Cost-The value of the best foregone alternative. There is no such thing as a free lunch. If we want to build one more skyscraper, we may have to give up one submarine, since there may not be enough steel to go around (steel is scarce!).

The law of increasing opportunity cost-As more of a particular good is produced, the opportunity cost of its production rises. Why is the law of increasing opportunity cost true? Different resources are better suited to different productive activities. This is just about the same as saying people have different abilities, like some are more entrepreneurial and some are more bureaucratic.

America's middle class: 50 years of amazing progress

By Scott Sumner.

"You see a lot of hand wringing about the plight of America's middle class, so I thought I'd check the data. But which data? You might start with average incomes, but these are skewed by the rapid growth in income of the top 1%. So most experts believe that median income is a better metric. The next question is household income versus family income. I choose family for two reasons:

1. The data series for family income goes way back, whereas household income starts being collected in the mid-1980s.
2. Households include single individuals, whereas families are multi-person households. I was technically "poor" from age 18 to 26, but I don't think anyone was too concerned about my plight. Nor should they have been. I was a household, but not a family. I think when people talk about the plight of the middle class they tend to envision families.

The next question is whether to use real or nominal income? I think most people believe real income is a better measure of living standards. So here's real median family income from 1966 to 2016:













Real median household family income has soared from $48,800 in 1966 to about $72,700 in 2016, an all-time high. And keep in mind that 1966 was a golden year for the US economy, a period where living standards had reached highs that were far above almost any other time or place in human history. And from that point we've gone still higher, much higher.

And it gets even better. Most economists think that the CPI (used to construct this data series) seriously overstates inflation. They tend to prefer the PCE price index. Using that index to deflate median family income, I came up with this graph:



















Now the real median family income has nearly doubled, soaring from $48,800 to $92,900. Live must be pretty sweet for the median American family.

Let me anticipate some objections:

1. There are more two-income families today. But does anyone really think people are working harder than in 1966? Lots of grueling, boring factory jobs have been replaced by office work where people spend 1/2 the day surfing the web (which is consumption disguised as work.) Women do far less housework than before. Those affluent women with grueling jobs sometimes have maids to help out around the house. It doesn't seem to me that people work harder than in the 1960s. In addition, families tend to be much smaller, so that $92,900 is shared among a smaller number of family members.
2. We are richer than ever, but the growth rate has recently slowed. Yes, but that's a pretty weak argument. There's no iron law of economic growth that says the world will continually experience the sorts of growth rates in family incomes than we saw in 1945-73. That was a very unusual period of time.
My point is that all the hand wringing about middle class families is off base. They are doing spectacularly well. Maybe their already extremely high living standards are improving at a slower rate than before, but that hardly counts as a crisis, (or "carnage" to use Trump's language.) And I'd add that the past 4 years have seen rapid growth in real median incomes.

I'm sure I missed something here, so I look forward to your comments below.

PS. If your eyes are telling you that living standards are declining, then I suggest you read this post, and get new glasses. There's a reason why new homes being built today are far nicer that the sort of "Levittown" homes built after WWII to house the middle class:

PPS. In a recent MoneyIllusion post, I pointed out that birth rates in America continued to plunge in 2016, despite soaring median income in recent years. A commenter Alec Fahrin pointed out that the early data from 2017 point to a continued decline in birth rates. The widely held view that the Great Recession is responsible for lower birth rates seems to have surprisingly little empirical support. Whatever is causing the plunging birth rate in places like Germany and America; it's not "hard times". If you want high birth rates, go to central Africa."

Volcker Rule Has Failed to Make Financial System More Stable

By Daniel Press of CEI.

"CEI submitted comments on the Office of the Comptroller of the Currency’s (OCC) proposed revision to the Volcker Rule, a federal regulation that bans commercial banks from engaging in proprietary trading and limits their relationships with hedge funds and private equity funds. While it is our belief that Congress should repeal the Volcker Rule in its entirety, in the meantime, we applaud the OCC’s intention to revise the rule. In particular, we address four sections where the regulation fails to achieve its intended aims:

• The Volcker Rule was developed in response to the risky trading activities of the largest commercial banks on Wall Street. Paul Volcker, after whom the rule is named, noted that he thought the rule would only impact the four or five largest banks. The final rule, however, has grown to cover all institutions, big and small. Yet small and medium-sized banks are neither systemic threats nor excessively risky in their trading activities. Broadly applying a rule to Main Street that was intended to tackle the activities of Wall Street is unwarranted, and has only added another layer of compliance paperwork to an already struggling community and regional bank sector.
• The Volcker Rule’s enforcement has also been problematic. The rule challenges all banks to justify their trading under a presumption of guilt, treating any proprietary activity as prohibited unless it fits into narrow exceptions. Because the rule’s definition is so muddled, there is an inevitable reliance upon regulators to make arbitrary decisions regarding what is and what is not permitted. This may not pose an issue for trillion-dollar banks with armies of lawyers, but smaller banks cannot run the risk of making legitimate, legal trades if it will bring more regulatory scrutiny and possible litigation. As a result, smaller banks have had to reduce their otherwise legal risk management strategies.
• There is also little evidence to suggest that the Volcker Rule has reduced systemic risk. The type of activities prohibited do not involve excessive risk, as it claims, and banks have only marginally reduced their trading risks since the rule was implemented. Even so, while banks may have reduced risk in their trading books, they have shifted their risk-taking to other areas. This has prevented diversification, concentrated risk in other activities and industries, such as hedge funds, and increased the likelihood of large banks manipulating the rule.
• Lastly, the Volcker Rule completely fails to address the fundamental cause of banks’ excessive risk taking—the moral hazard engendered through federal deposit insurance. Instead of addressing this, it relies on ever more intervention to work around the fundamental issue. A better approach would entail making institutions more responsible for the risks they take, instead of trying to centrally control them.

Accordingly, we propose three actions that the relevant regulatory agencies can take to improve the Volcker Rule:

• Tailor the rule to the largest banks with significant proprietary trading;
• Simplify the definition of prohibited activities, clearly outlining what is prohibited; and
• Study the moral hazard effects of federal deposit insurance on bank’s risk-taking, particularly trading activities.

Full comments available here.
For further reading:

• Regulators Mull Changes to ‘Volcker Rule’ on Bank Investments
• Volcker Rule Harms Financial Stability and Economic Growth
• Easing the Volcker Rule Would Be Good, Abolishing it Would Be Better
• It’s Time to Eliminate Volcker Rule and Federal Deposit Insurance"

Developers and investors, not the poor, benefit most from the Low Income Housing Tax Credit

See Kill the Loopholes, Including the One for ‘Low-Income Housing’ by Chris Edwards and Vanessa Brown Calder of Cato. Excerpts:

"Consider the Low Income Housing Tax Credit, created by the 1986 tax reform. This $9 billion credit masquerades as an antipoverty program, but it mainly subsidizes developers, investors and the financial industry.

To stimulate low-income housing construction, the federal government allots a share of tax credits to the states, which dole them out to selected developers. The credits cover part of the construction costs of multifamily housing projects. The developers must cap rents for a share of the units, so the benefits of the tax credit are meant to flow to tenants in the form of lower rents. Yet the developers usually sell the credits to banks and investors, often using syndication companies as intermediaries. The investors, developers and middlemen—not poor families—end up grabbing most of the benefits.

Gregory Burge of the University of Oklahoma estimated in a 2010 study that the value of the rent savings for tenants was a mere 35% of the value of the tax benefits going to developers. Economists Edward Glaeser and Joseph Gyourko concluded two years earlier that the low-income housing credit “is not very effective along any important dimension—other than to benefit developers and their investors.”

Although the credit subsidizes a lot of construction, it mainly displaces private building that would have occurred without the program. A 2005 study in the Journal of Public Economics by Todd Sinai and Joel Waldfogel found that half or more of housing would have been produced even without the credit. And a 2010 study for the Journal of Public Economics by Michael Eriksen and Stuart Rosenthal found that as much as 100% of development subsidized by the credit is offset by declines in private development.

The housing credit is also a prime target for abuse. Earlier this year a National Public Radio reporter profiled a Miami-area business that stole $34 million from 14 low-income-credit housing projects by submitting inflated construction cost data to the government. Another Miami company discussed by NPR stole $4 million from four projects by the same method.

The NPR report concluded that “little public accounting of the costs exists, even among government officials and regulators charged with monitoring the program.” This is consistent with a 2015 Government Accountability Office report, which concluded that federal oversight of the credit is “minimal.” The federal government has audited the low-income credit activities of less than 20% of state housing agencies."

"To increase supply, Americans need fewer local zoning regulations that inflate housing costs, not more federal subsidies. A 2005 study found that restrictive regulations have doubled the price of housing in cities such as San Jose and San Francisco, as well as in the New York City borough of Manhattan."

Climate Change Hype Doesn’t Help: The bigger issue than global warming is that more people are choosing to live in coastal areas

By Ryan Maue in The WSJ. He is a research meteorologist and an adjunct scholar at the Cato Institute. Excerpts:

"Although a clear scientific consensus has emerged over the past decade that climate change influences hurricanes in the long run, its effect upon any individual storm is unclear."

"My own research, cited in a recent Intergovernmental Panel on Climate Change report, found that during the past half-century tropical storms and hurricanes have not shown an upward trend in frequency or accumulated energy. Instead they remain naturally variable from year-to-year. The global prevalence of the most intense storms (Category 4 and 5) has not shown a significant upward trend either. Historical observations of extreme cyclones in the 1980s, especially in the Southern Hemisphere, are in sore need of reanalysis."

"the bigger issue than global warming is that more people are choosing to live in coastal areas, where hurricanes certainly will be most destructive."

New ‘trading toys’ no doubt played a role in Black Monday’s market collapse in 1987. But were there sound financial reasons as well?

See Anatomy of a Stock-Market Crash by Burton G. Malkiel. Excerpt:

"After the crash, commissions were formed to examine the causes of the meltdown and offer recommendations. Ms. Henriques cites approvingly the Brady Commission Report, which emphasized the role played by the financial instruments and trading techniques she has described. The commission called for increased margin requirements, on the theory that, if investors had been required to put up more of their own money for securities or future contracts, the market would have been less volatile. It also called for putting financial markets under the scrutiny of a single regulator.

But the Brady Report should not be taken as holy writ. A Chicago Mercantile Exchange study, for example, concluded that the futures market was a net absorber of selling pressure and that increased margin requirements would have restricted buying and made the decline even worse. A single regulator, it was noted, might also limit financial innovation and the development of helpful hedging techniques.

Ms. Henriques dismisses the idea that there were rational causes—as opposed to structural or technical ones—for a dramatic revision of valuation levels on Black Monday. But such causes are worth considering. The market had rallied sharply during the preceding five years: Valuations were stretched. Price-earnings multiples were over 20 at the same time that interest rates were unusually high, having just risen to over 10%. In addition, Congress had threatened to impose a “merger tax” that would have made merger activity prohibitively expensive and could well have ended the merger boom that had inflated stock prices. What is more, James Baker, the Treasury secretary, had recently threatened to encourage a further fall in the price of the dollar, increasing risks for foreign investors and frightening domestic investors as well.

To be sure, portfolio-insurance trades magnified the decline on Black Monday. But markets all over the world declined just as sharply as the U.S. market, and they didn’t have similar futures markets. Moreover, markets remained below their 1987 summer peak for the next two years. It is unsupportable to claim that the institutional structure of the U.S. market and a lack of unified regulation were responsible for the crash."

Nicholas Kristof On Portugal's Drug Policy

See How to Win a War on Drugs: Portugal treats addiction as a disease, not a crime. Excerpts:

"The U.S. cracked down vigorously, spending billions of dollars incarcerating drug users. In contrast, Portugal undertook a monumental experiment: It decriminalized the use of all drugs in 2001, even heroin and cocaine, and unleashed a major public health campaign to tackle addiction. Ever since in Portugal, drug addiction has been treated more as a medical challenge than as a criminal justice issue."

"The United States drug policy failed spectacularly, with about as many Americans dying last year of overdoses — around 64,000 — as were killed in the Vietnam, Afghanistan and Iraq Wars combined."

"In contrast, Portugal may be winning the war on drugs — by ending it. Today, the Health Ministry estimates that only about 25,000 Portuguese use heroin, down from 100,000 when the policy began.

The number of Portuguese dying from overdoses plunged more than 85 percent before rising a bit in the aftermath of the European economic crisis "

Portugal’s drug mortality rate is the lowest in Western Europe — one-tenth the rate of Britain or Denmark — and about one-fiftieth the latest number for the U.S."

"The vans, a crucial link in Portugal’s public health efforts, cruise Lisbon’s streets every day of the year and supply users with free methadone, an opioid substitute, to stabilize their lives and enable them to hold jobs.

Methadone and other drug treatment programs also exist in the U.S., but are often expensive or difficult to access. The result is that only 10 percent of Americans struggling with addiction get treatment; in Portugal, treatment is standard."

"So let’s be clear on what Portugal did and didn’t do. First, it didn’t change laws on drug trafficking: Dealers still go to prison. And it didn’t quite legalize drug use, but rather made the purchase or possession of small quantities (up to a 10-day supply) not a crime but an administrative offense, like a traffic ticket.

Offenders are summoned to a “Dissuasion Commission” hearing — an informal meeting at a conference table with social workers who try to prevent a casual user from becoming addicted."

"The dissuasion board can fine offenders, but that’s rare. Mostly the strategy is to intervene with counseling or other assistance before an offender becomes addicted."

"criminal sanctions also seem ineffective at discouraging drug use: When scholars look at the impact of crackdowns, they find there’s typically little impact."

"Portugal introduced targeted messaging to particular groups — prostitutes, Ukrainians, high school dropouts, and so on. The Health Ministry dispatched workers into the most drug-infested neighborhoods to pass out needles and urge users to try methadone. At big concerts or similar gatherings, the Health Ministry sometimes authorizes the testing of users’ drugs to advise them if they are safe, and then the return of the stash. Decriminalization makes all this easier, because people no longer fear arrest."

"On balance, the evidence is that drug use stabilized or declined since Portugal changed approaches, particularly for heroin. In polls, the proportion of 15- to 24-year-olds who say that they have used illicit drugs in the last month dropped by almost half since decriminalization.

Decriminalization also made it easier to fight infectious diseases and treat overdoses. In the U.S., people are sometimes reluctant to call 911 after a friend overdoses for fear of an arrest; that’s not a risk in Portugal. In 1999, Portugal had the highest rate of drug-related AIDS in the European Union; since then, H.I.V. diagnoses attributed to injections have fallen by more than 90 percent and Portugal is no longer at the high end in Europe."

"One attraction of the Portuguese approach is that it’s incomparably cheaper to treat people than to jail them. The Health Ministry spends less than $10 per citizen per year on its successful drug policy. Meanwhile, the U.S. has spent some $10,000 per household (more than $1 trillion) over the decades on a failed drug policy that results in more than 1,000 deaths each week."

“Economic development” promised by stadium subsidy advocates never materializes

See Making Football Fair for Fans by Michael Farren and Anne Philpot of Mercatus.

"The NFL season kicked off with a surprise. The underdog Kansas City Chiefs scored more points against the Super Bowl champion New England Patriots than any other team in the last 17 years — to the joy of many fans across the country. But regardless of how much 160 million football fans will enjoy the current season — it’ll be the taxpayers who inevitably lose.

Last month, the Atlanta Falcons opened Mercedes-Benz Stadium, the 22nd new NFL stadium built or renovated over the last 20 years. Almost half of the total cost of new stadiums — $5.9 billion — came from public funding from state and local governments. And that doesn’t even include the $750 million that Nevada’s legislature gave to the Raiders last fall.

New England’s Gillette Stadium opened in 2002 for a comparatively modest $542 million. Local taxpayers paid “only” $72 million of that — a bargain considering that the average public subsidy for NFL stadiums is $266 million. In comparison, the Chiefs updated Arrowhead Stadium with a $375 million renovation in 2010, with state and local governments covering two-thirds of the cost. But that’s not all Missouri taxpayers are on the hook for.

Kansas City, Jackson County, and the state of Missouri also contribute around $8.5 million annually to a special maintenance fund for stadium upkeep. But here’s the real kicker: In 2012 a whistleblower revealed that an amendment to the stadium lease contract allows the team to use the money for management and operations expenses. From 2007 through 2012 the Chiefs spent $18.3 million on non-maintenance purposes, including more than $800,000 in payroll taxes.

That’s right, the Chiefs are using taxpayer money to pay their own taxes.

Even more infuriating, the public subsidies given to the Chiefs could have bought taxpayers every ticket in the stadium for the last seven seasons.

That suggestion is absurd, of course — just like the idea that people who will never tangibly benefit from a stadium should pay for it. But it illustrates an important tradeoff: Public money spent on professional sports can’t support schools, police or roads.

Beyond lost public services, a large body of academic research conclusively shows that the “economic development” promised by stadium subsidy advocates never materializes. Instead, fans simply shift their spending from one kind of entertainment to another, creating winners and losers among local bars, restaurants and entertainment venues.

Sadly, this problem is not new. In the 1986 tax reform, Congress tried to reduce the amount of public money spent on private projects. Instead, it made the problem much worse by increasing the incentive to use tax-exempt municipal bonds for stadium subsidies. Then-Sen. Daniel Patrick Moynihan, D-New York, spent the rest of his career trying to close the loophole he accidentally helped create, to no avail.

Now, research by the Brookings Institution estimates that the 17 NFL stadiums built since 2000 have effectively collected $1.1 billion in federal subsidies.

Earlier this year, Sens. Cory Booker, D-New Jersey, and James Lankford, R-Oklahoma, picked up Moynihan’s torch with a bipartisan proposal to remove the tax exemption for sports facility funding. It’s not a silver bullet — like economist Art Rolnick’s suggestion that the IRS tax any stadium subsidy at a rate of 100 percent — but it’s a first step.

Polls suggest 70 percent of Americans are against stadium subsidies, so it seems strange that the special interests who advocate for them would have a winning record. This is a classic case of “concentrated benefits and dispersed costs,” meaning the costs of any stadium subsidy are spread out over a large number of people, while the benefits go toward a select few.

So team owners have good reason to fight hard for the handout, while each individual taxpayer has less motivation to avoid their small share of costs. In situations like this, it’s actually more surprising when the underdog wins, like when San Diego voters rejected a stadium subsidy for the Chargers last year.

But to paraphrase Ice-T, we shouldn’t hate the players, we should hate the game. Our political system is set up to allow sports teams to pursue government handouts. That’s why broad reforms addressing the root of the problem, like ending the municipal bond tax exemption, are so important. Just like the NFL tweaks the rules each year, policymakers need to address how to make football fair for taxpayers."

Humanity could burn significantly more carbon dioxide-emitting fossil fuels without necessarily crossing the 2 C above preindustrial average temperature threshold set out in the Paris Agreement

Climate Models Run Too Hot: Settled Science Again by Ronald Bailey of Reason.

"Climate computer model projections of future man-made warming due to human emissions of carbon dioxide are running too hot, says a fascinating new study in Nature Geoscience. Consequently, researchers reckon that humanity has more time to prevent dangerous future climate change than had been suggested earlier by the U.N.'s Intergovernmental Panel on Climate Change (IPCC).

This is really good news. This new article shows that climate science is not yet "settled science."

Of course, this is just one article among many thousands addressing aspects of man-made climate change. While its authors are members in good standing in the climate science establishment, they could be wrong. In fact, on the same day as the Nature Geoscience study was published, the United Kingdom's Met Office issued a report that says this: "After a period during the early 2000's when the rise in global mean temperature slowed...the long-term rate of global warming has now returned to the level seen in the second half of the 20th century."

The Met Office attributes the temperature slowdown in the early 21st century to natural climate variations. Specifically, the Pacific Decadal Oscillation had flipped to its cool phase, thus masking ongoing man-made global warming between 1999 and 2014. If true, this would suggest that the climate models are right after all about the long-term temperature trends and that the carbon budget is smaller than the new study calculates.

So what did the Nature Geoscience researchers do? They began by calculating what the global carbon budget should be in order to keep future temperatures from rising 1.5 degrees Celsius above the pre-industrial average. Why that level? Because the signatories to the Paris Agreement on climate change committed to "holding the increase in the global average temperature to well below 2 C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 C above pre-industrial levels."

The researchers next pointed out that the IPCC's Fifth Assessment Report, from 2013, estimated that cumulative carbon dioxide emissions since 1870 would have to remain less than 2,260 gigatons of carbon dioxide to stay below the 1.5 C threshold. But as of 2014, cumulative emissions stood at just over 2,000 gigatons of carbon dioxide. Since humanity is currently emitting about 36 gigatons of carbon dioxide annually, that implies that humanity would blow through the remaining IPCC carbon budget around 2021.

Here's where it gets interesting. The average global temperature now stands at about 0.9 C above the pre-industrial baseline, which implies that global temperature would have to increase by 0.6 C between now and 2021 if the IPCC carbon budget calculations were right. This is highly implausible since such an increase would be about 10 times faster than than what has actually heretofore been observed.

"Taking an average across ESMs [Earth systems models] suggests that our cumulative emissions to date would correspond to about 0.3 C more than best estimates of human-caused warming so far," lead author Richard Millar concludes at CarbonBrief. In the London Times another author of the paper—Myles Allen, a professor of geosystem science at the University of Oxford—said, "We haven't seen that rapid acceleration in warming after 2000 that we see in the models. We haven't seen that in the observations."

In other words, climate computer models projected the global average temperature should be about 1.2 C above the pre-industrial baseline for the 2,000 gigatons of carbon dioxide already emitted. Instead, global average temperature is only 0.9 C higher.

Running the models forward from a 2015 baseline yields a carbon budget of around 880 gigatons of additional carbon dioxide before passing through the 1.5 C threshold. That amounts to about 20 years of emissions.

Glen Peters, a senior researcher at the Center for International Climate Research in Norway, draws out some additional implications from the study. "The updated 1.5 C is more like what we expected at 2 C, and thus the updated 2 C carbon budget is probably more like we expected for 2.5 C," he notes. "Given the emissions pledges submitted to Parri Agreement are somewhat around 2.5 C to 3 C across most studies, then the new carbon budgets would imply that 2 C is roughly consistent with the current emission pledges."

But why reuse the models that have already been shown to be off by 30 percent in their projections? Again, the difference between 0.9 C above the preindustrial baseline and the 1.5 C threshold is 0.6 C. According to the National Oceanic and Atmospheric Administration, global average temperature is rising at 0.17 C per decade, suggesting that the 1.5 C temperature threshold might not be passed for 30 years. The satellite temperature measurements find that the globe is warming at the rate of 0.13 C per decade, implying that the 1.5 C threshold might not be passed for 45 years or so.

These rough temperature increase calculations imply an even larger carbon budget. That might mean that humanity could burn significantly more carbon dioxide-emitting fossil fuels without necessarily crossing the 2 C above preindustrial average temperature threshold set out in the Paris Agreement."

Federal Pay Tops Most Industries

By Chris Edwards of Cato.

"Federal worker compensation is rising faster than compensation in the private sector. On average, federal workers now earn 80 percent more in wages and benefits than other Americans, as examined in this blog yesterday. The data come from the Bureau of Economic Analysis (BEA), and is discussed further in this study.

The BEA breaks down the data by industry. The chart below shows average compensation for the BEA’s 19 major private industries and the military, state and local governments, federal civilian workers, and federal government enterprises (mainly the postal service).

The federal government has the third highest paid workers in the United States after utilities and the management of companies. Federal compensation is higher, on average, than compensation in the information, finance and insurance, and professional and scientific industries.

Federal compensation is twice as high as compensation in the education industry, and is almost three times higher than compensation in retail trade.

Further discussion of federal pay is here.

"

Steve Bannon’s bad economic history (Doug Irwin on Free Trade)

From Mark Perry.

"…. is a slight variation of the title of Dartmouth economist Doug Irwin’s op-ed in yesterday’s Wall Street Journal. Here are some key excerpts below (emphasis added) of that excellent op-ed (ht/Don Boudreaux):

The economic nationalists, and the president himself, believe protectionism will strengthen the American economy. “Look at the 19th century,” said former White House chief strategist Steve Bannon in his recent “60 Minutes” interview. “What built America’s so called ‘American system,’ from Hamilton to Polk to Henry Clay to Lincoln to the Roosevelts? A system of protection of our manufacturing, financial system that lends to manufacturers, OK, and the control of our borders.”
In the nationalists’ narrative, high tariffs were responsible for America’s growth and industrialization in the 19th century. This is not only a misreading of history, it’s a bad policy prescription for the 21st century. A return to high tariffs would sap America’s economy today.
Mr. Bannon’s simple story is historically and economically off base. As Treasury secretary, Alexander Hamilton wanted moderate tariffs, not protectionist duties. In his day, tariffs accounted for nearly all federal revenue. He wanted to keep imports flowing so he could finance the federal government’s Revolutionary War debt and secure the young nation’s credit. President Polk, far from being a protectionist, was a small-government Democrat. He slashed tariffs dramatically in 1846.
……
Economic nationalists always conveniently skip the story of the 1930 Smoot-Hawley tariff, probably because it doesn’t fit their narrative. Smoot-Hawley—passed by Republicans and signed by a Republican president—didn’t cause the Great Depression, but the trade wars it inspired certainly damaged the world economy and backfired badly against the United States.
More important, America didn’t boom during the 19th century because it was a closed economy. The U.S. industrialized rapidly between 1833 and 1860, when tariffs were being cut. While tariffs were high after the Civil War, the U.S. was open to foreign capital inflows. It was also open to the best industrial technology from Britain and Germany, and—importantly given Mr. Bannon’s assertion that the U.S. had control of its borders back then—to massive immigration. The textile mills and steel furnaces of the late 19th century were largely staffed by foreign-born workers. As in our own era, many native-born Americans weren’t interested in doing tedious and grinding jobs at low wages.
………….
Economic nationalists say their protectionist program will ignite an economic boom. In fact their poor understanding of history will damage the American economy and leave the country weaker.

MP: It just defies economic logic and common sense for economic nationalists and protectionists to think that imposing taxes (tariffs) on Americans, raising prices, restricting consumer choice and reducing competition could somehow make America better off and stronger?"

The poor are carrying the cost of today's climate policies

From Matt Ridley.

"Here is a simple fact about the world today:

• climate change is doing more good than harm.

Here is another fact:

• climate change policy is doing more harm than good."

"The biggest way in which CO2 emissions do good is through global greening. Ranga Myneni and colleagues (Zaichun et al. 2016) recently published evidence derived from satellite data showing that 25 to 50% of the vegetated parts of the planet has grown greener and just 4% browner, and that 70% of the greening can be attributed to an increased level of CO2. The overall increase in green vegetation, which has occurred in all kinds of habitats – from the tropics to the Arctic, from deserts to farmland – is now estimated to be 14% during the last 30 years. This startling fact is confirmed by multiple other lines of evidence: tree growth rates; free-air concentration experiments in which the CO2 level is enhanced over crops and natural habitats; increases in the amplitude of the CO2 changes in the Northern Hemisphere each year; and so on.

Dr Zaichun Zhu from Peking University, the lead author of the Myneni paper (2016), described these results as follows: ‘The greening over the past 33 years reported in this study is equivalent to adding a green continent about two times the size of mainland USA (18 million km2), and has the ability to fundamentally change the cycling of water and carbon in the climate system.’"

"if there is 14% more vegetation on the planet than 30 years ago, and 70% of this can be directly attributed to CO2 fertilisation, this means there is more food for humans, animals, microbes, and fungi, and less land is needed to grow human food. Therefore, more land is available for nature than would otherwise have been the case if we had not raised CO2 levels. It means richer biodiversity and less drought. It means lower food prices and less starvation. It means richer rainforests and less desert.

For many years, Dr Craig Idso has been quietly and systematically collating the evidence as to how much faster crops have grown as a result of the CO2 increase, detailing the many experiments that show very clearly that a higher CO2 level makes plants more resistant to droughts – because they need to open their pores less and they lose less water as a result (Idso & Idso 2011). He has estimated the increased value of the world’s crops as a result of the CO2 fertilisation effect – over 30 years this increase comes to US$3.2 trillion (Idso 2013). That’s $3,200,000,000,000."

Climate change policies 

The policies designed to slow global warming, meanwhile, have huge costs. Let me walk you through the details in case you are doubtful. Here are ten examples of the harm done by policies designed to solve the problem of climate change.

1. Ethanol subsidies 

Ethanol subsidies in the United States, Brazil and in Europe were introduced specifically and explicitly to reduce CO2 emissions. Yet they did environmental harm. As Bloomberg (2016) reports:
The Natural Resources Defense Council used a 96-page report in 2004 to proclaim boundless biofuel benefits: slashed global warming emissions, improved air quality and more wildlife habitat. Instead, farmers ploughed millions of acres of prairie grasses to grow corn for making ethanol, with fertilizer runoff contributing to a dead zone in the Gulf of Mexico. Scientists warned that carbon dioxide emissions associated with corn-based ethanol were higher than expected.

And they did very little if anything to reduce emissions.

Ethanol has now displaced a bit more than 0.5% of world oil use. This ethanol conversion consumes about 5% of the world’s grain crop, which in turn raises food prices. The United Nations (UN) Food and Agriculture Organization produced a report concluding it was one of the main reasons that the price of food shot up in 2008, and stayed high for some years afterwards until harvests began to catch up, worsening malnutrition and starvation, and encouraging the destruction of rain- forest to cultivate more land. The policy of ethanol subsidies steals land from nature. Worse, it steals food from poor people and puts it in rich people’s cars.

Indur Goklany has estimated that this policy kills almost 200,000 people a year (Bryce 2010). As a farm owner, I probably benefit a little bit from these programmes, so I have no vested interest in criticising them. But that’s not going to stop me."


2. Biodiesel programmes 

Biodiesel programmes for making motor fuel from palm oil in the tropics, and from rapeseed oil in Europe, are all subsidised by the European Union specifically to reduce emissions, but they actually increase them. Transport & Environment, a green group, has calculated that by 2020, biodiesel will increase emissions from transport by 4% compared with using fossil-diesel, equivalent to putting an extra 12 million cars to the road (Gosden 2016). The subsidies also encourage the destruction of rainforest and the cultivation of land that would otherwise be available to nature. As a farm owner, I probably benefit slightly from this harmful policy."

The real reason young people can’t get jobs in Africa (regulations)

By Karol Boudreaux. She is a lawyer and land tenure and resource rights expert. She has conducted field research in ten African countries and have published more than 30 articles and a monograph on property rights, in addition to many opinion editorials. Ms. Boudreaux is lead author of USAID’s Operational Guidelines for Responsible Land-Based Investments.

"Today, 60% of all those unemployed in Africa are youth. In South Africa, more than 55% of young people are unemployed. Those are staggering figures. And many who are working are underemployed"

"In too many African countries, hiring and firing workers is too expensive. Governments create legal and regulatory barriers (or fail to address discriminatory social norms) that make it more difficult for employers to hire women. They restrict access to certain professions or limit the number of hours women may work. They also create barriers to firing poorly performing workers, which makes it riskier for businesses to take a chance on people with limited work experience."

"As the most recent Doing Business report notes, “Low and lower-middle-income economies tend to have more rigid employment protection legislation compared to more developed countries.” These “rigidities” include things like limits on fixed-term (short-term or maybe part-time) work contracts — less than 60% of sub-Saharan countries allow for fixed-term contracts (Europe is even worse!). The legal requirement to give a worker severance pay when a job is ended may help in some cases but can have unintended consequences: it adds to the costs of hiring people, limiting the number of formal jobs created and the length of those jobs.

For example, in Sierra Leone, an employer is required to pay 132 weeks of severance for a worker with 10 years of tenure. Ghana and Zambia both require more than 86 weeks, Mozambique requires 65 weeks, and Equatorial Guinea more than 64 weeks. This means that 5 of the top 10 countries with the highest severance payment requirements are in sub-Saharan Africa (no developed countries are in the top 10)."

What Houston's Critics Get Wrong: Land-use regulations weren't to blame for Hurricane Harvey's destruction

By Emily Hamilton of Mercatus.

"No land-use planning regime can protect a region of 6.5 million people from the largest deluge of rain in U.S. history. The idea that traditional planning could have reduced the toll caused by more than four feet of rain both overstates Houston's freedom from land-use regulation and mistakes the actual consequences of its unique approach to land-use regulation.

In practice, Houston's development policy isn't as different as advertised from that of other major American cities. In the ways it does differ, it may allow for denser urban development rather than causing more sprawl into flood-prone areas.

While most cities control land use though their zoning codes, Houston's existing regulations serve a similar function. Its sprawling freeways and roads are accompanied by onerous parking requirements, just like the zoned cities of Los Angeles, Seattle, Chicago and Dallas. Each bedroom in a Houston apartment building must come with 1.25 parking spots. Restaurants must have eight spots per 1,000 square feet and bars must provide 10 spots per 1,000 square feet.

Houston policy also requires that buildings have large setbacks from street lines. These policies work together to lead developers to build surface lots in front of their buildings rather than landscaping or making more efficient use of their land with parking garages. Combined with its parking requirements, Houston's setback mandates make it much more difficult to provide denser urban development. 

Additionally, Houston has minimum lot size requirements that function much the same as the single-family zoning that most U.S. cities use to block development of multifamily housing in existing neighborhoods. In parts of Houston, homes must sit on lots that are at least 5,000 square feet. This rule, combined with Houston's highway network and government-mandated parking lots, outlaws compact development outside of the city center.

There are some ways in which Houston is legitimately lenient in its zoning regulation, yet these can encourage, not discourage, the type of dense development its critics are calling for.

Houston's absence of a zoning map has allowed the city to accommodate more housing and people within its city limits over time. In 1999, city policymakers implemented a reduction in minimum lot size requirements from 5,000 to 1,400 square feet for the part of the city that lies within Interstate 610. This has made it legal for developers to replace single-family homes with townhomes, allowing more people to live downtown rather than in new suburban development.

Houston's relatively laissez faire land-use policy has made it possible for the city to accommodate 500,000 additional residents within its borders in the past 30 years. This compares to just 100,000 new residents in San Francisco, another city with very high housing demand but without Houston's relative permissiveness toward development.

Rather than exacerbating flooding, Houston's lack of zoning has reduced pressure for development on the outskirts of the city relative to what we would see if the city enforced greater barriers to housing development like other American cities do. If the prairie surrounding Houston is a sponge with the potential to protect Houston from flooding, even greater freedom to build homes within its city limits is the key to preserving these grasslands."