I’m going to include the entirety of John Hickenlooper’s Wall Street Journal op-ed in the better interest of political education.

American capitalism is at risk.

Dramatic income inequality has driven voters to support influential leaders in both political parties who advocate changes to our economic system that would ultimately destroy capitalism. Some on the right argue for an increasingly deregulated market, while the far left calls for massive government growth and even socialism.

Neither approach recognizes the realities of our situation. Capitalism is the only economic system that can support a strong middle class, a growing economy, and innovative entrepreneurs leading global technological advancements. Yet for too many Americans, capitalism simply isn’t working. Even with recent employment gains, the real average wage will only buy you about as much as it did in the mid-1970s. Meanwhile, the cost of living has continued to rise, leading more Americans to take on credit card debt. Forty percent of Americans in 2017 didn’t have enough savings to cover a $400 medical emergency or car repair, according to the Federal Reserve.

To save capitalism, the government has to adjust it, as it has countless times in this nation’s history—from Teddy Roosevelt and the muckrakers to Franklin Roosevelt and the New Deal.

First, it has to make obtaining necessary skills affordable. For too many Americans, getting the training they need to pull themselves up by their bootstraps is cost-prohibitive. More than 65% of Americans over 25 don’t have four-year degrees, and a high-school diploma is no longer enough. As president, I would make community college free for those who can’t afford it and expand apprenticeships and skills training programs dramatically.

Next, the government has to expand and extend the existing earned-income tax credit to millions more working Americans, and it has to raise the hourly minimum wage to $15 and permanently index it to the regional cost of living so that it automatically rises as prices do. To revitalize capitalism, the government has to ensure that hard work pays.

It also has to protect the heart of capitalism—competition—by strengthening antitrust enforcement. Industries from hardware stores to cellphone carriers are dominated by three or four megaplayers. The government needs to strengthen the Federal Trade Commission by restoring the Clayton Antitrust Act to its original focus on whether a merger hurts competition—not only whether it will cause a rise in consumer prices.

The U.S. health-care system also needs to be reformed to provide universal coverage, reduce costs and establish portability, so that when you change jobs you can take your insurance with you. Today, too many would-be entrepreneurs are deterred from pursuing their startup dreams or new opportunities, because it could mean giving up their health-care coverage.

I reject the idea we can improve health care by turning it entirely over to the government. More than 150 million Americans have private coverage through their employers, and the majority of people are satisfied with the coverage they have. It would be a fierce and needless battle to take that away from them. Under my plan, if you want to keep your private coverage, you can; but if you don’t have coverage, or if you desire coverage from a public option, we’ll make that available and affordable by allowing you to buy into a plan like Medicare.

The government also must tax capital gains, adjusted for inflation, at the same rate as income, and close the loopholes that allow the very wealthy to pass on their financial portfolios to their children with no tax on capital gains. Under my plan, the Internal Revenue Service would exempt retirement accounts, primary residences and small businesses—defined in Section 1202 of the Internal Revenue Code as a business with under $50 million in assets. Right now, our tax system tells American workers that their labor matters less than wealth that’s inherited.

Capital-gains reform would also allow Americans to pour their money into what is needed: skills and education. The American Enterprise Institute estimated in 2015 that President Obama’s proposal for free community college would cost more than $60 billion in the first 10 years and $130 billion over the following decade. Reforming the capital-gains tax would bring in as much as $2.4 trillion over 10 years, more than enough to cover that price tag and other, vital skills training and apprenticeships, which I estimate would cost $40 billion over 10 years. In an economy where 45% of employers say they are unable to find workers with the skills they need, and the stock market is at record highs, tax policy needs to encourage a surge in human capital, not financial capital.

Finally, the U.S. should expand trade rather than adopt a protectionist crouch. One of the most reckless things President Trump did was walk away from potentially positive trade agreements and impose tariffs to force other countries to capitulate. In the process, he has driven away allies around the world and jeopardized Americans’ well-being.

My policy would extend fair trade that benefits Americans. For example, I would use trade deals to enforce global greenhouse-gas emissions targets and increase penalties for theft of American intellectual property. I would ensure that U.S. companies aren’t required to surrender their intellectual property as a condition to trading abroad and penalize countries that consistently steal American ideas, even going so far as to withdraw trading privileges. We have to ensure trade is fair to our workers and entrepreneurs and doesn’t harm the environment.

The 2020 election will decide if capitalism flourishes in America. I am a small-business man—and, yes, a capitalist. But today American capitalism is broken. We have to fix it before it’s too late.

I agree with some of what he says (antitrust) but not all (education and health care). I don’t think our greatest need is additional subsidized consumption, indeed, I think it’s part of our problem. I think that graver problems are crony capitalism and subsidizing the rich in the hope that something good will come of it.

I am increasingly convinced that professional economists need to go back to Econ 101 to refresh their memories about the basics of their trade. In the Wall Street Journal Edward Lazear writes about his concern about U. S. labor productivity:

How are American workers doing? Neither the middle class nor the poor have fared well in recent decades—but don’t blame tax cuts, a too-low minimum wage or the greed of the 1%. In rich countries around the world, the top half of the income distribution has been pulling away from the bottom half. Productivity growth among high-wage workers, driven by technological change, is the reason.

When measuring wage dispersion, economists frequently look at the 90/50 ratio—the wage of the worker at the 90th percentile divided by the wage of the worker at the median. In 2017 the 90th-percentile worker earned around $108,000, while the median worker earned around $45,000 a year—a ratio of 2.4. That’s an increase from 2.2 since 1997. Over the same period, the 50/10 ratio—the median wage divided by the wage at the 10th percentile—stayed flat, at 2.1.

[…]

The likely explanation is that changes in trade and technology have raised the productivity of highly trained, highly educated workers relative to the less skilled. Wages tend to move with productivity, so that if differences in worker productivity grow, wage differences will also grow.

The data provide some clues on how to remedy this situation. Here’s where wage ratios become informative. Germany is a wealthy country, second only to the U.S. among Group of Seven nations in gross domestic product per capita. The median German earns 55% of what the 90th-percentile German worker earns, while the median American worker earns only 41% of what the 90th-percentile American worker earns. The German middle class does better compared with top-earning Germans than the American middle class does relative to top-earning Americans.

Here’s his prescription:

The goal of policy makers, in education and the labor market, should be to bring up the skills of the lower half of wage earners so that they compete more effectively with the top. Only narrowing the skills gap can address the problems of the working and middle classes.

Ahem. The U. S. spending on education is significantly higher than that of other OECD countries, whether tallied in absolute dollars, dollars per student, or percentage of GDP. That’s true both for K-12 and higher education. If the “productivity gap” could be remediated through education, it would already have happened. Occam’s Razor drives one to the conclusion that something else is at work.

Back to basics. Substitution. One good may be substituted for another. In the U. S.’s case we are substituting lower-skilled labor for higher-skilled labor, both by using manual labor in preference to automation, by using foreign workers and by offshoring. We don’t do it for the workers with the highest skills because it’s prohibited by law.

Business investment. Productivity is the ratio of inputs to outputs and one of the factors in increasing productivity is business investment. That’s where we’re falling short.

Back to school, Prof. Lazear!

The editors of the Washington Post are very concerned about preserving the environment:

NATURE IS not only pretty, it is also valuable. And humans are squandering its value with behavior that will grievously harm future generations. That is the bottom line of a landmark report on biodiversity that the United Nations released in Paris on Monday.

Too often, advocates for ecological preservation talk about conserving irreplaceable natural beauty, which is, indeed, a key justification for setting aside lands and waters. But that argument only goes so far when one is referring to a peat bog, a tangled mangrove forest or a tiny bird’s scrubby habitat — especially when humans struggling with poverty see opportunities to develop zones that are unsightly and seemingly unused.

In fact, these areas, particularly the threatened tropics, hold vast value to human beings. “An estimated 4 billion people rely primarily on natural medicines for their health care and some 70 percent of drugs used for cancer are natural or are synthetic products inspired by nature,” the report notes. “More than 75 percent of global food crop types, including fruits and vegetables and some of the most important cash crops such as coffee, cocoa and almonds, rely on animal pollination.” Plants, the oceans and other natural features clean the air and water, and they suck up much — though not enough — of the planet-warming carbon dioxide emissions that threaten human society. Preserving biological diversity preserves options and opportunities — to develop the next lifesaving drug, improve crops or adapt to environmental changes.

and I agree with their proposal to reduce subsidies for the consumption of fossil fuels. Unfortunately, they don’t seem to realize where the problem actually is. China, Mexico, and India all subsidize domestic consumption to the tune of $15-20 billion annually (China’s is probably higher but that’s what they admit to)—twice ours. Saudi Arabia alone accounts for most fossil fuel subsidies—$60 billion per year. We don’t have a lot of influence on policy in those countries but we should exert what we can and much of that would be by imposing tariffs.

BTW do you recall the infrastructure plans the WaPo is so much in favor of? A lot of that is backdoor subsidies to fossil fuel consumption.

One of the big differences between vaudeville and radio, television, or film is that a vaudeville act could earn a reputation and get bookings on the basis of a single act. One great example of that is Smith & Dale. Smith & Dale got their start at the turn of the last century but rose to prominence in the 1920s. Their act was “Dr. Kronkheit and his Only Living Patient” and they made a good living from that act over a period of a half century. If you’re not in on the joke Smith & Dale’s real names were Joe Seltzer and Charlie Marks and their first language was Yiddish. “Kronkheit” is Yiddish (and German) for “disease”. Get it?

The act had a long laundry list of corny wisecracks that have become staples, e.g.

SMITH: Look at this, doctor.
DALE: Look at — oh, that there? Did you ever have that before?
SMITH: Yes, I did.
DALE: Well, you got it again!

but probably the most famous was this exchange:

SMITH: Doctor, it hurts when I do this.
DALE: Don’t do that.

With that introduction, I’ve got to admit that I don’t get the point of Robert Samuelson’s latest Washington Post column. It’s ostensibly about income inequality:

Americans have long tolerated some inequality, because almost everyone would like to strike it rich. If you harbor these ambitions, you’ve got to accept the consequences. But today’s gaps between rich and poor, or between the super-rich and upper middle class, long ago exceeded these permissive limits. The present inequality must make all but the most avid enthusiasts of laissez-faire (“let it be”) squirm.

Anyone who doubts this should consult a recent study by the Federal Reserve. Until now, most studies of inequality have focused on income — what people earn or receive in a year. By contrast, the Fed study concentrates on the less common subject of wealth — what people own, from cars to homes to stocks.

The study’s most striking feature is how gigantic the numbers are. In 2018, the Fed estimates that Americans owned $114 trillion of assets, including $26 trillion of housing and real estate, $26 trillion of pensions (such as 401(k) accounts), $22 trillion of corporate stocks and mutual funds, and $6 trillion of durable goods (vehicles, appliances, furniture). Liabilities — mostly mortgages and consumer credit — totaled about $15 trillion, leaving net worth at nearly $100 trillion.

Income inequality is at the highest level in the United States since the 1920s, coincidentally also the period at which we last had the level of immigrant population we do now. Mr. Samuelson offers no explanations for the causes of the present situation or what we might do about it.

It’s not that great a mystery. Consider, for example, this recent study on income inequality from the Netherlands Central Bank:

…loose monetary conditions strongly increase the top one percent’s income and vice versa. In fact, following an expansionary monetary policy shock, the share of national income held by the richest 1 percent increases by approximately 1 to 6 percentage points, according to estimates from the Panel VAR and Local Projections (LP). This effect is statistically significant in the medium run and economically considerable. We also demonstrate that the increase in top 1 percent’s share is arguably the result of higher asset prices. The baseline results hold under a battery of robustness checks, which (i) consider an alternative inequality measure, (ii) exclude the U.S. economy from the sample, (iii) specifically focus on the post-WWII period, (iv) remove control variables and (v) test different lag numbers. Furthermore, the regime-switching version of our model indicates that our conclusions are robust, regardless of the state of the economy.

That is hardly a state secret. It was the explicit, openly-stated reason that the Federal Reserve adopted its policy of quantitative easing during the Great Recession in the hope that it would produce “animal spirits”. It flopped except in that it substantially exacerbated income inequality. After 30 years of Fed policy aimed at boosting asset prices it’s hardly surprising that the incomes of the ultra-rich and the rest of us have diverged.

My prescription is stop doing that.

At OTB Steven Taylor has been musing about the separation of powers and Federal 51. See his posts here, here, and here. In the second of those posts a regular commenter here made an observation about which I’d like to comment:

I would just add that most people do not seem to understand how powerful Executive Branch and indendent agency rulemaking is. It really is shadow legislation, arguably a de facto fourth branch of government. I think the judiciary made a mistake in allowing this to grow to where it is today.

In the 230 years since we adopted the U. S. Constitution we have slowly been changing our system of government. Some notable milestones in that process have been:

• In Marbury v. Madison the Supreme Court arrogated to itself the authority, ungranted under the Constitution, to determine what the Constitution permits. That was later expanded by Martin v. Hunter’s Lessee, Cohens v. Virginia, and a dozen later decisions.
• The Pendleton Civil Service Act of 1883 established the federal civil service, ostensibly placing it beyond party politics.
• The 16th Amendment, empowering the Congress to impose an income tax, had other, presumably unintended consequences.
• The 17th Amendment, which provided for the popular election of the Senate, also further diminished the reach of state governments.
• Wickard v. Filburn greatly increased the reach of the Congress.
• The Social Security Act of 1935 and the Social Security Act of 1965, which set up Medicare, redefined the role of the federal government in ways that could not have been foreseen.
• The considerable reforms in the earmark process that took place between 2007 and 2011 altered the role of the Congress.

Individually these rulings, laws, and amendments were intended to reform our system, to improve it. Corporately they have willy-nilly upset the careful “balance of powers”, granting far more authority to the president and the executive branch generally than could conceivably have been intended as well as granting greatly increased power to the federal government. I would also argue, possibly counter-intuitively, that the relatively small number of cases heard by the Supreme Court has altered the balance as well. The Supreme Court accepts just about as many cases per year as it did in 1950. I find it hard to believe that a country of 330 million people has the same number of cases of sufficient importance as to be heard by the Supreme Court as a country of 150 million people did. I think the riddle is more closely related to the workload the Supreme Court is willing to bear than to the number of cases it should be hearing, a profoundly undemocratic and illiberal outcome.

The effect of all of these rulings, laws, amendments, and practices has been to move power from state governments and the people to the federal government and from the federal government to the executive branch, particularly the civil bureaucracy. IMO major civil service reform has become a matter of pressing urgency. The contours of the needed reform are unclear to me but what is clear to me is that we are becoming quite authoritarian and, what’s worse, authoritarian in a way that is indifferent to the economy welfare of the country.

Some of the animals are clearly more equal than others, as illustrated in this piece by Christopher Rulo at City Journal. The background is that in Seattle a woman was raped by a man living in one of the city’s sponsored homeless encampments. The author assisted the woman in making a short documentary video testimony about her attack. Here is the sequella:

Progressive activists launched a counterattack against Lindsey on social media. Local journalist Erica Barnett claimed that the story drew attention because Lindsey is an “attractive blonde woman” and dismissed the victim’s “many tears” as theatrics serving a false narrative that the homeless represent a danger to the community. She demanded that the media temper its reporting and be mindful that “graphic descriptions of violent rape may be triggering for survivors.” Barnett’s message was amplified on left-wing Twitter; Councilwoman Lorena Gonzalez claimed that Lindsey’s story would create fear and cause harm to communities “that may already be triggered.”

The reality: city-sanctioned encampments in Seattle have become magnets for crime and violence. According to the Seattle Times, when the city opened a low-barrier encampment in Licton Springs, the police recorded a 221 percent increase in reported crimes and public disturbances. Neighbors witnessed a dramatic rise in property destruction, violence, prostitution, and drug dealing in the area. According to King County Jail statistics, homeless individuals are 38 times more likely to commit crimes than the average citizen (the homeless represented 0.5 percent of the population but 19 percent of jail bookings last year).

Seattle’s activist class seems, then, to have more compassion for transient criminals than for the victims of their crimes.

I think it’s more complex than that. There must be some hierarchy, heavily weighted by race and class, for assessing victimhood. I don’t quite have the instincts for it and I suspect it’s rapidly evolving but there must be some way of making these assessments.

I have a question about this passage from Hal Brands’s essay at Bloomberg on eschewing the “clash of civilizations” metaphor:

The Chinese government, by contrast, has embraced the concept of civilizational difference as a means of autocratic self-protection. Beijing has long rejected the idea that it should liberalize its political system — or simply stop throwing dissidents in jail — on grounds that “Western” concepts of democracy and individual rights are incompatible with the traditions of China’s unique civilization.

The U.S. should not be supporting this idea, even implicitly; it should not be affirming the civilizational wall the Chinese regime has sought to build between its citizens and the democratic world.

The clash thesis is also geopolitically dangerous, because here, too, it plays into China’s hands. The Chinese government has long argued that the world should, in fact, be divided along civilizational lines: That Asians have more in common with each other than they do with the U.S., and that Washington should therefore leave Asia to the Asians — meaning that it should allow China to dominate that part of the world. This argument provides an intellectual underpinning for everything Beijing is doing to push the U.S. out of the Western Pacific: Undermining U.S. alliances, building up its military, and weaving webs of economic dependence around its neighbors.

Is it really the case that China’s bolstering a dividing line between the United States and the other countries of Asia is a result of U. S. actions? Or would it proceed regardless of what we did? What’s the evidence that China would not follow such a strategy but for the United States?

My own view is that the U. S. should pursue its own interests and stop trying to suck up to the cool kids. Is there really a “West”? I think we have a lot more in common with Canada, Mexico, or Brazil than we do with the United Kingdom, France, or Germany.

I am also blithely unconcerned about China gaining the support of South Korea, Japan, Philippines, India, or other Asian countries. They are not fools and can handily identify what actually threatens them.

One of my favorite posts of the early days of this blog was “The influence of immigrants on American political thought”. My basic thesis was that each cohort of immigrants has left its mark on American politics. The Irish brought us machine politics; the Scandinavians progressivism. About the most recent cohort I demurred from making a judgment:

Most of our new immigrants are from Mexico and they will be no different in this respect than their predecessors: they have arrived with political ideas and beliefs they’ve brought from their homeland. I know nothing whatever of Mexican politics and will leave the commentary on that for other more knowledgeable people. But, as Mexican-Americans gain more political influence here, I suspect we’ll be learning a lot more soon.

I think we have enough information to start making a judgment now. The two most notable new developments in American political thought today are a newfound respectability of claiming to be a socialist and a loss of confidence in American political institutions. The most prominent of those who are claiming to be “democratic socialists” are either immigrants or the children of immigrants so I don’t think it’s too much of a stretch to suspect that it’s an exotic foreign import that is becoming fashionable.

That’s all the more remarkable considering how poorly socialism has performed over the last 75 years. Germany under Hitler, the Soviet Union under Stalin, and China under Mao murdered more than 100 million of their own citizens in the pursuit of socialism. Cuba is poor and dilapidated; in a little less than 20 years Venezuela has gone from relative prosperity to the point of collapse Chavismo; the examples do not stop there. There’s North Korea, Somalia, and North Yemen as well. To add insult to injury Castro’s children are prosperous and Chavez’s daughter is rumored to be a multi-billionaire.

More than a century ago, when asked if he were a socialist, Elbert Hubbard replied, when more people want to give rather than get I’ll be a socialist. The utopian community he started in East Aurora was more eccentric communal capitalism than it was socialist. Eschewing personal enrichment or that of your children would seem to be a prerequisite for espousing socialism but, apparently, that is not the case. To my ear today’s variant seems more closely allied to a highly American sentiment—the belief that there’s a sucker born every minute, which sounds to me more like self-interest, red in tooth and claw, than it does like socialism.

I do not believe that our problems in the United States are caused by insufficient socialism. I think they’re caused by inadequate social cohesion, a factor likely only to become worse, and, ironically, not nearly enough capitalism. As Chesterton observed, the problem is not with capitalism but that there are too few capitalists.

I’m glad that Justin Fox is taking note of the growth in the number of health care jobs at Bloomberg:

Of the 263,000 nonfarm payroll jobs that the Bureau of Labor Statistics estimates were created in April, 27,000 were in health care.

This is not really news: Since the beginning of 2015, the average monthly gain in health-care jobs has been 28,959. Since 2010, it’s been 23,893; since 2000, it’s been 24,041; since 1990, it’s been 23,709. Only four of the 351 months since January 1990 have seen declines in health-care employment.

but I’m a bit disappointed that he doesn’t point out what the real problem with that is:

All this good news for health-care workers is not necessarily good news for the U.S. economy, though. Health care is a low-productivity-growth sector that, over time, has arguably been a drag on other U.S. industries. Plus, its share of employment can’t keep growing forever, right? A 27,000-job gain doesn’t mean as much when employment is at 16 million as when it’s at 8 million, so the percentage increases in health-care employment are smaller now than in the 1990s and 2000s. But they’ve still been higher in most recent months (not April, when the two were pretty much even) than the gains for total nonfarm payroll employment. The end of the health-care boom is not yet in sight.

Let me try to explain. Health care is heavily subsidized. At least sixty cents of every dollar spent on health care comes from tax dollars.

There is no such thing as perpetual motion. It never works. We cannot build a healthy economy based on a sector that’s funded by tax dollars at that level. The greater the number of people employed in health care the worse the situation will be.