China Falters on Economic Liberalization

Is China’s economy more of a paper tiger than an Asian tiger?

Dan Mitchell:

Video on CNBC is embedded in there.

1. China’s economy is weak because of insufficient liberalization.

2. Trump’s unthinking protectionism hurts both sides, but China may be more vulnerable.

3. China’s cronyism presents a challenge for supporters of unilateral free trade.

4. Trump should have used the World Trade Organization to encourage Chinese liberalization.

5. The imperfect Trans-Pacific Partnership was an opportunity to pressure China to reduce cronyism.

6. Additional Chinese reform is the ideal outcome, both for China and the rest of the world.

 

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Meaning of a 70% Income Tax Rate

Several Democrats have proposed a top income tax rate of 70% on incomes over $10 million.

Samuel Hammond argues that it is NOT about the optimal tax rate, soaking the rich, the rate in the past. It is a symbolic attack on the legitimacy of wealth accumulation itself.

Its goal is not about tax-fairness or raising revenue efficiently (which it fails at on both counts). Its goal is to popularize a strict egalitarian view of wealth accumulation as prima facie evidence of personal corruption. If that view catches on, it would represent a major setback in the public’s understanding of the differences, both normative and economic, between productively acquired wealth and rent seeking.

The Democratic Socialist’s economic model is Scandinavia. But we in the U.S. have our own economic model, and culture based on our own history. We are more individualist.

With the countercultural rebellions of the 1960s and 70s, followed by the Reagan Revolution of the 1980s, the left and right eventually reverted back to America’s historically more individualistic ethos of self-expression and entrepreneurship.

In Scandinavia, the dominant conformist zeitgeist is called the Law of Jante, a reference to a fictional Danish town that enforces being ordinary in every possible way. “Tall poppy syndrome” is perhaps the closest concept in American vernacular, although it doesn’t do the oppressiveness of Scandinavia’s egalitarian milieu justice. Excessive ambition is frowned upon while non-conformists are treated with suspicion, as illustrated by the expression, “You are not to think you’re better than us.”

The cost of this strict egalitarianism. In Scandinavia, the rich stay rich and everybody else is stuck. They’re economic opportunity is a snapshot frozen in time. Nobody can rise up because they are taxed too much to save anything that can be invested.

In short, Ocasio-Cortez’s focus on soaking the small number of Americans who make more than $10 million in a year has earned her socialist bona fides while ironically sparing — if not threatening to entrench — the closest thing America has an to emerging nobility. That’s not radical. Far from it. It’s conformism to the most mundane progressive politics imaginable.

We are Americans. They are trying to force 300+ million people to behave the way they deem worthy. No. Move to your utopia. Leave us alone. These people are tyrants and must be stopped.

Hammond’s piece here.

House Democrats Threaten Workers with Higher Corporate Income Tax

Huh? Why would Democrats want to threaten workers, and how the hell does the corporate income tax impact them?

Here’s what Democrats are planning:

Rep. John Yarmuth, the new House Budget chairman, said his chamber’s budget blueprint will aim to claw back lost revenue by boosting the corporate tax rate from its current 21 percent to as high as 28 percent… he anticipates the budget resolution will envision changes to the 2017 GOP tax overhaul, including raising the corporate tax rate above its current 21 percent. “…We’ll see how much revenue we can get out of it.” The rate was 35 percent before it was cut in the GOP tax bill.

 

Here’s how the higher tax rate impacts workers:

 

Whole thing here.

Minimum Wage Adverse Impact on People

A study from Denmark:

This paper estimates the long-run impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18 and using monthly payroll records for the Danish population. …On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old.

A landmark restaurant closing in Boston, MA:

One of Boston’s most historic restaurants is closing its doors…Durgin-Park in Faneuil Hall…disappointed customers are trying to get in their final meals. …”This is another passing of a great institution,” said Berg. Rachelle Mazzone is Durgin-Park’s bartender and says dozens of long-time workers were told the restaurant would be closing next weekend. She was told it’s no longer profitable. …According to Ark Restaurants CEO Michael Weinstein, the restaurant wasn’t profitable anymore. He says…increase in minimum wage and health care costs…were all factors in the restaurant’s downfall. …Since 1827, the business attracted faithful diners and tourists to its Faneuil Hall location, winning several culinary awards.

Three restaurants in St. Lawrence County, New York:

The rising minimum wage is getting at least part of the blame for the abrupt closure of three St. Lawrence County restaurants. …About 60 people have lost their jobs. “The minimum wage increase has been a big burden on our business. At one point we were up to 100 employees and the minimum wage has just increased every year since I opened in 2009. It’s been harder and harder to do business in New York state every year,” said Marc Morley, owner of the restaurants. …Morley said he told the restaurant managers to notify the workers. “They held all the contact information for all their individual employees,” he said. “It was an abrupt decision on our end. It wasn’t something we were planning on doing. We just got to the point where the businesses weren’t profitable and we were losing money every week.”

A study on the higher minimum wage in Minnesota:

Beginning in 2014, the state of Minnesota began a series of minimum wage increases. …While the effects of minimum wages changes remains a controversial topic, comparing relative outcomes in Wisconsin and Minnesota suggests that the minimum wage increases led to employment losses in Minnesota, particularly in the restaurant industry and youth demographic most affected by the changes. …Following the minimum wage increases limited service restaurant employment fell by 4% in Minnesota relative to Wisconsin. Further, youth employment fell by 9% in Minnesota following the minimum wage increases, while it increased by 10.6% in Wisconsin over the same time period. In addition, part of the increased wage costs employers faced have been passed on to consumers through higher prices. The relative price of restaurant food in the Minneapolis metro area had fallen by 2% in the four years preceding the minimum wage hikes, but it has risen by 6% in the four years since.

 

And the hit on black teens:

…economists William Even from Miami University and David Macpherson from Trinity University report that when a state, or the federal government, increases the minimum wage, Black teens are more likely to be laid off. The duo analyzed 600,000 data points… The report focused on 16-to 24-year-old males without a high school diploma and found that for each 10 percent increase in the federal or state minimum wage employment for young Black males decreased 6.5 percent. By contrast, after the same wage boost, employment for white and Hispanic males fell respectively just 2.5 percent and 1.2 percent. The real hit for Black teens occurred, however, in the 21 states that had the federal minimum wage increase in 2007, 2008 and 2009. The findings reveal that while 13,200 Black young adults lost their jobs as a direct result of the recession nearly 40 percent more, a total of 18,500, were fired because of the rise in the federal minimum wage.

Read the whole thing.

Default Economic Theory vs Austrian Economic Theory

Which explanation is more accurate?

Default:

The default market standard is a market working perfectly and peopled by rather dull individuals who can only respond to “given” market prices, wages, and interest rates – both currently existing and ‘rationally’ expected.

 

Austrian:

The default standard for Austrians is a market currently filled with all manner of errors, both of commission and omission, but populated by creative individuals who, although each has knowledge and information only very limited and local, identify opportunities to profit by arranging for markets to work better if never “perfectly.”

Can there be anything that is perfect? Of course not. But that is what the Default camp uses in their theories and economics courses. If does not reflect reality. There is a problem of limited knowledge.

How You Spend Your Money Is Your Business

Don Boudreaux to a reader:

Mr. Grant:

You ask how I “dare infer” that my “self-centered desire” to trade with foreigners as I choose should “outweigh the American people’s verdict to have our President conduct our trade in ways which he concludes advances our national interest.”

I ask how you dare infer that Donald Trump’s – or Chuck Schumer’s, or Lindsey Graham’s, or Bernie Sanders’s, or Peter Navarro’s, or Sherrod Brown’s, or Steve Bannon’s, or you-name-the-arrogant-brute’s – self-interested desire to prevent me from trading with foreigners should outweigh my own verdict, when spending my own money, to conduct my trade in ways that I conclude will advance my own interest.

How I spend my money is none of Trump’s – or American voters’ – business. Nor is it any of your business. Also none of Trump’s or American-voters’ business is how you spend your money. Nor is it any of mine.

To the extent that we embrace your and Trump’s belief that government officials have a right to superintend how each individual spends his or her own money, we treat our rights as garbage and become hapless beasts of burden for those whom we gullibly permit to shove their bridles into our mouths. I’ll have none of it.

My sentiments exactly.

Investment Creates Jobs

John Tamny:

 

Businesses don’t exist to create jobs. If readers doubt this they need only try to raise start-up funds with “creating jobs” listed at the top of their business plan. Lots of luck finding investors when your goal is costs, as opposed to returns.

Crucial here is that the desire for returns among investors is what indirectly leads to copious hiring. Workers enable the returns that entice those with means to delay consumption in favor of the investment without which there are no companies, jobs, and progress.

 

People need to invest first before jobs are created. Invest in start-up as above, themselves to enhance their usable skill-set, in ideas, innovations, physical structures, machines, processes, stocks, bonds.

Onward:

Up front, Lowry’s focus on wages is rooted in a surprising conservative belief that compensation has long been stagnant in the U.S. Ok, but if the latter were even remotely true then it would also be true that the U.S. would not presently be showered with imports from around the world. Stated simply, a law of economics (Say’s) embraced by conservatives disproves a popular conservative narrative of the moment. We’re only able to consume insofar as we’re able to produce first. That wages are supposedly stagnant in the U.S. is further evidence that the economic statistics followed by economists and pundits aren’t worth their attention.

Its the measurement of wages and income that needs fixing.

This one’s a keeper. Read the whole informative thing.