Tag: Socialism

Cortez Embraces Zimbabwe-Economics

Answering the question of how she’ll fund the cradle-to-grave welfare state programs she desires for America had been a question that Alexandria Ocasio Cortez shied away from on the campaign trail. As Congresswomen, she’s at least conjured up one idea – taxing incomes above $10 million at 70% per year – though even taxing all incomes above $1 million at 100% wouldn’t pay for a quarter of what she wants to fund.

So what is a socialist to do? Simple – just ignore that debt has consequences.

In an interview with Business Insider, Ocasio endorsed Modern Monetary Theory (MMT), an economic theory that deficits don’t matter since money can also be printed to pay off that debt (hello Zimbabwe and Venezuela). Because the government can print at will, not only do deficits not matter according to MTT, the only purpose of maintaining a level of taxation relative to government spending is simply to regulate inflation and unemployment. As quoted in Business Insider:

She [Cortez] said she was open to Modern Monetary Theory, a burgeoning theory among some economists positing that the federal debt is not an economic restraint for the US. She said the idea, which holds that the government doesn’t need to balance the budget and that budget surpluses actually hurt the economy, “absolutely” needed to be “a larger part of our conversation.”

Ironically, I agree. With our national debt nearing $22 trillion, it absolutely needs to be a larger part of the national conversation, just for the opposite reasons that Ms. Cortez thinks. As you would expect, deficits (and debt) do indeed matter.

More Debt, More Problems

Larger debt (relative to the size of an economy) depresses the size of that nation’s economy. A famous study by Harvard economists Kenneth Rogoff and Carmen Reinhart titled “Growth in a Time of Debt” concluded that once a nation’s debt exceeds 90% of GDP, growth turns negative (on average) by -0.1%. In what was widely publicized in the economics community at the time, several issues were uncovered in the study that challenged the notion that growth turns negative once debt exceeds 90%. However, the same trend held, that more debt depresses growth.

Note that the difference between an economy growing at 3.1% per year and 2.2% year is the difference between one that doubles every 22 years vs. one that doubles every 33 years.

The same trend holds true when it comes to the size of government as a percentage of GDP. A review in the Research Institute of Industrial Economics examined all the existing literature on the relationship between government size and growth since 2000 in rich counties and concluded that ” The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.”

And a study by economists from Duke University and Wheaton College which examined OECD nations found the same trend: more debt, less growth.

Debt and Income

Given the effects of massive debt on the economy, it’s only natural that it’s the American taxpayer ultimately bearing the burden. New estimates from the Congressional Budget Office found that reducing our nation’s debt-to-GDP ratio to its historical average within three decades would increase incomes by $6,000. An extra $6,000 per year could certainly help the average American pay for many of the “freebies” that Cortez wants to fund through government.

By CBO’s estimate, every $1 increase in deficits reduces private domestic investment by 15 to 50 cents and increases foreign holdings of American assets by another 20 to 25 cents. Under current law, CBO projects that real Gross National Product (GNP) per capita – a proxy for average income – will grow from $63,000 today to $92,000 (in 2019 dollars) by 2048. If policymakers simply stabilize the debt at today’s high levels of 78 percent of GDP, CBO projects per-person income will rise to $96,000. That’s a $4,000 (4.3 percent) increase in income per person, per year.

Likewise, if we rack up the tens of trillions of dollars we’d need to fund Cortez’s socialist pipedream, Americans can expect the exact opposite effect on their incomes.

At least we’d all be equal in poverty.

Ep. 891 There Will Be No Retreat

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In this episode I address the partial government shutdown. We cannot lose this fight. There must be no retreat. I address the devastating consequences of a surrender in the shutdown fight. I also address the Democrats’ new trick to try and implement government-run healthcare. Finally, I address the devastating correction The NY Times had to issue on the “collusion” case.

News Picks:

Disturbing Poll: Democrats are Now More Positive About Socialism Than Capitalism

Democrats now view socialism more favorably than capitalism, according to a recent Gallup survey reported on by Breitbart.

“For the first time in Gallup’s measurement over the past decade, Democrats have a more positive image of socialism than they do of capitalism,” states the report.

“Attitudes toward socialism among Democrats have not changed materially since 2010, with 57% today having a positive view. The major change among Democrats has been a less upbeat attitude toward capitalism, dropping to 47% positive this year — lower than in any of the three previous measures. Republicans remain much more positive about capitalism than about socialism, with little sustained change in their views of either since 2010.”

Socialism is still more appealing to younger Americans than older Americans, who consistently view capitalism more favorably.

Young Americans aged 18-29 have a 51% positive view of socialism and 45% positive view of capitalism. These numbers represent a 12-point decline in younger American’s positive views of capitalism in the past two years. It also “marked shift since 2010, when 68% viewed it positively. Meanwhile, young people’s views of socialism have fluctuated somewhat from year to year, but the 51% with a positive view today is the same as in 2010.”

Debunking Three AOC Falsehoods From This Past Week

Last week the media acted in unison to pretend that there was mass right-wing outrage over the fact that democratic-socialist darling Alexandria Ocasio Cortez was featured in a dance video while attending Boston University. In reality, literally one person was outraged; some guy on Twitter with the screen name “Anonymousq1776” that posted the video.

While there certainly is dumb criticism of Cortez out there, that’s true of every politician. Irresponsibly, however, the media seems intent on pretending every criticism of Cortez is equally hysterical to the non-existent dance controversy. In reality, there is no shortage of legitimate reasons to criticize the new Congresswoman.

Back in July I critiqued four ideas or statements of Cortez’s – and now that’s she holding office, here are three more from the past week you may have missed.

70+% Taxes

Previously unable to answer the question of how she wants to fund the various freebies she wants to implement, Cortez finally has an answer: taxing the rich 70%. Speaking to 60 Minutes, she pointed out that such rates aren’t as scary as they sound, because after all, we had them back in the 1960s and the economy was doing fine then. As she stated, “You look at our tax rates back in the 60s, and when you have a progressive tax rate system, your tax rate, let’s say, from $0 to $75,000 maybe 10% or 15%, etc. But once you get to the tippy tops, on your 10-millionth dollar, sometimes you see tax rates as high as 60% or 70%.”

And while we did have top tax rates exceeding 70% in the past – nobody paid to those rates. As I explained in an article last year:

  • When the Revenue Act of 1935 was passed, raising the top income tax bracket to 75%, literally only one person paid it; John D. Rockefeller. Only eight taxpayers paid the 91% rate present in 1960.
  • As you can see in the chart below from the Congressional Research Servicethe top effective income tax rate in America has never exceeded 30 percent.

And all this overlooks the fact that a 70% top tax rate wouldn’t even raise close to enough tax revenue to fund the programs Cortez wants, which would require expenditures amounting to roughly 20% of GDP. If we could tax all income above $1 million at 100% (assuming everyone continues working the same amount), it would raise “only” 3.8% of GDP.

Furlough Fallacies

As the government shutdown entered its 18th day, Cortez posted an obviously fake conversation that supposedly had just transpired in her office. I was a little surprised it didn’t end with something along the lines of “and then everybody clapped!”

Mockery aside, we know that this conversation occurred nowhere outside Ms. Cortez’s head because, as The Federalist’s Gabriel Malor pointed out, HUD employees were last paid on December 28th, and their next payday is on January 11th.

On the other hand, maybe this HUD worker simply forgot that he gets paid bi-weekly (just kidding, of course).

Lying About Lying

Cortez isn’t happy that the Washington Post fact-checked her claim that the Pentagon had wasted over $21 trillion dollars – which is a greater figure than the cumulative defense budget since the founding of our Republic. Cortez was making this claim as an idea to fund the estimated $32 trillion price tag that single-payer health care would cost (though it should be noted that the “$32 trillion” figure assumes an immediate 40% cut in payments to doctors, hospitals, and drug companies, so take even that enormous figure with a pound of salt).

Speaking to 60 Minutes about the falsehood, she told Anderson Cooper “And whenever I make a mistake. I say, ‘Okay, this was clumsy,’ and then I restate what my point was. But it’s — it’s not the same thing as — as the president lying about immigrants. It’s not the same thing at all.” She’s never actually done that, and she’s minimizing her own falsehoods. Again, rather than acknowledge the falsehoods in her impossible claim, she then went on Twitter to blast the Washington Post for not doing more to fact check Donald Trump. Her issue mainly seemed to be that she was awarded “Four Pinocchios” by the Post for her claim, which indicates a complete falsehood. Her logic seems to be that since her falsehood was unintentional, it shouldn’t count as much as other people’s falsehoods, such as Donald Trump (because even when she’s caught lying, this is somehow a point against Trump).

As the Post’s fact-checker Glenn Kessler quickly pointed out, the Post holds Trump’s feet to the fire every single day. In fact, for every one claim of Cortez’s they’ve fact-checked, they’ve also fact-checked over 3,800 Trump claims.

I will note that most of those Trump “lies” are essentially the Post fact-checking hyperbole. Regardless, Cortez doesn’t seem to have a problem with the fact-checkers when they nitpick Trump, but she does when they expose her outright lies. Go figure.

 

 

The High Cost of Scandinavian “Socialism”

A lifelong socialist, Bernie Sanders decided to do some rebranding during his 2016 presidential campaign. No longer was he a socialist, he’s now a “democratic-socialist” (which I suppose sounds better).  “When I talk about democratic socialism, I’m not looking at Venezuela. I’m not looking at Cuba. I’m looking at countries like Denmark and Sweden.” Bernie declared during the presidential primaries.

I’ll ignore the fact that Bernie has consistently praised Cuba in the past, and in 2011 wrote that “These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina,” and turn my attention towards his new model for socialism: Scandinavia.

Scandinavian “Socialism”: The Offerings

It must first be clarified that Scandinavian countries (Sweden, Denmark, and Norway) are not socialist. They are capitalist countries that impose excessive levels of taxation on their citizens to fund a wide array of social programs. Those programs include:

  • “Free” government funded healthcare through single-payer healthcare systems
  • Generous government funded maternal and paternal leave
  • Heavily subsidized higher education, free of tuition to all students (and in Norway, to international students as well)
  • Generous paid sick leave

And all these programs are extremely popular when you poll American voters on them – but that’s meaningless. Anything that appears “free” polls extremely well – until the public realizes that they have to pony up for “free.”

Scandinavian “Socialism”: The Cost

The large welfare states of Scandinavia are not without their cost.  In 2017, all three countries had levels of taxation exceeding half of every dollar earned. Taxes as a percent of GDP are:

  • 50.7%  in Sweden
  • 53.5%  in Denmark
  • 54.7% in Norway

For reference, in the U.S. taxes at all levels of government averaged 26% of GDP in 2016 (and have since been cut).  

Listen to Bernie’s rhetoric and you’d get the impression that it’s “millionaires and billionaires” ponying up most of those funds – but they aren’t in Scandinavia. While the Tax Foundation found that in 2017 the top 10% of American households paid 70.6% of the taxes, there is no Robin Hood in Scandinavia.

In America, an earner isn’t subject to the top tax bracket of 37% until they earn over $500,000. While an American would need to earn eight times the average income to be subject to our top tax bracket, the figures are only 1.5 times average income in Sweden, 1.6 in Norway, and 1.3 in Denmark (source: pages 30-31).

So, how would America’s tax system look if it were more like Scandinavia’s?

  • If the U.S. tax code was as flat as Denmark’s, someone earning roughly $70,000 would face a top marginal tax rate of 46.3% (source: page 30). That’s simply the first layer of taxation, as all Scandinavian countries have a 25% value-added tax on purchases (the equivalent of a sales tax).
  • Even after accounting for the dollar value of transfer payments and other government benefits, a single-income couple earning the average wage with two children will pay an average personal income tax rate of 22% in the Nordic countries (counting government transfers as a negative tax), as compared to a rate of 14.2% in the United States. Across all family types, the average American family earning the average wage would pay $2,000-$5,000 more in taxes each year (net of the value of any transfer payments) than a Nordic family. Note that this comparison is of Nordic countries (Scandinavia plus Finland and Iceland). (Source: page 31).

And despite all the “freebies” in Scandinavia, Americans consume much more. According to an analysis of OECD consumption data by the White House (source: page 36), average consumption per person is:

  • 31% lower in Denmark than in the United States
  • 32% lower in Sweden than in the United States
  • 18% lower in Norway than in the United States

And on that note, it should come to little surprise that….

Scandinavians Perform Better in America Than in Scandinavia

The success of Scandinavian economies is despite their generous tax-and-spend policies, not because of them. You can thank the Scandinavian work ethic for their success – not the laws of economics being suspended.

There are over 10 million Americans with Scandinavian ancestry (most of which are the descendants of immigrants), and they far economically outperform their counterparts across the Atlantic.

There is, unfortunately, a lack of global household income data, and thus, the most recent information available is from a 2013 Gallup study of global household incomes. They found the median household incomes, purchasing power adjusted to be the following in 2012:

  • Norway: $51,489
  • Sweden: $50,514
  • Denmark: $44,360

The figures are the following median incomes for households of Americans with Scandinavian ancestry in 2012 are as follows:

  • Norwegian American $62,155 (21% higher)
  • Swedish American $62,295 (23% higher)
  • Danish American $63,630 (43% higher)

Additionally, the Census listed a group identifying themselves as “Scandinavian Americans,” who earned a median household income of $67,421 in 2012. The median household income of all Americans in 2012 was $51,371.

And the real kicker? These figures are not adjusted for differences in taxation. Not only do Scandinavian Americans far outperform Scandinavians economically, but they also get to keep a larger chunk of a larger pie.