TSA link collection

Just a reminder as you travel this holiday season: the TSA is a total waste of money.

The following lists are nowhere close to comprehensive. They are just the links I happened to save over time. The first two groups (Fools, Criminals) are only anecdotes and are a small sample over the course of many years. However, the third group (Incompetent) involves larger sample sets and speaks to the central question: Does the TSA keep us safe?

Fools:
TSA fires screener caught sleeping in Seattle – CNN, January 6, 2003
Florida teen detained because her purse had an image of a gun – Yahoo News, December 2, 2011
TSA subjects wheelchair-bound three-year-old to humiliating search – The Daily Mail, March 19, 2012
TSA Apologizes To Family After Clip of 3-Year-Old Girl in Wheelchair Goes Viral – Huffington Post, February 21, 2013 (Note this is a separate instance than the previous story.)
TSA Humiliated Double Amputee Marine – KTLA, March 22, 2013
TSA Agents Detained Nine-Year Old Boy Because He Had A Pacemaker – Reason, August 23, 2016
A panty liner triggers a TSA pat-down – Washington Post, March 30, 2017

Criminals:
3 ex-TSA workers plead guilty to theft – Seattle Pi, September 23, 2005
TSA Screener Arrested [after taking money from a passenger’s wallet] – TMJ4, October 14, 2006
Ex-TSA agent sentenced for role in pot smuggling scheme at LAX – Daily Breeze, March 25, 2013
6 Shockingly Childish Abuses of Power by Airport Employees – Cracked, April 22, 2014
Suit: Man held 20 hours after asking to file TSA complaint – San Diego Tribune, February 4, 2015
Video Shows Airport Security Tackling Cancer Patient With Disability – Huffington Post, August 12, 2016
A TSA agent who may have lied about a bomb threat can’t be sued – Los Angeles Times op-ed, August 26, 2017 (Passenger threatens to file a complaint against TSA agent, so TSA agent falsely tells police passenger made a bomb threat.)

Incompetent
Airport screeners fail to see most test bombs – Seattle Times, October 28, 2006
The Things He Carried – The Atlantic, November 2008 (Atlantic correspondent carries prohibited items on to multiple flights while investigating what the TSA can actually detect.)
TSA’s Program to Spot Terrorists a $200M Sham? – CBS, May 19, 2010 “The program is failing to catch terrorists. It’s never even caught one.”
Does the TSA Ever Catch Terrorists? – Slate, November 18, 2010
TSA Source: Armed Agent Slips Past DFW Body Scanner – NBC, February 21, 2011
The case for abolishing the TSA – Vox, May 26, 2014
Acting TSA director reassigned after screeners failed tests to detect explosives, weapons – CNN, June 2, 2015 (Note in both 2006 and 2015 the TSA failed to detect the relevant items over 90% of the time.)

The TSA is Still Really Bad at Evaluating Risk – Reason, December 21, 2017
Please, TSA Workers, Don’t Come Back – Reason, January 9, 2019

And just for fun:

See also the related DR post: TSA: A Cost-Benefit Analysis

Would Open Borders Lead to the Migration of Liberal Ideas?

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King’s College political theorist Adam Tebble was recently interviewed about his latest paper on epistemic liberalism and open borders. Explaining epistemic liberalism, he says,

Epistemic liberalism is a tradition of thought that places questions about knowledge, complexity and social learning at the heart of debates in political philosophy, initially with regard to debates about economic organisation and distributive justice.  Key thinkers in this tradition are Karl Popper, Michael Polanyi and of course Austrian School economists such as Friedrich Hayek, although there is also something to be said for including David Hume and John Stuart Mill on the list, given what they have to say about justice in extended or ‘large’ societies and about our liberty to engage in ‘experiments of living’ respectively.

I pick up where these authors, and particularly Hayek, leave off by claiming that epistemic considerations are not just crucial to debates about distributive justice, but also to more fundamental questions about the status of the background norms and conceptions of the good that inform the economic choices that we, either as self-interested individuals or as other-regarding pursuers of collective projects, may make. Thus, in Epistemic liberalism: a defence I seek to build upon Hayek’s claim about the existence of an economic knowledge problem – where the knowledge relevant to our deciding what to do with resources is for a variety of reasons uncentralisable – to claim that there also exists a more profound cultural knowledge problem.

How does this relate to open borders?

In contrast to much of the literature on migration and justice, and especially in contrast to that which defends a more liberal position, the argument I make in favour of more open borders focuses not upon the interests of immigrants or of the already-resident, but upon those whom migrants leave behind in their countries of origin.  In this sense my argument represents something of a breakthrough, for it seeks to claim the interests of those left behind for those arguing in favour of the more liberal approach, rather than leaving them to be appealed to in arguments against it, most notably by writers on brain-drain.  My argument, then, can be read as a response to brain-drain critiques of more open borders and to scepticism about freedom of movement in general.

There is some very interesting work in this area, particularly on social remittances and their effects by authors such as Kathleen Newland and Peggy Levitt.  Both their work and studies by others in development economics do show how, through visits home, via regular communication, or both, immigrants also remit the values of their adopted nations to those they have left behind.  Indeed, there is evidence to suggest that not only the relatives of immigrants, but those who live near to them, are also impacted by this phenomenon.

What’s more, “open borders not only enable migrants to assist those left behind in ways that alternative cross border resource transfer mechanisms cannot, but also assist governments to do the same, via a process of what I call ‘state signalling’.”

Check out the whole interview and the full paper.

More on Free Trade

From Art Carden over at Forbes:

A new paper forthcoming in the journal American Economic Review: Insights estimates the effect of trade with China on American consumers and shows us what we stand to lose if we don’t end the trade war.

In “Estimating US Consumer Gains from Chinese Imports,” economists Liang Bai of the University of Edinburgh and Sebastian Stumpner of the University of Montreal and the Bank of France study price data from the Nielsen Homescan panel to find that trade with China reduced the prices Americans paid for consumer tradables by 0.19 percentage points per year. You can download a draft of the paper here.

Bai and Stumpner argue that about a third of the consumers’ gain from trade with China comes from greater product variety while the other two-thirds come from lower prices for the goods people were already buying.

Another way to put it is that inflation was lower–prices didn’t rise as rapidly–because of trade with China…The direction of the result won’t surprise economists, who have argued for centuries that international trade helps a country’s citizens by making it possible for them to get more with every hour of their hard-earned labor.

Scott Lincicome of the Cato Institute weighs in as well:

Trade and globalization have provided undeniable economic benefits for the vast majority of American families, businesses, and workers. Most obvious are the consumer gains. Several recent studies have found that freer trade with China, for example, has generated, through increased competition and lower prices, hundreds of billions of dollars in U.S. consumer benefits — benefits that, according to economists Xavier Jaravel and Erick Sager, are the equivalent of giving every American “$260 of extra spending per year for the rest of their lives.” Consumer gains from imports, in general tilted toward the poor and the middle class, are especially tilted toward them when it comes to goods that are made in China and sold at stores like Walmart. The magnitude of such benefits also debunks the well-worn myth that free trade is mainly about cheap T-shirts. Indeed, trade’s consumer surplus is a big reason that Americans today work far fewer hours to own far better essentials than at any prior time in U.S. history.

Then there are trade’s overall benefits for the economy. A 2017 Peterson Institute paper calculated the payoff to the United States from expanded trade between 1950 and 2016 to be $2.1 trillion, increasing U.S. GDP per capita and per household by around $7,000 and $18,000 — with benefits, again, disproportionately accruing to households in the bottom income decile. The U.S. International Trade Commission, moreover, found in 2016 that U.S. bilateral and regional trade agreements such as NAFTA generated small but significant annual increases in GDP, as well as in employment and real wages among highly skilled and less skilled American workers. As the American Enterprise Institute’s Michael Strain has noted, trade-skeptical populists who downplay this impressive macroeconomic boost ignore that, as our current economic moment attests, a small bit of extra GDP growth can mean big things for lower-wage, lower-skill workers in terms of employment and possible government assistance.

Trade and globalization also support American companies and workers, even in manufacturing. The Commerce Department, for example, has estimated that almost 11 million jobs depended on exports of U.S. goods and services in 2016, and foreign direct investment in the United States — the necessary flip side of our oft-maligned trade deficit — supported millions more. Meanwhile, American companies that adapt and thrive in today’s economy most often do so by making use of imports and global supply chains. The San Francisco Fed, for instance, recently estimated that almost half of U.S. imports are intermediate products purchased by American manufacturers to make globally competitive finished goods; the country’s biggest exporters, therefore, are also its biggest importers. Numerous other studies have found that the vast majority of the value of an American company’s assembled-abroad product (such as an iPhone, assembled in China) accrues to the U.S. company, including its workers and shareholders — not to the place of final assembly (despite what a gross bilateral trade balance, which attributes an import’s full cost to its final export source, might say).

…My 2017 survey of the academic literature on over a century of U.S. protectionism pre-Trump showed that, with very few exceptions, it imposed immense economic costs on American consumers, workers, and companies (more than $600,000 per year for every U.S. job created) while also failing to open foreign markets or resuscitate protected American firms and workers over the longer term. In case after case, the jobs still disappeared, and the companies either went bankrupt or came back to the government for more help. And it’s happening again: Though American steel consumers are paying much higher prices than their global competitors, U.S. steel-industry stocks lag far behind the S&P 500 index. For these and related reasons, economists of the Left, Right, and center continue to oppose tariffs overwhelmingly (93 percent of a recent IGM Economic Experts Panel of dozens of top economists, to be exact), and they support freer trade and globalization.

Say again: free trade is good.

CBO on the Minimum Wage

I’ve talked about the minimum wage a lot here at Difficult Run. The following comes from the Congressional Budget Office’s July report. It pretty much captures one of the major trade-offs of minimum wage hikes.

The people who get the wage increases will obviously be better off. Not so for the 1.3 million (at $15 an hour) who lose their jobs.

So the question boils down to this: are we willing to make that trade?

Immigration Horrors Aren’t Exactly New

So remember that wall Trump keeps promising? Seventy percent of it was completed by previous administrations. Which is to say that immigration idiocy didn’t suddenly begin in 2016.

When it comes to deportations, the Trump administration hasn’t reached the heights of the Obama administration. According to Axios, “Immigration and Customs Enforcement has deported more immigrants this fiscal year than any full fiscal year of Donald Trump’s presidency, but it has yet to reach Barack Obama’s early deportation levels, according to new internal Department of Homeland Security figures obtained by Axios.”

From Reuters

According to the Marshall Project, the current detention system has been continually expanding over the last 25 years:

Under President Bill Clinton the daily population in detention tripled from what it had been in 1994 to nearly 20,000 at the end of his second term. A pair of laws passed in 1996 and signed by Clinton resulted in a vast expansion of the system, introducing mandatory detentions for asylum seekers and legal immigrants who had committed crimes, indefinite detention and additional spending on enforcement. In the aftermath of the terrorist attacks of 9/11, President George W. Bush also cracked down on immigration, ending a policy in 2005 that permitted those being caught crossing the border to be released until their court dates. By the time Barack Obama took office, the average daily population had ballooned to more than 30,000.

Though detention numbers dipped briefly under Obama, by the time of the 2016 election the daily average had reached just over 34,000 after an influx of Central American migrants at the southern U.S. border. In each administration, the growth of the detention system was used to broker political compromises in lieu of dealing with an overburdened immigration system.

This is why claims that “children in cages” began under previous administrations are actually true (though the Trump administration has taken it to 11). And at least some criticisms began under the Obama administration. For example, National Review pointed to a 2011 PBS Frontline special that shined a critical light on the administration’s immigration enforcement:

The yearlong investigation did an extensive and deep dive into the U.S. immigration enforcement system and stories of hidden abuse in detention centers. The nearly hourlong report makes for harrowing viewers: Women who have been detained complaining about being harassed by guards for sexual favors, sexually assaulted by guards, and guards threatening to kill the women they are harassing if they talk. A single mom with two daughters who overstayed a visa gets deported back to Mexico just because she changed lanes without signaling. Cops describe patrolling neighborhoods with significant number of illegal immigrants, where people instinctively run from the sight of a police car. A mother of five American-born children being deported over a speeding ticket.

The report describes, “a vast network of 250 detention centers, from county jails to large centers run by private prison companies, where immigrants facing deportation are held until they can be removed from the country. In the past decade, three million immigrants have been detained in the system.” The report shows white-domed tents surrounded by barbed wire, and are described as overcrowded warehouses of people. Those who have been through the detention centers describe beatings, racial slurs, official coverups, and threats to deport anyone who complains. The problem is described as more than a few “bad apples,” but more of “barrels of bad apples.”

…In the Frontline report, the administration insists the current enforcement policies are necessary to protect the American people. The report shows the president traveling to El Paso and boasting, “We have strengthened border security beyond what many believed was possible. We now have more boots on the ground and we are deporting those who are here illegally.” The deputy director of ICE boasts of “record-breaking numbers in terms of criminal alien removals” that include “1,000 murderers, 6,000 sex offenders, 45,000 serious drug violators. As we expand the deployment of Secure Communities, focus on criminal aliens, you’ll see that number continue to go up and up.” Officials from the administration boast that they’re finally taking enforcement seriously, a contrast with their lax predecessors.

One of the president’s immigration advisors callously declares, “At the end of the day, when you have a community of 10 million, 11 million people living and working in the United States illegally, some of these things are going to happen. Even if the law is executed with perfection, there will be parents separated from their children. They don’t have to like it, but it is a result of having a broken system of laws.”

Critics complain that the administration’s policy is just “enforcement on steroids.” The report warily details how ICE has extended its reach by enlisting the help of local law enforcement to better identify illegal immigrants who have committed crimes — turning local cops into a de facto enforcement branch of federal immigration law.

All of this really should teach us to not deify political administrations. What’s more, it should break the brain of every rabid anti/pro-immigration, pro/anti-Trump Republican/Democrat.

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“Sounds a Lot Like Trump”: Economists’ Reactions to Warren’s Economic Policies

Over at the Peterson Institute, there is a rundown of Elizabeth Warren’s “A Plan for Economic Patriotism.” You can read the analysis for yourself here, but I wanted to point out three things that jumped out at me:

  • The comparison to Trump (see the photo above).
  • The number of “Good idea, but…”
  • Almost every potentially positive policy devolves into protectionist nonsense.

Let me first start with the exception: her training programs. As America becomes more globalized–both through trade and immigration–more training for American workers displaced by global competition might be necessary.

Now, let’s take a look at her proposed Department of Economic Development:

See what happened there? A potentially good idea turned into a protectionist dumpster fire. How about her R&D policies?

Yet another potentially good idea likely squandered by the protectionist slant. And then there are her straight-up awful ideas:

I’ve pointed out the similarities between the economics of Trump and Sanders before. It appears the populist impulse is even more widespread among American politicians.

God help us.

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Unintended Consequences: Chinese Edition

It is honestly kind of hard not to laugh at the Chinese response to Trump’s tariffs. From the Peterson Institute:

China increased its retaliatory tariffs hitting US exports on June 1 in response to President Donald Trump’s latest escalation of his trade war. Yet, this action is only half of the bad news for US exporters. The other half is that China has begun rolling out the red carpet for the rest of the world. Everyone else is enjoying much improved access to China’s 1.4 billion consumers, a fact that has been little noticed or reported in accounts of the US-China economic confrontation.

…Trump’s provocations and China’s two-pronged response mean American companies and workers now are at a considerable cost disadvantage relative to both Chinese firms and firms in third countries. The result is one more eerie parallel to the conditions US exporters faced in the 1930s.

Another important implication of China’s action is that Americans are likely suffering more than President Trump thinks due to his trade war. Inflicting such punishment on Americans may be one factor motivating China. A separate motivation may be that it is trying to minimize the harm to its own economy by importing vital goods at better prices from other parts of the world.

Figure 1: China’s average tariff rate is climbing on US goods and falling for the rest of the world

Lovely.

Once More For the People in the Back: Nordic Countries Aren’t Socialist

Mocking Spongebob Meme | bUt WhAt AbOuT sWeDeN!! | image tagged in memes,mocking spongebob | made w/ Imgflip meme maker

So here’s something I’ve been saying for the last few years. From The Washington Post:

Undoubtedly, the Nordic nations, with their high incomes, low inequality, free politics and strong rule of law, represent success stories. What this has to do with socialism, though, is another question.

And the answer, according to a highly clarifying new report from analysts at JPMorgan Chase, is “not much.”

Drawing on data from the World Bank, the Organization of Economic Cooperation and Development and other reputable sources, the report shows that five nations — Sweden, Denmark, Finland, Norway and the Netherlands — protect property rights somewhat more aggressively than the United States, on average; exercise less control over private enterprise; permit greater concentration in the banking sector; and distribute a smaller share of their total income to workers.

“Copy the Nordic model if you like, but understand that it entails a lot of capitalism and pro-business policies, a lot of taxation on middle class spending and wages, minimal reliance on corporate taxation and plenty of co-pays and deductibles in its healthcare system,” the report notes.

It goes on to point out that the majority of Nordic countries

have zero estate tax. They fund generous programs with the help of value-added taxes that heavily affect middle-class consumers.

In Sweden, for example, consumption, social security and payroll taxes total 27 percent of gross domestic product, as compared with 10.6 percent in the United States, according to the JPMorgan Chase report. The Nordic countries tried direct wealth taxes such as the one that figures prominently in the plans of Sen. Elizabeth Warren (D-Mass.); all but Norway abandoned them because of widespread implementation problems.

The Nordic countries’ use of co-pays and deductibles in health care may be especially eye-opening to anyone considering Sanders’s Medicare-for-all plan, which the presidential candidate pitches as an effort to bring the United States into line with European standards.

The Post concludes,

These countries are generous; but they are not stupid. They understand there is no such thing as “free” health care, and that requiring patients to have at least some skin in the game, in the form of cost-sharing, helps contain costs…If they have established anything, it’s not socialism, or even the dominance of a benevolent state, but responsible governance. They have achieved a clear division of labor, between government (which arguably has a comparative advantage in health insurance and education) and the private sector (which is better at producing and distributing most other goods and services).

What the Nordic countries don’t do is pretend that society can have a strong and efficient social safety net without a big, mandatory financial contribution from the middle class. Nor do they deal punitively with the private sector, upon whose productivity the entire system ultimately depends.

American socialists’ enthusiasm for the northern European systems may be sincere. We shall see whether it can withstand full and accurate information about how those systems actually work.

Immigration’s Effects on Wages: Norway Edition

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From a new study:

In a recent paper (Bratsberg et al. 2019), we ask what the impact is of such a large immigration-induced labour-supply shock on occupational wages, labour costs, and the industry mix of the economy. The impact of immigration on labour markets has received substantial attention over the last decades. However, most studies focus on the wage structure (e.g. Dustmann et al. 2016). Evidence on the general equilibrium adjustment of occupational wages, labour costs, and industry employment in response to immigration shocks is still relatively scant. We set out to close this gap using high-quality and detailed administrative Norwegian data.

The eastern enlargement in 2004 and 2007 extended the common European labour market to include roughly 100 million individuals from the EU accession countries. With real wages among the highest and unemployment among the lowest in Europe, Norway became a popular destination for labour migrants.

Over the ensuing decade, Norway stands out as one of the countries that received the largest inflows of migrants relative to country size.

Norway is “particularly useful to study because the policy change was exogenous. As a part of the single market, but not a member of the EU, Norway is bound to adopt EU legislation without representation in the European Parliament and Commission. The policy change was instant, comprehensive, and externally imposed, providing a unique setting to study the impact of immigration.” The authors conclude,

Based on the Norwegian data, we observe that the relationship between the initial level of, and the change in, the immigrant share and language intensity is strong. According to our estimates, the change in the immigrant share is 11 percentage points lower in language-intensive versus non-intensive occupations (comparing the 90th versus 10th percentile) over the 2004-2013 period.

According to our results, labour immigration leads to large adjustments in relative industry employment and labour costs. These effects are particularly strong in industries that are initially intensive in the use of immigrant-heavy occupations. In line with our hypothesis, this can be traced back to movements in relative occupation wages: occupations with a large increase in labour supply faced 18% lower wage growth compared to occupations with a small increase (comparing the 90th versus 10th percentile) over the same 10-year period.

As is well known, a reduced-form approach can only identify relative effects – the common effect of immigration across all occupations and industries is not identified. To address the real wage and overall welfare effects of the migration shock, we therefore quantify the general equilibrium effects of immigration according to our calibrated model. The counterfactual analysis shows substantial real-wage losses in some occupations, whereas other occupations have real-wage gains. Although real wages in some occupations decline, the aggregate welfare effects of the immigration shock on natives are close to zero, as some natives switch to higher-wage occupations in response to the immigration shock. The welfare effect on the existing population of immigrants, on the other hand, is negative, as they have a comparative advantage in low-wage occupations.

As I said in my BYU article last year,

According to the 2017 NAS report, most empirical research shows that “the impact of immigration on wages of natives overall is very small.” However, “native dropouts tend to be more negatively affected by immigration than better-educated natives. Some research also suggests that, among those with low skill levels, the negative effect on natives’ wages may be larger for disadvantaged minorities.” Yet, these negative effects “tend to be smaller (or even positive)” when periods of ten years or longer are considered. In fact, research suggests “that immigration to the United States between 1990 and 2006 reduced the wages of natives without high-school degrees by only 0.7 percent in the short run and increased their wages by 0.6–1.7 percent in the long run.” Similar to the effects of employment, low-skill native wages may be depressed in the short run, but long-run effects tend to be zero to
positive (pg. 95).

Are There Children in America Living on $2 a Day?

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From Reason:

Claims that millions of Americans are mired in extreme poverty, barely surviving on $2 or $4 a day, are false, according to a new working paper from the National Bureau of Economic Research.

The paper, released June 3, is by Bruce Meyer, Derek Wu, and Victoria Mooers of the Harris School of Public Policy at the University of Chicago and by Carla Medalia of the U.S. Census Bureau. Some households that income surveys erroneously categorized as extremely poor actually had “net worth in the millions” of dollars, the authors found.

…The new NBER paper takes aim at a Nobel laureate in economics, Angus Deaton, who claimed that 5.3 million Americans in 2015 were living on less than $4 a day. It also criticizes work by a professor at Johns Hopkins, Kathryn Edin, and by a professor at the University of Michigan, H. Luke Shaefer. Edin and Shaefer are authors of a book, “$2.00 a Day: Living on Almost Nothing in America,” that claimed about 3 million children lived in households with incomes of $2 a day or less.

“We find that 92% of the households categorized as extreme poor based on survey-reported cash income are misclassified,” Meyer and his coauthors write. “Many of the households included in survey-reported extreme poverty appear to be better off than the average American household based on numerous indicators of material well-being.”

Rather than millions of extremely poor American children, Meyer and his co-authors found the 285,000 households in “extreme poverty” were either single individuals or “households with multiple childless individuals.”

They write, “this result likes in stark contrast to the focus in academic and policy circles on the plight of extreme poor households with children.”

They write that “the errors in the income level exaggerate the level of extreme poverty.”

The new study, according to Reason, relies on “information from the 2011 Survey of Income and Program Participation (SIPP) as well as administrative tax and benefit program data” and found that

“of the 3.6 million [non-homeless] households with survey-reported cash income below $2/person/day,” the vast majority—92 percent—were “not in extreme poverty once we include in-kind transfers, replace survey reports of earnings and transfer receipt with administrative records, and account for the ownership of substantial assets.”

In fact, new research shows “more than half of all misclassified households have incomes … above the poverty line” entirely.

…The composition of extremely poor households also differs from common understandings of it: “Among the 285,000 households left in extreme poverty, 90% are made up of single individuals. Households with multiple childless individuals make up the other 10% of the extreme poor. Strikingly, after implementing all adjustments, [none of the SIPP surveyed] households with children have incomes below $2/person/day.”

I’ve talked about this $2-a-day claim before. The data supporting it seemed sketchy then. Appears even more so now.

The Economic Illiteracy of Journalists: Venezuela Edition

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Modern journalism often makes me want to go lay down in the middle of I-35 during rush hour traffic. I’ve complained about economic illiteracy before, but I think this one from Pacific Standard takes the cake. It begins,

These days it seems you can’t talk about socialism without being required to talk also about Venezuela—largely because certain people on the right bring up the failures of Venezuela every time the word “socialism” appears. Right-wing pundits claim incessantly that socialist policies are to blame for the terrible conditions that Venezuelans are now living through.

But this story is fundamentally false.

And who does the author consult to establish the falsity of this story?

  • A Marxist (Wolff), which is about as fringe as fringe can get in economics. Marxists are the anti-vaxxers of mainstream economics.
  • A supporter of Modern Monetary Theory (Galbraith), which has virtually no support among mainstream economists.
  • Noam Chomsky.

The author declares,

Most crucially, it was a government rife with corruption that shattered Venezuela…Anat Admati, a professor of economics and finance at Stanford University, tells me that corruption can devastate any country. Regardless of the ideology that inspires your economic policies, Admati says, if there’s too much corruption, the country will fail…Corruption, not socialism, is the malignant tumor on democracy worldwide—in Venezuela, yes, but also here at home.

First off, to say socialism has nothing to do with Venezuela’s collapse is absurd. A 2018 report from the Council of Economic Advisers provides a rundown of some of Venezuela’s socialist policies, from the nationalization of industries (such as oil) to heavy taxation on earning and spending to price controls. Using a synthetic control methodology, economists Kevin Grier and Norman Maynard compared Venezuela’s performance under Hugo Chavez to its expected performance based on similar oil-producing, non-socialist Latin American countries. They find that “after 1998 (the year of Chavez’s successful presidential campaign) synthetic and actual Venezuela sharply diverge. By 2003, Venezuelan per-capita income is more than $3500 below that of synthetic Venezuela, and the gap exceeds $2500 in all subsequent years. It appears that Chavez’s leadership and policies were quite bad for the overall level of wealth in Venezuela” (pg. 8). They conclude, “We find that although average incomes rose somewhat during his time as president, they lagged far behind where they might have been if Chavez had not taken office” (pg. 14). In short, the oil boom masked Venezuela’s socialist underbelly. When the oil prices collapsed, the rot was exposed.

Even still, to say that “corruption, not socialism” led to Venezuela’s downfall reminds me of a quip by the assassin Vincent (played by Tom Cruise) in the film Collateral. After a dead body falls on his cab and the realization sinks in that Vincent is responsible, a shocked Max (Jamie Foxx) says, “You killed him!” Vincent, unfazed, responds, “No, I shot him. The bullets and the fall killed him.” It’s a distinction without a difference.

In their book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, Daron Acemoglu and James Robinson distinguish between inclusive and extractive institutions, with the former creating the conditions for prosperity. “Inclusive economic institutions,” they write,

…are those that allow and encourage participants by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish. To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry of new business and allow people to choose their careers…Inclusive economic institutions foster economic activity, productivity growth, and economic prosperity (pg. 74-75).

In other words, inclusive institutions are largely free-market economies. On the other hand, extractive economic institutions lack these properties and instead “extract incomes and wealth from one subset of society to benefit a different subset,” empowering the few at the expense of the many (pg. 76).

The Fraser Institute’s Economic Freedom of the World (EFW) Index, published in its annual Economic Freedom of the World reports, defines economic freedom based on five major areas: (1) size of the central government, (2) legal system and the security of property rights, (3) stability of the currency, (4) freedom to trade internationally, and (5) regulation of labour, credit, and business. According to its 2018 report (which looks at data from 2016), countries with more economic freedom have substantially higher per-capita incomes, greater economic growth, and lower rates of poverty. This makes economic freedom an excellent proxy for Acemoglu & Robinson’s “inclusive institution.” What’s more, Venezuela comes in dead last in the list of 162 countries. Drawing on the EFW Index, Georgetown political philosophers Jason Brennan and Peter Jaworski point to a strong positive correlation between a country’s degree of economic freedom and its lack of public sector corruption.

“Corruption,” writes economist Joseph Connors, “is institutionalized exploitation and…it becomes institutionalized in the least capitalist countries. Transparency International, the creator of the Corruption Perception Index, is an organization dedicated to eradicating corruption. According to its metric of corruption, people who live in capitalist countries experience significantly less corruption than people in less capitalist countries. Market competition helps explain why this is true. Market competition diffuses power, and corruption thrives on centralized power. Thus, capitalism provides the environment that allows markets to keep corruption at bay.”

Granted, a lack of corruption could very well give rise to market reforms and increased economic freedom instead of the other way around. However, recent research on China’s anti-corruption reforms suggests that markets may actually pave the way for anti-corruption reforms. Summarizing the implications of this research, Lin et al. explain,

Reducing corruption creates more value where market reforms are already more fully implemented. If officials, rather than markets, allocate resources, bribes can be essential to grease bureaucratic gears to get anything done. Thus, non-[state owned enterprises’] stocks actually decline in China’s least liberalised provinces – e.g. Tibet and Tsinghai – on news of reduced expected corruption. These very real costs of reducing corruption can stymie reforms, and may explain why anticorruption reforms often have little traction in low-income countries where markets also work poorly. China has shown the world something interesting: prior market reforms clear away the defensible part of opposition to anticorruption reforms. Once market forces are functioning, bribe-soliciting officials become a nuisance rather than tools for getting things done. Eliminating pests is more popular than taking tools away … A virtuous cycle ensues – persistent anticorruption efforts encourage market-oriented behaviour, which makes anticorruption reforms more effective, which further encourages market oriented behaviour.

There is also evidence that suggests that more government fingers in the pies increases corruption. For example, a 2017 study finds that larger municipality councils in Sweden result in more corruption problems. A 2009 study finds that more government tiers and more public employees lead to more bribery. Finally, a 2015 study shows that high levels of regulation are associated with higher levels of corruption (likely because of regulatory capture).

So while some may think socialism couldn’t have crippled Venezuela because Sweden, they’re wrong. And wrong in a big way.