When Government Misguides

Governments play favorites. They promote residential construction by making mortgages tax deductible. They encourage ethanol production by subsidizing corn. They boost sales of electric cars by offering tax rebates. These political favors usually diminish, rather than increase, aggregate income. They’re about distribution, not production.

With the ascendance of Donald Trump to the presidency, U.S. government intervention has taken a particularly troubling turn. Not only has he threatened companies planning to produce their products outside of the United States, but he has appointed strident free-trade opponents (ranging from China-bashing Peter Navarro to trade-litigator Robert Lighthizer) to key positions in his administration. In his first week in office, President Trump has pulled the United States out of the Trans-Pacific Partnership (TPP) and moved to renegotiate the North American Free Trade Agreement (NAFTA). His representatives also have threatened to impose tariffs on Mexico (and other countries). In what seems like the blink of an eye, these actions have sacrificed the valuable U.S. reputation–earned over seven decades since President Truman—as a trustworthy leader in the global fight for open, competitive markets.

Historically, government guidance of the economy has come in many forms...

Read More

Sources of growth: large and small, new and old

Everyone is pro-growth and pro-employment. So, when an economy stagnates and unemployment rises, there is always concern. In Europe, real GDP remains below where it was at the end of 2007. That is, the economies in the euro area and the broader European Union (EU) have not collectively returned to the level of economic activity they enjoyed more than six years ago!  Unsurprisingly, as the real economy has languished, unemployment across the EU has risen, going from a low of below 7% to its current level of 10.6%.

Read More