The Heritage Insider: Economic freedom matters, bad arguments are being made for gas taxes, minimum wage does hurt jobs after all, and more
February 6, 2016
Economic freedom is still the key to prosperity. “Economies rated ‘free’ or ‘mostly free’ enjoy incomes that are over twice the average levels in all other countries and more than four times higher than the incomes of ‘repressed’ economies. Nations with higher degrees of economic freedom prosper because they capitalize more fully on the ability of the free-market system to generate and reinforce dynamic growth through efficient resource allocation, value creation, and innovation. […]
“The global average economic freedom score of 60.7 is the highest recorded in the 22-year history of the Index. It is noteworthy that despite recent policy missteps by many countries in responding to the global economic slowdown, the free-market system continues to flourish, accepted by governments around the world as the system most likely to improve the well-being of their populations and eliminate poverty. […]
“Of the 178 economies ranked in the 2016 Index, five (Hong Kong, Singapore, New Zealand, Switzerland, and Australia) earned the designation of ‘free’ with scores above 80. The next 33 countries, with scores between 70 and 80, are considered ‘mostly free.’ Countries in these groups, joined this year by Botswana, the Bahamas, and Latvia, have created and sustained institutional environments in which individuals and private enterprises enjoy a substantial degree of economic freedom in the pursuit of greater opportunity and prosperity. […]
“The United States continues to be mired in the ranks of the ‘mostly free,’ the second-tier economic freedom category into which the U.S. dropped in 2010. Worse, with scores in labor freedom, business freedom, and fiscal freedom notably declining, the economic freedom of the United States plunged 0.8 point to 75.4, matching its lowest score ever.” —Terry Miller and Anthony B. Kim, 2016 Index of Economic Freedom, The Heritage Foundation & Wall Street Journal, February 1
Debunking one argument for higher gas taxes: One oft-cited paper calculates that the social costs of driving are $2.28 per gallon, but most of what that paper identifies as external costs are actually born by motorists themselves. “The largest share of calculated costs, estimated at $1.05 a gallon, is the cost of congestion. This is really a cost of bad planning, not gasoline. Either way, the cost is almost entirely paid by people in traffic consuming that gasoline.
“The next largest cost, at 63 cents a gallon, is the cost of accidents. Again, this is partly a cost of bad planning: remember how fatality rates dropped nearly 20 percent between 2007 and 2009, largely due to the reduction in congestion caused by the recession? This decline could have taken place years before if cities had been serious about relieving congestion rather than ignoring it. In any case, most of the cost of accidents, like the other costs of congestion, are largely internalized by the auto drivers through insurance. […]
“[A]t a mere 6 cents per gallon, is the cost of greenhouse gas emissions. If you believe this is a cost, it will decline when measured as a cost per mile as cars get more fuel efficient under the current CAFE standards. But it should remain fixed as a cost per gallon as burning a gallon of gasoline will always produce a fixed amount of greenhouse gases.
“In short, rather than $2.38 per gallon, the external cost of driving is closer to around 26 cents per gallon. Twenty cents of this cost is steadily declining as cars get cleaner and all of it is declining when measured per mile as cars get more fuel-efficient.” —Randal O’Toole, “Oil Prices Too Low?” Cato Institute, February 4
Liberals said minimum-wage hikes wouldn’t cost jobs. They were wrong. “Hiring at restaurants, hotels and other leisure and hospitality sector venues slowed markedly last year in metro areas that saw big minimum-wage hikes, new Labor Department data show.
“Wherever cities implemented big minimum-wage hikes to $10 an hour or more last year, the latest data through December show that job creation downshifted to the slowest pace in at least five years.
[…]
A slowdown in job growth can fly below the radar, at least for those who aren’t seeking low-wage work. But the risk of raising the minimum wage too high became fairly obvious last month, when Wal-Mart bolted from Oakland and Los Angeles and scrapped plans for two stores in low-income areas of D.C.
“The big shortcoming in the available data for 5 of the 6 cities is that they cover broad metro areas, far beyond the city limits where wage hikes took effect. Still, the uniform result of much slower job growth in the low-wage leisure and hospitality sector, even as the pace of job gains held steady in surrounding areas, sends a pretty powerful signal.” —Jed Graham, “Minimum Wages Surged in 6 Cities Last Year; Then This Happened,” Investor’s Business Daily
If we wanted to make men and women truly equal in the workplace, American women would have to commute an extra 4,500 minutes per year. This “gender commute-time gap” exists because, as groups, men and women have different preferences and make different choices about work. But that’s the reason pay gaps exist, too. “Behind the drive for closing the ‘gender pay gap’ – presumably to zero – is often the mistaken assumption that men and women are, or should be, completely interchangeable in their roles in the labor market and in the family. Those assumptions defy innate biological differences and the forces of Mother Nature. It’s an empirically supported fact that men have a much greater tolerance for (and attraction to) risk than women. For example, 91% of motorcycle deaths in 2013 were male, 92% of workplace fatalities in 2014 were men, 93.4% of the current federal prison population is male, and almost 90% of climbers attempting to reach the peak of Mount Everest between 1990 and 2005 were men. That higher male tolerance for risk helps explain some of the gender differences in pay […] . […]
“We learn about other gender differences for workplace preferences and for family roles from the OECD ‘gender commute time gaps.’ In 17 OECD countries, and especially in the U.S., men are disproportionately more tolerant of longer commute times than women, who on average prefer to work closer to home at job locations with a shorter commute. To the extent that longer commute times are associated with a greater selection of higher-paying jobs, longer average commute times for men would be another factor that would explain some of the aggregate gender differences in pay favoring men. Further, while having children has no effect on men’s average commute times (and in fact increases their commute times slightly), having children does seems to affect women’s preferences for even shorter commute times compared to when they were childless. This might suggest that women want more flexibility and shorter commute times after they have children so that they can more effectively provide family and child care services. In conclusion, the OECD data suggest that women on average place a premium on shorter commute times to work, and therefore may be willing to voluntarily accept fewer job options and lower pay for being able to work close to home, especially after they have children.” —Mark J. Perry, “To Bring Attention to the 23% ‘Gender Commute Time Gap’ I Introduce the New ‘Equal Commute Day’ on April 14,” American Enterprise Institute, February 2
Citizens who’ve had their property wrongly seized by the federal government have a little more protection this week: A federal court ruled that the Internal Revenue Service must reimburse Lyndon McLellan $20,000 for the legal expenses he incurred fighting the wrongful seizure of his bank account. “Lyndon’s case came to the nation’s attention after the IRS seized his entire bank account in July 2014 using civil forfeiture for the innocent act of depositing his hard-earned money in the bank in amounts under $10,000. The Institute for Justice took Lyndon’s case to clear his name and get back his property, and in June 2015, the government finally returned Lyndon’s money.
“In returning Lyndon’s money, however, the government sought to avoid its obligation under federal law to pay Lyndon’s attorneys’ fees, costs, and interest. Lyndon racked up nearly $20,000 in fees owed to his accountant and lawyer before the Institute for Justice took his case on a pro bono basis.
“The district court’s decision rejected the government’s maneuver, stating:
“Certainly, the damage inflicted upon an innocent person or business is immense when, although it has done nothing wrong, its money and property are seized. Congress, acknowledging the harsh realities of civil forfeiture practice, sought to lessen the blow to innocent citizens who have had their property stripped from them by the Government. … This court will not discard lightly the right of a citizen to seek the relief Congress has afforded.” —J. Justin Wilson, “NC Forfeiture Victim Wins Final Vindication in Fight Against IRS,” Institute for Justice, February 3
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