This past week, President Joe Biden unveiled his new $2 trillion infrastructure plan, scheduled for implementation over the next eight years. He delivered a pep talk about it before a union audience in Pittsburgh: “It’s a once-in-a-generation investment in America. It’s big, yes. It’s bold, yes, and we can get it done.” One central goal of his program is to tackle climate change by reaching a level of zero net carbon emissions by 2035. Many of Biden’s supporters gave two cheers for this expansion of government power, including the New York Times columnist Farhad Manjoo, who lamented that the program is too small to work, but too big to pass. Huge portions of this so-called infrastructure bill actually have nothing whatsoever to do with infrastructure.
In one classic formulation by the late economist Jacob Viner, infrastructure covers “public works regarded as essential and as impossible or highly improbable of establishment by private enterprise.” Classical liberal theorists like Viner believe it is critical to identify a limited scope of business activity appropriate for government. And even here, while government intervention may be necessary to initiate the establishment of an electric grid or a road system, oftentimes the work is completed by a regulated private firm, overcoming government inefficiency in the management of particular projects.
Biden’s use of the term “infrastructure” is merely a rhetorical flourish, the sole purpose of which is to create an illusion that his proposed menu of expenditures should appeal just as much to defenders of small government as it does to progressive Democrats. A quick look at the proposed expenditures shows that they include large transfer payments to preferred groups that have nothing to do with either infrastructure or climate change. Consider this chart prepared by NPR, which breaks down the major categories of expenditure:
“Home/community care” and “affordable housing” constitute over 30 percent of the budget at $613 billion. Much of this money is for child and elder care. Both are traditional forms of transfer payments, which are already available in abundance. Why more? Why now? After all, these cash transfers are not taxable compensation for work done. They increase the motivation to stay out of the workforce, in fact, and thereby reduce the size of the tax base as overall expenditures are mushrooming. Moreover, large doses of home/community care are difficult to target exclusively to the needy. A correct analysis seeks to determine whether such payments are directed toward the truly needy and whether they induce people to leave the workforce to become tax recipients rather than taxpayers.
A similar analysis applies to affordable-housing expenditures, both for renters and owners. In the Biden plan, those expenditures operate as a combined program of disguised subsidies and disguised price controls. An affordable-housing mandate typically requires a developer to build some fraction of total units held for sale or lease at below-market rates to individuals who fall within certain broad income categories. In some programs, the losses to the developer may be offset in part by government subsidies.
These programs are not only costly but also a massive disincentive to new construction, especially when the fraction of affordable units is set too high, at which point the developers cannot recoup their losses on the affordable units by their profits on their market-rate units. A far more sensible regime that reduces both rent controls and subsidies over time allows housing resources to be allocated cheaply and sensibly by market forces. Housing markets are like all others insofar as people are willing to spend other people’s money for their own benefit, which leads to overconsumption. Similarly, price controls reduce the incentive to produce housing that people want, thereby creating systematic shortages, and the long queues and political intrigues that accompany them.
The rest of the initiative’s priorities include investments in electric vehicles at $174 billion, roads and bridges at $115 billion, the power grid at $100 billion, public transportation at $85 billion, and railways at $80 billion. There is absolutely no reason to believe that these expenditures will be made in a responsible fashion, given the political forces that will descend on Washington if the proposed funds become available. Nor is there anything inherently desirable about electric vehicles, for example, that merits their subsidization. To be sure, there is a constant risk of pollution from vehicles powered by fossil fuels, but the correct response is to tax the externality in order to reduce its incidence, not to guess which alternative technology merits a subsidy. Indeed, it is especially wrongheaded to subsidize both electric cars and public transportation when they should be allowed to compete with each other. More generally, any massive subsidy for energy investment is a bad idea for the same reason that it’s a bad idea for housing: it leads to overconsumption, such that total social costs exceed total social benefits.
Shifting to wind or solar energy—both centerpieces of the Biden strategy—is also a bad idea. Those energy sources are too precarious to make more than a dent in the overall energy market. As the US Energy Information Administration reports, fossil fuels account for about 80 percent of total energy production in the United States, as well as raw materials for making “asphalt and road oil, and feedstocks for making the chemicals, plastics, and synthetic materials that are in nearly everything we use.” Keeping crude oil and natural gas in the ground is not a winning strategy. Indeed, relying on wind and solar carries risks, as these forms of energy can respond poorly in extreme situations, a reality that became clear with the breakdown of the Texas power grid recently during an extreme cold snap.
The correct path to environmental soundness lies in the more efficient production and consumption of fossil fuels. This is why one of the best ways to deal with the externalities of fossil fuel consumption, such as air pollution and spills, would be to allow the development of the Keystone XL pipeline. Given how central fossil fuels are to the energy market, any small improvement in their production and distribution will result in enormous benefits. The effort to wean an entire economy off fossil fuels over the next two decades will provide short-term dislocations without any durable long-term relief.
The dubious nature of the Biden plan is made still more evident by looking at its rickety financing. As always, the two favorite targets for new taxation are increases in the corporate income tax and the income tax rates for wealthy individuals. The claim is that these targeted taxes will spare the rest of America from financial pain. Senator Elizabeth Warren made that case for her ultra-millionaire tax, saying her wealth tax would have no impact on 99.9 percent of the population. But that is one strong reason to reject her program or others like it: it encourages majorities to confiscate the wealth of the most productive. Those majorities, of course, would be far less eager if their own taxes were to rise at the same time.
Biden has rightly rejected that approach, but the price of his new, once-in-a-generation expenditure is an increase in the overall corporate tax rate from 21 to 28 percent. Yet this proposal has dangerous consequences too. The United States constantly competes with other nations for corporate investment. Biden’s policy will reduce the level of foreign investment in the United States while simultaneously increasing the level of American investment abroad. This in turn will reverse the beneficial effects of the Trump corporate tax cuts, which notably translated into higher wages. Additional taxes on the wealthy will barely make a dent in the anticipated financial shortfall.
Worse still, it is simply false advertising to say that even if these deferred revenues could be generated, they would cover the full costs of the Biden program. The public expenditures will take place over an eight-year period. As NPR reports, the government plans to keep the corporate tax in place for fifteen years to balance the books. That move will require the treasury to borrow money to cover the anticipated revenue shortfall. And there is no reason to think that the government will meet any of its revenue targets, let alone be able to find the revenues to cover the items on the Biden agenda.
At this point, Republican skepticism about the plan may perhaps peel away some Democratic support. To avert that result, Biden would be well-advised to unbundle the strange bedfellows in his omnibus bill, so that each component can be evaluated on its own merits. The likely result is a smaller program with better outcomes, both for Biden and everyone else.
President Joe Biden’s multitrillion-dollar infrastructure proposal includes a major union handout that would overhaul labor law in the United States.
The White House released a fact sheet Wednesday detailing Biden’s proposed $2 trillion infrastructure package that includes a call to pass the PRO Act, which is currently languishing in the Senate after passing the House. The law would overturn right-to-work laws in 27 states and expand the ability of the National Labor Relations Board to fine employers that violate employees’ organizing rights.
“[Biden] is calling on Congress to ensure all workers have a free and fair choice to join a union by passing the Protecting the Right to Organize (PRO) Act, and guarantee union and bargaining rights for public service workers,” the fact sheet states. The sheet also says that increased union membership can increase worker productivity. The labor overhaul, however, would overturn existing laws in more than half of the states in the country that allow employees to work without requiring union membership.
Biden’s infrastructure plan would also provide a massive handout to the Service Employees International Union by allocating $400 billion for in-home Medicaid health care. In many Democratic-run states, in-home Medicaid health workers are forced to join the SEIU, a major Democratic donor and labor union with nearly two million members.
Critics of the proposal said Biden is using the infrastructure package as “cover” to pass pro-union reform.
“By using his massive infrastructure proposal as cover for denying millions of American workers their right to decide for themselves whether or not to subsidize union activities, President Biden is proving that his top priority is really building the forced-dues empire of his union boss political allies,” Mark Mix, president of the National Right to Work Committee, said. “The so-called PRO Act will eliminate by federal fiat all 27 state right-to-work laws and give union bosses a whole host of other new coercive tools to force workers into compulsory dues payments and one-size-fits-all union ‘representation.'”
The infrastructure bill, which Democrats have called “must-pass” legislation, may be the best vehicle for advancing the controversial PRO Act. Biden’s strong endorsement of the labor law has not helped it advance through the Democratic-controlled Senate. Majority Leader Chuck Schumer (D., N.Y.) reportedly told AFL-CIO leaders that he would not bring it to the floor without 50 cosponsors, according to the Intercept. Sens. Joe Manchin (D., W.Va.), Mark Kelly (D., Ariz.), Kyrsten Sinema (D., Ariz.), Mark Warner (D., Va.), and Angus King (I., Maine) have yet to back the package.
Other union watchdogs said the Democratic holdouts are right to be skeptical of the bill. Charlyce Bozzello, communications director at the Center for Union Facts, said the passage of the act could harm workers who are struggling to recover from the economic impacts of the coronavirus pandemic.
“Far from providing a ‘free and fair’ choice for workers, the PRO Act is nothing more than a union wishlist,” Bozzello said. “The bill does little to support American workers who are struggling to get back on their feet after the pandemic. Instead, it would consolidate more control with our country’s labor unions, force more employees to pay union dues as a condition of employment, override the right to a secret ballot election, and threaten the livelihood of countless freelancers.”
Biden unveiled the infrastructure package at a speech in Pittsburgh on Wednesday. He urged quick congressional action on the package, which Democratic lawmakers have said they want to pass by Independence Day. He also said that he wants to include Republicans in negotiations, but other Democratic leaders have indicated that they could push the infrastructure package through via the budget reconciliation process.
The passage of the PRO Act would likely require the elimination of the Senate filibuster, however, which would allow the Senate to move forward on a number of other Democratic legislative initiatives. Manchin and Sinema have said they oppose ending the filibuster.
The Biden administration did not respond to a request for comment.
America is a diplomatic fox, while Beijing is a hedgehog fixated on the big idea of reunification.
In a famous essay, the philosopher Isaiah Berlin borrowed a distinction from the ancient Greek poet Archilochus: “The fox knows many things, but the hedgehog knows one big thing.”
“There exists,” wrote Berlin, “a great chasm between those, on one side, who relate everything to … a single, universal, organizing principle in terms of which alone all that they are and say has significance” — the hedgehogs — “and, on the other side, those who pursue many ends, often unrelated and even contradictory” — the foxes.
Berlin was talking about writers. But the same distinction can be drawn in the realm of great-power politics. Today, there are two superpowers in the world, the U.S. and China. The former is a fox. American foreign policy is, to borrow Berlin’s terms, “scattered or diffused, moving on many levels.” China, by contrast, is a hedgehog: it relates everything to “one unchanging, all-embracing, sometimes self-contradictory and incomplete, at times fanatical, unitary inner vision.”
Fifty years ago this July, the arch-fox of American diplomacy, Henry Kissinger, flew to Beijing on a secret mission that would fundamentally alter the global balance of power. The strategic backdrop was the administration of Richard Nixon’s struggle to extricate the U.S. from the Vietnam War with its honor and credibility so far as possible intact.More fromArchegos Appeared, Then VanishedHedge Fund or Billionaire? For Tribune, It’s a No-BrainerIllinois Owes Georgia Voters a Debt of GratitudeOne Cheer for the Return of Earmarks
The domestic context was dissension more profound and violent than anything we have seen in the past year. In March 1971, Lieutenant William Calley was found guilty of 22 murders in the My Lai massacre. In April, half a million people marched through Washington to protest against the war in Vietnam. In June, the New York Times began publishing the Pentagon Papers.
Kissinger’s meetings with Zhou Enlai, the Chinese premier, were perhaps the most momentous of his career. As a fox, the U.S. national security adviser had multiple objectives. The principal goal was to secure a public Chinese invitation for his boss, Nixon, to visit Beijing the following year.
But Kissinger was also seeking Chinese help in getting America out of Vietnam, as well as hoping to exploit the Sino-Soviet split in a way that would put pressure on the Soviet Union, America’s principal Cold War adversary, to slow down the nuclear arms race. In his opening remarks, Kissinger listed no fewer than six issues for discussion, including the raging conflict in South Asia that would culminate in the independence of Bangladesh.
Zhou’s response was that of a hedgehog. He had just one issue: Taiwan. “If this crucial question is not solved,” he told Kissinger at the outset, “then the whole question [of U.S.-China relations] will be difficult to resolve.”
To an extent that is striking to the modern-day reader of the transcripts of this and the subsequent meetings, Zhou’s principal goal was to persuade Kissinger to agree to “recognize the PRC as the sole legitimate government in China” and “Taiwan Province” as “an inalienable part of Chinese territory which must be restored to the motherland,” from which the U.S. must “withdraw all its armed forces and dismantle all its military installations.” (Since the Communists’ triumph in the Chinese civil war in 1949, the island of Taiwan had been the last outpost of the nationalist Kuomintang. And since the Korean War, the U.S. had defended its autonomy.)
With his eyes on so many prizes, Kissinger was prepared to make the key concessions the Chinese sought. “We are not advocating a ‘two China’ solution or a ‘one China, one Taiwan’ solution,” he told Zhou. “As a student of history,” he went on, “one’s prediction would have to be that the political evolution is likely to be in the direction which [the] Prime Minister … indicated to me.” Moreover, “We can settle the major part of the military question within this term of the president if the war in Southeast Asia [i.e. Vietnam] is ended.”
Asked by Zhou for his view of the Taiwanese independence movement, Kissinger dismissed it out of hand. No matter what other issues Kissinger raised — Vietnam, Korea, the Soviets — Zhou steered the conversation back to Taiwan, “the only question between us two.” Would the U.S. recognize the People’s Republic as the sole government of China and normalize diplomatic relations? Yes, after the 1972 election. Would Taiwan be expelled from the United Nations and its seat on the Security Council given to Beijing? Again, yes.
Fast forward half a century, and the same issue — Taiwan — remains Beijing’s No. 1 priority. History did not evolve in quite the way Kissinger had foreseen. True, Nixon went to China as planned, Taiwan was booted out of the U.N. and, under President Jimmy Carter, the U.S. abrogated its 1954 mutual defense treaty with Taiwan. But the pro-Taiwan lobby in Congress was able to throw Taipei a lifeline in 1979, the Taiwan Relations Act.
The act states that the U.S. will consider “any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States.” It also commits the U.S. government to “make available to Taiwan such defense articles and … services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capacity,” as well as to “maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.”
For the Chinese hedgehog, this ambiguity — whereby the U.S. does not recognize Taiwan as an independent state but at the same time underwrites its security and de facto autonomy — remains an intolerable state of affairs.
Yet the balance of power has been transformed since 1971 — and much more profoundly than Kissinger could have foreseen. China 50 years ago was dirt poor: despite its huge population, its economy was a tiny fraction of U.S. gross domestic product. This year, the International Monetary Fund projects that, in current dollar terms, Chinese GDP will be three quarters of U.S. GDP. On a purchasing power parity basis, China overtook the U.S. in 2017.
In the same time frame, Taiwan, too, has prospered. Not only has it emerged as one of Asia’s most advanced economies, with Taiwan Semiconductor Manufacturing Co. the world’s top chip manufacturer. Taiwan has also become living proof that an ethnically Chinese people can thrive under democracy. The authoritarian regime that ran Taipei in the 1970s is a distant memory. Today, it is a shining example of how a free society can use technology to empower its citizens — which explains why its response to the Covid-19 pandemic was by any measure the most successful in the world (total deaths: 10).
As Harvard University’s Graham Allison argued in his hugely influential book, “Destined for War: Can America and China Escape Thucydides’s Trap?”, China’s economic rise — which was at first welcomed by American policymakers — was bound eventually to look like a threat to the U.S. Conflicts between incumbent powers and rising powers have been a feature of world politics since 431 BC, when it was the “growth in power of Athens, and the alarm which this inspired in Sparta” that led to war. The only surprising thing was that it took President Donald Trump, of all people, to waken Americans up to the threat posed by the growth in the power of the People’s Republic.
Trump campaigned against China as a threat mainly to U.S. manufacturing jobs. Once in the White House, he took his time before acting, but in 2018 began imposing tariffs on Chinese imports. Yet he could not prevent his preferred trade war from escalating rapidly into something more like Cold War II — a contest that was at once technological, ideological and geopolitical. The foreign policy “blob” picked up the anti-China ball and ran with it. The public cheered them on, with anti-China sentiment surging among both Republicans and Democrats.
Trump himself may have been a hedgehog with a one-track mind: tariffs. But under Secretary of State Mike Pompeo, U.S. policy soon reverted to its foxy norm. Pompeo threw every imaginable issue at Beijing, from the reliance of Huawei Technologies Co. on imported semiconductors, to the suppression of the pro-democracy movement in Hong Kong, to the murky origins of Covid-19 in Wuhan.
Inevitably, Taiwan was added to the list, but the increased arms sales and diplomatic contacts were not given top billing. When Richard Haass, the grand panjandrum of the Council on Foreign Relations, argued last year for ending “strategic ambiguity” and wholeheartedly committing the U.S. to upholding Taiwan’s autonomy, no one in the Trump administration said, “Great idea!”
Yet when Pompeo met the director of the Communist Party office of foreign affairs, Yang Jiechi, in Hawaii last June, guess where the Chinese side began? “There is only one China in the world and Taiwan is an inalienable part of China. The one-China principle is the political foundation of China-U.S. relations.”
So successful was Trump in leading elite and popular opinion to a more anti-China stance that President Joe Biden had no alternative but to fall in line last year. The somewhat surprising outcome is that he is now leading an administration that is in many ways more hawkish than its predecessor.
Trump was no cold warrior. According to former National Security Adviser John Bolton’s memoir, the president liked to point to the tip of one of his Sharpies and say, “This is Taiwan,” then point to the Resolute desk in the Oval Office and say, “This is China.” “Taiwan is like two feet from China,” Trump told one Republican senator. “We are 8,000 miles away. If they invade, there isn’t a f***ing thing we can do about it.”
Unlike others in his national security team, Trump cared little about human rights issues. On Hong Kong, he said: “I don’t want to get involved,” and, “We have human-rights problems too.” When President Xi Jinping informed him about the labor camps for the Muslim Uighurs of Xinjiang in western China, Trump essentially told him “No problemo.” On the 30th anniversary of the 1989 Tiananmen Square massacre, Trump asked: “Who cares about it? I’m trying to make a deal.”
The Biden administration, by contrast, means what it says on such issues. In every statement since taking over as secretary of state, Antony Blinken has referred to China not only as a strategic rival but also as violator of human rights. In January, he called China’s treatment of the Uighurs “an effort to commit genocide” and pledged to continue Pompeo’s policy of increasing U.S. engagement with Taiwan. In February, he gave Yang an earful on Hong Kong, Xinjiang, Tibet and even Myanmar, where China backs the recent military coup. Earlier this month, the administration imposed sanctions on Chinese officials it holds responsible for sweeping away Hong Kong’s autonomy.
In his last Foreign Affairs magazine article before joining the administration as its Asia “tsar,” Kurt Campbell argued for “a conscious effort to deter Chinese adventurism … This means investing in long-range conventional cruise and ballistic missiles, unmanned carrier-based strike aircraft and underwater vehicles, guided-missile submarines, and high-speed strike weapons.” He added that Washington needs to work with other states to disperse U.S. forces across Southeast Asia and the Indian Ocean and “to reshore sensitive industries and pursue a ‘managed decoupling’ from China.”
In many respects, the continuity with the Trump China strategy is startling. The trade war has not been ended, nor the tech war. Aside from actually meaning the human rights stuff, the only other big difference between Biden and Trump is the former’s far stronger emphasis on the importance of allies in this process of deterring China — in particular, the so-called Quad the U.S. has formed with Australia, India and Japan. As Blinken said in a keynote speech on March 3, for the U.S. “to engage China from a position of strength … requires working with allies and partners … because our combined weight is much harder for China to ignore.”
This argument took concrete form last week, when Campbell told the Sydney Morning Herald that the U.S. was “not going to leave Australia alone on the field” if Beijing continued its current economic squeeze on Canberra (retaliation for the Australian government’s call for an independent inquiry into the origins of the pandemic). National Security Adviser Jake Sullivan has been singing from much the same hymn-sheet. Biden himself hosted a virtual summit for the Quad’s heads of state on March 12.
The Chinese approach remains that of the hedgehog. Several years ago, I was told by one of Xi’s economic advisers that bringing Taiwan back under the mainland’s control was his president’s most cherished objective — and the reason he had secured an end to the informal rule that had confined previous Chinese presidents to two terms. It is for this reason, above all others, that Xi has presided over a huge expansion of China’s land, sea and air forces, including the land-based DF‑21D missiles that could sink American aircraft carriers.
While America’s multitasking foxes have been adding to their laundry list of grievances, the Chinese hedgehog has steadily been building its capacity to take over Taiwan. In the words of Tanner Greer, a journalist who writes knowledgably on Taiwanese security, the People’s Liberation Army “has parity on just about every system the Taiwanese can field (or buy from us in the future), and for some systems they simply outclass the Taiwanese altogether.” More importantly, China has created what’s known as an “Anti Access/Area Denial bubble” to keep U.S. forces away from Taiwan. As Lonnie Henley of George Washington University pointed out in congressional testimony last month, “if we can disable [China’s integrated air defense system], we can win militarily. If not, we probably cannot.”
As a student of history, to quote Kissinger, I see a very dangerous situation. The U.S. commitment to Taiwan has grown verbally stronger even as it has become militarily weaker. When a commitment is said to be “rock-solid” but in reality has the consistency of fine sand, there is a danger that both sides miscalculate.
I am not alone in worrying. Admiral Phil Davidson, the head of U.S. forces in the Indo-Pacific, warned in his February testimony before Congress that China could invade Taiwan by 2027. Earlier this month, my Bloomberg Opinion colleague Max Hastings noted that “Taiwan evokes the sort of sentiment among [the Chinese] people that Cuba did among Americans 60 years ago.”
Admiral James Stavridis, also a Bloomberg Opinion columnist, has just published “2034: A Novel of the Next World War,” in which a surprise Chinese naval encirclement of Taiwan is one of the opening ploys of World War III. (The U.S. sustains such heavy naval losses that it is driven to nuke Zhanjiang, which leads in turn to the obliteration of San Diego and Galveston.) Perhaps the most questionable part of this scenario is its date, 13 years hence. My Hoover Institution colleague Misha Auslin has imagined a U.S.-China naval war as soon as 2025.
In an important new study of the Taiwan question for the Council on Foreign Relations, Robert Blackwill and Philip Zelikow — veteran students and practitioners of U.S. foreign policy — lay out the four options they see for U.S. policy, of which their preferred is the last:
The United States should … rehearse — at least with Japan and Taiwan — a parallel plan to challenge any Chinese denial of international access to Taiwan and prepare, including with pre-positioned U.S. supplies, including war reserve stocks, shipments of vitally needed supplies to help Taiwan defend itself. … The United States and its allies would credibly and visibly plan to react to the attack on their forces by breaking all financial relations with China, freezing or seizing Chinese assets.
Blackwill and Zelikow are right that the status quo is unsustainable. But there are three core problems with all arguments to make deterrence more persuasive. The first is that any steps to strengthen Taiwan’s defenses will inevitably elicit an angry response from China, increasing the likelihood that the Cold War turns hot — especially if Japan is explicitly involved. The second problem is that such steps create a closing window of opportunity for China to act before the U.S. upgrade of deterrence is complete. The third is the reluctance of the Taiwanese themselves to treat their national security with the same seriousness that Israelis take the survival of their state.
Thursday’s meeting in Alaska between Blinken, Sullivan, Yang and Chinese Foreign Minister Wang Yi — following hard on the heels of Blinken’s visits to Japan and South Korea — was never likely to restart the process of Sino-American strategic dialogue that characterized the era of “Chimerica” under George W. Bush and Barack Obama. The days of “win-win” diplomacy are long gone.
During the opening exchanges before the media, Yang illustrated that hedgehogs not only have one big idea – they are also very prickly. The U.S. was being “condescending,” he declared, in remarks that overshot the prescribed two minutes by a factor of eight; it would do better to address its own “deep-seated” human rights problems, such as racism (a “long history of killing blacks”), rather than to lecture China.
The question that remains is how quickly the Biden administration could find itself confronted with a Taiwan Crisis, whether a light “quarantine,” a full-scale blockade or a surprise amphibious invasion? If Hastings is right, this would be the Cuban Missile Crisis of Cold War II, but with the roles reversed, as the contested island is even further from the U.S. than Cuba is from Russia. If Stavridis is right, Taiwan would be more like Belgium in 1914 or Poland in 1939.
The low interest rates we’ve experienced over the past few years have made it possible for millions of Americans to buy new homes, refinance properties, and pull out some equity to ease the pinch caused by the lockdowns.
Families have been able to increase their liquidity and pump billions into the economy when it was desperately needed. Consumers, real estate agents, lenders and mortgage brokers all have benefited. So Thursday’s speech via Facebook by United Whole Mortgage CEO Mat Ishbia, in which he delivered essentially an “ultimatum” to his company’s brokers and partners, seems odd.
Ishbia told brokers they had to make a choice — either work with UWM or else. Anyone working with Quicken Loans/Rocket Mortgage and Fairway Independent Mortgage wouldn’t be getting any more business from him.
Some might call that the hard sell. Others might say it’s the kind of threat that could provoke intervention by federal regulators looking for evidence of restraint of trade. Either way, it’s a bad deal for consumers who have or who planned to capitalize on the current low rates.
Ishbia’s play didn’t go over well among industry observers. Mortgage Bankers Association President and CEO Bob Broeksmit issued a statement that said, “Consumers are best served when they have choices created by a robust, competitive market that offers a multitude of loan prices, products, and service levels. Our mortgage market is extraordinarily competitive, with thousands of lenders, multiple delivery channels, and varying business models. MBA does not condone activities designed to thwart competition in the mortgage market and limit loan options available to borrowers.”
What Ishbia wants amounts to a “publicly traded nonbank,” Inside Mortgage Finance reported, “altering its broker contract, telling third-party salespeople if they violate this ‘representation and warranty’ they must pay the wholesaler damages ranging from $5,000 to $50,000.”
Chris Whalen of Whalen Global Advisors LLC, a frequent contributor to the National Mortgage News, said Ishbia’s demands were a direct result of “mortgage lending volumes slowing” forcing firms to fight over brokers and production.
“Both firms are very dependent upon loan refinance transactions and thus buy loans from mortgage brokers. Rocket Mortgage is best in class at refinance, while UWM is an upstart and bottom feeder in terms of production,” Whalen said.
UWM is “the monkfish of mortgage lending,” Whalen said, adding it compared in some ways to Countrywide Financial, a firm that played a key role in the sub-prime lending crisis more than a decade ago “but with the added fuel of the Fed’s purchases of mortgage paper.”
The story, Whalen predicted, “will end in tears” and placed the blame squarely at the feet of Federal Reserve Chairman Jay Powell and the Federal Open Market Committee. Perhaps, but what is certain is that by trying to force third-party brokers to act as UWM employees, Ishbia is guaranteeing home buyers and mortgage brokers will suffer. The policy he is attempting to put into place will restrict competition, despite the launch in January by Quicken/Rocket of a new national mortgage broker directory backed by an investment of $100 million on its website.
Ishbia’s tactics undermine the goal of mortgage brokerages: to identify the lowest interest rates for borrowers and streamline the mortgage process. With Rocket — an industry leader in the mortgage space — now stripped out of the Rolodex of many brokers, consumers almost surely will be required to pay more.
That will cause the housing market to slow down at a most inconvenient time for buyers, sellers and the country as a whole.
Among the best remembered summits of the 20th century are those of Ronald Reagan and Mikhail Gorbachev. Reagan’s commitment to dialogue with America’s primary adversary and what then-Secretary of State George P. Shultz called his “personal chemistry” with his Soviet counterpart were hallmarks of his presidency. But even more important was the fact that Reagan had a clear strategy for victory in the global contest with the Soviet Union.
Reagan’s approach — applying intensive economic and military pressure to a superpower adversary — became foundational to American strategic thinking. It hastened the end of Soviet power and promoted a peaceful conclusion to the multi-decade Cold War.
Now it is useful to ask if a similar approach would be equally successful in America’s contest with an even more formidable rival, the People’s Republic of China, a challenger with whom the free world’s economies are intertwined and increasingly interdependent.
In 1983, Reagan approved National Security Decision Directive 75, which set the course for an assertive, competitive approach to the Soviets, in contrast to the “live and let live” aspirations of détente. Reagan drew on George F. Kennan’s innovative policy of containment, which acknowledged both the disastrous consequences of a hot war with the Soviet Union and the impracticality of cooperation with a Kremlin driven by communist ideology.
Working from Kennan’s original intuitions, the operational approach that Directive 75 emphasized was “external resistance to Soviet imperialism” and “internal pressure on the USSR to weaken the sources of Soviet imperialism.” Rather than trying to reduce friction with the Soviets as prior administrations had done, Directive 75’s aim was “competing effectively on a sustained basis with the Soviet Union in all international arenas.” Within nine years, the Soviet Union collapsed, worn out by economic pressure, an arms race it could not win and internal political contradictions.
The goal of a competitive strategy versus Chinese Communist Party aggression should be different. The United States and like-minded liberal democracies must defend against the expansion of the party’s influence, thwart its ambitions to dominate the 21st century global economy, and convince Chinese leaders that they can fulfill enough of their aspirations without doing so at the expense of their own people’s rights or the sovereignty of other nations.
These efforts must apply Reagan’s fundamental insight — to win against a rival of China’s magnitude requires sustained pressure against the true sources of the adversary’s power.
China is an economic juggernaut. Through its engagement with the United States and other major markets, it has made itself central to global supply chains, moved to dominate strategic industries and emerging technologies, and built up a military designed to win a war with the U.S. and its allies. Numerous multinational corporations and global financial institutions pump capital, technology and know-how into China. This transfer of capability and competitive advantage can be used against the free world to devastating effect. As the CCP puts it, China is poised to “regain its might and re-ascend to the top of the world.”
To foil China’s plans for preeminence, the United States and its partners should restrict investment into Chinese companies and industries that support the CCP’s strategic goals and human rights abuses. The U.S. should work to block China’s access to Western technology in areas that contribute to military advantage and to construct a new global trade and supply chain system that reduces dependency on China. With India, Australia and Japan, the U.S. must also maintain preponderant military power in the Indo-Pacific to convince Chinese leaders that they cannot accomplish their objectives through threats or the use of force.
In all of this, America and its allies should be confident. At the start of the Reagan administration, the Soviet Union, like China today, appeared to be at the height of its ambitions, exerting influence in every corner of the globe. One decade of focused American strategy helped bring about a peaceful conclusion to what many believed could have been an endless Cold War.
Just as Reagan generated the national and international will necessary to overcome the Soviet challenge, the Biden administration can galvanize efforts to compete effectively with an emboldened China. That effort will bolster the administration’s goal of building back the United States’ strength and prosperity.
The Trump administration’s recognition of that the Chinese Communist Party is a strategic competitor was a crucial shift in U.S. foreign policy. There is now a bipartisan consensus in Washington about the need to sustain a multinational effort to restrict the party’s mobilization against the free world. Applying pressure abroad and fostering growth at home will allow the United States and its partners to prevail in this century’s most important competition, preserve peace, and help build a better future for generations to come.
The Biden administration is committed to applying the freshest thinking of the 1930s to contemporary challenges, while congressional Democrats are keen on mandating that all 50 states adopt what is worst and most destructive in California practice. These two tendencies come together in the PRO Act.
The PRO Act, which already has been passed by the House, is being sold as a measure to make it easier for American workers to join labor unions. What it is, in fact, is a measure that would make it much harder for workers to stay out of unions when they want to, by overriding state right-to-work laws and adopting California’s so-called ABC test to treat certain independent contractors as employees.
The union bosses went to bat for Joe Biden in 2020, and this is their payoff. Joe Biden takes a rosy view of unions, and it probably is easy to be sentimental about blue-collar work when you have been in elected office since the early 1970s. Nobody named Biden has lifted anything heavier than money in decades.
Why would a worker want to avoid joining a union? Wouldn’t they prefer to have someone looking out for their interests? That might be the case — if American workers were naïve enough to believe that the Teamsters and the other unions are looking out for their interests, rather than looking out for the interests of, say, a union boss’s brother getting paid a $42-an-hour wage on a New York City construction site while operating a coffee concession. There are, as it turns out, a great many blue-collar workers not much interested in paying for the privilege of enriching politically connected labor leaders who do no real work.
Beyond the corruption and the desire to be free of union politics, other workers have practical, bottom-line reasons for wishing to remain free of union entanglements. For instance, owner-operators involved in long-haul trucking cut their own deals with their clients, working on their own terms rather than on terms set by a union boss. They can do that even where a union already is present. Under the PRO Act, some of these independent operators would risk being reclassified as employees — meaning reclassified out of business. That is because of the second prong of the ABC test insists that independent contractors must be engaged in incidental work rather than core business activities — owner-operators who do drive for trucking services (as opposed to contracting with a farm or a construction company) wouldn’t pass the test to qualify as independent contractors.
Right-to-work laws, which have been passed in the majority of states, do not restrict voluntary union activity. What they do is forbid unions from forcing workers who do not wish to belong to the union to pay dues anyway as a condition of employment — which is to say, they forbid a particularly nasty form of extortion. Anybody who is not a union official who demands a kickback out of workers’ wages as a condition of employment is considered to be engaged in racketeering. The PRO Act would (probably unconstitutionally) supersede laws duly enacted by the state legislatures, making such extortion a mandatory business practice from coast to coast.
The People’s Republic of China (PRC) has consistently revealed itself to be a rogue regime. China operates “re-education camps” where unpopular minorities are systematically imprisoned, tortured, raped, and killed.The communist regime defends the existence of these camps while denying the atrocities committed in them. These denials are without even the semblance of credibility.
Over the years, China has been caught shipping children’s toys that had been painted with lead paint — decades after it was well known that lead paint is poisonous and particularly harmful to children. China has also poisoned baby food and pet food with melamine — which in nutrition testing gives the food the appearance of having a higher protein content. But the food doesn’t have higher protein, and melamine can cause serious illness, organ failure, and even death. China has also been caught producing vitamins with dangerous levels of toxic heavy metals.
Of course, the PRC consistently denies any wrongdoing — just as it did in 2020 with the COVID-19 virus.The totalitarian regime lied about the virus, misled the world in important ways that cost millions of lives across the globe, and blamed others — all while never accepting any responsibility for the harm that they had done. That’s how dictators and totalitarians roll.
Why does China behave like this? Because the totalitarian regime seeks not only to control and dominate its own population, but to ensnare the rest of us in its web of control. The PRC has a comprehensive plan to make itself the world’s most dominant power and it intends to use that power globally, as it has within its own borders. The PRC’s goal isn’t just to become the world’s largest economy or even to have the world’s largest military. The regime’s objective is to force compliance with its world view, its goals and its preferences.
The PRC is rapidly seeking and building a military and naval force; a space presence; economic, trade and shipping dominance; and technological supremacy. The PRC considers everything to be part of its plan to achieve world governance and control — everything from pet food to 5G wireless technology, from children’s toys to trade agreements and shipping, from software and apps to economics, from artificial intelligence to military force, from space exploration to infiltration of American academia.
The same PRC totalitarians who spy on their own people and systematically punish, imprison, torture and even execute them for having the “wrong” views, opinions, religious beliefs, friends, or family, want to expand the circle of their power. And they want you within that circle so that they can have the same control over you.
One of the PRC’s chief plans is to dominate world shipping — because it will give them both economic and military power. The global trade fleet is about 41,000 ships. China builds almost 1,300 ships a year. The US builds only 8. China has become the dominant player in ship building and operating ports around the globe.
But China does not currently dominate shipping within the borders of the US. That is thanks to the Jones Act which requires that ships used to transport goods between two American ports, must be American ships and American crews. Notably it does not prohibit foreign ships from making a stop in American ports. But between US ports, the Jones Act requires American ships and crews.
The Jones Act was designed to ensure that we have the shipping capacity, trained mariners, and the ship building and ship repairing capability required to meet our national security needs. The Jones Act also turns out to big a huge help in protecting the American homeland.
Some argue that the Jones Act is outdated and that it harms American competitiveness. But ask yourself these important questions — if we abolished the Jones Act, would you be comfortable with Chinese ships sailing up and down the Mississippi loaded with spies and high-tech electronics gathering intelligence and intercepting communications? Would allowing China to have a constant presence in America’s heartland on the more than 25,000 miles of inland waterways make America more or less secure? Would abolishing the Jones Act help or hinder China in achieving its goals of world domination? These are a few of the things that America must consider before listening to those who say the Jones Act should be repealed.
One thing is for sure — China would support the repeal of the Jones Act. China’s totalitarian regime seeks to become our master. We should not help them achieve that goal. That’s why we must have a robust and capable defense that is second to none. That is also why we need the Jones Act.
Even though America is still within the first 100 days of Joe Biden’s presidency, most voters are telling pollsters they approve of his performance on the job. According to a poll conducted recently by the AP and the NORC Center for Public Affairs Research, the president gets high marks from 60 percent of those surveyed.
Along party lines, Biden’s handling of the novel coronavirus pandemic is viewed favorably by 70 percent of Democrats and 44 percent of Republicans. Some analysts would say the latter figure lines up nicely with pollster Tony Fabrizio’s post-election autopsy for the 2020 Trump campaign that concluded it was the former president’s mishandling of the COVID crisis that did the most to alienate GOP voters and drive them into the Democratic camp, at least at the presidential level.
Importantly for the GOP, which is still trying to figure out how best to proceed in the post-Trump era, a
new Rasmussen Reports survey found that 51 percent of Republicans considered likely to vote in 2022 thought congressional Republicans had “lost touch” with them over the past several years.
While 41 percent of the likely GOP voters surveyed said their individual representatives “have done a good job representing the party’s values,” their criticism of the congressional party is an ominous sign. It’s true, Rasmussen Reports said, that the numbers were a marked improvement “over previous surveys dating back to 2008” but with well over a third still dissatisfied with what the party in Congress is doing it will likely be difficult to bring the pro and anti-Trump forces together on any affirmative plan to win back the majority in both chambers.
“Democrats are far more satisfied with their representation in Congress,” the polling firm said as, “62 percent of Democratic voters say Democrats in Congress have done a good job of representing Democratic values, while 32 percent say their party’s Congress members have lost touch with Democratic voters from throughout the nation.”
Other findings revealing in the survey include:
–Sixty-five percent (65 percent) of voters not affiliated with either major political party think Republicans in Congress have lost touch with voters, while 51 percent of unaffiliated voters say Democrats in Congress are out of touch.
–Voters under 40 are more likely than their elders to say Democrats in Congress have done a good job representing their party’s values. Voters with incomes over $200,000 a year say Democrats in Congress have done a better job than Republicans of representing their party’s values.
–Among all likely U.S. Voters, just 29 percent think Republicans in Congress have done a good job representing Republican values over the past several years. Most (59 percent) think congressional Republicans have lost touch with GOP voters from throughout the nation, down from 63 percent in 2018, but 12 percent are not sure.
–Forty percent (40 percent) of all voters believe congressional Democrats have done a good job representing their party’s values over the past several years. Forty-nine percent (49 percent) disagree and say they’ve lost touch with Democratic voters, but 10 percent are not sure,” the polling firm said in a release.
The survey of 1,000 U.S. likely voters was conducted on February 28 and March 1, prior to the passage by the United States Senate of the COVID 19 federal stimulus bill adopted without Republican support and has a +/- 3 sampling error. The bill now heads back to the House where Speaker Nancy Pelosi is expected to call it up quickly rather than go to a conference committee to iron out the differences between the new bill and what the House passed last week.
In two Defining Ideas articles in 2009, “Who’s Afraid of Budget Deficits? I Am” and “Furman, Summers, and Taxes,” I criticized Lawrence Summers and Jason Furman, two prominent economists who worked in the Obama administration, for their dovish views on federal debt and deficits. They had argued that we shouldn’t worry much about high federal budget deficits and growing federal debt. Of course, that was before the record budget deficit of 2020. Now even Summers is worried. In two February op-eds in the Washington Post, Summers argues against the size and composition of the Biden “stimulus” bill.
Summers makes a solid argument, on Keynesian grounds alone, that the proposed $1.9 trillion spending bill is much too large. He also, to his credit, digs into some of the details of the bill, pointing out how absurd they are. Had Summers looked at more details, he could have made an even stronger case against the measure. For instance, one major provision of the bill, the added unemployment benefits through August, will actually slow the recovery. And other provisions of the bill, like the bailout of state and local governments, are bad on other grounds. The fact is that this is not your father’s or your grandmother’s run-of-the-mill recession. It was brought about by two things: (1) people’s individual reactions to the threat of Covid-19 and (2) politicians’ reactions, in the form of lockdowns, to the same threat.
First, though, let’s consider Summers’s big-picture case. A standard way that Keynesian economists, including Summers, evaluate a spending program to stimulate the economy is to consider the difference between the actual output (gross domestic product) of the economy and the potential output, that is, the GDP that would exist at full employment. They then advocate an increase in federal spending to close this gap. The typical increase they favor is less than the gap because of the so-called multiplier effect, the idea that when the feds spend a dollar the increase in spending in the economy is more than a dollar. Such multipliers, you might or might not be surprised to know, are difficult to estimate in advance, a fact that many Keynesians readily admit. But whatever the multiplier is, we know that if the difference between potential and actual output is $x billion, the stimulus spending, in the Keynesian view, should be less than $x billion.
Now comes the shocker. The stimulus spending in the Biden bill is a multiple of x. Summers quotes an estimate from the Congressional Budget Office that with the $900 billion measure Congress enacted and President Trump signed in December, the gap between actual output and potential output will fall from about $50 billion a month at the beginning of 2021 to only $20 billion a month at the end. He then notes that the Biden measure would spend about $150 billion per month over many months. So the spending is three times the current shortfall and over seven times the expected shortfall in December.
A major problem with the Keynesian model is that in its simplified form, which, amazingly, is still the one that Keynesian economists use to decide on the amount of spending needed, a dollar that the feds spend on item A is the same as a dollar they spend on item B. Summers, disappointingly but not surprisingly, does not challenge that view directly. He regards the $150 billion per month as overly stimulative whatever it is spent on.
However, Summers does grant the basic fact that one dollar spent on one item could be better or worse than one dollar spent on another item. And he finds much that is bad or, at least, inappropriate. In his February 7 op-ed in which he replies to critics and questioners, Summers notes, “Proposed expenditure levels for school support exceed $2,000 per student.” To put that in perspective, per-pupil spending in K–12 schools in academic year 2017, the most recent year for which we have data, was $13,094. So $2,000 is a huge increase in federal spending on something that, in the government sector at least, has been largely the preserve of state and local governments.
Summers also points out in his February 4 op-ed that the ratio of proposed spending to income loss is even greater for low-income families. He writes:
In normal times, a family of four with a pretax income of $1,000 a week would take home about $22,000 over the next six months. Under the Biden proposal, if the breadwinner were laid off, the family’s income over the next six months would likely exceed $30,000 as a result of regular unemployment insurance, the $400-a-week special unemployment insurance benefit, and tax credits.
Disappointingly, though, Summers doesn’t point out that if the purpose of a stimulus program is to stimulate, paying people an extra $400 a week as long they’re unemployed is a bad idea. This omission is all the more striking given that Summers, in the late 1980s and early 1990s, was prominent in arguing that paying people to be unemployed will cause many of the unemployed to stay out of work longer. Indeed, in his article “Unemployment” in my 1993 Fortune Encyclopedia of Economics,later renamed The Concise Encyclopedia of Economics, Summers wrote:
The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.
Economists since then have done a number of studies of the effect of extending unemployment benefits beyond the traditional twenty-six weeks, and the bottom line is that the effect is large. For example, Rob Valletta and Katherine Kuang, two economists at the San Francisco Federal Reserve Bank, wrote in November 2010:
By easing the financial burden of long-term unemployment, extended benefits reduce the incentives of eligible workers to search for jobs and fill vacancies. Research by Valletta and Kuang (2010) suggests that the impact of extended insurance benefits on the unemployment rate in late 2009 was only about 0.4 percentage point. Updated estimates for all of 2009 and the first half of 2010 suggest a larger impact of about 0.8 percentage point.
More recently, economists Marcus Hagedorn of the University of Oslo, Iourii Manovskii of the University of Pennsylvania, and Kurt Mitman of Stockholm University, in a 2016 study published by the National Bureau of Economic Research (“The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?”), found that 2.1 million people got jobs in 2014 due to the ending of the extended unemployment benefits.
Of course, what we would really like to know is the effect of the double whammy of extending unemployment benefits through August and increasing them by $400 per week. The latter measure would cause millions of unemployed people to make more money by being unemployed than by being unemployed. My own admittedly intuitive guess is that if the bill passes with those benefits, at least two million workers who would have been working will be out of work. That one provision of the “stimulus” bill, in short, would create a drag on the economy.
The other major absence from Summers’s critique is any mention of the huge bailout for state and local governments. Last June, in “Just Say No to State and Local Bailouts,” I noted the Federation of Tax Administrators’ estimate that the combined effect of the pandemic and the state government lockdowns would be a loss of $152 billion in state government revenues through the end of their fiscal years. I also pointed out that the state governments’ rainy-day funds plus their year-end balances totaled $90 billion. So the needed cuts in spending to stay within the states’ balanced-budget requirements would have been $62 billion, which was only 7 percent of the prior estimated tax revenues.
These numbers, it turns out, were overly pessimistic. The Committee for a Responsible Federal Budget estimates that state and local government tax collections by the end of 2020 were over 2 percent higher than in the fourth quarter of 2019. It should be even easier for Congress to “just say no” to state and local bailouts. Unfortunately, the $1.9 trillion bill contains $350 billion for state and local governments, territories, and tribes.
Why doesn’t Summers mention the state and local government bailout? I don’t know, but here’s a hypothesis. He wants to get Democrats to listen to him but he knows they’ll turn off if he is too critical. Thus Summers softens his criticism of the bill by writing, “Its ambition, its rejection of austerity orthodoxy, and its commitment to reducing economic inequality are all admirable.” Senator Elizabeth Warren, in her book A Fighting Chance, recalled the advice that Summers had given her in a dinner conversation early in her time as a US senator:
Larry’s tone was in the friendly-advice category. He teed it up this way: I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders. (Italics in original.)
I don’t know if this is true, but it fits. Larry Summers has been an insider for a long time and it’s probably hard for him to criticize his allies. That makes his criticism of this bill all the more credible.
I’m an outsider and so it’s easier for me to call them the way I see them. Here are the two major things I see, both of which undercut the case for any stimulus bill.
First, the economy is recovering. In January, the International Monetary Fund predicted that real GDP will grow by 5.1 percent in 2021. Possibly that’s because the IMF understands that this is not a typical recession. The slump we’re in was due initially to people’s fear of the virus, a fear whipped up by Dr. Anthony Fauci and others. But now it’s due mainly to lockdowns. As the percent of the US population that has had COVID-19 rises and the number of people vaccinated rises, we are getting closer to herd immunity. Then people will feel even safer going out and governments will have fewer excuses to keep their economies locked down. We can all become Florida or Florida-Plus. That will all happen without any stimulus bill.
Second, the $1.9 trillion bill represents government taxing us or our children in the future to spend money in places where we the people have chosen not to spend it now. The bill is, in essence, a huge instance of central planning with government officials’ preferences overriding ours. The bill, for example, contains $28 billion for transit agencies, $11 billion in grants to airports and airplane manufacturers, and $2 billion in grants to Amtrak and other transportation. How does the government know that those are the right amounts? What if, as I predict, when the pandemic and lockdowns end we will still have fewer people wanting to ride transit because they and their employers will opt for a hybrid model of some at-home work and some in-office work? The effect of this misallocation of resources won’t necessarily show up in GDP because GDP measures government spending at cost rather than at value. But this spending will make us somewhat worse off. It’s far better to rely on people having the freedom to make their own allocations.
If the government gets out of the way, the economy will recover. Maybe it takes an outsider to see that and to say that. I just did.
In early February congressional Democrats launched an effort to allow unions to implant themselves once again into the lives of workers – whether they’re wanted there or not. The PRO ACT, which the U.S. House of Representatives will soon consider and which, ironically enough, stands for “Protecting the Right to Organize,” would let big labor once again establish a stranglehold over the American economy.
For decades, since President Jimmy Carter’s epic mismanagement of the U.S. economy, the percentage of workers in the private sector belonging to unions has plummeted. The increased cost of membership along with diminishing satisfaction with what unions were able to do to protect the jobs of their members has led more and more of them to seek alternative arrangements.
In some states, worker independence from big labor is made easier by the existence of laws prohibiting agreements between employers and labor unions concerning the extent to which an established union can require employees to be members or to pay union dues or fees as a condition of employment either before or after they’re hired.
This concept, known popularly as “right to work” has worked well since it was first introduced in the period just after the end of World War II. It’s now law in more than half the states and others are moving toward adopting it. If the PRO Act passes, right-to-work laws would be eliminated, meaning workers could be forced to join a union or pay fees equivalent to membership dues as a condition of getting or keeping their job.
To protect against this possibility, U.S. Sen. Rand Paul has introduced the National Right to Work Act to preserve the options right-to-work laws make available to workers in states that have them and extend to workers in states that do not. The key point, he says, is that workers, not the unions themselves, should make the relevant decisions regarding membership.
“The National Right to Work Act ensures all American workers have the ability to choose to refrain from joining or paying dues to a union as a condition for employment,” Sen. Paul said. There are 27 states with right-to-work laws on the books, the Kentucky Republican said, adding “It’s time for the federal government to follow their lead.”
More than eight in ten workers believe preserving worker choice in such matters is a preeminent concern, according to a Gallup Poll, with more than seven in ten saying they would vote for a ballot measure protecting right-to-work.
The survey data indicates workers already in unions would like to see their options expanded, likely to leverage efforts at reform. One survey conducted nearly a decade ago for the National Right to Work Legal Defense Fund found that 91 percent of private-sector union members believed there was too much secrecy in how their dues money was spent, 79 percent said union membership should be voluntary, and 63 percent said they would vote out their union leadership for spending dues money on political ads if it could be done by secret ballot to protect them from retribution.
The Paul legislation would repeal six existing statutory provisions allowing private-sector workers and airline and railroad employees to be fired if they don’t pay dues or administrative fees to a union, putting bargaining power back, the senator said, in the hands of America’s workers. A companion bill has been introduced in the U.S. House of Representatives by Joe Wilson, R-S.C.
At their peak, unions represented more than a third of American workers. Now, after several decades of continuing decline, less than 10% of workers in the private sector are part of organized labor. And with so much of American manufacturing having moved offshore to escape the less-than-friendly business climate the politicians created, that’s not really news.
What some people don’t know is how union leadership has continued to cozy up to progressive politicians pushing policies that are antithetical to the interests of the rank and file.
On his first day in office, President Joe Biden – who campaigned as a moderate — signed an executive order killing the Keystone XL pipeline and, with it, more than 10,000 good-paying union jobs. Among Democrats, that’s par for the course. The vocal progressives dominating the Democratic Party these days are in command of the agenda.
In another case, the United Food and Commercial Workers’ Union has been pushing for at least ten months for “hazard pay” that doesn’t mesh with the interests of its members. UFCW International President Marc Perrone is demanding some of the nation’s largest grocery chains commit to the pay bump because of COIVD.
Initially, he wanted $2 an hour. Now he wants $4, even $5 an hour in several West Coast cities. For this, he’s finding support from city and county politicians whose campaigns are union-funded.
Shortages caused by the lockdowns have made it challenging for grocers and their frontline employees. The UFCW’s on them, after they’ve already invested billions to improve safety measures ignores the facts and smacks of ingratitude. Some grocery chains, like Kroger, are already offering $100 bonuses to employees who get a COVID vaccine.
But what of what the union wants? A letter to the editor recently appearing in the Los Angeles Times said it well: “I fully agree that the grocery store workers are heroes. However, how does requiring them to be paid more solve the problem here? Are we saying to workers that it’s OK if you get sick, so long as you are paid more?”
Whatever the companies agree to give, it will probably never be enough for the union leadership The UFCW and Marc Perrone care more about proving they’ve got muscles to flex than the effect these demands will have on working families. In Long Beach, California – which has already mandated hazard pay for grocery workers – Kroger was forced to announce it would close two underperforming stores because the move increased labor costs by more than 20%.
How does that play out? A California Grocers Association study recently found the state’s hazard pay ordinances could raise grocery costs for the average family of four by $400 a year while hundreds of workers, most of them UFCW members, will lose their jobs. It’s a pyrrhic victory that may be repeated regardless of the impact on workers because it generates good headlines for the unions.
Ironically, Perrone and other UFCW leaders won’t suspend the collection of weekly dues payments during the pandemic, a move that would help an awful lot of households stretch their budgets and increase purchasing power.
Perrone seems to think more of non-union chains like Trader Joe’s, which he has praised for boosting so-called “hero pay” to $4 during the pandemic but that may be because of the pressure it puts on chains like Kroger and Albertson’s.
What he doesn’t mention is that Trader Joe’s CEO admitted the pay bump takes midyear raises off the table and that it might not last if cities “continue to increase the hourly rate above $4 or have the premium remain after the pandemic.”
There are grocery chains like Kroger, Albertson’s, and Ahold that recently made multi-billion-dollar investments to secure and stabilize the pensions of more than 50,000 unionized grocery workers. It was a pro-worker move that not only put people over profits but was made necessary because the UFCW plan was significantly underfunded. Most grocers provide their employees fair wages, industry-leading benefits in pensions and healthcare, and COVID-19 vaccines. What does the union do? It’s time for the workers to start asking.
“The Right Minimum Wage: $0.00.” That was the title of a 1987 editorial in a major American newspaper. The editorial stated: “There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage would price working poor people out of the job market.” You might expect the Wall Street Journal editors to write something like that. But the editorial wasn’t in the Wall Street Journal. It did appear, though, in a prominent New York newspaper. Which one? The New York Times.
In a 1970 economics textbook, a famous Nobel Prize–winning economist wrote of 1970’s minimum wage rate of $1.60, “What good does it do a black youth to know that an employer must pay him $1.60 per hour if the fact that he must be paid that amount is what keeps him from getting the job?” Who wrote that? It must have been free-marketer Milton Friedman, right? Wrong. The author of that statement was liberal economist Paul Samuelson.
Among non-economists and politicians, the minimum wage is one of the most misunderstood issues in economic policy. President Biden and almost all Democrats and some Republicans in the US Congress advocate increasing the federal minimum wage from its current level of $7.25 an hour to $15 an hour over four years. They argue that many of the workers earning between $7.25 and $15 will get a raise in hourly wage. That’s true. But what they don’t tell you, and what many of them probably don’t know, is that many workers in that wage range will suffer a huge drop in wages—from whatever they’re earning down to zero. Other low-wage workers will stay employed but will work fewer hours a week. Many low-wage workers will find that their non-wage benefits will fall and that employers will work them harder. Why all those effects? Because an increase in the minimum wage doesn’t magically make workers more productive. A minimum wage of $15 an hour will exceed the productivity of many low-wage workers.
The reason some workers earn low wages is not that employers are greedy exploiters. If exploitation were enough to explain low wages, then why would employers ever pay anyone over $7.25 an hour? Wages are what they are because they reflect two things: (1) workers’ productivity and (2) competition among employers.
Employers don’t hire workers as a favor. Instead, employers hire workers to make money. They hire people only if the wage and other components of compensation they pay are less than or equal to the value of the worker’s productivity. If an employer pays $10 an hour to someone whose productivity is $15 an hour, that situation won’t last long. A competing employer will offer, say $12 an hour to lure the worker away from his current job. And then another employer will compete by offering $13 an hour. Competition among employers, not government wage-setting, is what protects workers from exploitation.
We all understand that fact when we see discussions on ESPN about why one football player makes $20 million a year and another makes “only” $10 million a year. Everyone recognizes the twin facts of player productivity and competition among NFL teams. The same principles, but with much lower wages, apply to competition among employers for relatively low-skilled employees.
Open up almost any economics textbook that discusses the minimum wage and you’ll likely see a demand and supply graph showing that the minimum wage prices some low-wage workers out of the market. For textbooks published in the past twenty years, though, you might also find a statement that although some workers will lose their jobs, there’s controversy among economists about how many jobs will be lost. According to the textbook writers, some economists think the number will be large and others think it will be small or even imperceptible. You could easily conclude that there’s no longer a consensus among economists that an increase in the minimum wage would cause much job loss.
But that conclusion would be wrong. UC-Irvine economist David Neumark and Peter Shirley, an economist with the West Virginia Legislature’s Joint Committee on Government and Finance, showed that in a January 2021 study published by the National Bureau of Economic Research. Neumark is one of the leading scholars on the economic effects of minimum wages.
Neumark and Shirley chose a clever methodology. They read every published study of the effects of the minimum wage on employment in the United States that was done between 1992 and the present. They identified for each study the core estimates of the effect of minimum wages on employment. When that was difficult to do, they contacted the studies’ authors to ask them what they regarded as their bottom-line estimates. Sixty-six studies met their criteria and these criteria had nothing to do with the size or direction of the estimates.
Here’s what they found. The vast majority of studies, 79.3 percent, found that a higher minimum wage led to less employment. A majority of the studies, 55.4 percent, found that the negative effect of a higher minimum wage on employment was significant at the 10 percent level. Translation: for those studies, the probability that there was a negative effect on jobs was 90 percent. Almost half the studies, 47.9 percent, found a negative effect on jobs at the 5 percent confidence level. For those studies, in other words, the probability that there was a negative effect on jobs was 95 percent.
Moreover, found Neumark and Shirley, the evidence “of negative employment effects is stronger for teens and young adults, and more so for the less-educated.” They concluded that the commonly heard refrain that minimum wages don’t destroy jobs “requires discarding or ignoring most of the evidence.”
Moreover, virtually all the studies of the effects of minimum wages in the United States have considered increases in the minimum wage of between 10 and 20 percent. The US government has never raised the minimum wage by anything close to the 107 percent envisioned in the increase from $7.25 to $15.
Why does that matter? Because the higher is the increase as a percent of the existing minimum wage, the more certain we economists are that it will hurt job opportunities for unskilled workers. We are sure of that because of the law of demand, which says that for any good or service, the higher the price, the less is demanded. That applies whether we’re talking about iPhones, skateboards, or labor. So raise that price a lot, and the amount demanded falls more than it would fall if you raised it a little. And what employers don’t demand, willing workers can’t supply.
The effect of the $15 minimum wage would vary a lot from state to state. In New York in 2019, the median hourly wage was $22.44 and the average hourly wage was $30.76. So a $15 minimum would affect a fairly small percent of New York’s labor force. In Alabama, by contrast, the median hourly wage in 2019 was only $16.73 and the average was only $21.60. So the $15 minimum in Alabama could hurt a much greater percent of the labor force.
The University of Chicago’s Booth School has an Initiative on Global Markets (IGM) that occasionally surveys US economists on policy issues. Possibly because of the surveyors’ understanding that the $15 minimum wage would hurt some states more than others, the IGM recently made the following statement and asked forty-three economists to agree or disagree: “A federal minimum wage of $15 per hour would lower employment for low-wage workers in many states.” Unfortunately, the question did not specify what is meant by “many.” Is it ten, twenty, thirty? Some economists surveyed pointed out that ambiguity. That ambiguity could explain why a number of the economists answered that they were uncertain. But of those who agreed or disagreed, nineteen agreed that it would cause job loss in many states and only six disagreed.
One economist who disagreed, Richard Thaler of the University of Chicago, gave as his explanation this sentence: “The literature suggests minimal effects on employment.” No, it doesn’t. As noted earlier, the federal government has never tried to raise the minimum wage by such a large amount and so there is no scholarly literature on such an increase. Would Thaler say that if putting a cat in the oven at a temperature of 72.5 degrees Fahrenheit doesn’t hurt the cat, then putting a cat in the oven at 150 degrees wouldn’t hurt the cat either?
While few economists have actually estimated the effects of such a large increase in the minimum wage, the US Congressional Budget Office (CBO) presented its economists’ estimate earlier this month. According to the CBO, the increase would reduce US employment by 0.9 percent. That might not sound like much, but 0.9 percent translates into 1.4 million workers put out of work.
But wouldn’t the increase in the minimum wage also increase wages for a lot of workers who keep their jobs? Yes, it would, and the CBO estimates that although the workers who lose their jobs would lose income, their loss over the years from 2021 to 2031 would be “only” 34 percent of the gain to the workers who gained wages.
But the gain in wages is not an unalloyed benefit to those who gain. The reason is that, as noted above, an increase in wage rates doesn’t automatically make workers more productive. So employers, looking for ways to avoid paying more to workers than their productivity is worth, would search out other ways of compensating. They might cut non-wage benefits, work the employees harder, or reduce training, to name three. Interestingly, on its website in 2006, when Congress was considering an increase in the federal minimum wage, the Economic Policy Institute (EPI), an organization funded partly by labor unions, admitted the last two of these three. It stated, “employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.” How would an employer make his workers more productive and reduce absenteeism? Probably by working the employees harder and firing those who miss work. How would he reduce training costs? By providing less training. In an article in the winter 2021 issue of the Journal of Economic Perspectives, UC-San Diego economist Jeffrey Clemens noted a negative correlation between minimum wages and employer-provided health insurance. In the workplace as in the rest of the world, there’s no free lunch.
The late economist Walter Williams has written about how, as a teenager, he learned many skills on the job that made him more productive and ultimately higher paid. I wrote recently that he could get those early jobs because the minimum wage was so low. Low-paid jobs are often crucial for black youths and other youths who need to build their work skills and work histories. These skills might be as simple as learning to show up on time. In 1967, when I was sixteen, I worked in a kitchen at a summer resort in Minaki, Ontario. The minimum wage at the time was $1 an hour and I was paid, if I recall correctly, $1.25 an hour. For the first three days of the job, I showed up about twenty minutes late. On the third day, the chef told me that if I was late the fourth day, I shouldn’t bother showing up because I would be fired. I was never late again. I learned the “skill” of punctuality. We adults take such things for granted. Kids don’t. Raise the minimum wage enough and a whole lot of young people won’t learn the basics, or won’t learn them until later in life. That would be tragic.
Before his death on February 6, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in US government spending in recent years, including during the COVID-19 crisis.
STANFORD – Many in Washington now seem to think that the US federal government can spend a limitless amount of money without any harmful economic consequences. They are wrong. Excessive federal spending is creating grave economic and national-security risks. America’s fiscal recklessness must stop.
The COVID-19 crisis has provided the latest impetus for government spending, even to the point of steering the American mindset toward socialism – a doctrine that has always harmed people’s well-being. But some say there is no need to worry about excessive spending. After all, they argue, record-low interest rates apparently show no sign of increasing. The economy was humming along just fine until the pandemic hit, and will no doubt rebound strongly when it ends. And is there even a whiff of inflation in the air?
This thinking is dangerously short-sighted. The fundamental laws of economics have not been repealed. As one of us (Cogan) demonstrated in his book The High Cost of Good Intentions, profligate government spending invariably has damaging consequences.
High and rising US national debt will eventually crowd out private investment, thereby slowing economic growth and job creation. The Federal Reserve’s continued accommodation of deficit spending will inevitably lead to rising inflation. Financial markets will become more prone to turmoil, increasing the chance of another big economic downturn.
Financial markets’ current relative calm and low consumer-price inflation are no cause for comfort. Previous periods of sharp increases in inflation, rapidly rising interest rates, and financial crises have followed periods of excessive debt like a sudden wind, without warning.
Shultz and Taylor’s book Choose Economic Freedom shows that economic indicators in the United States gave no hint in the late 1960s of the subsequent rapid rise in inflation and interest rates in the early 1970s. Likewise, financial markets during the years immediately preceding the 2007-09 Great Recession provided little indication of the calamity that would ensue.
So, what should today’s US policymakers do? Higher tax rates are not the answer. Even before the pandemic hit, every federal tax rate would have had to be increased by one-third in order to finance the current level of federal spending without adding to the national debt. Such an increase would have harmful effects – similar to those of mounting public debt – on economic growth and job creation.
Congress may be tempted to reduce defense spending to help close the deficit, as it often has done in the past. But these previous efforts demonstrably failed. Rather than reduce the budget deficit, Congress instead used the savings from lower defense outlays to finance additional domestic spending.
Unless policymakers abandon their misguided beliefs about budget deficits, cutting defense expenditure now would produce the same result. More importantly, it would be a grave strategic mistake, weakening US national security and emboldening the country’s foreign adversaries – particularly now that China is flexing its muscles in Asia and investing heavily in its military.
Throughout US history, the federal government’s ability to borrow during times of international crisis has proven to be an invaluable national-security asset. Two hundred years ago, the ability to borrow was instrumental in America maintaining its independence from England. During the Civil War, it was crucial to preserving the union. And it proved decisive in defeating totalitarian regimes in the two world wars of the twentieth century.
The US government’s careless spending is jeopardizing this asset. If the country continues along its current fiscal path, the federal government’s borrowing well will eventually dry up. When it does, America will be far less able to counter national-security threats. As hostile foreign governments and terrorist organizations recognize this, the world will become a far more dangerous place.
US policymakers’ mistaken belief that deficits and debt don’t matter is the sad culmination of a long downward slide in fiscal responsibility. From 1789 to the 1930s, the federal government adhered to a balanced-budget norm, incurring fiscal deficits during wartime and economic recessions, and running modest surpluses during good times to pay down this debt. This prudent management of the federal finances was instrumental in establishing America’s strong position in world financial markets.3
President Franklin D. Roosevelt’s New Deal broke this norm, and deficit spending has since become a way of life in Washington, with the federal government outspending its available revenues in 63 of the 75 years since the end of World War II. At first, elected officials were deeply concerned about the adverse consequences of their excess spending. But over time, this anxiety gradually lessened. Annual deficits grew so large that by the mid-1970s the US national debt was growing faster than national income.Sign up for our weekly newsletter, PS on Sunday
During the last decade, any remaining fiscal concerns in either the Democratic or Republican parties have seemingly vanished. Freed from a belief that rising deficits and debt are harmful, policymakers unleashed a torrent of new spending. By fiscal year 2019, the federal government was spending $1 trillion per year more in inflation-adjusted terms than it had a dozen years earlier. In fiscal year 2020, the federal government added nearly another $2 trillion of new spending in response to the pandemic, raising the national debt to 100% of national income. This year, another trillion dollars of new spending – if not more – appears to be on the way.
The momentum toward more spending and exploding debt may currently appear unstoppable. But sooner or later, people will look at the facts, see the destructive path fiscal policy is now on, and recognize that they and the US economy will be better off with a different approach. At that point, America’s democratic system will say the expenditure growth must stop.
The number of new COVID infections is declining rapidly, suggesting to some that the novel coronavirus pandemic may be on the verge of ending. Nevertheless, even with the advent vaccines that apparently prevent its transmission from person to person, most Americans believe the protective measures adopted over the last year like mandatory masking will continue for some time.
A recent Rasmussen Reports poll found that nearly three out of every four Americans over the age of 18 expect the requirement that masks be worn outdoors will remain in place for at least another six months. Almost a third – 36 percent – said it would be more than 18 months before it would be acceptable to be barefaced in public once again.
“It’s an indictment of the media that so many people expect mask mandates to persist for months,” said the Committee for Prosperity’s Phil Kerpen who has for months been crunching the numbers related to the pandemic and its spread.
Kerpen and his group produce a free daily hotline that provides short and timely insider updates on what is happening with the economy and the virus. It was one of the first to notice that New York’s Democratic Gov. Andrew Cuomo seemed to be fudging the numbers connected to COVID-19 in nursing homes, a story most news outlets missed.
With Vice President Kamala Harris and others inside the Biden Administration claiming, falsely, that they’ve had to begin the fight against the coronavirus “from scratch,” the recent acknowledgment by Dr. Rochelle Walensky, the director of the U.S. Centers for Disease Control and Prevention that the number of new cases and hospitalizations are indeed coming down.
“We continue to see a five-week decline in COVID cases, with cases decreasing 69 percent in the seven-day average since hitting a peak on January 11th. The current seven-day average of approximately 77,000 cases is the lowest recorded since the end of October,” Dr. Walensky said during a White House briefing Friday.
“Like new COVID-19 cases, the number of new hospital admissions continues to drop. The seven-day average of new admissions on February 16th, approximately 7,200, represents a 56 percent decline since the January 9th peak,” the doctor continued.
The problem remains what to do until what many medicos refer to as “herd immunity” is reached. Some, like Biden COVID advisor Dr. Anthony Fauci, have suggested it may be prudent to double up on masks while the CDC’s latest recommendation is “placing a sleeve made of sheer nylon hosiery material around the neck and pulling it up over either a cloth or medical procedure mask.” Others, like Kerpen, suggest the best possible thing would be for states to open up and for people to be allowed to go about their business once again, and for children to be permitted to return to school on a five-day-per-week schedule.
“More governors need to exercise the leadership of Florida’s Ron DeSantis, the Dakota’s Kristi Noem and Doug Burgum, and Kim Reynolds of Iowa and proclaim a return to normal now – now, forever, months in the future,” Kerpen said.
His suggested approach appears to be the wise one. Recent comparisons of the spread of COVID-19 in Florida and California show little difference in how things have turned out. This would seem to deflate the dire predictions Gov. DeSantis’s decision to re-open the economy in the nation’s third most populous state would push the number of infections and death off the charts.
None of that seems to have happened. What is different is that Florida’s been open for business for some time while California’s economy, which for months has been in a lockdown state, is floundering badly. The performance of the two economies, which are about as different at this point as night and day, are worth further study. There may be valuable clues regarding the best ways to fight a pandemic hidden in the data, waiting to be unmasked.
The resolution predicts the national debt will reach $41 trillion in 2030.
Congressional Democrats are currently using the budget reconciliation process to advance President Joe Biden’s $1.9 trillion COVID-19 relief and stimulus measure, the American Rescue Plan. The budget reconciliation process can be used to move federal spending, debt, and budget bills more quickly through the legislative process.
Friday, Senate Democrats used this process to approve a concurrent resolution that calls for a $3.8 trillion federal deficit this fiscal year followed by a $1.5 trillion deficit in 2022. Committees in the House and Senate still need to draft the actual coronavirus stimulus legislation but the resolution, which also includes 10 years of projected federal budget data, forecasts the national debt reaching a total of $41 trillion in the 2030 fiscal year. The national debt is currently over $27 trillion.
Because the national debt includes intragovernmental borrowing—money that the federal government owes to itself—it is a less useful measure of overall federal indebtedness than debt held by the public. Debt held by the public consists of all Treasury securities held by individuals and organizations that are not part of the federal government. Much of the debt held by the public has been purchased by the Federal Reserve, which is technically not part of the federal government. The budget anticipates this debt will rise to $36.5 trillion in 2030.
It is possible to compute projected debt-to-gross domestic product (GDP) ratios by dividing the publicly held debt projections from the Senate resolution by the Congressional Budget Office’s new GDP forecasts, which were released on Feb. 1.
The results of such a comparison are worrying. As shown in Figure 1, by the end of the current fiscal year, publicly-held debt as a percentage of GDP is forecast to eclipse its previous peak of 106 percent reached just after World War II. The ratio continues to rise gradually through 2030 when it is expected to reach 115 percent.
Figure 1: Federal Debt Held by the Public As a Percent of GDP
As the chart shows, there was a large uptick in recent years, with President Donald Trump adding nearly $8 trillion to it during his four-year presidency. And these projections for future budgets through the 2030 fiscal year could be underestimating the debt, as the report assumes the federal government will make an unlikely return to budgets with sub-trillion-dollar deficits in 2024, 2026, and 2027.
The debt forecast also does not include the impact of potential new spending, like the infrastructure package President Biden has called for, which Congress may attempt to pass through a second budget reconciliation.
While debt-to-GDP ratios in excess of 100 percent may be manageable in an environment with low interest rates, if interest rates spike upward then debt service costs could quickly crowd out other federal spending and economic activity. In the most extreme cases, spiraling debt could eventually help cause a sovereign debt crisis like those seen in Argentina and Greece in recent years.