Why Has the FAIRtax Not Become Law?

I first learned about the Fair Tax and the Fair Tax Act in 2004 when I began teaching public finance Economics for the University of Virginia’s College at Wise. In 2005, I authored an open letter to the President advocating the Fair Tax, a letter that was co-signed by 80 professional economists, including Nobel Prize recipient, Vernon Smith. The letter, which can be read here (https://web.archive.org/web/20061015083330/http://fairtax.org/PDF/Open_Letter.pdf) was mailed by Americans for Fair Taxation to President George W. Bush, every member of the House and the Senate, and every member of the President’s Advisory Panel on Tax Reform. Since then, I have continued to advocate for passing the Fair Tax Act, and every year I teach my public finance students about the bill.

 

Even though many economists agree that a national retail sales tax has great merit, most of them say they do not advocate for the Fair Tax Act, because they think political reality dictates that it can never become law. Some ask me why I waste my time. I tell them I do so because it’s the right thing to do, even if they are right.

 

In 1999, John Linder, Republican Congressman from Georgia, first introduced the Fair Tax Act (H.R. 25).  From 1999 through 2022, some member of Congress has introduced substantially the same bill, year after year for 23 years.

 

Not only has the Fair Tax Act not become law, the bill has never so much as made it out of The U.S. House Committee on Ways and Means to be voted up or down by Congress. “The 435” have simply refused to give the Fair Tax Act a vote for 23 years. We now have the true but entirely useless answer to the question posed by the title of this essay. The real question remains. The real question has two parts: (1) why has Congress refused even to vote on the Fair Tax Act, and (2) why have “we the people” not insisted that Congress at least vote on the bill.

 

Congress has not voted on the Fair Tax Act because the leadership of both political parties do not want to relinquish the enormous power Congress has and exercises through the U.S. Tax Code. “We the people” have not insisted that Congress at least vote on the bill because we advocates of the Fair Tax Act have been ineffective in persuading enough people to care about the enormously harmful travesty that simply is the U.S. Tax Code. These are the simple, straightforward answers. But let’s dig deeper.

 

Party leaders of Congress --- leaders of both parties --- know well the enormous power they wield through the complicated, convoluted, massive, eye-glazing provisions of the U.S. federal tax code. They know that no one on planet earth is capable of understanding all the provisions of the Code, which runs to tens of thousands of pages, and which expands every year.

 

They know that the Code gives powerful Members of Congress what amounts to practically unlimited ability to help their friends and hinder their foes, using what economists call “tax preferences” (a.k.a., tax loopholes). They also know that “we the people” have always been placated by vows every three to five years to “fix” and “simplify” the U.S. federal tax code. And they know that most Americans feel helpless to do anything about it.

 

Every two years, a small handful of newbie Members of Congress arrive in Washington DC, fully committed to their principles and to their good intent to change America and make a difference. But within just a few months, most of the newbies come to understand that if they don’t play ball with party leaders --- and play by the well-established rules of “the swamp” --- their chances of reelection are dim at best. So, play ball most do. One of the chief tenants of the rules of ball playing is not to shake the federal income tax tree. Get on board or get gone.

 

And so it goes with Congress. If the Fair Tax Act is ever the get an up or down vote, Members of Congress will have to be drug by the electorate, kicking and screaming to do so. For just as Congress will never vote for term limits for themselves, unless forced by voters to do so, they will also never vote to relinquish the unimaginable power bestowed on them by the U.S. Tax Code.

 

“We the people” can and have sometimes drug Members of Congress kicking and screaming to change the law of the land, but not through ordinary law making. The process of ordinary, routine law making does not permit we the people to have a full-throated voice. And yet, on rare occasions, for truly important issues, “we the people” have accomplished the dragging via amendments to the Constitution. Such occasions are rare, though, because without leadership, “we the people” can accomplish very little.

 

Some may object that we have the ballot box. We do, but the ballot box is quite ineffective for changing the law of the land. The ballot box merely allows us to replace a handful of scoundrels every two years with what typically turns out to be a different handful of scoundrels. History attests to this fact. Every two years the ballot box mostly returns 97 percent of incumbents to Congress. The handful of newbies is small, indeed.

 

Without leadership, Congress will not be drug kicking and screaming to abolish the U.S. Tax Code and to replace it with the Fair Tax Act. Such leadership has not and will not likely be leadership of the Americans for Fair Taxation or any other tax advocacy organization. Such leadership will almost certainly have to come in the form of a candidate for President of the United States, or at the very least, Speaker of the House.

 

Moreover, such leadership will not persuade “we the people” to back the Fair Tax by using the litany of technical arguments already present and easily found on the website, Fairtax.org. AFFT has done a marvelous job explaining provisions of the Fair Tax Act. AFFT has also done a marvelous job explaining how adoption of the Fair Tax would be beneficial for a very large majority of American taxpayers. What we advocates of the Fair Tax have not done well is force Congress to vote on the Fair Tax Act.

 

In 23 years we have not convinced a candidate for President, or convinced a Speaker of the House, to take up the gauntlet and lead “we the people” to dragging Congress kicking and screaming to vote on the Fair Tax Act. I believe that if Congress were forced to vote on the Fair Tax Act, the bill would pass, which I believe is why party leaders of both parties have ensured for 23 years that no such vote was held.

 

How could an effective leader accomplish the very difficult goal of getting the Fair Tax Act passed? Not with charts and graphs; not with tables of data; not with economic analysis of the prospects of faster economic growth; not with explanations of how the “pre-bate” works to stave off the inherent regressiveness of a sales tax. No; such information has long been available, but to no avail.

 

An effective leader would use different tactics. That leader would hammer home how enormously unfair the U.S. Tax Code really is for a large majority of Americans. That leader would repeat over and over how tax preferences favor small special interest groups. That leader would tell real-world stories of how the massive underground economy evades taxation altogether.  That leader would show how it is that the U.S. Tax Code favors the rich and powerful at the expense of average taxpayers who have no power to avoid the burden of the income tax. That leader would explain how annual and monthly changes to the implementation of the Code, via the power of the bureaucratic IRS, do indeed retard economic growth by keeping commerce in a continuing state of change and flux regarding tax law. Businesses hate uncertainty. Changes to the U.S. Tax Code guarantee uncertainty.

 

Never mind raising more money for more economic research. No amount of economic research will persuade we the people to insist that the Fair Tax Act be given a vote. As a professional economist who teaches public finance economics and public choice economics, I assure you that economic research is not capable of showing that the economy will grow faster, if only the Fair Tax Act were to become law. Nor is economic research capable of showing that retail prices will drop across the board by some percentage with adoption of the Fair Tax Act. But let me not glaze over eyes with “econspeak.”

 

AFFT can and should do all it can to raise money to back effective political leaders, political leaders capable of leading “we the people” to insist that at the very least, the Fair Tax Act be given a vote by Congress. AFFT can and should do all it can to raise money to pay for wide-spread media ads calling for Congress to give the Fair Tax Act an up or down vote.

 

If we advocates of the Fair Tax truly want the bill passed, we must adopt different tactics. What we have done for 23 years has not worked.

 

 

 

 

 

 

 

Defend the Supreme Court of the United States

Democrats and progressives now dominate nearly every leading political and cultural institution in America. They do so because they have learned from experience that Joe the rag man and his cousin Jill the Walmart cashier, and her cousin Janet the college history professor can be bought with free stuff. But there ain't no such thing as a free lunch. So why do people act as if there is?
 

Joe likes his EBT card; Jill likes the head of household earned income tax credit and the deductions for children in the income tax code; Janet likes the federal spending that subsidizes higher education. Of course, Joe, Jill, and Janet have a lot of friends who are also feeding at the federal trough, such as Frank the farmer, Tim the Tesla owner, Wayne the windmill farm owner, Dan the doctor, .... well, you get the picture. Fill out the other names yourself. Don't forget to include your own name. Mine is on the list, too.

Democrats keep promising a free lunch, and Joe, Jill, Janet, Frank, Tim, Dan, Wayne and all the rest of us keep believing the impossible. Meanwhile, reported federal debt is 120% of GDP, and unfunded, yet required future federal spending already on the books tops $110 TRILLION. Annual GDP these days is about $27 trillion, so unfunded, yet promised federal spending for people who are alive right now and who will be owed that spending ("America must pay its debts," say Democrats regularly, with a sage-like, smug look on their faces) is more than four times annual GDP. That means if we took every dollar of income generated by every American for the next four years (a 100% tax rate on everyone), we still couldn't fund the promised and owed federal spending already on the books.


The most important exception to the opening sentence of this essay is the U.S. Supreme Court, which after many decades finally has a majority of originalist Justices. Those Justices are determined to follow the Constitution as it was written and ratified by the states. This is proving to be intolerable to Democrats and the press corps, who are unleashing a furious political attack on the current Court, especially Justices Clarence Thomas and Samuel Alito.


I have a co-worker who, when he doesn't get his way, accuses his coworkers of being biased and racist and retaliatory against him for his past bad behavior. Behavior of some journalists reminds me of this co-worker. The left no longer has its way, after several decades of having it all their way on the SCOTUS, so now they are assailing the most important institution in America, the SCOTUS, by attacking particular justices with entirely false allegations.


The behavior of journalists and Democrat politicians who are attacking the SCOTUS right now are in the same category as 2-year old children who throw a tantrum when they don't have it their way. They are in the same category as my co-worker who uses and abuses the wretched DEI doctrine that now permeates all of academia by filing complaints with the university's Equal Opportunity and Civil Rights office when he doesn't have it his way.


DEI, by the way, stands for diversity, equity, and inclusion. In actual practice in the nation's colleges and universities, the acronym should be written DIE, because in actual practice it delivers division, intimidation, and exclusion. Witness the recent treatment at the hands of Stanford University law school teachers and students of a judge who had been invited to speak. He was not included nor accorded equity. Several equally repugnant exclusions, which defy what the academy is supposed to be, have occurred at universities around the country in recent months and years.


Attacks against Justices of the SCOTUS must not be tolerated. That conclusion is the top, the bottom, and both sides of it.

No sitting member of the SCOTUS was appointed without long, serious, and thorough vetting. Every member of the SCOTUS is honorable, honest, intelligent, reflective, and dedicated to preserving the integrity and purpose of the SCOTUS. Journalists and Democrats who assail any of the Justices are way off base. 

It's up to We the People to tell them to shut up and sit down. They are trying to bring down the most important institution in America. We must not allow it.

Where Do We Go From Here?

I have a long-time friend whose political philosophy is somewhat left of my own. He has considerable confidence in government; I have next to none, knowing and teaching Public Choice economics, as I do. 

He asked me a few days ago, after I had sent him the link to a Dan Mitchell blog article about statist political philosophy to be found  (here), "Some funny ones. No compromise possible? How about half the government we have and twice the government Mitchell wants?" I wrote back saying I didn't see how compromise is possible.

It's obvious to anyone who can still fog a mirror that citizens of the United States are deeply divided. Don't blame it on Trump. Trump was a manifestation of the division, not the cause of it. The left and the right in America have a fundamental difference in values and beliefs. In my experience, compromise is not possible, nor is it desirable, because it comes from such fundamental differences in values --- differences that we sometimes call "principles." We cannot and should not compromise on principles. I told my friend that I cannot and will not. He is still my friend, nonetheless.

If I am right, where do we go from here? "Boogaloo," as it is called on some of the mind-numbing social media platforms? Is a second American Civil War inevitable? 

The violent riots throughout the summer of 2020 were trivialized and mostly ignored by main stream media.  That fact is dauntingly sad, and yet another story to be told. The rioting continued on January 6th in our capitol. All Americans should denounce all the riots, and most do. The rioting is also manifestation of the great divide. They give more than a glimmer of the willingness and ability of far too many people to use violence in the name of their values and beliefs, people both on the left and on the right of the great divide.

I'm a veteran, and as such, I think I know a thing or two about our military. I believe that Boogaloo, were it to begin, would end quickly and badly for its perpetrators. The enormous firepower and technology, combined with the commitment and skill of the U.S. Army and Marines would quickly quash any "militia" that had the temerity to launch full scale Boogaloo. Know that. Armed conflict is not the solution to the great divide that now separates us.

Nonetheless, we could and may see continued violent protests --- protests that local police may be both unwilling and unprepared to quash. If we do see more violence, and if the violence becomes more frequent, the Biden administration will eventually become the owner of the violence. Perhaps even the in-the-tank-left media would begin to criticize, hard as that may seem to imagine. After all, the media will have to write and speak about something other than Trump, no?

Biden speaks of unity. Preposterous. We will have no unity, and we should have none, because each side of the great divide is cleaving to its principles. I know this first hand, because the great divide lives even within my own family, I am sad to say.

Where do we go from here? I see only one, quite imperfect solution. The United States must become again what the Founders intended, and what it was in the time of the founding. The United States must become again a federation of states. We are not now a federation of states, and we have not been, at least since 1913, when the progressive Woodrow Wilson presided over the birth of both the federal income tax and the Federal Reserve. Both are institutions of thievery, and both are anathema to a true federation of states.

I will not trace here the history of the loss of federalism in the United States, for others are far better equipped to do so and have done so already. But make no mistake, federalism is long gone. The Declaration and the Constitution have not been defended and honored since at least 1913. The United States comprises now a large, intrusive, central government that seeks to become ever larger and ever more intrusive, day by day, year by year.

If we returned to the principles and structure of the founding, each state could and likely would comprise a  government that suits its residents. Citizens would be free to pursue life, liberty, and the pursuit of happiness as free people in some states, without the ham-fisted government preferred by other states.

As it was in the time of the founding, each state legislature would decide how much money to send the federal government to support our common defense against foreign aggressors. Each state would itself take care of its own defense against domestic aggressors. Gone would be the IRS and yes, the Federal Reserve, too. Gone would be the U.S. Federal Code, that compendium of oppression and intrusion into the lives of we the people. Gone would be the Administrative State and the career politicians who have made a life of compelling others unjustly. Gone would be the democratic cronyism that is empowered by the federal government and its operatives

With true federalism, each state would decide whether to have term limits for politicians, as some do now. Through their elected representatives, each state would decide how and how much to tax. No federal income tax would exist. Decisions of such importance could and should be pushed down much closer to we the people. The founders had it right; how did we the people allow it to become otherwise? Many causes, I suppose. But as I observed in my book Morality and Capitalism, there is something in many humans that likes a king.

Is it possible to return to the principles of the Declaration and the structure of highly limited central government, a government constrained and limited to enumerated powers, as the founders intended? I do not know, but I believe that if we cannot, we are fated to continue on the road to serfdom that F.A. Hayek taught us about, now so many years ago.

If it is possible to return to true federalism, we will require a leader who believes in liberty. We do not have one now, and have not had one for many years. We will require a leader who, like Ronald Reagan, had the spirit, the character, and the charisma to lead people who yearn to be free. We will require a leader who can call out the statist people who are government operatives of the federal government, either as bureaucrats of the Administrative State, or as its elected federal representatives. We will require a leader who can do that calling out with civility and persuasion. We will require a leader whose motives none suspect, whose character all can admire, whose experience draws on a full experience of life, not just the experience of politics.

We just had an election, some say. The people have spoken. And yet, the great divide stares us in the face. 

Do not call me a conspiracy theorist, for I am not. But everyone knows that at least half the voters who voted in the 2020 election believe, rightly or wrongly, that the election was deeply flawed, another manifestation of the great divide. The election served only to deepen that great divide. I believe the 2020 election was a one off; I don't think we will see its form and processes repeated, thank goodness. I hope I am not wrong.

Who can be the leader to forge a path back to the founding principles? I don't know, but my telia philia, who lives in Texas believes that such a leader will emerge from the great divide. I truly hope he is right.

25 of the Greatest Quotes on Economics and Capitalism (That You've Probably Never Heard)

If you never understood anything else from the social science of economics, but you truly understood the truth of the 25 quotes below, you will understand much of the truth that economics has to offer.

Excerpted from an article by Jon Miltimore, writing in FEE Stories

October 28, 2021 FEE.org

1. “The farmer and manufacturer can no more live without profit than the labourer without wages.” - David Ricardo
2. “The most basic question is not what is best, but who shall decide what is best.” - Thomas Sowell
3. “Nothing is more deadly to achievement than the belief that effort will not be rewarded, that the world is a bleak and discriminatory place in which only the predatory and the specially preferred can get ahead.” - George Gilder
4. “I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.” - F.A. Hayek
5. “Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.” - Thomas Sowell
6. “What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another.” - Carl Menger
7. “Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.” - Jean-Baptiste Say
8. “The disdain of profit is due to ignorance, and to an attitude that we may if we wish admire in the ascetic who has chosen to be content with a small share of the riches of this world, but which, when actualized in the form of restrictions on profits of others, is selfish to the extent that it imposes asceticism, and indeed deprivations of all sorts, on others.” - F.A. Hayek
9. “All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.” - Ludwig von Mises
10. “Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.” - Frédéric Bastiat
11. “Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing.” -Henry Hazlitt
12. “The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.” - F.A. Hayek
13. “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.” - Milton Friedman
14. “All trades, arts, and handiworks have gained by division of labour, namely, when, instead of one man doing everything, each confines himself to a certain kind of work distinct from others in the treatment it requires, so as to be able to perform it with greater facility and in the greatest perfection. Where the different kinds of work are not distinguished and divided, where everyone is a jack-of-all-trades, there manufactures remain still in the greatest barbarism.” - Immanuel Kant
15. “It is not true that Congress spends money like a drunken sailor. Drunken sailors spend their own money. Congress spends our money.” - Dr. Art Laffer
16. “The message from history is so blatantly obvious—that free trade causes mutual prosperity while protectionism causes poverty—that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer.” - Matt Ridley
17. “Love locally, trade globally.” - Russ Roberts
18. “The great danger to the consumer is the monopoly— whether private or governmental. His most effective protection is free competition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him.” - Milton Friedman
19. “People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum-wage laws, trade-union wage pressures or other devices which seek to compel employers to pay them more than their [labor] is worth. The more likely outcome of such regulations is that the intended beneficiaries are not employed at all.” - James Tobin
20. “Nothing should be more obvious than that the business organism cannot function according to design when its most important ‘parameters of action’—wages, prices, interest—are transferred to the political sphere and there dealt with according to the requirements of the political game or, which sometimes is more serious still, according to the ideas of some planners.” - Joseph A. Schumpeter
21. “Failure is part of the natural cycle of business. Companies are born, companies die, capitalism moves forward.” - Thomas Sowell
22. “The way to maximize production is to maximize the incentives to production. And the way to do that, as the modern world has discovered, is through the system known as capitalism—the system of private property, free markets, and free enterprise.” - Henry Hazlitt
23. “A people averse to the institution of private property is without the first elements of freedom.” - Lord Acton
24. “Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments.” - Ludwig Von Mises
25. “Citizens who over-rely on their government to do everything not only become dependent on their government, they end up having to do whatever the government demands. In the meantime, their initiative and self-respect are destroyed.” - Charles G. Koch

What Economists Know about Prices

Prices that emerge in markets are signals wrapped up in an incentive. We can thank the economist Alex Tabarrok for stating this very old truth in a single, pithy sentence.

Thanks for the econ lesson, you say, but so what? The once-in-a-century cold snap that caused Texans grief last week is a great example of so what. Estimates of the damage caused by the power outages in Texas are in the billions of dollars.

Without price-distorting subsidies from politicians, all those wind turbines in Texas wouldn't have been built. And all those freezing Texans wouldn't have been freezing. And  the billions in damages could have been avoided. 

Hind sight, you say? Not really. It's an old story that's well known by economists. Benefits concentrated on a tiny subsidized few, with costs spread widely over a huge tax-paying majority. How hard will you work to keep someone from stealing ten cents a day from you? How hard will you work to keep a subsidy worth $1,000 a day coming your way? 

Why did politicians subsidize the wind turbine industry to the point that as much as 30 to 40 percent of the Texas electricity grid is supplied by wind turbines on some days? Because politicians respond to popular sentiment; it's part of what keeps them in office. And because politicians also respond to money, which is another part of what keeps them in office.

Politicians are not dummies, regardless of what it looks like. They know which parade to jump in front of to stay in office. That parade goes by the name, "climate change." Politicians know they won't be blamed 100 years from now; everybody knows that we have to get rid of fossil fuels, right? Why not give the folks what they are clamoring for, and make some cash to boot?

K-street in DC spent a lot of money to get those subsidy dollars flowing. The beneficiaries of the subsidies made sure of that; dollars well spent. Politicians have nothing to worry about. People will forget about power outages in Texas by next week. Move along; nothing to see here.

An Open Letter to the President and Governors: Stop Killing Our Economy

That we face incredible challenges over the next weeks and months is obvious. Events that ensure a world-wide recession have already happened. The only questions that remain are how deep and how long will the crippling of the world’s economies be.

Since the onset of the COVID-19 crises, we have all been witness to extraordinary steps taken by the Federal government headed by the President, and by state governments headed by their Governors. Private businesses have been ordered to close normal operations. Schools have shut down. The governors of California and New York have ordered that citizens remain in their homes, except for “essential” activities. Other Governors have ordered less drastic actions, but may soon follow suit. In short, civil and commercial society is being ordered to shut down, all in the name of slowing the spread of COVID-19 and the loss of life the contagion may entail.

Put aside all talk and thinking of who to blame. Put aside all talk and thinking of violations of the civil rights of Americans. There will be time enough for such talk and thinking after America emerges from this crises. Of critical importance now — right now without a day’s delay — you, the President and Governors of every state, must think clearly about what must be done to avert absolute catastrophe.

The ordered shutdown of businesses and lockdowns of citizens must be lifted. Americans must be told that they can and should get back to work.

I know this advice is contrary to what you are being told by epidemiologists and others whose expert credentials give them voice and credibility. These people are intelligent, well-meaning. They are no doubt correct about the contagion and how to “flatten the curve.” The problem is that flattening the curve by shuttering businesses and locking down citizens has unintended consequences that will be absolutely catastrophic for American citizens.

Large modern economies are interconnected in unfathomable and incomprehensible ways. There are no “nonessential” businesses. No one, no collection of experts — regardless of intelligence and training — can know what goods and services to produce, how to produce them, or how much of them to produce. The information required to know resides in millions of individuals, each going about the business of making a living and making individual choices.

Americans must keep working at whatever they do. We must not be told to “shelter in place.” If we are not allowed by the President and the Governors of states to do so, the human misery that will follow is unthinkable.

I am unqualified by training or knowledge to predict the spread and mortality of COVID-19. But I am qualified by training and knowledge of economics and history to predict that even if the COVID-19 pandemic were as much a threat as the H1N1 pandemic was, it doesn’t matter — if we continue on the path of killing our economy and depriving individuals of the opportunity to go about their business, whatever their business is.

Now, a silly story to illustrate my claim. Surely, production and distribution of food is essential; all would agree. Therefore, we must allow farmers to produce; we must allow food processing businesses to continue to operate; we must allow truckers to carry food to market; we must allow grocery stores to remain open so that people may buy the food.

But surely we can and should require bars to close; we can and should require restaurants to close or serve only carry-out orders; we can require that computer technicians stay home; we can require auto mechanics stay home; we can require that office workers in corporate offices work from home; we can and should require that golf courses close; we can and should require that all “nonessential” activities cease. Surely we can and must, because we simply must slow the spread of COVID-19, so that fewer people will die of the comorbidities the virus will bring on.

And then the unforeseen, unconsidered linkages and interdependencies of an economy kick in.

A network technician cannot repair the digital network used by the Walmart distribution warehouse, resulting in a one day lag in deliveries to hundreds of Walmarts in a region of the country. The one day delay leads to even more panic buying from people who have every right to fear the next day. A fight breaks out in one of the affected Walmarts. Ten people are arrested and one man is so badly beaten he must be hospitalized.

The mechanic sheltering in place in California does not do a repair on a truck broken down on I-5, which results in a load of pharmaceuticals going undelivered for two days. Tens of people suffer ill effects of not getting their medication; three people die.

The nonessential office worker working from home for the ISP company, Spectrum, fails to see an email due to looking after her seven year old who is not in school. Unfortunately, the oversight causes thousands of others working from home to lose their Internet connection for eight hours. Ten of those who lost their connection also lose their streaming TV service and fail to see news warning them to take shelter in a tornado watch zone. All ten are struck by the tornado. Fortunately, only one dies.

Multiply my silly little story by literally millions of similar incidents that can be imagined without end. None of us can think of but a handful of such fanciful stories and interconnections. But any good economist knows that the unrecognized, unseen interconnections number literally in the millions of millions for any modern economy.

Mr. President and Governors of the fifty United States, please end the shutdowns and the sheltering in place orders. Instead, encourage all Americans to get back to work. Yes, the threat of COVID-19 is real. Yes, we will face risk. Millions of us might contract the virus; thousands might die. The epidemiologists do not know.

Maybe this contagion will be as bad as the N1H1 outbreak was in 2009. No one really knows. But Americans face down far worse and more deadly risks every day. By now, most of us have learned that tens of thousands of Americans will die of flu this year. About 90 Americans died yesterday on our highways. And so it goes.

Ultimately, the consequences of Americans not working and not functioning as a free society are going to be far worse than the risks posed by COVID-19.

We know that some people are at great risk of dying due to the virus. We are all concerned about protecting these people. We have learned how to do that, thanks to instruction from the good people of the world’s public health institutions. We can and must do everything to shield those people from exposure to the virus. They can be and should be sequestered, with help from us all. Regardless, some of them will contract the virus, and they will die. Reality is not always kind; it is still reality.

But we can know and must understand  that shutting down our economy and sequestering ourselves is a certain path to catastrophe. Mr. President, Governors, I beg you to save us from that catastrophe.

Friedrich A. Hayek won a Nobel Prize in economics teaching us this truth. In his words, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” He was talking about central planning of economies. Whether we recognize it or not, our experts are imagining that they can design an easier way out of the COVID-19 pandemic. They are well meaning, but they cannot.

The Election of A Lifetime

It is understatement to say that the November 2020 elections will be momentous for America. Regardless of the outcomes, about half the politically aware public will be outraged the day after the results are final. But more important, America’s future will be shaped for generations to come.

The lines of division among Americans are bright and important. Two major factions comprise American society: the "never Trump" folks, and the “thank-God-for-Trump” folks. Few Americans are indifferent. Never Trumpers despise Trump beyond all reason. Thank-God-for-Trump folks absolutely adore what he has accomplished so far, and they support what he promises to accomplish in the future.

It is also understatement to say that leaders in the Democrat Party and their rank and file core are obsessed with removing Trump from office — if not by the ballot box, by whatever other means possible. Additional impeachment attempts are not out of the question, if the Democrats hold the House and Trump is reelected.

Why are Democrats so determined to depose Trump? Is it really the case that Trump is such a despicable human being that he simply must be deposed? I have friends and colleagues who say "yes, absolutely, yes." These friends and colleagues tell me that Trump is loathsome, a racist, a liar, a hound dog, and a cheat in business who in no way deserves to be wealthy. These people will tell you that Trump is an “existential threat,” which appears to be one of their favorite expressions.

In years past, it's been popular for political pundits to say "it's the economy, stupid." My hypothesis for explaining the extreme animus of Democrat leadership and the party faithful against Trump is "it's the courts, stupid." And even more to the point, "it's abortion, stupid."

The Democrats understand completely that should Trump get to appoint even one more Justice to the Supreme Court, never mind tens of additional federal court judges, and God forbid two Justices, the future for Democrat ideological preferences will be significantly dimmer for at least 30 to 40 years, if not longer.

More to the immediate threat for Democrats, they fear that Trump’s reelection would almost guarantee the Supreme Court reconsidering Roe v. Wade. As everyone knows and agrees, the issue of abortion is important, divisive, and quite possibly irreconcilable.  

The mad-dash impeachment foisted by the Democrats was a failed attempt to forestall a potential third SCOTUS appointment before the November elections, in my opinion. With eight months to go before the November 2020 elections, even now that possibility is still not off the table. Can you imagine the turmoil and havoc that will ensue, should a SCOTUS vacancy occur during the next six months?

In my opinion, the probability is high and growing that Trump will be reelected. If he is, the future of America depends critically on whether the U.S. Senate remains in Republican control. Control of the House is less important. After all, Republicans controlled both the Senate and the House during the first two years of Trump’s first term, without delivering funding for Trump’s wall and without repealing Obamacare.

Nonetheless, should Republicans hold on to the Senate and also regain control of the House (scenario 1 below), we might see repeal of Obamacare, reforms to immigration policy, and extension of federal tax cuts passed and signed into law in 2017.

The U.S. Senate is arguably the most important and significant political institution in America. It is so because the Senate confirms Supreme Court Justices and federal court judges. And as we saw in February 2020, impeachment by the House is empty, if the Senate does not convict. The significance of Supreme Court appointments is clear enough, but federal court judge appointments are also important. As we have seen during the past three years, federal court judges can impede and hamper the President’s power of executive orders.

Decisions of the Supreme Court over the decades have utterly shaped the America we live in today, and will do so in the future. For example, the high court’s decisions concerning the Article 1, Section 8, Commerce Clause of the Constitution (Gibbons v. Ogden, 1824, and Wickard v. Filburn in 1942) had profound implications for subverting the limits of federal government power intended by the Founders.

In my opinion, it is U.S. Senate races that matter most come November, not the presidential race. Election scenarios 1, 2, 7, and 8 below are remarkable because each keeps the U.S. Senate in Republican control. Scenarios 1 and 2 are significant, because Trump remains President and the Senate remains in control of Republicans. Scenarios 1 and 2 mean the SCOTUS will become more originalist and constructionist, and federal court judges will be replaced with moderates and conservatives, instead of progressives.

But scenarios 7 and 8 are also important, because a Republican controlled Senate could and likely would seriously limit the ability of a Democrat president to nominate successfully any but moderate candidates for the Supreme Court and federal courts.

     President   Senate    House 
1.      R                 R             R
2.      R                 R             D
3.      R                 D             D
4.      R                 D             R
5.      D                 D             D
6.      D                 D             R
7.      D                 R             R
8.      D                 R             D

Everyone knows and agrees that independent voters will decide which scenario we get in November 2020. In my opinion, the decisions of Democrat leaders Pelosi, Schumer, Schiff, and Nadler have made scenarios 1 and 2 more likely outcomes of the November elections. Because independent voters have seen the depths to which Democrat leaders have been willing to sink to depose Trump, right-of-center Democrats and independents may well be in no mood to vote for Democrats, regardless of the office in question.

Democrat leaders pulled out all the stops in 2018 - 2020. The Kavanaugh confirmation debacle, the nothing-burger Mueller investigation (brought about by a nefarious FISA court warrant), followed by the failed impeachment proceedings, may well be remembered negatively by voters in November 2020.  No political actions have been beneath the Democrats, precisely because the stakes for the Supreme Court and the federal courts are so high.

How To Fix America's Health Care System

Problems with health care in America are not failures of voluntary market exchange; they are failures of government interference with voluntary market exchange. To fix the problems, eliminate government interference with voluntary exchange in health care markets.

1.    Eliminate involvement of employers in health care altogether; do this simply by removing from federal and state tax codes all tax implications of health care goods and services, for both businesses and individuals. Remove all tax deductions, tax credits, and tax preferences of any kind that involve health care services or health insurance premiums; remove all interactions between health care and the tax code.

2.    Eliminate supply-side restrictions on health care.

a.    Rely entirely on private voluntary exchange on the supply side of health care markets.

b.    Eliminate barriers to entry for hospitals, clinics, dental schools, nurse training schools, and medical schools, including "certificates of need," and government imposed restrictions on health care training organizations.

c.    Eliminate municipal, tax financed, government-subsidized, tax advantaged hospitals and clinics.

d.    Allow consumers to decide what levels of health care training are sufficient for their health care needs.

                                 i.         Eliminate legal restrictions on health care providers at all levels.

                               ii.         Eliminate government licensure requirements for all levels of health care providers

                             iii.         Promote private certification, like we see for Certified Public Accountants (CPA), Certified Financial Planners (CFP), and Civil Engineering Certification (CEC). Neither federal nor state governments would play a role in certification.

e.    Rely on wide-spread information dissemination about individual health care providers, hospitals, and clinics — similar to nutritional content on food packages, Yelp for restaurant reviews, and Consumer Reports for goods and services.

f.     Eliminate 3^rd party payer models that have removed price competition from health care.

g.    Eliminate Medicare, Medicaid, Veterans Administration hospitals, and all other health care programs run by government.

3.    Eliminate state boundaries for health insurance; allow nationwide competition for whatever health care insurance markets emerge. Eliminate restrictions of any kind on pricing and characteristics of health insurance products.

4.    Give low-income individuals and families means-tested health care vouchers to purchase routine health care, similar to the SNAP program. Pay for vouchers from general tax revenue.

5.    Eliminate patents for pharmaceuticals. Rely on academic research to develop new drugs, as we largely already do. Academic research is highly motivated by institutional prestige, not sales of drugs. We have no evidence whatsoever that eliminating patents on drugs would reduce research and production for new efficacious drugs in America, notwithstanding loud protests to the contrary from the rent-seeking big pharma corporations.

     Implementing the 5-point plan outlined above will lead to the following benefits for people in America:

A.  Creation of market prices in health care. As noted by professor Alex Tabarrok, of George Mason University, a market price is "a signal wrapped up in an incentive" for both producers and consumers. Without market prices, producers and consumers have no way to maximize economic efficiency.

B.   Reduction in the cost of health care across the board, due to increased supply and reduced demand for health care services.

C.   Increased supply of health care services, due to removing supply-side restrictions put in place by government operatives who have catered to rent-seeking health care providers.

D.  Greatly reduced wait times in doctors’ offices and hospital emergency rooms, as health care providers begin competing on price and quality of service.

E.   Much greater diversification of health care delivery models, such as online diagnosis and service, walk in lab testing, online diagnosis services, quick-service health care clinics, and other business models that no one has yet even imagined (http://reason.com/archives/2014/09/30/supply-side-health-care-reform ).

F.    Greatly reduced cost for routine health care services that providers with much less training than an MD can provide with great competence.

G.  Lowest feasible cost for health care services across the full range of health care services.

H.  The absence of government and its operatives from health care markets, thereby improving economic efficiency and equity across the board.

I.     Elimination of the deadweight costs created by subsidies, price controls, and supply-side restrictions. A greater number of people will receive a greater quantity of health care with a higher quality and benefit to individuals, at the lowest possible cost.

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10 Questions and Answers about Health Care

1.    Is health care different from other goods & services?  If so, how?

a.    Is health care a public good?  Definitely not, since

                   i.     It is excludable; non-payers can be excluded.

                 ii.     It is not jointly consumed; all of us do not consume all that is produced.

               iii.     It is exhaustible; units of health care consumed by Ben cannot be consumed by Betty.

                iv.     It does not have zero marginal cost in consumption; adding another consumer requires additional production, and therefore, additional cost.

                  v.    And yet, health care does generate a positive externality in consumption, because most people are unwilling to ignore suffering of others; therefore, we all gain value from the consumption of health care by others; most people are willing to pay something for the health care of people who unable to pay for their own health care.

b.    Is health care scarce?  Definitely yes;

                   i.     The quantity of health care available is insufficient for everyone to have all they want without sacrificing something else they also want.

                 ii.     Production of health care requires the use of valuable land, labor, and capital, just like other valuable goods. The owners of the land, labor, and capital used must be paid the opportunity cost of their valuable resources, which makes the supply curve of health care upward sloping.

               iii.     Because it is scarce, health care must be rationed somehow; if not by willingness and ability to pay money, then what?

c.    Do people "need" health care?   

                   i.     Health care is not a single, homogeneous economic good; health care ranges from a band aid and an aspirin to heart replacement surgery.

                 ii.     If some quantity of health care is needed, how much? People do not need any particular quantity and quality of health care.

               iii.     Substitutes for professional health care include watching and waiting (human bodies have incredible recuperative abilities), home remedies, and self care (although the possibilities for self care are substantially limited by law).

                iv.     Different people want different amounts and qualities of health care; people seek to maximize their own net benefit from consuming health care, which means they attempt to find the quantity and quality for which MPB=MPC.

                  v.    Equal consumption of health care by everyone isn't possible, and if it were possible, few if any would say equal consumption by all would be fair.

d.    Is health care a basic human right, regardless of ability to pay? 

                   i.     If so, who has the responsibility to provide health care, since a right for one always implies a responsibility for someone else? Do not say "society" has the responsibility, because "society" is not a person, it is a collective noun.

                 ii.     If so, how much health care and what quality of health care does everyone have a right to? Do not say "enough to stay alive," or "enough to be well," because neither is definable or quantifiable.

e.    Which economic good is health care more like:  cars or food?

                   i.     Health care is more like food, so why don’t we have all the same public policy issues with food that we have with health care?

                 ii.     Why don’t employers typically provide a "food benefit” as part of their compensation to employees?

               iii.     Consider the cost of food per typical person for a year compared to the cost of health care per typical person for a year. Why is health care so expensive, compared to food?

                iv.     Why do we not eliminate restrictions on the supply side for health care?

                  v.    Is asymmetrical information a serious problem with health care? Not really; asymmetrical information is far more serious with automobiles.

2.    What are justifications for government intervention and obstruction of voluntary exchange in health care? Do the conventional justifications offered by economists apply to health care?

a.  Not market power; nothing besides government laws and regulations keeps health care from being highly competitive.

b. Not externalities; even though most people are sympathetic and willing to help others who are suffering, we have no evidence whatsoever that not enough health care will produced without government intervention. We have ample evidence to the contrary.

c.  Not the public good argument; health care has none of the characteristics of a public good.

d. Not the incomplete or asymmetric information problem; consumers know more about health care than they do about their cars.

e.  Certainly not economic stabilization.

f.   What about equity, fairness, and justice?  (is there an efficiency-equity trade off with production or consumption of health care?)  No more so than for any other economic good.

3.    Does health care fit the insurance model?

a.  Yes, for catastrophic illness, we do have low probability of high cost events, which are insurable events, but not for routine health care.

b. Health care insurance generates moral hazard, as does any insurance.

                   i.     May influence eating choices (obesity, junk food), if individuals do not have to bear the full cost of their choices.

                 ii.     May influence life-style choices (lack of exercise, smoking, speeding, riding motorcycles), if people do not have to bear the full cost their choices.

4.    Why are employers involved in health care insurance; they aren't involved in home insurance or car insurance?

a.  There is no philosophical or economic reason.

b. Employer involvement is an historical artifact of wage-price controls during WWII, which kept employers from competing for employees using wages.

5.    Is asymmetric information a serious problem with health care?

a.  No; in which economic good is information more asymmetric:  car repair or health care?

b. Are health care providers better judges of the marginal benefit of health care than patients, and therefore better positioned to decide the quantity and quality of health care someone should consume?

c.  For most goods and services, consumers can and do use price as a principal source of information about value, cost, and relative scarcity; but not for health care, because unit prices for health care services are generally nonexistent; health care providers do not compete on price, and prices generated by voluntary exchange in unfettered markets do not exist, due to government intervention.                                            

d. If we don’t use prices (willingness and ability to pay) to ration health care, then we also cannot use prices to give us information about relative value and cost of health care compared to other goods and services.

e.  If we don’t use voluntary exchange guided by relative prices to ration health care, how can we expect that MSC will equal MSB? We cannot.

6.    What's wrong with third-party payments for health care?

a.  Third-party payments are payments made to producers of healthcare by someone other than the consumer of health care.

b. For most insurable risks, insurance is not a third-party payment system, since consumers generally pay for insurance they purchase (e.g., auto insurance, property and casualty insurance, home insurance, life insurance); but for health care, what is called "health care insurance" is typically paid for by an employer or by tax payers.

c.  What economic outcomes can we expect from 3^rd party payment for health care?

                   i.     Excess demand for health care services.

                 ii.     Shortage of suppliers of health care services.

               iii.     Rising cost of producing health care.

                iv.     Rationing of health care using some criteria other than price, e.g.,

·      Waiting in the doctors' offices and emergency rooms,

·      Denial of insurance claims,

·      Burdensome, bureaucratic procedures to get insurance claims accepted,

·      Doctors who refuse Medicare and Medicaid patients,

·      Denial of medical procedures by review boards, and

·      Limitations on eligible suppliers of health care services (HMO, PPO).

7.    What behaviors from employees can we expect, due to employers using health care benefits to compensate employees?

a.  Employees will demand more health care benefits, due to obfuscation of who is bearing the cost.

b. Low-wage employees typically won't be compensated with health care benefits (e.g., employees of McDonalds), because.

                   i.     Health care is expensive as a percentage of low-income workers’ wages

                 ii.     Low-income workers don’t tend to stay with the same employer as long as high-income workers

               iii.     Low-income workers need money, not health care benefits, since they don’t get much income to pay for food and other goods and services they want; in other words, low-income employees typically don’t want part of their pay in the form of health care benefits.

c.  Money wages of employees will not rise as fast as they otherwise would.

d. Employees will consume health care services beyond the point of MPB=MPC

e.  Employees may be less mobile, remaining in current jobs to avoid loss of health care benefits

f.   Employees may delay retirement to avoid loss of health care benefits

8.    Can government somehow achieve greater economic efficiency and equity by intervening in voluntary exchange markets? In a word, no. In fact, the opposite is true.

9.    What does economic logic tell us is the most efficient remedy, if we find someone who has little ability to pay for health care, but we’ve decided that the person deserves some minimum level of health care? Give the person some money or a health care voucher.

10.Can the U.S. health care “system” be “reformed" from where we are now? Probably not.

a.  We have no reason whatsoever to believe that government operatives will bring us greater efficiency or equity in health care, compared to voluntary exchange.

b. There is no “system” that suspends human nature and the laws of supply and demand, both of which apply to health care, just as they do for car care and food care.

c.  Voluntary exchange in competitive markets gives us as much efficiency and equity as possible, provided we make provision for the rather small number of people who are unable to pay for even modest health care services.

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