Student Loan Forgiveness Is a Political Bribe

Buying votes for the Democratic Party is the only possible justification for such an unfair giveaway of taxpayer money.

By Phil Gramm and Mike Solon. Excerpts: 

"Those earning in the top 40% owe 60% of all student-loan debt. Very high earners with doctorates, medical degrees or law degrees owe 40% of all student debt. In the long history of the world’s debt-forgiveness debate, few have ever had a weaker case than American student-loan debtors. President Reagan viewed their argument for relief as so lame that he garnished the wages of government employees to collect defaulted student loans.

Even the liberal Urban Institute finds that “debt forgiveness plans would be regressive—providing the largest monetary benefits to those with the highest incomes.” And since politics has always been its sole justification, what does it say when Colorado Democratic Sen. Michael Bennet rejects its political advantages? “It offers nothing to Americans who paid off their college debts or those who chose a lower price college,” he said earlier this month. “It ignores the majority of Americans who never went to college, some of whom have debts that are just as staggering and just as unfair.”"

"But as politics drives debt forgiveness ever larger, its costs surge and its destructive effect on the economy and social fabric mounts. Government becomes little more than a piñata that voters bash until the goodies fall out. Where does this process end?

The most consequential falsehood in modern American political history was the promise that under ObamaCare if you liked your health plan you could keep it. Yet that same legislation carried a second whopper. The Congressional Budget Office projected that the same bill would pay for $19 billion of ObamaCare’s cost by nationalizing private student debt. Forgiveness and forbearance have already cost taxpayers $31 billion, $8 billion of which was granted to public employees who have greater job security, better pension benefits and higher wages than the average American worker. Mr. Biden’s minimum offer would cost $380 billion more, and Senate Democrats want $950 billion forgiven." 

A Whitewash of Biden’s Record on Inflation

The only defense of the president’s reckless budget policy is that the Fed pursued an even more irresponsible monetary policy.

Letter to WSJ.

"Alan Blinder is right that multiple factors contributed to inflation’s recent surge (“Biden Isn’t to Blame for Inflation,” June 29). But his suggestion that the American Rescue Plan added only 0.1% to today’s inflation rate stretches credulity. The $1.9 trillion stimulus package in March 2021 was preceded by almost $3 trillion in stimulus the previous year. The U.S. economy received over 20% of gross domestic product in increased public spending. That dwarfed early 2021’s output gap of around 4% of GDP.

The only defense of President Biden’s reckless budget policy is that Jerome Powell’s Federal Reserve pursued an even more irresponsible monetary policy by keeping interest rates at their zero bound and by allowing the broad money supply to increase by some 40% over a two-year period.

One didn’t need an economics Ph.D. to foresee that massive budget stimulus and prolonged ultraeasy monetary policy would lead to overheating and an acceleration in inflation.

Desmond Lachman

American Enterprise Institute

Washington"

Economic Growth, Not Austerity, Is the Answer to Inflation

Lawrence Summers was right about the danger of excessive spending. But now he wants high unemployment

By Arthur Laffer and Stephen Moore.

"Lawrence Summers, who served as Bill Clinton’s Treasury secretary, rocked the Democratic establishment last year by predicting that his party’s excessive spending would cause inflation. He was right. But he’s wrong now. On June 20 he told Bloomberg that “we need five years of unemployment above 5% to contain inflation”—or perhaps one year of 10% unemployment. That would throw millions of Americans out of work.

Mr. Summers echoed the advice of his uncle, the Nobel economics laureate Paul Samuelson, who famously wrote in 1980, a time of double-digit inflation, that “five to ten years of austerity, in which the unemployment rate rises to an eight or nine percent average and real output inches upward at barely one or two percent per year, might accomplish a gradual taming of U.S. inflation.”

Walter Heller, chairman of the Council of Economic Advisers under Presidents John F. Kennedy and Lyndon B. Johnson, similarly predicted that the 1981 Reagan tax cuts “would soon generate soaring deficits and roaring inflation.” He, too, was wrong. From Jan. 1, 1983, when the tax cuts took effect, to June 30, 1984, U.S. real gross domestic product grew at an average annual rate of 8%. Inflation collapsed.

Catalysts for inflation vary—excessive government spending, printing too much money, currency devaluations, specific and general shortages of goods and services. Once embedded in an economy they can create long-lasting inflation. The secret to curing inflation isn’t economic collapse and high unemployment but the opposite: pro-growth policies that create incentives for more goods, more employment, less government spending and sound money. As the economy produces more, prices go down.

Conversely, austerity means less goods produced and less employment. How does putting people out of work and reducing the supply of goods cause the prices of goods to fall?

History proves growth doesn’t cause inflation. In the 1920s, when the highest tax rate was cut from 73% to 25%, real GDP soared and the price level fell. In the 1960s, tax cuts and pro-growth policies led to an economic expansion, stable prices and budget surpluses.

The one mistake of the Reagan plan was to phase in tax cuts rather than implement them immediately. That contributed to the severe recession of 1982. Congress and President Trump avoided this pitfall in the Tax Cuts and Jobs Act of 2017, which avoided a downturn and kept inflation very low. Before Covid hit, we had the best of all worlds: the lowest unemployment rate in 50 years, 2% inflation and steady growth in real income for almost all Americans.

We don’t need austerity. An end to President Biden’s war on energy, permanent tax cuts, deregulation, less government spending and an immediate tightening of monetary policy by selling off some of the trillions of dollars of assets on the Federal Reserve balance sheet—that’s the formula for low inflation and low unemployment."

The Israeli Kibbutz Used to Be Seen as a Model for Kinder, Gentler Socialism. Then It Embraced Markets.

By James Pethokoukis of AEI.

"When Sen. Bernie Sanders ran for US president in 2015 and 2019, there was some speculation about how his democratic-socialist beliefs were influenced by the few months he spent volunteering on an Israeli kibbutz back in 1963. Such curiosity makes sense. The collective communities—the first was established in 1909 and originally all were farms—are famous for their socialist ideology. As described in the new NBER working paper “The Effect of Labor Market Liberalization on Political Behavior and Free Market Norms” by Ran Abramitzky (Stanford University), Netanel Ben-Porath (Hebrew University), Shahar Lahad (Hebrew University), Victor Lavy (University of Warwick), and Michal Palgi (Haifa University): 

For most of their existence, kibbutzim were based on full income equality, collective property ownership, and a strong mutual guarantee among members. In a traditional kibbutz, members received an equal income allowance regardless of their contributions, following the Marxist principle, “From each according to his abilities, to each according to his needs.” Members who worked outside their kibbutz had to give their full salaries to the common pull of the kibbutz income. . . . Beyond socialist ideology, mutual guarantee among members has always been a key principle. The kibbutz bylaws (our translation from Hebrew) emphasize the commitment to “provide for the economic, social, cultural, educational, and personal needs of members and their dependents . . . [and] to ensure a decent standard of living for kibbutz members and their dependents.”

In addition to the written rules of these utopian rural communities, the views of their members reinforce the importance of socialist equality and the mutual guarantee. The researchers point to surveys conducted in kibbutzim in the late 1960s where members said the most important community values “were socialist values such as ‘collectivity and equality’ and ‘developing a model socialist society,’ alongside mutual guarantee values such as ‘full social security’ and ‘an adequate standard of living.’” 

What’s super-interesting here in the history of the kibbutzim—a history I was unaware of—is that starting in the late 1990s, there was a shift away from equal sharing toward market-based wages. “For the members who worked outside their kibbutzim (approximately one-fourth of all members), market wages were those they earned from their outside employers (to reiterate, before the reforms, these wages were added to the kibbutz income pool). For members who worked inside, market wages were set to reflect wages of non-kibbutz workers with similar occupations, education, skills, and experience.” The researchers attribute this shift to a variety of economic factors including a decline in world prices for agricultural commodities, bad financial management of the kibbutzim, and the 1990s tech boom that made outside work more lucrative.

Just as super-interesting: how this liberalization affected attitudes of kibbutz members:

We find that labor market liberalization led to increased support of open labor market policies such as competitive labor market mechanisms, increased pay for overtime work, and differential wages. It decreased support for socialist policies, such as the joint ownership of the means of production. . . . Although most kibbutz members support the differential pay reforms, they still want to maintain their core principle of mutual guarantee. When reflecting on how they want to live and build their society, most members want to live in neither a traditional socialist kibbutz nor a capitalist city. Most of them prefer something in the middle—a market economy within a compassionate society with a comprehensive safety net.

And how exactly did liberalization change those socialist attitudes to something more market friendly, something more Nordic, more social democratic than democratic socialist? 

The effects we document appear to be driven by an increase in living standards and work ethics that resulted from the reform. Equal sharing in the traditional kibbutz encouraged shirking and free riding. While strong idealism among founders helped kibbutzim reduce these problems in the past, idealism declined over time, and the second and third generations became less idealistic than the founding generation. By the 1990s, before reforms took place, members complained about shirkers. As reported by members in surveys, our findings provide quantitative evidence that the reform improved kibbutzim’s members’ economic conditions and work ethics. These improvements might have, in turn, contributed to the more favorable attitudes of kibbutz members towards open labor market policies. Such improved economic conditions and work ethics might explain why even groups that stood to lose in relative terms from the reform, such as older and less educated members, supported it. . . . Moreover, these groups may have concluded that a shift away from equal sharing was inevitable for the long-term survival of their kibbutz, and accordingly became more favorable to market mechanisms after the reform.

The paper’s footnotes include some interesting quotes from kibbutz members that really drive home the above conclusion. Quotes such as “People like me who started as socialists concluded that you can work hard and get nothing while others don’t work hard. It is so unfair.” And another: “[M]ost strong members said that they don’t want to carry on their back those who don’t earn, that they want to take care of themselves.”

Perhaps if Sanders had stayed on the kibbutz he might no longer be a democratic socialist."

Canada’s Wasteful Plan to Regulate Plastic Waste

By Kenneth P. Green of The Fraser Institute.

"At the end of 2021, the government of Canada launched a regulatory campaign against plastic waste—Zero-Plastic Waste 2030 (ZPW2030)—that will, in the estimation of its own Regulatory Impact Assessment, impose costs on Canadian society exceeding projected benefits. This fails the first, and arguably most important, test of sound public policy.

Environmental Impacts

ZPW2030 will produce little or no environmental benefit because Canada’s plastics economy poses a very small environmental risk either locally or globally. Only one percent of Canada’s plastic wastes are ever released into the environment. The other 99% is disposed off safely from an environmental perspective: some incinerated, some recycled, but most discarded in landfills, an environmentally benign endpoint.

Canada’s contribution to global aquatic plastic pollution, when assessed in 2016, was between 0.02% and 0.03% of the global total. If observed market trends were to continue in the absence of ZPW2030, the government’s Regulatory Impact Assessment estimates plastic waste and plastic pollution could increase (from 2016 levels) by roughly one third by 2030. Thus, if ZPW2030 eliminated all the predicted increase, it would prevent an increase from 0.02%–0.03% to 0.023%–0.033% of the global total, an undetectable reduction of three thousandths of one percent.

Even that small reduction in environmental harm is likely to be offset by increased environmental harms stemming from replacements for the plastic products banned under ZPW2030. As government acknowledges, “the proposed Regulations are expected to increase the waste generated from substitutes by 298,054 tonnes in the first year of full policy stringency (2024) and by around 3.2 million tonnes over the analytical period (2023 to 2032), almost all of which is driven by paper substitutes”. And, the government observes: “The proposed Regulations would prevent approximately 1.6 million tonnes of plastics from entering the waste stream over the analytical period but would also add about 3.2 million tonnes of other materials to the waste stream from the use of substitutes”.

The potential for this kind of regulatory “backfire” fails another important test of sound health and environment-related public policy, which is “First, do no harm”.

Economic impacts

As the government’s Regulatory Impact Analysis shows, the monetized costs of the proposed single-use plastics regulations—CA$1.3 billion—will outstrip the monetized benefits—CA$619 million—by nearly 2:1. According to a report the government contracted Deloitte to produce, over the course of the initiative estimated benefits of the overall ZPW2030 regime are estimated to be up to CA$10.5 billion, but would require investment in new facilities of up to CA$8.3 billion to achieve it. Even then, in 2030, annual costs of the program are estimated to exceed benefits by CA$300 million per year.

These costs will ultimately be borne by consumers, as the government observes: the increased volume of wastes discussed above will “represent additional costs for municipalities and provincial authorities, as they are usually responsible for managing collection, transportation, and landfilling of plastic waste, and would assume most of the associated costs, which would ultimately be passed on to taxpayers”.

Alternative policy options
Canada’s policy makers should consider re-targeting and refocusing its ambitious plan to regulate Canadian plastic wastes, which are a very small environmental problem in Canada, and constitute only a vanishingly small contribution to the global plastic pollution problem. Instead, Canadian policy makers could examine ways to crack down on end-point improper disposal of plastic wastes, such as littering in general. To the extent the federal government is involved with solid waste management, they might look for incentives they could develop to improve street cleaning and municipal waste management and handling practices to prevent littered plastics from lingering in Canada’s environment or leaving its bounds to become part of a global problem."

DEBUNKED and EXPLAINED: No, greedy oil companies are not to blame for gas prices

By Carol Roth. She is the author of the books "The War on Small Business" and the New York Times best-seller "The Entrepreneur Equation."

"U.S. gas prices hit an average of $5 per gallon for the first time last week, according to AAA. Americans are having to spend more of their hard-earned money on energy. But who is really to blame?

It is probably helpful to start with a breakdown of the components of the price of gas.

The cost of crude oil is the biggest cost component of a gallon of gas and can skew the cost. In January, via the U.S. Energy Information Administration, the cost of crude was just over half the cost of gasoline, at 52%. In February it was 61%, and as of March 2022, it was 59% of the total cost of a gallon of “regular” gasoline (diesel varies slightly). Given its overall weighting to cost, changes to crude oil prices have an outsized impact on final gas prices.

The remaining major cost areas include refining, marketing and distribution, and taxes. As of March 2022, refining was about 18% of the total costs, distribution and marketing about 12%, and taxes (federal, state, and local) about 12%, depending on your location. 

It is worth noting that gas stations make very little, and they don’t reap windfalls when prices go up. Most gas stations are independently operated, even those that bear a brand associated with a major oil company. It is estimated that a retailer’s markup on a gallon of gas is around 15 cents, and the profit after expenses averages around 2 cents per gallon. Because of this low take, most gas stations supplement their business with selling a variety of other things, from cigarettes to beverages.  

The cost of crude

The cost of crude oil is set by factors of supply and demand. Supply/demand imbalances can lead to major swings in the price of oil, as we have seen recently. Of course, there is also a major oil cartel that decides how much to produce at given times, which factors heavily into supply.

On the demand side, the world has seen massive shifts because of decisions made around the world related to the pandemic and the changes in behaviors that brought about. As people were locked down, demand plummeted, and as people emerged from lockdowns, demand increased. When China fully emerges from another series of lockdowns, as the number-one importer of oil in the world, it will add demand to the worldwide market.

In 2021, the U.S. used almost 20 million barrels per day; worldwide, around 100 million barrels per day were used. You can see why President Biden’s PR stunts of releasing a small amount of inventory from the U.S. strategic reserves wasn’t going to have a meaningful, lasting impact on pricing.

On the supply side, in addition to the whims of OPEC+ regarding production, a variety of domestic and international factors impact oil production. The push for green energy has thwarted the progress that the U.S. was making in energy independence and increasing supply. The Biden administration canceling oil and gas leases, shutting down pipeline progress, and having substantial red tape for drilling and production all factor into the market calculations on what supply will be like today and going forward.

Additionally, the demonization of this critical industry, including the push of ESG initiatives to direct capital away from traditional energy projects, has led to substantial under-investment in the sector, which also materially impacts the supply side of the equation. It is estimated that as much as a trillion dollars in investment has been postponed or canceled over the past few years, with a large part of that related to the ESG and green energy pushes.

According to the U.S. Energy Information Administration, looking at the U.S. field production of crude oil, while the U.S. was producing almost 13 million barrels per day of crude oil before the pandemic, we are now only at 11.655 million barrels per day (as of March 2022).

Europe has largely done the same and is paying the price, quite literally, for it. The Russian invasion of Ukraine took already increasing prices and added a new supply constraint on them, to some extent. The EU is still buying, and with the higher prices Putin is on track to make more money on oil and gas exports this year than last year!

Of course, if the U.S. and Europe had been leaning into more traditional sources of energy (along with expanding their green initiatives instead of trying to substitute the latter ahead of time), the supply would be closer to parity with demand than it is today, even with the invasion.

There is also a monetary policy component to this. If the Federal Reserve had been managing interest rates appropriately and not printing trillions of dollars, we wouldn’t be seeing inflation in everything, including oil and gas, at the same levels as they are at today.

Refining

People tend to forget about some of the other costs of gasoline. Refining is the process that turns the crude oil into not only gasoline but a variety of other products and components for products. These costs depend on the time of year and geography, based on laws that require different blends for different times of year and the associated climates. Input costs of items that may also be refined with the gasoline can also impact this cost (think ethanol). The supply-constrained labor market also makes wages more expensive throughout the organizations that do the refining.

Distribution and marketing

Oil needs to get from its location to the refinery. Once the oil is processed into gasoline, it doesn’t magically appear at the gas stations, either. All of the distribution related to eventually getting gas to you is intricate and expensive. Given that energy is required to transport the oil and gas, increasing energy costs end up being a double whammy for you at the pump. Again, the labor market is also making wages in distribution more expensive. The American Petroleum Institute (“API”) says on the marketing side, “Marketing costs are incurred to support the sale of gasoline by the refineries, distributors and wholesalers and the retailer.”

Taxes

API estimates that on average, 57 cents per gallon of gasoline goes to taxes. The federal tax is constant at 18.4 cents per gallon. State and local taxes vary widely. The high is California at 68 cents, and the low is Alaska at 15 cents, with the state average around 39 cents.

At least this is better than in Europe. Accounting firm UHY says that “on average taxes comprise 59% of the cost of the price of petrol and 52% of the cost of the price of diesel.” This high taxation is meant in part to discourage the use of such fuels.

Are the oil companies and greed to blame?

Oil companies work to supply you with gasoline, as well as other petroleum byproducts, regardless of the broader economic situation.

As noted, the biggest component price in gasoline is set by the market, with a thumb on the scale from OPEC+. With several U.S. companies delivering gas products, if one company wanted to charge even more for its products, other companies could take market share by setting a better price. Obviously, the constraint of supply factors in here as well.

During the sharp reduction in demand during the pandemic, major oil companies took huge losses. The five biggest companies (aka “Big Oil”) lost a combined $76 billion. But if you needed gas, they were still there for you. Furthermore, nobody offered to pay more to help them out.

Now that demand has increased far ahead of supply, the market has driven crude prices up, which has given them more revenue and, as that works, more profit.

In a June 10 tweet, Fox Business host Charles Payne said, “In 2020 Exxon lost $22.4 billion; federal government made $25.8 billion on gas taxes,” and pointed out the federal government is likely making much more today.

While people like to look for a scapegoat, price gouging isn’t what we are seeing today.

While it is easy to focus on gas prices because you see them every day, the supply/demand imbalance in the availability vs. need for traditional energy sources shows up elsewhere. It flows (no pun intended) through the entire economy, from the cost of moving goods and components for services to their destinations to a myriad of byproducts, including those impacting the availability and cost of food.

Some may say that price controls are the answer. They are never the answer. They lead to hoarding and less supply and never have the intended outcome.

You may hear that we should nationalize the oil companies. One only needs to look to Venezuela, which used to be the fourth wealthiest country in the world before nationalizing its oil. Now its citizens have a median net worth of zero.

The reality is we need energy. We needs lots of it. We need more of it. All kinds of energy. While new, “greener” sources of energy are being developed and scaled, we should, side by side, be investing in more traditional sources of energy as well, including nuclear energy.

President Biden could change all of our fortunes today and for the future by changing his energy policy. Signal to the markets that more investment will be going to traditional energy, alongside green initiatives. Clear the red tape and reinstitute drilling, leasing, and pipelines.

While we can’t turn on a tap overnight, those kinds of policies would start to show relief at the pump today, but even more importantly, secure our future, financially and in national security."

A Federal Right To Online Drama In the Workplace?

By Walter Olson of Cato.

"According to a widely discussed article by Ryan Grim in The Intercept, staff meltdowns over social justice issues have lately been paralyzing some well‐​known progressive organizations. Meanwhile publications like the Washington Post have become the scene of pitched public social media battles in which writers and editors call each other out publicly over purported insensitivity or privilege. If some Biden administration officials have their way, dramas like these may soon be coming to a workplace like yours.

It’s all due to a little‐​known and still‐​unsettled portion of the New Deal‐​era Wagner Act, more formally the National Labor Relations Act. While most of us may think of the NLRA as a law concerning collective bargaining and union organizing, it actually reaches further than that in language making it a breach of federal law for employers to retaliate against workers for certain “concerted activity” whether or not a union or organizers are present. HR Dive recently quoted Joseph Beachboard, managing director at law firm Ogletree Deakins, as noting that the 1935 law

protects workers’ rights to engage in concerted activity for mutual aid or protection. Historically, that referred to employees working together to secure better wages or hours, “but we have a new sheriff in town at the National Labor Relations Board, and her name is Jennifer Abruzzo,” Beachboard said. Abruzzo is aiming to expand the concept to include issues of social justice, economic fairness, racial justice and more, he continued.

Ambitious plans to use the Board’s “concerted activity” authority are not emerging entirely out of left field, if that’s the right figure of speech. As I wrote four years ago in this space,

some labor movement advocates have hoped to use this catchall language as the future engine by which the NLRB would gain power to impose major new regulatory requirements at non‐​union workplaces — all sorts of on‐ and off‐​job interactions between colleagues might be interpreted as concerted activity if you squint at them the right way.

The idea here is that that employee unrest on “issues of social justice, economic fairness, racial justice” and more can be interpreted as “concerted activity” so long as the vocal complainer teams up (or perhaps just intends to team up?) with at least one co‐​thinker in the workplace. Once you assume that, you pave the way for a future Board to find employers liable for violating federal labor law if they put down the latest Slack social‐​justice mutiny, announce a policy against letting divisive national issues into the office, or discipline the clique that has pushed a public campaign to get a manager or colleague fired.

I noted last time that it’s by no means clear that the Supreme Court as currently constituted would agree to read the “concerted activity” language in a broad enough way to authorize such a vast power grab over workplace interactions. It’s also possible that First Amendment arguments would cut against some interpretations of a broad regulation. But the NLRB is in a position to put employers through years of grief before they could hope to bring such arguments to a final Supreme Court ruling. Let’s hope it doesn’t try to do that."