Tuesday, November 22, 2016

Colonial Drinking and Does the US Have a Free Economy?

I sent my classes this email in response to a class discussion
Colonial Drinking
In class I may have mentioned that the colonial Americans, including the Pilgrims, drank more than we do today. The reason was that the water in England was unhealthy. Although the Pilgrims on the Mayflower had mostly beer, the colonials drank hard cider more frequently; rum was also a favorite.  If you don't drink for religious reasons, please forgive me, but I looked up popular drinks of the colonial period, and this site lists several:

It describes flip as follows:  
Once flip appeared in taverns in the 1690s, it would capture the colonial hearts and livers for a century to come. A blend of beer, rum, molasses (or dried pumpkin), and eggs or cream, flip was usually mixed in a pitcher and then whipped into a froth by plunging a hot fire poker (called a flip-dog) into its midst. The tavern keeper would then decant the singed creation into ceramic mugs or featherlight flip glasses.
Does the US Have a Free Market Economy, and What Are the Effects?
Someone in my Sunday evening class raised the question of whether the US has a free market economy.  I don't believe that it does. As I've mentioned, the Heritage Foundation ranks the US number 11 in terms of economic freedom, but that doesn't mean the US has a free economy.  Free market economies no longer exist anywhere, with steep costs to the public.

In the 1800s the federal government's spending was about 5% of the total economy. Today it is about about 22% (see this site http://www.usgovernmentspending.com/total ).  If you add state and local spending, then government spending is about one-third ($6.89 trillion over $17.947 billion) of the total national economy. 

However, that does not count (1) the government-driven health industry, which is 12% of the economy; (2) the government-driven defense industry, which is about 3%; (3) the government-driven banking and insurance systems, which are about 4%. 

Insurance is regulated by the states while banking is regulated by the Federal Reserve Bank--a cartel of the large private banks--the Federal Deposit and Insurance Company, the Securities and Exchange Commission, FNMA (Fannie Mae), FHLC (Freddie Mac) and Ginnie Mae (GNMA).

If you add these three industries, health, defense, and banking and insurance, to the share of the economy that is government controlled, the total goes up to the following:33% (direct government) + 12% (health care) + 4% (banking and insurance) + 3% (defense) = 52%.(total)
 However, that's far from all that's controlled by government. All private industry is regulated by a wide array of agencies.  These include agencies that regulate human resources (the Department of Labor), the environment (EPA), energy (the Energy Department), and education (the Department of Education). 

Because of mismanagement and lack of control, no one knows how many agencies the federal government has. According to this website, there are approximately 115 federal agencies, but each state also has many agencies, so the number of regulatory agencies for state and federal combined is in the thousands.   https://cei.org/blog/nobody-knows-how-many-federal-agencies-exist 

It is also difficult to estimate the extent of federal and state regulation of business.  When I did my study of the pension law, ERISA, 20 years ago, the benefit managers estimated that about 40% of their time was spent on government regulation. 

Let's say for the sake of argument, that 15%, probably an overly low number, of the private sector is devoted to compliance with government mandates. That brings the total share of government in the economy to about 67% or two-thirds. 

But that understates my case. All of the private sector is driven by interest rates and Federal Reserve policy. As I have mentioned in my Sunday classes, low interest rates cause the stock market to rise, increasing the incomes of the rich.  However, to reduce interest rates money is created; the increased money causes rising prices, reducing the inflation-adjusted incomes of the poor.  Increasing income inequality is only one effect of the Fed's lopsided management of US monetary policy.  Others include overinvestment in subprime housing and overinvestment in defense.  

Government in the US dominates 80% or more of the economy.

The cost of government control is heavy.  When the economy was freer, back in the 1950s, there was less income inequality and rising real hourly wages. Since 1960, when the scope of government spending expanded under President Johnson's guns and butter philosophy, real hourly wages stopped growing. 

Several economists have quantified the effect of government regulation,and their studies are reported in these Reason and US News and World Report articles:



I would have estimated that in the absence of regulation, you would have earned twice what you earn today, but the economists described in the above-two articles found that the number is six fold. Instead of earning $53,000, the average American household would be earning $330,000 if the level of regulation that existed early in the twentieth century had continued. 


Anonymous said...

I would like your learned opinion if the Emoluments Clause of the US Constitution applies to Presidents?

Mitchell Langbert said...

I copied this from Wikipedia:

His attorney Sherri Dillon said that before the January 20 inauguration Trump will put the business assets into a trust, which will hire an ethics advisor and a compliance counsel. She added that the Trump Organization will not pursue any new foreign business deals, while continuing to pursue domestic opportunities.[20]

The emoluments clause was intended to prevent influence from a foreign government. It prohibits the payments from a foreign government to a person. It states:

No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

If payments from a foreign government are to a trust, then they are in effect to the beneficiary. It seems to me (and I'm not an attorney) that if Trump is the beneficiary of the trust, then there may be a problem, although the Constitution says "accept" any emolument. If it's going to the trust, and it's not being paid to Trump while in office, then he isn't accepting it while in office, which seems to satisfy the letter of the Constitution, although I'm not sure about the spirit.

This is a fine legal question that would benefit from opinions from leading trust experts. One way to resolve it would be for Trump to have the children be the beneficiary for the years he serves in office and for the trust to revert to him after he leaves office.

It seems to me that there is either no issue or the issue can be resolved easily.