Trump's tax plan doesn't excite

Knowing my interest in economics, several people have asked me what I think of President Trump’s tax plan. From what I understand, the plan would reduce corporate taxes and the top rate on personal income taxes. Politicians will spend enormous energy debating, editing and refining this plan over the next several months, but it amounts to little more than rearranging the deck chairs on the Titanic.

My attitude infuriates Republican groupies who see the plan as the salvation of the country. But we old folks have seen it before. President Reagan slashed the top personal income tax rate from about 90% to around 35% and the economy took off like a rocket, or so Republicans keep telling themselves. In reality, the economy rebounded sharply from one of the worst recessions in the 20th century if we sum the 1981 and 1982 recession that six months separated. Together they were as bad as the “Great Recession” that began in 2008. If the Fed or the government don’t do something stupid, as Hoover did with the Smoot-Hawley tariff, entrepreneurs will always make the economy rebound sharply after such a deep recession.

Next, Reagan pumped billions of dollars into the economy with a massive military buildup in his poker game with the USSR. The military spending caused the budget deficit and federal debt to explode. Republicans had until then opposed deficit spending for long periods but learned to love it under Reagan and still seem to be very fond of it. Deficits and the debt don’t disturb anymore.

Millennials are socialists for a reason part 2

Last week I wrote about the power of family values and envy to direct the political philosophies of young people and how that has become apparent in the tilt of millennials towards socialism. There is another reason why millennials are more socialist, although it may be a rationalization for it than a cause. That is the socialist propaganda that asserts the US and UK are free market economies.

An article at project-syndicate.org, “The Case Against Free-Market Capitalism” by Ngaire Woods, perpetuates the myth:

Free-market capitalism is on trial. In the United Kingdom, Labour Party leader Jeremy Corbyn accuses neoliberalism of increasing homelessness, throwing children into poverty, and causing wages to fall below subsistence level....

Just a quarter-century ago, the debate about economic systems – state-managed socialism or liberal democracy and capitalism – seemed to have been settled. With the Soviet Union’s collapse, the case was closed – or so it seemed.

Since then, the rise of China has belied the view that a state-led strategy will always fail, and the global financial crisis exposed the perils of inadequately regulated markets.” Woods calls the US “the paragon of free-market democracy.

Young people are socialist for a reason

Young people drove Bernie Sanders' campaign and near upset of the establishment Hillary Clinton in the latest election to the surprise of many.

An old saying goes, “If you’re not a socialist when you’re young you have no heart; if you’re still a socialist when you’re older you have no brain.”

Socialism comes naturally to humanity. Hayek thought that family life was partly to blame. Good moms and dads take care of the children, provide food and security, and distribute those equally among the children. Children get very upset when they think one sibling receives more of anything than the rest or enjoys special treatment.

Then we leave the safety of the home. venture into a more public sphere in school and we carry our family morality with us. We think school should function like a larger family with the teachers and principal substituting for mom and dad and it does that the most part. Eventually we get a job, but we still view the larger society and politics through the glasses of our family morality. The political elite, especially the President, becomes the “father” of the nation who should make certain that the benefits of his regime are evenly distributed and no one gets special treatment.

Hayek points out that the danger of such thinking lies in the fact that in the family we know everyone well. Even in larger groupings, such as school or a tribe, we are still familiar with most people and know their circumstances. But a nation is so large that citizens know only a tiny portion of the population and are dealing with strangers much of the time, especially in business. Transactions with strangers who don’t have your welfare in mind as mom and dad did require different rules of engagement. Treating family members as if they were strangers would destroy families just as using family values in dealing with strangers will destroy society.

The common good isn't so great!

A lot of ink is spilled in Christian publications promoting the concept of the common good. I’m not such a big fan and here is why.

The concept of the “common good” came from pagan Greek and Roman philosophy. As Peter Brown shows in several of his books on the history of the Church after Constantine, such as Through the Eye of the Needle, churches had a habit of making bishops out of recent converts from the Roman nobility. They did so for practical reasons: those converts had good educations, political power through family connections and wealth to contribute to the church and the poor. But those converts had been educated at the feet of pagan philosophers, especially Aristotle and Cicero, and were often babes in theology. So when they became bishops they preached what they knew, pagan philosophy that seemed agreeable to Christianity. Among the more prominent concepts carried over from paganism were the veneration of virginity (imitating the Vestal Virgins) and celibacy, contempt for business and wealth, and the common good.

What did the common good mean? Benjamin Constant wrote about the “freedom” and “common good” enjoyed by ancient Greeks and Romans in his essay “The Liberty of the Ancients Compared with that of the Moderns:”

Adam Smith doesn't explain the wealth of nations

Adam Smith wrote in his Wealth of Nations,

That security which the laws of Great Britain give to every man that he shall enjoy the fruits of his own labor, is alone sufficient to make any country flourish... The natural effort of every individual is to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, ... capable of carrying on the society to wealth and prosperity. 

Smith missed two things that made Great Britain unique - individualism and admiration for commerce. He missed them in the same way that a fish might not think about water. Smith grasped that taxes punished farmers in France to the point that they refused to improve their plots. And he understood that rulers and nobility in the Ottoman Empire and China often confiscated the wealth of successful people and so discouraged them from investing.