Tax Revolution Institute Essay Contest

I recently won the Tax Revolution Institute essay contest, an honor that surprised me. The essay can be read here.


Can Investment Saving Save The Economy?

A real and disturbing trend has emerged: Economic growth is slowing down, and we don’t know why–or for how long. That is the topic of discussion in Harvard economist Greg Mankiw’s newest New York Times column.

Mankiw offers multiple reasons why growth is slowing down, but before we get to those–and their supposed solutions–let’s first diagnose the problem. As Mankiw writes, “the growth rate of real G.D.P. per person has averaged just 0.44 percent per year, compared with the historical norm of 2.0 percent. At a rate of 2.0 percent, incomes double every 35 years. At a rate of 0.44 percent, it takes about 160 years to double.” In other words, had growth during the recent “recovery” met historical averages–the growth didn’t even have to be spectacular, just normal–we would be much wealthier today than we are.

In fact, if the growth trend continues, we will be much, much poorer. The recent drop in median income is nothing like what we will face in the future.

So, what is causing this?

Mankiw offers a few theories. The theory I like to side with is the one where the government is the problem (see here). That may be my conservatism speaking, but it makes the most sense. Median income, for example, is falling because we are working less, exemplified by record low labor participation rates.

Many have argued this is simply a symptom of demographic changes; Americans are getting older, and older people are less likely to work. But this can’t explain falling teenage labor force participation rates.

Both of these trends began around 2000, when regulations began to increase at an even faster pace, and they accelerated during Obama’s presidency, when both tax increases and regulatory increases were underway. Not to mention skyrocketing spending, among other things.

One other theory–the secular stagnation theory–holds that there isn’t enough demand to provide sufficient amount of employment to our economy. The solution? Government investment spending.

But there’s a problem with this: A new report by the CBO has concluded the effect of government investment is, when all is said and done, essentially zero.

The short-term effects of a billion dollars in spending is only $50 million. The effect on productivity is long-term, with the effects only being fully hashed out 20 years later. But even these long-run effects aren’t very large. Putting all of the effects together, a $500 billion investment spending package would shrink the economy by $9 billion but grow it by $15 billion, leading to a $6 billion increase in GDP. But, as our economy is worth in excess of $18 trillion, these effects are minuscule.

So the real solutions aren’t more government intrusion; the solution is less. We need to undo the bad policies of today and implement better policies tomorrow. We need health care reform, tort reform, immigration reform, tax reform, entitlement reform, and most of all, regulatory reform. Even Michael Mandel of the Progressive Policy Institute believes we need to drastically reform the regulatory bureaucracy in this country.

Even if those policies don’t bring us to the historical level, I suspect they will bring us up a few points. And that means a lot in the long run.

The more mudslinging that enters the political realm, the less positive change can be done. Leftists need to stop calling conservatives idiots, bigots, and crazies; conservatives need to stop calling liberals idiots, bigots, and crazies. We need to stop. Because if we don’t, we’ll all be a lot worse off.

On The “Immigrants Do Jobs Americans Won’t Do”

Progressives frequently claim “[Illegal] immigrants do jobs Americans won’t do.” But the argument is wrong–really wrong. I support immigration. I support immigration reform. But, really, people have to stop using this argument.

Never say immigrants “do jobs Americans don’t do.” The argument is false; Americans would be willing to do those jobs if wages were high enough.

In reality, the argument should be “immigrants do jobs that wouldn’t otherwise exist without their labor.” Indeed, those jobs wouldn’t exist if wages were higher than they were. The only reason those jobs haven’t been outsourced or automated is because immigrants come here to do them.

A way to conceptualize this is to imagine a minimum wage hike. More Americans would be willing to work at McDonalds if the minimum wage was $50. Of course, a minimum wage of $50 would mean McDonalds would have fewer jobs to offer.

In the same way, immigrants aren’t stealing American farm jobs; they are doing jobs that wouldn’t exist if farmers had to pay their farm hands ludicrously high wages.

So the argument liberals like to use isn’t necessarily wrong. They are correct to say illegal immigrants don’t take jobs away from natives, but the phraseology is off. Way off.

And this isn’t the only reason why undocumented immigrants don’t “take” jobs.

See, it would be difficult for immigrants to steal jobs from natives just based on their educational composition. Immigrants are usually either really educated or not educated at all. Around 80% either have a PhD or are high school dropouts. Most Americans, by contrast, are somewhere in the middle (high school diploma through masters degree), meaning they don’t compete for the same jobs.

So how do immigrants affect the labor market? Well, when low-skilled immigrants come, they are usually not fluent in English and are uneducated, so they specialize in low-skilled manual labor. Companies now are able to have more manual oriented jobs–building houses, roads, cleaning yards, sewing clothes, etc. But, with more manual jobs, they also need more managerial jobs in order to keep things in order. These managerial positions are generally mid-education (HS diploma – master’s) and are usually filled by natives who are fluent in English. This means, for the average American, low-skilled immigrants benefit native workers. The theory that immigrants compliment, rather than supplement, American labor has been empirically demonstrated.

On the high-skilled end (generally these are the “legal” immigrants), these are the people who make businesses, innovate, and contribute to high-skilled labor markets. These people are pretty much universally considered “good” by most restrictionists.

In sum, when the phraseology of the popular “they do jobs you won’t do” argument is amended, the argument works well. And other arguments–like how immigrants don’t substitute American labor, but instead they compliment it, are also valid points. But please, stop saying immigrants do jobs Americans won’t do. It’s just flat out wrong.

The Affordable Care Act Isn’t So Affordable

Business Insider has a new interesting article summarizing the results of a recent Urban Institute report. The results shouldn’t surprise those on the political right, because it confirms what we have been saying all along: The Affordable Care Act (ACA) hasn’t made healthcare any more affordable.

The following image comes directly from the article.

obamacare premium map

While some states, including the state in which I currently reside (New Mexico), have seen a decline in premiums, the overall trend seems to be up. The average increase, according to the report, is 20%. 12 states have seen increases above that average, and sometimes significantly so (AK at 40%, OK at 41%, and TN at 38% are the most extreme examples).

The results of the report are similar to studies emanating from the Manhattan Institute, which also finds large increases in health care costs (see here and here).

The authors of the Urban Institute study conclude that the wide range of price changes can be explained by differences in competition. Business Insider writes,

“However, the most important factors associated with lowest-cost silver plan premiums and premium increases are those defining the contours of competition in the market,” the report concluded. “Rating areas with more competitors had significantly lower premiums and lower rates of increase than those that did not.”

Indeed, conservatives have a solution to this: By empowering the consumer and reducing barriers to competition, we can usher in a period of health care cost reductions while maintaining state of the art medical care.

An advanced copy of a new study by Dr. Scott Atlas has been released by the Hoover Institution. The report explains how to do just that: empower the consumer and increase competition.