Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.
The Poor Are Left Behind
Writing in The New York Times, JPMorgan Chase CEO Jamie Dimon espoused standard leftist tropes about how the impecunious are being left behind, the system is unfair for many Americans, and the next generation will be worse off. He urged everyone to intervene and provide a helping hand – at least he’s walking the walk because his bank is spending millions in higher wages and improved training.
“It is true that too many people are not getting a fair opportunity to get ahead,” he wrote. “We must find ways to help them move up the economic ladder, and everyone — business, government and non-profits — needs to play a role.”
Is this remotely true? Despite what the 2020 Democratic candidates are saying, the nation’s poor are not being left behind. Yes, it’s true: The rich are getting richer – but so is everyone else; the entire country is the 1% when measured on a global level. It turns out that income mobility remains an important characteristic of America’s fabric, where most people will get to experience wealth or poverty – or perhaps both – during their lifetimes.
This is evident in this American Enterprise Institute (AEI) chart that shows, for example, 73% of the population will reside in the top 20% for at least one year or that 12% will make it to the top 1% for a minimum of a single year.
It may not generate votes to point it out, but America’s poor have higher median incomes and living standards than many other developed countries, such as the U.K., France, New Zealand, and Japan. Moreover, most have an automobile, many have more living space than a middle-income person in Sweden, and nearly half own their homes.
Fine, the poor are not getting left behind, but surely the middle class is! Not quite. It is true that the middle class is shrinking, but not for the obvious reason; it’s because more U.S. households are moving up the income ladder.
OK, but the next generation is going to be worse off. Nope. It is estimated that $68 trillion will be passed from Baby Boomers to the next generation, representing the greatest wealth transfer in history.
The anointed need to stop acting like America has perpetual, static, fixed, income-based social tiers.
Andrew Yang’s VAT
Andrew Yang, the attorney-turned-entrepreneur who is running for president in 2020, is a policy heavyweight compared to his Democratic opponents. While his proposals are progressive goodies, they are an improvement from his rivals who just spout nonsense about white privilege and apologize for holding a position that mirrors that of President Donald Trump.
One of Yang’s ideas is to institute a 10% value-added tax, or VAT. This would serve as a consumption levy on products sold in the U.S., which, he contends, will generate $800 billion in revenues and cover his universal basic income plan.
A VAT works by taxing businesses at every step of the supply chain – from the manufacturer to the wholesaler to the retailer. It works on the premise of “if it moves, tax it!” The major difference is that the VAT is hidden at the cash register because companies will pass the additional burden onto the customer in the form of higher prices rather than a blatant 10% mandated charge on the receipt.
But just because it is concealed from the public, it doesn’t mean it is any less iniquitous.
The VAT acts in the same manner as the national consumption tax, which, as legendary economist Murray Rothbard famously remarked, is a tax on living.
Are Drug Prices Out of Control?
Prescription drug prices are one of those rare bipartisan issues that draw the ire of Republicans and Democrats. They always rail against how the drug makers are fleecing the public and leaving sick people to die on the streets because of surging prices. Liberty Nation has explained in detail why drug prices are the way they are and how to remedy this trend, but there is a new development: They’re falling for the first time in nearly five decades.
According to the latest Bureau of Labor Statistics (BLS) data, prescription prices slumped 1% in February, the biggest one-month decline in history. Also, over the last year, the cost of prescription drugs has tumbled 1.2%, the largest 12-month decrease since 1972.
Both parties might take credit for the dip, alluding to the dozens of superfluous hearings that ask the same questions ad nauseam. But it turns out that the moderation in drug prices can be attributed to two key developments.
The first is that pharmaceutical companies are offering more rebates and higher discounts to middlemen, bringing down the overall net cost of drugs by as much as 4%. The second is that the government has finally decided to speed up the approval process of generic drugs. This year, the competition in the drug market will soar because new products will be on store shelves.
The skeptics are doubtful that this will be repeated next year. As the man says, time will tell.
Don’t Believe the Hype
Eminent economist Thomas Sowell eloquently wrote:
“Leading people into the blind alley of dependency and grievances may be counterproductive for them but it can produce votes, money, power, fame and a sense of exaltation to others who portray themselves as friends of the downtrodden.”
Our esteemed representatives can only lead by telling the public how they are being victimized and conquered and that only the government can come to their rescue. As history has shown, the state can only make matters worse for you, your neighbor, and for everyone else.