Welcome to another edition of The Mueller Report!
This week I’ll be sharing a few thoughts on the vaccine mandates, supply side economics, and a theory called “the transitional gains trap.”
Vaccine Mandates
I may be preaching to the choir, but various government mandates requiring people to take one of the Covid-19 vaccines are stupid and abusive.
First, let’s consider the stupidity of these mandates. They are not a good way to get more people vaccinated. Intentional or not, public officials have changed the calculus around the vaccine. I know many people who were on the fence who are now stridently opposed to taking it.
This is not surprising. The decision to get a shot or take medication is intensely personal. You are putting something in your body. And when it comes to bodily integrity, voluntary choice is incredibly important. It’s the difference between making love and being raped. It’s the difference between captivity or slavery and freedom.
Being forced to do things is of no small moral consequence; and it differs from being prohibited from doing something. Threatening people with the loss of their livelihoods and access to basic social activities is serious. As one friend put it, he would feel violated if he had to take the vaccine as the only way to keep his job.
I can understand that. I took the vaccine, after deliberation and with some ambivalence because I am not really in any kind of high-risk category, but I was persuaded that it offered some benefits to me and to society (lower severity if I caught Covid, less likely to catch Covid, and less likely to spread it). But this was all well before any of the mandates came out. If I were forced to take it now as a matter of employment, I would very likely refuse. And many people are like that.
I think many advocates of vaccine mandates 1) can’t even imagine a reasonable (let alone strongly held) objection to the vaccine and 2) think that most people who haven’t taken it are lazy, apathetic, and/or selfish. If those assumptions were correct, then mandates might be pretty effective at getting more people vaccinated.
Unfortunately, for a very large number of people, those assumptions are not correct. It is not the case that they haven’t gotten the vaccine because they are lazy, apathetic, or selfish. They have a variety of objections from the efficacy to the safety to the ethical origin of the vaccine (among others). And that’s before considering requirements to get the vaccine.
Second, the mandates are abusive. They are a form of social control and an exercise of power for the sake of paranoia. What could President Biden possibly mean when he talks about protecting the vaccinated from the unvaccinated? Are vaccinated people endangered by Covid-19? The whole reason for pushing the vaccine is that it protects you from extreme or terminal illness.
Also, there are no standards anymore about what is being done or required. There is no more talk of “flattening the curve.” There is no more talk about, “hold on until we have a vaccine.” Now the conversation is about booster shots. Abuse, by its nature, tends to degenerate over time. Mandating Covid-19 vaccines could very likely be the first step to requiring periodic booster shots as well as flu shots. That may sound crazy, but a year ago I would have called you crazy if you suggested that several states and the federal government would begin requiring mandatory vaccination as a necessary condition for employment.
One final note on the mandates: threatening people (and then following through on the threats) unless they do what they tell you to do is not a good way to operate society. Most of our laws place limits by telling us what not to do. Or they explain the rules for particular activities (like driving or making a tax deductible contribution) – which we can choose when and how and whether to participate in.
Taking away people’s jobs, firing them while also denying them unemployment benefits, is abusive – it is a severe exercise of coercion where the rule-makers are substituting their wills and plans for the citizen’s.
Supply Side Economics
I am on the train back from a seminar with Arthur Laffer – one of the leading architects of the supply-side economic policy under Reagan. I was quite impressed with his knowledge and command of ideas. For context, Laffer was on the faculty at the University of Chicago with Friedman and Stigler and a half dozen other Nobel prize winners. He did a fair amount of research with Eugene Fama (another Nobel prize winner). He really knows economics.
He demonstrated mathematically why redistribution makes the economy less productive. And complete redistribution to make people perfectly equal results in no productivity whatsoever. This is obvious if you think about it.
Suppose that if we took all the income currently earned in the U. S. and divided it by the number of adults, we would arrive at $70,000. Let’s take that as the average or equal wage we want to arrive at through redistribution. It means that anyone making more than $70,000 would be taxed at 100%. If you make $200,000, we need to collect $130,000 in taxes from you. If you make $500,000, we need to collect $430,000 in taxes from you. Working harder, being more productive, getting a higher wage gives you no monetary benefit.
On the flip side, the less money you earn, the more money you receive to get you to that $70,000. So, if you earn $40,000, you should receive $30,000 in subsidies. If you earn $20,000, you should receive $50,000 in subsidies. If you earn nothing, you should receive $70,000 in subsidies.
So, in the extreme case, no one would try to earn more than $70,000, and most people would shift to earning less because there is zero cost to doing so. In fact, why work at all? But all of a sudden wealth is no longer being produced and there is nothing to be redistributed. Complete redistribution means we all have nothing.
So the question we have to ask is: how much poorer do we want our society to be in the name of making it more equal or fair? The harder we try to reach equality through redistribution, the poorer society (and all of us as a part of it) will be.
Laffer also showed case study after case study that lowering tax rates, particularly marginal tax rates, corresponds with significant improvements in economic growth, employment, and even tax revenue. This is true for individual countries and it is true for individual states. In a study of states in the U. S., Laffer compared how 11 individual states that introduced an income tax post 1961 stood relative to the other 39 states in terms of population, educational test scores, tax revenue per capita, etc. in every category and for every one of the 11 states, their relative standing declined – most pretty significantly.
There was so much more to the seminar, but it doesn’t make sense to go into more detail and nuance here. The case he made persuasively is that tax policy may be the single most important factor in immediate growth and economic improvement of any jurisdiction (given reasonably stable money and basic institutions like rule of law).
Transitional Gains Trap
I’ve been thinking about this model a lot this week in my classes. The theory was first developed by Gordon Tullock. The problem the theory attempts to address is why societies can get stuck with inefficient political institutions. Let’s use Cuba as a hypothetical example.
The Castros have become wealthy by expropriating their relatively poor citizens. But hypothetically if the Castros reformed political and economic institutions to foster economic growth, Cuba could become so much wealthier that the people could afford to give the Castros twice what the Castros currently have, and the people could still be much better off.
So, why is there no “side payment” where the people offer to increase their contribution of resources to the Castros in the future in exchange for better economic policies? They would be better off and the Castros would be better off. Seems like an obvious mutually beneficial exchange – and the worse the existing institutions are, the larger the gains that could be had from improving them!
Tullock argues that the people cannot offer any legal structure or commitment device that the Castros would find credible. Once all the institutions have changed, especially around the rule of law, there will no longer be any enforcement mechanism for the deal made before there was institutional change.
But another part of the answer is that in dysfunctional governments (or businesses for that matter), bribery/side payments can increase efficiency, at least in the moment. Perhaps I would normally have to wait a month for the government internet provider to connect internet to my new house. But for $50 I could make a side payment to one of the government workers to get the internet up and running tomorrow.
I am better off doing that, and the worker is better off with the additional $50, than I would be if I waited a month. Bribery “greases the wheels” so to speak of dysfunctional systems (you can think up your own equivalents within a business). But now come the problems. There is resistance to change in this type of system because people compete for the bribes (rents) created by government dysfunction. They invest resources, sometimes a significant amount, to get the position where they receive the bribes. As a result, they stand to lose a significant amount of capital investment if the rules change and they can no longer collect bribes/rents.
Taxicab medallions in NYC are a good example of this. NYC artificially constrained how many taxi cabs could legally operate in the city to those that held one of a certain number of medallions. The constraint led to higher fares over the years. This looks like a windfall for taxicab drivers and companies. But for the most part, it isn’t. Whenever a particular industry makes above average returns, like the taxis would have after the implementation of this restriction, new competition enters the market. If it can’t be in the form of new taxi cabs, then it will be in the form of competing for the right to operate a taxicab – the government-issued medallion.
At one point, these medallions were being bought and sold for almost a million dollars. So yes, you could get higher fares on taxi services because of protection from competition, but you had to put up a massive amount of money to do so – making the actual rate of return for running taxi cabs fall to the normal level of profit in the economy. We just had fewer taxis and higher prices for consumers…
That phenomenon occurs frequently whenever artificial rents are created through government policies restricting competition. But on top of how these artificial rents do not create any lasting extra value for those who control them (while making the economy less efficient) – the real long-term problem with a rent-seeking set of institutions is that political officials with any kind of discretion benefit when they create new rent opportunities (i. e. creating new barriers to competition or production that only they can help you overcome – for a price).
Another way to put it is that government officials can benefit from creating problems or bottlenecks and charging you money (start around minute 15) to help you overcome said problems and bottlenecks. Hence we should be hesitant to give too much discretion to public officials in almost any quarter.
That’s all for this week. Sorry to end abruptly but as usual there is too little time and too much to do!
Talk to you next week!
Paul,
Thanks for the Report. I enjoyed all the topics. Your succinct comments on the vaccine mandates were on target and well explained. (I happen to agree with all of your insights and thoughts.) I am interested in Laffer's case study illustrations of lowering tax rates and how they correspond with significant improvements in economic growth, employment, etc. Finally, I appreciate you discussing “the transitional gains trap" theory since I had not heard of it.
Shalom. -- Duane