Protectionist Ugly: Trump Makes Bad on Tariffs

I’ve reacted favorably to much of the Trump Administration’s economic agenda, but foreign trade has been a huge area of concern. Trump’s rhetoric on trade was bellicose on the campaign trail. Thus far in office he has succeeded in upending or threatening trade agreements: he pulled the U.S. out of the Trans-Pacific Partnership (TPP) negotiations, a multilateral trade agreement involving 11 of our Asian trading partners; he has also promised that NAFTA will be renegotiated. This week, he imposed tariffs on solar panels produced in China and washing machines built in South Korea. You will now be forced to pay a penalty tax on any purchase of those products.

Renegotiating existing trade agreements is one thing (though my ideal is unilateral elimination of trade barriers), as is a general preference for bilateral agreements, particularly if they remain focused on trade and not extraneous social issues. But I sincerely hope that the latest move is not the start of a long rollout of tariffs and other protectionist measures. Unfortunately, more such moves are expected.

What possible logic can explain these actions? To hear Donald Trump tell it, the U.S. must enforce trade laws and establish a “level playing field”. So, perhaps this is a form of negotiation. If so, are the cards we hold so strong that we can afford to risk retaliation in the form of tariffs levied on our own exports? Do our trading partners value our business so much that they will not retaliate? Would those countries offer to remove any subsidies they grant their own export industries? Would they tell those industries they must be price followers regardless of cost structure and taxes, charging no less than their American competitors? Can we dictate the terms of trade with these parties? Trump apparently thinks so, but we shall see. I believe the answer is almost certainly no.

Retaliation is likely; this is how trade wars begin, and they have a way of precipitating economic contraction. But that risk represents only one part of the cost of Trump’s tariff action. The real problem is the likely impact of the Trump tariffs on American consumers, American production, and on America’s long-run competitiveness.

  1. Prices: Tariffs are essentially a tax on imports. A significant share of the burden of that tax will be borne by consumers. The price they pay for the import will rise to reflect a portion of the tariff. If, instead, they opt to purchase the American product after the imposition of the tariff, that is a coerced and suboptimal decision based on their existing preferences. They are likely to pay more to the American producer than in the absence of the tariff on the import because American producers will face less competitive pressure. Thus, American consumers will be penalized by the tariff whether they continue to purchase the import or not.
  2. Output: Quantities purchased fall when prices rise. That is the law of demand. American consumers will buy less of the import and less overall, so consumers lose on both price and quantity. But it’s worse than that, because domestic producers gain a degree of market power under the tariff. They have greater leeway to price above marginal cost, which implies output restraint. It is therefore quite possible that domestic output will decrease as well.
  3. Competitiveness: Handicapping foreign competitors eases the pressure on domestic producers to perform by reducing costs, pleasing customers, creating value, and innovating. This is not likely to be a sudden change. Rather, it would manifest in a gradual deterioration of competitiveness. Perhaps no one abroad will want our exports, but domestic consumers will have little recourse except to pay the tariff for the foreign good they preferred to begin with. Meanwhile, if other domestic industries are reliant on tariffed imports as inputs to production, they too will suffer a loss of competitiveness.

I tend to be skeptical of any claim that a foreign government facilitates (or engages in) predatory pricing on American markets. Of course they might. And I know… the U.S. itself has thrown subsidies at solar panels in the past. (Well how unfair!) However, the facts are that in a variety of industries, foreign producers actually have cost advantages over U.S. producers. The very idea of trade is to take advantage of such differences for mutual gain. We buy things from others precisely because we can’t do it all ourselves, at least not without great sacrifice (high cost).

It is all too easy for domestic producers to cry “protect us”, and to claim that national security demands protection. These claims are often accepted with little if any analysis. The pleas for protection are characteristic of rent-seeking crony capitalism. And it isn’t as if Americans have nothing to gain in the exchange: cheap consumer goods and cheap inputs for domestic producers. The income released via low foreign pricing is available for other uses, including saving, larger quantities, or spending on other goods.

American consumers pay the price of trade restrictions and tariffs in several ways. The restrictions not only cost them directly in terms of higher prices, but they also represent a violation of consumer sovereignty and tend to restrain output. That a central authority would deign to prohibit or penalize certain consumer decisions is abominable. One can assert that the actions protect workers, but that is a fiction and holds only in the short-run at best. Remember that workers are consumers in the first instance. Ultimately, the trade restrictions degrade the ability of those workers to compete on world markets. In short, they are destructive. At the link above, George Will quotes Henry George to that effect:

What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.

Jordan Peterson Is Not Complacent


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It’s a hoot to watch Jordan Peterson‘s videos — he stands before crowds doing … crisply-articulated philosophy, seemingly on the fly. He is an outspoken psychologist at the University of Toronto who covers a lot of intellectual ground with an impactful delivery. One of Peterson’s primary messages is so simple as to seem trite: take control of yourself, because you can and you should for your own sake and those around you! But his treatment is an empowering tonic for both men and women, and many are listening. He has toiled away as a professional psychologist, a professor, an author and a philosopher for many years; his ascent to notoriety has been recent and fairly meteoric. Luminaries like Tyler Cowen and Noah Smith now call Peterson one of the top public intellectuals in the western world.

However, Peterson takes positions that are seemingly hard for the Left to swallow: he believes in the power of individual action; that freedom of expression is the basis of personal and academic freedom; that identity politics is destructive (whether on the Right or the Left); and that white privilege is a lie.

Predictably, the Left has attacked Peterson and attempted to characterize him as a spokesman for the far-right. He meets challenges of this kind with a kind of charged equanimity, exposing falsehoods with quick-footed logic, empirics, and honest reflection. Dan Sanchez has written a nice summary of the attacks on Peterson and shows them to be wholly without foundation. He has critics in both ends of the political spectrum, as Sanchez observes:

“[Far right] critics don’t understand what Peterson is saying, because they are mired in the mindsets of politics and war. The way of politics and war is to confront an enemy horde by amassing your own horde: whether it be on the battlefield, in street demonstrations, or in voting booths. It is to fight tribal barbarism by tending toward the tribal and the barbaric yourself. But the way of the heroic, civilized individual is to lead by example and to lead by appealing to the interests of those whose behavior you want to influence.”

And in Peterson’s own words, quoted by Sanchez, tribal barbarism is the way to social ruin:

…where we’re making your group identity the most important thing about you. I think that’s reprehensible. I think it’s devastating. I think it’s genocidal in its ultimate expression. I think it will bring down our civilization if we pursue it. We shouldn’t be playing that game.

On those assertions, Sanchez notes the following:

… Peterson’s claim that identity politics is ‘genocidal in its ultimate expression’ is no exaggeration. Hitler’s military invasions and death camps were the ultimate expression of the racialist and nationalist identity politics that spiritually drove Nazism. And Stalin’s weaponized famines and ‘gulag archipelago’ were the ultimate expression of the class warfare identity politics that spiritually drove Soviet communism.”

So Peterson clearly condemns groupthink on both the Left and Right. He celebrates the value of people as individuals, and he urges us all to realize our value through individual responsibility and productive effort. Help yourself, help those you love, and help others. That’s a call to real human action, as distinct from the seeking of rents through the political process. Peterson is both a fascinating personality and thinker. His ideas and passion can be a powerful antidote to the complacency that plagues so many today. I hope he continues to gain prominence.

Prohibition Disaster: Opioid Edition


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Opioid deaths in the U.S. keep climbing inexorably. However, at the same time, prescriptions for all opioids have decreased for four straight years (2013-2016), according to the Center for Disease Control, and prescriptions for high-dose opioids have decreased for seven straight years (2010-2016). Further decreases are expected when prescriptions are reported for 2017. How does the declining supply square with the increasing death rate? Contrary to popular belief, opioid prescriptions are not now and never were the cause of opioid overdose deaths. The causes are  complex, but they have everything to do with ill-fated efforts to regulate prescriptions and prohibit some opioids.

Fatal Fun

In this informative interview, Dr. Jeffrey Singer explains that 75% of opioid deaths occur among “recreational” users who have never obtained a legitimate prescription. The recent increases in overdose deaths have been dominated by “other synthetic opioids” like fentanyl and heroin, both of which are illegal (except for fentanyl in patches or anesthesia). Oddly, heroin is not legal for medical use in the U.S., despite the fact that it is less than half as powerful as Dilaudid, which Singer says is used fairly routinely to relieve severe pain.

Singer debunks a widespread notion about the dynamic underlying opioid deaths:

…first of all the narrative that everyone has bought into, and this is very frustrating to us practitioners, is that the opioid overdose death problem is a direct result of doctors prescribing pain medicine for patients. So, the popular notion is that I’d write a prescription for an opioid for my patient for pain, my patient becomes a drug addict, and then starts resorting to all sorts of illegal behavior in search of the drug. He becomes a dope fiend, and then he eventually overdoses and dies. … That is not what’s going on.

From the very beginning, the problem of opioid use was driven by an appetite for recreational drugs. Certainly there are people with legitimate medical needs who develop a dependence or addiction and ultimately turn to the black market for continuing supplies. Dr. Singer does not deny that. But there are also individuals who manage to use these drugs recreationally without ever compromising their lives or livelihoods (see Singer’s anecdote about the “Father of American Surgery”, William Halsted). Unfortunately, however, there are recreational users who become dependent or addicted, just as some do with alcohol.

Where do the opioid supplies come from? Of course, heroin and fentanyl make their way onto the market from overseas, and supplies of prescription opioids also make their way onto the black market. For a real buzz, a lot of oxycodone can be extracted from a OxyContin capsule to bypass its slow release. In fact, illegally-obtained OxyContin became a major source of recreational opioid use following its introduction in the 1990s. At the time, physicians were encouraged to be more aggressive in addressing pain management. But the increase in legitimate use for pain brought a concomitant increase in leakage of pills onto the black market. Rx pads are stolen, a few patients might sell legitimate prescriptions, and pills are stolen from medicine cabinets at parties or over at Grampa’s place, for example.

We’re Watching You, Herr Doktor

Efforts to reduce the availability of opioids have been underway for a number of years now. The DEA has mandated reductions in the quantity of opioids manufactured (25% in 2016 and 20% in 2017). The crackdown on so-called “pill-mills” might have helped stem the flow of opioids to the illegal market, especially in Florida, but the measures included strict supply quotas that have harmed those with legitimate needs for the medications. The DEA reclassified hydrocondone as a Schedule II drug, imposing maximum dosages that are too low to relieve the pain experienced by some patients. All 50 states now have prescription drug monitoring programs (PDMPs), which follow prescribing doctors and patients. Singer says PDMPs have a chilling effect on doctors even when their patients’ needs are legitimate. Finally, the FDA has supported pharmaceutical companies in developing “abuse-deterrent formulations” that can’t be crushed or liquified. And those companies have a strong incentive to do so as they can obtain new patents in the process! Some states have required insurers to cover the new formulations, ending the sale of cheaper generics. That is a nice crony deal for big pharma!

While Endangering Lives

The restrictive policies have led to substitution of heroin for opioid pills, as this Notre Dame study shows. The policies endanger: 1) patients with legitimate needs for pain management; 2) occasional users who are otherwise productive members of society; and 3) heavy recreational users. With greater reliance on black market heroin, there is no way for users to tell exactly what they’re getting: it’s probably impure and it’s often amped with fentanyl, or fentanyl sold as heroin. Fentanyl is 50 times as powerful as morphine and 7 – 8 times as powerful as heroin! Singer describes the severe information problem facing users of black market intoxicants:

… when I go into the supermarket or liquor store to buy a bottle of liquor and I see on the label it says, let’s say, ’80 proof,’ or ‘15% alcohol,’ the thought never crosses my mind that it may not be that, that it could be adulterated with all sorts of impurities or laced with something that could kill me. I believe what it says on the label, because it’s legal, and in the legal market. 

Number one, they have competitors and number two, I have recourse if I’ve been defrauded and injured. But, when were dealing with the illegal market, you go to somebody in a subterranean way who says, ‘Yeah, I have what you want.’ And you don’t know if it’s the dose, you don’t know if it’s pure, that’s what’s happening. In fact, what we’ve learned, because of the narrative that it’s a doctor’s prescribing, since about 2010, 2011, all of the policies of both the federal government and the state governments have been aimed at curtailing the amounts of opioids prescribed.

Prohibition always creates more danger for users. Adulteration of is one side of it. In “Legalizing Opioids Would Dramatically Reduce Overdose Deaths“, Harvard economist Jeffrey Miron adds that prohibition leads to mixing with other legal or illegal substances:

“In 2013, 77 percent of deaths involving prescription opioids involved mixing with either alcohol or another drug. If opioids are easily accessible, people tend to use the substance they desire; when access is limited, however, some consumers obtain an insufficient quantity and therefore improvise with alcohol, benzodiazepines, and other drugs. Taking these drugs together increases the risk of overdose, especially when dealing with depressants like opioids ….

Miron and Singer both discuss the risks created by prohibition for users who have developed tolerance to the drugs. Miron says:

“[Tolerance] makes usage less dangerous as the body develops resistance to opioids’ respiratory-depressing effects. … [but] under prohibition users who have developed tolerance get cut off, whether by legal or medical restrictions or by being forced into non-[Medically-Assisted Treatment] treatment. Tolerance then declines, according to medical experts in drug rehabilitation, so users who resume use are more prone to suffer an overdose.

One study proposes that environmental factors also influence tolerance, and that ‘a failure of tolerance should occur if the drug is administered in an environment that has not, in the past, been associated with that drug.’ Therefore, prohibition may increase the chance of overdose by driving users out of their routine into unfamiliar settings in which their tolerance against the respiratory effect of opioids is diminished. 

Finally, by encouraging the development of a black market, prohibition drives up prices, prompting some users to engage in crime to finance their highs. Prohibition itself cedes the market to underworld elements, whose competition culminates in gangsterism and violence.

Medically-Assisted Treatment

Singer believes resources should be redeployed: less drug regulation and interdiction efforts and more harm reduction programs and medically-assisted treatment (MAT):

… when you take [Methadone] orally, it gets absorbed from the gut. It levels that bind with your opioid receptors enough so you won’t experience withdrawal symptoms. … And the idea behind methadone maintenance is that you get used to not, it’s sort of, behavior modification. You’re blunting withdrawal symptoms, but you’re getting used to not feeling the high. And then it’s hoped that over time, you can be tapered off the methadone. And now you don’t crave the high anymore, and you’re over your addiction problem. That’s the idea behind medical-assisted treatment, whether it’s methadone or Suboxone or others.

While doctors, within limits, can prescribe drugs to treat pain, they aren’t authorized to prescribe Methadone or Suboxone to treat addiction. But MAT can actually prevent people from dying! In addition, Singer mentions needle exchange programs to prevent the spread of hepatitis and HIV, and safe injection rooms:

…you go into the room, you inject there, and then you leave. The needle is then discarded by the people who run the place. And not only that, but you have the bonus of somebody being around there with Narcan so if you overdose, because again, you’re using an illegally obtained substance, so you don’t know really what’s in it. … in Switzerland, they reported that teen heroin use has come down, because when the kids see these people going in and out of the clinic to get their injection, it doesn’t look cool.


There are solutions to the deadly nature of the opioid epidemic, but prohibition is not one of them and never will be. If anything, prohibition in varying degrees has aggravated the dangers of opioids. To truly solve the problem, we should eliminate restrictions on the production and distribution of legal opioids for pain management, legalize heroin, and stop interfering in markets. That would be merciful for patients in real pain, make recreational use of opioids dramatically safer, and put an end to the gangland violence associated with underground competition. Second, redirect those resources into MATs and other harm reduction programs. Miron notes that legalization has worked in other countries, like Portugal and France, to reduce overdoses and opioid deaths. As a political matter, however, these steps might not be feasible unless we get over the cultural bias stigmatizing recreational opioid use as “evil”, and the idea that laws and enforcement can actually prevent people from trying to get high.

Open Borders and Club Goods


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The question of open borders divides libertarians as much as any. The arguments for open borders made by the likes of Bryan Caplan, Alex Tabarrok, Don Boudreaux and Sheldon Richman are in many ways quite appealing. Fewer borders means greater opportunities for gainful trade among individuals. For the U.S., the economic gains from in-migration have been unquestionable. From a pure libertarian perspective, governments should never interfere with the non-violent actions of free individuals, including freedom of movement. These great economists contend, in effect, that there is no real moral distinction between government actions that confine individuals within borders and those that keep people out, though our conciences are less burdened by the latter because the world abroad seems so large.

There is a gnawing contradiction in this viewpoint, however. It relates to the appropriate scope of “ownership”. At the link above, Caplan says:

The only principled libertarian objection to this is that the citizens of each country are its rightful owners, so they’re entitled to regulate migration as they see fit. … But if you believe this, there is no principled libertarian objection to any act of government. Fortunately, the belief that citizens are countries’ rightful owners is crazy. The social contract is an utter myth. Contracts require unanimous consent, and no country has ever had unanimous consent.

The Character of a Good

I contest Caplan’s assertion that any one act of government is like all others. Yes, there is always a danger of a majoritarian tyranny in any democracy. But there is also the question of sovereignty, for which borders of some kind are necessary. If policies governing those borders are established legislatively, they should be subject to checks and balances: executive consent as well as judicial review of disputes.

I also contest Caplan’s statement that ownership implies unanimous consent. In fact, there are many forms of property over which decisions do not imply unanimous consent of joint owners. One such form is the subject of what follows, and I believe that form of “ownership” is applicable to one’s citizenship or residency status.

To keep things simple, I’ll frame this discussion only in terms of citizenship. I therefore abstract from issues like green cards, visiting worker programs, and the presence of resident aliens in general. For a nation, the essence of barriers to immigration can be addressed by considering the simpler case of citizens versus non-resident non-citizens. For purposes of this discussion, if you are allowed to arrive on a nation’s shores, you will be a citizen.

If a country’s citizenship can be considered a good worth acquiring, what is its real character? It is privately possessed and not tradable, but not all goods are tradable. An important taxonomy of goods in the public finance literature is based on two dimensions: exclusivity and rivalrousness. The former is the degree to which other parties can be excluded from enjoyment or use of the good or resource.

Most goods have at least some degree of exclusivity: you can be denied admission to a concert, the use of an appliance or furniture, and even parks and port facilities. Pure public goods like national defense and the air we breath are completely non-exclusive, however. Broadcast television is non-exclusive as well, as long as you have the equipment to watch it.

Rivalrousness is the degree to which the use or enjoyment of a good precludes another’s use or enjoyment. My friend can’t eat the steak if I eat the steak. That’s rivalrous. But my friend and I can both enjoy the concert. That’s non-rivalrous. A private good is both exclusionary and rivalrous. A public good is neither.

Citizenship as a Good

Citizenship can be viewed as a bundle of attributes much as any good, but it is an extremely complex bundle: it includes the individual rights enshrined in a nation’s constitution (if any), the personal and economic opportunities available by virtue of access to in-country markets and resources, the culture(s), and any personal risk reduction provided collectively, i.e., a safety net via public support. How, then, would one classify citizenship, or its component attributes, in terms of exclusivity and rivalrousness?

First, the entire citizenship bundle has a high degree of exclusivity. A nation can decide on closed borders, or partially open borders, if it chooses to do so, just as a theme park limits its gate. That is the political decision at hand. The degree of exclusivity of individual components of the bundle matters little if the bundle itself is highly exclusive.

At a high level, citizenship itself is non-rivalrous. My citizenship does not preclude citizenship for anyone else. Therefore, at the level of the bundle, citizenship is exclusive but non-rivalrous, so it has the character of what economists call a “club good“. Citizens are already part of the club; to that extent they are joint “owners”. Like many clubs, decisions about new membership need not be unanimous.

Classification of citizenship attributes as goods is trickier. The exclusivity of citizenship makes the non-rivalrous public goods available to citizens into club goods. Once admitted, for example, you are free to engage in speech, practice a religion of your choice, own a weapon, and receive due process and habeas corpus without interfering with any other citizen’s ability to exercise the same rights. You get national defense and a judicial system. You have equality of opportunity to the extent that your pursuit of economic gain does not interfere directly with anyone else’s opportunities. On the other hand, the freedom of assembly is rivalrous to at least some extent, as we learned last year from events in Charlottesville, VA. In fact, there may be congestion limits to some of the other freedoms mentioned above. 

Access to a nation’s markets permits mutually beneficial trade to take place. An individual’s participation usually does not rule out participation by others, so it is essentially non-rivalrous. (In some markets the entry of new sellers may be limited and exclusionary.) Of course, a nation’s resources are scarce; exploiting them for gain or enjoyment necessarily prevents others from using the same resources. From the point of view of existing citizens, these resources are non-exclusive and rivalrous, and are therefore classified as “common resources”, subject to congestion effects, but they are still exclusive to those citizens. The key here is not whether there are gains from trade, but that there is some rivalrousness embedded in this citizenship attribute.

In addition to the basic rights mentioned earlier, the entire legal structure, regulatory apparatus, and the political process are complex attributes of citizenship. These bear on the limits of legal conduct: Can you buy or sell liquor on Sundays? Do businesses require licensure? Is abortion legal? And on and on. In a democracy, the ability to participate in the political process is non-rivalrous: it does not prevent others from participating. However, the range of possible outcomes of the process can also be viewed as an attribute, and these outcomes, as they are promulgated, are certainly rivalrous. If the “other” side gets extra votes, then the power of my vote is diminished. So the limits of legal conduct are exposed to political rivalry. In the case of open borders, a large number of citizens may not favor existing rules, regulations, and the allocation of public spending.

So the attributes of citizenship are mixed in terms of rivalrousness: Some are rivalrous but many are not. The citizenship bundle, at a more detailed level, is therefore a mix of club goods (exclusive but non-rvalrous) and some goods that are rivalrous. This is important, because under the classical description club goods are public goods provided privately; they are therefore under-provided from the perspective of social welfare and the Pareto criterion that a new citizens can be made better off without making any existing citizen worse off. That might not be the case in the presence of congestion effects.

Should a Club Good Be Unrestricted?

Citizenship has value at the margin to both existing citizens, who should be regarded as established club members, and non-citizens. The foregoing establishes that there are some private (exclusive and rivalrous) attributes attached to citizenship. Sometimes this is due to the impact of congestion on the provision of public goods. Patrick McNutt, in his survey of literature on “Public Goods and Club Goods“, summarizes some basic conditions under which public goods are provided by clubs:

The public good is not a pure public good, but rather there is an element of congestion as individuals consume the good up to its capacity constraint. What arises then is some exclusion mechanism in order to charge consumers a price for the provision and use of the good. Brown and Jackson (1990, p. 80) had commented that the purpose of a club ‘is to exploit economies of scale, to share the costs of providing an indivisible commodity, to satisfy a taste for association with other individuals who have similar preference orderings’. For Buchanan and Ng the main club characteristic is membership or numbers of consumers and it is this variable that has to be optimised.

Citizenship (or residency) is generally not price rationed, though there are certainly costs to the immigrant. I make no pretense here as to the determination of an optimal membership from a club or larger social perspective. My point is that rationing membership is a rational choice by club members, or citizens in this case.

Okay, I Like My Club

Tribal affiliations, and ultimately nation states, were a natural outgrowth of early competition for resources, especially when identifying threats from outsiders was a constant preoccupation. Territorialism was a byproduct, and with the establishment of agriculture, the peoples of these early societies probably identified strongly with their homelands.

Modern nation-states have evolved from those early patterns, and nations continue to differ in terms of language, culture, and governance. Successful nations are undoubtedly more liberal (in the classical sense) and open to trade and cross-border movement. Maybe one day all nations will be united under the principles of libertarianism… don’t count on it! For now, to one degree or another, a nation’s inhabitants have an interest in minimizing economic and political risks and retaining access to resources within their borders. I don’t believe that desire is irrational or immoral. If the inhabitants of a nation have a moral obligation to share their rights, wealth, and political process with all comers, then they must accept the possibility that their rights will be compromised, and possibly even complete upheaval. They suffer a loss of sovereignty and a loss in the expected value of their citizenship.

There is obviously no limiting principle to the open borders policy, as Tyler Cowen says. Existing citizens would be obligated to accommodate all those who land upon their shores, granting them the full rights and opportunities accorded to all other residents. Perhaps there would be economic gains in the short or long run, as most libertarians would predict. But perhaps there would be some losses along the way. Perhaps there would be political stability after a large influx of new residents, but perhaps not. And ultimately, perhaps changes in the political climate would feed back to the detriment of economic performance. One simply cannot say, a priori, how things would go. There are risks to the existing citizenry, and if they are obliged to accept those risks, those might well include having to feed, clothe and house new residents. There should be no absolute obligation to accept those risks. If the debate is about individual liberty, then surely imposing those risks via open borders would  abrogate the rights of existing citizens.

Addendum: A Note on the Goods Taxonomy

Given the two dimensions of goods discussed above, exclusivity and rivalrousness, goods are classified as follows:

  • Private goods: exclusive and rivalrous;
  • Public goods: non-exclusive and non-rivalrous;
  • Club goods: exclusive but non-rivalrous: e.g., a concert;
  • Common resources: non-exclusive but rivalrous: the air we breath; an aquifer;

Another category is sometimes defined: contestable goods, which have the character of public goods or even club goods when under light use, and are common resources when under heavy use. There is a difference between an empty park and a crowded park; or an empty road and a crowded road.

See ThoughtCo. for a good exposition on the taxonomy.

Replacing the Top Banana


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Almost all “dessert bananas” consumed in the U.S. are of one variety: the Cavendish. Dessert bananas are consumed raw, as opposed to “cooking bananas”, or plantains. This post by Steve Savage on his Applied Mythology blog provides some history of the commercial banana and the reasons why the market is dominated by a single banana cultivar. Many other cultivars exist across the globe, but there are sound economic reasons for the dominance of the Cavendish. For starters, people like them!

Incredibly, bananas became one of the early modern fruit staples, available at an affordable price at all times of the year, even in the dead of winter far from the hospitable growing conditions of the tropics. At that time, the dominant banana variety was the Gros Michel, but it fell victim to a fungus called Panama Wilt in the 1950s (still, populations of the Gros Michel survive today). The Cavendish proved to be an excellent replacement, though banana enthusiasts claim that it is inferior to the Gros Michel. Nevertheless, the Cavendish has reigned as the “top banana” in international commerce ever since. Now, however, the Cavendish is threatened by a relatively new strain of the same fungus that ravaged the Gros Michel. The impact so far has been felt mainly in Asia, but it is expected to spread.

This vulnerability has led to criticism of the industry’s reliance on the Cavendish as an example of “extreme monoculture”. Savage regards this as uninformed. He acknowledges the wide diversity of banana cultivars around the globe, but he asserts that the critics do not have a sound understanding of the highly-calibrated economics of growing, transporting, ripening and delivering bananas at the optimal point in the ripening process. The Cavendish meets the requirements of that process far better than the many other varieties, so its long-time dominance in export markets reflects rational decision-making:

First of all, a banana for export has to be seedless. Many wild bananas have large, very hard black seeds – not something that has much consumer appeal. …

By the way, seedless bananas (or rather, bananas with tiny, undeveloped seeds) are not GMOs, as the term is popularly understood. Domestication of the banana began several thousand years ago as early farmers selectively bred those plants producing the most desirable fruit for consumption: less seeds and more pulp. Savage goes on:

“Next, the banana needs to be productive in terms of overall yield per tree or acre. … The usable per-hectare yields of the Cavendish variety are quite high, and that is why it has been a both economically viable and environmentally sustainable choice for a long time. …

But probably the most limiting requirement for a banana variety to be commercially acceptable is that it has to be shippable. … Very few of the wonderful range of cultivated or wild banana types could ever do that, but because the Cavendish can be shipped this way, the energy and carbon footprint of its shipment is small. This crop has a very attractive ‘food-miles’ profile.

In addition, Savage explains that the ripening process must be manageable and predictable. For all of these reasons, the Cavendish (and the Gros Michel in its time) has been an ideal choice in international commerce.

There are many potential solutions to the new challenge faced by the Cavendish, but they may or may not be able to provide a viable replacement before the new fungus presents a full-fledged crisis. You can learn about some of these alternatives at the forumoron other industry sites. For one thing, the Cavendish has shown to be protected from the fungus when grown in mixed plantations with papaya and coffee. In Taiwan, Cavendish bananas have been bred to resist the fungus. Other varieties are grown in central America and the Caribbean, including a surviving Gros Michel population, though it’s doubtful that it could survive the new fungus. There is also the so-called Apple Banana and the Berry Banana. While a greater variety of banana choices would be welcome to consumers, it is not clear how well these exotic bananas would meet the requirements of growers, shippers, grocers and consumers, and at a price that balances the interests of all parties.

There might also be a role for biotechnology in the effort to replace the Cavendish. Genetic engineering (GE) is a promising avenue through which disease-resistant varieties might be created, as it has with the papaya in Hawaii. It is also possible for GE to enhance the nutritional quality of crops. However, you can bet that food activists will condemn any attempt to leverage GE in banana farming.

You’re Entitled To Better Returns Than Social Security


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It’s one thing for indignant seniors (or anyone nearing retirement) to defend the crappy returns they get on their lifetime Social Security payroll taxes … er, contributions, against the arguments of reformers. It’s another for younger individuals to rant about the threat to the crappy returns they will get while resisting an idea for reform that would almost certainly improve their eventual well-being: privatization. Both of the aforementioned reactions are marked by confusion over the use of the word “entitlement” in federal budgeting, though in another sense, entitlement is manifested in the very defensiveness of the reform critics. At its root, this self-righteous naiveté is a product of ignorance about the program, its insolvency, how its rewards compare to private savings, and longstanding media propaganda favoring big government as grubstaker… because it feels virtuous.

There’s really not much to like about Social Security, though the status quo will always appeal to some.

Insolvency: The trust fund held $2.7 trillion of reserves at the end of 2016, but benefit payments are growing faster than contributions (plus interest on the public bonds held by the fund). The wave of retiring baby boomers and increasing longevity (and a declining number of workers per retiree) are placing a strain on the system. According to the trustees, depletion of the fund will begin in earnest in 2022, and the Old Age Survivors and Disability Insurance (OASDI) fund will be exhausted by 2034. This might be delayed if the economy and employment grow faster than expected. The actuarial deficit through 2091 is $12.5 trillion, as Brenton Smith notes in this post.

The returns are lousy: Two years ago, I posted an examination of the returns earned on Social Security “contributions” in: “Stock Crash at Retirement? Still Better Than Social Security“. The title is an accurate summary of the conclusions.

Suppose you are given an option to invest your FICA taxes (and your employer’s contributions) over your working life in a stock market index fund. After 40 years or so, based on historical returns, you’ll have stashed away about 12 – 18 times your total contributions (that range is conservative — 40 years through 2014 would have yielded 19x contributions). A horrible preretirement crash might leave you with half that much. At the low-end, you might have as little as 4.5 times contributions if the crash is as bad as the market decline of 1929-32. That would be very bad.

But you don’t have that option under current law. Instead, the return you can expect from Social Security will leave you with only 1 to 4 times your contributions — without further changes in the program — based on your current age, lifetime earnings, marital status and retirement age. The latter range is based on the Social Security Administration’s (SSA’s) own calculations, as quoted in ‘Social Security: Saving or Tax? Proceeds or Aid‘ on Sacred Cow Chips.”

Reforms? The prototypical reform proposals always involve cutting benefits or raising taxes in one way or another. No wonder there is so much suspicion among the public! For seniors and near-retirees, the lousy returns noted above are at least fairly certain: generally, reform proposals haven’t applied to those of age 55+. Nonetheless, those projected returns are not a promise. There is a risk that the benefits could be changed or eroded by Congress, as discussed here by Lance Robert. For youngsters, the returns are much more uncertain, and changing the structure of distant benefits is always more politically palatable.

Examples of typical reform proposals include delaying the age at which benefits can be claimed, increasing the income cap on payroll taxes, and changing the way in which benefits are indexed to inflation. Many of the “new ideas” shown at this link are variations on finding additional tax revenue or delaying benefits. Rep. Sam Johnson has proposed a set of fairly conventional reforms, including gradual increases in the retirement age and elimination of the earnings test, so that some income could be earned without reducing benefits. Also, Johnson’s plan would redistribute benefits toward low-income beneficiaries. AARP provides a summary of 12 proposals, one of which is to index benefits for life expectancy at each age: as expected longevity increases, annual benefits would decrease. There are other proposals with a strongly redistribution aspect, such as reducing benefits for those with high lifetime earnings or means-testing benefits.

Better ideas: There are currently some incentives in place for retirees to delay benefits for a few years, and some of the proposals at the “new ideas” link would attempt to strengthen those rewards. Another idea mentioned there is to offer an inducement to delay claims by allowing at least a portion of future benefits to be taken as a lump sum. This is more novel and has greater potential savings to the system in a world with increasing longevity. To the extent that retirees can privately invest at more advantageous returns, they might be willing to accept a substantial discount on the actuarial value of their benefits.

The interests of future beneficiaries would be served most effectively by allowing them to choose between contributing to the traditional program or setting a portion of their contributions aside in a private account. These accounts would give individual workers flexibility over investment direction. As discussed above, better returns than the traditional program can be had with near-certainty given sufficient time until retirement. Michael Tanner at CATO is correct in insisting that workers control their own accounts should they opt-out of the traditional program. And the government itself should stay out of private capital markets. 

It is this proposal that is always greeted with the most vitriol by opponents of reform. The very idea of private accounts seems to them an affront. One explanation is the fear of financial risk, but this would be mitigated by limiting the opt-out to younger workers with adequate time for growth. Another explanation is the fear that lower-income beneficiaries would not fare well under this reform. In fact, there is a strong semblance of redistribution in the system’s existing benefit formulas, but these features do not amount to much once adjusted for the differing life expectancies of income groups and the benefits paid to survivors. There is no reason, however, why the private account option would prevent redistribution through the traditional portion of contributions. Moreover, there is value in creating greater transparency when it comes to redistribution, as it promotes more effective scrutiny.

Funding: Unfortunately, the Social Security program has long relied on funding current benefits to retirees with dollars contributed by current workers. This is one of the biggest areas of misunderstanding on the part of the public. Allowing workers to opt-out would improve the long-term benefits received by those retirees, but it would also remove a portion of the funding for current retirees, thus accelerating a portion of the system’s unfunded obligations. A similar acceleration of the funding gap would accompany any reform to discount future benefits in exchange for payment of a lump sums in advance. The tradeoff is favorable over a time horizon lengthy enough to cover the retirement of today’s younger workers, but the near-term shortfall can only be met by reduced benefits, borrowing, or new sources of funds.

Asset Sales: The best option for bridging the funding needs of a transition to private, individually-controlled accounts is to sell federal assets. I have discussed this before in the context of funding a universal basic income, which I oppose. The proceeds of such sales, however, could be used to pay the benefits of current and near-term retirees so as to allow the opt-out for younger workers. The asset sales would have to proceed at a careful and deliberate pace, perhaps stretching over a decade or more, but those sales could include everything from unoccupied federal buildings to vast tracts of public lands in the west, student loans, oil and gas reserves, and airports and infrastructure such as interstate highways and bridges. In 2011, it was estimated that the federal government owned $1.6 trillion worth of liquid assets alone. The value of less liquid federal assets would be in the many trillions of dollars. (Read this eye-opening assessment of federal assets.) Of course, these assets would be more productive in private hands.

Sustainability: The outrage greeting ideas for entitlement reform largely denies the economic reality of inadequate funding. Social Security is just one example of an unsustainable entitlement program. Few participants in the system seem to realize that their benefits are paid out of contributions made by current workers, or that surpluses of the past were simply borrowed by the government and used to fund other spending. It was sustainable only with a sufficient number of contributing workers to support a stable class of retiree-beneficiaries. It cannot withstand an expanding class of longer-living beneficiaries relative to the labor force.

Ideally, reform would address the system’s insolvency as well as the weak returns to beneficiaries on their payments into the system. Self-direction and individual control over at least a portion of invested contributions should be viewed as a long-term fix for both. It will yield much better returns than the traditional system, but for workers this depends on the amount of time remaining until retirement. Young workers can elect to opt-out of the traditional system at little risk because they have the time to invest over several market cycles, but older workers must be circumspect. In any case, it is unlikely that politicians would take the chance of allowing older workers to opt-out, then face a potential backlash after a market downturn.

The insolvency problem, and the short-term funding shortfall created via the opt-out alternative, require hard decisions, but asset sales can bridge a large part of the gap, if not all of it. Lump-sum benefit payments might also be made at a savings, but they would worsen the short-term gap between benefit payments and contributions. In the long-run, the tradeoffs would become more favorable as today’s young workers age and retire with the more handsome returns available via individually-controlled and privately-invested accounts.

Carried Interest and Your Private Sweat Equity


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Suppose your rich uncle buys an old house to do some fix-ups and hopes to resell it at a gain. He has the cash and is willing to split the profit 50-50 if you’re willing to handle a few restorations over the next year. Even better, under the partnership he’ll form with you, your profit will be taxed as a pass-through capital gain. You’ll be taxed at only 15% (or 20% if your income is already very high). You’ll provide the labor, but your cut won’t be taxed at ordinary income tax rates.

That’s Just Like Carried Interest

A similar example is provided by Greg Mankiw, along with several others, to illustrate the ambiguity of “capital gains” under our tax law. What might surprise you is that the tax treatment of the deal with your uncle is exactly the same as the tax benefit received by the general partner (GP) in a private equity fund. The GP is the “worker”, as it were, who manages the capital paid-in by the fund’s investors (or limited partners). The GP attempts to build the fund’s value in various ways. The investors, on the other hand, take the same role as your uncle. The GP earns fees as a cut of the investment gains; those fees are essentially treated as capital gains for tax purposes. In the case of the private equity GP, however, the income is called “carried interest”, but there is no real difference.

The tax treatment of carried interest has been a target of progressives and populist critics for many years. This article in The Hill derides the GOP’s failure to close the carried interest “loophole” in the Tax Cut and Jobs Act (TCJA) recently signed into law by President Trump. Of course, wealthy private-equity players have sought to protect the rule with generous campaign contributions to key politicians. However, as illustrated by the partnership with your uncle, pass-through business taxation combined with the treatment of capital gains provides the same benefits to any business-person who invests “sweat equity” into the improvement of an asset for ultimate resale, including the business itself.

Should “sweat equity” earned by a worker be taxed more lightly than the direct receipt of “sweat wages”? The worker does not “own” the asset in question prior to the work effort, a fundamental distinction from what we normally consider to be a capital gain. On the other hand, the worker shoulders risk that the asset’s value will fail to meet expectations. My view is that it is not appropriate for the tradeoff between private risk and return to be managed via the income tax code or by government generally. Nevertheless, the sweat-equity conversion of labor value into asset appreciation is treated by tax law as a capital gain and is taxed at a lower rate than wages (except at low levels of taxable income).

Equal Protection Under the Tax Law

The carried interest rule and relatively “light” taxation of returns on capital are not at the root of the problem here. Rather, it is the disparate treatment of different kinds of income for tax purposes and the high taxation of ordinary income, even in the wake of the the TCJA’s passage. Diane Furchtgott-Roth argues that the low carried-interest tax rate is necessary to encourage productive investment. Peter Wayrich agrees, but again, that is not a good rationale for disparate (and high) taxation of labor income. This note in the Economic Policy Journal contains a quote on Senator Ron Johnson’s proposal to tax all productive entities at the 20% carried-interest tax rate. The potential loss of revenue might require a higher rate, but the proposition that rates should be equal across all forms of business organizations is more sensible than the complex changes promulgated for pass-throughs under the TCJA. Moreover, the progressive premise that tax rates on capital income should be high is a prescription for low rates of saving, a diminished pool of investment capital, and ultimately low growth in labor productivity and wages.

Demonizing Private Equity

The private equity business is criticized for reasons other than carried interest, but mainly due to superstition that these firms routinely engage in plundering healthy enterprises to extract value and victimize helpless employees by reducing wages or leaving them without work. Simple economics reveals the shallow thinking underlying such claims. As a first approximation, private equity can be profitable only when target firms are under-performing or undervalued. A healthy market for business ownership is necessary to ensure that firms with untapped value survive. Weak performance might stem from any number of circumstances but must be addressable under new management. That includes a management shakeup itself, and it could include a capital infusion to upgrade facilities, elimination of unprofitable product lines, a spin-off from a neglectful parent company, or wage renegotiation to improve competitiveness (but never ask a leftist if wages are too high, even as the employer fails).

Interest Deductibility

The tax benefits of carried interest enhance private equity deals relative to traditional merger and acquisition activity. Again, that illustrates the oddity of having different tax rules for different firms. In the past, the gains from carried interest have been magnified by another unfortunate aspect of the tax code: the interest-deductibility of business debt. The TCJA doesn’t completely eliminate this economic peculiarity, but it places a severe restriction on its use (see #6 on the list at the link).

In general, interest deductibility has favored the use of debt in the capital structures of all businesses. That leverage increases financial risk and bids up the level of interest rates faced by all borrowers. Private equity firms have made liberal use of debt in structuring buyouts. Their borrowing capacity combined with carried interest and the debt subsidy has undoubtedly made deals more attractive at the margin.

The new restriction on interest deductibility is likely to reinforce an existing trend in private equity: gradually, GPs have been putting more “skin in the game“. That is, they are risking a bit more of their own capital. That is generally a good thing for investors. The article at the last link was written in March 2017, so the data shown for 2017 is almost meaningless. In 2016, however, the average GP commitment as a percentage of fund size was still less than 8% and the median was just 4%. These percentages should continue to increase with competition for deals and more restricted deductibility of interest expense.

Taxes and Value

If you want to encourage value-maximizing behavior, then don’t tax its makers (or its markers) heavily. Carried interest extends the tax treatment of “sweat equity” to those who “police” the private sector for unexploited value: private equity firms. By eliminating waste, resuscitating formerly productive enterprises, and exploiting new profit opportunities, their efforts are socially accretive. The popular narrative of an “evil” and “vulturous” private equity industry is both misleading and destructive. Beyond that, there is no reason to tax different forms of productive activity at different rates, but we do. The TCJA has lessened the tax disparities to some extent, but more equalization should be a priority. At least the business interest deduction has been restricted, which should lessen the artificial reliance on borrowed capital.

Tax Cuts Yes, Simplification a Mixed Bag


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President Trump signed the Tax Cuts and Jobs Act (TCJA) this morning, the GOP tax bill with an acronym that simply won’t roll off my tongue. A useful summary of the Act produced by the House -Senate conference, and the full text of the Act, appear at this link. The TCJA hews more toward the earlier Senate bill than the House version. I’ve written about both (the House bill here and both here). Here is a good summary of the Act from Peter Suderman at

In my earlier assessments, I relied upon the principle of tax reform and real simplification as a justification for a tax cut without revenue neutrality. There are a few reforms and partial reforms, and the bill may simplify taxes for a number of individual taxpayers. However, on the whole I’m disappointed with the progress made by the GOP in those areas.

Notwithstanding my disappointment with the overall reform effort, the TCJA cuts taxes for most Americans and is likely to have salutary effects on economic growth and the job market. In fact, one of the most remarkable things about  the Act is the claim made by its adversaries on the Democrat side of the aisle. They apparently believe that the benefits of the TCJA flow primarily or even exclusively to the rich. This is a huge mistake for them. High-income taxpayers will receive greater benefits in absolute dollars, but not proportionally. This is shown by the table above, prepared by Chris Edwards from data produced by the Joint Committee on Taxation (JCT). In fact, the TCJA will extend tax reductions to a larger share of the middle class than either of its predecessor bills would have done. You cannot meaningfully reduce the taxes generated by a steeply progressive tax system without reducing the absolute dollars paid by high-income taxpayers. And you can’t lay the groundwork for sustainable economic growth without improving the investment incentives faced by high-income taxpayers and producers.

Here are some additional additional thoughts on the bill:

Yeah, I like me some tax cuts: The Act reduces taxes for many individuals and families by doubling the standard deduction and reducing tax rates. More importantly, perhaps, it will also reduce taxes for C-corporations, providing some relief from double taxation of corporate income, as will the switch to a territorial tax system on U.S. corporations doing business abroad. The latter is a real reform, while I consider the former a partial reform. Investment incentives are improved via the corporate rate cut and elimination of the corporate Alternative Minimum Tax (AMT) — a real reform, as well as the ability to write-off spending on new equipment immediately. As I argued last month, lower corporate taxes are likely to benefit both workers and consumers. The actions of few companies (AT&T, Comcast, Wells Fargo, and Fifth-Third) seem to demonstrate that this is the case: they have announced bonuses and increases in their base wage rates in the immediate wake of the TCJA’s massage.

Pass-through tax cuts are iffy: One of the most difficult parts of the TCJA to evaluate involves the implications for pass-through business entities like sole proprietorships, partnerships and S-corporations. Some might not receive significant cuts. The Act includes a maximum 25% rate on business income, but that is dependent on the proportion of the owner’s income deemed to be business income under the new rules. It also allows a flat deduction of 20% against business income. These provisions will be of benefit to very successful and very capital-intensive pass-throughs. Owners of smaller or less profitable firms will get the benefit of lower individual tax rates and the higher standard deduction, but might not have income high enough to benefit from the 25% rate cap.

Simpler for some, but it is not simplification: The doubled standard deduction will mean fewer taxpayers claiming itemized deductions. That sounds like simplification, but many will find it reassuring to calculate their taxes both ways, so a compliance burden remains. The Act retains or partially retains a number of deductions and credits slated for elimination in earlier versions, failing a simple principle held by reformers: eliminate deductions in exchange for lower rates. Along the same lines, the individual AMT is retained, but the exemption amount is increased, so fewer taxpayers will pay the AMT. Again, simpler for some, but not real simplification.

Elimination of the corporate AMT is simplification, as are immediate expensing of equipment purchases and territorial tax treatment. However, most of the complexities of corporate taxes remain, as do certain tax breaks targeted at specific industries. What a shame. And unfortunately, taxes for pass-through entities are anything but simplified under the Act. Complex new rules would govern the division of income into business income and the owners’ wage income.

Reducing deductions and bad incentives: The mortgage interest deduction encourages over-investment in housing and subsidizes the wealthiest homebuyers. The TCJA leaves it intact for existing mortgages, but allows the deduction to be claimed on new mortgage loans of up to $750,000. So the bad incentive largely remains, though the very worst of it will be eliminated. There have been complaints that this change could reduce home prices in states with the highest real estate prices. Good — they have been inflated by the subsidy at the expense of other taxpayers.

The tax write-off for state and local taxes (SALT) will be limited to $10,000 a year under the TCJA, though it adds some flexibility by allowing that sum to be met by any combination of state or local income, sales or property taxes. This change will reduce the subsidies from federal taxpayers residents of high-tax states, and should make leaders in those states more circumspect about the size of government.

The TCJA preserves and even expands a number of individual deductions and credits, subsidizing families with children, medical expenses, student loans, graduate students, educational saving, retirement saving, and the working poor. The interests benefiting from these breaks will be relieved, but this is not simplification.

Yet another case of “simpler for some” is the estate tax: it remains, but the exemption amounts are doubled. The estate tax does not produce much revenue, but it is fundamentally unjust: it ensnares the families of deceased property owners, farmers and small businesses; planning for it is costly; and it often forces survivors to sell assets quickly, sustaining losses, in order to meet a tax liability. The TCJA will significantly reduce this burden, but the tax framework will remain in place and will be an ongoing temptation to ravenous sponsors of future tax legislation.

Individual cuts are temporary: The corporate tax changes in the TCJA are permanent. They won’t have to be revisited (though they might be), and permanence is a desirable feature for sustaining the impact of positive incentives. The individual cuts and reforms, however, all expire within eight to ten years. The sun-setting of these provisions is, as some have said, a gimmick to reduce the revenue impact of the Act, but sunsetting means another politically fractious battle down the road. It is also a device to ensure compliance with the Byrd Act, which limits the deficit effects of legislation under Senate reconciliation rules. Eight years is a fairly long “temporary” tax cut, as those things go; for now, the impermanence of the cuts might not weaken the influence on spending. However, that influence is likely to wane as the cuts approach expiration.

Deficit Effects: The TCJA’s impact on the deficit and federal borrowing is likely to be somewhere north of $500 billion, possibly as much as $1.4 trillion. Deficits must be funded by government debt, which competes with private debt for the available pool of savings and must be serviced, repaid via future taxes or inflated away. In the latter sense, government borrowing is not really different from current taxes, a proposition known as Ricardian equivalence.

Nonetheless, the incentives, complexities and compliance costs of our current tax code are damaging, and the TCJA at least accomplishes some measure of reform. Moreover, the incremental debt is small relative to the impact of prior estimates of government borrowing over the next decade, with or without extension of the individual tax cuts. The most fundamental problem that remains is excessive government spending and its competing demands for, and absorption of, resources, with no market guidance as to the value of those uses.

Art and Its Political Hijacking


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Art and politics have a long connection that is often quite awkward. One philosophy holds that art cannot be divorced from its social origins, that it is a legitimate platform from which to confront injustice and oppression, and indeed, that art must “serve some moral or didactic purpose”. In the nineteenth century, the contrary view was expressed by the phrase “art for art’s sake“, which has been credited to several individuals including Edgar Allen Poe. At the time, Marxists said the slogan served to prop-up the “petty bourgeois”, as if artistic beauty and exploration must themselves be inspired by political interests. Exploiting art to promote a point of view is not the exclusive domain of the Left, however. The Right has its own variations on political expression through art. But all such varieties on the Left and Right make me cringe just a bit; I cringe even when the intent of art is to promote views with which I strongly agree.

Art and Advocacy

Great art derives from an amorphous combination of talent, certain acquired technical skills, and inspiration. Inspiration can come from anything that might be, strictly speaking, non-art, such as natural beauty, any kind of human drama, the spiritual, or even politics. While many of us can agree that certain artistic works are great, it will always be a subjective matter to one degree or another.

Art may cross subjective boundaries of propriety, and it may offend. No matter the specific topic or the intent, art becomes confrontational and political when some parties object to whatever is portrayed, and especially when attempts are made to suppress it. A work of art is tendentious if the intent is to promote a political viewpoint or a policy, either as a matter of protest or when it is used by either the state or “subversive elements” in an effort to propagandize. It ranges from state-sponsored “artistic” propaganda to private but jingoistic expression, to “protest art”, and to any kind of politically-motivated art.

Obviously, tendentious art can be good from a purely technical perspective even while the subject matter is unappealing to a particular observer. As well, TA can appeal to the emotions effectively, and it can be interesting as a sociological exercise. However, art can portray conditions, dire or otherwise, and appeal to emotions without advocating social policy, and art can be abstract and devoid of any political implication whatsoever.

Even worse than tendentious art are attempts to either censor it or subsidize it. May tendentious art live on as a tool in the marketplace of ideas, free of government involvement. However, on the whole, public or private, I find it unappealing.

Why I’m Averse to Tendentious Art 

Here are several propositions about tendentious art (TA) to which I subscribe. They are overlapping to some extent, and I emphasize they are often matters of degree rather than kind:

  1. It compromises artistic standards;
  2. Persuasion is its purpose, making art subsidiary to the politics;
  3. It demotes art to a tool of delivery, subservient to the message;
  4. TA exploits art for political purposes;
  5. Art often functions as a refuge or escape; TA cannot;
  6. TA is often angry;
  7. the appeal of TA is often self-reverential;
  8. It confuses artistic value and political “virtue”;
  9. practitioners of TA often engage in willful historical distortion;
  10. TA can be self-antiquating;
  11. TA often recycles and co-opts existing art;
  12. It is never Pareto-improving.

I’ll elaborate on some of these points:

TA demotes the art part: To the extent that the art and the political message are separable, art becomes subsidiary to the message, and that is almost always true when the message is explicit. In fact, art becomes a mere conveyance.

Artistic compromise: Your political message does not make you an artist. This is worth extra emphasis in the age of the meme and the meme “artist”. I’ve seen what I consider bad art. I’ve seen a great deal of bad TA. It is as if the artist can be forgiven for an unimpressive artistic effort so long as the message is valued by like-minded partisans. In this way, TA creates confusion over artistic value relative to political “virtue”.

Politics attempts to exploit art: I am appalled at the recent treatment of certain celebrities, artists or otherwise, who are facing demands to publicly state their political views, to support or denounce this or that person or policy. Whether or not one’s work intersects with the political sphere should be up to the artist. It is within one’s rights to be apolitical.

TA is Pareto-violating: Tendentiousness makes art unappealing to certain observers, and that might even be what the artist intends. A particular policy position embodied in TA, if adopted, might actually be threatening to some individuals in terms of their economic welfare or personal liberties. Even worse, extreme forms of TA might serve to incite violent action (free speech demands that government may not engage in “prior restraint”). The point I’m making here is distinct from any issues posed by physical presentation, such as high volume or lighting, that might make a third-party worse off.

In economics, exchange is said to be Pareto-improving if two trading parties are made better-off while no one is made worse off. Of course, one can always ignore certain forms of art, or one can try to if its expression is non-threatening. But someone may well be made worse-off by an exercise of TA, and in a value-free sense, that makes TA inferior to other art.

Trapped like a rat: TA tends to be ineffective as a refuge or escape, no matter how cathartic some might find the message. The observer is bound by the political reality and the conflict it implies. Art doesn’t have to transcend reality to serve as an escape, but it can transcend explicit advocacy.

Your art and your virtue: I don’t think it’s unfair to say that an observer who enjoys tendentious art indulges in a pleasure that is strongly self-reverential. They feel virtuous, and that is the wrong sentiment to derive from art. TA derives some of its value and power by stroking the ego of the observer.

Distorting history: I have seen many examples of inaccurate historical accounts in theatre and elsewhere. The musical Hamilton is prominent in this respect. The musical Annie has its share of distortions regarding the largely similar policies of Herbert Hoover and Franklin Delano Roosevelt. Che Guevara is sometimes depicted in art as heroic, yet he was murderous, misogynistic, and tyrannical. Got any Stalin shirts? I could go on….

TA can get stale: In some circumstances, TA can make art self-antiquating: captive to the time in which it is created and reducing its relevance as times change, especially if the artist is on the losing side of the politics.

What Prompted This? A Band Beyond Description

This post was motivated by my observation of comments on “fan pages” to which I belong on-line. I’ve been an avid follower of a certain group of musicians over the years, and these fan pages give me an opportunity to interact with other enthusiasts, view concert video, and get news about the band. The fans tend to be affable and we share a certain cultural zeitgeist. However, there is division on these pages over politics, and while I’d describe many of the fans as leftist, there is more diversity of opinion than one might guess. One fan page actually has a “no politics” rule, as it’s proven to create unwelcome strife on other pages. I believe the page administrators are correct in viewing politics as “off-topic”. That is not censorship; it is private governance — house rules, as it were, to which I can’t object. Some fans just can’t help violating the rule, however. There, and on other fan pages, a significant segment of fans seem to believe that one cannot really “get” the band and their music without sharing certain political opinions. That doesn’t surprise me, but I dislike the “groupthink” attitude it reflects.

I realized early-on that the band tended to avoid tendentious art, greatly to their credit. Their music often focuses on traditional themes like love, love lost, celebration, the human condition, and many fascinating stories populated with colorful characters. They even cover some biblical topics that are just great stories. Other frequent musical themes are quite abstract, by turns sinister and dreamy.

There is no doubt that the members of the band have opinions about politics. They have supported a number of causes such as the anti-war movement, ending the drug war, environmental causes, and gay rights. But I believe they have intentionally avoided explicit advocacy in their music. They tend not to use the stage as a pulpit, except generally as a pulpit of musical celebration and fun. They sing sweetly (mostly) and they can rock!

Again, the distinctions I’m making are matters of degree. For example, occasionally the group plays concerts to benefit causes or even candidates for office. That’s fine. I might not support their candidate, or I might disagree with a policy position, but that sort of explicit advocacy seldom if ever intersects with their music. It imposes little or nothing on me.

The band has written and performed a few songs expressing concerns that I don’t fully share. In my opinion (in seeming violation of some of the principles I listed above), I consider those songs to be great from a purely musical perspective; the lyrics are well-turned; and they tend to reveal general sentiment and anxiety about things we’d all like to resolve, rather than direct advocacy of specific policies. I like those songs, though I might disagree with the policy prescriptions of the musicians themselves. In any case, they don’t claim technical expertise in those subject areas. I like their art and don’t really care about their policy preferences, unless they rub my nose in them. But they don’t.

Again, while these are matters of degree, this band has always tended not to use their music as a political soapbox. Perhaps the band’s greatest luminary once said the following:

You need music, I don’t know why. It’s probably one of those Joe Campbell questions [who said, ‘Follow your bliss.’], why we need ritual. We need magic, and bliss, and power, myth, and celebration and religion in our lives, and music is a good way to encapsulate a lot of it.


My admittedly subjective opinion is that the explicit messaging of tendentious art cheapens artistic expression in several ways: it demotes art in favor of political messaging; it subverts the role of art as an escape; it may be inferior by making third-parties worse off; its enjoyment is something of a self-reverential exercise; it confuses artistic value with political “virtue”; it makes art less durable to the extent that the message it embodies may become less relevant with time; and it is usually angry.

The band I’ve referenced in this discussion is the Grateful Dead. I’ll continue to celebrate their great music with anyone who appreciates it as music. (The name of the band originally appealed to the group partly because it seemed somewhat repellent to conformists. That’s a bit confrontational, perhaps, but the name is folkloric.) Their politics don’t much matter to me because I believe they are artists first. They have kept their art largely free of politics.

I close with lyrics to a Grateful Dead song about music and it’s effect on the human spirit, written by John Perry Barlow and Bob Weir. It is non-tendentious:

The Music Never Stopped

[First voice]
There’s mosquitoes on the river
Fish are rising up like birds
It’s been hot for seven weeks now
Too hot to even speak now
Did you hear what I just heard?

Say, it might have been a fiddle
Or it could have been the wind
But there seems to be a beat now
I can feel it in my feet now
Listen here it comes again

[Second voice]
There’s a band out on the highway
They’re high-stepping into town

It’s a rainbow full of sound
It’s fireworks, calliopes and clowns
Everybody’s dancing

[First voice]
Come on children, come on children
Come on clap your hands

The sun went down in honey
And the moon came up in wine
You know stars were spinning dizzy
Lord the band kept us so busy
We forgot about the time

They’re a band beyond description
Like Jehovah’s favorite choir
People joining hand in hand
While the music plays the band
Lord they’re setting us on fire

Crazy rooster crowing midnight
Balls of lightning roll along
Old men sing about their dreams
Women laugh and children scream
And the band keeps playing on

[Second voice]
Keep on dancing through to daylight
Greet the morning air with song
No one’s noticed but the band’s all packed and gone
Was it ever here at all?
But they kept on dancing

[First voice]
Come on children, come on children
Come on clap your hands

Well the cool breeze came on Tuesday
And the corn’s a bumper crop
And the fields are full of dancing
Full of singing and romancing
The music never stopped

Liar-Left, Daft-Left Bellow: It’s the Unkindest Tax Cut of All


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A misapprehension of progressive leftists is that the tax reform bills under debate by the GOP will revoke something from the needy: the poor, cancer patients, the working class, the aged, you name it. Well, that is a misapprehension held by many earnest leftists, but it amounts to deceitful rhetoric from others. David Harsanyi, in an article about the Left’s penchant for corrupting the English language, attempts to set the record straight:

Whenever the rare threat of a passable Republican bill emerges, we learn from Democrats that thousands, or perhaps millions, of lives are at stake. …

 the most obvious and ubiquitous of the Left’s contorted contentions about the tax bill deliberately muddles the concept of giving and the concept of not taking enough. This distortion is so embedded in contemporary rhetoric that I’m not sure most of the foot soldiers even think it’s odd to say anymore. …  Whatever you make of the separate tax bills the House and Senate have passed, though, the authors do not take one penny from anyone. In fact, no spending is being cut (unfortunately). Not one welfare program is being block-granted. Not one person is losing a subsidy. It’s just a wide-ranging tax cut without any concurrent spending cuts.

The Left may have a basic math incompetency, or maybe they know better when they insist that the GOP plans will inflict a new burden on the middle class. The middle class actually receives larger reductions in taxes than higher strata. Veronique de Rugy highlighted this point recently:

President Trump’s intention to give a real tax break to the middle class is counter-productive considering the middle class barely shoulders any of the income tax as it is. The top 10 percent of income earners—households making $133K [or more], not $1 million as most assume—currently pay more than 70 percent of all income tax revenue. The middle quintile pays, on average, 2.6 percent of the federal income tax.

And yet, in both the House and Senate plans the middle class receives the largest tax relief by reducing their marginal tax rates, increasing the child tax credit and doubling the standard deduction. The result is fewer taxpayers would be paying income tax at all, problematic from a small government perspective. It also means a more progressive income tax code than it already is.

The House plan also effectively jacks up the top marginal rate for some high earners by using a 39.6 percent bubble rate on the first $90K earned by single taxpayers making $1 million and married taxpayers making $1.2 million and a 12 percent rate like everyone else.

I have listened to horror stories about school teachers who, in the past, were able to deduct supplies they purchased for their students. Now, the cruel GOP is trying to take that away! This argument neatly ignores the doubling of the standard deduction. Many teachers will find that it no longer makes sense to itemize deductions, and they will come out ahead. But for the sake of argument, suppose a teacher earning $50,000 itemizes and spends $2,500 on unreimbursed supplies for their students every year. At the Senate plan’s new rate in that bracket, the lost deduction will cost the teacher $550, but about $300 would be saved via rate reductions for every $10,000 of taxable income. The teacher is likely to come out ahead even if he unwisely passes on the improved standard deduction.

Liberal thought-whisperers have goaded their minions into believing that the GOP intends to cut Medicare funds by $25 billion a year going forward. The bills under discussion would do no such thing. However, in a rare gesture of fiscal responsibility, President Obama in 2010 signed the Statutory Pay-As-You-Go Act (Paygo), which may require automatic reductions in outlays when spending or tax changes lead to an increase in federal debt. The act has never been enforced, and Republican leadership in both houses insists that Paygo can and will be waived. Clearly, the GOP’s intent is not to allow the Paygo cuts to take place. Even the left-leaning is reasonably neutral on this point. But if Paygo takes hold, the lefties will have themselves to blame.

At the last link, Snopes also touches on one actual provision of the Senate tax plan, the repeal of the Obamacare individual mandate, or rather, the repeal of the “penalty tax” imposed by the IRS on uninsured individuals. The Supreme Court ruled that it is a tax in 2012, at the time giving rise to a mixture of delight and embarrassment on the Left. The ruling saved Obamacare, but the Left had been loath to call the penalty a tax. The supposed rub here is that repeal of the mandate will be greeted enthusiastically by many young and healthy individuals. Freed from coercion, many of them will elect to go without coverage, leading to a deterioration of the exchange risk pools and causing premiums paid by the remaining exchange buyers to rise. However, the critics conveniently ignore the fact that Obamacare individual subsidies will automatically ratchet upward with increases in the premium on the Silver Plan. So the panic related to this portion of the Senate tax bill is misplaced.

One other point about the mandate: because it coerces the payment of cross-subsidies by the young and healthy to higher-risk insurance buyers, the mandate distorts the pricing of risk, the incentives to insure, and the use of resources in the provision of health insurance and health care itself. This is how the proper function of a market is destroyed. And this is how resources are wasted. Good riddance to the mandate. The high-risk population should be subsidized directly, not through distorted pricing, at least until such time as a market for future insurability can be established. As Jeffrey Tucker has said, repeal of the mandate is a very good first step.

The loss of the medical expense deduction is not a done deal. While the House plan eliminates the deduction, the Senate plan reduces the minimum medical expense requirement from 10% to just 7.5% of qualified income, so it is more generous than under current law. I’ve seen bloggers commit basic misstatements of facts on this and other provisions, such as confusing this limit with a total limit on the amount of the medical deduction. This deduction tends to benefit higher-income individuals who itemize deductions, which will represent a higher threshold under the increased standard deduction. Of course, this deduction appeals to our sense of fairness, but like all the complexities in the tax code, it comes with costs: not only does it add to compliance costs and create a need for higher tax rates, but it subsidizes demand for medical care, much like the tax breaks available on employer-provided health care, and it therefore inflates health care costs for everyone. To the extent that these deductions and many others are still in play, the GOP plans fall short of real tax reform.

The GOP tax bills certainly have their shortcomings. I hope some of them are rectified in conference. The bills do not offer extensive simplification of the tax code, and they would not be truly historic: in real terms, an earlier version of the House bill would have been the fourth biggest cut in U.S. history relative to GDP, and I believe the version that passed the House is smaller. However, many of the arguments mounted by the Left against the bills are without merit and are often deceitful. The Left strongly identifies with the zero-sum philosophy inherent in collectivism, and the misleading arguments I’ve cited are plausible to the less-informed among that crowd. That brings me back to David Harsanyi’s point, discussed at the top of this post: “intellectuals” on the progressive Left find value in corrupting the meaning of words and phrases like “budget cuts”, “giving” and “taking”:

Everyone tends to dramatize the consequences of policy for effect, of course, but a Democratic Party drifting towards Bernie-ism is far more likely to perceive cuts in taxation as limiting state control and thus an attack on all decency and morality.

There is a parallel explanation for the hysterics. With failure comes frustration, and frustration ratchets up the panic-stricken rhetoric. It’s no longer enough to hang nefarious personal motivations on your political opponents — although it certainly can’t hurt! — you have to corrupt language and ideas to imbue your ham-fisted arguments with some kind of basic plausibility.