The Christian Science Monitor has an interesting op-ed written by a fellow at the libertarian Goldwater Institute on how states that lowered taxes between 1990-2000 reduced their poverty levels:

Using data from the Census Bureau, the report found that states with the lowest tax rates enjoyed sizable decreases in poverty. For example, the 10 states with the lowest total state and local tax burdens saw an average poverty reduction of 13 percent – two times better than the national average. The 10 highest-tax states, meanwhile, suffered an average increase in poverty of 3 percent.

Some high-tax states, such as California, Hawaii, and New York, suffered catastrophic increases in poverty. As California began to reject the low-tax legacy of the Reagan governorship, the state’s poverty rate jumped 13 percent in the 1990s.

Some will be quick to dismiss this as a consequence of illegal immigration. But lower-tax border states such as Arizona and Texas had substantial declines in poverty while also experiencing large increases in immigration.

In fact, California’s high taxation has been so damaging to the economy that another increase like the one in the 1990s would result in poverty exceeding Mississippi’s by 2010.

The leftist conception is that by raising taxes you redistribute income to the poor and make the poor better off. The problem with that concept is that it never seems to work. What eventually happens is that the taxation hits the productive members of society, who are forced to cut back on hiring, and more people go out work.

The only long term solution to poverty isn’t to be found in redistribution of assets, but in sustainable economic growth. Government handouts are at best, a stopgap against poverty. The one truly great thing that Bill Clinton did is finally acquiesce to passing significant welfare reform, which got tens of thousands of people off the government dole and into the world of productive work. The result of those reforms was a massive reduction in poverty across all levels, especially among the most vulnerable.

The Goldwater Institute study just supports what casual observation shows: high taxes don’t reduce poverty. The redistributionist model simply doesn’t work. Throwing money at the problem is a simplistic solution that benefits those with a deep-seated sense of noblesse oblige rather than those such programs are designed to help. Programs like the Earned Income Tax Credit provide incentives for positive activity — working a steady a job. Government handouts incentivize negative activities — trying to stay on the dole for as long as possible. That isn’t to say that all handouts are unnecessary — some people need a temporary lift up, but when those handouts become a way of life, the only effect is to keep that person forever under the bootheel of the state. Such paternalism is not only ineffective, but harmful.

The best way to reduce poverty remains the same as it always been: create incentives for people to stay in school, not have children out of wedlock, stay off drugs, and work full time. We could double or even triple welfare payments and not reduce poverty by as much as programs that support strong marriages and stable working habits.

To keep our economy strong, we need to support marriage, jobs, and economic development. That’s the best recipe for fighting poverty, not redistributionism that seeks to throw money at a problem rather than understanding why it exists.

One theme that appears frequently on this site is the notion that policies have consequences and what distinguishes serious thinkers from less serious ones is that the serious thinkers consider the implications of the policies they choose to pursue. The “living wage” is an example of just such a thing — those who tend to champion that policy tend not to consider how such a thing works in the real world. For instance, take this statement from one comment recently posted here:

A person working a full-time job in the richest country in the history of the world should not be allowed to live at or below the poverty level. You can try to sound like you are on the side of workers, but as long as you are against that statement, you’re just spewing more of Bill O’Reilley’s junk.

Now, I’ll ignore the fact that given the choice of listening to Bill O’Reilly prattle on about the “folks” and having a colonoscopy performed by an enraged badger, I’d have to think about it first. What matters is that the commenter wants to make a rather categorical statement about the way in which an economy should work without considering the consequences of that position.

In theory, it all sounds good. Why should anyone who works full time be below the poverty level? (In fact, very few full-time workers are.) After all, we’re the richest country on the planet, right?

This is where the rules of economics delivers a sharp kick to the groin…

There are X number of low-wage jobs out there. We have a natural rate of unemployment that’s historically somewhere in the neighborhood of 5% give or take. Some people just don’t want to work, some people are transitioning between jobs, some people are sick. Full employment isn’t economically possible, and the lessons of the 20th Century have shown that bad results occur when a government tries to make policies that mandate it.

But what of those who do work? Why can’t toilet cleaners at the 7-11 make $13/hour?

There’s no law that says that they can’t, other than the fact that people tend not to want to pay $100 for a Squishee and some Slim-Jims. The going rate for labor has less to do with government policy (a relatively small number of workers get paid at the minimum wage) than it does with how much people are willing to pay for labor. The reason why an increase in the minimum wage won’t have much of an economic effect is because so few workers actually get paid at that rate. Even a typical McJob is likely to pay more because the labor markets are relatively tight. We have a rate of unemployment that’s probably as low as it can sustainably go.

What happens if government comes in and says that 7-11 must pay their toilet cleaners $13/hour?

A few things happen: for one, 7-11 stops offering toilets for their customers. And that’s if we’re lucky.

The actual outcome isn’t some hypothetical — the banlieues of Paris are exactly the sort of consequence that comes out from a labor system that is restricted by high starting wages. The first people to get hurt are those who don’t have a lot of marketable skills – mainly immigrants, minorities, and the less educated. The result: official unemployment of over 19%, and probably higher.

If an employer knows that they have to pay a new worker $13/hour, who will they hire: a single unwed mother who is likely to have to miss work because of day care and sick kids, or some suburban teenager with his own car and good grades? It doesn’t take a genius to figure out which one is going to get a bigger advantage than the one they’ve already got.

At any given moment, any given employer can only spend so much for wages. That figure may vary over time, but a “living wage” means that employer has to make do with the same amount of money, but much higher costs. That means fewer jobs, and that means that employers are going to want to take as few risks as possible with the people that they do hire.

The “living wage” sounds good in principle, but the reality of the situation is that it would be devastating to the least fortunate among us. Even those making the prevailing wage, should they work 40 hours a week, are quite likely to be above the poverty level. Raising the minimum wage raises it for everyone — rich teenagers saving up for their Playstations, Grandpa working as a greeter for Wal-Mart, and the working poor. The problem with that is that we don’t have a societal interest in making sure that Suburban Billy gets his PS3 before the end of the summer or whether Grandpa has enough money for Viagra — we want to subsidize those who truly need the money.

Raising the minimum wage doesn’t do that. Increasing the EITC, helping to improve the educational system, and other forms of targeted relief does. The consequences of those policy changes are far less haphazard than merely raising the minimum wage.

We don’t live a perfect world where every employer can go back to the money tree and dramatically increase their personnel budgets — no matter how much we’d like that to be true. In order to craft good public policy, lawmakers need to be able to understand and avoid the negative consequences of their actions — and the better a plan sounds on paper, the worse those consequences tend to be.

John Wixted documents his support for raising the minimum wage, an issue that probably cost the Republicans the Senate. (Thanks to strong support in places like Montana.)

At best, raising the minimum wage will have absolutely no economic consequences. It will be a nice sop to America’s teenagers, who make the largest demographic group within minimum wage earners. All those people who flip your hamburgers and salt your fries deserve a nice healthy raise, don’t they? I mean granted, most of them worry about getting that shiny new Playstation 3 rather than getting their next meal, but still, don’t we deserve to recognize the fact that they remembered to put low-fat French dressing on our McSalad?

Sure, raising the minimum wage won’t do anything to reduce poverty and will ensure that single mothers and minority workers have fewer job opportunities than do the Spoiled Brat demographic, but that’s all unimportant.

What is important is that Americans do something — or at least feel like they’re doing something, even if that something is to ensure that the most vulnerable members of our society lose out to the most irritating. It’s not like we couldn’t do something that would effect only those who truly need it, like raising the Earned Income Tax Credit which subsidizes responsible working habits among the poor rather than the shiftless McBrat saving up to buy an iPod so he can talk about how much emo music he has on MySpace. Nope, we gotta go for the quick fix here.

It’s quite likely that we’ll see a significant increase in the minimum wage in the next session of Congress. That’s welcome news for America’s teenagers, but not so much for the working poor. After all, in politics, a big and visible change like raising the minimum wage often destroys the political inertia that would push for truly effective remedies like fixing the EITC and subsidizing positive societal behaviors. It’s far easier to give into the “easy” solution than fix the the problem, and our political class is hardly known for either their brains or their courage.

One of the greatest economists and thinkers since Adam Smith has passed away at the age of 94. The intellectual tradition of Milton Friedman has made this world a better place. Free to Choose remains one of the seminal works in economics, and brought home the importance of free markets in a way that millions could understand. His policies have been so successful that decades after Reagan and Thatcher first implemented them as public policy, they remain still very much alive, despite the shifting of the political winds in intervening years.

There are very few people in the history of the world who have done as much as Milton Friedman in terms of advancing the cause of human liberty. He was one of the visionaries who fought the long, hard fight to establish the values of individual liberty that we today take largely for granted. His ideas were absolutely revolutionary at the time, and in many cases they are now part of the status quo. Certainly the idea that the nationalization of industry or wage and price controls are no longer ones that enjoy much support in American government — just a few decades ago they did.

Dr. Friedman’s legacy lives on, as his Foundation continues to fight for individual liberty in fields from education to healthcare.

Milton Friedman left the world in a much better position than it would have been without him, and despite the fact that liberty has lost one of its greatest champions, the legacy of Milton Friedman’s ideas will continue to live on as millions enjoy the benefits of the economic freedom and individual liberties he championed.

Since I’m still arse-deep in midterms, I missed this excellent piece on the national debt which liberals love to flog as another example of why Bush is so evil. Now, like Megan McArdle, I’m no fan of the Bush Administrations profligate spending policies. I’m much more towards the “let’s drown government in the bathtub” wing than I am towards the “let’s spend like a liberal and call it ‘compassionate conservatism'” wing. As far as I’m concerned, the Bush Administration’s domestic policies have been a mixed bag at best: tax cuts good, spending like a drunken sailor bad. However, McArdle puts some very badly-needed perspective on the idea that our fiscal situation is somehow incomprehensibly dire:

Yes, my friends, that’s right . . . in five years of fiscal mismanagement, the Bush administration has driven us from debt at German levels to a national debt that is . . . 3% of GDP less than Germany’s. Wait, that’s not right. He’s driven us from 13th place in the OECD debt rankings to . . . 15th place. Okay, but look what that means! We’ve gone from a national debt that was a sane, manageable 34% of GDP, to an unsustainable . . . 37% of GDP.

One could argue, of course, that it is moving in the wrong direction, unlike, say, Ireland or Finland. But lots of countries are moving in the wrong direction: France, the UK, Germany, and Japan, to name just a few, have all seen increases in national debt bigger than ours as a percentage of GDP. That’s partly fiscal profligacy, and partly the fact that a smartly growing economy, such as we’ve enjoyed, makes the debt of previous years relatively smaller. Thus the Bush administration has only seen national debt grow by a small amount on its watch, despite running annual budget deficits in the 2-4% range. Yet somehow it is only ever the American budget deficit which is about to bring the national economy to a crashing halt.

That is why it doesn’t make much sense to me to ask about the “trillions worth of debt” we have accumulated. I mean, I’ve accumulated a substantial amount of debt since I was 4. This doesn’t mean I was richer when my income was 25 cents a week. According to the Office of Management and Budget, the amount of debt held by the public has gone from 26% in 1973 to roughly 40% of GDP in 2005–a big increase, but not as big as that implied by “trillions and trillions!”

That reasoning is exactly why even as a fiscal conservative, I don’t get worked up about the national debt. For one, the more important factor is growth: a growing economy will obviate need for making drastic changes now, and the US economy is still more stable than anyone’s. The idea that your grandchildren will all be living on bread crumbs because we spend all the money now is ridiculous mainly due to the fact that the economy is not a zero sum game. The left seems to have trouble with this concept, as it seems to be the tottering foundation upon which their whole economic castle lies. There isn’t a finite amount of wealth, and the amount of debt we have now may be insignificant later on.

McArdle also explains why repealing the Bush tax cuts would be only as likely to do as much good as pissing in the wind, and is quite likely to be more like shooting ourselves in the foot:

If you think that the Bush tax cuts were a gargantuan bonanza to America’s wealthy, it’s a little disquieting to realize that closing the Social Security gap would require an additional tax increase on the top fifth of earners that would be 30% bigger than the Bush tax cuts.

And that’s if you assume that a hefty tax increase wouldn’t cause a single person to work less. I’m no supply-sider, but I accept that there is a decent amount of deadweight loss from taxation. When you raise taxes, some people work less, or arrange to have more of their income in tax advantaged forms (like capital gains, or tax free benefits), or they disappear into the “gray market” of all-cash work. With a tax increase of that size, I’d expect that such losses would reduce the projected revenue increase by somewhere in the neighbourhood of 10-20% . . . meaning that the tax increase required to actually cover Social Security benefits would have to be bigger still.

The problem we have isn’t too low rates of taxation, it’s the huge liabilities generated by our entitlement programs. Social Security and Medicare will bankrupt this country long before any other problems our economy faces presents much of any threat — yet the left has absolutely no desire to touch those particular sacred cows. The Democrats killed any kind of meaningful Social Security reform, and nobody has the cojones to attack the systemic problems with Medicare — and nobody will until the collapse is already well underway.

That doesn’t mean that the Bush Administration should get a free pass on spending, as their spending habits have been simply atrocious. However, at the same time, raising taxes for the purposes of paying down the debt is a complete waste of time, and wouldn’t produce enough returns to justify their economic costs. Moreover, any party that demands the fiscally ruinous idea of mandatory government-paid health care doesn’t have any right to complain about spending in the first place…

The New York Times notes the way in which oil prices have been collapsing in recent weeks, along with the prices of fuel at the pump.

It looks like much of the price of oil in the last few months has largely been due to speculators predicting the sort of conditions that led to high oil costs last year would continue. It isn’t that supplies are getting significantly tighter, but that the markets were getting skittish over the prospects of conflicts in the Middle East and Africa, the aftermath of Hurricane Katrina, and a booming economy. Now that those conflicts are less serious than they were, the hurricane season has been largely a bust, and the economy is settling down, the price of oil is going back to where the equilibrium point really is.

Of course, had the government intervened and tried to artificially lower prices, who knows what would have happened. The reduction in fuel costs wasn’t do to government action, but the natural reactions of the market — had the government intervened it’s quite possible we’d be worried about shortages as ham-fisted public policy introduced dramatic shifts in the market. It’s another example of how sometimes the best public policy is no do nothing at all.

Rich Lowry has an interesting piece in National Review Online on why Michigan’s economy is one of the worst in the country as a direct consequence of decades of liberal social policies:

Michael LaFaive of the Mackinac Center calls Michigan “the France of North America.” Economically competitive states might have a personal income tax, or corporate income tax, or sales tax — Michigan has all three. It has long been the only state with a European-style, value-added tax — the Single Business Tax. A company can be in bankruptcy and still have a tax liability, making Michigan a bad state even to lose money in. In a 2002 filing for relief from the tax, General Motors explained that it would operate at a loss, but one of its projects would still create a $7 million-a-year tax liability.

Michigan recently repealed the Single Business Tax effective at the end of 2007, but has punted the decision about how to replace it. A relative moderate, Gov. Granholm has resisted general tax increases, but levied new fees, sin taxes and other “revenue enhancers.” The state still insists on trying to target tax incentives and other special breaks to favored businesses, in a doomed replay of 1970s-era industrial policy.

Michigan is one of the states that has no one to blame but itself for its incredible economic failure. Michigan assumed that a single industry would be enough to support its entire economic base — and that’s never true. The combination of technological change and foreign competition has altered the economics of the auto manufacturing industry in fundamental ways. The economic and political control exercised by the unions ensured that Michigan’s government remained largely wedded to that one industry.

Just as only a fool would invest their entire savings into one thing, an economy based on one single industry is constantly under threat. As Lowry points out, Michigan’s high-tax, low-growth policies are now coming home to roost in a state that’s seen massive job losses due to poor public policy. He’s also right in pointing out that Michigan is a state that has done nearly everything that liberals think would make the US economy stronger — and it simply hasn’t worked.

Michigan’s lack of economic diversity, punitive levels of taxation, and incredible inflexibility have caused innumerable suffering as workers lose their jobs and are forced to move to states with more opportunities who don’t embrace the same set of failed policies. The lesson here is obvious: those states that attempt to enact the same set of principles risk coming to the same negative outcomes.