Tuesday , November 12 2019
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Ryan Bourne

Ryan Bourne

Chair in public understanding of economics at @CatoInstitute .

Articles by Ryan Bourne

No, A Wealth Tax Is Not Like A Cigarette Tax

5 days ago

Neil Irwin of the New York Times says Elizabeth Warren’s wealth tax should be thought of as akin to a cigarette tax, rather than an ordinary revenue raiser.
The point of it, he says, is not just to raise some funds for new government programs, but to deter vast wealth accumulation in the first place. This, he concludes, makes it a Pigouvian tax. As with these types of taxes on cigarettes, its aim is in part to reduce the activity it is taxing (the ranks of the super wealthy).
This is not very convincing and very confused on the economic theory.
The idea behind Pigouvian taxes is not that certain products or activities are inherently “bad,” but that their consumption generates broader social costs than those faced by the individual consumer. In a free-market, I might buy and smoke

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Hope from Europe on Economic Liberty

6 days ago

Last week I attended and spoke at a conference hosted by the Financial Times and JTI on economic regulation in Prague.
During my panel on the regulation of AI and other innovative new technologies, I made five substantive points about the economics and public policy implications of new technologies:
As far as possible, policymakers should allow permissionless innovation rather than be overly precautionary, only intervening when there was a clear need to do so for some specific application in a given product market.
Where regulatory oversight occurs and new products compete with existing goods, policymakers shouldn’t automatically try to shoehorn innovations into current regulatory strictures to maintain a “level playing field.” New products often come with new safety features, for example,

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Do Elizabeth Warren and Bernie Sanders Really Care About Wealth Inequality?

7 days ago

Senator Bernie Sanders has called levels of U.S. wealth inequality “outrageous,” “grotesque” and “immoral.” Democratic presidential candidate Elizabeth Warren is pushing for a wealth tax to curb what she describes as “runaway wealth concentration.” Yet despite their rhetoric, it’s not clear, deep down, whether either really cares about wealth inequality per se or believes that reducing it should be an overriding public policy goal.
To see why, consider this. Every year, Credit Suisse calculates a wealth “Gini coefficient” for major countries, indicating their level of wealth inequality in a single number from 0 to 100. Higher numbers indicate higher inequality. In 2018, the U.S. really did have a comparatively high figure at 85, as Warren and Sanders lament. But how this number compares to

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Has Wealth Inequality Eroded U.S. Democracy?

19 days ago

“Billionaires have seized our government,” Senator Elizabeth Warren claimed earlier this year. This idea, that the rise in wealth inequality has led to the capture of politics by super wealthy elites, is fast becoming conventional wisdom on the left of politics and used as justification for wealth taxes.
Paul Krugman has asked, for example, “Can anyone seriously deny that our political system is being warped by the influence of big money, and that the warping is getting worse as the wealth of a few grows ever larger?”
Former lead economist at the World Bank, Branko Milanović, has claimed “In every political system, even a democracy, the rich tend to hold more political power. The danger is that this political power will be used to promote policies that further cement the economic power of

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Democrats Are Wrong: America Does Not Have A Widespread “Monopoly Problem”

22 days ago

Senator Elizabeth Warren vowed not to “let a handful of monopolists dominate our economy.” Senator Amy Klobuchar claimed we were living through “another gilded age.” “In sector after sector…” Bernie Sanders added, “we need a president who has the guts to appoint an attorney general who will take on these huge monopolies.” Last week’s Democratic debate showed a clear conventional wisdom in that party: America’s economy is besieged by a monopoly problem.
Markets are said to be dominated by ever smaller numbers of firms enjoying rising markups of price over cost. Consumers are supposedly suffering higher prices and less innovation while competitors struggle to stay afloat because of behemoth anticompetitive behavior. The explanation? Supposedly a turn away from anti-monopoly policies over

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Larry Summers Wisdom On Wealth Inequality

25 days ago

Chris Edwards argued earlier in the week that wealth inequality statistics alone tell us little to nothing interesting about the American economy. It seems Larry Summers agrees (see from 8h 27 mins).
In a speech at PIIE yesterday, the former Treasury Secretary under Bill Clinton outlined why wealth inequality wasn’t a particularly useful measure to consider the justness of a society.
He highlighted, for example, that the arguments about wealth inequality and political power appear to have almost no validity. Interest groups and corporate lobbying are much more important sources of political power than wealthy individuals. In the panel discussion afterward, he pressed economist Emmanuel Saez to give just one example or mechanism of how an extraordinarily rich individual losing a large

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The Economic Consequences of Sen. Sanders’ Stock Confiscation Plan

28 days ago

Bernie Sanders would confiscate 20 percent ownership stakes in 22,000 companies, distributing the stocks to workers through shared employee ownership funds. His “Corporate Accountability Plan,” announced yesterday, should lay to bed any lingering doubts that “democratic socialism” is just about social democracy, or a bigger welfare state. Rather, it amounts to a fundamental attempt to re-order the American economy through federal government edicts.
Under Sanders’ “Democratic Employee Ownership Funds,” all publicly traded companies and those with at least $100 million in annual revenue would have to contribute 20 percent of their stock to “workers” over a decade, creating an “employee-controlled fund” that distributes any dividends to employees. Unlike ordinary stocks, workers couldn’t sell

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Statewide California Rent Control: Shooting The Price Messenger

September 12, 2019

California has approved a statewide annual rent increase cap of 5 percent plus inflation for rentable accommodation in buildings more than 15 years old. Though technically an “anti-gouging” measure (it expires after 10 years), most would recognize this price cap for what it is: rent control.
Economists should be baffled about rent control’s recent revival. Controlling rental prices is one of those rare policies that practitioners of the dismal science overwhelmingly oppose. It’s even more troubling that it has been introduced in California. Recent academic evidence suggests that a 1994 San Francisco ballot initiative to introduce rent control for small multifamily housing built before 1980 actually led to:
rent-controlled buildings being almost 10% more likely to convert to a condo or a

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What’s the Point of the Overtime Pay Regulation?

August 30, 2019

The Trump administration will reportedly raise the overtime pay salary threshold from $23,660 to $36,000 in the coming weeks. Anyone below the current threshold is eligible to be paid at least one-and-a-half times their regular wage for any hours worked above 40 per week. The proposed change would make approximately 1.3 million extra people eligible for overtime pay.
Economically, such a regulatory change is a great big nothing burger. It will do nothing to affect long-term overall compensation, but will bring mild labor market dysfunction and adjustment costs along the way.
Yes, in the short-run, employers have business practices and contracts with their employees that take time to change. Some workers will therefore benefit from higher total compensation in the immediate aftermath

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On Oren Cass and Industrial Policy

August 16, 2019

A lot of “national conservatives” and those sympathetic to their economic goals have been pushing for the federal government to adopt an explicit “industrial policy.” Chief among them has been Oren Cass, a thoughtful scholar at the Manhattan Institute, whose writings on the dignity of work I’ve written briefly about before.
Though a lot of his arguments echo those heard historically or in other countries, his specific case is worth addressing directly, as it seems to be resonating in conservative circles. So today I’ve published an extensive critique of his recent speech at the National Conservatism conference as a Cato commentary.
In short, I’m disappointed by the lack of empirical grounding to his arguments. And I think he makes a fundamental mistake in assuming that, even if an

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Don’t Cry for Me, Democratic Socialists

August 13, 2019

When debating socialists, it often feels as if you’re trying to hit a moving target.
Socialism in action, in the words of Robert Lawson and Ben Powell, “sucks.” But as my former colleague Kristian Niemietz explains through a litany of historical examples, countries once claimed to show another way is possible are quickly dismissed as “not real socialism” when things inevitably turn sour.
Debating socialism is more complex still in the contemporary United States. That’s because today’s self-declared “democratic socialists” are trying to re-define what socialism means entirely.
Gone is the lofty aim of collective ownership of the means of production and exchange. Instead, democratic socialism à la Bernie Sanders and Alexandria Ocasio-Cortez combines a commitment to a massively expanded

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Universal Childcare Could Have Terrible Social Consequences

July 30, 2019

Some Democratic presidential candidates want to introduce government-funded, universal childcare programs.
The stated rationale is usually the need for targeted financial help for families with children. But this reasoning is usually buttressed by a faith that government-funded care or preschool would improve the life chances of the children using it.
Such assertions are based on extrapolating research findings from more limited programs targeted at those on low incomes, such as Head Start, the Perry Preschool Project and the Carolina Abecedarian Project. But assuming these results apply to more universal programs is fraught with danger. Wise heads, such as Nobel Prize winning economist James Heckman, have previously warned that:
A much more careful analysis of the effects of scaling

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Sanders Feels the Bern on Hourly Wage Demands

July 22, 2019

You really couldn’t script it.  
Faced with campaign staff complaining their hourly wages are too low, 2020 presidential candidate Senator Bernie Sanders (D-VT), he of “Fight for $15” federal minimum wage fame, is currently mitigating discontent by restricting the hours his staff can work rather than raising their pay.
Salaried Sanders field staff earning $36,000 have complained of working up 60 hours per week. Once one accounts for the number of weeks they work, they say this is equivalent to just $13 per hour.
Given Sanders describes $15 per hour as a living wage (something he wants to institute through federal legislation), the union representing his workers demands a rise in salary to $46,800 to fully compensate for their current activities. Instead, at least while discussions

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Why French and British Digital Sales Taxes Are “Marxist”

July 12, 2019

Back in 2017, tax expert Professor Michael Devereux claimed that digital services taxes being proffered in Europe were “Marxist.” Not because they were socialist or communist ideas. No, he didn’t have good old Karl Marx’s theories in mind. A limited tax on certain firms’ sales, with those burdened being determined by arbitrary thresholds and industry definitions, instead echoed the spirit of Groucho Marx. He who famously said: “those are my principles, and if you don’t like them, well I have others.”
European countries have long adopted the principle that profits should be the basis for corporate taxation. Those corporate profit taxes are supposedly levied in the country where the profit making takes place. Yet with murkiness about where true profit-making activity occurs for digital

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Elizabeth Warren Should Give Up Her Stake In A Bad Idea

June 10, 2019

Senator Elizabeth Warren’s “Plan For Economic Patriotism” is causing ideological convulsions on right and left. Yet one part of her controversial plan has so far largely gone uncommented upon: she wants taxpayers (read: government) to have stakes in companies utilizing government research and development.
Far from seeing knowledge and government R&D as some form of public good that can be freely commercialized by profit-making businesses, she wants government to benefit from its investments by being an equity investor in firms – being given shares in companies who utilize public research, retaining royalties on publicly funded innovation, or even keeping a golden share of patent revenue. The misguided idea here is essentially that there should be a return to taxpayers for their money

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Why Is Economic Populism Supported By Those Who Loathe Political Populism?

May 30, 2019

The Economist, perhaps more than any other magazine or newspaper, has outlined the dangers of populism in recent years.
In the past month alone, headlines on its website have included: “Why cosying up to populists rarely ends well for moderates,” “Populists fall short of expectations in the European election,” and “Populism and polarization threaten Latin America.” The populist style of politics, which seeks to pit “ordinary people” against “elites,” is rightly anathema to a magazine rooted historically in a classical liberal worldview.
It’s therefore surprising that the magazine’s Charlemagne column has endorsed a populist as the next president of the European Commission. On Tuesday, a piece entitled “Why Margrethe Vestager ticks all the boxes,” backed the current competition

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Professor Tim Wu Makes The Case Against Antitrust Policy

May 20, 2019

It is common to hear proponents of antitrust action against big tech firms talk up the potential for future harms to consumers from sustained dominance by Facebook, Google, and Amazon. 
In her influential “Amazon’s Antitrust Paradox,” lawyer Lina Khan argued that “the current market is not always a good indication of competitive harm” and that antitrust authorities should “ask what the future market will look like.” This sentiment was recently echoed by economist Jason Furman in a digital competition review for the UK government.
One of the best cases against such an approach was inadvertently delivered by long-time antitrust champion Professor Tim Wu at a Stigler Center conference on antitrust last week. While critiquing the consumer welfare standard approach in a debate with Tyler

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It’s the Demographics, Stupid: The Employment Rate Is Better Now Than Its Pre-Crisis Peak

May 3, 2019

Today’s jobs numbers surprised on the upside. The unemployment rate fell to 3.6 percent and 263,000 jobs were created in April, exceeding analysts’ expectations.
Yet one indicator looks as if it still lags its pre-crisis peak: the employment-to-population ratio.
The headline rate for all aged 16+ topped out at 63.4 percent in December 2006. Today, it stands at just 60.6 percent (a 2.8 percent point decline). To translate that difference to hard numbers: if the employment rate of 2006 was replicated today, 7.4 million more people would be in work.
Should this be a matter of great concern? No. For there’s a simple explanation: demographics.
A structural decline in that ratio is what we would expect from an aging population. If one adjusts for the demographic change we have seen, the

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$2 trillion: The Infrastructure Answer To What Question?

May 2, 2019

Media reports suggest President Trump and Democratic leaders have agreed in principle to a $2 trillion infrastructure plan “to upgrade the nation’s highways, railroads, bridges and broadband.”
Minor details such as how to finance it have yet to be agreed. White House Chief of Staff Mick Mulvaney doubts the deal will come to fruition anyway, given differences between the parties on environmental regulations surrounding new projects.
But it’s difficult to think of a worse way to make major policy than to dream up a big round number and then work backwards in deciding how money is spent.
Indeed, if $2 trillion is the answer, then what, exactly, is the economic question?
Is $2 trillion the amount needed to invest in targeted public goods that the market would not or could not provide? Is

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Do Minimum Wage Increases Raise Crime Rates?

March 18, 2019

They do for younger workers and property crimes, finds a new paper by Zachary S. Fone, Joseph J. Sabia and Resul Cesur.
Back in 2016, President Obama’s Council of Economic Advisors (CEA) claimed raising the minimum wage to $12 per hour could prevent up to half a million crimes annually. The basic idea was simple: there is good evidence criminal behavior is negatively related to wages. The CEA thought raising the minimum wage would raise the opportunity cost of low-paid workers engaging in crime.
Implicitly they were saying this crime-reduction effect would dominate any impact of job losses or hour reductions leading to more property crime, for economic reasons, or violent crime, for despair-related reasons. But this new paper suggests the CEA’s intuition on the balance of the effects

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Are Child-Care Subsidies Actually “Good For The Economy”?

February 21, 2019

Commentators are already implying Democrat Elizabeth Warren’s new universal child-care plan will be “good for the economy.”
Moody’s Analytics reckons subsidies will induce more mothers into the labor market, raising growth rates by 0.08 percent per year over a decade. Others say that cheaper out-of-pocket child-care will reduce time spent out of the labor force by working mothers, and this greater maternal labor market attachment will boost recorded productivity and women’s earning potential. Combined, it is said the universal program will raise the economy’s productive capacity and thus recorded level of GDP.
Such claims about heightened measured economic activity are not crazy. But previous research for England has found that the effects are unlikely to be as great as proponents

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Elizabeth Warren’s Universal Child-Care Proposal: The Starting Point For A Government Takeover Of The Sector

February 19, 2019

Senator Elizabeth Warren is right: Child care services in America can be extremely expensive.
In certain areas, child care can be difficult to find at all. High prices have perniciously regressive effects on low-income families, causing them to miss job opportunities, use unlicensed relatives to care for their children or else forego high amounts of their hard-earned income.
So the presidential candidate’s new promise of universal child care subsidies will no doubt resonate with many families. She would have the federal government cover the costs of child-care from birth to school age entirely for any family earning below 200 percent of the federal poverty line, provided they use government-approved local providers. Federal funding would also be available above that, with a cap on

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Oregon’s Rent Control Bill Would Ultimately Please Nobody

February 15, 2019

The Oregon Senate has passed a rent control bill that would limit annual rent increases to 7 percent above the annual change in the consumer price index.
This sort of legislation is, in the longer term, likely to please nobody.
In markets where rents are rising faster than earnings, but slower than this cap, groups representing tenants will complain that the price restriction is not tight enough to help tenants financially.
In markets where demand for rental property is growing rapidly relative to supply, the controls will bind and bring the negative effects we’ve seen from rent control historically: reduced incentive to bring new supply to market (and so rising underlying market prices), a misallocation of properties, a lock-in of tenants reducing labor mobility, and a worsening in

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The DUI Externality

February 11, 2019

In January, I published “How ‘Market Failure’ Arguments Lead to Misguided Policy.” One major criticism I had of the way “externalities” are talked about in public debate was policymakers ignoring that supposed “corrections” for these “market failures” could induce behaviors with their own external costs.
Consider a bill proposed in the Oklahoma house by Rep. Merleyn Bell (D-Norman).
He is concerned about the costs emanating from driving under the influence (DUI) of alcohol. He wants to raise funds to subsidize deterrents, such as stop-checks on roadways. But rather than raise alcohol taxes, which would affect all consumers, he wants to “price in” the externality by imposing costs on those travelling at times when people are more likely to drink. The way he suggests doing so is

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Other “Channels Of Adjustment” To Minimum Wage Hikes

February 7, 2019

The “Fight for $15” scored a victory Monday as New Jersey Governor Phil Murphy signed legislation for the state to hit a $15 per hour minimum wage target by 2024. Vermont is considering similar legislation, and I testified to their Senate Economic Committee about the proposal on Tuesday.
Earlier this week I wrote on the bad arguments used to justify such policies. But in my written evidence for Vermont I also discussed the consequences.
There’s been a long back-and-forth about the impacts of minimum wages on jobs and hours, which I shan’t repeat here. But I also tried to address advocates’ insistence that other “channels of adjustment” exist, meaning employment levels or hours might not fall.
This is true – every business affected will react differently, depending on their industry,

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A Bad Fact-Check On Economic Growth

February 6, 2019

Fact-checking blogs are currently facing a backlash. Criticisms are sometimes unfair, but the worst “factcheckers” clearly stray into assessing subjective statements or else rule that people are being misleading based on tiny oral deviations. As such, they confuse debate, rather than clarifying it.
Usually, the Washington Post’s fact-checker is much better and truly assesses verifiable claims. That’s what makes this statement from last night’s State of the Union fact-check blog noticeable.
As part of its assessment of Trump’s claims on growth, the WaPo team wrote:
GDP growth has averaged 2.8 percent per quarter so far in Trump’s presidency, not much higher than Obama’s average of 2.1 percent for his two terms in office.
Though both numbers look similar, no economist would claim that

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The Rationale for Minimum Wage Increases

February 5, 2019

This morning I gave oral testimony to the Vermont Senate Economic Committee on their proposal to raise the state minimum wage to $15 an hour by 2024. As part of my written evidence, I explored in detail the rationale for minimum wage hikes from the “Fight for $15” campaigners and other think-tanks. Below is a slightly edited version of that section of my testimony, which has wider applicability.

Theoretically, a minimum wage hike can improve the functioning of a labor market when employers are “monopsonistic.” When firms have significant labor market power over employees, raising a wage floor can increase both pay for workers and employment levels. Some economists have argued that most firms do have a slight degree of monopsony power over their employees. This suggests a modest

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The Case for Economics When Considering Alcohol Tax Levels

January 22, 2019

“It’s time to raise the alcohol tax,” declared Vox author German Lopez back in December.
Now let me state upfront that I am not confident I know what the correct tax rate on alcohol should be. Lopez may well be right about their being a rational case on economic grounds for an increase based on high-quality, robust analysis. But his article does not make a reasoned case satisfactorily, nor does it link to such analysis.
In fact, it came to my attention as I was finalizing my new paper “How Market Failure Arguments Lead to Misguided Policy” (released today). And I’m convinced his piece is a classic of the genre. This article aims to highlight some of the key objections I have to his approach, which is increasingly common in public debate.
The traditional economic case for alcohol

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Most Economists Know There’s No Free Lunch on High Marginal Tax Rates

January 18, 2019

When Alexandria Ocasio-Cortez suggested a 60-70 percent federal income tax rate on those earning over $10 million, prominent economists and economic commentators Matt Yglesias, Paul Krugman and Noah Smith argued that her policy prescription was simply mainstream economics.
But a new Chicago Booth IGM Survey poll suggests economists are generally much more skeptical of the wisdom of jacking up top federal tax rates than these commentators suggest.
The economists were asked whether a top federal marginal income tax rate of 70 percent within the current code would raise substantially more revenue than today’s 37 percent without lowering economic activity. Just 18 percent of those surveyed agreed, against 49 percent who disagreed (21 percent vs. 63 percent when weighted by

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The Impact of The New German Minimum Wage

January 17, 2019

Germany introduced a new economy-wide minimum wage for the first time in 2015, at a relatively high rate of €8.50 ($9.67 today). This rose to €8.84 in 2017. For reference: between 10 and 14 percent of eligible workers were thought to earn less than €8.50 before the policy was introduced.
This is interesting from a research perspective. Most minimum wage studies examine the impact of minimum wages at low levels or assess small changes to their rate. But here we have a case study of a whole regime change with a high rate introduced for the first time.
A new paper by IZA Institute of Labor Economics provides a clear literature review on the effects so far. Studies have exploited three different strategies to assess the impact: utilizing regional variation of the “bite” of the minimum

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