Category: Economics

sanderstrumpImagine that a presidential candidate promised to raise taxes on everyone. Under the new proposal, both the wealthy and middle classes would pay more. But as a percentage of a person’s income, the tax increase would disproportionately affect the poor and working class.

Now imagine that when many blue collar and working poor hear about this tax proposal they have a strange reaction: they cheer and consider it one of the primary reasons to support the candidate. They believe this deeply regressive tax that takes a large portion of their weekly paycheck is just what the American economy needs.

While this scenario may seem too absurd even for the bizarre 2016 election, it is actually happening. In fact, such a proposal has been made by both Bernie Sander and Donald Trump.

The continent of Africa has so much space that you could fit most of the United States, China, India, and a lot of Europe onto it. But if you compare Africa to Europe, Europe has two to three times the length of coastline that Africa has.

Why does that matter? Because, as this fascinating video by Marginal Revolution University explains, coasts mean access to water which makes trade easier and increases economic growth.

As the video explains, economic growth is not only affected by a country’s rules and institutions, but by a country’s natural blessings and natural hindrances.

The headline at CNN was surprising: “Under Sanders, income and jobs would soar, economist says”; the opening paragraph of their article even more so:



Like Sanders, Friedman believes in democratic socialism. He also believes an unlikely series of events could happen: Sanders becomes president (very unlikely), President Sanders is able to push his plan through a GOP-controlled Congress (politically impossible), and then median household income magically rises to $82,200 by 2026 (the current projection by the Congressional Budget Office is that it’ll be around $59,300).

You would expect Republicans and conservatives to mock this type of wishful thinking. But some of the strongest criticism has come from a seemingly unlikely source: liberal economists who once chaired the President’s Council of Economic Advisers.

Alan Krueger of Princeton University, Austan Goolsbee of the University of Chicago Booth School, and Christina Romer of the University of California at Berkeley all chaired President Obama’s Council of Economic Advisers at different times during his administration, while Laura D’Andrea Tyson of the University of California’s Haas School of Business was the chair under President Clinton. The four published a rather scathing open letter to both Sanders and Friedman. Here is the full text of the letter:







Rich-Businessman-Lighting-Cigar-With-100-Dollar-Bill-ShutterstockMichael Bloomberg and Donald Trump are both businessmen, both are politicians, and both are billionaires. Obviously, then, they must know a lot about economics, right?

Not necessarily. As Don Boudreaux — a man who does know a lot about economics — correctly points out, success at business does not imply knowledge of economics:



I would go even further than Boudreaux and say that being a successful businessperson doesn’t even mean that a person knows much about business. Of course there are some business people who, if they had to start over from scratch, could become successful again. But many more — perhaps even the majority — achieved their status because they relied on variables, ranging from ideal market conditions to just plain dumb luck, that cannot be replicated.

This is also why businesspeople rarely make effective politicians: they tend to overestimate their knowledge of macroeconomics and end up falling for dumb economic policies (e.g., trade protectionism).

drug-pricesIf you suffer from acid reflux, your doctor may prescribe Nexium. But at $9 a pill, the price is enough to give you a worse case of heartburn.

That’s the price in the U.S. If you live in Canada, though, you can get the drug for less than a $1 a pill.

This price disparity leads many politicians to think the solution is obvious: Americans should just buy drugs from Canada or other countries where they are cheaper.

Amy Klobuchar (D-Minn.) and John McCain (R-Az.) have twice introduced legislation to allow Americans to order up to a 90-day supply of medicines from a licensed Canadian pharmacy. And Hillary Clinton and Bernie Sanders have made importing drugs from Canada part of their platform for reducing the cost of healthcare.

If this seems too easy, it’s because it’s an economically ignorant idea. Writing in the Harvard Business Review, Rafi Mohammed explains why this strategy won’t work:



