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Volume 18, Issue 41: October 11, 2016

  1. Presidential Candidates Tout Protectionist Myths
  2. Taxpayers Face Penalties That Discourage Work
  3. Lies, Damn Lies, and Soda Taxes
  4. Nature Unbound Reveals the Harms from Environmental Bureaucracy
  5. Independent Updates

1) Presidential Candidates Tout Protectionist Myths

As last night’s debate confirmed, Donald Trump and Hillary Clinton disagree about nearly everything. But when it comes to international trade, the two rivals are remarkably similar: Both call for tightening import restrictions. Two-thirds of the American public agree with this sentiment, according to a Bloomberg survey published earlier this year. The new protectionism is just the latest proof that economists must redouble their efforts to educate the public on the overwhelming net benefits of trade, according to Independent Institute Senior Fellow Benjamin W. Powell.

“Economists have known that international trade enhances the wealth of trading nations since the publication of Adam Smith’s book The Wealth of Nations in 1776,” Powell writes. “In fact, probably no other topic commands as much agreement among economists today.”

The protectionist fallacy encompasses wages, output, and jobs. In reality (and in contrast to government “managed trade”), free trade increases the real wages of both trade partners by lowering prices. It increases output by fostering greater productivity based on greater specialization of labor and the exploitation of comparative advantages. And it frees up labor to work in sectors where its returns for society will be greatest. The benefits of trade are not “merely theoretical.” Contrary to Trump, the notion that Mexico is “beating” the United States is false (if the claim means anything at all), and contrary to Clinton, American consumers benefit when China subsidizes steel exports. Donald Trump and Hillary Clinton, Powell writes, “turn the logic of international trade on its head.”

Free Trade Is a Win-Win, by Benjamin W. Powell (The Detroit News, 10/4/16)

The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy, edited by Benjamin W. Powell

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin W. Powell


2) Taxpayers Face Penalties That Discourage Work

News about taxes is almost never good. Here’s more bad news. Many Americans sacrifice far more to the federal government than they realize. Seniors who see their nominal incomes rise, for example, can suffer a loss of Social Security benefits that exceeds the explicit taxes they pay on any extra income. This new finding—laid out in great detail and announced last month by Boston University economist Laurence Kotlikoff and his colleagues—has major consequences for the incentive to work. If more seniors understood how such penalties operated, many would stop trying to raise their incomes, according to Independent Institute Senior Fellow John C. Goodman.

A senior making $85,000 who increases her income to $86,000, for example, could see her annual Medicare Part B premiums increase by a whopping $534.40, Goodman explains. The reason? Medicare premiums were never indexed to inflation. Thus, the penalty hits more people than was originally intended. Social Security benefits and earnings suffer a similar problem. Kotlikoff and company have derived a new statistic—called the lifetime net marginal tax rate—that factors in the loss related to future taxes and future entitlement benefits. At the worst extreme, Goodman writes, “workers can lose 95 cents out of each dollar they earn just in the current year.”

It goes without saying that entitlement penalties inflict great harm on seniors’ pocketbooks. Ironically, such disincentives to earning extra income also harm the public purse. “If we abolished the [Social Security] earnings penalty, the government would probably be a net winner,” Goodman writes. “Seniors would work more and earn more, and the other taxes they pay would more than make up for any short-term revenue loss.”

Does It Pay to Work?, by John C. Goodman (Forbes, 9/26/16)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

Priceless: Curing the Healthcare Crisis, by John C. Goodman

The Sessions-Cassidy Health Plan, by John C. Goodman (8/25/16)


3) Lies, Damn Lies, and Soda Taxes

“It’s not a grocery tax, it’s a soda tax,” say television ads promoting excise taxes whose fate Bay Area voters will decide next month. Proponents of two soda-tax initiatives—Measure V in San Francisco and Measure HH in Oakland—have claimed that their taxes would hit only sugary drinks. But as Independent Institute Senior Fellow Lawrence J. McQuillan notes, the assertion is erroneous for reasons that every student of economics is taught.

From an economics perspective—and this is stressed in every basic microeconomics class—what matters is who ultimately pays the tax, not which party collects it. Beverage distributors required to pay a levy on soda pop may succeed in passing the tax to grocers who, in turn, may respond by raising the price of any of their products. Soda drinkers may not face higher prices after all, and soda consumption may not fall by a single drop.

Writes McQuillan. “The ad ends with: ‘Didn’t anyone tell big soda it’s not nice to lie?’ But it’s Michael Bloomberg and soda-tax proponents that are not telling the whole truth: grocery customers will face higher grocery bills as a result of the soda tax.”

Why Michael Bloomberg’s Pro-Soda-Tax Ad Is Misleading, by Lawrence J. McQuillan (The Beacon, 9/22/16)

Why Pro-Soda-Tax Ad in Bay Area Is Misleading, Part II, by Lawrence J. McQuillan (The Beacon, 10/10/16)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II


4) Nature Unbound Reveals the Harms from Environmental Bureaucracy

One of the most widely held myths of modern America is that the Environmental Protection Agency—indeed, most of the green legislation that Congress has enacted since the 1960s—is a rational response to environmental conditions made worse by the rise of industrial civilization. The fact that this falsehood is shared across the political spectrum is one reason why the publication of Nature Unbound: Bureaucracy vs. the Environment, by Randy T Simmons, Ryan M. Yonk, and Kenneth J. Sim, is so important.

Consider air pollution. Prior to passage of the federal Clean Air Act “state, local, and private efforts (such as innovations by the Big Three U.S. automakers that prevented crank-case hydrocarbons from being vented into the atmosphere, in use by 1961) had been steadily reducing air pollution,” writes George Leef in his review of Nature Unbound in Regulation magazine. Federal environmental bureaucrats are now working to expand their authority by claiming that carbon dioxide is a pollutant that falls under their jurisdiction.

In a great many cases, Simmons and his coauthors argue, federal efforts have been not merely redundant or inefficient; they been positively counterproductive. Consider the Endangered Species Act. The law has harmed the red cockaded woodpecker by creating perverse incentives for landowners to “shoot, shovel, and shut up” lest the discovery of the woodpecker on private land cause environmental bureaucrats to condemn commercial development of the property. “Students of regulation and public choice will find this book to be a feast,” Leef writes. “More encouragingly, environmentalists may find themselves rethinking their views on environmental policy after reading Nature Unbound.”

Man vs. Nature?, by George Leef (Regulation, Fall 2016)

Nature Unbound: Bureaucracy vs. the Environment, by Randy T Simmons, Ryan M. Yonk, and Kenneth J. Sim

Re-Thinking Green: Alternatives to Environmental Bureaucracy, edited by Robert Higgs and Carl P. Close


5) Independent Updates

The Beacon: New Blog Posts MyGovCost: New Blog Posts Featured Video News Alert


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