The Capital Letter -- Week of November 2: Biden, Gridlock & Free Market's Boardroom Foes

(Larry Downing/Reuters)

There are many times that I miss the late (if future) Dr. Leonard H. (“Bones”) McCoy, but especially today: “It’s lost, Don.”

That’s something the market, roughly flat on the day as I write (11:41 a.m), seems to be pricing in after (as I noted yesterday) first surging on the prospect of a blue wave and then (rather more logically in my view) surging again on the prospect of gridlock.

As I also mentioned, we cannot take gridlock completely for granted. A lot of eyes are going to be watching Georgia, where it looks as if there will be not one, but two runoffs in the next couple of months. My best guess (insert usual caveat about my, uh, patchy record as a forecaster): Cocaine Mitch will still be calling the shots in the Senate next year, although I cannot help wondering whether Trump could lose so sorely that he sets the stage for Republican disaster in the Peach State.

In other good news for the market’s gridlock fans, the GOP’s performance in the House also might act as something of a brake.

Over at CNN, Chris Cillizza talked to Parker Poling, the executive director of the National Republican Congressional Committee, the party’s House campaign arm.

First, some background:

The biggest surprise of the 2020 election wasn’t Donald Trump’s likely loss to Joe Biden or even Senate Republicans’ seeming ability to keep their majority intact. It was that House Republicans, facing predictions from the political prognosticators of potential double-digit seat losses, will wind up picking up seats when all the votes are counted.

How did they do it? And why were so many independent analysts so wrong?

Cillizza: Did you see a single message or issue break through with voters in swing districts? Was there an attack that particularly hurt Democrats?

Poling: If you put all of the messages into a single broad category, it would be the extreme leftward lurch of the Democrat Party.

That was messaged in different ways in different districts. In New York state, bail reform was extremely unpopular and meshed well with defund the police, so a public safety angle was the most effective. In some districts, it was “Medicare for All” and the loss of private health insurance. In a number of suburban districts, we talked about pocketbook issues like higher taxes under Biden. And in other districts, we focused on the extremism of the “Green New Deal.” And in south Florida especially, it was socialism more broadly. All of those messages fit within the rubric of extremism.

In arguing this, Poling will be looking forward as well as back. He has an agenda to push as we go into 2021. Nevertheless, what he has to say rings true: The question will be how loudly it will sound with House Democrats in districts vulnerable to a midterm challenge in 2022 (especially with a Democrat in the White House). Against that, more moderate Democrats will be wary of primary challenges, supported by what appears to be an ever more radical base.

But, for all the (relative) Republican relief, the extensive administrative powers of the presidency are nothing to ignore. Reforms to protect shareholders from ESG mavens playing politics with 401k’s are likely to be reversed. That’s only one free market unfriendly move that can be taken by administrative fiat. One of the achievements of the Trump administration was in slowing (if not, sadly, reversing) the regulatory ratchet. That’s over. There is plenty of room for new regulation for an incoming command-and-control administration, particularly perhaps where “climate” is concerned. Traditional energy companies (and I include those involved in fracking in that category) will have no reason to relax.

Over to Gernot Wagner, writing at Bloomberg Green (sic):

A task force put together during the campaign and led by former Secretary of State John Kerry and Democratic Representative Alexandria Ocasio-Cortez, identified 56 policy moves on climate and energy that don’t need help from Congress.


Bloomberg Green:

Without the Senate, a Biden presidency could refocus the spotlight on climate policies controlled by the executive branch. Rejoining the Paris Climate Agreement is important, although largely symbolic alone. The key question there is how credible and durable administrative action will be.

Opening a climate office in the White House, which could coordinate executive orders and regulatory actions and, for example, government procurement, would mark a big change. That places the emphasis on agencies and regulatory tools that can set the tone for years to come—think clean infrastructure investments and government building retrofits, rather than reversible short-term action.

These actions would go well beyond regulatory authority under the Clean Air Act, which could help accelerate the move toward cleaner cars and electricity. Cullenward pointed to an important, oft-overlooked agency: the Federal Energy Regulatory Commission, which sets important guidelines around policy support for zero-carbon energy sources. It “operates under a totally different legal paradigm—economic regulation, rather than pollution control or natural resource management,” Cullenward says.

The Securities and Exchange Commission and the Commodity Futures Trading Commission could also prove crucial. The SEC is essential to setting standards around disclosure of climate-related corporate information. Similarly, the CFTC’s Market Risk Advisory Committee just recently released a major climate report led by Bob Litterman (with whom I have co-authored a recent carbon pricing study). The report’s first recommendation is to “establish a price on carbon,” something neither CFTC itself nor anyone in the White House can do alone beyond individual sectors like power generation. But there are dozens of concrete actions financial regulators can take, the report noted, from including climate risk explicitly as part of its mandate “to monitor and identify emerging threats to financial stability.”

Put in other words, we can expect to hear much more about the need of regulators to step in to monitor finance and other business for (doubtless) somewhat apocalyptically defined climate “risk.” Making this more dangerous still is that managements of many major businesses, anxious to find their niche in America’s emerging corporatist state, will certainly play along, and not only in the area of environmental regulation.

After all, embracing “stakeholder capitalism” not only absolves them of much of the responsibility they owe shareholders — the poor saps who, you know, actually own those businesses — but hands them a great deal of power.

Here’s Microsoft CEO Satya Nadella speaking with the “socially responsible” crew at sanctimoniously named JUST Capital (my emphasis added):

Stakeholder capitalism has faced criticism for being little more than rhetoric, a buzzword for corporations looking to align themselves with ideals of sustainability and ESG. But in the conversation, Nadella pushed back, emphasizing that “in the midst of this pandemic, [it’s fair to] to essentially have a referendum on capitalism. We all have to recognize: What is the core purpose of a corporation?” Rather than simply generating a profit for shareholders, Nadella believes that this purpose must lie in finding profitable solutions to the issues faced by people and our planet, and that the measure of corporate success lies not in the surplus companies create in their own enterprise, but in the surplus they create around them.

Nadella to shareholders: “Take a back seat.”

And quite why COVID-19 should mean that “we” need a referendum on capitalism escapes me. If the fiascos that have accompanied the pandemic have done anything (other than destroy lives and livelihoods), it is to remind us once again of the incompetence, arrogance, and high-handedness of government. And we do have referendums on that (or at least some of that): They are called elections. If anything, capitalism has shown its characteristically remarkable resilience over the last eight months. The only referendum it needs is the ones that it gets daily from its shareholders and its customers.

Unfortunately, if this poll is any guide, that message isn’t getting through.


After this heated presidential election, many U.S. business leaders are asking themselves if they can play a significant role in helping to maintain a healthy, functioning democracy, both in the days ahead particularly in the case of a contested election result, and in future elections. The answer, according to most Americans, is yes.

Since 2015, JUST Capital has surveyed more than 110,000 Americans on what they believe U.S. companies should prioritize most when it comes to just business behavior. It’s important to note that over the last several years, there’s been a significant increase in Americans’ expectations for business leaders also to be societal leaders. In other words, people are looking to business leaders to take a stand on major social issues, including investing in the broader health of our democracy.

If such surveys are accurate it shows how far corporatism has come. The job of “business leaders” is not (or ought not to be) to take a stand on such issues, but to generate a good return for the shareholders for whom, notionally, they work. And this is not, by the way, the license for money-grubbing barbarism that the advocates of stakeholder capitalism sometimes seem to imply.

In a democracy, meanwhile, the people who decide on major societal issues are (or ought to be) those who are elected to the nation’s legislatures. Boardroom pontificating should be confined to the boardroom.

Gridlock or not, the next few years are likely to represent a tricky challenge for free markets and shareholder rights, but those who want to defend them do would do well to remember that the threat to both comes not only from government, but also from those in big business (and their activist allies) set on playing the corporatist game, a game made all the more dangerous by its insidious effect on American democracy.

On a cheerier note, we opened the week on Capital Matters with Brad Polumbo writing about how Kamala Harris’ economic policy was no laughing matter.

Okay, perhaps not a cheerier note. (And, yes, I made that joke last week: Expect to see it again.)


During a 60 Minutes interview just over a week ago, Senator Kamala Harris was asked whether she would bring a “socialist” perspective to a Biden administration. She laughed, as if it were an absurd question.

It’s not.

Whether she embraces the label “socialist” or not, Harris’s stated agenda and Senate record both reveal her to be positioned a long way to the left on matters of economic policy.

From health care to the environment to housing, Harris thinks the answer to almost every problem we face is simply more government and more taxpayer money — raising taxes and further indebting future generations in the process.

It’s clear that while Harris laughs off the socialist branding, any objective analysis of her record at least raises the question of where she stands. She might dismiss the label — and she might even believe that it doesn’t apply to her — but what’s the phrase about swimming like a duck, quacking like a duck?

The left-wing group Progressive Punch analyzed Harris’s voting record and found that she is the fourth-most liberal senator, more liberal even than Massachusetts senator Elizabeth Warren. Similarly, the nonpartisan organization deemed Harris the furthest-left member of the Senate for the 2019 legislative year. (Spoiler alert: If your voting record is to the left of Bernie Sanders, you might be a socialist.)

Ultimately, if Joe Biden wins in November, Harris will be next in line for the presidency. Under these circumstances, her agenda matters, and could, of course, possibly matter even more.

That’s no laughing matter at all.

I provided a brief introduction to Kevin Hassett’s four pieces on the Biden agenda.

When, in 1838, the French statesman Talleyrand, a man known for his guile, died, the Austrian chancellor is said to have asked, “What did he mean by that?”

Say what you will about Joe Biden, he’s no Talleyrand, but looking at his program, and at what he has said on the campaign trail and from his basement, it’s reasonable to ask what he means by his program, and no less reasonable to ask what it will mean for Americans.

It’s well worth reading the Hassett quartet and, indeed, the report on which it was based. That report concluded its opening section like this:

[W]e conclude that, in the long run, Biden’s full agenda reduces fulltime equivalent employment per person by about 3 percent, the capital stock per person by about 15 percent, real GDP per capita by more than 8 percent, and real consumption per household by about 7 percent.

Under the circumstances I make no apologies for thinking that gridlock would not be the worst thing in the world.

Zilvinas Silenas looked at how the post-lockdown economy was recovering, but worried about what damage lockdown politics could still inflict:

If you look across the Atlantic, the European Union’s average unemployment rate has hovered above 7.9 percent for most of the past 20 years. That’s right: The American economy amid a pandemic is doing better than Europe in a good year.

Going back to U.S. unemployment numbers, New York, California, and Texas got 240,000 people back on the job in September alone. While that’s good news, those three states have lost 3 million jobs since the beginning of the year. So it will take at least 12 months of September’s job gains just to make up the jobs lost.

The moral of the story: It is easy to shut down the economy, but not so easy to get it going again.

It took five years to halve 2009’s unemployment level of 10 percent. It took seven years to go from 10 percent unemployment in 1982 to 5 percent in 1989. It took eight years to go down from 7 percent unemployment in 1961 to 3.5 percent in 1969.

The picture of unemployment dynamics over the past 70 years is pretty consistent: It’s shaped like the letter N, which means fast spikes in unemployment, followed by slower, gradual reductions.

Of course, this crisis is different from previous ones, in the sense that it was caused by the government shutting down the economy practically overnight. This contrasts with crises caused by a confluence of slower forces, such as the financial crisis of 2007-08 or the oil price shocks of the 1970s. So there’s reason to think (or at least to hope) that once COVID-19 restrictions are removed, the bounce-back will be faster.

The key to reviving the economy is to let people work again. Real economic growth occurs when people make things, not when they sit on the sofa and spend stimulus money.

The government can prop up GDP numbers with borrowed money, but it is ultimately just a gimmick. It’s no different from how you can appear rich by buying a Mercedes with borrowed money. You might fool your neighbors, but reality hasn’t changed.

It will be interesting, to say the least, to see what difference the arrival of a new incumbent in the White House will make to the approach taken to handling the disease and, for that matter, the way in which it is reported in the media.

Philip Cross cast a bleak eye over wealth taxes:

[T]he case for a wealth tax rests on questionable or unfounded assumptions. For one, it is unclear that inequality is even widening. Different ways of estimating wealth yield conflicting results, leading one expert to observe, “Overall, the existing evidence on what happened to the concentration of wealth in the last few decades is not conclusive.” Credit Suisse’s Global Wealth Databook shows the top decile’s share was little changed between 2000 and 2017, although the very wealthiest fared better.

Proponents argue that wealth taxes generate substantial net revenues: Sanders claimed his version would yield $4 trillion over a decade, while Warren’s promised $500 billion. However, Europe’s experiment with wealth taxes yielded little revenue. The dearth of revenue reflects the exemption of most housing and pension savings, keeping the tax rate low to forestall capital from leaving the country, and households acting to minimize their taxes. As a result, wealth taxes raised only 1.0 percent of GDP in Spain and Switzerland, 0.4 percent in Norway, and 0.2 percent in France in 2017, not enough to significantly affect either government finances or wealth distribution. As a result, most European nations abandoned wealth taxes years ago.

Wealth taxes are costly to administer for several reasons. The easiest taxes to collect involve transactions where one of the parties has an incentive to honestly report the details to the government. Most of our tax system functions “automatically” because this incentive exists; employers report income paid to employees because it is a deductible business expense. Problems in taxation arise when the incentive to be transparent weakens. Transfer pricing of cross-border transactions within a firm is problematic because firms adjust prices to minimize taxes. Small business and sales taxes incentivize customers to pay cash and save on taxes.

Adopting a wealth tax based on dubious assumptions and narratives about inequality would be harmful to economic growth, raise few revenues, have little impact on inequality, and contradict the conduct of monetary policy. A wealth tax penalizes savings and encourages consumption, even frivolous spending, over investment. It says society prizes redistribution ahead of growth and equity over efficiency, the wrong signals to send when a decade of sub-par growth was capped by the worst economic downturn since the Great Depression.

Ramesh Ponnuru took note of some criticism:

A lot of economic thought concerns the ways that markets can go awry: how the pursuit of profit by firms and individuals might not maximize social welfare, and how outcomes can best be improved in such cases. The field of “public choice” economics strives to subject government action to a parallel analysis. It suggests that government officials, elected and unelected, may have incentives that don’t line up with the public good, and considers the ways these misalignments can warp government policy. Politicians can benefit from implementing policies that inflict net harm on an economy, for example, if the gross benefits are concentrated on and visible to the beneficiaries while the gross costs are diffused and hidden from the losers.

Oren Cass has written an essay arguing that some on the Right — he calls them, here as elsewhere, “market fundamentalists” — have overread the insights of public choice in a way that makes them too enthusiastic about markets and too hostile to government. Among his targets are Michael Strain and me.

That might not have been wise . . .

Steve Hanke, our guru of monetary catastrophe, produced his latest Inflation Dashboard. This week’s winner: Venezuela!

As always, the good professor accompanied his dashboard of disaster with some broader commentary:

Beyond the theory of PPP, the intuition of why PPP represents the “gold standard” for measuring inflation during episodes of elevated inflation is clear. All items in an economy that is experiencing “high” inflation are either priced in a stable foreign currency (the U.S. dollar) or a local currency. If they are in local prices, they are determined by referring to the dollar prices of goods, and then converting them to local prices after checking with the spot black-market exchange rate. When the price level is increasing rapidly and erratically on a day-by-day, hour-by-hour, or even minute-by-minute basis, exchange rate quotations are the only source of information on how fast inflation is actually proceeding. That is why PPP holds and why we can use high-frequency (daily) data to calculate elevated rates of inflation.

So much for the way things should be measured. With that in mind, let’s take a look at the International Monetary Fund’s (IMF) treatment of inflation forecasts. Unlike my inflation measurements, the IMF’s forecasts are not measurements. It is of the utmost importance to grasp the distinction between measurements and forecasts. For one thing, the IMF is the premier international body that deals with the monetary matters of its 189 member countries, and, for another, because whatever the IMF utters is treated by the financial press as gospel. In consequence, IMF data are widely reported and drive public opinion as well as markets.

Capital Matters can sometimes be a gloomy place, so it was good to hear from Allison Schrager that our retirements look better than we thought:

We often hear that the state of American retirement is precarious, that the days of secure pensions are gone, and that workers have not saved enough. The ensuing logic is that our only hope is a bigger government benefit. It is true that there are risks to your savings, but even so, you are still in better shape than the average American retiring a generation ago. And if they had enough in retirement, odds are you will too.

We tend to romanticize the past; in particular, the days of defined-benefit pension plans, when employers offered a secure income for the duration of retirement. But at the peak of their popularity in 1973, defined-benefit pensions were available to only 39 percent of U.S. employees. That’s because offering these pensions, and assuming so much risk, was very expensive for employers. Once the government beefed up regulations and demanded that employers fully account for the cost of pensions, defined benefit plans mostly disappeared from the private sector. Even if you were lucky enough to have a generous plan, it only became valuable after many years of tenure at one job, an increasingly uncommon practice. Tying yourself to a single organization can mean forgoing better job opportunities and higher pay.

And some flickers of good cheer were also spotted in the wake of the election.

Kevin Williamson:

Sometimes, good policy is good politics: As much as the prospect may irritate our woke friends, government at all levels really ought to be racially neutral as a matter of law, and that stance is politically attractive. Of course, it is the case that formal “colorblindness” is not a guarantee of justice or fairness, but it is still the best policy — rules and norms matter. It is also the case that affirmative-action schemes such as those entertained by California progressives systematically discriminate against Asian Americans. That is a problem in institutions around the country, not only in California. Conservatives are right to attend to it.

Extending the vote to 17-year-olds is bananas. If anything, we should be pressing in the opposite direction, given the state of the nation’s 18-year-olds. You can have a world in which students must be provided security blankets and trauma counseling whenever Ben Shapiro speaks on a college campus, or you can have a world in which we treat 18-year-olds like adults. You cannot have both. Children don’t get the vote.

Allowing for flexibility in the labor market is good for workers and for firms. Being an Uber driver in Los Angeles may not be the best job in the world, but that is not the relevant question. The question is, rather: What’s the next-best option for the people who need that income? The most likely option for gig-economy workers thrown out of work by regulation is unemployment and loss of income. Everybody is better off with options.

Rent control is a proven failure as a policy for making housing affordable. Higher real-estate taxes on commercial buildings are not likely to contribute to a lower cost of living in California, either.

Republicans are not very competitive in California. But some conservative ideas are very competitive in California. Tuesday’s election provided six or seven examples of that. Somewhere in there, there is a lesson to be learned for Republicans, if they are interested in learning it and able to.

And Will Swain joined in the celebrations:

Ballots are still being counted, but the data emerging from Tuesday’s California voting offer a fascinating possibility: Californians are conservatives who think they’re Democrats.

Rating the ballot propositions as either for or against more government, Californians have (so far) voted: against tax hikes on business property (Prop 15), against revanchist affirmative-action programs (Prop 16), against a look-tough-on-crime measure to limit the voting rights of ex-felons (Prop 17), and against expanding the prison population (Prop 20). They absolutely crushed rent control (Prop 21), and, in voting for Prop 22, they voted against the government’s right to tell California’s independent contractors they can’t work as freelancers without a permission slip from Sacramento.

On three propositions, I’d argue that Californians voted for bigger government: Prop 14’s tax support of government stem-cell research (as if the private sector and universities aren’t already doing enough); Prop 19’s proposed tax on inherited real estate; and worst of them all, Prop 24’s blob of a new government bureaucracy that will monitor “consumer privacy.” If the state government does that as well as it has administered the DMV, public schools, road construction, forest management, the utility system, and gasoline supplies . . . well, Californians will soon all be celebrities — in the worst way.

Still, on balance, when it came to thinking about public policy that works, Californians generally voted for the free market.

Ryan Young took due note of what had taken place in California, but also:

Illinois voters said no to giving their legislature the ability to raise taxes more easily. The Illinois state constitution requires a flat income tax. The Fair Tax Amendment would have changed that to allow a progressive tax and would have made tax increases easier. The Illinois legislature had already passed a separate tax hike bill, conditional on voters approving the amendment. Voters disapproved by a 55–45 margin, and taxes will remain as they are.

Oregon decriminalized possession of hard drugs. Five other states legalized marijuana for medical or recreational use, including socially conservative Mississippi. Oregon and the District of Columbia also decriminalized hallucinogenic mushrooms. These are important libertarian victories, and not in the snickering libertine sense. These are victories for the rule of law.

In order for people to respect the law, they have to be able to respect it. That was a major cultural cost of alcohol prohibition in the 1920s, and of the drug war today. Drug legalization allows law enforcement to focus on real crimes and ease an avoidable source of antagonism between police officers and the communities they serve — especially in minority areas where drug laws are disproportionately enforced.

Washington State voters came out against a plastic bag tax. However, the vote is non-binding. Instead, voters have officially advised the legislature to repeal Senate Bill 5323, which instituted a plastic bag tax. The legislature is free to ignore voters’ advice, but they shouldn’t. As my colleague Angela Logomasini notes, pushing consumers towards reusable bags can make it easier for germs to spread, and we’re in a pandemic. Moreover, bag taxes and bans do not achieve their touted environmental goals.

We now have a space guru, Alexander William Salter. Last week he wrote a piece for Capital Matters on making outer space the free-market frontier. For some reason it was not filed under Capital Matters, so it was omitted from the Capital Letter. Scapegoats have been identified and punished.

Alexander asked:

Why has the private sector been so successful at reducing launch costs? The short answer is that SpaceX’s profits accrue to its owners. This gives them strong incentives to cut costs: For given revenue, lower costs mean more profits. What’s not often appreciated is that this is good for the rest of society, too. In market economies, prices track opportunity cost, meaning the next best thing that could be done with the priced resources. When firms cut costs, they give consumers valuable outputs while using up fewer valuable inputs. Hence there are more resources left over, which can be used to do other desirable things. What’s true on earth is true in space: When private launch providers cut costs, they propel us to the stars while giving up ever less to get there.

Even those who believe a strong space sector requires heavy government involvement think it makes sense to let businesses handle the transportation into space. Charles Bolden, the head of NASA from 2008 to 2017, was once a staunch defender of SLS. But now he believes the comparative advantage of for-profit businesses is simply too big to ignore. America can best advance its spacefaring ambitions by embracing what Bolden’s already recognized: Commerce should be our orbital engine.

We are on the verge of a new space age. This time, economic considerations rank among the most crucial issues. NASA recently established an important precedent for the use and transfer of celestial resources by offering to pay for moon rocks. The prospects for outer-space property rights are bright. These developments portend the rise of private commercial law in space. In each of these cases, the logic of markets and trade will help us get more for less. We should apply this to launches, too. The public sector should focus on what it does best: science and exploration. Let’s make room for the private sector to get us back to space, cheaply and sustainably.

In that article Alexander referred to the Artemis Accords. This week he explained in rather more detail what these are:

On October 13, at the virtual International Astronautical Congress, eight nations gathered to propel humanity farther toward the final frontier. Representatives from the United States, Australia, Canada, Italy, Japan, Luxembourg, the United Arab Emirates, and the United Kingdom signed the Artemis Accords, a cooperative agreement that lays the foundation for future space governance. Announced by NASA in May, the Accords have been the topic of significant interest and speculation by the space-policy community

With the release of the full text, space enthusiasts have good reason for optimism. The Artemis Accords are an ambitious step along the path to space exploration and development. They have major implications for the legal rules governing the use and transfer of celestial resources.

The issue of space resources, and space property rights more generally, has long been in dispute. The 1967 Outer Space Treaty clearly forbids governments from extending territorial jurisdiction to space. This agreement calls into question both the feasibility and permissibility of extraterrestrial property rights. Conventional wisdom says governments are necessary to define and enforce property rights. If they are forbidden to do so by international law, it’s unclear at first what the regime for using and transferring space resources would look like.

History has seen many institutions for defining and enforcing property rights that do not rely on governments. Perhaps the most famous is the ancient “law merchant,” a private and self-enforcing commercial code that flourished during the High Middle Ages to facilitate international trade. The rules governing commerce between nations, themselves derived from the law merchant, are a perfect example of non-governmental law. By definition, no one government has clear jurisdiction. Even today, international trade is largely governed and arbitrated privately. A private commercial code for space is a promising option for supporting nascent space economies without violating the non-appropriation requirement in the Outer Space Treaty. In fact, such a code would be a welcome complement to ongoing efforts at international cooperation and agreements, as represented by the Accords.

And then Brian Riedl took his hammer to various myths.

Myth: Soaring Defense Spending Drives Deficits

While it is easy to fixate on the occasional large defense bills, the general trend has been declining defense spending as a share of the economy. Defense spending averaged 5.7 percent of GDP in the 1970s and 1980s, and was still 4.6 percent of GDP as late as 2010. It has since fallen to 3.2 percent of GDP and is projected to continue falling to 2.9 percent in a decade – matching its smallest share of the economy since the 1930s, and not far above the 2 percent of GDP target for our NATO allies. Since 2017, defense has comprised a record low of 15 percent of federal spending. In fact, since 1990, non-defense discretionary spending has risen nearly four times as fast as the defense budget (adjusted for inflation).

Myth: Falling Tax Revenues Drive Long-Term Deficits

Since 1960, tax revenues have remained close to their 17.3 percent of GDP annual average. While tax cuts and the current recession have reduced revenues to 16.6 percent of GDP, they are projected by CBO to gradually rise to 18.6 percent over the next three decades (or 17.8 percent if all 2017 tax cuts are made permanent). This is because real bracket creep — wages growing faster than inflation — pushes families into higher marginal tax brackets over time.

And Brian doesn’t stop there.

Finally, we produced the Capital Note (our “daily” — well, Monday-Thursday, anyway).  Topics covered included the economics of a blue wave,  a reevaluation of the sunk cost fallacy, betting on a Biden binge, Jack Ma’s (mini) Khodorkovsky moment, Estonian tax, the return of sail, commercial real estate woes, execution vs. exorcism — an economic case study, contested elections, now and then, gridlock, Georgia, a win for pensioners over ESG, San Francisco self immolates (a bit more), Barr’s European co-belligerents, stamping on Ant, and Adam Smith — Ladies’ Man.


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