A Big Mac costs more in San Francisco than it does in Baton Rouge. And it costs more in Switzerland, but less in Mexico. 

Some prices vary from moment to moment. Your Uber ride could cost three different prices within the same hour, depending on demand. And of course, on any given flight passengers on the same flight may have paid a dozen different prices, depending on when they purchased.

Even a pint of strawberries might have different prices at the same grocery store, depending on the week or even the day that you shop.

This is called differential pricing, or dynamic pricing, and it’s how markets work to match customers with products and services based on supply and demand.

But when government steps in and tries to control pricing, market mechanisms get disrupted, supply and demand is set aside, both consumers and producers are harmed.

Americans generally pay more for name-brand prescription drugs (though NOT for generics) than those in other countries, but only partially because of differential pricing. It’s mostly because other governments exert price controls on drugs. The problem is not that Americans pay too much; it’s that other countries pay too little. They distort their prices, which causes distortions in our prices.

The solution to this is to insist that foreign countries bear more of their share of drug prices, and this can only be done through trade agreements. But of course, these days we’re into blowing up trade agreements, not strengthening them.

But instead of insisting that other countries pay a fair price for drugs, the Trump administration is advocating the opposite—importing foreign price controls to the U.S. The Trump administration doesn’t like importing underwear from Vietnam but loves the idea of importing Vietnam’s price controls on pharmaceuticals.

Specifically, the Trump administration is pushing Congress to include in its budget reconciliation package a provision that would limit the Medicaid reimbursement price to what other countries pay. They’re calling this MFN, or “Most Favored Nation” pricing, which is ironic, since the Trump administration decries the extension of Most Favored Nation status to China. You would think the acronym would be toxic.

Drug manufacturers already lose money due to the Medicaid reimbursement formula, but importing foreign price controls would squeeze them even further. In the current populist moment, putting the squeeze on drug manufacturers might feel good, and Congress might save a little money, but there are unseen costs.

A critical concept in market economics is “the seen versus the unseen.” It’s easy to see the supposed benefits of price controls, but they are short-term, and ignore the unseen impact of reduced investment, less innovation, and delayed or even forgone treatments and cures.

Implementing MFN for Medicaid drug reimbursement would be a long-term structural disaster in exchange for perceived short-term benefits. There are better ways to address our entitlements crisis, and Congress should pursue them.

While speakers at the Democratic National Convention tried to portray presidential nominee Kamala Harris as some type of cross between Perry Mason, Jack McCoy and Mother Teresa, the overriding theme at the convention and until the election is freedom. But don’t be fooled. Democratic strategists made it very clear months ago that they shifted to the freedom theme as a marketing strategy because it sells well.

As the Wall Street Journal’s Molly Ball reported last December, abortion rights advocates have “changed their message.” And the article’s subtitle explains why: “Supporters of abortion access have emphasized ‘freedom’ and ‘values’ in successful campaigns in red-leaning states, with more to come in 2024.” 

We saw the “more to come” at the convention, and we’ll hear it frequently until the election.  

Ball points out, “Abortion-rights activists rarely use the term ‘pro-choice’ anymore, preferring to talk about people’s ‘freedom to decide.’” We heard that message from several convention speakers.  

As one Democrat told Ball, “‘The messaging we were using wasn’t working, and we knew we had to get at deeper emotions, versus what people say they think.’” Democrats discovered the term freedom resonated with lots of people, especially with independents and seniors.   

Democratic pollster Angela Kuefler added that Democrats “can seize on the success of the ‘freedom’ message and tie it to other issues, such as Republicans’ attempts to limit books in school libraries or gender-reassignment treatments.” 

How do you know that Democrats are deceptively using the term freedom to sell their agenda? Because there are lots of fundamental freedoms they have no intention of allowing Americans to enjoy. Here’s some of them: 

Am I free not to have health insurance? Even though Barack Obama’s convention speech boasted of “every woman’s right to make her own health care decisions,” that doesn’t include decisions about health insurance. His Affordable Care Act (ObamaCare) mandated that everyone have health insurance, whether they wanted it or not. And not just any insurance, but the health insurance he and Democrats chose for us. Bill and Hillary Clinton also mandated health insurance coverage in their failed 1993-94 attempt at health insurance reform. 

Am I free not to be vaccinated? Not according to President Biden. “We’ve been patient. But our patience is wearing thin, and your refusal has cost all of us,” Biden announced at the White House in September of 2021. He mandated federal employees and contractors, the military, hospitals and employers (with 100 or more employees) get the COVID-19 vaccine — and he would have made it a universal mandate if he could.  

The issue here isn’t the safety and effectiveness of the vaccine; I got both shots and the initial boosters as soon as I could. The point is that Democrats repeatedly lecture the rest of us that people should be allowed to control their own health care — except, it turns out, when it comes to certain vaccines.  

Am I free not to drive an electric vehicle? Not if environmentalists and Green New Dealers have their way. The Environmental Protection Agency and several states are forcing carmakers to transition to electric-vehicle production, phasing out the production of new cars that use fossil fuels. As the Wall Street Journal editorialized last March, “auto makers will have no choice but to limit gas-powered, and increase EV, production to meet the EPA mandates. The only ‘choice’ Americans will have in the future is electric.” 

Am I free not to send my children to the public school of the government’s choosing? Not if Democrats take the White House and Congress. They have made their opposition to school vouchers, and even charter schools, very clear and, bowing to the teachers’ unions, would likely try to eliminate any type of school choice. 

Am I free to go to church or synagogue during a pandemic? Not if Democratic vice-presidential candidate Tim Walz is in charge. Even though the Minnesota governor told the convention, “In Minnesota, we respect our neighbors and their personal choices that they make,” Walz shut down houses of worship during the pandemic and kept them closed much longer than most states.  

Do I have the freedom, if I’m a young lady, to compete in sports only against biological females? Not in Walz’s world. When Minnesota Republicans introduced a bill that would ban transgender athletes from playing on sports teams matching their gender identity, as opposed to their biological sex, Walz threatened to veto it. 

Convention speakers waxed eloquent on the freedom theme. But it was mostly a marketing ploy. They know Americans revere their God-given and constitutional freedoms and want to preserve them. So, Democrats are couching everything they want to do in the guise of freedom. What they aren’t saying is how many long-cherished freedoms Americans will lose if Democrats take control. 

What are the economic policies being proposed by Vice President Kamala Harris, the Democratic presidential nominee? We don’t actually know what “Kamalanomics” looks like because the veep has been more focused on offering platitudes with attitude. Will Kamalanonics be similar to Bidenomics? Or is it just Bidenomics on steroids?  

So far, her campaign website has zero policy proposals, so that’s no help. But you can buy a Harris-Walz camo hat the media have been effusing over. Wait until someone tells the candidates that “camo” is short for camouflage, which is something typically worn by hunters and soldiers who carry…guns. 

Probably the best we can do at this point is drill down on her platitudes. 

Harris recently said at a campaign rally, “We fight for a future with affordable housing, affordable health care, affordable child care, paid leave.” So let’s start with those. 

Housing: Housing costs have risen significantly under the Biden-Harris administration. There are several factors behind those increases, including house prices, rising interest rates and insurance costs, property taxes, etc. Fortunately, a recent paper from Harvard University’s Joint Center for Housing Studies looked at monthly payments for a median-priced home, including taxes and insurance. It estimates the current monthly payment at $3,096. That’s down from about $3,300 in mid-2023, but significantly higher than $2,100 at the beginning of the Biden-Harris administration.

In short, all-in monthly housing costs have increased about 50 percent under Biden-Harris. No wonder the president and now Harris have started talking about addressing high housing costs. They realize it’s an election-year liability.

The way to lower housing costs is to reduce regulations, allow builders to charge a fair price that covers costs and makes a profit, and reduce interest rates (which the Federal Reserve Bank will likely do soon). But Harris would almost certainly do the opposite, increasing regulations and attempting to impose price controls, which would lead to fewer houses and higher prices. 

Health care: Virtually all progressives want a government-run, single-payer health care system. That includes Harris. 

She was quick to support Sen. Bernie Sanders’ (I-Vt.) “Medicare for All” bill when she was in the Senate, though that title is misleading. The bill does not put everyone in the federal Medicare program. Rather, the government takes over the health care system, raising taxes to pay for it. You would not be able to keep your employer-provided health insurance nor opt out of the government system. “Kamalacare” would likely be very similar.   

Now would be a good time to recall humorist P.J. O’Rourke’s famous observation, “If you think health care is expensive now, wait until you see what it costs when it’s free.” 

Before you decide on whether Kamalacare is a good idea, look at the challenges in the two countries most often pointed to as models for U.S. reform: England and Canada.  

Childcare: Progressives don’t want to reduce the cost of childcare. Rather, they want the private sector or government to pay for it. Indeed, the Biden-Harris CHIPS and Science Act requires companies taking government subsidies to “include child care plans that meet the Department of Commerce’s standards for affordable, accessible, reliable, high-quality care that is responsive to employees’ needs.”  

The way Harris would make childcare “affordable” is by having the government hand out even more money directly to families, or by attaching strings to corporate subsidies so that companies pay for it. 

Paid leave: What is it with progressives’ obsession with paying people not to work?  According to the Department of Labor, “Thirteen states and the District of Columbia have laws that create paid family and medical leave programs for eligible workers.” In addition, many employers provide paid leave. But Harris wants to create a new federal entitlement program. 

The Green New Deal: Harris fully embraces the Green New Deal, a massive social justice program disguised as a way to save the planet from greenhouse gases. As the New York Times explains, “Supporters of the Green New Deal also believe that change can’t just be a technological feat, and say it must also tackle poverty, income inequality and racial discrimination.”

But Biden-Harris, like Obama-Biden before them, have poured trillions of taxpayer dollars into their green dreams, and yet consumers are increasingly shunning electric vehicles and numerous subsidized green energy companies have either gone belly up or soon will. 

Fiscal Policy: Here’s one facet of Kamalanomics you can be sure of. She will increase federal spending at an even faster rate than Biden and try to pay for it with higher taxes. If you liked Biden’s  $8 trillion total in annual deficits and $35 trillion federal debt, you’ll love Harris. 

There are obviously many as-yet unannounced policy positions, and you can be sure they all will give the government much more control over our choices and our lives. But Harris will likely stick to unoffensive platitudes as long as voters, and especially the media, don’t demand specifics. 

In our last PolicyByte we began to make the case for an Article V convention of states for the purpose of amending the Constitution to rein in the federal government and restore fiscal controls.
 
Many grassroots conservatives have opposed the idea of an Article V convention out of misplaced concern about a “runaway convention.” We’ll explain in the next PolicyByte why a runaway Article V convention is impossible. But many conservative thought leaders, including people respected by the grassroots like radio and TV host Mark Levin, support the idea. In his book, Levin even proposes 11 amendments intended to “restore our founding principles.”
 
The Founders expected and anticipated the need to amend the Constitution, and in Article V created two means for doing so. While both methods require the approval of three-quarters of the states (now 38), the first method originates with Congress and is run by Congress.
 
But the second method, which has never been used, is initiated and run by the states, with Congress having only the ceremonial role of calling the convention. The states themselves would determine the scope of the convention and its rules, but of course all within the text and limits of Article V.
 
The Founders wisely understood that there might come a time when the states had to take action in the face of an unresponsive federal government that, for whatever reason, needed to be acted upon. A convention of states is a way of doing an end-run around Congress, rather than leaving the states powerless, since powerless states were the last thing the Founders intended.
 
Remember, it was the states that created the federal government, and not the other way around. Had we adhered to the Ninth and Tenth Amendment reservations of power to the states, an amending convention would probably not be necessary, but thankfully the Founders supplied us with a means of remedy.
 
In other words, an Article V convention of the states is legitimate, was designed by the Founders, and was intended to be used. And those who think it’s a terrible idea, well, they disagree with the Founders and think the Constitution is flawed, at least in Article V.
 
Now, ask yourself this question: Have you seen any evidence that the federal government is capable of reforming itself? That it’s capable of reducing its power and returning power to the states? That it intends to get spending under control and set its fiscal house in order? Neither have I.
 
There’s never going to be a magic election where Republicans win enormous majorities in the House and Senate, win the White House, AND then are willing to voluntarily reduce their power. Not gonna happen.
 
If change is to happen, it will have to be the states that do it.

There are two key reasons why it is critical there be a work requirement before able-bodied individuals receive welfare: (1) It discourages those who can find a job from going on welfare and consuming limited resources and (2) it helps those who have been on welfare regain the sense of dignity that comes with work and being able to provide for themselves and their families. So why are most Democrats, and especially progressives, so dead set against a work requirement?

Democrats weren’t always so critical of work-for-welfare (sometimes referred to as “workfare”) proposals. In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which included a provision requiring work to receive cash benefits.

The law replaced the primary cash-grant program, Aid to Families with Dependent Children (AFDC), with Temporary Assistance for Needy Families (TANF). According to the History Channel’s website: “TANF added work requirements for aid, shrinking the number of adults who could qualify for benefits. This legislation also created caps for how long and how much aid a person could receive, as well as instituting harsher punishments for recipients who did not comply with the requirements.”

Did Democrats shun this bill, which was signed and praised by President Bill Clinton, a Democrat? Some did.

But 23 of the Senate’s 47 Democrats voted for the legislation, including … wait for it … Sen. Joe Biden (D-Del.), who proclaimed on the Senate floor, “The culture of welfare must be replaced with the culture of work.”

Unfortunately, two decades of progressive efforts at the state and federal levels, along with pandemic-related welfare expansions, have largely undermined the work requirements.

Republicans in Congress are trying to reestablish workfare, but the congenital flip-flopper in the White House is calling that one of the GOP’s “wacko notions.” In fact, it’s the most sensible thing lawmakers can do.

The biggest challenge to welfare programs is finding a way to separate those who don’t need welfare – because they are able-bodied and employers are struggling to find employees – from those who do.

Welfare programs compete with other valid claims on government funds, so the funding is always limited. Ensuring those who don’t need help stay out of the program means there is more money and time available to provide assistance for those who do need help.

The program I’m most familiar was sponsored by the American Institute for Full Employment, which began in part of Oregon. Social workers told those seeking to enroll in welfare they would have to go to work.

Those who ran Oregon’s pilot program said that once the work requirement was made clear, about a third of the applicants would leave, saying if they had to work, they’d find their own job. Another third needed help finding a job. And another third faced challenges, such as women who had suffered from domestic violence, had a substance abuse issue or had just given birth. Those individuals could avoid the work requirement for a few months while they addressed their challenges, but then they had to go to work.

The New York Times even ran a story about how these social workers were finally getting to their “drawer cases,” people with severe challenges that would take a lot of time to help.

A unique aspect of this program was that it partnered with employers who were desperate to find workers — as many employers are today.

Most were entry-level jobs, which meant the employee could be quickly trained on the job (the best kind of training). The state welfare program covered most of the cost of the new employee for a few months, giving the employer time to see if the employee would work out. If so, the employer could then hire the person.

It was a win-win-win: for the individual, the employer and the state.

The second benefit from work is it can help longtime welfare recipients regain a since of dignity and self-worth.

If progressives are shaking their heads at this notion, it may help to know that Karl Marx agreed. As psychologist and democratic socialist Eric Fromm explains Marx’s concept of human nature, “Labor is the self-expression of man, an expression of his individual physical and mental powers. In this process of genuine activity man develops himself, becomes himself.”

I saw several letters sent to the sponsors of the Oregon plan from people who had been on welfare for years. Both they and their families had lost confidence in them. Getting a job and bringing home a paycheck helped restore some of that confidence.

But they needed a push to get back in the workforce. Workfare provided that push.

Democrats and the media routinely dismiss efforts to link welfare benefits, including Medicaid, to work requirements, claiming most of the recipients already work. If that’s true, what’s the problem?

No one is trying to force workfare on those whose age or mental or physical disabilities keep them from working. But that’s not most welfare recipients. We need more people leaving welfare and entering the workforce. As Joe Biden once said, “The culture of welfare must be replaced with the culture of work.”

The Social Security Board of Trustees recently released its 2023 report on the financial status of Social Security’s Old Age and Survivors Insurance (OASI) Trust Fund, which pays retirement benefits to about 52 million seniors. Warning that the finances had worsened slightly, news reporters rushed to reassure the public. The OASI Trust Fund still has some $2.7 trillion and won’t be depleted until 2033, only one year earlier than had been projected.

But does the OASI Trust Fund really have $2.7 trillion? Yes, at least on paper. The problem is that Congress has borrowed those surplus funds and spent them. And importantly, it can’t repay the money without borrowing more.

Social Security operates on a pay-as-you-go basis. The FICA (payroll) taxes taken from current workers’ paychecks (6.2 percent from the employee is matched by the employer, for 12.4 percent total) is used to pay current retirees.

When the government collects more in FICA taxes than it pays out, as the OASI Trust Fund did for every year except one from 1984 through 2020, the surplus in the Trust Fund is used to purchase special, interest-bearing U.S. Treasury notes. Congress is then free to spend those funds however it chooses.

Unlike normal U.S. Treasuries, these “specials” cannot be sold on the open market. They are essentially an intergovernmental transfer. Here’s how the Congressional Research Service (CRS) explains it: “Social Security tax revenues are invested in U.S. government securities (special issues) held by the trust funds, and these securities earn interest. The tax revenues exchanged for the U.S. government securities are deposited into the General Fund of the Treasury and are indistinguishable from revenues in the General Fund that come from other sources.”

The CRS reiterates the point later: “If, in any year, revenues are greater than costs, the surplus Social Security revenues in the U.S. Treasury are available for spending by the federal government on other (non-Social Security) spending needs at the time.”

Got that? The money goes into the government’s General Fund, and Congress can spend the money on anything it wants.

But what if Social Security spends more than it collects in a given year?

“If, in any year, costs are greater than revenues, the cash flow deficit is offset by selling some of the accumulated holdings of the trust funds (U.S. government securities) to help pay benefits and administrative expenses,” the CRS reports.

The Social Security trustees estimate in 2023 that the OASI Trust Fund will spend $40 billion more than it takes in. So, the Social Security Administration will have to sell $40 billion of its special securities to pay current retirees.

Now, if the federal government were operating with a surplus in its General Account, then it could just transfer part of those funds to Social Security. But the federal government does not have a surplus. Indeed, the Congressional Budget Office (CBO) projects the federal government will have a deficit of $1.4 trillion this year alone. So, Congress will have to borrow $40 billion to transfer it to the OASI Trust Fund.

In short, while the Social Security Trust Fund has a hefty surplus on paper, Congress has borrowed those funds, and it will have to borrow money plus interest to repay the borrowed money when the OASI needs it.

But wait, hasn’t the federal government reached its borrowing limit? Yes, it has, and it won’t be able to borrow more money until Congress agrees to increase that limit.

Does that mean that until there’s a deal the government won’t be able to pay retirees their benefits?

Probably not. The federal government has revenue coming in all the time, and money is fungible. So, the government would just prioritize those incoming funds to go to Social Security and put off paying other obligations until it can borrow more.

But even these steps would only provide a short-term fix. The Trustees warn us that when the OASI Trust Fund runs out around 2033, incoming payroll tax revenue will be able to cover only about 77 cents of each Social Security dollar owed. Seniors won’t be happy about that.

That’s why President Biden wants to raise the payroll taxes. Of course, raising taxes, instead of cutting other government spending, is his go-to solution to almost every policy challenge.

It would be better to engage in a responsible, bipartisan debate over how to address Social Security’s financial problems. But that probably won’t happen. It’s easier for Biden to demagogue the issue in an effort to enhance his reelection chances.

President Biden says he’s not gonna let Republicans cut the financially challenged Medicare program. “A lot of Republicans, their dream is to cut Social Security and Medicare,” Biden said in February. “Well, let me say this: If that’s your dream, I’m your nightmare.” Well, how about at least cutting Medicare fraud?

Medicare and Medicaid fraud is rampant. The National Health Care Anti-Fraud Association recently estimated Medicare and Medicaid fraud totaling about $100 billion a year. Others believe that’s a conservative estimate.

New video from CNBC’s Contessa Brewer highlights some of the problems in South Florida, which is ground zero for Medicare fraud. Brewer says the “business of stealing Medicare and Medicaid cash has never been as brazen.”

Maybe, but it’s been very brazen for decades. A young Chris Wallace, then with ABC, reported on Medicare fraud in 1994. And here’s a “60 Minutes” report from 13 years ago in which reporter Steve Kroft warns viewers that the story may raise their blood pressure. And it should.

And while those stories are about Florida, here’s a decade-old National Public Radio story about a Texas doctor indicted for $375 million in fraudulent Medicare and Medicaid billing.

One reason criminals can steal so much is Medicare and Medicaid spend so much.

Total Medicare spending in 2022 was $982 billion, with $755 billion of that total coming from the federal government and $227 billion in premiums paid by Medicare beneficiaries to the government. Medicaid, which is a federal/state health insurance program for low-income families, spent $864 billion in 2022.

The federal government estimates that 7.5 percent of spending on traditional Medicare in 2022 was for “improper payments,” which includes both fraud and errors in billing.

For Medicaid, it was 15.6 percent.

What all the imprisoned criminals interviewed in these stories agree on is that defrauding Medicare and Medicaid is easy. Criminals open a small office because Medicare requires that vendors have an address. They put in a desk and chair, though there is seldom anyone actually in the office. Then they buy a list of stolen Medicare beneficiaries’ information and start billing the government.

The biggest scams often involve what’s known as durable medical equipment (DME), which includes a range of items such as wheelchairs, prosthetic limbs and oxygen-related equipment.

Note that this isn’t a rap on federal law enforcement trying to catch the fraudsters. They are doing their best, though they are understaffed and underfunded. And they do catch some of the criminals, as the news stories demonstrate.

Centers for Medicare and Medicaid officials boast that they have been reducing improper payments and fraud, and kudos to them for that. But no one really knows how much Medicare and Medicaid fraud there is, because many fraudsters may never be caught.

The best way to identify the criminals may be when they start getting really greedy. Here’s a good example from a series on Medicaid fraud that appeared in the New York Times in 2005. “It has drawn dentists like Dr. Dolly Rosen, who within 12 months somehow built the state’s biggest Medicaid dental practice out of a Brooklyn storefront, where she claimed to have performed as many as 991 procedures a day in 2003.”

Had Dr. Rosen kept her billings to, oh, say, 500 procedures a day, she might have stayed under the government’s radar. That’s a joke, but you get the point.

One Medicaid official in the Times story estimated that perhaps 40 percent of New York City’s Medicaid spending was fraudulent. 

Texas had its own Medicaid dental fraud. Several Texas dentists were charged and convicted of scamming the system of millions of dollars by putting braces on children who didn’t need them. As the Dallas ABC affiliate, WFAA, reported, “Medicaid records showed Texas spent $184 million on Medicaid orthodontics in 2010 — nine times more than California, which spent $19.5 million.”

It was WFAA that discovered and exposed the fraud, not federal or state officials.

The point is that if the federal government were better at preventing Medicare and Medicaid fraud, the programs could save perhaps $100 billion a year or more. While that wouldn’t solve Medicare’s long-term financial challenges, it would certainly help delay the day of reckoning.

No private sector company could survive with that much fraud. Credit card companies, and even private health insurers, have much lower fraud rates.

While no one defends the fraud, many politicians and bureaucrats don’t seem that interested in trying to fix it. Indeed, when Republican state legislators propose verifying state Medicaid rolls to ensure recipients are qualified, Democrats usually push back.

What’s clear is that there is a way to cut Medicare without hurting Medicare patients, and that’s to cut the fraud. But it’s much less work, and perhaps more politically rewarding, to just attack political opponents.

President Biden and his fellow Democrats are accusing Republicans of wanting to cut Social Security benefits. But in 1983, then-Sen. Biden (D-Del.) and 25 other Senate Democrats, along with 163 House Democrats, provided the large majority of votes to pass the last cut to Social Security benefits. If cutting Social Security benefits is a scandal, then Biden’s guilty.

After a rowdy and entertaining exchange at the recent State of the Union (SOTU) address – in which Biden claimed Republicans wanted to cut Social Security and Medicare benefits and Republicans vociferously disagreed – the president has doubled down on his claim.

“I know that a lot of Republicans, their dream is to cut Social Security and Medicare,” Biden said in Florida two days after the SOTU. “Well, let me say this: If that’s your dream, I’m your nightmare.”

You’ll get no argument from me about Biden being a nightmare. But his claims are at best strained, and are certainly hypocritical.

Biden’s first target was Sen. Rick Scott’s (R-Fla.) 12-point “Rescue America” plan, one part of which says, “All federal legislation sunsets in 5 years. If a law is worth keeping, Congress can pass it again.”

Such “sunset laws” are fairly common at the state level. The right-leaning Mercatus Center, located at George Mason University, published a 2015 study identifying 10 states with comprehensive sunset laws, which include a review of both laws and regulatory provisions, and eight states that review only regulatory provisions.

The more important point is that while many Republicans likely support the basic idea of state-level sunset provisions (though not for Social Security and Medicare), very few backed Scott’s “Rescue America” plan. Indeed, Senate Minority Leader Mitch McConnell (R-Ky.) publicly criticized it, especially a provision that would increase taxes on many low-and middle-income Americans. “Rescue America” may have been part of Scott’s agenda, but it was never the Republican agenda.

And that’s why Republicans loudly rejected Biden’s claim.

Undaunted, the White House released a memo intended to show Republican support for cutting Social Security benefits. One suggestion is to raise Social Security’s retirement age to 70. Another proposes a means- (i.e., income-related) test on Social Security benefits.

However, in 1983 a large majority of Democrats, including Biden, voted to gradually phase in an increase in Social Security’s retirement age from 65 to 67. Based on that Biden-supported law, for those born in 1960 or after the full-retirement age is 67.

Now, a case can be made that delaying Social Security’s full-retirement age isn’t actually a cut in benefits, since a senior can begin taking Social Security benefits at age 62. But seniors will receive a larger monthly benefit (about 8 percent) for every year they wait to enroll, up to age 70. That’s why most financial advisers recommend seniors wait as long as they can to enroll.

The problem with taking Social Security before the full-retirement age is that there’s an “earnings penalty” imposed on those who continue to earn income above a certain amount, which is only $21,240 in 2023.

But if raising the retirement age is a cut in Social Security benefits, as Biden says it is, then he did it first.

Biden and Democrats imposed another cut to Social Security benefits in the 1983 amendments. The legislation made a portion of Social Security benefits subject to income taxes. Currently, if a senior continues to work and makes more than $34,000 a year ($44,000 for a couple), up to 85 percent of their Social Security benefits may be taxable.

Taxing Social Security benefits is an indirect way to means-test benefits. The more income seniors make, the more taxes they must pay on their Social Security benefits, effectively reducing the net amount they receive.

So, if some Republicans have suggested a type of means-test for Social Security, be assured that Joe Biden beat them to it by 40 years.

Social Security and Medicare are facing serious financial problems today, just as they were in the early 1980s. Back then, Democrats and Republicans took a close look at the programs’ challenges and tried to address them. Today, hypocrisy and demagoguery come before statesmanship.

Surprise! The government’s Covid assistance to businesses and the unemployed became one big fraud-fest. But we’ve known that for some time. Now, NBC is reporting that the feds are acknowledging that even foreign countries got in on the scam—including China.
 
“Hackers linked to the Chinese government stole at least $20 million in U.S. Covid relief benefits, including Small Business Administration loans and unemployment insurance funds in over a dozen states, according to the Secret Service,” NBC reports.
 
The Chinese hacking group is known as APT41, a state-sponsored, semi-independent group.  The Secret Service considers it a “Chinese state-sponsored, cyberthreat group that is highly adept at conducting espionage missions and financial crimes for personal gain.”
 
But it’s far from the only one. NBC continues, “The Secret Service declined to confirm the scope of other investigations, saying there are more than 1,000 ongoing investigations involving transnational and domestic criminal actors defrauding public benefits programs.”
 
The Labor Department’s inspector general estimates the “improper payment” rate was 20 percent of the $872.5 billion handed out in federal pandemic unemployment funds—almost certainly on the low side.
 
And a Department of Labor analysis of four states estimated 42.4 percent of pandemic benefits were improperly paid in the first six months.
 
Congress rushed through the first pandemic relief, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), in March 2020, which provided $2.2 trillion. Virtually no one made an effort to ensure the money would only go to those who it was intended to help, rather than a wide-ranging group of fraudsters, including the Chinese.
 
So, the fact that hackers and fraudsters would benefit greatly from U.S. taxpayers was practically baked into the cake.
 
Would it have taken that much more time to look at the newly created programs and ask if there were sufficient safeguards to protect taxpayers’ money? We’ll never know.
 
What we do know is that as the big-spending Biden administration seeks to hand out trillions more taxpayer dollars, it creates more opportunities for criminals, both domestic and foreign, to siphon off even more money.
 
We will never stop the scams by after-the-fact investigations. If we really want to stop the crooks, we have to shrink the size of government.

Welfare reform, initiated by Republican governors at the state level in the 1990s and later passed by a Republican Congress and signed by a reluctant President Bill Clinton in 1996, was one of the nation’s most successful legislative efforts. It required most able-bodied people to work to receive welfare benefits. Democrats and bureaucrats spent the next 25 years trying, and largely succeeding, to undermine those reforms. Now, Sen Rick Scott (R-Fla.) has introduced a bill to reestablish work requirements in welfare.

If Republicans retake the House and Senate in 2022, they may be able to push through something like Scott’s “Let’s Get to Work Act,” just as Republicans did with Clinton.

One of the 1990s Republican leaders on welfare reform was former Wisconsin Governor Tommy Thompson.

The Heritage Foundation’s welfare scholar, Robert Rector, wrote extensively about Thompson’s efforts. “Thompson initiated a series of reforms that cut welfare dependency during the late 1980s and blocked any resurgence during the 1990-93 recession. Starting in 1994, a second round of more sophisticated work-related reforms has caused the caseload to nosedive further.”

Rector says that by 1997, Wisconsin had cut its welfare caseload in half. That success story got the attention of other states and the media, with many of the Republican-led states following Thompson’s lead.

I was monitoring welfare reform at the time, but focused more on a pilot program in Oregon. Here’s how it worked.

Able-bodied people entering the welfare office were told they would have to go to work.

They could find a job on their own or the state agency would help them find a job. Or the person could take a subsidized job with a participating employer. 

The people running the Oregon initiative, called the Full Employment Program, said that given those options, roughly a third of the inquirers would turn around and walk out, saying if they had to work, they’d find their own job.

Another third took the state’s help in finding one of the subsidized jobs.

But a third faced some significant challenges, such as substance or domestic abuse. And some were well along in a pregnancy. They were given a little time and assistance, if needed, to address those challenges or deliver the child. But after that they had to work.

The innovative part of this program was the assistance finding a job. That effort redirected federal and state money from food stamps and Aid to Families with Dependent Children (AFDC), the main cash-benefit welfare program at the time, and used those funds to pay the beneficiary’s wages, which had to be at least the minimum wage.

Participating private sector employers hired the welfare recipients for four months. It had to be a new job, not one taken from another worker. Thus, the employer got a free, or mostly free, employee for a limited time.

If the employer and beneficiary were satisfied, the employee was given a full-time job and dropped from welfare benefits, though they could stay on Medicaid if needed.

There was no problem enlisting willing employers. And the welfare recipient/employee had an opportunity to try out a new job for several months. It was a win-win for everyone, including taxpayers.

But shouldn’t these people have some job training first? The program’s philosophy was the best training was on-the-job training. Welfare recipients can spend, or waste, a lot of time in job training and still never get a job. And most entry-level jobs don’t need much training anyway, just someone willing to show up for work and learn.

Unfortunately, Scott’s “Let’s Get to Work Act” will likely face an uphill battle in Congress. Seemingly, the only welfare reform the left supports is either free money or free benefits, or both.

In recent years, when certain states have tried to tie work requirements to receiving Medicaid benefits, Democrats denounced the idea. But that’s just one more example of their being out of step with the public, and especially the poor. 

In the 1990s, I talked to several people who got a job and broke the cycle of welfare dependency through the Oregon pilot program. To a person, they were thrilled. They explained how they, and in some cases their families, had lost confidence in themselves and their abilities. But now they were gainfully employed, providing for their families, and had gotten back their self-respect.

As Sen. Scott points out, “A job creates income, independence and security—it’s the foundation of the American Dream. …The American people want to work. People want to support themselves and their families, and be independent, not reliant on government programs.”

I agree—that’s what people want. It’s just not clear if that’s what the left wants.

There’s a dark cloud falling over the country’s roughly 6,000 state and local employee pension funds. After several years of feeling financially fat and sassy, the tanking stock market is once again placing some, and perhaps the majority, of these plans in financial peril.
 
We’ve seen this movie before. It happens when the country—and the stock and bond markets—hit the financial skids.
 
Heather Gillers, who covers state and local pensions for the Wall Street Journal, wrote about public pension funds’ over-reliance on the market last March. “Public pension funds had a median 61% of their assets in stocks as of Dec. 31, up from 54% 10 years ago, according to Wilshire Trust Universe Comparison Service.”
 
On May 10 she wrote about the growing losses: “Losses across both stock and bond markets delivered a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public workers. These retirement plans returned a median minus 4.01% in the first quarter, according to data from the Wilshire Trust Universe Comparison Service expected to be released Tuesday.” Emphasis added
 
For example, North Carolina’s pension lost $4.6 billion in the first quarter.
 
State and local pension funds typically set a target return of about 7 percent. When they miss that target, public employees or their government employers are supposed to make up the difference so the plan is actuarily sound.
 
But an economic downturn usually means less tax revenue for state or local governments. So the struggling government entities often postpone making their contributions, which exacerbates the underfunding problem.
 
In worse case scenarios, affected public employees begin lobbying the state or local government to step in and use taxpayer money to make the fund whole.
 
A better solution to this dilemma is to transition away from public employee defined benefit pension plans to defined contribution plans—owned and (at least partly) controlled by the individual.
 
As one example, IPI has frequently pointed to three Texas counties—Galveston, Brazoria and Matagorda—that transitioned their county employees to a private sector option called the Alternate Plan.  That plan has been functioning for 40 years, and employees have never lost a dime. Thus the counties don’t have to worry that a stock market downturn threatens their employees’ and retires’ financial future.
 
Most of those 6,000 state and local public pension plans could make the switch to an Alternate Plan. State and local public employees should demand their employers at least explore that option.

Democrats have long sought to make the federal income tax even more progressive than it already is — and it is very progressive now. But there is an additional progressive income tax – a tax that most people don’t really know or think about – and it primarily punishes seniors, imposing a sort of tax double-whammy on them. 

Seniors who are 66 years old – the current retirement age for Social Security benefits – or older can begin receiving their Social Security benefits and still earn incomes without incurring an earnings penalty. (That penalty applies only to those who begin taking their Social Security benefits early, between the ages of 62 and 66.)

But if seniors who have reached the full retirement age continue working, or if they have other sources of income (e.g., interest or dividends, pensions, royalties or profit from investments or IRAs), they may have to pay income taxes on part of their Social Security benefits. 

So, the government forces workers (and employers, since the payroll tax is split equally between them) to pay the Social Security payroll tax and then may tax the benefits when the government starts returning the money after retirement.

In other words, seniors may face two progressive income taxes. The more income they have, the higher their regular income tax rate will be. And that higher tax rate will be applied to a growing portion, up to 85 percent, of their Social Security benefits.

The practical effect of this tax on Social Security benefits is to rob seniors of some of the benefits they have worked for and are entitled to. And it’s not like the income thresholds are high.

According to the Social Security Administration (SSA), if a retirement-age senior filing an individual tax return has a total annual income (excluding their Social Security benefits) between $25,000 and $34,000, that senior will have to pay federal income taxes on up to 50 percent of their Social Security income.

If a senior’s annual income is more than $34,000, he or she will have to pay federal income taxes on up to 85 percent of their Social Security income.

For a couple filling jointly, they will have to pay federal income tax of up to 50 percent on income between $32,000 and $44,000, and up to 85 percent on income above $44,000. 

And the more income they have by remaining a productive member of the labor force, the higher the percentage of their Social Security benefit the government will tax.

Oh, and if they continue working, they and their employer are continuing to pay the Social Security payroll tax, even though those seniors are receiving Social Security benefits that are being taxed. 

And it’s not just income from work. Seniors withdrawing funds from a traditional IRA or other tax-preferred account must pay standard income tax rates on those funds — taxes the individual avoided, or delayed, when the money was initially deposited in the IRA or other retirement account. 

Those newly withdrawn funds count as income that makes a senior subject to the Social Security benefits tax. Here’s how the Social Security Administration puts it:

“Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).” 

So, a senior who is retired and isn’t working but is withdrawing, say, $50,000 a year from an IRA to live on will see part of his Social Security benefits taxed.

Some might argue that imposing income taxes on Social Security benefits encourages seniors to leave the workforce to make way for younger workers who need a job. But any such rationale – thinking that was part of the initial Social Security legislation that passed during the Great Depression, when jobs were scarce – no longer applies, and hasn’t for a long time. We need workers young and old, and now more than ever.

Of course, taxing Social Security benefits brings more money into a federal government that has for decades refused to live within the bounds of its tax revenue — or even close to it. So, it’s unlikely a spend-happy Congress will eliminate the benefits tax anytime soon, even if it does rob seniors of some of the benefits they deserve. 

Indeed, the bigger threat is Congress making it worse. Because if there is one thing the left likes more than a progressive income tax, it’s two progressive income taxes. 

Democrats must be soooo confused. They just aren’t getting as much voter love as they thought their federal spending spree would buy.
 
POLITICO’s Sam Stein is out with a revealing news story about the  Democratic disappointment. The title of the article tells it all, “Dems thought giving voters cash was the key to success. So what happened?”
 
The article correctly points out that Democrats assumed they could, in essence, buy votes with their multi-trillion-dollar giveaways to voters—giveaways that have garnered no Republican support.
 
But that voter love hasn’t appeared. Indeed, President Biden’s popularity is sinking lower than a snake’s belly in a wheel rut (as we say in Texas).
 
So are those voters unaware or just ungrateful for the Democratic largess?
 
Many Democrats think it’s the former. The article quotes a “top Senate Democratic aide” as saying, “It’s great to deliver and do things, but you have to actually go out and tell the f---ing world about it.”
 
But maybe there’s another reason for the voter cold shoulder. The article cites a new POLITICO/Morning Consult poll that indicates it may be the latter: “61 percent of respondents said they’d received the credit—a $300 payment per month for every child under the age of 7 and a $250-per-month payment for every child under the age of 17. But only 39 percent of respondents said that the payment had a major impact on their lives.”
 
So roughly two-thirds of those who received the child tax credit said it didn’t make much difference for them. That response mirrors what I’ve heard from several middle-class families who received the $1,400 relief check and/or the child tax credit. Why was the government sending them money when they didn’t really need it?
 
Good question.
 
And while many of these middle-class (and even upper-middle-class) voters think the government has a role in helping the poor, they see giving money to them as a waste of taxpayer dollars—and it is.
 
The good news is the article says some Democrats are beginning to rethink their vote-buying strategy: “It’s also compelling officials in the Democratic party to revisit the calculation they made in January. Giving people money may not be the dispositive political winner that they imagined.”
 
Here’s the takeaway from these massive federal giveaways: Millions of Americans don’t want or need to be on the public dole, but Democrats have put them there. Come November 2022, Democrats may find out just how much their spending spree really cost—not in money, but in votes.

As part of President Joe Biden’s American Rescue Plan that passed in March (with zero Republican support), the child tax credit was increased from a maximum of $2,000 per year to $3,600, beginning last July. An estimated 39 million households with 88 percent of U.S. children could be eligible for the money, according to the IRS.
 
At the time, Politico’s Playbook weighed in, “Democrats around the nation have one major job today: Make sure everyone they talk to knows that their party is responsible for hundreds of dollars that will hit the bank accounts of parents today.”
 
Politico dubbed it “The Art of the Sale.”
 
Essentially, Democrats pass legislation transferring billions—or trillions—of taxpayer dollars to millions of Americans, many of whom are not struggling financially, and then rush to make sure voters know who was responsible for that largess.
 
And then criticize Republicans who don’t go along. Politico revealed that the Democratic Congressional Campaign Committee issued a series of press releases attacking nay-saying Republicans. For example:
 
“GOP Rep. BRIAN FITZPATRICK fashions himself to be a moderate who seeks to solve problems — but when he had the chance to benefit more than 100,000 children in his district, he voted no.”  
 
Was that money to help struggling families, or was there another reason?
 
We think the other reason was vote buying.
 
Now Democrats in Congress are trying to reach a consensus on what to include in their $3.5 trillion spending spree. And they want to dictate to employers how much family leave they must provide employees. As Politico’s Playbook notes:
 
“The biggest bones of contention are over how many weeks of leave to offer and which federal agency should run it: the Social Security Administration or Treasury Department. If it happens, Democrats are optimistic they’ll be rewarded in next year’s midterms, particularly by female voters.” (emphasis added)
 
Buying votes is an old practice. But at least in the past, it was usually on a small scale and politicians mostly used their own money.
 
Today, vote buying has moved to a grand scale, and politicians are using taxpayer or employer dollars.
 
The irony is that the old-style practice that affected very few votes was illegal and despised. The current practice, which is intended to buy millions of votes—and elections—is both legal and cheered.

A Conversation with Amity Shlaes

June 4, 2020

Moderated by Tom Giovanetti

TG:      We're delighted you all could join us. My name is Tom Giovanetti. I'm the president of the Institute for Policy Innovation. We're a 33-year-old free-market think tank based in Dallas. I'd like to welcome you all to our Zoom policy briefing today. We've done a number of these over the past couple of months; and while it's not as good as seeing people in person, it is, at least, an adequate substitute.

I would also like to thank our friends at the World Affairs Council of Dallas/Fort Worth for co-sponsoring today's briefing.

Our briefing today is with a longtime friend of IPI’s, Amity Shlaes. We're delighted that Amity could be with us today to give us a historian’s perspective on our current situation, including the economic crisis caused by the COVID-19 pandemic, but also her perspective on some of the current civil disruptions that we're having as a result of what appears to be a pretty serious abusive situation at the hands of police. Some of Amity’s research into the Great Society is relevant to that as well; so it's actually very timely that we have Amity with us today.

Amity is the chair of the Calvin Coolidge Presidential Foundation as well as the author of five books, including three New York Times bestsellers. Among those are her wonderful book on taxes, The Greedy Hand, How Taxes Drive Americans Crazy and What to Do About It. Probably her best-known book is The Forgotten Man, a New History of the Great Depression, which also exists in graphic format, which is really fascinating just from a publishing experimental standpoint, and it's great fun to read the graphic version if you've not done that already. She's the author of a biography called Coolidge and became such an expert on President Calvin Coolidge that, as I mentioned, she became the chair of the Calvin Coolidge Presidential Foundation. And, then, Amity’s most recent book is The Great Society, a New History, a look back at Lyndon Johnson's Great Society program; and that's the only one of these that I've not yet read, Amity; so that's next on my list.

In fact, last night I got the Kindle version of it, so I plan to dive into that as soon as I possibly can.

Some years ago, more than either Amity or I would care to recall, we had Amity to Dallas to speak at a luncheon when she came out with The Greedy Hand. We'd love to get her back to Dallas sometime in the near future; but for now, Zoom will have to do.

So, Amity, we are seeing unemployment numbers that parallel those of the Great Depression, and it's quite a shock to many of us who were enjoying a relatively robust economy to suddenly be seeing numbers and charts that have as their antecedent the Great Depression.

We've talked internally here at IPI about how for the rest of our lifetimes, people will look at some of these economic charts and they'll say, "What on earth was that spike?” Or, “What on earth caused that huge dip and drop?” And it's going to make for some interesting charts in future years.

Of course, the cause of all of this is very different than the cause of the Great Depression; but a lot of us are wondering right now, how quickly will the economy be able to get back on track? Are the actions that the federal government has taken helpful? Are they harmful? Are they adequate? And, of course, your research and writing on the Great Depression is very relevant here, and particularly your insights that government actions tended to extend the Great Depression rather than hasten an economic recovery.

So we're all eager to hear your perspective on that and other things that we're facing right now currently. What the federal government should be doing. The great dangers of the wrong things that the federal government might do and make things even worse.

So, with that, I'm very pleased to turn things over to our dear friend, Amity Shlaes.

AS:      Thank you, Tom. I am very grateful to Tom and to IPI for several visits; and, also, I will say to the Bush Library and President Bush, 43, for some time I spent in Dallas working on high school economic debate and other economic projects with the presidential center and library.

I'm very happy to talk to Texas. It's an important place for me, but I would also like to welcome all non-Texans who are appearing on this show, so it'll be great.

We're looking at the numbers, and we're explaining them—what—to our children, ourselves, our grandchildren; and unemployment is well over ten percent. That is a very high number. Anything over ten percent, particularly well over ten percent, recalls the 1930s and the Great Depression. That is—as most of you know, but I'll remind just in case—that is the point when we had double-digit unemployment for a decade. There were a few blips of non-10 percent unemployment, but just about rest of the time, it was 10 percent.

That double-digit unemployment for a decade was what put the word “great” in the phrase the Great Depression. No question about it. But, of course, in the same period, we saw the market go down. The peak of the Dow in 1929 was 381, which was real high for the period. It had been 200 or 100 just a few years before, so the market crashed, as you know, in 1929. What's remarkable is that the market did not come back to that high until well after World War II.

So the younger people on the show today, I think most of us think an ever arising Dow is now our birthright. That was not the case, say, for people born in 1920. They had to wait until they were adults to see the Dow come back to the 29 level.

That was quite disconcerting to see the Dow down that long. So however you write it, the Great Depression was great.

But sticking to the unemployment, as Tom hinted, these are data points; and a few data points do not a Great Depression make, even if they are “Great Depression” level data points. There were many other points in American history we know now, by going back and doing some math retroactively and maybe running some regressions, that there were a number of points in American history when unemployment was over 10 percent, it's important to understand. One would be in the early ′20s, for example. That's the Forgotten Depression, which F. Scott Fitzgerald described in The Great Gatsby.

We think of The Great Gatsby as describing the 1929 crash. The Great Gatsby was, however, published in in 1925. Tell every high schooler that. So it was describing the downturn in the early ′20s. The unemployment then was terrible. It was just brief and probably not publicly known. That's the second point that's important to note.

A number only matters when it's well known and publicized and carefully, publicly quantified. We wouldn't care so much about unemployment if we didn't have the ritual of the Labor Department or the BLS quantifying with great fanfare, say, on Friday mornings. Until recently the government didn't quantify unemployment every week and month. It didn't even quantify unemployment as Roosevelt came into office.

So those previous 20 percent unemployments, which we're pretty sure existed by using other math or by going to look at state data, aren't well known which makes the Great Depression better known, and it makes it seem rarer.

You can find three or four points when unemployment was pretty likely 20 percent in the United States, we just don't know about it because it was never officially quantified in that way, and because it wasn't in the interest, necessarily, of the history book writers to publicize the data retroactively.

So think about that. When you give someone a number you give them an argument.

What was it about the Great Depression that made the Great Depression great? I tend to anthropomorphize. Recoveries are like people. They make choices. And from 1929 to 1940, every year, the recovery took a look at the United States and decided to stay away. All things being equal, the recovery wants to come back, America wants to grow. The recoveries do make choices, and the recovery said, "Not this year. I'll sit it out.”

Why was that? Usually for a different reason every year, always, though, bad policies. So we've had some debates. Tom and I've even had some debates, and I think with Dr. Savings, for example, about the monetary issues in the early ′30s. Some of us call it “deflation,” some of us call it “a credit crunch,” some of us have other terms to describe what happened in the early ′30s. You can be in the Kindleberger school or you can be in the Barry Eichengreen school or you could be in the Milton Friedman school or you can be in the Austrian school and have a different explanation for why things were bad then, and people had to print their own money. There was printing of money, making up of some script, including in Texas.

Anyway, something was wrong with the money in the banks. There's a lot of general consensus on that. But you cannot explain the Great Depression by monetary. You can explain the first part of it by monetary and banking.

I would argue, say, 32 to 40 other factors mattered more, though monetary always played a role.

I do think—I will emphasize—I think the monetary fight is divisive and obscures from us the real problem.

Other causes of the duration of the Great Depression, of the duration of that unemployment that made the Great Depression great. One was labor price. We were never allowed to argue that in school, but truly the labor price in this period, the cost of employing someone, was too high.

So what will an employer do when he's not in a crunch, and he doesn't get payroll protection money, necessarily, or he gets the wrong kind of payroll protection or forgivable loans (to use the current vocabulary)? Well, a sensible employer who shorts profits, who shorts revenues, who's having lower sales will reduce wages. Right? Because we all like the people we work with, and turnover is very expensive, and retraining people is very expensive, and we don't want to cause heartache.

That was the tradition in the United States up until 1929. That is what happened in recessions. Employers went to employees—and many of you are employers—and said, "Gee, this year I can't pay you quite as much or give you the raise.” Or ,“I'm going to furlough you for a time, and hopefully you'll be back by Christmas.”

In the Great Depression, we had a different philosophy; and, here, the blame and responsibility starts with Herbert Hoover, so it was a bipartisan, different philosophy which relates to what we would call Keynesianism today. We said, "Let's pay everyone as much as we can because then that will stimulate demand,” which was then a new concept. It was sort of proto-Keynesian because Keynes hadn't published all his great works by the early ′30s; it was the mid-30s that he did. “Let’s pay really high, and let's force or pressure or use moral suasion upon business to make business pay higher wages than otherwise might in this very difficult time.

So Herbert Hoover exhorted business to pay high wages even though business had less money, less money coming in, and signed laws that put upward pressure on labor price such as the Davis-Bacon Act, which you may have heard of. It sounds obscure, but, actually, of course, has an effect on government contractors, who, of course, were proliferating in the New Deal period when there was a lot of government work relative to the past.

Then other laws from Franklin Roosevelt, who was the president from 1933, also put upward pressure on wages. You think, “Oh, Texas is a right-to-work state.” In those days, all states were union states. That was before the Taft-Hartley law which created the right-to-work option for states. So every state was a closed-shop union state; and the president backed the unions, and the unions demanded very high wages. So companies were really under stress.

They had to pay high wages or they had violence. (Think of today.) They had actions. They had the sit-down strike. And the administration—that would be the Roosevelt Administration—was on the side of the unions, clearly. The NLRB was a new and powerful thing.

So if you look at a chart of the 1930s, what you see as an employer is that wages were unnaturally high for such a slow economy, tragically high, because that meant people couldn't be rehired. You think of the truisms, “Nice work if you can get it,” or you think of what your grandparents said, particularly in the non-agricultural area, “If you had a job, you were alright” for your parents. I heard that over and over again. It was alright in the Great Depression if you had a job. The trouble was getting a job.

That phrase conveys what was real, which is the rigidity in the employment market due to the pressure for high wages. People didn't hire easily. It was a break in history.

And if any of you are really interested in data on that—this is suddenly a controversial thing to say though it's patently true—there are two economists I recommend. One is Lee Ohanian at UCLA. Maybe he's spoken here. And another is Harold Cole. And they chart the whole century and show that the government and the unions, basically, insisted wages be high; and, therefore, the unemployment in the 1930s was that much worse, that much more egregious. So I want to mention that.

A couple other factors, what made the Great Depression great, and we can go into all the detail. One was regulation. And when I say “regulation,” I really mean regulation.

You're in Texas. One of the things I read—and that's in my new book The Great Society about Lyndon Johnson—was that there was a lot of plowing under crops in order to curtail supply—quirky economics in order to drive up price, and that the mules of Texas refused to plow under or step on the crops like the mule drivers were hoping they would because the mules had been trained to be very careful about the tender plants, right? Animals learn well, and they knew that they weren't supposed to step on those darn plants.

And if you look up about Lyndon Johnson, you'll see as congressman or head of the National Youth Administration, he was involved in the curtailment of supply, perverse in Texas, of course, at the behest of President Roosevelt and at the AAA within the National Recovery Administration, which was sort of the industrial counterpart, right, the great authority that managed the US economy—if you can imagine they actually had the chutzpah, the hubris, to try to manage the US economy in the name of recovery. There was just very heavy regulation written by suspect parties.

So every interest group got in there and said, "We're creating an institution to bring back recovery. By the way it's going to support our interest.”

What do I mean by that? The supermarkets got control of the poultry regulation, and they rigged the poultry regulation to favor the supermarkets, not the old-fashioned live poultry shops or the little shop where you used to buy your chicken. And that killed the little businesses. Just now, as you see Walmart winning or mail order winning relative to the specialty shops because of the arbitrariness of the COVID culture.

The COVID culture, in fact, really does recall what it was like in the New Deal, in the absurd arbitrariness of it.

And this, too, I will mention, ladies and gentlemen, is deeply controversial for me to say, even though they recognized that at the time and said so in the newspaper.

Last summer, I wrote a piece about chicken regulation in the New Deal, and how they ended. In the name of recovery, the decision was that customers could no longer pick their chicken. No consumer choice. Because consumer choice slowed commerce because the consumer took a long time picking his chicken. (These would be live chickens.) And that's just crazy. As we know today, customers relish choice. It's the basis of the business, Starbucks, right? Whether you have foam on your latte or not is your sovereign right, and that's what drives you into Starbucks.

Anyway, the New Deal laws regulated to the nth how businesses acted, often perversely, and made a lot of rules; and I argued about that, and I got attacked last summer by a Harvard law school professor named Mark Tushnet, who said this just wasn't true, and that I should never say this, and how dare I say this, when evidence, of course, is there right in the testimony of the court cases about the New Deal.

So, even as we've known one another, Tom—and this audience and I have known one another—saying the obvious factual story, repeating the facts that we knew, has become more controversial, including in economics.

The third factor that made the Great Depression great was the uncertainty of a large government. And COVID makes that all so much clearer to us, again. You don't know what they're going to do. Are they going to want masks? Are they going to say masks are useless? Are they going to let us open? Are they not going to let us open? And, of course, business will always freeze. It will freeze because when there's an elephant in the room, like a big regulator for health or economics, that slows recovery as well, in tragic fashion.

There was an economist I love very much named Benjamin Anderson. Anderson wasn't a marginal economist. He was the chief economist of Chase, the bank. And he wrote a wonderful line that applies today. He said, "What caused the Great Depression and made it great? The government decided to play God.” It was due to the government’s decision to play God, to assume it could do more than it could and demand of its people the authority to do that.

And, then, even better, he said, "When the government saw that playing God didn't yield the recovery that it had promised, it then did not cease to play God. Rather, the government resorted to playing God more vigorously.” And that reminds us of 2008 and the multiple rescues or the multiple rescues now vis a vis COVID. When government fails, it doesn't give up playing God; it plays God more vigorously. I like that very much. I think I'm going to make a crossword puzzle out of it or else at least a jigsaw. Play God, and then play God more vigorously.

And, I'll say just one more thing: You know my Great Society book is new. I'm very proud of it. As many of you may know, there's a lot of Texas in it. But the story with the Great Society is the same: The government played God, didn't get the result it sought, so it played God more vigorously. That was the Great Society.

TG:      Well, Amity, it's no surprise to me to learn that the mules in Texas were smarter than the policymakers in the federal government. I'm not at all surprised by that, not one bit.

And, you know, so much of what you talk about reminds us of Hayek's knowledge problem, which is government bureaucrats assuming somehow that they have big enough brains, and that they have enough information to manage a system as complex as a national economy with, today, more than 300 million people acting in it; but, back then, certainly, a couple of hundred million people acting in the economy.

And this one of the things that I just love so much about your book about the Great Depression. It would be funny if it weren't so sad, right, some of the stories and some of the anecdotes about things government tried to do to tell virtually every sector of the economy how it ought to be operating. Bureaucrats showing up telling farmers how they should be plowing their fields. And in most cases a bureaucrat who had never plowed a field in his life, but thought his brain was so big and his access to knowledge was so great that he knew better than the farmer what they should be doing.

AS:      Well, what's interesting today—I mean, think about COVID and the authority of government. First, government told us not to worry. Then government told us not to wear masks. Then government told us that ventilators were the only answer. Pretty soon it was discovered that the mortality rate on ventilators was terrifying, and if you have any health condition, you've thought about that and whether you're going to let them put you on a ventilator and whether your spouse will be there to fight for you (probably not because you have a contagious disease), and what are you going to do to resist that ventilator because x percent, which is a very high one, die in those darn ventilators.

But this has all been a learning curve, and clearly the government knew nothing at the beginning, the state governments, the hospitals, even the doctors because this was a new disease; and, yet, the government, after so many errors, these governments still claim authority as if it had a perfect, sterling record on this health crisis.

So that was the New Deal. Every time something didn't quite work out or looked very embarrassing, the government would actually strengthen its authority and move on to the next project.

And I hadn't really remembered it so well till this spring when we went through COVID, which reminded me.

TG:      You know, it’s interesting to me: If they would simply acknowledge that they didn't know and that they didn't have the answer, I, at least, would have more respect for them; but somehow when you have a bureaucratic title with the government, you're not allowed to do that. You have to always be giving the impression that you have this huge amount of knowledge, and that you're in charge.

The mask thing drives me up the wall; but, you know, one of the original sins in the whole COVID-19 thing was the CDC botching the first round of tests, right? So, we place this enormous amount of trust and reliance in our “betters” in the federal government; and, in fact, it was they who dropped the ball at the very beginning, not the people. It was the specific government agency that was tasked with being able to manage that one bit of competency, and they weren't able to do it.

AS:      That’s right. You know, I'm the chairman of the Hayek Book Prize, and there should be twenty Hayek book prizes because he explained—even though he himself was an academic—the fallacy of assuming that you can know everything. Because, essentially, those of us who are in business get feedback from the market all the time. If we have a retail product, we know in one day that the market likes or doesn't like it, and what the market does or doesn't like about that product. So, overnight, we can edit the product and come up with Version 2 tomorrow.

Hayek was essentially saying the government doesn't get much feedback. It gets elections every four years for president, maybe two years for congressmen, six years for senators; and, also, it's insulated because many government politicians only listen to interest groups, so they have a little bit; but they're basically insulated. It's like the government employees now who are going to be the last to be laid off so they don't understand the damage of the layoffs they are causing through shutdowns.

So, yeah, I do think Hayek is our philosopher. He's certainly the philosopher of the Great Society book too. In fact, he's a character in the Great Society book. He was there.

TG:      You know, you were talking about ventilators, and I'm thinking about the speed of government. You know, right now, there are bureaucrats right now still issuing contracts for the manufacturing of ventilators. And three years from now, there will still be some company out there making more ventilators than we actually need on a federal contract, even though we've already figured out the lack of ventilators was not the problem. Again, because government doesn't respond to incentives the way private sector businesses do.

AS:      Well, and you look at Benjamin Anderson. This the economist I cited about playing God. If you take anything away from this, say Benjamin Anderson. And I want a say a thing about the United States related to that and COVID.

I really fell in love with Benjamin Anderson, who was like Hayek, but from America in the 1930s. His book is called Economics and the Public Welfare, and it's a little dense, but it does talk about playing God. And no American economist I knew had ever heard of this guy, even though he was so important and the Chase banker.

One day, my phone rings, and it was a Russian economist working in the Kremlin. And he said, "Amity.” But he didn't; he said “Emity” because he had a Russian accent. He said, "Emity. Anderson,” and I couldn't understand what he was saying.

Finally, I figured out he was saying “Anderson.” He said, "We read Anderson in the Kremlin.” America doesn't read Anderson, but it explains everything.

So that goes to show you sometimes we don't know enough about ourselves. It was the same people in the Kremlin who read Hayek and tried to make Putin have a flat tax or whatever free market counseling he got, they read Anderson and Hayek to Putin. It was Andrei Illarionov at the Mont Pelerin Society, in case any of you know him. He's active in the Mont Pelerin Society and, I think, at Cato.

And I couldn't understand. He was saying, “Anderson, Anderson.” He had read all about the Great Depression and knew more about it than most tenured professors in the United States.

TG:      That is really fascinating. Since you brought that up, I remember, actually, Boris Yeltsin talking about a flat tax during the time that Boris Yeltsin was in place; and I can remember thinking, "You know, there may be some merit to just blowing things up and starting over again if it gives you an opportunity to consider policies like that.”

AS:      Sometimes outsiders understand the US better than we do. We're provincial.

TG:      Yeah. Yeah.

AS:      I don't know much about Benjamin Anderson. He died soon after World War II or soon after the Great Depression.

TG:      So, we're talking about the Great Depression, but, of course, what we're all thinking about is a current situation. They are very different, as you pointed out. We would not argue that the government caused the Great Depression, I don't think. I think you would argue that it extended it but didn't cause it; whereas, when you look at the current situation, government caused it, right? I mean, government ordered businesses to shut down. Government banned people from getting together and engaging in commerce.

And so, from my standpoint, looking at it through a policy lens, it looked an awful lot like a “takings” to me where the government literally tells businesses they cannot operate. And, so, when programs like the PPP, the Paycheck Protection Act, were proposed and when the Small Business Administration's—I think it was called the EIDL, the Economic Emergency Loan Program, or whatever. When those programs were first put into place, in my view even, though I hate big government spending, and I hate government bailouts, in my view, there was at least some logical justification to that since it was the government that shut things down in the first place. I wonder what are your thoughts and what was your evaluation on those programs, on the PPP program and on the EIDL Program, recognizing, of course, that any time you have a program like that, you are opening the door to fraud, and you're opening the door to people who don't actually need money taking advantage of the program and things like that.

AS:      Well, I have the luxury of not sitting at the Fed or the Treasury—and it's so easy to kibbutz from the sidelines, is it not? —and not working for an administration facing an election. But my concern for the future of America is inflation and property rights. Probably property rights even more than inflation because property is what's hurt by inflation.

And the absolute disregard for the importance of property, the meaning of property, and the benefits of property during COVID and after—you know, this week with all the social unrest, it's the same.

What do I mean by that? A forgivable loan. What does that mean, a forgivable loan? What is that? It's a loan that you might get forgiven so you are going to accept a large amount of bureaucracy on the bet that you get to keep the money. That is creepy because it undermines contract. Contract should be clear. It's a loan, or it's a gift. One or the other. Or the conditions are itemized in the contract. “You will be forgiven thus and thus.” It's not quite like that. Those forgivable loans depend on the mood, the whim, of the regulator, do they not?

TG:      Well, that's actually a great point because, in fact, they've already modified the terms a couple of times on that program, even in the middle of it. So, literally, there are people who took some of those funds, and then after they received the funds, the terms were changed.

AS:      That’s so right, and it's so creepy. At the Coolidge Foundation, we had to decide whether to take support. We're a non-profit, and I was told by many people we’re eligible for support.

Coolidge didn't like government money. We’re not even a library like the Bush libraries in the sense that we don't receive federal funding to help us with our archival and research work. So our board chose not to take the money, and I'm glad because we don't have the staff to manage the bureaucracy of government loans.

I would have to hire a person to manage that. We’re so small. We’re one of those small businesses, right? And many small businesses are in that situation.

So, you know, what you're getting at is—what does this remind you of? This reminds me of the ′70s, Tom, not the ′30s. That is, it's going to be a little bit of time before unemployment goes down to lows because all the protections and payments we've made make it harder to want to go back to work. Employers are paying people who aren't working out of payroll protection money, so they're not very interested in working. Working doesn't look that attractive in some parts of the country. The data suggests that many people are getting more money not working than they did working, which is, you know, a very classically dangerous situation as was true in the United Kingdom in the ′20s when the term “dole” became a pejorative for that reason, a deterrent to work.

So I think of this as more of a spongy period to come like the ′70s, with an assault on property rights because even without the current protesters saying, "Property doesn't matter compared to lives,” property rights were already under assault, and property and lives are related. It's not an either/or. When you hurt property, you hurt lives right.

TG:      You destroy someone's business, you destroy their livelihood, which is certainly related to their life.

AS:      And just because it's not dramatic—there's an asymmetry of result. OK, you see someone die on television; it's the most tragic thing in the world. He died in front of my eyes, right?

You see someone died five years later of alcoholism because his business failed, that's a very slow death. It's not dramatic. But it does happen. So, while we can't ever condone violence, we have to respect the personal damage that came from this situation as really terrible, tragic, and even fatal to some.

Coolidge said personal rights and property rights are the same thing, and I'm tending to believe that. But that's turned out to be a radical thing to say.

TG:      It is a good example, though, of the economic principle of that which is seen versus that which is unseen, right? You ran into the same thing with COVID-19, right? So, what everyone's focusing on is that which is seen, which is the number of cases, the number of deaths, and all that sort of thing; but no one's looking at that which is unseen, which is the people who are almost being forced into clinical depression, suicides, long-term health problems that may take decades to play out because of that time period; but everyone's wrapped up in that which is seen, and they're totally ignoring that which is unseen.

Well let me ask you this because I find this fascinating. You and I both have the benefit of—as you said—being on the sideline and sort of, you know, tossing our opinion out from the peanut gallery; but in a situation like the COVID-19 pandemic, what do you think was the proper role for the federal government? I mean, if the government forces businesses to close—I suppose one answer would be don't force businesses to close, right? But if the government thinks that there's a compelling public health reason to force businesses to close, does the government not have an obligation to those same businesses?

AS:      I think guidance would have been enough. It’s very hard to watch. You watch Sweden, for example, the country that had the least onerous controls, and there were more deaths. Were there more deaths net, or were there just early deaths in Sweden? We don’t know.

I think the general policy—I mean, supposing, we discern fairly early that vulnerable people, which is to say people our age and older, Tom—

TG:      Thank you so much for that, Amity.

AS:      —vulnerable people—most of us on the call—that needed special protection, and I think what I would have opted for, were I God (but I never wanted to play God or be God), is to take the $10,000 you give 10 people in payroll protection, and give it all to the super vulnerable, and let the other people work; and help the vulnerable get an extra room in their apartment, get an extra place to stay, get a different office. I would have gone that way. Devote incredible resources to the vulnerable and isolate them in the kindest way from the rest of the population because we hurt young people when we do not allow them to work for six months. No question about it. We hurt young people and create drug addiction or foster drug addiction when we take them out of high school and they don't have anything to do. That's my view. It's controversial, but I don't think the whole society should be hostage to the needs of this group, but I do think the group should get far more resources than it's gotten so far. You know, channel all the resources toward the vulnerable group.

TG:      And, of course, the problem with when the government takes top-down action is it sort of precludes any sort of bottom-up—

AS:      Tocqueville’s being crucified over and over again, or he’s rolling in his grave, right?

TG:      Yeah, that's exactly right.

AS:      The America that we know as the strong America is completely disregarded by this process this year.

TG:      Yeah, and, again, you do feel like, OK, so it's true that we don't know what we're up against in the early days, right? But then the question becomes are we more likely to figure out quicker with people making real-time decisions from the bottom up, or are we more likely to figure out what's going on with decrees being given to us from the top down by government bureaucrats?

AS:      I know. The happiest point for me was I read a University of Chicago study that came out in the middle, and they said we found this alternate way to treat a certain subset of COVID cases. We have hyperbaric chambers and oxygen masks or something like that. Something with oxygen but less pressure than a ventilator. And guess what? Our patients all lived. And I thought, "Thank goodness! Someone's is innovating.” He might be wrong, but he's trying.

It’s a pretty solid study. And I'm not an epidemiologist; how would I know? But there was a kind of Stalinism to the initial approach.

And I'm from New York. I raised my children in New York. I love New York. I think it's one most wonderful places ever in the history of man. So I will say to Texas, some of New York's troubles had to do with the fact that it was the very dense place and the first place, so sort of the bottom of the learning curve.

So I spend a lot of time with my Republican friends, especially, defending New York—

TG:      I'm sorry. In New York you have Republican friends? Are you saying you have Republican friends in New York?

AS:      No, no! I mean New York was there first, and they had no idea what to do because it was the first city after Seattle, and some of the other states did have a little bit of benefit of observing what damage density could do in New York. And now I'm making some enemies, so we better move on.

TG:      Well, I've never been more grateful to live 35 miles from a major metropolitan city center as I have for the past couple of months, I have to say.

Amity, I want to ask you a question about your new book about the Great Society. You and I talked yesterday in preparation about your new book about the Great Society, and you said that you thought it was your best. So tell us a little bit about your book.

AS:      Very briefly. Great Society is a new history of the Great Society of Lyndon Johnson. Great Society is the history of the 1960s. I include Kennedy and Nixon, who expanded Johnson’s Great Society.

I thought it was my best because I focused on the competition between the public and the private sector. Everyone wanted a Great Society, the only question was, how do you get it, through the public sector or the private sector? We opted for the public sector. We said the government's going to take us from good to great. The private sector was pretty darn impressive, and much of the greatness we got for America in the 60s and subsequent came from the private sector, so I kind of have two dueling forces.

And I'm proud that I was able to study companies. Three companies in the book are GE, which is the old-fashioned company; Fairchild, which became Intel, of course, or at least some of it; and Toyota, the challenger to the auto industry and the auto unions, specifically.

So that was the first time I've been able to really cover business in the way I liked, and I hope you guys take a look at that book. I'm going on the Bohannon show, the radio show, tonight and a couple other radio shows because a lot of Great Society is about the riots.

Something very interesting. There's a long portrait of John Connally, if any of you knew him.

TG:      Yeah. That’s part of what I'm eager to dig into because I think a lot of folks, especially a lot of folks here in Texas, have almost sort of forgotten how influential and important John Connally was and what a player he was going all the way back there, all the way up through his campaign for president against Ronald Reagan for the Republican nomination.

You know, Amity, you made a reference a little earlier that some folks have taken issue with some things you've said. For the left, their narrative about the Great Depression, I mean their New Deal narrative and their Great Society narratives are their great, heroic stories, right? I mean, this the myth making for the left that it was big government, and it was government programs and government agencies that got us out of the Great Depression; and it was big government through the Great Society that that tackled poverty, and that made us a more socially just society.

So if you're going to go back and challenge those narratives, you're challenging the hero stories for the left.

AS:      That's right. But, you know, hope is not a policy. Hope is not a result, more importantly. So because something is inspiring—“The only thing to fear is fear itself”—doesn't mean it's a good policy.

All hope is, when an executive summons people with hope, is the executive hoping for license to do whatever policy occurs to him, really, often.

The part with John Connally is hilarious because I will say some things about John Connally at the risk offending some of you who may have known him better. John Connally was a bully. He was a bright man who did a lot. He helped in education in Texas mightily as governor, and he was amusing and inspiring and scary at many points.

He tangled with the Office of Economic Opportunity, which was the poverty office of Washington in the Great Society, built to stop riots, like the kind of institution we're about to build today. The poverty office had a lot progressive programs, and one of them involved higher wages in Texas. And Connally, as governor, said, basically, “We in Texas can't pay wages that high. We’ll lose business.” This was after Taft-Hartley. “One of our advantages is that our wages are lower.” And Washington could not believe that, that a governor wouldn't advocate for higher wages in his state. What is that? But Connally was absolutely right. I believe he vetoed one of the Great Society programs. Governor's had that right. He offended the authorities in Washington as a, I guess, conservative Democrat; and he wasn't afraid to.

He told Johnson's team that he thought Johnson's make work-projects—because there were plenty of make-work projects in the Great Society, as in the New Deal—were just a “boon dog.” That was the phrase he used. He didn't say “boondoggle;” he said “boon dog,” which is a term I’d never heard, but sounded good to me. A boon dog, by which we all know exactly what he meant, which is to say a make-work project, not one that adds value to the US economy.

So that was funny. And, then, it's curious, right? I mean, first of all, he had a halo, having been wounded when president Kennedy was killed. So it was hard to criticize him. And very attractive as a political candidate and Richard Nixon made him treasury secretary—I didn't remember this—in the hopes that they would have a fusion ticket, Nixon/Connally in ′72. Nixon was a very political animal, and he thought that'd be awesome to have a fusion ticket, and he could win and end the war in Vietnam or whatever. But in order to prove his goodwill to Connally and his willingness to give Connally authority, he put Connally as treasury secretary in charge of the US economy.

And it was Connally who kind of wrote the stage plan for the 1971 Camp David New Economic Plan or Economic Shock as it was called, the Nixon Shock, is what the Japanese call it.

So they came down, and as you many you know, in August 1971, with a new economic plan to get the economy going in time for the election in 1972; and it was one of the world's worst plans because it was so economically redundant, inconsistent, and awful. That was the Wage and Price Controls, the simultaneous severing of the Gold Exchange standard, new tariffs, and also internal supports for automakers through subsidies for car purchases; and you may know more. But was just a bunch of stuff written to appeal to voters that even contradicted itself or was redundant.

And in the book, I write about the policies, of course, and how poor they were, and I suggest they would give us the ′70s, which they did, that economic purgatory. But, also, I spend a lot of energy detailing how John Connally tortured Arthur Burns, the fed chairman, which he did with Nixon's gleeful acquiescence.

History is about people too; and Arthur Burns, the fed chairman, probably didn't want to go along with ending the gold standard, but he went along because John Connally terrified him into it. It’s an amusing story, albeit a tragic one in outcome.

TG:      Yeah. Let’s go to some audience questions. Our first question is, “There's a book that makes the point that Roosevelt really failed at everything he tried except politics. Do you agree with that?”

AS:      Well, like John Connolly, Franklin Roosevelt was a political animal. I don't even think you need to take down the person or build him up. I tend to go for the policy. Franklin Roosevelt's economic policies were awful. That's because he didn't really care about economics or business. It just wasn't in his nature. He was a pretty good sailor, and he was a Navy president. So there were things he did in World War II many of us could support, but he was a better commander-in-chief than he was president.

So, yes, I you’re speaking of the Burt Folsom book, I think. There's also a good book by Jim Powell.

I really give Roosevelt terrible marks for the most important job he had in the Great Depression, which was getting us out of the Great Depression. But I try to not ever assail people, and just look at the policy. Roosevelt was just unwilling to be aware of how economies work.

TG:      The next question is, “Why is it that economists still look at the unemployment rate when, in fact, wage growth would give us more accurate unemployment numbers?”

AS:      Well, you know why economists focus on a better number. It's because they want to please the politicians or the companies they work for, right? So they'll always look among U6 or U1 for the right one, and select the one that suits their government.

Not all economists who work for the government are creeps, but there's enormous pressure on them to supply the number that their administration seeks, of course. So they'll go among the numbers and pick the favorable one.

And I do care about labor. I care about productivity too. So you want to look—are people getting a higher real wage? What's getting in the way of that wage? Sometimes it's taxes, you know, take home pay. Sometimes its productivity.

So, I agree with you. There's a kind of tyranny of the unemployment data right now, and often the wrong number is the holy number.

TG:      Okay. Thank you. Our next question is, “What would be your projection of how the unemployment rate will become better?”

AS:      Oh, gosh. That's why I mentioned the ′70s. I think it's going to be a long time before we get back to the level we had—the astoundingly low level, if you look at one number—just a few months ago because the attractions of work are not that great and because the recovery of companies is not going to come as we imagine.

I think the sort of tragedy of the year that has yet to be written—after COVID and riots and sorrow—is the death of retail, the death of store/shop retail because with the challenge of online shopping, then the challenge of COVID, then now getting their windows broken, a lot of those retailers will never rehire as they did, in patterns they did.

So I'm concerned that unemployment will be ′70s-ish for quite a long time before and after the election.

TG:      Amity as someone who came of age in the ′70s, that's a very discouraging thing to hear. I hope you're wrong about that. The ′70s were not a good time.

Our next question is, “Do you think the government has gone too far by closing down businesses in an effort to keep us safe from the pandemic?”

AS:      Well, I think both in the current troubles in the cities and also with COVID, the perfect has become the enemy of the good. So the government made a tremendous error when it said it would keep Americans safe. Americans are never safe; they're just in a more risky or a less risky situation, right? Even in your own room with the door barred, you could fall down and break your head. So this idea that we can ever be safe is a false idea that we cannot advertise. Life is trade-offs.

There was an interesting article by Eddie Lampert comparing COVID to auto safety. Autos are never safe; they're just less risky or more risky, right? And as a country, we reduce to riskiness of autos over time by better construction, maybe by rules.

But this idea that we could be safe and that government could make us safe if we follow enough rules, that was one of the worst things ever perpetrated upon the American people to try to convince them that if they were good, we would be safe.

And it's sort of the same with the deaths in the cities. Nobody ever wants anyone to die in a police incident. No one. We want fewer such deaths.

But if we say we will never again have such a death—which is really what Black Lives Matters wants—we are deluding ourselves. We can never get to perfect; we can only get to better or good.

So that's why my book is called Great Society; it's ironic. Because we aimed for great, we didn't get even good.

So that that's my concern. The assumption is that government can save us. That's what the federal behavior around COVID has been. Government knows the answer. And to teach people that is to do them such a huge disservice.

TG:      You know, Amity, your comments touch on one of my pet issues which is that the primary job of government is not to keep us safe; it's to keep us free. Anytime we get those in the wrong order, we end up with wrong policy conclusions. But I do think most people think government's first job is to keep us safe. I think people look to the government to keep us safe, and that's sort of the original sin in this whole area.

Our next question is “When does hyperinflation kick in in the US?”

AS:      I don't know, but because I care about Germany, and I spent some time on it, I'm always concerned about high inflation. So I think the monetary crisis will come when the currency is challenged. And if we'd been here thirty years ago, we would have said the dollar can never be challenged. It's so deep. Its sovereign currency. Its currency of reserve. No one could ever make a currency except a government, and so on.

We know very well now that a company and a commodity could get together—maybe with the government maybe not—and make a currency that could challenge the dollar. What is the Bitcoin but the expression of distrust in the dollar?

So I think the currency will be challenged and then the interest rates will go up whether or not we call the devaluation of our currency that attends the rise of the new currency hyperinflation.

TG:      It is interesting, Amity, isn't it, that that many of us have been watching the actions of government over the last decade or so and have been thinking, "This has to inevitably lead to inflation.” And it's like one of the great mystery is that it hasn't yet, right? I think mortgage rates are actually at historic lows right now.

AS:      I have egg all over my face, and I’ve been consulting with any number of companies where I warned about inflation, and they called me two years later and said, "You were wrong. Give us back our check.” Not really. But I've been wrong about this, but maybe because my interest in Germany—I can't give it up.

TG:      The next question is, “Can you address low interest rates and the idea of a capital tax and the thinking that that idea is equivalent to zero or negative interest rates.”

AS:      Well, I'm not educated enough or knowledgeable enough about banking to answer this. But what is clear is that since 2008—and we haven't talked about 2008, but it's a big, big factor—playing with the government has been more important to many banks than playing with commercial borrowers, say, because of a variety of reasons which you're very familiar with. So when the federal government pays interest on reserves, that makes for disinvestment, illogical investment and illogical growth that's suboptimal; therefore, our growth is less good than we think it is. That relates to the previous question. The equity prices are higher than what the companies are worth. Same thing.

So all these distortions are the result of too much playing with the government. That's all I can say. My whole career has been about explaining complicated things to people who normally don't think about economics, and that's very easy to do right now because there's so many examples.

Here's an example I would give: There's a driving school where I am that was shut down, and it's laying off people because it lost revenue. We called the driving school, and we said, "We have a teenager who needs driving lessons.”

And the driving school said, "We can't take you because we have a contract with the high schools, with the government, to teach a hundred public school kids to drive. And we're waiting for the money on that contract, and we're waiting for those kids. So it'll be at least half a year before we can get to private clients.”

We, as a private client, might pay 50 percent more than the state will pay for its high school students; but our little profit, our little extra rent we were giving, could not offset the scale of the clientele of the government. They're not interested in us. They're interested in their one big mega client, the state, and all the counties, and the schools; therefore, the individual client and the individual market opportunity is lost.

That's the best way I can think of explaining how our market is right now. Decisions are not being made for profit, at least not one on one. There they're kind of being made by deal.

In the longer run, the driving school needs people like us; but they're so distracted by the big-government client and maybe the payroll protection and the forgivable loan, we, the regular client are not in the picture. And that's very Soviet.

If you've ever been to a Soviet restaurant, you go in and it's empty, and you say, "Oh, it's empty! I may I sit down?”

And they say, "No, the room is reserved for a tour group, so you can't eat here.”

That is, the small consumer and the obvious economic choice is shut out.

There was a wonderful book by Louis Brandeis called The Curse of Bigness. Louis Brandeis came at it from a left, anti-trust perspective, as far as I recall. The Curse of Bigness. It's a great title.

But The Curse of Bigness, in his case, he believed it was private sector bigness. The problem we’re discussing is bigness that exists because of government contractor regulation. Bigness that comes about totally privately, I'm not so concerned about because when a company gets big enough to prosecute for antitrust reasons, it's usually about ready to collapse anyhow because it's being competed with by some innovator. But the bigness of a government rent seeker or a government partner is much harder to undo and therefore more threatening, more pernicious. And, right now, we have an awful lot of government partners in our economy.

What I'm afraid of with the retailers—they're challenged by Amazon, yes—now they're going to have to double their insurance premiums. That’s a social policy caused cost. They have a minimum wage in many states that was to be fair to the worker. That's a blow they shouldn't have to absorb. We have arbitrary regulations in situations like COVID; that's a blow.

So I'm concerned about the little retailer, for sure; but I would argue that a lot of the blows to the little retailer are unnecessary. I mean Amazon may, one day, fall down of its own accord. That's what happened with past giants.

A hundred years ago, nobody thought the railroad would ever go down.

TG:      You know, Amity, the liability situation is a real concern because there are employers right now who are concerned if they bring their employees back and they get sick, they're going to get sued. And, you know, there's been some talk in D.C. about some sort of a limited liability shield or something like that. What do you think about that?

AS:      Personally, I think that's great. I know you've had some legal reform in Texas, am I correct?

TG:      Yes, absolutely. We have probably the country's best tort reform here in Texas.

AS:      And that tort reform improved business conditions?

TG:      Dramatically. Especially in the medical profession. You had doctors moving here from other states because their liability insurance was one-third the cost that it was in other states and things like that.

AS:      I have a question for you which is, what is the best way to educate young people? I had the honor to learn this week that Texas A&M made my new book a textbook.

TG:      Oh, wonderful!

AS:      They acquired a few of them, so I'm lucky. But what can we do for high schoolers and middle schoolers because they have never learned that property or contract is important unless their family is in business.

TG:      Well, look, I think you did something really sort of interesting and experimental in this area by doing a graphic version of one of your books. I think an awful lot of young people are not going to sit down and read a 250- or 300-page book on economics; but if it's a story, that's different. So I thought that's what was really sort of unique about doing a graphic version of your book.

So, you tell me. Did you have great anecdotes and stories about the way that the graphic version of your book was more accessible than maybe just the text-only version?

AS:      Well, the graphic book, I will say—you know, I really care about our grandchildren. So, I spent a quarter of a million dollars on this book—not all my money; but it was spent. Let's just put it that way—in order to make a cartoon history of the 1930s.

There are eighteen hundred images in. I thought it was awesome! I thought the artist was awesome! I can say it's awesome since mostly I didn't do it; the artist did it. He was great. His name was Paul Rivoche.

It was a bestseller. It was the number one bestseller in graphic novel, which is like a comic, but it's more serious. There have been a few breakthrough books in this category.

I will say most conservatives disapproved of this book because they thought that I was talking baby talk to them, which is not the case at all. I was just trying to reach out to younger people through cartoon. So I wouldn't say the book was a best-seller, even though it did hit number one for a week or two.

So I like this format, but I wouldn't say it's broken through yet; at least, not for econ. There was one about the Iranian Revolution called Persepolis that did breakthrough, and millions of kids learned about the tyranny of the Iranian Revolution through that cartoon book.

But I continue to believe in movies, TV, cartoons. Keynes v Hayek was a big success, and I could take suggestions because I think we are really going to have a challenge educating middle schoolers and high schoolers.

TG:      Well, you know, we could do another entire hour on the issue of culture preceding politics, but we probably shouldn't take that on right now.

I want to ask you one last question and that is, on some of the immediate civil unrest that we're seeing going on right now in the country, you touched on that a little bit about some of that going on in the ′60s and probably even during the Depression and New Deal era. Do you have any thoughts on what government can do? It certainly seems to me that riots end up occupying the space that would rightfully be held by peaceful protesters, and it certainly seems that you've got to clear away violent riots in order to create space for peaceful protests. But I'd be interested in your thoughts on that.

AS:      What I think is there was a phrase called “the long march through the institutions.”

Mao had a long march, right? He marched and marched; and, eventually, he ruled China through communism.

And the European socialists said, "We're not going to win on the battlefield, but we as socialists and social democrats will win by conducting a slow, long march through the institutions. And, eventually, we will be the top teachers, and we will train our country.”

In the ′60s, we had self-proclaimed revolutionaries, and they didn't prevail. Richard Nixon won. But they did undertake a long march through NPR, through the institutions, right? And the reason this happened is that our schools taught kids that property rights don't matter; that America is racist when it largely isn't or at least is less racist than it was in the past; that all police are bad when only some police are bad, a minority; that only blacks are victims of police violence, when that, of course, is not the case either. So, there's very little data out there to go along with the narrative. Who permitted that argument? Teachers, curricula, parents; but teachers.

So in the ′60s when you saw the marches, there were more genuinely poor people at that time, I will say in the North, particularly. Now you get the feeling, looking at the protesters, that they’re genuinely angry people. In the ′60s, you could say, "Well, if these people became homeowners, they would act differently.” “Homeowners are not home burners” is what was said in the ′60s by Father Kohler in St. Louis. “Homeowners are not home burners.” People who own property won’t riot.

Now you get the impression—and this just anecdotal, but you get the impression that the people who are causing the trouble are the children of homeowners, or the nephews, right? So, I would then say a lot of this about our own failure to educate Americans about where the value is and where the hope is.

TG:      That's terrific, Amity. Thanks so much.

AS:      I'd like to give a plug to the Coolidge Foundation where we have high school economic debate which we started in Texas with Texas teachers. So, we give kids briefs for both sides, and they argue the abolition of the capital gains tax and very controversial free-market arguments or Marxist arguments; and we also have a scholarship program for children, and they learn all about Calvin Coolidge, who saved money and was always civil and didn't believe in violence and who cut taxes.

So we concentrate almost entirely on youth at the Coolidge Foundation.

TG:      Amity, that's really terrific. We so much appreciate your being with us today. We love you, and we love your work; and you've made a wonderful contribution as a researcher and a historian. So thanks so much, and we look forward to getting you down to Dallas sometime soon.

AS:      In real life.

TG:      Yeah, when we're able to do those things again. I want to thank everybody who joined us today I want to thank those who made additional donations. That was very kind and we appreciate it so much.

I will wish you all health and safety, and we look forward to seeing you all again as soon as possible. Thanks so much and have a good rest of your day

In order to measure anything you need a standard. One of the problems in counting the number of COVID-19 deaths is the standard varies. Different countries, different states, different hospitals and even different doctors are using different criteria—in many cases their best judgment—to determine a COVID-19 death.
 
That variation may be unavoidable, given the lack of available coronavirus tests and some hospitals’ crush of patients.
 
But major public policy initiatives—including trillions of taxpayer dollars—depend on having an accurate assessment of how many people actually die from the disease.
 
And here’s an added complication: The government pays hospitals 20 percent more than traditional Medicare rates for a Medicare patient with COVID-19.
 
Take a look at the Centers for Disease Control and Prevention’s “Provisional Death Counts for Coronavirus Disease.” As of May 4, the CDC lists 38,576 deaths—about half the number we see being reported in the media. The CDC also lists 17,122 “deaths with pneumonia and COVID-19,” and 66,094 pneumonia deaths.
 
Now, the CDC is very clear that these numbers are “provisional.” The agency says it can take several weeks for some death certificates to be submitted, processed and tabulated, which raises a question about how accurate our current information is.
 
In many cases doctors just have to use their best judgment in determining the cause of death. The CDC’s reporting guidance says: “In cases where a definite diagnosis of COVID–19 cannot be made, but it is suspected or likely (e.g., the circumstances are compelling within a reasonable degree of certainty), it is acceptable to report COVID–19 on a death certificate as ‘probable’ or ‘presumed.’ In these instances, certifiers should use their best clinical judgment in determining if a COVID–19 infection was likely.”
 
The director of the Illinois Department of Public Health, Dr. Ngozi Ezike, takes, shall we say, a “big tent” approach. She explained that in her state, anyone who dies with COVID-19 will be listed as a coronavirus death, even if the person was in hospice and COVID-19 played little or no role in the immediate cause of death.
 
And then there are the two emergency room doctors who recently expressed their concerns about some practices. Dr. Dan Erikson said, “We’re being pressured in-house i.e., hospital administration to add Covid to the diagnostic list when we think it has nothing to do with the actual cause of death.”
 
FactCheck.org looked into the issue of the higher COVID-19 reimbursement rates in April. It agreed that the federal government is paying hospitals more for COVID-19 Medicare patients, but did not conclude there was evidence that the higher rate was encouraging fraud. And there may be no fraud.
 
On the other hand, the federal government has long complained that states and hospitals engaged in questionable practices in order to maximize federal Medicaid payments to the states. So it is a concern.
 
Congress is making big—not to mention costly—decisions based on how deadly the coronavirus epidemic is. We know it’s deadly. But given flexible and shifting standards, it’s not entirely clear how deadly.

News reports suggest that the Trump administration is proposing a payroll tax cut as a means of offsetting potential economic harms from the coronavirus.

Payroll tax cuts do have the effect of letting people keep more of their earnings, but we’re not enthusiastic about a payroll tax cut. For one thing, payroll tax cuts just don’t work very well as economic stimulus.

That’s because such tax cuts reflect Keynesian rather than supply-side thinking. Keynesian “stimulus” involves borrowing money to inject cash into the economy. And while more cash moving around might be a good thing, economic growth depends on new investment and business creation and expansion.

But we do have a couple of thoughts about what might come AFTER a payroll tax cut.

First is a concern: The federal government is flat running out of tools to juice the economy. Interest rates are already extremely low, the Federal Reserve has already tried quantitative easing, we’ve already cut corporate taxes and passed expensing of business investment. The toolbox for juicing the economy is just about empty.

Maybe it’s time for policymakers to start focusing on real structural reforms that result in long-term prosperity, instead of constantly relying on short-term fixes.

Which brings us to our second thought, an idea that we’ve proposed several times: Whenever a payroll tax cut comes to an end, that would be a perfect time to implement personal retirement accounts, which would begin solving our looming Social Security crisis.

Let’s say there is a payroll tax cut of 4 percentage points. Instead of simply reverting to the status quo at whatever arbitrary date politics determines for it to end, divert that same 4 percentage points of payroll taxes into personal retirement accounts, supervised by the Social Security Administration but invested in approved mutual funds. The payroll tax cut would remain, but the money would be going toward investment and wealth creation, which would actually help grow the economy.

They could even be called Trump Retirement Accounts. And eventually they would grow large enough to offset some or all of Social Security’s future liability to personal account holders.

All the hard work has already been done on how personal retirement accounts would operate, how they could be made absolutely safe, how they would allow low- and middle-income workers their first real opportunity to build wealth, and how they would rescue future retirees from Social Security’s eventual meltdown.

A payroll tax cut would be the perfect glidepath to implement personal retirement accounts.

The country could take a major step toward reducing wealth inequality, not by raising taxes but by letting workers save the taxes they are already paying. Yet Democrats have long opposed this option.

Listening to the Democratic presidential candidates, you don’t have to wait very long before they turn to the issue of wealth inequality. For example, Sen. Bernie Sanders (I-Vt.) claimed in the last debate, “we cannot afford to continue this level of income and wealth inequality.”

Note that Sanders cites both wealth and income inequality. The terms are often used interchangeably, but income (the money a person makes) and wealth (the total value of one’s assets) aren’t the same.

A person could have a very high income—former President Barack Obama’s threshold for high-income earners was $250,000 for a family—but spend it all and therefore have very few assets (i.e., wealth). Conversely, many people have significant assets but little reported income—perhaps because they inherited wealth or have retired with substantial savings.

Although many economists believe wealth and income inequality concerns are overblown, Democrats keep decrying it and then propose their favorite solution to virtually every public policy problem: raise taxes on the rich.

Both Sanders and Sen. Elizabeth Warren (D-Mass.) have proposed a “wealth tax” to reduce wealth inequality and to help pay for their many other spending programs.

A simpler solution would let workers keep—and save—a particular tax they are already paying.

Currently, 12.4 percent of workers’ income—half of which is paid by the employer and half by the employee—is handed over to the federal government to pay for Social Security. But the government doesn’t put that money in a special account for the worker until retirement; it immediately redistributes that money to current retirees, in what’s known as a pay-as-you-go (paygo) system.

The U.S. Supreme Court has ruled that no one has a private property right to that money. Congress can raise benefits or reduce them, or end the program altogether. And because workers have no property right to those funds, they cannot count them as assets.

How much money are we talking about?

Economists Eugene Steuerle and Caleb Quakenbush of the Urban Institute track what workers at various incomes and family status pay into Social Security and Medicare over their working lives and how much they can expect to receive.

In their 2018 update of “Social Security and Medicare Lifetime Benefits and Taxes,” the authors state that a two-earner family retiring in 2020, who earned the average income over their lifetimes, will have paid into Social Security about $600,000.

Had that money been deposited in a personal retirement account—similar to an IRA but with limited access and investment options—and invested it in a broad-based fund that mirrored the S&P 500, it would have grown on average about 8 percent per year, according to Investopedia. Thus, even average workers making those deposits, goosed by compound interest, over 40 or 50 working years would have significant assets at retirement.

And, of course, this personal retirement account would be separate from, and in addition to, an employer-provided 401(k) account, pension plan or a personal IRA.

To reiterate, this is a tax that every worker already pays. This proposal simply gives workers control over the money they have made.

One of the barriers to adopting this approach has been finding the money the government would need to pay current retirees’ benefits.

One option is a transitional approach that would allow people just entering the workforce to choose either a personal account or traditional Social Security. Those who stay with traditional Social Security would continue paying into the system.

Whether the government makes the transition slowly or quickly, it would need to borrow a lot of money to pay some or all current retirees’ Social Security benefits.

But more federal debt apparently isn’t a restraining factor anymore—at least for Democrats. Sanders and Warren are proposing programs like “Medicare for All” that would cost an estimated $3 trillion a year, as would Democratic candidate Andrew Yang’s universal basic income proposal.

Allowing workers to keep their Social Security payroll tax would be a huge tax cut for everyone, while dramatically increasing average workers’ wealth over time. If Democrats are willing to spend a lot of money reducing wealth inequality—as they say they are—personal retirement accounts are the most efficient, least costly and least disruptive solution.

Young Americans are currently struggling to repay an enormous amount of money to the federal government in the form of federal student loan debt.

And the federal government will soon be struggling to pay an enormous amount of money to young Americans in the form of future Social Security benefits.

Young Americans owe the federal government, which also owes them. And neither can easily meet their obligations. Sounds like the makings of a deal to me.

Both the federal student loan problem and the looming insolvency of Social Security are “known knowns,” in the parlance of former Secretary of Defense Don Rumsfeld, who served under George W. Bush, the last politician to even feint toward addressing Social Security.

At that time, the then-$100 billion in federal student loan debt was but a rounding error in the federal budget. But it has since exploded to $1.45 trillion and is growing by more than $30 billion each quarter.

Meanwhile, over the next 75 years the Social Security Trust Fund has an unfunded liability of $13.2 trillion.

These two crises pose a one-two gut punch to young Americans, who are not only starting life mired in significant debt but will also be the generation to suffer from Social Security’s insolvency. Absent a solution, their taxes will skyrocket and their Social Security benefits will be dramatically cut. A creative solution is needed, not only to solve the respective financing problems but perhaps even to prevent outright generational warfare.

The federal government has neither the means nor any plans to meet Social Security’s liabilities a generation from now. And no one seems to have a workable solution for the student debt crisis either, other than to lecture students about their poor decisions or to make irresponsible, impossible promises to forgive all student debt.

Now, clearly some bad decision-making has led to the student loan crisis, but it wasn’t only on the part of students. Yes, one should have known that borrowing $120,000 for a degree in gender studies or art history probably wasn’t a good investment. But most American high schoolers were told they needed to go to college, their parents were passive, their advisers sold them on these majors, the government profligately loaned them cheap and indiscriminate financing, and colleges happily mopped up the money. So there’s lots of blame to go around. The question is: Is there a solution that isn’t worse than the problem?

While most economic indicators remain strong, with unemployment at historic lows and personal incomes rising, some troubling indicators have begun to appear: most notably a decline in business orders and an inverted yield curve. It makes sense for the Trump administration to continue talking up the current economy while also considering actions to keep the economy going, as appears to be happening.

News reports suggest that several ideas are being considered, including a Treasury Department indexing of capital gains to inflation, which is a tremendous idea regardless of how or why it’s done. But another idea apparently being considered is a temporary cut in the payroll taxes collected to fund the Social Security and Medicare programs.

The idea that a payroll tax cut would stimulate economic growth is flawed, because it is based on the notion that growth is driven by consumption. “Put more money in people’s pockets” is the idea, and they will spend more, stimulating the economy.

Except that it won’t. Economic growth is driven by saving and investment, not by consumption. When businesses have easy access to capital and are reasonably optimistic about the future, they take risks and invest in new plants, equipment and employees. That’s economic growth.

Artificially juicing consumption isn’t a particularly powerful way to stimulate economic growth, as recent history has shown, and as IPI research found years ago. In fact, IPI’s work showed that a payroll tax cut is the least potent tool to drive economic growth. Interest rate policies and capital gains tax reductions have a much more beneficial impact on the economy than a payroll tax cut.

However... there is one possible silver lining to a payroll tax cut. A temporary cut in payroll taxes creates a unique opportunity to implement one of our favorite pro-growth policy ideas—personal retirement accounts.

Let’s say there is a temporary 3 percentage point payroll tax cut. When the temporary payroll tax cut expires, those 3 percentage points wouldn’t  just go back the federal government. Rather, the money would be redirected into personal retirement accounts for every worker (we have called them “Trump Retirement Accounts”), which the feds had set up in the meantime.  

The new personal retirement accounts would represent enormous new investment, which should have a much more positive impact on economic growth than stimulating more spending.

But personal retirement accounts could also eventually offset most of the failing Social Security system’s future liabilities to workers and thus represent a much-needed step to begin addressing our entitlements crisis.

Add Trump Retirement Accounts to a temporary payroll tax cut, and now we’re talking.

To counter the Democrats’ proposed spending increases, White House officials are pushing $150 billion in offsets, reportedly presenting House Democrats with a list of cut options worth $574 billion.

One of the largest line items is a drug-pricing proposal targeting Medicare. White House officials say it would save $115 billion.

How often can you say that about a government program? 

The reason for this success? Part D’s market-oriented structure.

Most government health care programs — just like most government programs in general — take a top-down approach. The Veterans Health Administration, for example, has 1,700 facilities staffed by government employees who provide care to about 9 million veterans. Remember all the recent horror stories about the VA? 

Part D is radically different. The program is federally subsidized and regulated, but private insurers must design and administer the benefits. Insurers must compete against one another for Medicare beneficiaries’ business. Insurers thus have an incentive to negotiate big discounts from drug makers even as they offer generous benefit packages. That translates into low costs and high-quality coverage. 

The program has also been a success for taxpayers. Part D cost 45 percent less over its first 10 years than the Congressional Budget Office expected.

Any change to Part D would erode the market mechanisms that have led to this success story.

The White House may end up backing an “inflation penalty," which would prevent drug makers from raising prices faster than the rate of inflation — or face a stiff penalty. Some Senate Finance Committee members are also proponents of this idea.

Make no mistake, though. Any effort that tells drug makers what they can and can’t charge is a price control that would destroy Part D’s successful design. Seniors could eventually shell out more in premiums and more at the pharmacy counter if this change goes into effect. 

Moreover, these price controls would stifle medical innovation. 

It takes on average about $1.7 billion to bring a single new drug to market. And only a fraction of the potential new drugs make it through development, testing and Food and Drug Administration approval. But investors continue to pour billions of dollars into drug research — more than $100 billion in 2018 alone — because the United States allows market forces, and not government bureaucrats, to set the value on medical innovation. 

Investing in new drugs would dramatically decline under price controls. If the government can set arbitrary drug pricing limits based on politics rather than R&D costs, then the chance of recouping their investment, and potentially profiting, would be significantly reduced. So, investors would funnel their money elsewhere. 

Politicians are complaining that prescription drugs cost too much. But the most costly drug — in terms of shortened lifespans, reduced quality or life and higher hospital bills — is the drug that was never invented.

There has been a long-running policy debate over whether immigrants, and especially those who enter the U.S. illegally, are a net asset or a net cost to taxpayers and the economy.
 
For example, the Center for Immigration Studies, which supports very restrictive immigration policies, estimates “the average net fiscal cost (taxes paid minus services used) of an illegal immigrant was $65,292 during their lifetime.”
 
By contrast, National Public Radio ran an opinion piece last November by PBS deputy digital editor Gretchen Frazee entitled “4 myths about how immigrants affect the U.S. economy.”
 
The first “myth” is that immigrants cost the economy more than they contribute. Frazee cites a 2017 report from the National Academies of Sciences, Engineering, and Medicine, which found immigration “has an overall positive impact on the long-run economic growth in the U.S.”
 
The study concludes, “First-generation immigrants cost the government more than native-born Americans, according to the report—about $1,600 per person annually.” Which actually sounds like a cost.
 
However, the second generation contributes about $1,700 a year. That’s why it’s a “long-run” benefit.
 
Frazee explains that immigrants’ access to federal welfare programs is limited. “To receive most public benefits under the social safety net, immigrants must be lawful permanent residents for at least five years.”
 
But, that provision wasn’t strictly enforced for years. And given the Democratic presidential candidates’ comments, it would likely be ignored or eliminated.
 
While anyone who is uninsured currently has the legal right to go to an emergency room and be treated, Democrats have made it very clear that everyone in the U.S., whether legally or otherwise, should have access to comprehensive health care coverage.
 
U.S. health care spending averages about $10,739 per person, according to the Department of Health and Human Services, which would blow a hole in that $1,600 net-cost figure.
 
Historically, most of the illegal immigrants were younger men who were fairly healthy. They had to be for the manual labor jobs that were open to them.
 
But that mix is changing to include more children who can’t work and mothers who need to care for them.
 
In addition, were a Democratic president and Congress to open the borders AND make comprehensive health care free, people with very costly medical conditions would flock to the U.S.
 
But wait! If health care is a right, shouldn’t food and shelter also be a right? What’s the point of saying everyone can have free health care if they’re starving or exposed to the elements? Both proposals would necessarily follow.
 
Like most economists, we think legal immigrants can be a huge benefit to the economy—because historically most immigrants, whether legal or otherwise, came here to work.
 
Regardless of whether the first generation of immigrants is a small net plus or minus for the economy, if Democrats turn immigration into a welfare grab bag, it will be a net loss for all of us.

Bernie Sanders wants to cancel $1.6 trillion in college loan debt. Elizabeth Warren has a plan for that too. Merrill Matthews with the Institute for Policy Innovation says it's a ploy to get voters.

“It is a blatant attempt to get voters on their side,” Matthews said.

Bernie wants Wall Street to pay for all of this with taxes, but Matthews says Bernie made a miscalculation.

“There’s just not enough money for them to pay for this. Bernie is probably on the low side in his estimates,” Matthews stated.

Bernie's plans may sit well with his supporters, but not people like Home Depot co-founder Bernie Marcus, who spoke out on Fox Business Network earlier this week.

"Bernie Sanders is the enemy of every entrepreneur that's ever going to be born in the country and has been born in the past," Marcus said.

Home Depot co-founder Ken Langone agreed, saying “if the people in America today ... if they want to know what the future holds for them following Bernie Sanders, go to Cuba, Venezuela, Russia, Eastern Europe. Guess what? It doesn't work."

Louisiana lawmakers are pushing forward several bills in response to an audit of the state’s Medicaid program which resulted in the removal of 30,000 people from rolls because they earned too much money.

The authors of On the Edge skillfully unravel the mess our political leaders have gotten the nation into over almost 100 years, providing straightforward explanations and direct, simple solutions to the nation’s entitlements crisis.

Several of the 2020 Democratic presidential candidates will propose increasing the Social Security benefit for current retirees. 
 
They'll suggest paying for it by increasing the Social Security payroll tax and eliminating the current cap on income ($132,900) that's affected by the tax. 

Those candidates need to take a long, hard look at the latest annual report from the Social Security trustees. There are lessons in that report, if only Democrats will learn them.
 
Lesson 1: A strong, private sector economy improves the Social Security trust funds.
 
The trustees tell us that the 75-year actuarial deficit—i.e., the amount Social Security will have to pay out above its expected revenue—improved slightly, from 2.84 percent of taxable payroll in the 2018 report to 2.78 percent.
 
However, the reason for that slight improvement, even as Social Security had to pay more benefits—$946 billion cited in the 2018 report to $994 billion in the current report—is the strong economy with historically low unemployment rates.
 
More people working in the private sector means more payroll tax revenue. Not enough to make a major difference in the trust funds, since the unfunded liabilities are too large, but at least it makes a small positive difference.
 
Lesson 2: Social Security is still headed for bankruptcy.
 
The Old-Age and Survivors Insurance (OASI) Trust Fund that covers about 53 million mostly seniors is still scheduled to be depleted by 2034—just 15 years from now.
 
At that point the trustees estimate that Social Security will only be able to pay about 75 cents on the dollar. And that’s only if you believe that the trust funds, with a reported $2.9 trillion in assets, really exist.
 
Congress has borrowed all of that money and spent it. Congress can only replace those funds by taking other tax revenue or borrowing the money. In other words, that $2.9 trillion in the trust funds should be considered a liability, not an asset.
 
Lesson 3: The financial challenges will only worsen.
 
Democrats will say they can solve the problem by raising taxes. But the trustees claim that increase would have to be 2.78 percent of payroll. And that’s just to keep the status quo. Democrats want to increase current benefits—by 2 percent in one proposal.
 
And the population continues to age, which means that fewer workers will be available to support each retiree.
 
Even as most private sector companies have transitioned their pension plans to 401(k) accounts to improve their financial stability and avoid long-term liabilities, Democrats want to move in the opposite direction.
 
The best lesson Democrats could learn from the trustees’ report is that all the tweaking of Social Security’s taxes and benefits over 80 years have only made the financial challenges worse. Time to follow the private sector’s 401(k) approach and solve the problem for good.

A new book, “On the Edge: America Faces the Entitlements Cliff,” shows how the U.S. can move away from the crumbling patchwork of unsustainable government programs and easily address funding for healthcare, welfare, and retirement in a way that is financially sustainable long-term. The reforms proposed by the book’s authors, actuary Mark E. Litow and Institute for Policy Innovation (IPI) resident scholar Dr. Merrill Matthews, grants working Americans the freedom to set aside their own money in their own accounts that invests in and grows with the economy.

Avoiding the entitlements cliff is not difficult, it just takes adopting actuarially sound programs, write Litow and Matthews. “We would see millions of Americans start the slow but steady climb toward financial independence as they begin creating wealth that belongs to them.”

“If Congress were to implement these changes, it would dramatically reduce the size of government and of its role in our finances and our lives,” write the authors. “And we would expect an economic explosion the likes of which the country has never seen, as trillions of dollars enter capital markets instead of government coffers.”

Copies of “On the Edge: America Faces the Entitlement Cliff” are available at ipi.org.

The Institute for Policy Innovation (IPI) is an independent, nonprofit public policy organization based in Dallas. IPI resident scholar Dr. Merrill Matthews is available for interview by contacting Erin Humiston at (972) 874-5139, or erin@ipi.org. For copies of “On the Edge: America Faces the Entitlement Cliff”, visit www.IPI.org. 

April 1, 2019

Dear Senators and Members of Congress,

Everyone wants workers to be able to take time off from work when they need it.

Thanks to an improving economy, employers are increasingly offering paid leave benefits to employees, including hourly workers. This is great news, and a trend that we want to continue. However, imposing a payroll tax on workers and creating a one-size-fits-all government entitlement program would be the wrong way to expand access to paid leave benefits.  

• A new payroll tax would leave all workers with less money in every paycheck. This would particularly burden lower-income workers, making it harder for them to make ends meet and save for retirement and other critical needs.
• Higher payroll taxes reduce employment opportunities.
• A one-size-fits-all federal benefit will discourage companies from offering their own paid leave benefits. Some employees would end up with less flexibility and worse paid leave benefits as a result.  
• Paid leave entitlement programs tend to benefit those with higher incomes and burden those with lower incomes. Research has found this to be the case with paid leave programs enacted in California, New Jersey, Rhode Island, Canada, Norway, the United Kingdom, Sweden, Iceland, and Belgium. This isn’t fair.

We the undersigned, representing millions of American workers, oppose a new payroll tax and federal paid leave entitlement program because we want to preserve opportunity, flexibility, and fairness.

Sincerely,

Carrie Lukas
President
Independent Women’s Forum

Grover Norquist
President
Americans for Tax Reform

Heather Higgins
Chief Executive Officer
Independent Women’s Voice

Ramesh Ponnuru
Visiting Fellow
American Enterprise Institute

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President
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Executive Director
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Chief Executive Officer
American Legislative Exchange Council

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Former Small Business Owner

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Vice President of Legislative Affairs
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Executive Vice President
Goldwater Institute

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Honorary Chairman
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President
The Carlstrom Group, LLC

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Executive Director 
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President
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President
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CEO and President
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Executive Director
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President
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President
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President
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Founder/Chairman
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President
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President
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President
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President & CEO
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President
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Executive Director
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President
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President
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President
Center for Individual Freedom

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Becki Gray
Senior Vice President
John Locke Foundation

DALLAS - As the widening U.S. budget deficit shatters records, in part due to increased Social Security spending and interest payments on the national debt, a new book available today through Amazon’s Kindle store says Congress must address the cost of the nation’s exploding entitlements and walk America back from the fiscal cliff.
 
Cost for the nation’s entitlement programs is about 75 percent of all federal revenue, according to a recent analysis by the Center for Budget and Policy Priorities. This level will only grow unless Congress takes steps recommended by a new book, “On the Edge: America Faces the Entitlements Cliff.” 
 
“On the Edge” authors Merrill Matthews, Ph.D., and Mark E. Litow explain how Social Security, Medicare, and Medicaid, and some 80 more U.S. welfare programs are pushing the country to the precipice of an entitlements cliff. The authors identify the pattern employed by politicians both here and abroad: Identify a perceived social need, propose a new safety-net program, swear that the program is financially sustainable, pass the legislation, then keep expanding it until it becomes a drain on the economy, both now and for generations to come.
 
“Once entitlement programs are entrenched, politicians start trying to expand them, which costs more money,” write Matthews and Litow. “To address the funding shortfall, they usually either raise taxes or cut benefits, especially for higher-income people. Most often, they just try to ignore the problem so that future generations will have to deal with it.” In following this approach, the U.S. has spent trillions of taxpayer dollars on entitlement programs, created large amounts of debt, and faces trillions more in unfunded liabilities.
 
But for a Congress that will listen, “On the Edge” explains how the U.S. can move away from the crumbling patchwork of unsustainable government programs and easily address funding for healthcare, welfare, and retirement in a way that is financially sustainable long-term. The reforms proposed by the book grants working Americans the freedom to set aside their own money in their own accounts that invests in and grows with the economy.
 
Avoiding the entitlements cliff is not difficult, it just takes adopting actuarially sound programs, write Litow and Matthews. “We would see millions of Americans start the slow but steady climb toward financial independence as they begin creating wealth that belongs to them.”
 
“If Congress were to implement these changes, it would dramatically reduce the size of government and of its role in our finances and our lives,” write the authors. “And we would expect an economic explosion the likes of which the country has never seen, as trillions of dollars enter capital markets instead of government coffers.”
 
Copies of “On the Edge: America Faces the Entitlements Cliff” are available from Amazon’s Kindle store or at ipi.org.

 
The Institute for Policy Innovation is an independent, nonprofit public policy organization based in Dallas. Copies of “On the Edge: America Faces the Entitlements Cliff,” are available at www.IPI.org. IPI resident scholar Dr. Merrill Matthews is available for interview by contacting Erin Humiston at (972) 874-5139, or erin@ipi.org.

The Institute for Policy Innovation is an independent, nonprofit public policy organization based in Dallas. Copies of “On the Edge: America Faces the Entitlement Cliff,” are available at www.IPI.org. IPI resident scholar Dr. Merrill Matthews is available for interview by contacting Erin Humiston at (972) 874-5139, or erin@ipi.org.