In what the paper called “one of the most significant climate regulations in the nation’s history,” the Environmental Protection Agency (EPA) is mandating that a majority of new passenger vehicles sold in America be hybrids or EVs by 2032.

The Biden administration and defenders of the policy argue that the EPA’s regulation is “not a ban” on gas-powered cars, since carmakers are not prohibited from producing gas-powered vehicles. Instead, automakers are required to meet a government-mandated “average emissions limit” across their entire vehicle line, to force them to produce more EVs and fewer gas-powered cars.

It’s a clever ruse in that it allows the Biden administration to use regulatory power to force automobile manufactures off of gas-powered vehicles while denying that they are banning them.

Whatever one chooses to call the regulation, its purpose is clear.

“Make no mistake,” the Wall Street Journal noted. “This is a coerced phase-out of gas-powered cars.”

This might be music to the ears of those who see fossil fuels as evil, but economics and history suggest the White House’s plan to force Americans off of gas-powered cars could be a disaster.

What’s Holding Up EV Adoption?

A major reason why the White House is forcing this “transformation of the American automobile market” is that Americans aren’t voluntarily adopting EVs quickly enough to satisfy the White House.

Though Americans purchased more than a million EVs last year, that still represents less than 8 percent of total vehicle sales in the US. The government’s current target is 56 percent. (If the White House was serious about speeding up this transition, it might consider eliminating the 25 percent tariff on cars built in China — which accounts for some 60 percent of global EV sales — but that would be too easy.)

Despite massive subsidies encouraging consumers to purchase EVs, Americans didn’t buy them as rapidly as predicted, causing auto companies to pump the brakes. Ford recently announced it was halving production of its most popular EV, the F-150 Lightning. General Motors, the largest US automaker, and Toyota, the second-largest US automaker, followed suit, announcing significant reductions in EV production.

The weak demand for electric vehicles no doubt has several sources, but the BBC identified a few primary reasons, two of which appear over and over in consumer surveys: price and charging reliability.

Ford’s F-150 Lightning starts at $50,000. Its popular Mach-e starts at $40,000, and that’s after a recent $8,100 mark-down. GM’s top-selling EV, the LYRIQ, starts at $59,000. On average, EVs sell for about $5,000 more than similar gas-powered cars. And EV prices are going up, not down, researchers point out.

“In 2011, the inflation-adjusted price of a new EV was near $44,000. By 2022, that price had risen to over $66,000,” said Ashley Nunes, a senior research associate at Harvard Law School, in her testimony to Congress in 2023.

The second problem is that Americans have serious concerns about how they’ll charge their EVs. A 2023 survey conducted by the Associated Press-NORC Center for Public Affairs Research and the Energy Policy Institute at the University of Chicago found that 77 percent of respondents cited concerns about charging stations as a reason for not purchasing an EV.

This is not an irrational concern.

When Americans drive their gas-powered cars, they are not worried about where they’ll fill up when their fuel runs low. Gas stations are plentiful in the US and easy to find. Charging stations are another matter.

Bloomberg reported last year that, despite steady growth in recent years of EV charging stations, there is just one quick-turn electrical vehicle charge station in the US for every 16 gasoline stations.

Federal efforts to expand charging infrastructure, including $7.5 billion in new spending to build half a million stations, have been embarrassingly slow.

‘Subsidizing EVs With Profits From Gas-Powered Cars’

Since Americans are not voluntarily adopting EVs as quickly as the government would like, the EPA is trying to hasten the transition. This could be a disastrous move.

As the Journal noted, Ford last year lost nearly $5 billion on its EV business. Yet the company still managed to generate a $4.3 billion profit in 2023. It doesn’t take a math genius to deduce how this happened.

“[Automobile] companies are heavily subsidizing EVs with profits from gas-powered cars,” the Journal notes.

Forcing automobile companies to expand production of their least-profitable product lines at the expense of their best-performing ones is economic madness. It calls to mind collectivized agricultural policies in the Soviet Union, where central planners embraced the worst farming methods.

While Stalin’s collectivization of farms in 1929 was a massive failure that led to the deaths of millions, agriculture in the USSR of course continued during and after his lifetime. But two distinct sectors emerged: a tiny private sector that produced a bumper crop of food, and a massive collectivized sector that produced very little.

The late economist James D. Gwartney (1940–2024) explained that families living on collectives in the USSR were allowed to farm on small private plots (no more than one acre) and sell their produce in a mostly free market.

Historians point out that in the 1960s these tiny private farms, which accounted for just 3 percent of the sown land in the USSR, produced 66 percent of its eggs, 64 percent of the potatoes, 43 percent of its vegetables, 40 percent of meat, and 39 percent of its milk.

Gwartney and economist Richard Lyndell Stroup note that by 1980, private farms accounted for just one percent of sown land in the USSR, but a quarter of its agricultural output.

“The productivity per acre on the private plots was approximately 33 times higher than that on the collectively farmed land!” they wrote.

In a free-market economy, farmers within the Soviet Union would have been allowed to shift toward private production — just like US automakers today would be allowed to shift away from EVs until the industry becomes more profitable.

But… the Environment?

Supporters of the Biden policy are likely to respond that we have no choice but to transition to EVs because of climate change. There are several problems with this argument.

For starters, EVs are not the green panacea they seem to be. Electrical vehicles actually require a massive amount of energy and strip mining. Half a million pounds of rock and minerals have to be mined to build just one battery, on average. EVs require far more energy and cause far more pollution when they are manufactured than gas-powered automobiles.

“[I]t’s true that the production of a BEV (battery electric vehicle) causes more pollution than a gasoline-powered counterpart,” the New York Times admitted in a 2022 article headlined “EVs Start With a Bigger Carbon Footprint. But That Doesn’t Last.”

If you weren’t aware that EVs cause more pollution on the production side than gas-powered cars, don’t be embarrassed; few do. It’s one of the dirty secrets of EVs: they start with an enormous carbon footprint. At a climate summit a few years ago, Volvo noted its C40 Recharge had to be driven about 70,000 miles before its total carbon footprint was smaller than the gas-powered version.

As the Times says, the footprint of EVs shrinks over time. But not as fast as many think. One big reason for this is that the bulk of the electricity produced in the US is produced by… you guessed it… fossil fuels. As the Energy Information Administration points out, fossil fuels generate about 60 percent of the electricity in the US, which means that most people charging their EVs are using electricity generated from fossil fuels.

Reducing that carbon footprint is also exacerbated by the fact that people tend to rack up fewer miles with EVs than gas-powered vehicles, which makes it more difficult to offset the large carbon footprint on the production side.

“[Our] data show that electric vehicles are driven considerably less on average than gasoline- and diesel-powered vehicles,” researchers at the Haas School of Business at the University of California, Berkeley noted in a 2019 study. “In the complete sample, electric vehicles are driven an average of 7,000 miles per year, compared to 10,200 for gasoline and diesel-powered vehicles.”

All of this helps explain why a 2023 Wall Street Journal analysis found that shifting all personal US vehicles to electric power would barely make a dent in global CO2 emissions, reducing them by less than 0.2 percent.

Who Chooses?

Forcing US automakers to expand their least-profitable autolines is backward economics. It puts automakers at risk, not to mention their workers and shareholders.

The higher profits automakers are reaping from gas-powered vehicles isn’t an accident. It’s a signal that consumers prefer them at the prices being offered, and heeding consumers is what separates capitalism from the failed collectivist systems of the past.

The Austrian economist Ludwig von Mises explained that in a free-market economy, it’s the consumers who ultimately call the shots, not the state or even the corporations. This idea is known as consumer sovereignty.

“The real bosses [under capitalism] are the consumers,” Mises wrote in Bureaucracy. “They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality.”

The real question here isn’t about which is better, gas-powered cars or EVs. It’s about who gets to choose.

By allowing unelected regulators to decide what kind of cars are built instead of consumers, the US is crossing an ominous line.

This kind of central planning failed miserably in the 20th century. Don’t expect it to be any different this time around.

First, Banfield (who died in 1999) was a pioneering political scientist and longtime Harvard faculty member who was, according to Charles Kesler, the editor of Claremont Review of Books, “one of the greatest social scientists of the twentieth century.” Banfield’s best-known book, the 1970 bestseller The Unheavenly City, was an influential — and contrarian — examination of America’s “urban crisis.” His blunt indictment of lower-class culture as the root of most urban ills was controversial and led to campus protests and undeserved pariah status in academia.

Second, Government Project, based on Banfield’s PhD dissertation at the University of Chicago, is an equally insightful analysis of the Casa Grande Valley Farms cooperative, which was created by the Farm Security Administration (FSA) in 1938 at the height of the Great Depression to provide economic security to distressed tenant farmers and migrant farm workers — many of them “Okies” displaced by the Dust Bowl. Banfield’s careful case study of the Casa Grande project, based on his review of the detailed government records (including extensive interviews with the participants) and his own experience as a “public information officer” for the FSA, is a sobering critique of government planning and social engineering.

Third, the original Foreword by Rexford Tugwell (nicknamed “Rex the Red” by his detractors due to his utopian infatuation with Soviet-style schemes), a member of FDR’s “Brain Trust” and the architect of FSA’s predecessor agency, the Resettlement Administration, is alone worth the modest cost of the book as an exercise in bureaucratic hubris. Tugwell lauds Government Project as “the full case history” of Casa Grande, and acknowledges that “We can see in it many lessons if we will” — while conveniently shifting the blame for the fiasco to others.

Finally, Banfield had a long association with AEI, dating back to 1963 (when Milton Friedman served on AEI’s advisory board), and one of Banfield’s students at Harvard, Christopher DeMuth, was AEI’s president from 1986 to 2008. For all these reasons, Banfield, now largely forgotten, deserves to be remembered, as do the lessons of Casa Grande.

What was Casa Grande and why did it fail? The FSA was a New Deal relief program that sought to provide employment and housing — and, ultimately, economic self-sufficiency — to destitute farm laborers such as sharecroppers and itinerant cotton-pickers then living in squalid shacks. Sixty families were selected to live in newly constructed brick homes featuring modern amenities such as electricity, indoor plumbing, flush toilets, water heaters, refrigerators, gas ranges, and washing machines. At great expense (more than $1 million in 1938 dollars), the federal government (via the WPA) built the homes, acquired 3,600 acres of farmland, and provided the necessary agricultural infrastructure (wells, irrigation ditches, roads, fences, outbuildings, and the like).

Unlike the earlier — but equally disastrous — Matanuska Colony Project in what is now Palmer, Alaska, Casa Grande did not rely on a model of individual homesteads of 40 acres for the participants to clear and farm; it was to be a “collective” farm on an industrial scale, permitting efficient mechanization and more scientific agricultural techniques, such as crop rotation. Small farms in the Arizona desert were deemed to be economically untenable. Accordingly, the 60 settlers chosen to participate would own the farm on a communal basis, responsible for cooperatively operating the farm profitably and reimbursing the federal government for its substantial up-front investment. Eventually, the Casa Grande settlers would repay their debt to the FSA, share the profits, and build equity as owners. Casa Grande — an untested experiment in quasi-socialist agriculture — was to be the largest cooperative farm ever established in the United States.

The problems with this model were — or should have been — obvious. The Casa Grande farm was a complex enterprise, dependent on irrigation, with multiple crops (cotton, alfalfa, grain), livestock (cattle, hogs, sheep), dairy, and poultry, and a complement of horses, mules, tractors, hay balers, and other equipment. The settlers, some of whom had limited (or no) farming experience, were ill-equipped to manage such a complicated operation on their own. To protect its investment, the federal government appointed an experienced farm manager to oversee operations. The farm would not immediately turn a profit, so the settlers were initially paid a nominal monthly stipend. From the beginning, this arrangement generated conflict.

The settlers, who viewed themselves as “owners” (albeit communally) resented the FSA’s management despite their own lack of experience as independent farmers. The settlers’ duties were strictly structured by the FSA foreman. Because of the FSA’s operational supervision and their modest monthly remuneration, the settlers behaved as hired hands, often threatening to strike — against their own cooperative! — if they didn’t get their way. “Sharing” the workload led to disputes over perceptions regarding the settlers’ differing roles and levels of effort. Needless to say, the operational arrangement was contrary to the ostensible goal of cooperative self-governance, which frustrated and confused the poorly educated and inexperienced settlers.

The Casa Grande participants, few of whom were native Arizonans, were haphazardly chosen from widely disparate backgrounds, in terms of age, education, family composition, religious beliefs, life experience, and other characteristics. The only trait they shared was destitution. Any random assortment of humans will include moochers, loafers, troublemakers, and complainers, and the quarrelsome Casa Grande settlers were no exception. With time on their hands (thanks to the mechanized farm operations), the settlers quickly divided into competing cliques and factions. Internal governance amidst these differences degenerated into petty feuds, incessant bickering, jealousy, resentment, and recrimination. The “cooperative” was wracked with discord.

Naïve FSA managers were dismayed that the independent-minded settlers did not adapt to communal life; “economic democracy” was, after all, the ultimate goal of establishing a cooperative farm. To the New Deal architects of Casa Grande, enlightened communal living was a moral imperative. Alas, no amount of tinkering and prodding by the FSA’s social engineers was able to turn Casa Grande into a kibbutz. Adding to the tension, neighboring communities viewed the WPA-built collective farm with distrust and suspicion, nicknaming the project “Little Russia.”

Despite the cajolery of FSA social workers, in 1943 the fractious (and short-sighted) settlers insisted by a two-thirds vote on liquidating Casa Grande — after it became profitable! — squandering their equity on legal fees, and walking away with next to nothing. Most returned to destitution and squalor as migrant farm workers, leaving the federal government $100,000 in the hole (in 1946 dollars).

The lessons? Americans do not readily embrace government-imposed collectivization. “Community,” in the Tocquevillian sense — voluntary associations which comprise the fabric of civil society — cannot be manufactured or externally imposed; civic cooperation must be organic. Good intentions are not enough. In a free society, dealings among citizens are based on “private ordering”: consensual free-market transactions based on perceived individual self-interest. Property rights demarcate separate economic interests. The potential for personal financial success provides incentives for hard work and self-discipline. All these elements were absent in a government-planned “cooperative” with federal supervision and competing factions among the randomly-chosen participants — all of whom were strangers before being thrust into an unfamiliar communal society.

Original foreword author Tugwell was an FDR confidante who helped create, and then led, the Agricultural Adjustment Administration that was declared unconstitutional in 1936, when he’d moved on to be Administrator of the Resettlement Administration. A champion of central planning in industry, housing, and agriculture, Tugwell believed that government bureaucrats could “fix” social problems by moving poor people into utopian planned communities. Despite the manifest failures of the numerous New Deal programs that he designed and oversaw, he steadfastly refused to accept any blame. In his 1951 Foreword, Tugwell conceded that Casa Grande was a “noble failure,” not because “the conception was bad,” but because “the people there could not rise to the challenge.”

Tugwell disingenuously condemned the “character” of the “unfortunate” settlers, who succumbed to “a general sickness which was at work,”including “deplorable exhibitions of selfishness” and “maleficent” opposition to cooperation by “very powerful forces” opposed to FDR. Despite the best efforts of the federal planners, he lamented, “We are far from being fundamentally accustomed to the projections necessary to finding our duty and doing it in modern society” (emphasis added). In other words, Americans were to blame for refusing to adapt to Soviet-style communal farming!

Casa Grande was one of four cooperative farm projects sponsored by the FSA. Believe it or not, it was the most successful. The others, also torn by factionalism, fared far worse. Government Project is a powerful lesson — in economics and human nature: Socialism doesn’t work.

Postscript: The difference between then and now is that Congress recognized the failure of resettlement projects and cooperatives, and in 1943 cut off their funding. Today, such self-restraint is entirely absent.

Such rhetoric was reminiscent of the late-1980s, when a slew of books appeared to warn Americans that, unless the United States adopted Japanese-like industrial policy (government intervention that shifts resources toward a particular sector or industry), it was doomed to be economically dwarfed by a country which America had militarily crushed four decades earlier.

Yet in 1990, Japan’s economy began entering its “Lost Decade” of stagnation. While that owed much to seriously flawed monetary policy, it also resulted from extensive government interventions into the Japanese economy via industrial policy: a point conceded by no less than Japan’s finance ministry in 2002.

Similar patterns may be manifesting themselves in China today. The shine is definitely off China’s economy, and many of Beijing’s economic dilemmas have resulted from the Communist regime’s dirigiste policies.

The biggest time-bomb confronting Beijing is its self-inflicted demographic disaster. Thanks to the one-child policy pursued between 1980 and 2016, China now faces all the complications associated with an upside-down demographic pyramid, in which an increasingly elderly population is supported by a shrinking pool of younger people.

That means ever-accelerating spending on pensions, welfare, and healthcare which will steadily crowd out investment in things like research and development, infrastructure, and defense. No wonder Beijing is now urging families to have three children. The trouble is that once demographic patterns are set in place, they are hard to shift. Consequently, as the foreign policy scholar Ryan Hass notes, China is now “at risk of growing old before it grows rich.”

Dismal demographics isn’t the only challenge with which China must grapple. The country is reaping the whirlwind of conscious decisions on Beijing’s part over the past 15 years to embrace more state-centric economic policies.

Take, for instance, China’s much touted Belt-and-Road Initiative (BRI). Since 2013, Beijing has sought to systematically promote and invest in infrastructure projects around the world, particularly in countries China considers geopolitically significant.

From its beginning, however, BRI has been characterized by runaway costs: so much so that, as early as 2015, state-run Chinese banks started reducing their exposure to BRI while Chinese commercial banks began trying to avoid it altogether. There is also evidence that BRI has long been marred by corruption on the part of those Chinese officials responsible for directing it.

Such problems, however, are to be expected when the government plays a heavy-handed role in directing investment — a process which steadily accelerated in China after Xi Jinping came to power in 2012. This has produced widespread misallocations of capital across the economy as a result of state-controlled banks lending to inefficient and zombie state enterprises.

Chinese state officials have even acknowledged that Beijing wasted at least $6 trillion on unsuccessful investments between 2009 and 2014. That makes it unsurprising that the IMF’s 2021 Article IV Consultation report on China concluded that Chinese state-owned businesses were, on average, only eighty percent as productive as private companies. This, the IMF report stated, had played a significant part in China’s ongoing productivity decline since the late-2000s.

A related problem is China’s aggressive use of industrial policy, especially since the early-2010s, in the form of subsidies, direct state investments, and cheap loans. The goal has been to try to bolster growth in sectors like advanced manufacturing, technology, the service sector, infrastructure, and agriculture.

Naturally if you throw enough money at any given economic sector, you will get some results. But Scott Lincicome and Huan Zhu’s extensive analysis of industrial policy in China shows massive failures in areas like semiconductors, 3G mobile technologies, domestic aircraft, and automotive manufacturing. The same policies have also contributed to growing corruption in many economic sectors, including China’s highly subsidized R&D sector.

These and other trends are making foreign investors nervous. This brings us to yet another problem facing China’s economic policymakers.

Inbound foreign direct investment in China has been falling now for two straight years. It is now at its lowest level since 1993. This development reflects a complex relationship, from trade tensions to unease about Beijing’s intentions vis-à-vis Taiwan.

Decreasing confidence among foreign business leaders about China’s future economic prospects also underlies this foreign investment downturn. The European Union Chamber of Commerce in China’s 2023 Business Confidence Survey, for instance, reported “a significant deterioration of business sentiment.” More specifically, “64 percent of respondents reported that doing business in China became more difficult in the past year, the highest on record;” “11 percent of respondents have shifted existing investments out of China;” “8 percent have taken the decision to move future investments previously planned for China elsewhere;” and “one in ten report they have already shifted, or plan to shift, their Asia headquarters (HQ) or business unit HQ out of Mainland China.”

“Uncertainties in China’s policy environment,” according to the Survey, were central to this deteriorating confidence. Foreign businesses are anxious about growing ambiguity concerning what Beijing will allow foreign businesses to do in China. This uncertainty has surely been exacerbated by the fact that China’s National Bureau of Statistics is becoming progressively more selective about what economic data it releases, and regularly delays the release of other relevant data. In August 2023, China simply stopped releasing information about its youth unemployment rate.

Do these trends indicate that China is about to lapse into Japanese-style 1990s stagnation? It is far too early to tell. They do, however, indicate that American policymakers — whether their focus is national security or trade — should recalibrate their approach to Beijing and avoid getting locked into a narrative which assumes that China is an unstoppable economic colossus. Put simply, the evidence suggests that it is not.

Among the casualties are a growing number of plant-based meat substitute companies that initially garnered substantial investor interest but have since grappled with low and diminishing consumer demand. In June of this year, UK-based Meatless Farm shut its doors not long after Heck, a maker of meatless sausages, announced that it would substantially reduce its consumer offerings. Nestlé-owned Garden Gourmet also pulled its vegan offerings from UK shops in March 2023. Canada’s Very Good Food Company, a vegan food producer which soared 800 percent on the day of its public offering in 2020, recently collapsed after revealing it had never been profitable.

By far the biggest turnabout has occurred in the most prominent plant-meat substitute enterprise, Beyond Meats. The corporate flagship of the sector conducted its IPO in May 2019 priced at $25 per share, opening at $46 and rising to as high as $72 on its first day of trading. By July 2019 the stock price briefly surpassed $230 per share, spiking above $150 per share several times during the pandemic. But since mid-2021, the stock price fell from over $100 to recently close below $6. For six consecutive quarters, the company has reported negative sales growth amid not only a loss of market share but a contraction in the size of the fake meat market. Nearly one-fifth of the firm’s non-production workforce was laid off early in November 2023. Financial analysts have characterized the firm as in survival mode, with its financial deterioration bringing about a “going concern” risk.

So why are so many plant-based “alternative” meat companies faltering at the same time? Part of the answer, we propose, may derive from a pattern of noisy market signals that we dub Conspicuous Production.

Conspicuous Production refers to the creation of goods that are not necessarily sought by a large consumer base, but that are thought to convey certain social signals when they are marketed to the public. It’s a supplier’s counterpart to the more famous concept of Conspicuous Consumption, wherein consumers purchase products to show off the status, wealth, tastes, or social desirability that ownership of a good is perceived to convey. In the case of conspicuously produced goods, the supplier offers a product that caters to certain social trends and causes, whether or not people are willing to purchase it.

It is not difficult to see how artificial “meat” companies fall into a pattern of Conspicuous Production. These plant-based alternatives are presented as more environmentally friendly alternatives to meat. They ostensibly facilitate the reduction of meat-based diets, which is an increasingly vocal political demand of climate activists. Many of these products are also marketed as vegan under an ideological presumption that eating plants is more ethical than eating animals. A retailer might accordingly choose to carry large selections of plant-based “meat” products out of the belief that it will gain them reputational accolades from their shoppers by signaling social responsibility, sustainability, and similar sentiments. Similarly, a restaurant may add a meat-colored congealed vegetable patty to their burger lineup, hoping to garner goodwill from diners who perceive this offering as environmentally ethical.

But what happens if very few people buy these same conspicuously produced food items?

We suspect that many vegan food companies have mistakenly interpreted the social signaling of “alternative meat” store displays and menu items as indicative of a much larger consumer base than they actually possess. It’s only when they unexpectedly encounter financial difficulties due to sluggish sales that the true state of affairs becomes evident. Furthermore, the prolonged shelf life of plant-based alternatives to meat, attributed to the numerous chemicals and binding agents used in their production, could be convenient for those seeking to showcase their company’s social consciousness by stocking their freezers. As we’ve witnessed during events such as hurricanes, COVID-induced grocery store rushes, and similar natural or political crises, what Pete Earle has termed “Magness Effects” are undeniably real.

To elaborate, even in situations where there is a glaring and widespread shortage of essential food items due to emergency circumstances, the vegan section of the freezer aisle often remains largely untouched. The majority of consumers simply have no desire to consume such products (and the small minority that does may already have well-stocked freezers filled with these items, again benefitting from their long shelf lives).

Yet, there is an underlying economic rationale behind the existence of these Magness Effects. Rather than aligning their product offerings with genuine consumer preferences, most grocery stores seem to allocate prime shelf space to faux-meat products as a way of projecting a particular image of social responsibility. They hope that when customers pass by a prominently displayed shelf of vegan goods, they may infer that the store is actively promoting values like saving the planet or protecting animals. It’s akin to establishments that prominently place recycling bins in public view, even though, in reality, the recyclables often end up mixed with regular trash once they’re out of sight.

While the vast majority of shoppers are unlikely to open the vegan freezer door and select a package of artificially colored and molded celery stalks masquerading as chicken tenders, a substantial minority perceives this shelf as a testament to the store’s corporate social responsibility toward the environment. Meanwhile, the subset of the population that does consume these products maintains an ongoing oversupply relative to their market share. Since there’s little demand from others, they can walk into the store during a hurricane, blizzard, or other run on groceries and the artificial meat shelf will appear virtually unchanged from a typical Tuesday.

The news is not encouraging for plant-based meat entrepreneurs. A November 18th Telegraph UK article reports that the plunging fortunes of vegan food makers have occurred alongside the resurgence of interest in real meat. “Smashed burgers” account for a substantial part of the renewed interest, with eateries offering twists on the recipe in towns all across the UK. (Unsurprisingly, it’s a style that originated in the United States.) As for meat consumption trends in the US, the USDA estimates per-capita retail weight consumption of 224.6 pounds of red meat and poultry in 2022: 10.3 pounds higher than the average observed from 2012 to 2021.

The desperation of the grass-meat constituency is clear in the headlines of ideologically aligned media supporters. A widely-syndicated16 November Associated Press article implored readers: “Plant-based meat is a simple solution to climate woes — if more people would eat it.”

Yet despite consumers speaking about as clearly as they ever do, an arrow remains in the quiver of the grass-burger constituency. Impossible Foods CEO (and former Stanford University biochemist) Pat Brown recommends a meat tax, drawing comparisons with the levies currently charged on tobacco, marijuana, and sugar products in various jurisdictions. If consumer tastes won’t salvage the market for animal-part-shaped blocks of dyed soy extract, its boosters and beneficiaries are hoping that government interventions will.

In the meantime, the plant-based alternatives industry appears to be facing its first true market test and doing poorly. True, the consumer base for fake meat is not zero. It’s simply a much smaller market than producers perceived, due to the noisy signals and political distortions of Conspicuous Production. The result is a plant-based alternative food industry that far outpaced the interest in what it had to offer, and is now seeing a rapid contraction as the consumer sovereignty corrects those misread signals.

About the Author

Phillip W. Magness is Senior Research Faculty and F.A. Hayek Chair in Economics and Economic History at the American Institute for Economic Research. He is also a Research Fellow at the Independent Institute. He holds a PhD and MPP from George Mason University’s School of Public Policy, and a BA from the University of St. Thomas (Houston). Prior to joining AIER, Dr. Magness spent over a decade teaching public policy, economics, and international trade at institutions including American University, George Mason University, and Berry College. Magness’s work encompasses the economic history of the United States and Atlantic world, with specializations in the economic dimensions of slavery and racial discrimination, the history of taxation, and measurements of economic inequality over time. He also maintains an active research interest in higher education policy and the history of economic thought. His work has appeared in scholarly outlets including the Journal of Political Economy, the Economic Journal, Economic Inquiry, and the Journal of Business Ethics. In addition to his scholarship, Magness’s popular writings have appeared in numerous venues including the Wall Street Journal, the New York Times, Newsweek, Politico, Reason, National Review, and the Chronicle of Higher Education.

Image by Marco Verch via Flickr, CC BY 2.0 DEED.

Throughout the 1990s and into the early dawn of the 21st century, national governments looked down upon a world they credited themselves with creating. A Federal Reserve-engineered ‘soft landing’ in the mid-1990s buttressed the perception of monetary policy as a perfectable science.

The Third Way – not free markets, but a hampered, highly regulated mixed economy – had outlasted and arguably defeated Communism. Technological innovation was vaulting beyond anyone’s wildest expectations. Space was at the forefront of science again, with the launch of the Hubble Space Telescope and construction starting on the International Space Station. Protease inhibitors, bioengineered foods, and the first hybrid vehicles arrived.

US Dollar Index (DXY), Fall of USSR – present

At that time political figures all around the globe, elected and appointed, surveyed a world built upon paper money and financialization. They looked upon it with great, in many cases smug, satisfaction. And among other self-congratulatory measures, they began selling their long-held gold reserves – by the ton. England, the Netherlands, Australia, Belgium, Canada, and even precious metal stalwart Switzerland liquidated physical stocks of gold. The US did as well, a bit later. Some explained those sales as a means for diversifying central bank holdings. Others claimed that the proceeds would benefit the poor or be used to pay down government debt. A new millennium was at hand, the towpath to which was paved not by soft yellow metal but by batteries of workstations armed with Pentium III processors, silently churning out solutions to partial differential equations.

Twenty-five years later the poor are still poor, national debt is at record levels, and the price of gold in US dollars is eight to ten times the price that governments and central bankers sold almost 5,000 metric tons for. Multi-trillion dollar wars have been fought to inconclusive ends: not lost, really, but far from won. Orders of magnitudes typically only found in astronomy textbooks,  invoking trillions (and in Japan, quadrillions) regularly surfaced in the descriptions of monetary and fiscal policy measures of developed nations. Then, on the heels of a highly politicized response to a public health event, inflation returned from a four decade sojourn. One dollar printed during the Y2K scare today purchases roughly 56 percent of what it did then.

Nevertheless, the US dollar has remained the indisputable and essentially singular global reserve currency, acting as a medium of exchange, unit of account, and settlement instrument for the lion’s share of daily international trading.

Despite policy missteps and distractions, the Fed has arguably performed better than most of the world’s other central banks: in the land of the blind, the one-eyed man is king. But the weaponization of the US dollar in 2022 has exposed greenback dependency as a vulnerability of existential proportions. With the banning of most Russian banks from the Swift (Society for Worldwide Interbank Financial Telecommunication) messaging system, and despite the dollar’s advantages for use in global trade, a line was crossed.

Despite petulant insistences to the contrary by the most well-known economist today (regrettably), a wave of de-dollarization is very much underway. It would be interesting to know how Krugman, who scoffed at the description of ejecting a nation from SWIFT as “weaponization,” would characterize French Finance Minister Bruno Le Maier’s dubbing the move a “financial nuclear weapon.”

None of this means that the dollar is “doomed,” and certainly not imminently. Neither is the US dollar “dead.” But its use as a sanctioning instrument likely represents the crossing of a rubicon whereby nations habitually using the dollar need to have currency alternatives ready. US Treasury Secretary Janet Yellen, even while citing the entrenched nature of the dollar in global trade, conceded that “diversif[cation]” in global foreign exchange reserves is underway earlier this month.

The argument that few if any other nations have currencies (and/or economies underlying them) that meet the requirements of a global reserve currency is a cogent one. Of course, one needn’t necessarily replace the dollar. What matters is having a ready means of transacting outside dollar-based systems and institutions in exigent circumstances: to maintain continuity of trade, and to hedge against the policy errors of central bankers. What is the most marketable, least manipulable means of shifting away from the dollar (and possibly back to it, once tensions have abated) with the lowest switching costs? Gold.

Gold in USD, Fall of USSR – present

Saudi Arabia, not a particular fan of the current Presidential administration, has indicated that it will invest billions of dollars into its expanding gold sector over the remainder of this decade. India recently launched an international gold bullion exchange. The imposition of (almost) unprecedented non-pharmaceutical interventions in early 2020 saw the price of gold rise to record highs. At the end of last year, central banks were buying gold at the fastest rate since 1967. As of May, 70 percent of central banks indicated believing that gold reserves would increase over the next year. Experimentation with using gold alongside dollars, and as money, including in some innovative, familiar formats here in the US, has been growing in just the last few years.

Specific details on the proposed currency union have not yet been released. They may not yet exist outside the minds of their promoters. Suffice to say that drawing scores of nations together from different continents and cultures, with different histories and remarkably diverse resource endowments will be a heavy lift, organizationally speaking. Smaller members are likely to find their interests marginalized, with the resulting dynamic closer to what’s seen in the United Nations than, say, OPEC. And few of the proposed members have confidence-inspiring track records where property rights are concerned.

The form and function of the BRICS+ financial institution, if any is indeed forthcoming, is of secondary importance. What matters is that the slow creep of de-dollarization is, on its flip side, an inexorable push toward the re-monetization of gold. And whether that means sound money through innovation or pressuring global central banks to reform their practices, those outcomes are welcome to say the least.

Sound off about this article on our Economic Collapse Substack.

About the Author

Peter C. Earle is an economist who joined AIER in 2018. Prior to that he spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area. His research focuses on financial markets, monetary policy, and problems in economic measurement. He has been quoted by the Wall Street Journal, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications. Pete holds an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.

Article cross-posted from AIER.

As of the time of writing, CBDCTracker.org lists three countries or regions with retail CBDCs already “launched” (Bahamas, Jamaica and Nigeria), another five in “pilot” stage, and another twenty in “proof of concept” stage. Many more have at least researched wholesale CBDCs. (“Wholesale” CBDCs are intended for commercial and central bank use and the like, while “retail” CBDCs are intended for the rest of us). A report by the Bank for International Settlements (BIS) released just this month summarizes the results of a survey of 86 central banks and concludes that “there could be 15 retail and nine wholesale CBDCs publicly circulating in 2030.”

When you read statements from high-level officials of the BIS, central banks, and governments, you get the impression that CBDCs are an exciting development in the evolution of money. The BIS, for example, calls them “a new tool in the financial inclusion toolkit.” An op-ed co-authored by BIS General Manager Agustín Carstens and Queen Máxima of the Netherlands frames them in the title as “CBDCs for the people.” An IMF working paper asserts that CBDCs can “bank large unbanked populations” in developing countries.

Unpopular and risky

But when a CBDC was thrust upon the Nigerian people, adoption rates were abysmal at best (below 0.5 percent even a year after its launch), and Nigerians took to the streets to demand access to cash. CBDCs are widely unpopular in the United States as well. A CATO Institute national survey published just in May found that only 16 percent of Americans support the idea, and over twice as many (34 percent) oppose it. 78 percent responded that if a CBDC were offered, they would be unlikely to use it altogether. As for partisanship, while Democrats were twice as likely to support a CBDC than Republicans (22 percent for Democrats, 11 percent for Republicans), just as many Democrats oppose it, and the remaining 56 percent respond that they “don’t know.”

Risks CBDCs present include the loss of settlement finality that comes with physical cash (as abandoning cash accompanies the push for CBDCs), loss of financial privacy, easy seizure of assets, loss of the ability to resolve problems at a local level with a commercial bank (as it would be doubtful that a central bank would come to be known for its customer service), outright prohibition on spending or purchase limits with certain merchants or on certain products, and (perhaps most importantly) the paradigm shift from money as an exercise of economic freedom to one of social engineering by central banks and their respective governments. The latter could manifest itself in various ways, including (to name just a few) negative interest rates (essentially a confiscation of one’s savings), the expiry of one’s money (with a date determined by the issuing central bank or its government) — or even discouraging the consumption of products like gasoline, plane tickets or red meat in order to enforce a climate agenda.

Another CATO resource dedicated to identifying the risks of CBDCs rightly points out that a CBDC could reduce credit availability, disintermediate banks, and challenge the rise of cryptocurrencies. And all this is to say nothing of how businesses operating legally under state law would be treated by central banks when those very same economic activities are illegal under federal law. Even at present (with no CBDC yet launched in the United States), businesses working in the cannabis industry struggle to obtain and maintain bank accounts as many of the commercial banks are federally regulated. Are we really supposed to believe that the Federal Reserve would be more accommodating for cannabis businesses? It is difficult to imagine how CBDCs would not radically undermine federalism.

Finally, the increased surveillance also has a chilling effect on the public – even for legal activities. Enjoy vice (gambling, pornography)? Want to buy a gun? Now maybe you avoid living your life as you presently do.

Hardly inclusive

A quick trip down memory lane demonstrates how the debanking of legally-operating banked businesses in action has historically manifested. An Obama-era Justice Department operation called ‘Operation Choke Point’ targeted gun retailers, payday lenders, and the like beginning in 2013 not by charging the employees or owners of those businesses with actual crimes, but by upping the cost for banks to provide banking services to them, reminding those banks of their obligations under the Bank Secrecy Act and anti-money laundering (BSA/AML) regulations and the penalties for non-compliance. The result was (not surprisingly) the debanking of banked people and companies.

More recently, crypto has entered into the crosshairs, with regulators shutting down commercial banks that provide financial services to crypto companies. This latter operation was appropriately coined ‘Operation Choke Point 2.0’ by Nic Carter who draws parallels to the first operation.

The timing of a global CBDC initiative is also suspicious given the present cultural and political climate of “canceling” people with dissenting opinions and of Big Tech’s alignment with government to orchestrate something that resembles more of a PsyOp than “public health” as we have traditionally known it (as evidence from a FOIA request revealed).

Even if you think that a CBDC is a good idea, consider that its power may be turned against you when the political pendulum shifts in your direction and your views or activities are suddenly considered taboo or illegal by those in power. Real financial inclusion requires an economic system where financial censorship is harder to accomplish in the first place. (Paper cash and Bitcoin help here).

Oh, and by the way, the BIS itself calls physical cash “the most inclusive form of money we currently have.” With all the talk of financial inclusion, the global push to phase it out is, well, ironic. SEC Chair Gary Gensler was right when he declared that “we already have digital currency. It’s called the US dollar.” We can address the many shortcomings of the traditional financial system without introducing another digital dollar in the form of a CBDC.

The vast power that a CBDC would place in the hands of a nation state or its central bank points in the direction of an unprecedented level of financial surveillance, censorship, and potentially debanking the banked whenever it may serve certain political objectives. Thus, it is hardly an understatement to say that we are at a crossroads for civilization.

We would also be wise to consider the words of FA Hayek, from The Road to Serfdom:

Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower—in short, what men should believe and strive for.

About the Author

Emile writes on matters of money and cryptocurrency and has spent well over a decade working in international business development around the world. He holds a Master’s (double degree) in Economics from OMMA Business School Madrid and from Universidad Francisco Marroquín as well as an MA in Political Science from the University of Arkansas.

He is from the USA but has also lived in Japan, New Zealand, and (now) Brazil.

Article cross-posted from AIER.

In “The Coming Slavery” (1884), Herbert Spencer observed that legislators often fail to perceive that they have set in motion a train on a destructive course. Given the political momentum, he argues, “The question of questions for the politician should ever be—’What type of social structure am I tending to produce?’”

If most of our politicians have failed to ask this question, citizens should remind them of it now. Who benefits from the $1.65 trillion omnibus package? How does it enhance or restrict freedom? And how do spending programs affect the mindset of future generations? The answers should make everyone reach for the brakes.

An Equitable Platform

One problem is that the current appropriations package is full of programs that redistribute wealth to advance a target moving faster than a bullet train: “equity.” Voters’ race, geographical location, and employment significantly shape their benefits.

Consider the beneficiary of one of Senator Sheldon Whitehouse’s earmarks: $477,000 to the Equity Institute in Rhode Island. This “education-based nonprofit organization” works to “cultivate antiracist, people-centered communities for all learners.” To do so, the institute  advances “an evolving definition of education equity,” insisting, “criteria for success when advancing Educational Equity must be based on the quality of individual and community life as opposed to standardized test scores.” If those criteria are opaque, the government’s criteria are more so.

The “Unleashing American Innovators Act of 2022,” for instance, amends existing legislation to enable the Undersecretary of Commerce for Intellectual Property and Director of the US Patent and Trademark Office to encourage innovation and new patents among particular groups. It ends the preferred list with “any geographic group of innovators that the Director may determine to be underrepresented in patent filings.” The Director may spend your tax dollars based less on the quality of invention than on who innovates and where.

Senator Bernie Sanders is also focused on a particular group in his $50 million Worker Ownership and Readiness and Knowledge Act. Sanders introduced the legislation in 2009. His colleagues then balked, but this year nearly everyone boarded the omnitrain.

Under this act, “The secretary shall establish with the Department of Labor an Employee Ownership Initiative to promote employee ownership.” Sanders calls it “modest but effective legislation” that will “go a long way to ensuring workers have the tools they need to have a seat at the table they worked to build.”

The program identifies “key groups, such as retiring business owners, senior managers, labor organizations, trade associations, community organizations, and economic development organizations,” all of which it educates on the means and benefits of employee ownership. But what are the long-term consequences of promoting this shift, apart from, of course, solidifying a voter bloc?

In its current format, this legislation seems innocuous because it is voluntary: there is outreach, education, and assistance. What Spencer emphasizes, however, is that what begins modestly expands into massive programming with increasing legislation and escalating costs: a runaway train with no brakes.

Tracks to Serfdom

Perhaps the future beneficiaries of the innovation grants will be delighted to share the metaphorical tables they invent with their employees, who then become owners. Or, perhaps Spencer was right that the more the government does, the less incentive people have to invent:

Each generation is made less familiar with the attainment of desired ends by individual actions or private combinations, and more familiar with the attainment of them by governmental agencies; until, eventually, governmental agencies come to be thought of as the only available agencies.

Will the next generation simply plod down the well-worn tracks of government assistance for every endeavor? And how much will that funding increase over the next decades?

Such a trend has long-term consequences financially as well as intellectually. As the government’s gravy train gains momentum, so does government’s incentive to raise taxes to fuel it.  Individuals have less money to apply to their own interests and must work more hours every day to pay for socialism. This was, for Spencer, “the coming slavery”:

it matters not whether his master is a single person or a society. If, without option, he has to labour for the society, and receives from the general stock such portion as the society awards him, he becomes a slave to the society. Socialistic arrangements necessitate an enslavement of this kind, and towards such an enslavement many recent measures, and still more the measures advocated, are carrying us.

Without claiming “enslavement” today, we can acknowledge that the Consolidated Appropriations Act of 2023 will increase the national debt, as well as the political momentum toward the governmentalization of social affairs.

Halting that process requires taxpayers to exhibit the same savvy shown by Agatha Christie’s legendary Hercule Poirot. The detective, faced with a body on the Orient Express, finally realized that literally all the passengers on that train had a hand in the murder. Likewise, voters must accept that the majority of our elected representatives supported the passage of the omnibus, whether openly or through earmarks.

It’s time for us to acknowledge the society they are creating and to hold them accountable. If our current legislators won’t apply the brakes on this train, we need to do so in the next election.

Article cross-posted from AIER.

The stock market rose, as softer-than-expected inflation rate gave investors hope the Federal Reserve may not have to raise its target rate quite as fast. A 7.7-percent increase in prices over the last year shouldn’t make people hopeful. Many Americans can’t afford soaring living expenses, however, and the economy will worsen before there’s any relief.

Adding to this struggle are inflation-adjusted average weekly earnings, which are down 4 percent over the last year, and have been declining for nearly two years. This deflating of the American Dream is the result of big-government policies, creating too much money chasing too few goods.

Just the necessity of food is a struggle. Food prices at work and school are up 95 percent. Eggs are up 43 percent, and chicken, 15 percent. Gasoline to drive to the store is up nearly 18 percent and electricity, 14 percent, so even making meals at home can rock the budget.

To cope with less purchasing power, Americans are not only saving less, they’re also accruing credit card debt, to a record high of nearly $1 trillion. Even in states with comparatively low cost of living, like Texas, people with full-time jobs can’t make ends meet for their families and are showing up at food banks for help.

Unfortunately, the worst is yet to come.

The Fed’s meager strategy for fighting inflation hasn’t included aggressively cutting its $8.6 trillion balance sheet. The balance sheet is only about 3.8 percent less than its record high in April 2022, after more than doubling during the pandemic.

This overprinting of money affects many markets, as those dollars aren’t evenly distributed across the economy, resulting in distorted price signals. The Federal reserve adding assets to its balance sheet (by buying Treasury debt, agency debt, and mortgage-backed securities) kept interest rates artificially low. Those markets are starting to correct, as mortgage rates have risen to 20-year highs of around 7 percent.

The Fed created the current inflationary situation (too much money), which was fueled by Congress’s deficit spending, and exacerbated by Biden’s overregulation (too few goods and services).

Now, the false “boom” is busting. Hardworking families and entrepreneurs bear the brunt.

To combat the problem it helped create, the Fed is raising its target federal funds rate, which has grown at the fastest pace since Paul Volcker was Chairman in the early 1980s. Volcker understood that the Fed’s balance sheet mattered most, which seems to be overlooked by the Fed and many economists today.

The Fed’s hike of 75 basis points on November 2 brought the top of the target range to 4 percent, which was the fourth consecutive 75-basis-point hike, after rates were held at essentially zero for two years. The Fed signaled that it will slow target rate hikes to likely 50 basis points in December, pushing the top rate to 4.5 percent by the end of 2022. This would be the highest rate in 15 years.

The Fed’s attempt to correct elevated inflation comes too late to avert the economic consequences of keeping the target rate too low for too long. As a result, Americans are suffering from persistent inflation, higher interest rates, and a prolonged, deeper economic recession.

What should be done? We need pro-growth policies.

The executive branch should focus on cutting regulations. Congress should prioritize making the Trump-era tax cuts permanent, cutting the corporate tax rate, and passing spending limits to help balance the budget. The Fed, the source of so much money mischief, should adhere to a monetary rule that will cut its balance sheet as much as possible, hopefully down to nothing.

These pro-growth, liberty-oriented policies will unleash the economic potential of the productive private sector and get people back working again at well-paid jobs, while substantially reducing inflation.

Big-government policies must end before they send us further down the road to serfdom. Our newly elected officials have a responsibility to prioritize fighting inflation, and restoring the American Dream.

About the Author

Vance Ginn, Ph.D., is founder and president of Ginn Economic Consulting, LLC. He is chief economist at Pelican Institute for Public Policy and senior fellow at Young Americans for Liberty. He previously served as the associate director for economic policy of the White House’s Office of Management and Budget, 2019-20.

Article cross-posted from AIER.

They want a reason to “build back better” in preparation for The Great Reset.”

One of the reasons I was reluctant until last year to take on precious metals sponsors is because the vast majority of them support Democrats. Some of them work directly with proxies of the Chinese Communist Party. It’s an ugly industry that thrives on fearmongering and the suffering of Americans, so I stayed clear until about a year ago when it become necessary to research and vet out the companies to see if any of them were America First organizations. Out of over two dozen companies I checked, I found only three that don’t work against this nation.

Keep that in mind as you read through the article below. Unfortunately, the precious metals companies recommended by many other conservative and alternative news outlets are owned and managed by people who take your money and donate some of it to Democrats. I suppose that makes sense for some precious metals companies since tanking the economy benefits precious metals prices and Democrats are great at tanking our economy. I’ll only recommend companies that aren’t trying to destroy us, and sadly that’s barely over 10% of the companies I checked out. Here’s Gary’s article…

There has long been a cottage industry of telling Americans they don’t save enough. One of many Wall Street Journal articles in this genre, for instance, was Kelly Greene’s “Workers Saving Too Little to Retire.” The U.S. government’s AboutUSA.gov site even included “Save more” on a list of recommendations for citizens’ New Year’s resolutions.

But our government has long been waging war on savings, making it the cause of, rather than the solution to, low savings rates. As a result, Americans have fewer resources for investment, innovation, technological advancement, and education, which reduces real economic growth and citizens’ wellbeing. Recent policies have illustrated this to an impossible-to-miss extent.

For years, governments at all levels imposed COVID-related restrictions and shutdowns that forced vast numbers of Americans to draw heavily on their savings. Government “solutions,” like cash handouts before elections and higher unemployment benefits, only increased government debt, the financing of which requires that the government suck even more savings out of productive, private use.

The recent jump in inflation is the predictable effect of recent monetary policy profligacy, another part of government’s war on savings. Just ask any American who was faced with near double-digit inflation, but whose bank accounts were still paying interest rates under one percent.

Similarly, the President’s college loan proposal tells people to take past educational expenses they had already agreed to pay back out of other people’s pockets instead. Further, it tells them to borrow more for future education expenses as well, rather than to save for it, as they will be less likely to have to pay what they borrow. Saving less for college, and borrowing still more in order, ultimately, to raid other Americans’ pockets will also leave us with fewer resources to save.

But such recent sorties in the government war on Americans’ savings are just the latest in a long list.

One huge policy-induced savings problem is that people have been led to substitute Social Security’s vastly under-funded promise of retirement benefits for funds they would have saved to finance their “golden years.” Not only do those Social Security taxes and future-benefit promises crowd out savings, but because promised benefits are trillions of dollars greater than current rates of taxation can sustain, people anticipate being “richer” in retirement than they will actually be, reducing saving even more. Those who save enough to provide well for their retirement also face income taxes on up to 85 percent of their Social Security benefits as well, lowering the rate of return on such responsibility.

Social Security exacerbates the crowding-out problem of government budget deficits, which take funds that would have gone to private investment and divert them to government. The federal debt has skyrocketed to “pay” for recent government “rescues,” but Social Security’s unfunded liabilities are even greater than the official federal debt.

Taxes on capital also reduce saving by reducing the after-tax returns on investments.  These include property taxes that, while relatively small percentages of the capital invested, are sizable fractions of the annual income generated. Then state and federal (and sometimes local) corporate taxes take further bites from income, reducing the after-tax return still more. The implicit “tax” imposed by expanding regulatory burdens must also be borne, before earnings can go to investors.

Personal income taxes at up to three levels of government reduce saving even more. Investment income (what is left after other taxes) is taxed again, if paid out as dividends. Earnings from saving and investment can also trigger additional tax burdens like phase-outs of income tax deductions.

If investment earnings are retained and reinvested, increasing asset values, they are taxed as capital gains upon sale. Further, there are substantial limits on using losses on some assets to offset gains on others, as those whose portfolios have taken big hits have been made well aware. And even increases in asset values that only reflect inflation, which is a far greater issue now than in the recent past, are taxed as if they were real increases in wealth. That can be a huge problem: in the 1970s, the real (inflation-adjusted) return on the S&P 500 was negative, due to high inflation. Yet people and companies still had to pay taxes, often at very high marginal tax rates, on illusionary profits.

Many other government policies also reduce saving.

Coverage from Medicare, whose unfunded liabilities are far greater than Social Security’s, reduces incentives to save for future medical costs. Further, current earners, who must cover three  quarters of the cost, are left with less income to save. Medicaid (MediCal where I live) covers nursing home costs only after other assets are exhausted, undermining another motive to save (and has created an entire industry dedicated to gaming the system).

Unemployment benefits, along with food stamps and other poverty programs, also reduce the need to save “just in case.” This mechanism was recently supercharged with unemployment benefits that often exceeded what people could have earned in their current jobs. And as we have seen with any number of disasters, government steps in to assist those who proclaim they “need” it, reducing the incentives for financial self-responsibility.

Estate taxes also reduce successful savers’ ability to pass on assets to heirs, another major motive to save.

Each of these government policies acts as a disincentive to save. Together, they heavily punish saving, reducing it to the point that many do not have any appreciable savings (which many then claim is a “market failure” government must fix, rather than a government failure). And the recent ratcheting up of anti-savings policies escalates the policy war on savings, which is also a war on investment and economic growth. Truly addressing the savings problem doesn’t require more government involvement; it only requires that the government stop undermining our incentives to save in all the ways it does now.

Article cross-posted from AIER.

When additional years of data from the COVID era are added, we fully expect that economic freedom around the world will continue to falter. But let’s not get ahead of ourselves. The 2020 data is bad enough. The global average economic freedom rating fell .14 points in 2020, erasing a decade’s worth of improvements.

But first, some notes on what the Fraser Institute measures.

The Economic Freedom of the World report comprises measurements across five categories and 165 jurisdictions: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Perhaps the most important facet of the report is that we can look at the data in absolute terms, asking, for example, how well the United States has been doing over time. We can also look at the data in relative terms, asking how well the United States has been doing compared to the other nations of the world.

We have become accustomed to seeing a steady climb to better lives. Indeed, many of us could not comprehend living as our grandparents did. But thanks to the Fraser Institute, we now have detailed data from 1980-2020, detailing two generations. How do we stack up?

Many will be surprised that the United States is not at the top of the list of most-free countries. In 2020 the US was seventh, behind Hong Kong, Singapore, Switzerland, New Zealand, Denmark, and Australia. And while seventh in the world is nothing to sneeze at, the US trajectory has been downward for quite some time, if only moderately so. In 1980 and 1990, the US was the second economically freest nation in the world. In 2000, it was third. In 2010 and 2015 it was fifth and sixth, respectively. And by 2020, it was seventh.

But that only tells part of the story. It’s when we look at ratings rather than rankings that things get interesting. While the United States has been kicking around in the top ten, even if falling, for decades, it is not doing all that well when compared to itself over time. Indeed, the US’s cumulative rating of 7.97 is considerably lower than its 1980 rating of 8.34. Digging into the recent data, the United States dropped in rank across all five indexed categories from 2019 to 2020. The most significant changes have been in the size of government and regulation categories, where the United States fell 7.32 to 6.79, and 8.68 to 8.11, respectively. Both measures directly reflect the COVID era’s unprecedented expansions of government, as federal spending was unleashed from any semblance of fiscal constraint and draconian regulatory intrusions on daily economic life reached every single American.

In short, the United States finished 2020 less economically free than we were at the tail end of the Carter years.

In the time since COVID, these problems have only continued to compound. The United States appears to be entering the same economic malaise of bloated bureaucracy, excessive taxation, and spiraling inflation that typified the Carter years. Back then we had to wait in line, sometimes for hours, just to buy gas. Now we have rolling blackouts and energy crises in some states, impending electric vehicle mandates, perpetual budget-busting deficits that were unheard of even two decades ago, and – yes – a return of inflation that tops 8 percent for the year. Perhaps the most telling fact of all is that our elected officials and policymakers haven’t a clue how to reverse these trends. Indeed, they are still feeding them.

So where is all this going? Well, 2021 is a full year of COVID lockdowns, so you can bet that data will be worse. We will know then, though, if 2022 shows a reversal of the decline – assuming that the present trends do not continue to compound the problems that COVID lockdowns started.

The real question now is whether we have learned any lessons about economic freedom and lockdowns. These new data provide us an unwelcome warning of what happens when the power of government becomes unmoored from any restraint, but the trend may yet be reversible.

Article cross-posted from AIER.