Brothers Judd Blog

If two New Hampshire men aren't a match for the Devil, we might as well give the country back to the Indians. -Stephen Vincent Benet (1898-1943)

One Economy to Rule Them All

Environment Neoconomics

WE ARE ALL PIGOUVIAN NOW:

Science says plastic bag bans really do work (Joseph Winters, Jun 19, 2025, Grist)

When you outlaw or discourage the sale of plastic bags, fewer of them end up as litter on beaches.

That’s the intuitive finding of a paper published Thursday in the journal Science, which involved an analysis of policies to restrict plastic bag use across the United States. The study authors found that, in places with plastic bag bans or taxes, volunteers at shoreline cleanups collected 25 to 47 percent fewer plastic bags as a total fraction of items collected, compared to places with no plastic bag policies.

Deflation

INFLATION IS A FUNCTION OF WAGES:

US wage patterns during and after the pandemic: Insights from a novel data source [Jeff Nezaj (ADP Research), Nela Richardson (ADP Research) and Liv Wang (ADP Research)
Working Papers 25-5]


This paper adds to a growing body of evidence on the underlying determinants of pandemic and postpandemic wage patterns by leveraging private-sector payroll records from ADP Inc., a dataset that comprises more than 25 million employees, or about 1 in 6 workers in the United States. The paper finds that the pandemic’s disruption of industry sectors and workers drove large swings in pay growth as lower-wage workers left the labor force in the spring of 2020 and were hired back a year later. It also triggered a shift to larger year-over-year pay gains that so far have endured, albeit with some moderation.

Deflation

CAIN WON:

Abundance and Its Discontents (James Livingston, 3/07/25, Project Syndicate)

[T]he vision Klein and Thompson offer makes the idea of abundance sound like what awaits the Tribulation Force of the Left Behind film franchise, whose members prove they are worthy of joining the Raptured in heaven by working hard against the anti-Christ on Earth. The abundance we need and deserve cannot be incentivized by monetizing it and attracting private investors and contractors emboldened by relaxed regulations and officials who are willing and able to bend the rules. Nor does it have to wait on the arrival of another “political order” that will deliver the goods because it tells a “better story,” as per the historian Gary Gerstle’s periodization of the US political party system (eagerly cited by Klein and Thompson). Abundance is here and now, abiding in the simple fact that economic growth doesn’t require more savings, more work, and more fossil fuels (and thus the incineration of the planet), because growth – at any pace – no longer demands larger inputs of either capital and labor.

It’s impossible tyo overstate deflationary pressures.

Neoconomics

PAYING FOR THE COSTS YOU IMPOSE:

What, Exactly, Are Negative Externalities? (Donald J. Boudreaux, 2/5/25, AIER)

By far, the market imperfection believed, at least by economists, to be most common is that of externalities. An externality, as defined by the Nobel-laureate economist George Stigler, “is an effect, whether beneficial or harmful, upon a person who was not a party to the decision.” Consult almost any economics textbook and you discover a similar definition of externality. Because harmful effects of this sort (“negative externalities”) generally get more attention than do beneficial effects (“positive externalities”), the discussion in this Explainer will be confined to negative externalities, although most of the points I make apply also to positive externalities.

A classic example of a negative externality is a railroad that builds a line next to farmland and, when it runs its trains, throws sparks onto the farmland, occasionally burning the farmer’s crops. The farmer suffers damage that he did not bargain for. If the railroad doesn’t pay for this damage, it does not cover all of its operating costs, which include doing damage to crops. Because incurring costs restrains the actions that generate the costs, not having to pay all of its costs leads the railroad to run too many trains. And when the railroad runs too many trains, the farmer winds up supplying too few crops.

To induce the railroad to produce the optimal amount of railroad services, it must somehow be obliged to pay not just for some of its costs of doing business—to pay not just wages to compensate its workers, and prices to compensate its suppliers of fuel—but to pay for all of its costs, including whatever damage it causes to farmers and other parties who suffer incidental losses as a result of the railroad’s operation.

A.C. Pigou and Ronald Coase


The government can “correct” this market imperfection by imposing on the railroad a tax equal to the value of the crops damaged by its trains. This tax—called by economists a “Pigouvian tax” (after the British economist A.C. Pigou)—“internalizes” on the railroad the cost that it once imposed on the farmer. A cost that was previously external to the railroad’s decision-making processes is now internal to it given that the railroad must pay the tax. With this cost “internalized” on the railroad, it will now produce the economically optimal amount of railroad services, and allow the farmer to supply the optimal amount of crops.

Joe Biden One Economy to Rule Them All

THE eND OF hISTORY MARCHES ON:

The Post-Neoliberal Delusion: And the Tragedy of Bidenomics (Jason Furman, March/April 2025, Foreign Affairs)

[T]he Biden administration’s post-neoliberal turn, the predicted economic transformations of which prompted comparisons to Franklin Roosevelt’s presidency, fell considerably short of its lofty goals. In some respects, the macroeconomic outcomes have been impressive. The U.S. economy has bounced back much faster than it did after previous recessions, and its post-pandemic performance has also outpaced that of many peer countries in terms of economic growth. But the recovery has been uneven, frustrated by inflation at least partly induced by the administration’s own policies. Inflation, unemployment, interest rates, and government debt were all higher in 2024 than they were in 2019. From 2019 to 2023, inflation-adjusted household income fell, and the poverty rate rose.

Even before inflation doomed Biden’s chances for reelection, it undermined the administration’s goals. Despite efforts to raise the child tax credit and the minimum wage, both were considerably lower in inflation-adjusted terms when Biden left office than when he entered. For all the emphasis he placed on American workers, Biden was the first Democratic president in a century who did not permanently expand the social safety net. And despite signing into law an infrastructure bill that committed over $500 billion to rebuilding everything from bridges to broadband, skyrocketing costs of construction have left the United States building less than it was before the law’s passage.

There have been important successes, especially considering the slim congressional majority with which Biden was forced to operate. Massive legislation that he pushed to address climate change is already reducing emissions and likely will continue to do so even in the face of hostility from the Trump administration. Domestic semiconductor production is being revived. But a hoped-for manufacturing renaissance has not materialized, at least not yet. The proportion of people working in manufacturing has been declining for decades and has not ticked back up, and overall domestic industrial production remains stagnant—in part because the fiscal expansion Biden oversaw led to higher costs, a stronger dollar, and higher interest rates, all of which have created headwinds for the manufacturing sectors that received no special subsidies from the legislation he championed.

The Biden administration failed to seriously reckon with budget constraints and to contend with the effects of “crowding out,” when a surge in public-sector spending causes the private sector to invest less. Both missteps reflected a broader unwillingness to contend with tradeoffs in economic policy and allowed Trump to ride a wave of discontent back into the White House. For Democrats, it would be a mistake to think their loss was due solely to a global backlash against incumbents—or worse, to conclude that American voters had simply been insufficiently appreciative of everything Biden did for them.

Truly building back better will require harnessing the Biden administration’s ambitions for economic transformation without discarding conventional economic considerations of budget constraints, tradeoffs, and cost-benefit analysis—in other words, not giving in to the post-neoliberal delusion.

One Economy to Rule Them All

A CAUTIONARY TALE:

Dynamia, Not Stagnatia: Specialized labor and freely shifting markets result in creative destruction, but also mutual enrichment. Where would you want to live? (Donald J. Boudreaux, January 10, 2025, The Daily Economy)


Consider the fictional little country of Dynamia. Although, strictly speaking, this place is a product of my imagination, my imagination here sticks closely to essential facts of reality. Dynamia is very much like a real-world country in a modern market-oriented society.

One Economy to Rule Them All

EARLY STAGES:

This Is Not Late-Stage Capitalism (John Aziz, 8 Jan 2025, Quillette)

In fact, since Lenin’s day, capitalism has ascended to newer and higher forms. Lenin was wrong—imperialism was not its highest stage. Western economists developed new ways to balance the dynamism and economic opportunities of capitalism with the human desires for stability and predictability, and the need for jobs for the general population. In the wake of the Wall Street Crash of 1929 and the ensuing Great Depression, John Maynard Keynes published his seminal treatise proposing that governments adopt countercyclical economic policy: spend more heavily to create jobs and build infrastructure when unemployment is higher and the private sector is depressed and cut back when the market is booming and unemployment is already low.

One of the most influential critiques of communism was written by Friedrich Hayek, whose concept of informational efficiency highlighted capitalism’s unique strengths. In his 1945 essay “The Use of Knowledge in Society,” Hayek argues that the price system in a market economy is an unparalleled mechanism for coordinating dispersed knowledge. In a capitalist economy, prices reflect millions upon millions of individual decisions about supply and demand, and therefore act as signals that guide resource allocation dynamically and efficiently.

There is no such informational network in a centrally-planned communistic system. The knowledge needed to run an economy is not just statistical or aggregate; it is local, dynamic, and often tacit. For example, a small business owner’s understanding of their customers’ preferences or a farmer’s knowledge of local soil conditions cannot be easily centralised or standardised. The market leverages this dispersed knowledge through competition and price adjustments, whereas central planning is inherently rigid and prone to inefficiency.

Aside from a change in emphasis from government spending to monetary policy as the main countercyclical mechanism in the 1970s, capitalism with a few countercyclical adjustments has ruled the day from World War 2 until the present.

As we produce wealth ever more cheaply–thanks to declining costs of labor and energy–and spreadownership ever more widely–thanks to universal savings accounts–we aren’t even to the midway point yet.

One Economy to Rule Them All

ONE ECONOMY TO RULE THEM ALL:

Why Are There No Trillion-Dollar Companies in Europe?: Large companies don’t just happen. They are born, fostered, and grown in low-tax, high-opportunity societies. (David Hebert, January 1, 2025, Daily Economy)

The same can be said about tech giants. They will want to locate themselves where most of their customers live and, with a massive customer base with one of the highest rates of adoption of technology in the world, locating in the US makes good business sense.

But this explanation falls short, too. Notice that it presumes that these tech giants exist and are simply deciding where to locate. The truth is that these tech companies did not descend upon the world like mana from heaven; they had to be created and built from the ground up. The real questions we must ask, then, are 1) what makes the US so fertile for economic growth and 2) what makes Europe so reticent for growth?


It is no secret that the US remains “the land of opportunity.” Even just logically, we can tell that it is based on immigration patterns. The US remains one of the most immigrated-to countries in the world. In fact, the UN reports that 20 percent of the total immigrants in the entire world are in the United States. But this still invites a question: why do so many people want to live in the United States when they could live elsewhere?

There are many factors, but chief among them are economic in nature. First, we can look at average wage rates across countries. The US remains one of the highest-earning countries in the world. Lest we think this is a fluke or a historical accident, cross-national studies confirm that simply living in the US actually causes wages for workers to increase.

The newly-awarded Nobel Prize economists Daron Acemoglu and James Robinson evidenced this by looking at the city of Nogales, a city at the border between Mexico and Arizona. What is unique about this situation is that the city’s people share a common heritage and culture; in fact, there are families that were split in two when the wall was first erected. Because of their shared heritage, the only real difference lies in which side of the fence, running right through the middle of downtown, one lives. The US side is much, much wealthier than the Mexican side. In fact, in 2012, the fire department on the US side of Nogales famously helped the Mexican side put out a fire by “exporting” water over the fence. They could only do this because of their dramatically higher wealth.

We can also look at the ease with which one can start a business.

Neoconomics W

TAXES WHAT YOU DON’T WANT, NOT WHAT YOU DO:

Trump Should Finish What He Started (Jason Harrison, Nov 26, 2024, Cremieux Recueil)

Back in 2005, the President’s Advisory Panel on Federal Tax Reform, established by President George W. Bush, rolled out proposals that echoed the principles underlying the DBCFT. Their plans included lowering marginal tax rates, eliminating certain deductions, and promoting saving and investment—concepts that resonate with the DBCFT framework. Interestingly, aspects of this tax reform have found nods of approval from both sides of the political aisle. Jason Furman, who served as Chair of the Council of Economic Advisers under President Obama, has highlighted the merits of specific components, particularly those that promote simplicity in the tax code and encourage economic growth. In fact, many Democratic lawmakers and advisors, whether openly or in quieter conversations, have also recognized the value of this approach, underscoring their bipartisan appeal. The Tax Cuts and Jobs Act (TCJA) of 2017, the eventual enacted policy born out of “A Better Way” and signed by President Donald Trump, included provisions that have been recognized for their positive impact and could serve as common ground for future bipartisan tax policies. It’s true, parts of the TCJA genuinely are worth hanging onto.

When you peel back the layers, the tax reform plan put forth by the Republicans that was later embodied in the TCJA isn’t so much a radical leap into the unknown as it is the culmination of a long journey through scholarly research and policy evolution. It reflects a convergence of ideas from economists, policymakers, and bipartisan commissions, all wrestling with the never-ending challenge of designing a tax system that promotes efficiency, fairness, and growth. In an era where the United States faces increasing competition from countries like China, mounting national debt, and the challenges of profit shifting by multinational corporations, the urgency of effective tax reform is undeniable. A tax system that enhances international competitiveness, supports long-term wage growth for workers, and simplifies the complex web of current tax regulations is essential, and the DBCFT offers a compelling framework to address these issues.

Advocacy for a Destination-Based Cash Flow Tax is really advocacy for consumption taxation in disguise, so it makes sense to first actually address what consumption taxes are, or, more importantly, what people mistakenly think they are (spoiler: they’re not just taxes on your latte habit.)

When you peel back the layers, the tax reform plan put forth by the Republicans that was later embodied in the TCJA isn’t so much a radical leap into the unknown as it is the culmination of a long journey through scholarly research and policy evolution. It reflects a convergence of ideas from economists, policymakers, and bipartisan commissions, all wrestling with the never-ending challenge of designing a tax system that promotes efficiency, fairness, and growth. In an era where the United States faces increasing competition from countries like China, mounting national debt, and the challenges of profit shifting by multinational corporations, the urgency of effective tax reform is undeniable. A tax system that enhances international competitiveness, supports long-term wage growth for workers, and simplifies the complex web of current tax regulations is essential, and the DBCFT offers a compelling framework to address these issues.

Advocacy for a Destination-Based Cash Flow Tax is really advocacy for consumption taxation in disguise, so it makes sense to first actually address what consumption taxes are, or, more importantly, what people mistakenly think they are (spoiler: they’re not just taxes on your latte habit.)

The future al every policy is the past of W, in this case Neoconomics.

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