Daniel Sutter: Populism and economic freedom
Brexit and Donald Trump’s election highlighted a global surge in populism. The Economic Freedom of North America Network, of which the Johnson Center is a member, has discussed conservative populists’ growing hostility to markets. Populists should, I hope, embrace free markets and limited government. We first need a definition of populism. Prior to 2016, left-wing groups opposed to the corporate world order were populists. Political scientists focus on hostility toward elites, which I will accept. New research in the 2023 Economic Freedom of the World report finds that populism, identified via a new measure based on this definition, correlates with lower economic freedom internationally. Free market economists have long opposed elites and experts. Thomas Sowell titled a book on elitist intellectuals, The Vision of the Anointed. Austrian economics argued that socialism would not work because experts could not know enough to run an economy well. Even Adam Smith railed against paternalistic elites. Tucker Carlson has been described as the voice of contemporary American populism. I would offer that a CliffsNotes version of his Ship of Fools is that America’s stupid elites never face consequences for their disastrous decisions. Free markets are inherently populist: they involve decentralized decision-making and direction of economic activity by millions of consumers. In markets, people make choices for themselves, and people get the things they purchase. Permission is not needed from anyone, including elites, for businesses to provide people what they want. The rich get more “votes” in markets, creating an impression that markets favor a wealthy elite. But of greater importance, our votes count regardless of whether we are in the majority and businesses can make lots of money serving average folks; Walmart made the Walton family billionaires. The cultural elite do not favor country music, NASCAR, or Walmart, yet these persist and make money. Markets have always faced criticism but today face an assault from multiple directions with the main antagonism no longer economic class. Environmentalists, for example, want to create a sustainable economy within planetary boundaries. Critical race theory sees capitalism as an element of systemic racism to be deconstructed. And socialists still dream. Thomas Sowell warns against intellectuals trying to impose their vision of utopia on us. Elitist intellectuals must reorganize our economy to create levers of control before exercising control. The various attacks on markets come from different elites seeking to restructure the economy to enable control. Partnerships with major corporations are seemingly the preferred means of restructuring today. The World Economic Forum and the United Nations Global Compact extol public-private partnerships. Restructuring may occur through Environmental, Social, and Governance control over finance, a central bank digital currency, or new powers claimed under a climate emergency. Proponents of partnerships claim to care about all stakeholders across the globe. But in a nation of 330 million or a planet of 8 billion people, only a very limited elite will participate in decisions. American consumers never voted for Ralph Nader to represent them, and those speaking on your behalf will not listen much to you. Populists rejecting elite control should favor economic freedom and decentralized markets. What about specific elements of populist hostility to markets? Populists fear that the global economy primarily benefits elites. Economic nationalism seeks to retain national sovereignty, which I strongly support; the American experiment with freedom and self-government could never have occurred on a global scale. Proponents of economic freedom should engage populists for two reasons. First, our criticism may push populists to support worse economic policies. For example, many economic nationalists support government-directed investments. But the limits of expertise imply that a new industrial policy is likely to fail. Second, policy success in a large democratic nation requires broad support and compromise. Economic freedom purists will never sustain good policies alone. A coalition for economic freedom is far more likely to include populists than democratic socialists. Restructuring markets to enable elite control will massively degrade economic freedom. Markets let the voices (dollars, actually) of all Americans be heard. Markets are inherently populist, so I hope populists will be a force for economic freedom. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Are junk fees junk?
The Biden Administration is battling what it terms “junk fees.” Is this consumer protection, or will it simply create additional costly regulation? The answer depends largely on how one views competition in markets. The term junk fees include bank overdraft fees, credit card late fees, airline baggage and seat selection fees, hotel resort and destination fees, and entertainment ticket fees. In addition to capping or eliminating such fees, the Administration also wants transparency in pricing. Before discussing any fees in detail, let’s consider the pricing process in markets. As economist Thomas Sowell observes, most intellectuals believe businesses exercise considerable discretion over prices. Only public pressure or potential government action checks corporate greed. Junk fees emerge from this rapaciousness to increase revenue extraction from hapless consumers. An alternative view recognizes that every purchase in the market is voluntary and that businesses face competition. The competition can be direct – from a rival airline – or indirect – travelers driving instead of flying. Businesses can set whatever price they want but are not guaranteed sales. Consumers are not hapless and, as a group, determine which businesses profit and which fail. Businesses seek profits but face real constraints if they wish to sell what they produce. The power of the market is real but intangible. A primary lesson of economics involves recognizing these invisible market forces at work. Once we reject the exploitative view of markets, we can explore the functions different fees serve. Let’s start with checked bag fees. Airlines will be happy to provide baggage service, but travelers will have to pay for this. The question is how airlines charge for baggage service. One possibility is through higher ticket prices and no baggage charges. In this case, passengers traveling light pay for others’ bags. Alternatively, airlines could offer lower ticket prices and bag charges, with the travelers checking bags paying for this service. Fees provide an additional benefit. Each bag shipped involves costs; the marginal cost of extra baggage is not zero. With no bag charge, travelers act as if shipping a bag is costless. Imagine a traveler who could pack light with one bag or heavy with two bags. If the traveler is unwilling to pay for the second bag, packing heavy is inefficient: the costs of shipping the bag exceed the value to the traveler. How about bank overdraft fees? Banks charge these fees when a customer writes a check or uses a debit card without money to cover the transaction. The bank honors the transaction and charges the customer, including sometimes a fee for each day the account is overdrawn. Covering the check is effectively a short-term loan and costly. The fee also prods the customer to keep a higher account balance. If banks cannot charge overdraft fees, all customers would share the cost of these loans, raising fairness concerns for customers never bouncing checks. Banks would likely end overdraft protection and possibly drop customers without sufficient account balances. All-inclusive pricing raises different issues. It is frustrating when added charges yield a much higher price than promised. Yet this undermines the value of comparison shopping using an online booking site. Sites already have an incentive to address the resulting problem and will make better decisions here than Federal bureaucrats who face no consequences for the destruction their regulations create. One practice included with junk fees are free trials converting to paid subscriptions you can “cancel anytime.” Except that canceling is infinitely harder than signing up. This scheme is only profitable because the business makes canceling more costly than continuing to pay. The customer does not value the service enough to willingly pay for it, so value is not being created. This is more like extortion than honest business, and I will not defend this. The “junk fees” characterization draws on a worldview where businesses abuse customers for sport and profit. Protecting consumers from junk fees promises to inject government into every detail of commerce. Americans should remember Ronald Reagan’s line about the nine most frightening words in the English language: “I’m from the government, and I’m here to help.” Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Daniel Sutter: Social Security insolvency
Social Security has been long viewed as untouchable in American politics. An aging population seemingly only further entrenches this. Yet cuts may be coming if Democrats and Republicans do not act today. Social Security’s potential insolvency would trigger benefit cuts. Here’s how Veronique de Rugy of the Mercatus Center describes it, “Failure to reform, in fact, means benefits will automatically get cut. … [W]hen the Trust Fund runs out of IOUs around 2033, Social Security benefits by law will be cut by about one-fifth.” To unpack this, let’s start with the structure of Social Security. The taxes funding Social Security, primarily the payroll tax, goes into a Trust Fund (technically two funds, but money can be shifted between them), from which benefits are paid. Any surplus is invested in U.S. Treasury securities. The program operates on a pay-as-you-go (PAYGO) basis instead of accumulating assets like a private pension. Today benefits slightly exceed tax revenues, so the Fund operates at an annual deficit. Thanks to earlier surpluses, the Fund has a balance of $2.6 trillion. The annual deficits are projected to grow over the next decade, and insolvency occurs when the balance is zero. The Social Security system’s trustees project this in 2035, while the Congressional Budget Office predicts 2032. Which year is correct is immaterial. The Antideficiency Act prohibits Federal agencies from spending funds they do not have. Social Security revenues are projected to be 80 percent of annual benefits at insolvency. This yields the 20 percent benefit cut. Yet the Social Security Act creates a legal entitlement to benefits. Insolvency will bring these two laws into conflict. The Congressional Research Service is unsure which law will take precedence. Warnings of impending cuts presume the Antideficiency Act will rule, so benefit cuts are not written in stone. Also, Congress could hike the payroll tax to avoid insolvency. Why does this matter? Economist Thomas Sowell says that the first lesson of economics is scarcity, while the first lesson of politics is to deny the first lesson of economics. Economists, I think, should be clear whether scarcity or rules and procedures force choices on us. Rules and procedures drive the feared benefit cuts, not scarcity. Scarcity means that the current 12.4 percent payroll tax is inadequate; either Social Security taxes must increase, benefits must be cut, or both. Will Social Security become unaffordable? Some commentators offer very scary projections, but here’s a straightforward approach. Our aging population is lowering the worker-to-retiree ratio, stressing our PAYGO program. This ratio exceeded three in the 1990s, currently stands at 2.8, and may eventually fall to two. Since a 12 percent payroll tax covered annual benefits with three workers per retiree, an 18 percent tax should fund current benefits with two. Careful calculations suggest a lower rate will suffice. The Congressional Research Service estimates that a 15.6 percent rate rising eventually to 16.7 percent will fund benefits. I do not favor any tax increase, but a four-percentage point increase will not cause economic ruin. Medicare is on weaker ground going forward, but I am only considering Social Security’s sustainability today. Social Security has problems making it poor public policy. Most significantly, PAYGO produces an atrocious rate of return compared to true pensions. According to one estimate, the average participant will get $698,000 in benefits for $698,000 in taxes. A better public pension plan should enable reform long-term. Social Security’s funding problem reflects a larger problem facing our nation. We want more from government than we are willing to pay for in taxes. This fiscal imbalance produces our ballooning national debt and traces back, I believe, to the partial Reagan Revolution. President [Ronald] Reagan wanted to cut government, both taxes and spending. Spending cuts proved unattainable, but tax cuts remained politically popular, so President Reagan proceeded with tax cuts culminating in the landmark 1986 tax overhaul. This locked in low taxes, which persist today. To sustain current Social Security benefits or Federal spending, Americans will have to pay more in taxes. I hope we choose less government and more freedom, but scarcity will force a choice soon. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
William Haupt III: Nancy Pelosi’s home district is a progressive nightmare
“Nancy Pelosi’s district in California has rapidly become one of the worst anywhere in the U.S. when it comes to the homeless and crime. It has gotten so bad, so fast.” – Donald Trump In the 1960s, America’s boomers rebelled against authority and the Vietnam War. They pursued sexual liberation, experimental drugs, communal living, and civil rights. This counterculture lived by the motto “sex, drugs, rock and roll.” In 1967, thousands of hippies and flower children made their way to Haight-Ashbury in San Francisco for what was billed as the “Summer of Love” – and many never left. Haight-Ashbury soon eroded into an enclave for dropouts, addicts, and the homeless. In the late 1970s, the area was targeted for gentrification, and investors began cleaning it up. By 1990, Haight-Ashbury was among San Francisco’s most affluent and expensive neighborhoods. But today, it is home to tent cities with trash-ridden streets ravaged with violent crime, and it is a Mecca for drug users and sellers. Conditions are worse than slums in almost every other U.S. city. How can the most expensive place to live in America also be one of the worst places to live in the U.S.A.? While San Francisco has been the most progressive city in America for years, this liberal utopia has not always been a harbor for addicts, the homeless, criminals, and social derelicts. “It’s an odd thing, but anyone who disappears is said to be seen in San Francisco.” – Oscar Wilde In the 1960s, liberal strategist Phillip Burton saw the potential of growing the Democratic Party by pandering to the hippies, minorities, and gays. With their support, he was elected to the U.S. House in 1964, where he served until his death in 1983. His wife Sala Burton held this seat until 1987. In a special election, Nancy Pelosi seized this coveted progressive prize in 1987 and won’t give it up. With the election of far-left liberal Gov. Jerry Brown in 2010, San Francisco became a progressive paradise. In 2014, Brown financed Prop 57, which helped free thousands of California inmates from prison. Voters also approved Prop 47, which reduced most nonviolent crimes, including theft under $950 to misdemeanors. Both were pushed by Lt Governor Gavin Newsom, San Francisco district attorney George Gascón, the San Francisco Democratic Party, and the Harvey Milk LGBT Club. In 2016, voters approved Prop 64, giving municipalities the power to ban or sell weed. But many cities and counties did not react. A 2011 federal court had ruled that local governments trying to regulate the sale of weed would violate federal law. But it was welcomed by all San Franciscans. By 2019, the deregulation of crime, release of thousands of inmates, legalization of cannabis, and declaring California a sanctuary state enabled new Gov Gavin Newsom, the former mayor of San Francisco, to clone the entire state of California into a progressive twin sister of San Francisco. San Francisco has declared the NRA a “domestic terrorist organization,” banned fast-food joints that include toys in children’s meals, outlawed plastic bags and straws, raised the minimum wage from $9.79 to $15.59 an hour, and refuses to prosecute anyone for nonviolent crimes. While these policies appeal to the far left, they also encourage the homeless and derelicts to venture up north. How bad are things in San Francisco? According to a KGO news report, in 2011, the Bay City spent $157 million on the homeless. By 2016, it was up to $242 million. In the 2021 budget proposal, it is now over $364 million. The consensus estimates the homeless population is at least 17,500. “As mayor of San Francisco, I witnessed its greatest cultural and social transition.” – Gavin Newsom Progressives insist the stark contrast in wealth and poverty is the result of the failure of capitalism to provide for the needy. But while politicians preach “compassion,” their policies have resulted in record-high levels of homelessness, drug addiction, and a rapid increase in violent felonious crime. According to the San Francisco Chronicle, the city’s policies have created an “influx of about 450 homeless people a year who migrate to places like the Tenderloin District. This is a sanctuary for people hiding out from the law who do not want the government to know where they are living. In reaction to the George Floyd and Black Lives Matter protests and riots, along with outrage by activists against police, San Francisco elected progressive Chesa Boudin as district attorney of San Francisco in 2020. He was endorsed by Angela Davis, Bernie Sanders, and Ibram X. Kendi. Boudin, the adopted son of radicals Bill Ayers and Bernardine Dohrn, quickly reduced the use of cash bail and restrained the power of the police. He quit prosecuting misdemeanors. He then did the unthinkable and started charging police officers with felonies who used force during arrests. “I will move away from the draconian, tough-on-crime, three-strike super-rhetoric hype.” – Chesa Boudin According to Stop Crime, the Bay City is experiencing a dramatic increase in serious crime under Boudin. Burglaries are up 42%, and homicides have increased 30% compared to the previous year. Motor vehicle thefts have risen by 71%, and arsons have jumped over 35% since he became DA. Recently, a local ABC News reporter witnessed a shoplifter sweeping entire shelves of products into garbage bags inside a Walgreens. He mounted a bike and rode past a security guard out the door. Other retail stores are reporting the same problems in every neighborhood in San Francisco. “This rise in crime is a result of Chesa Boudin’s soft-crime policies.” – Frank Noto, Victim’s Rights It’s been said that “The road to hell is paved with good intentions.” All good intentions of Prop 47 and Prop 57 have been undone by Chesa Boudin’s leftist extremism, pandering to criminals, and punishing the police for doing their job. What’s happening in San Francisco is proof of how quickly perjured progressive idealism can turn an economically prosperous city into a living hell on earth. It is hard
