The Economy Is Doing Way Better Than Many Believe

Despite the popular narrative, Millennials have dramatically more wealth than Gen Xers had at the same age, and incomes continue to grow with each new generation

By Veronique de Rugy.

"America is celebrated for its economic dynamism and ample and generously paid employment opportunities. It's a nation that attracts immigrants from around the world. Yet Americans are bummed, and have been for a while. They believe that life was better 40 years ago. And maybe it was on some fronts, but not economically.

Surveys repeatedly demonstrate that Americans view today's economy in a negative light. Seventy-six percent believe the country is going in the wrong direction. Some polls even show that young people believe they'll be denied the American dream. Now, that might turn out to be true if Congress continues spending like drunken sailors. But it certainly isn't true based on a look back in time. By nearly all economic measures, we're doing much better today than we were in the 1970s and 1980s—a time most nostalgic people revere as a great era.

In a recent article, economist Jeremy Horpedahl looked at generational wealth (all assets minus all debt) and how today's young people are faring compared to previous generations. His findings are surprising. After all the talk about how Millennials are the poorest or unluckiest generation yet, Horpedahl's data show them with dramatically more wealth than Gen Xers had at the same age. And this wealth continues to grow.

What about income? A new paper by the American Enterprise Institute's Kevin Corinth and Federal Reserve Board's Jeff Larrimore looks at income levels by generation in a variety of ways. They find that each of the past four generations had higher inflation-adjusted incomes than did the previous generation. Further, they find that this trend doesn't seem to be driven by women entering the workforce.

That last part matters because if you listen to progressives and New Right conservatives, you might get a different story: that today's higher incomes are only due to the fact that both parents must now work in order for a family to afford a middle-class lifestyle. They claim that supporting a family of four on one income, like many people did back in the '70s and '80s, is now impossible. Believing this claim understandably bums people out.

But it's not true. One of its many problems, in addition to the data evidence provided by Corinth and Larrimore, is that it mistakenly implies that single-income households were the norm. In fact, as early as 1978, 50 percent of married couples were dual earners and just 25.6 percent relied only on a husband's income. I also assume that there are more dual-income earners now than there were in the '80s. While this may in fact be true for married couples (61 percent of married parents are now dual-earners), because marriage itself has declined, single-earner families have become relatively more common.

Maybe the overall morosity on the economy has to do with the perception that it's more expensive to raise a family these days than it used to be. Another report by Angela Rachidi looks at whether the decline in marriage, fertility, and the increase in out-of-wedlock childbirths are the result of economic hardship. She finds that contrary to the prevailing narrative, "household and family-level income show growth in recent decades after accounting for taxes and transfers." Not only that, but "the costs of raising a family—including housing, childcare, and higher education costs—have not grown so substantially over the past several decades that they indicate an affordability crisis."

So, what exactly is bumming people out? We may find an answer in the 1984 Ronald Reagan campaign ad commonly known as "Morning in America." It begins with serene images of an idyllic American landscape waking up to a new day. It features visuals of people going to work, flags waving in front of homes, and ordinary families in peaceful settings. The narrator speaks over these images, detailing improvements in the American condition over the past four years, including job creation, economic growth, and national pride.

I believe this feeling is what people are nostalgic about. It seems that they are nostalgic about a time when America was more united and it was clearer what being American meant. Never mind that this nostalgia is often based on an incomplete and idealized memory of an era that, like ours, was not perfect.

This is a serious challenge that we need to figure out how to address. One thing that won't help, though, is to erroneously claim that people were economically better off back then and call on government to fix an imaginary problem."

Does Illegal Immigration Help to Reduce Crime?

By Scott Sumner.

"The Heritage Foundation recently reported some very frightening data on illegal migration and crime:

Increased Illegal Immigration Brings Increased Crime: Almost 2/3 of Federal Arrests Involve Noncitizens . . .

A 2021 Department of Justice report revealed that 64% of federal arrests in 2018 involved noncitizens, despite them comprising only 7% of the population at that time.

This has led the news media to obsess over crimes where an illegal migrant attacks an American citizen.  But what if this is not true?  Is it possible that illegal migration actually reduces America’s crime rate?

In a technical sense illegal migration may increase crime, at least if you view the illegal migration itself as a crime.  But is that what people are going to infer from the Heritage headline?  Or will they assume that illegal migrants are “rapists and murderers”?

I looked at the Justice Department report that the Heritage cited for its claim that illegal migrants have a high crime rate:

In 2018, 85% of federal arrests of non-U.S. citizens were for immigration offenses, and another 5% of arrests were immigration-related

Most arrests for ordinary crimes are made by state and local police officers.  Federal police are primarily responsible for addressing issues at the border:

The portion of total federal arrests that took place in the five judicial districts along the U.S.-Mexico border almost doubled from 1998 (33%) to 2018 (65%) . . . Ninety-five percent of the increase in federal arrests across 20 years was due to immigration offenses

This doesn’t mean that Heritage is wrong, just that they aren’t providing the sort of data that would allow us to evaluate the actual threat posed by illegal migrants.  The headline seems intentionally misleading.

A 2020 Cato study is somewhat more illuminating, reporting the following data for Texas:

In 2018, the illegal immigrant criminal conviction rate was 782 per 100,000 illegal immigrants, 535 per 100,000 legal immigrants, and 1,422 per 100,000 native‐​born Americans. The illegal immigrant criminal conviction rate was 45 percent below that of native‐​born Americans in Texas. The general pattern of native‐​born Americans having the highest criminal conviction rates followed by illegal immigrants and then with legal immigrants having the lowest holds for all of other specific types of crimes such as violent crimes, property crimes, homicide, and sex crimes.

In recent years, I’ve been very disappointed by the quality of the research being done by Heritage.  They seem to have latched on to the wave of populist nationalism that is sweeping the conservative movement in America.

I can’t say the Cato study is necessarily correct, but the more recent Heritage study does nothing to dissuade me from believing that illegal immigrants tend to reduce the crime rate in America.  If a group of people add 10% to the population and only 5% to the crime total, then they have effectively reduced the probability of any given American being a victim of crime.

PS.  Don’t take this post as an endorsement of illegal migration.  I’d prefer to see much higher levels of legal migration and much lower levels of illegal migration.  But much of the intense anger about illegal migration seem to have been generated by a sensationalist media that is more interested in making money than they are in accurately informing the public.

PPS.  The fact that illegal migrants have a lower than average crime rate does not mean that every subset of illegal migrants is peaceful.  It’s quite possible that illegal migrants that are from criminal gangs in Central America have a higher than average crime rate.

PPPS.  Perhaps the children of illegal migrants have a high crime rate.  But then how can we explain the relatively low murder rate in the heavily Hispanic border region of Texas?"

Why Is Panera Exempted From California's New Minimum Wage Law?

Probably because Greg Flynn, who operates 24 of the bakery cafes in California, is a longtime friend of Gov. Gavin Newsom.

By Eric Boehm of Reason.

"When fast food restaurants across California have to start paying workers $20 per hour on April 1, one major chain will be exempted from the mandate—and it just so happens to have a connection to a longtime friend and donor to Gov. Gavin Newsom.

Panera Bread is poised to get a boost from a bizarre clause in the fast-food minimum wage law that exempts "chains that bake bread and sell it as a standalone item," Bloomberg reports, adding that "Newsom pushed for that break, according to people familiar with the matter."

That exemption stands to benefit Greg Flynn, owner and CEO of the Flynn Restaurant Group, a conglomerate that operates more than 2,300 restaurants nationally and is the second-largest Panera franchisee in the world, according to the company's website. Flynn and Newsom go way back: Bloomberg reports that the two attended the same high school at the same time—Flynn was student body president during Newsom's freshman year—and the restauranteur has donated to Newsom's gubernatorial campaigns and bragged to colleagues about his close relationship with the governor.

That relationship likely explains the weird carve-out that would exempt bakeries from the new minimum wage law, even though no one involved is willing to admit as much.

Asked directly about the bakery exemption at a press conference last year, Newsom said it was "part of the sausage making" of the legislative process. "We went back and forth, and it was part of the negotiation," he added.

Bloomberg's reporting suggests it was something Newsom sought in those negotiations: The bakery carve-out "was adopted as a means of winning the governor's support for the legislation, said a person with knowledge of the discussions. The rationale was the governor's longstanding relationship with a Panera franchisee, the person said."

Newsom signed the Fast Food Accountability and Standards Recovery Act (FAST Act) in September 2023. The law includes the $20 per hour minimum wage and a variety of other regulations that will apply to restaurant chains with more than 60 locations nationally.

Because labor costs account for a significant chunk of the overhead at any fast food restaurant, the new law is expected to have several repercussions. McDonald's and Chipotle have already announced plans to raise menu prices. Delivery drivers for Pizza Hut have been laid off. More automation is likely to occur.

Flynn also operates Applebee's, Taco Bell, Arby's, Wendy's, Pizza Hut, and Planet Fitness franchisees across 44 states, according to his company's website—but his only California-based establishments are several Applebee's (which are not subject to the new law since it is not defined as a fast food restaurant) and 24 Panera cafes.

It's fair to question how much the carve-out for Panera will even matter. In an environment where other fast-food restaurants competing with Panera for labor are required to pay $20 per hour, Panera will likely have to offer comparable wages in order to attract and retain workers. (One might also wonder if McDonald's and Burger King will suddenly get into the bakery business.)

In other words, the real story here isn't that a successful businessman was able to get a special exemption written into law. And, indeed, it's hard to blame Flynn for looking out for what's in his businesses' best interest here—he'd previously warned state lawmakers that passing the FAST Act would "effectively kill the franchise business model in the state" and put 728,000 jobs at risk.

The real scandal is that Newsom was apparently willing to push for this special exemption that benefits his personal friend while throwing other California businesses (and consumers) under the bus.

The deeper lesson is that giving the government more power to set wages (or regulate other aspects of the economy) creates the conditions for exactly this sort of thing to happen. It could be that a wealthy special interest used his connections to the governor to secure special treatment, or that a governor tried to help out his friend. Either way, it couldn't have happened without the government injecting itself into the relationship between workers and employers.

And the more the government does that, the more opportunities there will be for officials to reward their friends and punish their enemies. That's not fair, nor should it be desirable. Panera—or any business—shouldn't survive or fail in California because of its connections in the halls of power."

Can We Blame the Embargo for Cuba's Poverty?

See The Cuban Socialist Paradox: Is Cuba rich from socialism, or poor from the embargo? by Benjamin Williams,. He is a fellow with FEE's Henry Hazlitt Project for Educational Journalism. Excerpt:

"We’ve established that Cuba’s prosperity is a myth. But here the Left falls back on their second claim: that Cuba is only poor because of the US embargo.

Yet, even Fidel Castro and Che Guevara didn’t believe this narrative. Their accounts suggest that the embargo, far from crippling the Cuban government, actually strengthened the revolution and solidified anti-US sentiment. When asked if the US blockade was effective, Castro said it was effective “in favor of the revolution.” Political scientists like Steve Chan and A. Cooper Drury argue that “sanctions may create a ‘boomerang effect.’ Instead of increasing public discontent against the ruling elite, they may produce a ‘rally ’round the flag’ syndrome and stiffen the target population’s resolve to resist foreign coercion. Economic hardship can be attributed to the externally imposed embargo rather than the incumbent regime’s poor performance.”

Guevara said the embargo would do “nothing” to the Cuban economy. But why? In a 1985 interview, Castro explained in more detail. He said that other socialist countries “not only pay us much higher prices and sell their products to us at lower prices, but also charge us much lower interest for credit.” We can confirm this with the historical evidence provided by Cuban economist Carmelo Mesa-Lago. In his book Market, Socialist, and Mixed Economies, he points out that Cuba began trading with socialist countries like the Soviet Union as early as 1960, and confirms that “all socialist imports combined significantly surpassed US imports in the early part of that year.” This challenges the argument that the embargo was the primary cause of Cuba’s economic difficulties, as these economic struggles became apparent immediately following the revolution.

Most effects of the embargo were not felt until the fall of the Soviet Union in the early ’90s. So Cuba went through 30 years of economic struggle while being propped up by the USSR. There was a substantial downturn in the ’90s because of this, and the Cuban government resorted to moderate liberalization reforms to offset the resulting problems. The success of these reforms is further proof that Cuba would be better off as a capitalist nation."

Related posts:

Behind Cuba’s Covid Uprising 

The U.S. Is Not Responsible for Cuba’s Poverty — Communism Is 

Castro Undeniably Impoverished Cuba

New Report Dispels Criticisms of Ohio’s EdChoice Program

Report documents more racial integration, increases to public school revenue, better learning outcomes 

By Dan King of Institute for Justice. 

"A new report, released today, directly contradicts many of the key criticisms leveled against Ohio’s EdChoice program by its opponents. The report, authored by Dr. Patrick J. Wolf of the University of Arkansas, the nation’s leading scholar on choice programs, analyzed publicly available research and data about EdChoice and came away with several key findings that show the program has had a positive impact across the board. The Institute for Justice (IJ) and five Ohio families are currently defending the program against a lawsuit which seeks to strike it down. 

“The findings in this report completely undermine the outrageous claims made by opponents of EdChoice, namely that the program leads to racial segregation and the gutting of Ohio’s public schools,” said IJ Attorney Keith Neely. “These claims were always absurd, and now the data is there to prove it.” 

The report makes 10 key findings, including:  

• Like other school choice programs that have been studied across the country, Ohio’s EdChoice program improves the racial integration of public schools. 
• Competition from the EdChoice program either improves or has no effect on student achievement in public schools. 
• The scholarship program attracts and enrolls only a small number of students compared to Ohio’s public schools, even after the major program expansions in 2014 and 2023. 
• Fluctuations in Ohio public school enrollments are small, and are largely explained by factors besides the EdChoice program. 
• As the EdChoice program has grown, total Ohio public school revenue has increased, not decreased. 

“Rigorous scholarly research on the EdChoice program concludes that it leads to public schools that are better integrated by race and that produce higher levels of student achievement,” the report found.  

The lawsuit challenging the EdChoice program was filed in January 2022, by a group of public schools, claiming the program unconstitutionally diverts money from public schools to private schools. The program, which consists of two individual programs that were expanded in 2023, provides students with scholarships that they can use to attend the schools of their choice. 

“It is abundantly clear that the EdChoice program empowers families to find the best educational options for their children,” said IJ Educational Choice Attorney David Hodges. “We look forward to continuing to defend the program on the merits, so that families all over Ohio can continue to reap its benefits.”"

 

Canada’s Climate Plan: Nuclear Power

It’s essential for keeping a clean-energy electrical grid

By James Hansen and Chris Keefer. 

"Nuclear power has been the backbone of Ontario’s clean electric grid for the past half-century. Starting in 1971, the Canadian province constructed 20 large heavy-water reactors over the next 22 years. The rationale at the time wasn’t combating climate change but replacing expensive coal imported from the U.S. Once Ontario started building these reactors, it stopped building the mammoth coal stations that once made up 25% of Ontario’s electrical grid, accidentally decarbonizing.

Low-carbon grids share one of two traits: Either they are supported by near-endless hydroelectric potential (as with Quebec and Washington state) or they rely on significant nuclear power (Ontario, France and Sweden). Hydroelectricity, however, is increasingly vulnerable to the long-term effects of climate change. Because of a multiyear drought, hydroelectric production in California declined by half from 2013 to 2015. Quebec has lost more than $1 billion in revenue in 2023 because of dwindling precipitation.

Which leaves nuclear power. At the end of January, Ontario made the forward-thinking decision to refurbish its Pickering nuclear station, extending its operations by 30 to 40 years. This will ensure clean, dependable energy for a generation demanding real climate action from its leaders.

The Pickering nuclear station produces more clean electricity than all of Canada’s hydroelectric production at Niagara Falls. Earlier plans to refurbish the station were rejected at a time when electricity demand was stagnant and Ontario had plenty of idle natural-gas-fired power stations. But with population growth, electrification of steel production and new large investments in the green industry, the provincial government sees that those reasons no longer apply. And the environmental reasons for refurbishing the nuclear plant are convincing: Nuclear energy has only 1% of the emissions of natural gas over its life cycle, according to a recent United Nations analysis.

In recent decades, some climate scientists have advocated for nuclear energy’s climate and health benefits. Globally, nuclear energy has prevented the emission of 64 gigatons of carbon dioxide, almost twice global emissions in 2022.

At COP28 in Dubai, 22 nations signed a pledge to triple their current nuclear-energy output by 2050. Ontario’s historic expansion of nuclear energy between 1971-93 shows it can be done. Our urgent need to address the climate crisis demands that we dramatically improve how we generate electricity over the next 30 years. Closing a clean-energy powerhouse in the middle of a climate emergency is an option Ontario will thankfully no longer entertain.

Mr. Hansen directs the Climate Science, Awareness and Solutions Program at Columbia University’s Earth Institute. Dr. Keefer is an emergency physician and president of Canadians for Nuclear Energy."

Nvidia, AI and U.S. Innovation

The government didn’t build that $2 trillion share valuation

WSJ editorial. 

"What a wild ride. Nvidia’s stock price soared another 16% on Thursday after a blowout earnings report, giving the Silicon Valley chip maker a $1.9 trillion market valuation. Markets can get over-exuberant, but Nvidia’s surge may reflect a rational optimism in the vast potential of artificial intelligence.

Five years ago Nvidia was mostly known as a graphics and video-game chip maker. Its roughly $100 billion market valuation was less than half as much as integrated chip-maker Intel’s. Few investors foresaw Nvidia’s transformation into the world’s leading chip firm—or the way artificial intelligence would emerge.

Nvidia designs about 80% of the chips that power a growing array of advanced AI applications—from chatbots to deep neural networks that can discern subtle patterns from data. OpenAI pioneered the technology with ChatGPT, and Microsoft, Amazon and Google rank among Nvidia’s biggest customers. But hardly an industry won’t be changed by AI.

Retailers are using AI to make logistics more efficient and improve the customer experience. Drug makers are using the technology to develop new treatments and determine which patients would benefit most from medicines. Healthcare systems are putting AI assistants to work filling out health records so doctors can focus on patients.

The AI boom may partly explain why business investment and economic growth haven’t crumbled under the Biden regulatory fusillade. President Biden loves to flog federally funded factories and public works, but software investment has contributed more to GDP growth in the last three years than structures or equipment—no thanks to government.

Some worry about AI’s impact on workers, and jobs will be lost. But others will be created and the U.S. has some nine million job openings. As the workforce ages, bigger productivity improvements will be needed to boost living standards. In any case, white-collar employees will probably face more disruption than workers who use their hands.

Mr. Biden is lucky that the AI revolution accelerated under his watch, just as Barack Obama was fortunate with the shale fracking boom. But AI advances are happening despite government, not because of it. Mr. Biden’s executive order last autumn has created new uncertainty about whether and how regulators will permit AI.

Silicon Valley startup accelerator Y Combinator is instructing founders in health care to “take the conservative approach” and “document everything, and know [evolving regulations are] a risk, and anyone who invests in you should know it’s a risk,” as StatNews reported this week. Regulatory risk is something ebullient Nvidia investors might keep in mind too.

Some Democrats are already threatening to suffocate AI with—what else?—climate regulation. Democratic Senators this month introduced a bill that would direct the National Institute of Standards and Technology to recommend administrative actions to mitigate AI’s environmental impact. Will ChatGPT soon need an Environmental Protection Agency permit?

Progressives fret that AI systems will generate as much CO2 emissions as entire countries. Possibly. An AI-driven web search consumes four to five times as much energy as a conventional one. Can the U.S. electric grid, already creaking under the force-fed green energy transition, handle the increasing demand? Is anyone in government thinking about this?

Nvidia’s nearly $2 trillion valuation is essentially a giant bet on U.S. private innovation. China has spent tens of billions of dollars trying to create a national chip-making champion to no avail. Note to Congress and President Biden: Industrial policy doesn’t make countries or businesses great."

Black Lives Matter, Now at Home Depot

A ruling will force employers to permit political sloganeering

WSJ editorial.

"If you’re finally getting used to endless protests on every college campus, get ready to deal with them on your weekend shopping trips. A federal ruling this week could block bosses from setting ground rules for political agitation in their workplaces—even for causes that have nothing to do with work.

The National Labor Relations Board (NLRB) on Wednesday ordered

Home Depot

to rehire a man with back pay, after the store sidelined him for breaking its dress code in early 2021. Antonio Morales had written “BLM” on his work apron in tribute to the Black Lives Matter movement. That clashed with the company’s policy against “displaying causes or political messages unrelated to workplace matters.”

Mr. Morales had previously joined a few colleagues to hang posters commemorating black history month, and he was upset when they were torn down. He didn’t witness the act and doesn’t claim that managers were behind it, but he decided the removal was “racist.” He also demanded a “storewide conversation” to make sure “people of color feel safe at this store,” according to an email he sent to a manager. He resigned days later after a meeting in which he pledged to keep up his activism.

In its 3-1 decision, the NLRB ruled that Mr. Morales’s actions are protected by labor law, which lets employees organize on the job. The 1935 National Labor Relations Act guarantees that workers can take public positions on workplace conditions or joining a union, whether or not their bosses want it. The agency’s three Democratic appointees extended that protection to Mr. Morales’s BLM letters.

The ruling widens the scope of protected political action at work, with no obvious limiting principle. The board says the BLM sign is a “logical outgrowth” of Mr. Morales’s organizing for racial justice with fellow workers, making it a symbol of his labor advocacy.

By that standard, workers almost anywhere could adorn themselves in political slogans, against company policy, as long as they enlist a few colleagues in the cause.

McDonald

’s fry cooks might swap their aprons for National Rifle Association shirts, claiming the Golden Arches made them feel unsafe by forbidding open carry. They wouldn’t even have to prove they were discriminated against.

The Home Depot ruling shreds decades of precedent that draws a clear line between labor advocacy and political agitation that could affect an employer’s image. Labor law has never before stopped employers from regulating speech with no clear connection to workplace conditions.

The NLRB also overruled its own administrative law judge, who backed the retailer in 2022. Judge Paul Bogas wrote that “a message about unjustified killings of black men” is “not directly relevant to the terms, conditions, or lot of Home Depot’s employees as employees.” In December a different NLRB judge said Whole Foods didn’t violate labor law by banning BLM-labeled gear.

The NLRB ruling is one more effort by Biden appointees to do favors for progressive groups, never mind the law. Home Depot has a strong case if it challenges the ruling in federal court."

Expanding the Child Tax Credit Would Perpetuate Systemic Poverty

The policy is a true budget buster and is ineffective in the long term

By Veronique de Rugy.

"In the well-intentioned rush to support American families by expanding the child tax credit (CTC), critical questions are often ignored: Aren't we already doing enough, and is this the best way to help? It's imperative to step back and examine the assumptions at the heart of this ongoing debate.

The child tax credit was first introduced in the 1997 Taxpayer Relief Act as a way to lower the tax burden for working families, with a $500 per child credit. It was increased a few times, including during the Bush years and in 2017 during the latest Republican tax reform. The justification has morphed into whatever its advocates happen to think it should be: It's an anti-poverty program—hence its refundability. It's a pro-family program—hence its growing size. It's a fertility booster program—hence both its size and refundability.

While it's not that great at meeting any of these goals, it is a true budget buster. At current levels, it costs about $1 trillion over 10 years, a price tag that will grow if it is expanded. For the 2024 tax year, the CTC will be worth $2,000 per qualifying child with $1,700 potentially refundable through the additional child credit. The House of Representatives just passed an expansion that, if passed untouched by the Senate, would extend more benefits to lower-income families. The maximum refundable amount per child would increase from $1,600 to $1,800 for 2023 taxes filed this year. It would also grow depending on inflation. And it would only require work every other year, which is a first step into turning the credit into a universal basic income for families.

Ignoring that the CTC sits on top of roughly 80 or so other welfare programs—many of which are already targeted at families—advocates of the CTC expansion argue that to make it a better anti-poverty measure we should eliminate the work requirements. Assuming no behavior changes, the expansion would certainly provide more government cash for eligible families—but it complicates things further by creating disincentives to work and rise from poverty, especially as it builds on other existing transfers.

Research by Kevin Corinth and Scott Winship at the American Enterprise Institute highlights the fact that after the proposed Wyden-Smith expansion, a single parent with three children earning $15,000 annually would get $11,244 from the Supplemental Nutrition Assistance Program (SNAP), $6,750 from the Earned Income Tax Credit (EITC), and $5,400 in CTC money. That adds up to a little more than $37,000 (ignoring many other benefits). Tragically—because of both the way higher earners are phased out and the generosity of the cumulative benefits—if that same single mom's work earnings nearly tripled to $40,000, she'd take home only some $5,000 more. Indeed, making more than $39,000 means losing all of SNAP and some EITC.

It isn't hard to see how this system, despite creating some work incentives at first, discourages people from pursuing better long-term paths for their families. This is a big deal. Increased employment among low-income parents as a result of work requirements has driven much of the long-term decline in child poverty, as we learned during the welfare reform of the 1990s. We need stronger incentives to move up the income ladder rather than incentives that perpetuate systemic poverty. And this expansion of the credit isn't going to cut it.

Unfortunately, many on the right are willing to ignore the disincentive to work because they worry about declining fertility rates. That would be a valid argument if, and only if, we had evidence that more government spending or more tax credits were effective at lifting fertility rates after they drop below replacement rates. And that isn't the case.

As noted by Adam Michel and Vanessa Brown Calder, the CTC, other financial transfers, and cash benefits are unlikely to be a cure for what ails us. A review of relevant studies "finds that financial transfers result in a short-term increase in births while leaving the long-term total unaffected."

A better way to go would be to boost economic growth so that families have more income in the first place. One way to do this is to cut and flatten tax rates, which would change incentives to save, invest, or be entrepreneurial. Also advisable is doing away with the excessive regulations driving up the cost of things families need, like housing, food, formula, and child care."

Amazon primal: Retailer calls NLRB unconstitutional

By Sean Higgins of CEI. 

"Amazon has joined the growing chorus of businesses declaring that the National Labor Relations Board (NLRB) may be unconstitutional. Along with SpaceX and Trader Joe’s, the online retailer has argued the board’s very structure violates the Constitution’s separation of powers doctrine.

The NLRB has accused Amazon of retaliating against its employees in Staten Island. The company has denied any wrongdoing. In a recent filing, the company also upped the ante by raising the constitutionality issue. Specifically, it argued the board lacked legal authority because it’s legal structure “imped[ed] the executive power provided for in Article II of the United States Constitution.”

Article II of the Constitution outlines what is known as the “separation of powers” doctrine. This grants different authorities and powers to the three branches of government – the White House, the Congress and the Supreme Court – and says none of the three branches may encroach on another’s responsibilities.

SpaceX and Trader Joe’s have made essentially the same argument in NLRB cases earlier this month. It may seem odd for businesses to suddenly start challenging the standing of a federal agency that has existed for 90 years, but the status of federal agencies like the NLRB is an issue that the Supreme Court may soon weigh in on thanks to a court case called SEC v. Jarkesy.

The Fifth Circuit Court of Appeals found in Jarksey that a federal agency which adjudicated fraud claims in its own administrative hearings violated at least two constitutional principles: the Seventh Amendment’s guarantee of a jury trial and the additional constitutional requirement that only Congress may exercise legislative powers. The Supreme Court will likely deliver its own opinion on Jarkesy sometime this summer.

Federal agencies, including the NLRB, are executive branch agencies but also wield prosecutorial and judicial powers thanks to their administrative law courts (ALCs). The agencies can issue legal complaints which are then heard by courts that the agency itself runs.

This isn’t a minor technical issue. “Thirty-four federal agencies possess ALCs, and these courts decide hundreds of thousands of cases per year,” CEI’s own Ryan Young and Stone Washington explain. The system is unfair because the agencies control their courts, they note. “Since ALCs are not part of the independent judicial branch outlined in Article III of the United States Constitution, ALC defendants are often denied some constitutionally-guaranteed protections, including the right to request a jury trial in civil affairs.”

Despite being part of the executive branch, the agencies are often outside the control of the White House. The president appoints the officials and Congress confirms them, but beyond that they act independently and cannot be fired, serving until their term runs out.

Amazon raising the issue increases the odds that the Roberts Court will try to address the issue in some concrete way. Yet it’s hard to predict what the court will do. While the constitutional problems with ALCs is obvious, declaring them unconstitutional would be highly disruptive of the federal regulatory system. The justice could prove reluctant to go that far, or they could damn the torpedoes."

Government Intervention and Relative Prices

By Dan Mitchell.

"I periodically share Mark Perry’s famous “Chart of the Century” to show that government intervention is a recipe for rising relative prices.*

Since economic principles don’t change when you cross national borders, one might expect to see similar patterns in other countries.

And we do. Here’s a chart from Matthew Lesh of the Institute for Economic Affairs in London. As you can see, overall inflation in the United Kingdom since 2000 has been 80 percent.

But prices have risen much faster in the sectors with lots of government intervention.

And prices have fallen, or risen at a slower-than-average pace, in the sectors where market forces dominate.

Here’s some of what he wrote to accompany the chart.

Prices have risen significantly faster than wages in the United Kingdom over recent years. The result has been a falling quality of life and significant hardship for tens of millions of households. Real household disposable incomes are now expected to be 3.5% lower in 2024-25 than their pre-pandemic levels… A useful starting point is considering which products have, and which have not, risen in price over recent years. …There have also been significant price increases in services and costs the government more directly controls, such as rail transport (+143%) – where the government sets around half the fares and heavily controls the sector – and council rates (+139%). …The products that have gone up most rapidly in cost include electricity (+425%), housing (+254%), and childcare (193%). Notably, these are sectors that have extensive state intervention through regulation and subsidies. …governments can and should change their approach to regulation. Cutting red tape in areas such as housing, energy, and financial services could reduce business costs and increase supply, resulting in lower costs for consumers.

This is spot on. As Ronald Reagan said more than 43 years ago, government is the problem.

And more government simply makes a bad situation even worse.

* Bad monetary policy is the recipe for overall increases in prices."

The Economics and Implications of Compliance with Minimum Wages

By Michael R. Strain & Jeffrey Clemens. 

"Recent research suggests that wages below legally established minimum wages are surprisingly prevalent. This column reviews ‘wage theft’ in the US and its impact on the wage gains workers might otherwise enjoy. Most firms comply with increases in the minimum wage, especially when they have time to plan for the increase, but evasion and avoidance are also qualitatively important features of the low-wage labour market. Young African American workers experience the largest erosion of their potential wage gains following a minimum wage increase. Whether greater enforcement would improve the welfare of low-wage workers, however, remains an open question.

Minimum wages remain of great interest to economists because their employment effects are contested and because they shed light on important issues in the labour market, like the degree to which it is competitive. They are also a perennial policy issue. The most recent example is the decision of many countries and US states to substantially increase their wage floors in response to the tight labour markets and rapid nominal wage inflation of the past two years.

As with any regulation, it is important for both economists and policymakers to understand compliance to holistically evaluate minimum wages. Recent research suggests that wages below legally established minimum wages are surprisingly prevalent (Bhorat et al. 2017, Goraus‐Tańska and Lewandowski 2019, Rani et al. 2013). Much of this research further finds that when wage floors are higher than average wages, estimated employer compliance rates tend to be lower.

Declines in compliance in the wake of minimum wage increases raise several questions of relevance to policymakers. First, how prevalent is noncompliance and how much does it reduce the magnitude of the wage gains workers might otherwise enjoy? Second, are the costs of noncompliance borne disproportionately by workers from disadvantaged groups? Third, to what extent is noncompliance a response by firms to mitigate the need for more drastic changes like reductions in employment?

The prevalence of sub-minimum wage payment following minimum wage increases

In our paper (Clemens and Strain 2022), we attempt to better understand minimum wage compliance by studying compliance on the margin. Specifically, we estimate the increase in sub-minimum wage payment – i.e. ‘wage theft’ – following changes in the minimum wage.

Among relatively younger hourly wage workers (ages 16 to 25) in the US, we estimate that a one dollar increase in the minimum wage is associated with a 29 cent increase in wages and a 3.6 cent increase in sub-minimum wage payment. Across a number of analyses and population sub-samples, increases in sub-minimum wage payment following minimum wage increases range between 10% and 20% of the magnitude of realised wage gains.

This evidence leads us to conclude that most firms comply with increases in the minimum wage, but that evasion and avoidance are also qualitatively important features of the low-wage labour market.

The extent to which employers have time to plan for a minimum wage increase appears to have an effect on compliance. We find that minimum wage increases from new legislation are associated with substantially larger increases in sub-minimum wage payment than minimum wage increases that come about due to automatic inflation indexing, which has been adopted by a number of US states. The latter increases are regular and forecastable, giving firms more time to adapt. This may increase compliance, with firms adjusting to the increase in labour costs along other margins, potentially including employment (Brummund and Strain 2020). Similarly, we find that, for relatively small minimum wage increases, noncompliance rises for 2 to 3 years and subsequently declines. This suggests that firms may turn to noncompliance as a part of their short-run response but over time adopt alternative strategies to absorb or otherwise adapt to the rise in wages.

Which groups are most impacted by sub-minimum wage payment following minimum wage increases?

Which workers are affected the most by sub-minimum wage payment? In a second paper (Clemens and Strain 2023), we study whether sub-minimum wage payment varies across demographic groups. By and large, we find that the bite of underpayment is similar for workers of different ages and of different racial and ethnic groups. Put differently, in the wake of minimum wage increases, increases in underpayment tend to amount, as mentioned above, to between 10% and 20% of the realised wage gains.

That said, we do find some notable differences among different demographic groups. Among young workers (ages 16 to 21), we find that a one dollar increase in the minimum wage increases the wages of (non-Hispanic) African American workers by 28 cents and increases underpayment by 9.4 cents – the magnitude of the underpayment is 33.2% of the magnitude of the wage increases. In contrast, among the full sample of young workers, underpayment amounts to 13.8% of realised wage gains. Relatively young African American workers thus emerge in our analysis (Figure 1) as the primary group for which this ratio is unusually large: increases in underpayment erode an unusually large fraction of the wage gains these workers might otherwise have experienced.

Among a broader sample (those aged 16 to 65), variations in the share of wage gains that are eroded by underpayment are modest, as also shown in the figure. Of note in this broader sample is that Hispanic workers are disproportionately impacted by both the wage increases and increases in underpayment that occur in the wake of minimum wage increases, such that the ratio is ultimately similar to what we see for the full sample.

Figure 1 Increase in underpayment as a per cent of realised wage gains per dollar of minimum wage increase by demographic group

Implications for assessing minimum wage policy

The academic and policy debate understandably emphasises the employment effects of minimum wage increases (e.g. Clemens and Strain 2021). But firms are likely to respond to minimum wage increases across a variety of margins, including the generosity of the benefit packages they offer to workers, the amount of exertion they require of workers on the job, and perhaps even schedule irregularity (Clemens 2021, Dworsky et al. 2022, Meiselbach and Abraham 2023, Ku 2022, Coviello et al. 2022, Clemens and Strain 2020). Noncompliance is an additional method to which firms might turn when adjusting to increases in mandated labour costs.

This leaves open the question as to whether greater enforcement measures would improve the welfare of low-wage workers broadly, and of members of disadvantaged groups, who may be disproportionately impacted by wage theft.

On the one hand, more aggressive enforcement would likely reduce the magnitude of sub-minimum wage payment relative to realised wage gains. On the other hand, to the extent that firms resort to noncompliance to avoid more severe adjustments like reducing their employee headcount, ramped-up enforcement measures may reduce job opportunities among low-wage workers. The effect of the former would be to increase earnings; the effect of the latter would be to decrease them. This trade-off has been considered in recent work (Garnero and Lucifora 2022). Additional analyses of interest have highlighted connections between minimum wages and compliance with tax law (Gavoille and Zasova 2023a,b).

Analyses of optimal minimum wages can approach the issue from a number of perspectives (Ahlfeldt et al. 2022, Dustman et al. 2021). Apart from the welfare effects of more aggressive enforcement, an additional welfare consideration is broader, pitting the rule of law against economic efficiency. The rule of law requires that regulations be followed and that low-wage workers be paid at minimum the wages they are legally owed. That said, some of the wage theft in the low-wage labour market may be economically efficient if it enables voluntary and mutually beneficial transactions between workers and firms. In this sense, noncompliance with minimum wage regulation may blunt the regulation’s distortionary employment effects.

We highlight this trade-off not as a rationalisation for noncompliance, but instead to argue that policymakers (and economists) should better appreciate the tension between economic efficiency and the rule of law that arises with minimum wage regulation. Any holistic assessment should include this consideration."

The SEC’s Market Surveillance System Implicates the Fourth and Fifth Amendment Rights of Investors

By Brent Skorup, Anastasia P. Boden, and Jennifer J. Schulp of Cato.

"In this “smart” and digitized world, nearly everything we do could be captured, stored, and made accessible to the government. The time we wake up (using our phone’s alarm), the places we go (using our car’s built‐​in GPS), the news stories we read, the snacks we purchase for our kids, the route of our daily run, and even the temperature at which we prefer to keep our homes is routinely collected and stored by commercial companies.

Normally, the government cannot access that information, absent a manual process such as issuing a subpoena, obtaining a search warrant, or making a formal, emailed request to a company for customer information. The Securities and Exchange Commission’s (SEC) consolidated audit trail (CAT) system threatens to change all of that by both collecting data on every stock and options trade made in the United States and personally identifying information of the individual who made the trade. The CAT system gives government agencies a blueprint for pervasive and constant government surveillance:

1) it requires regulated parties to collect data daily and retain immense amounts of sensitive information about their customers; 

2) it offers no chance to opt out; and 

3) it demands unfettered access to customers’ data on the theory that the government might need the information for future law enforcement. 

Cato and the Investor Choice Advocates Network have filed, in an 11th Circuit Court of Appeals case called American Securities Association v. SEC, an amicus brief urging the court to set aside the 2023 SEC order funding the CAT system, which implicates the Fourth and Fifth Amendment rights of American investors.

The Supreme Court reiterated in Utility Air Regulatory Group v. Environmental Protection Agency that in evaluating the authority of agencies, courts must “expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” Congress has not clearly given the SEC authority for an invasive surveillance system like the CAT system, which raises questions of “vast political significance.”

First, the CAT system may violate investors’ and brokers’ Fifth Amendment right against compelled self‐​incrimination. As Justice Samuel Alito wrote when he was Deputy Assistant Attorney General, “the compulsory organization, filing, and creation of documents are acts that clearly are testimonial and may be self‐​incriminating.” While the government can sometimes compel the production of documents that are “customarily kept,” much of the information the SEC demands for its CAT system is entirely new and, therefore, potentially testimonial. Government agencies cannot be allowed to mandate new “customs” of records collection and then use those “required customs” to violate Americans’ Fifth Amendment rights.

Second, the CAT system may violate Americans’ Fourth Amendment rights against unreasonable searches and seizures of their “papers” and “effects.” Investors and brokers may have a possessory and privacy interest in the digital financial records they produce for collection in the CAT repositories. One’s “effects” almost certainly include financial records, as founding‐​era legal dictionaries, for example, specifically contemplate and define one’s financial records as one’s “effects.”

Further, the SEC, without a warrant, absent a showing of even reasonable suspicion, is acquiring and (in the SEC’s own words) searching massive amounts of investors’ and brokers’ personal information and transactions stretching back years. This information is mandated by, not voluntarily conveyed to, the SEC for future warrantless searches and therefore appears to violate investors’ and brokers’ Fourth Amendment rights.

Because Congress has not spoken clearly about the agency’s authority to create this type of surveillance system, the order funding the CAT system should be set aside."

Despite Climate Change, Today Is the Best Time To Be Born

Economic growth will ensure an abundant future

By Maarten Boudry.

"Fifty years ago, in 1973, the global child mortality rate was three-and-a-half times higher than today (three times, even in the U.S.), and in 1923, it was almost nine times higher. The distant past was even worse. For all of human history up until the Industrial Revolution, at least three in 10 children died before reaching their fifth birthday. In the past half-century, extreme poverty has also been slashed, for the first time in history: While nine out of 10 people were extremely poor before the Industrial Revolution, today the proportions are inverted: Fewer than one in 10 falls below the absolute poverty level. In almost every respect, the world is a much better place to be born right now than at any previous time in history."

"A temperature increase of 3 degrees Celsius—slightly more than we expect right now—will most likely reduce global GDP by only a couple of percentage points. That is not an absolute reduction compared to today, mind you, but compared to a hypothetical future without climate change: In all likelihood, our prosperity will keep growing and child mortality will keep falling, just by a bit less than in a counterfactual world without global warming."

"global deaths per million people due to natural disasters have fallen by a factor of 100 over the past century. Mother Nature has become more violent and capricious in recent years (at least when it comes to hurricanes and floods, though not to earthquakes or volcanic eruptions), but that makes our achievement all the more impressive."

"the very best protection against natural disasters—whether caused by global warming or not—is economic growth and development. Material and economic progress is what allows us to build dikes, sturdy houses, hospitals and hurricane shelters, install air-conditioning and tsunami alarms and build infrastructure for early warning and evacuation."

"In 2010, a 7.0 magnitude earthquake in Haiti killed more than 220,000 people. Six weeks later, Chile was rocked by an earthquake that released 500 times more energy than the one in Haiti. The Chilean quake resulted in 500 casualties—still tragic, but a fraction of the Haitian death toll. The main difference? Haiti is one of the poorest countries on the planet, while Chile is now a high-income country."

"the climate debate suffers from a persistent status quo bias—the tacit or explicit assumption that human societies will just passively suffer rising sea levels, intensifying heat waves and extreme droughts, stuck at our current level of wealth and technology. But consider that even today, millions of people are living in regions that would be “uninhabitable” without modern technologies like air-conditioning, irrigation and dikes. Much of California, for example, was “arid beyond habitability” before visionary engineers turned all that inhospitable wasteland into “one of the world’s most vibrant economies.” When the founding father of Singapore, Lee Kuan Yew, was asked what enabled the economic miracle of the tropical city-state (its GDP per capita is 65% higher than the U.S.’s), his answer was simple: modern air-conditioning."

"extreme cold still kills nine times as many people as extreme heat, and that the region with the largest rate of cold-related deaths is ... sub-Saharan Africa. That sounds bizarre, but it drives home the overwhelming importance of adaptation: Sub-Saharan Africa is the poorest region on the planet, which makes it more vulnerable to cold even than rich countries in the Arctic North, even though Africa is of course much warmer overall."

"In the past half-century, artificial fertilizer, irrigation, genetic modification and mechanized harvesting have made agriculture far more resilient against weather extremes, quadrupling global food production even as the Earth was warming by 1.2 degrees Celsius. Thanks to the globalization of our food system, famines are now mostly a thing of the past, and the only ones that remain are caused by political conflict and mismanagement."

"A study from the Food and Agricultural Organization of the United Nations forecasts that global food production will increase by another 30% by 2050, after taking into account climate change. According to a meta-analysis in Nature, by 2050 average caloric intake is expected to increase, and undernourishment to decrease, at all socioeconomic levels."

"In its sixth assessment report, the Intergovernmental Panel on Climate Change writes that “there is no evidence of abrupt change in climate projections of global temperature for the next century.” What compounds the confusion is that tipping points are often confused with the political thresholds of 1.5 or 2 degrees of warming, as written down in the Paris agreement."  

"climate scientists such as Seaver Wang have argued that we should discard the concept of tipping points altogether—not because there’s no such thing as a “tipping point,” suitably defined, but because the metaphor speaks to a popular but inaccurate understanding that “the climate system is on the verge of very unstable, self-reinforcing, and abruptly rapid disaster.”"   

"no matter how accurate your model of the climate system is, it cannot predict the evolution of human ingenuity and adaptation. Even speculative projections of extreme climate scenarios with multiple dramatic tipping points provide no basis for confident predictions about “billions of deaths” or “collective suicide.”"

"For years, serious scientific publications have tended to focus on the most dramatic predictions and outlier scenarios. The most extreme one (known to insiders as “RCP 8.5”) imagined a century-long frenzied global coal orgy that was never even remotely plausible, but that was nonetheless often misleadingly represented as “business as usual.”

If such a dramatic rise in coal consumption was ever in the cards, we now know it’s a complete fantasy. Electric cars are finally going mainstream, coal is being replaced by much cleaner natural gas, solar panels and batteries have achieved spectacular cost reductions and many countries are reconsidering their distaste for nuclear energy."

Capping Overdraft Fees Could Actually Hurt Poor Families

By Megan McArdle. Excerpt:

"I’m worried this move might end up hurting some of the very people it’s supposed to help: low-income Americans on the fringes of the banking system.

These people are far and away the heaviest users of bank overdrafts. The Financial Health Network, a personal finance nonprofit, says the group most likely to overdraft includes “financially vulnerable” households that struggle to pay their bills every month and typically make less than $30,000 a year. Almost half of financially vulnerable households with checking accounts overdrafted in 2022, and of that group, two-thirds overdrafted at least three times, one-third did so six or more times, and one-fifth overdrafted 10 times or more. With an average overdraft fee of $26.61, hundreds of dollars in fees can land on the most cash-strapped customers. Capping those fees — possibly as low as $3 — would be a huge boon to families who really need the help. Who could oppose that?

Well, as with any nice-sounding policy, it’s important to consider the alternatives, both for the customer and for the banker.

For depositors, overdraft fees can be an expensive alternative to even worse options, such as payday loans or having their electricity shut off (and paying a reconnection fee to turn it back on). And “the best of bad alternatives” can also be sort of true for bankers, who must find some way to defray the cost of providing what is basically an unsecured loan to people who are, as we’ve seen, often financially struggling and might be unable to repay the money. The fees also help pay for “free” checking (which costs banks quite a bit of money to provide).

If we cap overdraft fees, how will banks make up the lost revenue?

From profits, you say, and fair enough, but Patrick McKenzie, who writes the Bits About Money newsletter, points out that the reason your bank is so obsessed with getting you to sign up for paperless statements is that the profit margins on checking accounts are so thin, they can be meaningfully improved by saving the cost of 12 stamps a year. “Margins on small bank accounts are very thin,” he wrote recently, and “credit losses can easily be larger than several years of them.”

Now the government wants to make those accounts even less profitable. It seems possible banks would look to limit their losses by getting rid of those customers or making up the revenue somewhere else — or possibly both. This seems to have happened in the past, judging from what we saw when federal regulators preempted some state fee caps in 2001. According to researchers from the New York Fed, the exempted banks both raised overdraft fees and expanded available overdraft credit, while lowering minimum balance requirements. The rate at which checks were returned for insufficient funds declined by 15 percent. And the share of low-income households with a bank account rose by 10 percent, suggesting that minimum balance requirements had kept those households from opening accounts.

That doesn’t mean that no one would benefit from this rule. High overdraft fees can also deter people from opening a bank account, and it’s possible that effect would outweigh any contraction of credit. The financial industry has also changed a lot since 2001, with nonbank alternatives, such as Cash App, that might offer the marginal bank customer a better replacement than an old-fashioned check-cashing store. But there would still likely be winners and losers, and I don’t know whether the former’s gains would outweigh the latter’s losses. I’m not sure the administration does, either."

U.S. Grocery Stores Are Better Than Russsian Stores

See Unfrozen Caveman Tucker by Scott Lincicome of the Cato Institute. Excerpts:

"Let’s start with that supposedly incredible Russian grocery store technology. As National Review’s Dominic Pino first pointed out, the futuristic Russian amenities that so captivated Carlson—coin-operated shopping carts, in-store bakeries, cart escalators, etc.—have been available at American grocery stores, even discount ones, for decades. (See, for example, Aldi or Wegman’s or Lidl.) Many American stores lack these amazing sci-fi technologies (LOL) simply because they’re unnecessary—not because we’re suffering from some sort of “radicalizing” national decline or whatever. And, of course, U.S. supermarkets are constantly innovating with new items, amenities, and technologies like smart carts, dynamic pricing, scan-and-go, made-to-order meals (ordered online or at a kiosk), and artificial intelligence—a testament to intense competition in the low-margin U.S. industry.

Carlson’s economics are similarly mistaken. First, he seemingly fails to understand that the surprisingly low price for his groceries—about $100 when he and his crew expected $400—is a tribute to American, not Russian, wealth. According to the latest data from the World Bank, for example, the median American worker would need to work about a day and a half to afford $100 worth of groceries, while it’d take the median Russian almost a week. A similar gap applies to the poor: The daily income or consumption of the poorest 10 percent of Americans in 2022 was more than three times that of their Russian counterparts, after adjusting for inflation and cost of living—a wealth differential that’s actually widened (from around 2.5 times) over the last decade."

Health Insurance Without Health Care

By John C. Goodman.

"One reason the United States spends more on health care than other countries is that we are obsessive about health insurance instead of health care.

When the British National Health Service or the Canadian Medicare system spends additional money, they spend it employing doctors, building hospitals or buying medical equipment. When the U.S. government spends more money, we give it to insurance companies.

Take Obamacare. We are currently spending $214 billion a year insuring people through Medicaid (which is mostly contracted out to private insurers) and the Obamacare exchanges. At $1,731 for every household in America, that’s a great deal of money being transferred from taxpayers to insurance companies every year.

What are we getting for all that spending? Are people getting more health care? If they are, what difference is that making?

Apparently, few people find these questions interesting. In a Google search on “Obamacare,” every article I encountered discussed health insurance, but not health care. Even at the Obama Foundation website, the focus is entirely on insurance, not care.

Doctor Visits Have Fallen

Nonetheless, one scholarly study finds there has been no overall increase in health care in the US since the enactment of Obamacare. More on that below. The number of doctor visits per capita actually fell over the last decade. That’s surprising, because our population has been aging, and older people require more health care.

Unfortunately, there is nothing particularly new here. When Obamacare was enacted, it was expected to cost close to $1 trillion over the next ten years. But there was no serious discussion of what we were going to buy with all that spending—not in Congress, not in the mainstream media, or even in the health policy community.

Econ 101 teaches that all societies face a production possibility frontier. The typical textbook example is the choice between guns (military goods) and butter (consumer goods). In our case, it is health care versus other goods and services. To have more of one, you have to have less of the other.

To have more health care, we have to have more doctors, more nurses, more hospital beds, etc. Without any increase in supply, for one group of people to get more care, some other group has to get less.

We saw a vivid illustration of that during the Covid pandemic. In order to tend to the needs of a sudden surge in Covid patients, health care providers had to delay care for the non-Covid patients.

Throwing Money at the Problem

Our experience with Obamacare is similar to our experience with every major health program Congress has passed or even considered passing. We begin with a claim of unmet needs; we decide on a large sum of money to throw at the problem; but we never ask how the money can meet unmet needs if nothing is done on the supply side.

Medicare for the elderly and Medicaid for the poor were huge programs, even when they were started in 1965. In a short period of time the number of people who lacked health insurance dropped from nearly 25 percent to under 15 percent of the population.

As a result, physician visits by low-income people increased 6.2% and surgical procedures among the elderly increased 14.7%. But since there was no increase in the ability of the system to supply medical services, these increases were offset by a decrease in care delivered to the non-poor and the non-elderly. A study in the American Journal of Public Health found that “society-wide utilization of medical care remained unchanged.”

Even though there was an increase in health care services for seniors, MIT professor Amy Finkelstein discovered that the passage of Medicare had no effect on the health of the elderly—at least as measured by mortality. The additional spending set off a bout of health care inflation for all patients, however.

What lessons did Washington politicians learn as a result of this experience? Apparently, none at all.

During the first term of the Clinton Administration, Hillary Clinton proposed a plan to reform the private health care system and insure the remaining uninsured. But although that proposal consumed thousands of pages of analysis and discussion, almost no one asked what the nation would have less of in order to have more health care.

No Overall Increase in Health Care Utilization

Under Obamacare, the number of people without health insurance fell from 15.5 percent of the population in 2010 to 7.9 percent by 2022. Yet the study cited above found that health care utilization across all of society did not increase at all. There was some shifting, as low-income patients got more care, but that care was offset by reductions elsewhere in the system. In particular, “a 3.5-percentage-point increase in the proportion of persons earning less than or equal to 138% of the federal poverty level with at least 1 office visit was offset by small, nonsignificant reductions among the rest of the population.”

You might think that prescription drugs are different. If Congress liberalizes insurance for drugs, the drug companies can supply as much as patients demand. But even in the field of pharmaceuticals, there appears to be no limit to the ability of Congress to waste taxpayer money.

When Congress created Medicare Part D to pay for drugs in 2003, it created a $15.6 trillion unfunded liability for the federal government, looking indefinitely into the future. That was more than the unfunded liability in Social Security. Yet economist Andrew Rettenmaier discovered that only 7 percent of the benefits actually bought new drugs for seniors. The other 93 percent simply transferred to government (and therefore to taxpayers) the bill for drugs the elderly or their insurers were already buying. Only one in every thirteen dollars represented a new drug purchase.

Interestingly, the help given to the small number of people who were not otherwise getting medications actually reduced Medicare’s spending, as drugs were substituted for more expensive doctor and hospital therapies. But this profit on the truly needy was overwhelmed by the cost of giving the benefit to those who didn’t need it—a cost that has created an enormous obligation for current and future taxpayers."

Review of the book Questioning the Entrepreneurial State

The full title is Questioning the Entrepreneurial State Status-quo, Pitfalls, and the Need for Credible Innovation Policy Edited by Karl Wennberg and Christian Sandström.

Reviewed by Byron B. Carson III of Hampden-Sydney College.

"In Questioning the Entrepreneurial State, editors Karl Wennberg and Christian Sandström, refute arguments about state-led innovation with the help of 18 unique contributions from innovation, public policy, economics, and strategy and management scholars.

Arguments for state-led development sound convincing. State-led innovations and responses to grand challenges like the Manhattan Project, the Apollo mission, and defense spending on the internet can initiate or lead to substantial private and public benefits. Private actors, entrepreneurs, and firms face weak financial incentives, perhaps, to develop some projects. As such, individuals within the state should direct additional resources towards advancing similar goals via tax, green technology, and antitrust policies. These arguments are closely related to earlier works by Mariana Mazzucato, specifically The Entrepreneurial State: Debunking Public vs. Private Sector Myths (2013, New York: Anthem Press).

Overall, the authors in this volume argue that Mazzucato and other advocates for state-led innovation make serious conceptual errors. On platform firms like Amazon, for example, Sinclair Davidson and Jason Potts argue that the state might provide several inputs into their production process, i.e., military spending that developed the internet. The state, however, cannot be entrepreneurial as this would require a consideration of uncertainty (in the Knightian sense) and the search for novel products consumers value. No amount or kind of government policy can encourage the latter, entrepreneurial process.

Saras Sarasvathy examines several heuristics about risk and uncertainty that entrepreneurs might adopt, which clarifies the conditions under which private and public organizations might engage in entrepreneurial activity, for better or worse. Rather than place all your bets on the state as a driver of innovation, Sarasvathy develops a framework and principles to examine how entrepreneurs might select better plans.

Samuele Murtinu, Nicolai Foss, and Peter Klein argue that even the best-intentioned individuals in government are not residual claimants, which necessarily precludes them from behaving entrepreneurially. The lack of such incentives explains their review of the evidence, which shows that the state consistently fails to behave entrepreneurially: government transfers have mixed effects on poverty, health, unemployment, and human capital accumulation; government expenditures tend to increase public deficits; and government ownership tends to distort economic and political incentives. Political incentives like democratic rules, bureaucratic organization, and voter asymmetries further distort any link between state-led entrepreneurship and value creation. The chapter by John-Erik Bergkvist, Jerker Moodysson, and Sandström also shows that many innovation policies serve the interests of incumbent firms and limit system-wide transformation.

Several chapters apply these insights to sustainability policy. Regarding wind power in China, Jonas Grafström shows that state-led policy can encourage firms to produce inputs into wind power like turbines, but the state failed to also connect those inputs—like genuine entrepreneurs in a competitive market system would have—to produce electricity. Carlo Amenta and Carlo Stagnaro argue that European clean energy policies like subsidies for solar photovoltaic cells and wind power were not effective at achieving sustainability; they did not bolster the energy sector by creating new businesses or hiring new workers; and they tended to increase energy prices. Finally, Sandström and Carl Alm argue that the variety of state-led, green policies—from taxes and subsidies to more interventionist policies—distorts entrepreneurs’ and firms’ intertemporal considerations, which leads them to be more short-sighted, produce of less valuable goods and assume more debt. If advocates of state-led entrepreneurship argue private actors face poor incentives to consider long-term projects, the state is not clearly a way to overcome such problems.

Johan Larsson shows that arguments against state-led entrepreneurship are more difficult to wrestle with. There might be genuine market failures regarding coordination and the determination of goals—some of which might be global in size and scope—which state actors can resolve even if imperfectly (for a recent paper developing a framework on complex externality problems, see (Pablo Paniagua and Veeshan Rayamajhee, 2023, “On the Nature and Structure of Externalities,” Public Choice). Ultimately, Larsson argues that state-led growth can encourage innovation in specific contexts, but such contexts are likely unique and not replicable. While creating markets and encouraging growth are not something states can do well, they might be able to put a man on the moon.

The volume also discusses alternative drivers of innovation separate from states, namely universities and innovation incubator programs. Dan Hjalmarsson, for example, discusses the conditions under which Umeå University, in northern Sweden, and its Innovation Office connects, supports, and finances local entrepreneurs, students, and academics, to advance entrepreneurial projects in the natural sciences, technology, and fine arts. Siri Terjesen argues that universities can better become entrepreneurial via decentralized systems, contrary to the rise of bureaucratization of modern universities and colleges. Terjesen also discusses ways to combat rising academic bureaucracy, from the selection of cheaper colleges (where there are fewer levels of bureaucracy all else equal), the redesign of state university systems, and individual university-led efforts to intentionally cut bureaucracy—like the use of technological solutions.
After noting the disjoint between public spending on entrepreneurial projects and entrepreneurial outcomes, Anna Brattström develops a cultural perspective to entrepreneurship. This approach, supported by interviews with several actors in the entrepreneurship industry in Sweden, indicates how people view entrepreneurship as a cultural ideal, not something any single entity, public or private, might influence. While these values might encourage value creation, they also can produce barriers to entry.

Elias Collin, Sandström, and Wennberg evaluate the evaluators of publicly-funded innovation projects. They find that most evaluators succumb to conflicts of interest or, at the very least, fail to account for substantial negative aspects of a project. Consultants are particularly prone to find positive effects of an innovation project, which suggests the potential for consultant-shopping or a selection effect, both of which tend to yield positive evaluations. Relatedly, Sven-Olov Daunfeldt, Daniel Halvarsson, Patrick Tingvall, and Alexander McKelvie show that Swedish R&D grants have no statistically significant effect on the number of employees or the skill composition of the labor force. This evidence counters the typical claims made by advocates of such grants, especially when considering the costs, rent seeking, and crowding-out effects.

Each of these chapters provides an insightful salve against those who merely call for more government intervention. As such, they follow in the footsteps—albeit large footsteps—of Adam Smith on treating people and their goals as pieces of a chessboard (1759/1982, The Theory of Moral Sentiments, Indianapolis: Liberty Fund); Ludwig von Mises on the impossibility of economic calculation once property rights are distorted (1922, Socialism: An Economic and Sociological Analysis, New Haven: Yale University Press); Friedrich Hayek on how decentralized market participants generate knowledge (1945, “The Use of Knowledge in Society,” American Economic Review 35 (4): 519–30); Gordon Tullock on the nature of rent seeking ( 1967, “The Welfare Costs of Tariffs, Monopolies, and Theft,” Economic Inquiry 5 (3): 224–32); Donald Lavoie on the pitfalls of all kinds of central planning (2016, National Economic Planning: What Is Left? Arlington, Va.: Mercatus Center at George Mason University); and Thomas Sowell on unconstrained visions (2007, A Conflict of Visions: Ideological Origins of Political Struggles, Revised edition, New York: Basic Books.). Advocates of state-led entrepreneurship might make more thoughtful arguments if they take these scholars more seriously.

The arguments discussed in this volume could easily be applied to on-going conversations where many believe states—small and large—create value or behave entrepreneurially. Publicly funded sports stadiums and state-led infrastructure projects are two areas that come to mind. With the contribution of this volume, advocates of state-led innovation of all stripes now have a higher bar to meet."