I was honored to receive the Adam Smith Award from the Association of Private Enterprise Education at their annual meeting in Las Vegas. They let me make some remarks, and a room full of free market economists is a temptation too great to pass up. My remarks:
Herbert Hoover could not have said it so well. This is a perfect summation of what what should be the desire of every individual and government official should understand.
I bet some government officials actually understand. But they sell their conscience to the personal interest they can get by pretending they don’t understand
“Let them build”. It sounds easy but it’s not that easy. If a single family home is worth $1 mil in an overly crowded and overly developed area, will a duplex next door only cost each household $500K? Likely not. Not to mention the city facilities and infrastructure may not be able to hold double size of the population. Traffic will get worse and there aren’t as many schools for the kids. Some may argue to have condo units. But condo doesn’t provide the incentive for people to have expanded families, which a normal society wants. I think the solution lies onto, not only less zoning restriction, but also local government’s willingness to develop open areas by providing incentives to have companies coming in, and to build roads to facilitate transportation. Local governments need to understand, centralizing resources to the few metropolitan areas won’t benefit anybody. It will only benefit the current admin if they need something to write on their political resumes.
Then you’re not helping to lower living cost. You’re making living cost more expensive, not only for the people who originally can’t afford to buy, but also for those who have already got a house there. This serves no one
Congratulations! Although I am pretty sure that Adam Smith himself would not have been eligible for Adam Smith Award from the Association of Private Enterprise Education.
Thank-you for sharing your wise words here. After teachinghigh school economics for 37 years I must report that I am flunking retirement as I'm now an adjunct at our local community college. When I was coaching we always stated our goal when attending an conference was to either learn a new idea or reinforce what we were doing. Thank-you, at times I question how much time I spend on topics finding that I am always running out of time at the end of the semester. You just reinforced my approach to the dismal science in that I emphasize choices, incentives and unintended consequences of interference with the markets by government actions. Thank-you again for sharing and all that you do. A well deserved reward.
Thank you and congratulations! If you want to know who has the best lobbyists, survey the tax codes. A maze of illogical exceptions and exemptions, some of which provide incentives to do that which they state in other statutes they are trying to curb. And, every time there's a new unintended consequence, out comes the stick - never a thought to how they might craft a better carrot.
The free market does not exist because freedom doesn't exist in the first place. This is because freedom is compromised the moment there is any inequality in power, and some people will use that power inequality in destructive ways. Whether economics, social policy, or even foreign affairs, security or defense.
Progressivism is no answer because it merely makes other faulty assumptions about human nature.
So how do we achieve "deassholification" so that honest conduct prevails at any or all of these levels?
I wonder if any system could stand a chance where taxation by participation is an unavoidable code, from the chair of the federal reserve board, to the homeless person camping in the city park...?
Same complaint as always. Your essay above does not mention corruption and therefore your analysis is not complete. Consider an engineer designing a mechanical system and not including friction. Real distortion comes from corruption, price fixing, buying of politicians, etc. Government intervention is necessary to protect people.
Fair point. But, allow me to politely disagree. Professor Cochrane writes, "Taxes? To raise revenue for the government with minimal economic damage, junk the current system and enact a simple consumption tax. If you don’t like that answer, let us know the purpose of the tax system and we can construct policies that work to those purposes."
Assume we scrap the entire US tax system as we currently know it, repeal the 16th Amendment so we cannot tax income, and install the FairTax.org which taxes consumption of new goods and services. The rate is 23%. There is a pre-bate for poorer people. There is no penalty if you are on welfare and earn more income, you simply start paying the tax. Hence, the incentive is to work as hard as you want to make as much money as you can.
Where would you be able to institute corruption to either avoid the tax, or favor cronies over the general public?
One place is barter. I could barter services and avoid the tax. But, barter is hard and it's why man created mediums of exchange.
Here you go: consumption tax shifts tax burden to middle and lower taxes. This is why John supports it. He works for Hoover Institution. Please look at the list of its donors and you will quickly understand. If you are really interested, please Google "Powell memorandum". Simplicity of a consumption tax is a catch. Given the current inequality, the right solution is a more progressive tax. Piketty wrote two very well researched books on the subject. Incentives, John likes so much, work both ways. Please recall a quote from the movie Wall Street: "Money makes you do things you don't want to do." Have you read about current Boeing problems?
In other, more extensive writing of which this is a summary, I explain that what matters is the progressively of the whole system, not the tax code alone, and not each element of the tax code. A flat tax combined with progressive spending is as progressive a system as you would like. You can even combine a "tax code" designed to raise revenue with a "redistribution code" designed to redistribute income. Don't mix the two.
Fantastic post. Wish I could have gone since I live in Las Vegas. My favorite time seeing you speak was when you and other U of C economists politely eviscerated the head of the Chicago Fed (Charles Evans) on the bailouts in the aftermath of 2008. I believe you said to Mr. Evans when he finally said, "What did you want us to do?" and the reply was, "Let them go broke."
"junk the current system and enact a simple consumption tax."
I'll agree provided by "simple" you are not ruling out a progressive consumption tax.
But we also need taxes on negative externalities, mainly net emissions of CO2.
And we also need to substitute a VAT for the wage taxes that fund and subsidize old age, unemployment, child rearing, and health insurance.
My goal is not just to minimize deadweight loss (unless we deadweight losses by high-consumption people less than deadweight losses to lower-consumption people). I specifically want incomes of low income people grow even faster that those of high income people.
the last line in the following paragraph astounded me :
"The city has free play centers for children stocked with a wide range of toys. All new parents in Taipei are eligible for monthly cash handouts, and certified daycares and at-home nannies services are subsidized by the city government. In the States, only low-income families qualify for financial aid."
We indeed have a long way to go with our economics education
Herbert Hoover could not have said it so well. This is a perfect summation of what what should be the desire of every individual and government official should understand.
I bet some government officials actually understand. But they sell their conscience to the personal interest they can get by pretending they don’t understand
Upton Sinclair applies.
IF we add explicit redistribution of consumption as an objective.
“Let them build”. It sounds easy but it’s not that easy. If a single family home is worth $1 mil in an overly crowded and overly developed area, will a duplex next door only cost each household $500K? Likely not. Not to mention the city facilities and infrastructure may not be able to hold double size of the population. Traffic will get worse and there aren’t as many schools for the kids. Some may argue to have condo units. But condo doesn’t provide the incentive for people to have expanded families, which a normal society wants. I think the solution lies onto, not only less zoning restriction, but also local government’s willingness to develop open areas by providing incentives to have companies coming in, and to build roads to facilitate transportation. Local governments need to understand, centralizing resources to the few metropolitan areas won’t benefit anybody. It will only benefit the current admin if they need something to write on their political resumes.
Yes, but we also need to price road and street use to eliminate the traffic and parking externalities.
Then you’re not helping to lower living cost. You’re making living cost more expensive, not only for the people who originally can’t afford to buy, but also for those who have already got a house there. This serves no one
Congratulations! Although I am pretty sure that Adam Smith himself would not have been eligible for Adam Smith Award from the Association of Private Enterprise Education.
Thank-you for sharing your wise words here. After teachinghigh school economics for 37 years I must report that I am flunking retirement as I'm now an adjunct at our local community college. When I was coaching we always stated our goal when attending an conference was to either learn a new idea or reinforce what we were doing. Thank-you, at times I question how much time I spend on topics finding that I am always running out of time at the end of the semester. You just reinforced my approach to the dismal science in that I emphasize choices, incentives and unintended consequences of interference with the markets by government actions. Thank-you again for sharing and all that you do. A well deserved reward.
Interference AND non-interference. Too many economists overlook the need to create incentives to deal with externalities.
Thank you and congratulations! If you want to know who has the best lobbyists, survey the tax codes. A maze of illogical exceptions and exemptions, some of which provide incentives to do that which they state in other statutes they are trying to curb. And, every time there's a new unintended consequence, out comes the stick - never a thought to how they might craft a better carrot.
The argument is pretty good. The new name not so much.
Great speech! (I can see why you are grumpy. 😉)
Great speech.
The free market does not exist because freedom doesn't exist in the first place. This is because freedom is compromised the moment there is any inequality in power, and some people will use that power inequality in destructive ways. Whether economics, social policy, or even foreign affairs, security or defense.
Progressivism is no answer because it merely makes other faulty assumptions about human nature.
So how do we achieve "deassholification" so that honest conduct prevails at any or all of these levels?
I wonder if any system could stand a chance where taxation by participation is an unavoidable code, from the chair of the federal reserve board, to the homeless person camping in the city park...?
Same complaint as always. Your essay above does not mention corruption and therefore your analysis is not complete. Consider an engineer designing a mechanical system and not including friction. Real distortion comes from corruption, price fixing, buying of politicians, etc. Government intervention is necessary to protect people.
Fair point. But, allow me to politely disagree. Professor Cochrane writes, "Taxes? To raise revenue for the government with minimal economic damage, junk the current system and enact a simple consumption tax. If you don’t like that answer, let us know the purpose of the tax system and we can construct policies that work to those purposes."
Assume we scrap the entire US tax system as we currently know it, repeal the 16th Amendment so we cannot tax income, and install the FairTax.org which taxes consumption of new goods and services. The rate is 23%. There is a pre-bate for poorer people. There is no penalty if you are on welfare and earn more income, you simply start paying the tax. Hence, the incentive is to work as hard as you want to make as much money as you can.
Where would you be able to institute corruption to either avoid the tax, or favor cronies over the general public?
One place is barter. I could barter services and avoid the tax. But, barter is hard and it's why man created mediums of exchange.
Here you go: consumption tax shifts tax burden to middle and lower taxes. This is why John supports it. He works for Hoover Institution. Please look at the list of its donors and you will quickly understand. If you are really interested, please Google "Powell memorandum". Simplicity of a consumption tax is a catch. Given the current inequality, the right solution is a more progressive tax. Piketty wrote two very well researched books on the subject. Incentives, John likes so much, work both ways. Please recall a quote from the movie Wall Street: "Money makes you do things you don't want to do." Have you read about current Boeing problems?
Ad hominem. Not persuasive. :(
I think a combination of VAT, Pigou taxation of negative externalities, and a progressive consumption tax would be better.
In other, more extensive writing of which this is a summary, I explain that what matters is the progressively of the whole system, not the tax code alone, and not each element of the tax code. A flat tax combined with progressive spending is as progressive a system as you would like. You can even combine a "tax code" designed to raise revenue with a "redistribution code" designed to redistribute income. Don't mix the two.
Fantastic post. Wish I could have gone since I live in Las Vegas. My favorite time seeing you speak was when you and other U of C economists politely eviscerated the head of the Chicago Fed (Charles Evans) on the bailouts in the aftermath of 2008. I believe you said to Mr. Evans when he finally said, "What did you want us to do?" and the reply was, "Let them go broke."
"junk the current system and enact a simple consumption tax."
I'll agree provided by "simple" you are not ruling out a progressive consumption tax.
But we also need taxes on negative externalities, mainly net emissions of CO2.
And we also need to substitute a VAT for the wage taxes that fund and subsidize old age, unemployment, child rearing, and health insurance.
My goal is not just to minimize deadweight loss (unless we deadweight losses by high-consumption people less than deadweight losses to lower-consumption people). I specifically want incomes of low income people grow even faster that those of high income people.
I was just reading this article
https://www.cnn.com/2024/04/22/opinions/taiwan-view-2024-us-election-wei/index.html
the last line in the following paragraph astounded me :
"The city has free play centers for children stocked with a wide range of toys. All new parents in Taipei are eligible for monthly cash handouts, and certified daycares and at-home nannies services are subsidized by the city government. In the States, only low-income families qualify for financial aid."
We indeed have a long way to go with our economics education