We just returned from a mixed business and pleasure trip to Canada.If you have a chance to hop across the border from Buffalo to Niagara-on-the-Lake, Ontario, I recommend it highly.Located in wine country, there are lots of great restaurants and plenty of activities in which to indulge one’s appetite for the arts or the outdoors.Plus, it’s a hop and a skip from Niagara Falls.
Like the US, Canada is a full employment economy enjoying an economic mini-boom. Unlike the US, Canada understands the importance of immigration to sustain its growth. Its immigration policies target an increase of annual immigration by 30% to 340,000 by 2021. In fact, the government website offers a step-by-step guide to help employers and would-be immigrants apply for entry into the country.
In the US, a key component of the legal immigration system is the issuance of Green Cards, a legal permission slip for foreign nationals to live, study and work in this country. Historically, the government has issued approximately one million Green Cards per year. Meanwhile, about four million stand in line metaphorically speaking to receive one. A Trump policy announced in May, if approved by Congress, would press the reset button, changing the criteria for receiving a Green Card and requiring those currently waiting to reapply. The new criteria would emphasize educational background and skills at the expense of family considerations.
There’s virtually no chance that Congress will approve these proposed changes. But it will no doubt come up often during the Presidential campaign that starts… when? … has it started? Oh, right… It never ended. So, the issue will periodically take all the oxygen out of the room whenever Trump decides to grandstand on the topic.
So, what should serious-minded voters like you and I think about when considering our options?
Let’s start with some basics. The size of the economy, commonly measured by GDP, is largely a function of the number of people working. And, by extension, economic growth is largely a function of the growth in the number of people working. And, immigrants come here to work! A study by the Brookings Institution put some numbers to it. Foreign born men are 3.4% more likely to work than native born men. Foreign born women are less likely but that’s because they’re home having babies. In fact, the Brookings study asserts that ALL net population growth comes from the immigrant population.
Got it? The economy grows when the population grows, and the population grows because of immigration.
Another significant factor in driving growth of the working population is entrepreneurial activity. In other words, new business starts. After all, small businesses create more jobs collectively than big businesses. A recent study by the Harvard Business Review delineates the factors that make immigrants more likely to start them and reports that 27.5% of entrepreneurial businesses are immigrant owned despite only 13% of the population being foreign born.
I’ve seen what legal immigration looks like in S. Florida. Despite initial animosity between newcomers with different customs and behaviors and legacy residents, everything has turned out okay. First and second-generation Americans of Cuban descent have become the economic engine of the Miami-Fort Lauderdale metroplex. It’s an economically thriving, culturally vibrant, exciting region that succeeds on its merits.
The net of all this is that, like abortion, immigration ought to be available, safe and legal. Do you think any Republicans — reputedly the party of business — will catch on?
The soul of political punditry is to cherry-pick facts and weave them together to support a pre-conceived notion of what’s right or wrong about this or that. Thusly, we have been lied into two wars by presidents of different political parties; religious conservatives have created a mythology called “creationism;” and, social democrats have become convinced that the Scandinavian socialist economy is an example of a superior system.
As it turns out, the fall of Saigon didn’t have a material effect on the global balance of power; Saddam didn’t have weapons of mass destruction; and, of course, we really did evolve from apes. As for socialism… well, it hasn’t worked anywhere ever. And, Scandinavian countries are not running on a socialist system. Indeed, if you’re looking for evidence that the policies of social democrats don’t work, you need look no further than Sweden.
Kudos to those who governed the country in the 1990’s for having the courage not only to understand that they screwed up by turning to socialism in the 1970’s but also for dramatically restructuring policy to ensure a turnaround in their fortunes. In a 1998 report of the Institute for Economic Studies at Stockholm University, Assar Lindbeck outlines the events leading to the near collapse of the Swedish economy and identifies the policies that led the country out of the darkness.
“In the early 1970s, Sweden became dominated by large and centralized institutions and highly interventionist policies,” he tells us. “Important manifestations are (i) a drastic rise in government spending (to the interval 60-70 percent of GDP); (ii) a huge increase in marginal tax wedges (to 65-75 percent for most full-time income earners); (iii) an increasingly interventionist macroeconomic policy, in particular, in the labor market…”
The results? “Policies… seem to have contributed substantially to reducing poverty, as well as to making the overall distribution of disposable income relatively compressed. In this sense, welfare-state policies basically attained established targets.”
Sounds good, right? Just one little problem though. Economic growth was much slower than the rest of Europe. Comparing Sweden’s growth to the industrialized countries in the Organization of Economic Cooperation and Development (OECD), Lindbeck goes on to say:
“While per capita GDP increased by altogether 52 percent in the OECD area as a whole during the period 1970-1990 (weighted average), it increased by only 40 percent in Sweden. During the period 1970-1997, the difference is even greater: 62 percent for the OECD and 42 percent for Sweden.”
By the late 90’s – while the rest of the industrialized world was booming -- Sweden’s government spending was over 70% of GDP. A tax on capital enacted in 1983 had reduced the amount tax revenue from that source. And, high marginal tax rates had reduced household income. The results were devastating. Total GDP declined 5% and unemployment increased to 13%.
Today, tax reductions along with market-based reforms have placed Sweden among the elite in the global economy. The government’s website points to its ranking in the Top 10 most competitive economies in the world according the World Economic Forum and the World Bank’s ranking designating Sweden as one of the easiest countries to do business with.
By enacting a debt limit and reducing both government spending and government intrusion in the economy in the 1990’s, Sweden avoided the calamity of the global economic crisis in 2008. With the lack of humility common to all governments, they point out:
“While governments with large budget deficits carry out austerity measures by increasing taxes and cutting public spending, Sweden has broadly avoided these difficulties. While Sweden remains a relatively highly taxed economy, the centre–right coalition government of 2006–2014 scrapped inheritance tax in 2005 and a wealth tax in 2007.”
Sweden remains a highly taxed nation and its redistributionist policies have reduced income inequality and created a social safety net that many admire. Personally, I believe it’s easier to implement such programs in countries whose populations are not diverse. Sweden has a population smaller than New York and it’s nearly homogeneous. People whose reciprocal expectations are met are unlikely to resent those who rely on that safety net.
But that may be changing. Noting Sweden’s historical openness to refugees, CBS News recently reported on the rise of populist political parties espousing anti-immigrant policies. Using the slogan “Keep Sweden Swedish” the far-right Sweden Democrats increased their share of the vote from 5.7% in 2010 to 17.5% in 2018, according to CBS. And, the New York Times reported last week that four years after the influx of refugees “growing numbers of native-born Swedes have come to see the refugees as a drain on public finances.” The Times quotes a local council member from a rural Swedish town as saying, “people don’t want to pay taxes to support people who don’t work. Ninety percent of the refugees don’t contribute to society. These people are going to have a lifelong dependence on social welfare. This is a huge problem.”
Five years ago, I wrote about my father’s journey from welfare to successful entrepreneurship (On social mobility: confessions of a former yuppie). It seems that Swedes’ view of the purpose of the social welfare system is much like ours. Those who pay into a system meant to help people in times of need expect those who benefit to use it as a platform to become contributing citizens – not to rely upon it for life.
The lawn sign said, “We believe… Black lives matter… No human is illegal… Women’s rights are human rights…” and so on.It ended, “Injustice anywhere is a threat to justice everywhere.”It’s hard to disagree with any single statement on this sign.Yet, when I read it, I immediately thought, ‘another New York liberal.’I imagine the residents of this household might have a similar reaction if I hung an American flag in front of my house.
So, how will we celebrate our nation’s founding in this time of political dysfunction? Well, it will be loud and colorful. We’ll shoot off rockets, grill some burgers and drink too much beer. As mundane as this might seem, it celebrates our sense of shared identity. The Fourth of July reinforces values such as freedom, a strong work ethic and being selfless.
The humanist philosophy of our founders has formed the basis for global democracy. Their wisdom in establishing the rule of law and liberal institutions of government are what separate sustainable democracies from those that slip back into dictatorship.
“All men are created equal,” a tagline that has endured, is not literally true. Some are wiser, stronger or smarter than others. But it has been interpreted to mean all people have equal rights. “All men” doesn’t mean only white men nor does it even mean ‘men.’ Despite the many failings of our system, its framework permits – no, encourages – challenges to the aggregation of power.
History teaches us that we have violated our own beliefs from time to time – from the internment of Japanese Americans during WW II to the denial of voting rights and equal opportunity to African Americans. But a society whose values are defined by human rights seeks justice in all matters. In the end, justice prevails.
The founders didn’t presume to have all the answers. For example, the right to privacy is generally regarded as Constitutionally granted. However, the word ‘privacy’ doesn’t appear anywhere in the document. The Supreme Court has consistently interpreted the Ninth Amendment to protect privacy as it specifically states that the “enumeration of certain rights… shall not be construed to deny or disparage other rights retained by the people”.
Much of our economic success has been the result of our rights to private property, again not specifically laid out in the Constitution. Chief Justice John Jay, the first to hold that title, interpreted the Fifth Amendment to afford those protections.
These are the values we must strive to reinforce as leaders, role models and parents. Taking them for granted will result in our beliefs becoming so diluted that our way of life will become foreign to us. It’s like good health. You may take it for granted until you lose it.
The waves of immigrants who have come here over the last two Centuries to make a better life for their children – from the Irish who settled in New England in the 1840’s and 50’ to the Cubans who settled in Miami in the 1960’s and 70’s – have demonstrated the validity of a model of governance that has been emulated around the world.
We are right to disparage a federal government that seems to thrive on dysfunction. However, America thrives on a core belief that we have the freedom to be who we want, say what we want and go where we want to go.
And that, my friends, deserves a great celebration. Happy 4th!
The Republican Party – The Grand Old Party – The GOP – used to adhere to principles of limited government and did so for nearly 150 years. Yet, somehow, in the last 20 years, those principles have gone by the wayside. Once, the GOP counseled restraint in foreign affairs. Their leaders warned against “nation building.” Yet, we now live with two unwon wars compliments of a Republican president who, in his spare time, created a new entitlement program and a national program to exercise control over public schools, once the province of local communities. That doesn’t sound like limited government to me.
Perhaps no violation of principle is more egregious than abandonment of the idea that the federal government should run a balanced budget. More than government programs and regulation, the intrusion of government spending into the economy misdirects the free flow of capital. More than any other national political figure, former Speaker of the House Paul Ryan should be held accountable for this violation of the principles of sound governance.
Ryan was an obscure congressman when he was appointed to President Obama’s National Committee on Fiscal Responsibility and Reform, more commonly known as the Bowles-Simpson Committee. He was also considered to be a foremost expert on the federal budget. And, he advocated for a balanced budget right up until he didn’t. He left town (D.C. that is) with his tail between his legs after passing a hodgepodge tax reform bill that left us with trillion-dollar annual deficits. No responsible economist expects the resulting economic growth to offset the effect of those deficits over the long term.
It may be that the average voter doesn’t think in terms of principled governance. Most people vote from an emotional response to candidates and the aphorisms they use to frame their ideas. But the simple principle of keeping government out of my life and my wallet provided a resonant idea I and many others could embrace. When Republicans broke loose of their moorings – their moral underpinnings, if you will -- they opened the door for Trump who has never had any.
Trump’s appeal to the ‘little guy’ results from a broken deal. Within our social contract, it’s always been true that the rich get richer. And, the middle class has found that acceptable, so long as stable family life was part of the deal. But, even those with good jobs and stable careers, are getting squeezed by rising healthcare and tuition costs (both the beneficiaries of government largesse). Couple that with a rhetorical bent that favors business interests over citizens and the breakdown is reinforced.
Poor stewardship of our economy, domestic policy and foreign affairs during this century has left the door open to radical ideas from the left. If nothing is working, try something new! Anything new! Modern Monetary Theory (which economist John Mauldin calls Modern Monetary Madness) is Exhibit A. Radical ideas take shape when they find a way around traditional objections. MMT answers “how you gonna pay for that?” by answering “we’ll just create new money.” Not so long ago, these such an idea would be dismissed out of hand. Now, it is treated as worthy of consideration.
We celebrate our children’s successes but graduate them into a world that increasingly denigrates their success as adults. To make more money than your fellow citizens is cast as immoral and unfair by the extreme left and each of the 20+ Democrats running for president must buy-in to such nonsense to be considered a viable candidate.
When the left professes that the money to fund their outrageous ideas will come from taxing the rich, they demonstrate the failure of the public-school system to teach them simple arithmetic. AOC’s 70% tax on the rich would raise tax revenue within a range of $.5B to $29B/year according to the Tax Foundation.
But the GOP can’t credibly call them on it because they have lost the moral authority to do so.
Remember hanging chads? You know, those pesky little half-punched-out cardboard holes in presidential ballots during the 2000 recount… Well, I remember them well because I lived in the Florida swing district at ground zero of the controversy. Florida was then and still is a swing state, voting with the winning presidential candidate in the last five quadrennial contests. I felt more comfortable voting there because candidates in swing states have to appease moderate voters to get elected. In fact, I recall voting in the 2010 off-year elections for the Democratic candidate for governor, an independent for U.S. Senate and a Republican for the House of Representatives. In fact, I have always lived in swing states. Before Florida, there was Pennsylvania, Colorado and New Jersey – yes, New Jersey was once a swing state as was New York when I grew up here. (Remember Nelson Rockefeller?)
All of this came back to me recently as I pondered why I am so unhappy with New York State politics. Embedded deeply in ‘Blue’ ideology, the Democrats who now control state government endeavor to run the table with the headline ideas of their national party while complaining that a governor of their own party holds fast to a 2% cap on annual tax increases. The debate boggles my mind. New York consistently rates at or near the bottom in the Tax Foundation’s Business Tax Climate Index. Why aren’t we reducing taxes?
Seeking validation that I am not off my rocker, I recently took the political typology quiz on the non-partisan Pew Research website. (Seventeen ‘either/or’ questions, 3 minutes – try it!) I landed smack dab in the middle of the nine categories from left to right -- ‘New Era Enterpriser.’ No wonder I’m a swing voter.
Then, of course, there are the presidential elections. I am not a Trump voter, but neither will I vote for any Democrat who promotes radical ideas like free tuition, Medicare for All or the Green New Deal. Of course, if you live in a Deep Blue (or Deep Red) state, it really doesn’t matter for whom you cast your presidential vote. All the electoral votes go the candidate who wins the most individual votes – in New York, that will be the Democrat.
So, what’s a swing voter to do?
While I was pondering our choices in 2016, Bill Clinton convinced me to vote third party. Bill Clinton?you say. Yes, Bill Clinton. In a podcast promoting the candidacy of his wife –With Her– he pointed out that voting third party or even not voting sends a message to the major parties. They feel compelled to figure out how to win you over, he asserts. If only…
WHO WILL LEAD?
What I’m Reading
Carole Cadwalladr, a reporter for the British newspaper ‘The Guardian,’ writes about delivering a TED talk about the transgressions of Big Tech while Sergey Brin, Mark Zuckerberg and other Silicon Valley big shots were in the room… NY Times columnist David Brooks writes about experiencing one’s ‘annunciation moment,’ the time when “a new passion is silently conceived…” Joseph Antos and James Capretta of the American Enterprise Institute discuss how to achieve universal healthcare coverage without Medicare For All.
I was briefly a conservative hero in a sea of liberals last week. The occasion was an assembly convened by the Rochester People’s Climate Coalition and sponsored by both the Sierra Club and the Rochester Chamber of Commerce. The guest speaker was Bob Inglis, a former South Carolina Republican Congressman whose awakening to the dangers of climate change got him primaried out of his seat after serving 12 years.
Inglis is evangelizing for a bipartisan bill called the Energy Innovation Carbon Dividends Act (EICDA). It’s a carbon tax that’s positioned as nota tax increase because all the proceeds will be rebated to taxpayers in a monthly check. Acting kind of like a universal basic dividend, it would also be redistributive. If you’re a rich person who owns a limo, a Ferrari and a Gulfstream, you’ll pay a lot in carbon taxes but get the same amount as a minimum wage worker who takes the bus to work.
Inglis started by polling the audience and I found myself as only one of three people holding up my hand. We three were right-leaning and believe we should do something about climate change. And, so I was briefly a hero to the radical lefties in the room. I was thanked and congratulated and should have felt good about it. But, instead, I found myself, in my pin-striped suit and tie, feeling like a prize pig at the county fair – emphasis on pig.
I was invited to the event by Abigail McHugh-Grifa, the interim director of the coalition. She and I co-authored a piece in Sunday’s Democrat & Chronicle (D&C), using “he said; she said” style to portray a casual conversation between friends about climate change, the EICDA and the Inglis event. It was intended to be cute and I think it was. Here’s an excerpt:
He: I’m sorry, Abby. But I’ve never had a good answer to this question: How are you going to pay for that?
She: Although people won’t like the idea of rising costs, that’s the point of a carbon price, so we shouldn’t tiptoe around that. However, we should also consider that the cost of burning fossil fuels does not reflect their true cost to society in terms of public health and climate impacts. Polluters continue to pollute while taxpayers pick up the bill for disaster relief and increased healthcare costs.
It was not an in-depth debate. The D&C’s 475-word limit leaves scant space to explore one point of view much less two. But it’s worth noting that there’s some Milton Freidman philosophy embedded in Abby’s response. In the web series Freidman Fundamentals, he explains libertarian philosophy (1-minute video) and defines the point at which government must intervene as when “a company is imposing a cost on me for which I am not being compensated.” And, indeed, to the extent that burning fossil fuels emits pollutants that affect my health or to the extent my taxes contribute to the healthcare system, I am not only not being compensated but also paying the socialized cost of damage created by others.
Still, there are reasons to be skeptical. A website called ‘New Scientist’ claims there is no link between CO2 increases and global warming. Another ‘The Conversation’ questions the logic of the standards set by the Paris climate agreement. But every scientist you talk with will qualify their comments by saying climatology is not their expertise. Meanwhile, the climatologists on the International Panel on Climate Change say we have reached the “gold standard” of certainty that climate change is man-made, and we must do something about it.
My background is not science; it’s economics. So, my concern is focused on what we do, how we do it and what it will do to our economy. Disruption is expensive and the cost must be borne by someone. In Germany, the push toward alternative energy coupled with a ban on nuclear has led to a 50% increase in energy costs to consumers. That would be politically infeasible in the U.S. and would undermine the effort before its goals were achieved.
Many people support conversion to nuclear energy as France has done. The most concise economic argument I’ve seen was made by the Wall Street Journal in a piece titled ‘The Nuclear Option is the Real Green Deal.’ But I worry what happens at scale. How would we handle the amount of waste water created at 100% nuclear?
Many are concerned about solar at full scale too. So, I asked a local solar installer how much land would be required to be 100% solar. “One eighteenth of North Dakota,” came the reply without hesitation. That’s about one half of 1% of the U.S. land mass or slightly more than half what the federal government leases to the oil and gas industry. He sent me a study to back it up.
In the end, I come down in favor of the EICDA not because it offers a perfect solution but rather because it doesn’t create a government mandated plan. It simply disincentivizes burning fossil fuels by raising the cost of doing so, leaving free enterprise to innovate solutions.
As for Inglis’ presentation… Well, he exhorted our left leaning audience to approach those on the right with language more likely to lead to constructive dialog. “Innovation not regulation” was his catch-phrase. That’s a good place to start, in my view. As for the event itself, it failed to move the needle primarily because Inglis was preaching to the choir. The better audience would have been made up of politically moderate business leaders, perhaps convened by the Chamber of Commerce rather than the climate coalition.
WHO WILL LEAD?
PS my twins were born on Earth Day in 1973, hence the title of this post. Happy Birthday, Peter and Dan!
I was invited to be a guest on Connections, a weekday talk show on WXXI, Rochester's NPR affiliate. The show is available as a podcast, a link to which is included in this post. This essay was published in the Rochester Beacon. Click HERE to read the original piece.
The TV character MacGyver once said, “Desperation tends to make one sort of flexible.” I think of it whenever WXXI radio host Evan Dawson reaches out to me to come on his show, “Connections.” I am reliably conservative, and he likes to present a balanced perspective. But I am a minor figure in Rochester with little expertise in anything. Why else would he reach out to me unless he’s desperate?
John Calia
“Connections” is like an oasis in the desert if you crave intelligent discussion rather than screaming insults. Dawson doesn’t facilitate debate so much as moderate a discussion. He leans to the left politically but is fair-minded. He relies on data to inform opinion; so, I knew I had to be well-armed when he asked me to discuss New York taxes. The state budget had just been approved with some new taxes on the wealthy but without others that were the favorites of so-called progressives.
I was a guest along with Jeremy Cooney, former chief of staff to Mayor Lovely Warren and recent Democratic candidate for state Senate, and Michael Kink, executive director of the Strong Economy for All Coalition. I predict Cooney will be a successful politician simply because he is so engaging in a face-to-face encounter and pragmatic in his approach to policy matters. Kink, on the other hand, is a liberal firebrand.
The rapid-fire Q&A that characterizes discussion shows doesn’t play to my strengths. Following the show, my thoughts about the experience fell into one of three categories: 1) what I said that felt right, 2) what I could have said better and 3) what I didn’t get a chance to say.
I arose early on the day of the scheduled broadcast and skipped my trip to the gym so I could do some research. I wanted to broaden the context of the conversation. My supposition is the issue isn’t taxing the wealthy but rather a bloated state budget that undermines the economic success of our state.
Data point number one: Florida has 1.75 million more people than New York but its state budget is only $88 billion (as opposed to New York’s $175.5 billion). I then quoted Paul Wetenhall from his recent article in the Rochester Beacon. A former Xerox executive who moved to Rochester in 1975, Wetenhall is now an economic development professional in Charlotte, N.C. Generally, he described how North Carolina government works with business toward productive ends. More specifically, he laid out the structural challenges that New York must address. For example, the cost to educate a pupil in the Rochester area is about $17,000 while Charlotte manages to do the same with only $11,000. Charlotte must be doing something right. Over the last 40 years, its population has more than doubled while Rochester’s has only increased 10 percent.
The mention of Charlotte got the discussion off-script for a while. Kink waxed poetic about North Carolina’s embrace of philosophies and policies that emulated those of New York when it was indeed the Empire State. If I didn’t know better, I would have thought he is a Rockefeller Republican. Alas, he is not. At least four times, he characterized wealth as “immoral” and “obscene.” Neither our host nor my fellow panel member challenged this assertion. It was left to me to point out that doing so characterizes “the engine of our prosperity” as evil. Earning money and having wealth is not, in and of itself, evil. It is power that corrupts. Our state government aggregates power by taking money out of the economy and creating criteria by which we might get it back. That’s “immoral” and “obscene.”
I wish I had I asserted that not only is the process immoral but the practitioners to whom we trust this task are often convicted of corruption. There should be a dedicated wing in state prison for former New York legislators.
I didn’t get a chance to say that the new state budget includes a plethora of new taxes aside from those levied on the rich. For example, a new tax on online sales will cost consumers $390 million this fiscal year. Meanwhile, the governor doles out unproductive economic development funds by the millions. An example is the Pinnacle North development in Canandaigua. The taxpayers contributed millions to an environmental cleanup of the site, a liability that would normally have been borne by the investors. The governor (who was campaigning for reelection at the time) told us this is the kind of project he would “invest in all day long” because it would provide about 100 low-paying service jobs. But, where did the funds million go? Answer: into the pockets of the investors. A more recent example is the state’s $4 million “investment” in Hickey Freeman.
In my closing remarks (too late to explore), I was able to point out that the U.S. already has the most progressive tax code among the nations of the seven largest developed countries. I didn’t get a chance to provide the data substantiating that claim, detailed in a 2018 Wall Street Journal op-ed. The article noted income data reported by the U.S. Census Bureau doesn’t include the impact of non-cash transfers. Consider:
Medicare and Medicaid pay $760 billion to the bottom 40 percent.
93 other programs transfer $520 billion to low-income households (CHIP, TANF, SNAP).
States transfer another $310 billion
The bottom 20 percent of U.S. earners receive 84 percent of their income from taxpayer-funded transfers. The next 20 percent receives 57 percent of their income the same way. Overall, 28 percent of household income in the U.S. is received from the government, a percentage larger than any other country in the OECD except France. The top 10 percent of U.S. taxpayers earn 33 percent of total household income and pay 45 percent of taxes, a ratio of 1.35 times their income. In Germany, the ratio is 1.07. In France, it’s 1.1. The U.S. collects only 35 percent of taxes from non-income sources, the smallest share of OECD countries. All those countries have a value added tax (VAT), which acts like a national sales tax. To close the $1 trillion annual federal deficit, Americans would have to pay an 8 percent VAT.
Off air, Dawson and I casually discussed the attraction of moving to a low-tax state like Florida.
“The difference in my tax burden would send us on a European vacation each year,” I told him.
“Yeah,” he joked. “But if you move to Florida, you’d have to buy a boat.”
So, what would you want to spend your retirement income on? Paying taxes or owning a boat?
