9 Reasons Why Trump Should Not or Does Not Need to Purchase Greenland

Shortly before President Trump assumed the presidency, it felt like he was trolling the American people when it came to foreign policy. Trump wanted to revisit the idea of owning the Panama Canal, in spite of President Carter relinquished it to Panama in 1977. Trump floated the idea of Canada becoming a 51st state of the United States to avoid tariffs. He also presented the idea of buying Greenland. Last Friday, Trump got into a reportedly "fiery" call with Mette Frederiksen, the Danish Prime Minister over the idea. That was after Anders Vistisen, a Danish member of European Parliament for the Right-leaning Danish People's Party, told Trump that Greenland is not for sale and for Trump to "fuck off." The reasons why the Danes' opinion matters in this instance is because Greenland is a self-governing country within the Danish Kingdom. 

This is not the first time that Trump has proposed buying Greenland. He did so in August 2019, which prompted me to write a blog entry on the policy idea. As I brought up in 2019, Greenland has natural resources of interest, particularly the rare earth metals that are necessary for our smartphones, computers, and other electronic goods. As the Arctic sea ice continues to melt, the Arctic Circle will become a more viable alternative for maritime travel than the Panama or Suez Canals. In terms of national security, Russia and China are more interested in that region of the world, which is piquing Trump's interest. 

It is more than the economic and national security implications that do not make the idea crazy. One, this country has purchased land before. In 1803, the United States paid $15 million to France to double the size of the United States. There was the acquisition of Florida in 1819, followed by the purchase of Alaska for $7.2 million in 1867. Although it was considered Seward's Folly, I bet Russia is kicking itself for that transaction because of all the petroleum in Alaska. Two, this is not the first time purchasing Greenland has been a policy question. The United States considered purchasing Greenland in 1868 under President Andrew Johnson and in 1946 under President Truman. 

Three, purchasing Greenland sure beats going to war and trying to conquer it, especially since invading Greenland would likely be the end of NATO. Four, it is possible to be an independent or quasi-independent territory within the United States, as Guam, Puerto Rico, Micronesia, Northern Marina Islands, Palau, and the American Samoa have demonstrated. That being said, I do have objections to Trump's plan:

1) Neither Denmark nor Greenland want to sell Greenland. The Prime Minister of Greenland is trying to push for Greenland's independence. Meanwhile, Denmark is looking to spend $1.5 billion to bolster defense in Greenland. This will not work well if both sides are not on board. 

2) Denmark is a NATO ally. Not only could this upset Denmark, but it could have a ripple effect towards other NATO allies. It could even push Greenland to want to ally itself with Russia and China. 

3) The United States already has a military base in Greenland: the Pituffik Space Base. As the Center for Strategic and International Studies points out, Trump can make progress on U.S. national security priorities with the already-existing engagement strategy that it shares with Greenland and Denmark.

4) It is unlikely that China and Russia would take over Greenland. Russia is already having enough issues with Ukraine. In 2018, Washington and Copenhagen fended off Chinese bids to build airports in Greenland. Even if either country decided to invade, the United States has the advantage of already having a military base on Greenland (see previous point) and proximity relative to Russia and China. I am sure there are more serious national security issues for the U.S. government to address. 

5) Yes, there are rare earth metals in Greenland. Wouldn't it be easier to simply purchase the mineral rights in the open marketplace instead of the entire country? After all, the United States imported $131.9 billion in mineral fuels, oils, and distillation products from Canada without making Canada the 51st of the United States of America. Ownership of Greenland is not a prerequisite to gain access to Greenland's rare earth metals. Plus, making Greenland part of the United States would make it more difficult to extract those rare earth metals due to the National Environmental Protection Act (NEPA).

6) One could argue that Greenland would benefit from an influx of American investment and increased tourism. However, Greenland does not need to be purchased. The goals of increased infrastructure, tourism, and immigration could be accomplished with bilateral trade agreements. 

7) The think-tank American Action Forum estimated the purchase price of Greenland at $2.8 trillion. Given the previous points plus the fact that United States has over $36 trillion in debt, can the United States really afford to add $2.8 trillion to its debt?

8) Given Greenland's remote location and harsh climate, the returns on investment remain uncertain. 

9) Greenland has a distinct cultural heritage, not to mention an indigenous Inuit population. It could prove difficult to integrate Greenland into U.S. society and culture, especially given the geographical and cultural distance between the two entities. 

Postscript. I know Trump gained his fame from being a real estate tycoon. He is known for "Art of the Deal." I am sure his past experience is playing into his desire to acquire Greenland, especially since he know has the backing of the world's most powerful military. The truth is that Trump should not try to acquire Greenland nor does he need to acquire Greenland. 

I do not think that the idea of purchasing a country is prima facie antiquated. Much like with individuals or companies within the private sector, I think these transactions are most successful when mutually beneficial and when there is mutual agreement. Given that the governments of Greenland or Denmark are not on board with this proposal, I think that adds given reason to be against Trump's proposal. Trump can acquire the benefits through other means short of purchasing Greenland, whether that is bilateral trade agreements, mineral rights, or expanding military interests through the current engagement strategy. Let us hope that he can be convinced of those alternatives instead of making a foreign policy faux pas. 

Conflatulations to Denmark for Implementing a Bullheaded Methane Tax on Cow Burps and Farts

For those of you who have read my blog enough, you will understand that the title of today's blog entry is both a pun with the word "flatulence" and sarcasm. I am not seriously congratulating Denmark for being the first country to tax livestock flatulence, a tax that will be in effect in 2030. I understand that the Danish government's intent with this 300 kroner tax (or about $43) per metric ton of carbon dioxide equivalent is an attempt to reduce methane emissions and mitigate climate change. 

After all, methane traps about 87 times more heat over a 20-year cycle than carbon dioxide does. According to the International Energy Agency, methane has been responsible for about 30 percent of the rise in global temperatures since the Industrial Revolution. Plus, cattle are the largest per-unit emitters of greenhouse gases (GHGs) when it comes to food production (Oxford). 

At first glance, it seems like a methane tax on livestock flatulence would be something worth targeting. Aside from collecting government revenue, the other main function of a tax is to disincentivize behavior. In this case, that would be disincentivizing methane emitted from livestock flatulence.  However, I have a few concerns with this methane tax.

Climate change is not a crisis. I have explained before why we need to be skeptical about climate change fear-mongering. Climate change is in fact a manageable problem and that we should learn to adapt to the reality of changing global temperatures. For argument's sake, let us assume with the proceeding questions that an apocalypse would ensue unless we take further action.

What is the price elasticity of cattle? Price elasticity of demand is a wonky, economic term referring to sensitivity of the consumer as a result of a price change. If a price goes up and it significantly reduces the amount consumed, then the good or service has elastic demand. If there is little to no change of consumption as a result of the price change, then it is inelastic. Since the main goal of this methane tax is to reduce methane emissions from livestock flatulence, it is preferable that cattle is an elastic good. 

I could not find the price elasticity of beef for Denmark. However, I did find data on a neighboring country that is also the largest importer of Danish beef: Germany. According to this research paper (Roosen et al., 2022; Table 4), beef has an elasticity of 1.49, which is higher than pork (1.17) or poultry (1.15). If the tax ends up driving consumer prices enough, it could mean that consumers substitute beef for pork or poultry. Elasticity can also change over time. In the United States, the price elasticity for beef had historically been 0.75 (Andreyeva et al., 2010), which would suggest a more inelastic demand that would be sub-optimal for this type of methane tax. If there is a strong substitution effect between red meat and white meat (the latter of which emits much less GHGs), then there could be a justification for this methane tax. The elasticity has implications both for the economy and for carbon emissions.

How much will this tax reduce GHG emissions?  This is a trickier question to answer because Denmark is the first country to implement a methane tax on livestock. Research from agribusiness groups Alltech and Archbold suggests that the carbon sequestration performed with cattle grazing neutralizes the methane emissions from the livestock flatulence, as does the British-based Sustainable Food Trust. If it is true that the cattle grazing emits fewer carbon emissions on net, then this tax is unnecessary because such an effect would undermine the justification for the tax. 

There is another factor in this: carbon versus methane. As a technical paper from atmospheric physicists from Princeton and York Universities shows (Harper and van Wijngaarden, 2019), carbon makes up more of the atmosphere than methane. Although methane is 30 times more efficient than carbon dioxide at capturing heat, carbon dioxide is also increasing in the atmosphere 300 times more quickly than methane. This would mean that methane is contributing to about a tenth (i.e., 30/300) of the global warming than compared to carbon dioxide. That being the case, I would question how effective this tax would be if implemented worldwide. 

What would happen to global temperatures if the European Union halted all GHG emissions? This hypothetical question comes from the Right-leaning Heritage Foundation. It is not a matter of this specific policy or about Denmark ceasing GHG emissions. We are asking what would happen if all GHG emissions were to cease today on an entire continent. Answer: It would reduce global temperatures by 0.12 degrees Celsius by 2100. This is similar to what would have happened if every country committed to the Paris Agreement last decade. Answer: a reduction of global temperatures by 0.2 degrees Celsius. 

Economic considerations. If beef has greater price inelasticity of demand, then all the Danish government is doing is increasing the cost of eating. The tax also affects Danish farmers. Professor Joseph McFadden, who is a dairy cattle biologist at Cornell University, said that imposing these regulations on Danish farmers when the technology to safely reduce enteric methane emissions at scale does not exist is premature. This sort of regulation would do little to protect the future of farming, which is important because people need to eat. It would also affect "our food mosaic and dietary heterogeneity," which affect cultural contributions. 

Conclusion. A methane tax on livestock flatulence is a novel policy. It could end up doing nothing to help the environment while harming the economy in a way that sin taxes cause unintended consequences. If it functions more like carbon taxes, which have been found to not harm the economy, then this methane tax could similarly be a net positive. Part of me would like to remain agnostic until there are more data to confirm which direction. 

Given the hype around climate change and how the libertarian part of me generally feels about new tax, I am inclined towards skepticism that this will work. There is more than the economic aspect to consider. I have questioned from multiple angles whether this methane tax is necessary or if it will even contribute to a net decrease in GHG emissions. Furthermore, it would not matter if all of Europe went on a plant-based diet or if it developed a zero-carbon footprint today. The impact on global temperatures would be statistically insignificant. While I await the data to more empirically know what the impact is, I will not be surprised if this tax does very little, if anything, to mitigate the problem the tax was meant to address.

Denmark Banning Quran Burning Is a Sign That Freedom of Speech Is Becoming Less Valued Globally

Imagine living in a country where you can get fined or thrown in jail for mistreating a book. You do not have to imagine because it is going to happen in the nation of Denmark. This year, there have been 500 demonstrations in Denmark by anti-Islam activists that have included burning the Quran or flags. This has led to outrage from Muslim-majority nations. That outrage translated into political pressure. 

Last week, the Danish Parliament (Folketinget) passed a law that makes it a crime to "inappropriately treat, publicly or with the intention of dissemination in a wider circle, a writing with significant religious significance for a religious community." While the law does not mention the Quran by name, it nevertheless was designed with Quran desecration in mind. The Danish Justice Peter Hummelgaard made that point clear the day the bill passed. The law de jure punishes burning the Quran either with fines or two years of jail time. 

It should come as no surprise that I take issue with the Folketinget's decision. I know Denmark is not the United States. Thankfully, freedom of speech is so well-protected in the United States that burning a U.S. flag is constitutional. As I pointed out in 2016, burning a flag of the United States is not how I would personally go about expressing discontent. However, I did point out that the flag is their property and they should be allowed to burn it, especially since they are not physically harming anyone. I would extend this argument to burning a Quran. To quote British media outlet UnHerd:

"There can be no doubt that book burnings are crude, deliberately provocative, and a poor substitute for reasoned debate. But when conducted by private individuals, they serve as non-violent symbolic expressions intended to convey a message -- the essence of freedom of expression." 

For a free society to function, people need to be allowed to say or do things that are deemed offensive. I have brought up that offensiveness is subjective and that trying to not offend anyone has no upper limit when it comes to censorship. I have been for freedom of speech and expression, which includes making jokes about transgender people, the continued publication of Roald Dahl books, hate speech, the French satirist newsletter Charlie Hebdo that makes fun of religions (including my religion), and an anti-semitic operetta. 

Only allowing for speech you agree with is not free speech. That freedom of expression has to be allowed to those whose opinion you cannot stand. I articulated that concept last month when it came to pro-Palestine protestors and activists. These protestors base their arguments on lies, half-truths, and taking things woefully out of context. They complain about ethnic cleansing while advocating for ethnic cleansing of Jews. They bemoan a fictitious genocide while ignoring the one that Hamas is diligently working towards. While I abhor what they have to say, I support their right to express their freedom of speech under the First Amendment. 

What is obvious is that Denmark's bill is designed to shield Islam from blasphemy. In 2015, I wrote a piece on how criticizing Islam is not Islamophobic, as well as how we should be able to criticize everything, including Islam. The fact that Denmark is passing this bill out of safety concerns speaks volumes. It means that Islamists have a veto over liberty in the Western world. 

It is ironic because, as one Muslim scholar from Cato Institute brings up, the Quran itself says the way to deal with those who mock Islam is not banning, throwing people in jail, or the death penalty. Rather, the Quran demands patience (3:186) and staying away from the mockers (4:140). Even if the Quran allowed for punishing the mockers, do proponents think that a blasphemy law will make people respect Islam? If anything, it will only seek to agitate dissidents further while making Islam or Muslims appear too thin-skinned to handle criticism. More freedom of speech eases such tension (Bjørnskov and Mchangama, 2023). What I can anticipate is that blasphemy laws in Denmark will more likely lead to greater savagery:

"For censorship tells certain groups that their beliefs are so perfect, so pristine, so beyond the scurrilous commentary of mere mortals, that those who dissent from them are deserving of punishment. Censorship begets intolerance. In force fielding certain ideologies from criticism, it incites the adherents to those ideologies to seek out and 'discipline' the filth that dare to dissent."

Although Denmark has a population of under six million, this trend in blasphemy laws is perturbing. Denmark abolished censorship in 1770, which we can see in §77 of the Danish Constitution. Look at the Index for Reporters sans frontières (RSF), or Reporters without Borders in English. Denmark has ranked in the Top Ten for greatest freedom on information. Denmark's enactment of blasphemy laws is worrisome indeed. Reason Magazine aptly summarizes my concerns:

"Denmark's surrender to violent extremists and states that imprison, lash, and execute 'blasphemers' is a disturbing sign of the free speech recession that is sweeping the globe in the 21st century. One can only hope that the First Amendment [in the U.S. Constitution] will continue to serve as inspiration to liberal reformers across the globe in a world where free speech is in fast retreat."

Having to serve jail time simply for insulting a religion is not progress. Mimicking the intolerance of Islamists is not going to make them disappear or feel placated. All that Denmark's legislative move will do is embolden the most radical elements in Danish society while further eroding freedom. Having some people offended is a small price to pay for freedom. I hope the rest of the world realizes the importance of freedom of speech before we are further enveloped by the iniquity of authoritarianism. 

More Evidence Against Minimum Wage: Why Minimum Wage Fails to Reduce Poverty

Bernie Sanders says the darnedest things. There have been a number of his proposals I have criticized over the years: single-payer healthcare, free college, breaking up big banks, the financial transaction tax, and capping consumer loan interest rates. I can add another one to the list: a $17/hour minimum wage. For Sanders, a $15/hour minimum wage is not enough due to the inflation caused by the federal government's fiscal policy and Federal Reserve's monetary policy. Sanders is looking to introduce legislation next month to increase the minimum wage to $17/hour over the next five years. Let's forget the opposition that there would be in the Senate to more than double the minimum wage. 

Let's get at Sanders' argument, which is "If you work 40-50 hours a week, you should not be living in poverty. It's time to raise the minimum wage to a living wage." There are two insights from Bureau of Labor Statistics data on minimum wage workers that Sanders wants to conveniently ignore and that I brought up last year. One is that fewer workers in this country are minimum wage workers, decreasing from 6.9 million hourly workers (or 13.9 percent) in 1979 to 1.5 million workers (or 1.4 percent) in 2021. The second is that 52.9 percent of minimum wage workers are part-time, which is in contrast to the 8.9 percent of minimum wage workers who work over 40 hours a week, or approximately 120,000 workers. 

Even if we ignore BLS data, we still have a research paper from the National Bureau of Economic Research (NBER) that was released about a week ago entitled Minimum Wages and Poverty: New Evidence from Dynamic Difference-in-Differences Estimates (Burkhauser et al., 2023). The main finding of this paper is that "a 10 percent increase in the minimum wage is associated with a (statistically significant) 0.17 percent increase in the probability of longer-run poverty in all persons." This study is intriguing because it is more longitudinal because it spans over four decades. Plus, it spans over multiple industries, which I cannot say for the Card and Krueger study from 1994. That being said, I would like to explore why minimum wage would actually increase poverty instead of reduce it. 

For a minimum wage proponent, it makes sense that minimum wage should help alleviate poverty. After all, if you give someone a higher wage, it means they can better afford to pay their bills and claw their way out of poverty, right? 

It’s not that simple. Mainstream microeconomic theory posits that minimum wage acts as a price floor above the equilibrium point. This in turn causes a surplus of labor in this particular labor market, which is a fancy way of saying that minimum wage causes net unemployment (e.g., Neumark et al., 2021). The most recent report from the Congressional Budget Office (CBO) in 2021 showed that while a $15/hour minimum wage would pull 900,000 people out of poverty, it would also make 1.4 million people unemployed. Minimum wage only helps if you are one of the lucky ones who keeps their job. If you are one of those who loses their jobs, then you are earning $0/hour and will have a harder time gaining the skills and experience necessary to eventually acquire a higher-earning job (e.g., Clemens and Wither, 2014). 

This unemployment effect of minimum wage has a disproportionate effect on the marginalized. To quote the Foundation of Economic Education, "When jobs are scarce, then immigrants, workers with few skills or little education, and those with limited English proficiency are going to have a harder time convincing employers that their labor is work $15 an hour [or $17 if Bernie Sanders gets his way] than their better-skilled, native, English-speaking competitors." 

There is more to this puzzle. This point was mentioned at the end of the aforementioned NBER paper: "We find that less than 10 percent of workers who would be affected by a newly proposed $15 federal minimum wage live in poor families." That is because minimum wage is not determined by household income, but individual income. This is one of the main reasons why minimum wage is not effective at reducing poverty: because it is not targeting the poor. 

As the Foundation of Economic Education points out, there is only partial overlap between low-wage workers and the poor. This is important because poverty is measured at the household level, not the individual level. There are large segments of the poor who do not receive minimum wage, including the unemployed, stay-at-home parents, and gig workers. Conversely, there are many minimum wage workers who are not poor, such as teenagers and young adults living at home with their parents. Going back to that BLS data, workers under 25 account for 44 percent of those paid minimum wage or less. Contrast that with workers under 25 representing one-fifth of hourly paid workers nationwide. 

Another reason why minimum wage fails to reduce poverty is, as I have brought up before (see here, here, and here), because employers have ways to pass on the cost of minimum wage. It is not going to be the same response for each employee, but here are a few possibilities of working around minimum wage increases: cutting workers' hours, cutting workers' benefits, letting workers go, increasing consumer prices, and automation. 

To recap, here are the three main reasons why minimum wage does not reduce overall poverty levels. One is that it causes more unemployment than it does poverty reduction. The second reason is that minimum wage is not effective at targeting the poor. The third reason is that an employer can find ways around the labor costs that are part of minimum wage increases. I am open to discussing ideas of alleviating poverty so that all families in this country get a shot at the American dream. I am equally in favor of tossing such ineffective ideas as the minimum wage to the side. 

The Argument for School Closures This Fall Simply Does Not Add Up

We have undergone the worst pandemic since the 1918 Spanish Flu. With it has come the worst economic downturn since the Great Depression. The United States has also experienced the worst social unrest since 1968. While we adapt to a "new norm," there has been considerable debate on the policy responses to COVID-19. In an unprecedented move, we severely limited movement by closing down large swathes of the economy with lockdowns. I have made it no secret that I have thought that the lockdowns were a terrible idea (see here, here, and here). There have been other non-pharmaceutical interventions [NPI] outside of lockdowns that have been used to flatten the curve. Aside from social distancing, face masks are an example of such an NPI. I have made an argument for a temporary, limited face mask mandate (see here and here). 

With the new academic year quickly approaching, another COVID-related NPI has gained attention: school closures. This past spring, there were a number of schools that closed down in attempts to limit the spread of COVID-19. Other schools allowed for children to play freely with one another, whereas other school remained open with considerable social distancing provisions. Much like with the lockdowns, the school closures have become one large social experiment. This brings us to the main question for this fall: Should schools be closed for the upcoming academic year? If not, which precautionary measures make most sense to implement while keeping schools open this year? 

Assessing Benefits of School Closures: Are schools hotspots for COVID-19?

The main purpose of keeping schools closed is to stop the spread of COVID-19. There is some intuition that children would be vectors of COVID-19. They are less likely to keep social distancing, basic levels of hygiene, or wearing their face masks all the time. Plus, children are in contact with parents, classmates, parents, and other school staff. The amount of people combined with apparent lack of adherence to NPI protocols would make children likely culprits of spreading COVID-19. Let's ask some key questions.

What is the COVID-19 fatality rate for children? 

"Think of the children." This sort of political rhetoric has been used to advance multiple policies, ranging from subsidizing school lunches and banning video games to the even-stupider idea of banning adoptions from same-sex parents. So let's focus on the children for a moment. Available public health data show that children account for 22 percent of the population, but two percent of the COVID deaths in the United States. Looking at international data, the countries of Spain, China, and Italy (collected by Oxford University) show that the case fatality rate for those under 20 is near-zero. 

Are children super-transmitters of COVID-19? 

The publication Pediatrics concluded that there have not been that many child-to-adult transmissions of COVID-19 (Lee and Raszka, 2020). Other studies show that children are one-third to one-half less likely to transmit COVID-19 (Bi et al., 2020; Li et al., 2020; Mizumoto et al., 2020; Zhang et al., 2020).

How will this affect teachers and other school staff?

At the same time, schools do not solely consist of children. There are teachers and other school staff that work in schools, many of whom whose age alone puts them in a high-risk category. While there is not a lot of data on teachers and school staff, there is one French study with 46 teachers showing there has not been a single case of transmission (Fontanet et al., 2020). Also, the average age of teachers in the U.S. is 42.4 years (National Center of Education Statistics), 81 percent of whom are under 55 years old. We should take precautions for teachers (especially older and/or more immunocompromised teachers), but teachers are, on average, below the age of being considered high-risk for COVID-19. 

Have school re-openings resulted in spikes of COVID-19 cases?

One good way to ask about the overall risk is to see if school openings or re-openings meant major spikes in COVID-19. Israeli schools experienced a second round of school closures. There was an outbreak at a school in New Zealand. At the same time, such outbreaks are exceptions, not the norm. Preliminary data from 22 nations in the European Union indicate that much of the European Union did not experience a spike in COVID-19 cases. Let's take a look at some of the EU countries. After opening up their schools, the Dutch government found that there were no children infected and very few school employees. Folkhälsomyndigheten, which is the Swedish Health Ministry, compared its school policy with that of Finland. Sweden kept its schools open, whereas Finland closed them. The Minister concluded there was no discernible difference in terms of COVID transmission (Carlson, 2020). Although Denmark gave Sweden some grief, Denmark ended up reopening their schools. And guess what? It didn't worsen the COVID outbreak in Denmark (Reuters). Ditto with Ireland (Heavey et al., 2020), Austria, Finland, and Taiwan (Esposito and Principi, 2020), as well as certain reported regions in France (Danis et al., 2020) and Australia. 

Will keeping schools open result in an increase of COVID-related deaths?

There is a bit of conflicting information on the answer to that question. A systematic review in The Lancet estimated that school closures would lower deaths by 2 to 4 percent, which is still something, but less effective compared to other NPIs (Viner et al., 2020). There are some studies that suggest the opposite. A study from The Lancet states that "school closures could lead to a greater number of deaths than they prevent" (Bayham and Fenichel, 2020). Another study from Health Affairs made a similar suggestion that not only are school closures ineffective, but they could cause greater death (Courtemanche et al., 2020). 

Costs of School Closures

Given what we have seen in schools thus far (see previous sub-section), I am inclined to think that it will not have a significant effect on the overall COVID death count. Even Kevin Drum at Mother Jones, a Left-of-center magazine, said that the current evidence on school closures have "a) little effect, and b) are probably nowhere near worth the tremendous impact they have on both parents and kids." Speaking of which, what is the impact that school closures have? 

• Remote learning means lower student achievement. Measuring RIT scores, the Brookings Institution found a loss in learning projection (Soland et al., 2020). It is estimated that the school closures last spring translated  into only having 70 percent of the learning gains one would normally have. It is even worse for mathematics, with less than 50 percent. Another study goes as far as suggesting that the school closure in spring results in losing at least nine months of educational growth if the school closures continue (Christakis, 2020).
• Economic loss and future earnings. The Brookings Institution has conducted some work on the matter. Their preliminary estimate puts the loss of earnings of $1,337 per year per student (Psacharopoulos et al., 2020). An older study from the Brookings Institution estimated that a 12-week school closure would mean a loss of over $120 billion lost in GDP [in 2008 dollars] (Lempel et al., 2009). 
• The achievement gap and its effects on race and income. Survey data from Pew Research found that children in low-income households were less likely to be able to complete homework at home. According to a survey from The Education Trust, 76% of African-American parents and 82% of Hispanic parents are concerned they do not have the adequate resources to keep their children on track. This has direct impact on being able to achieve in school in the long-run. Consulting firm McKinsey released a report on the achievement gap in the COVID-19 pandemic (Dorn et al., 2020). In addition to the $110 billion in annual earnings lost that McKinsey estimates, there is also a greater achievement gap as a result. While white students are to expect a 1.6 percent reduction in future earnings, black students and Hispanic students are expected to have a 3.3 percent and 3.0 percent reduction, respectively. 
• GDP and costs of parent absenteeism. Children staying home means that parents are more likely to use time off to take care of their children. NYU epidemiology professor Jeffrey Epstein calculated that a month-long nationwide closure would mean $50 billion in lost productivity due to absenteeism.  
• Mental health concerns. Students in China were found to have increased anxiety and depression (Xi et al., 2020). A study from The Lancet concluded that students with preexisting mental health conditions had those conditions exacerbated (Lee, 2020). Survey data from Gallup finds three in ten parents saying that their child's mental health is suffering. This says nothing of what the parents are trying to juggle between work and having children at home. 
• Child abuse and neglect. As the Heritage Foundation points out, 3.5 million children came into contact with Child Protective Services in 2018. This is alarming considering that parents are the perpetrators in 92 percent of child maltreatment cases, according to an Administration of Children and Families study. The Brookings Institution details in its report how COVID-induced school closures contribute to the high likelihood of there being a considerable increase in child abuse and neglect. 

Postscript

We do not have the luxury of living in a world without risks. Whatever we choose entails at least some risk, which is why we need to weigh the potential benefits of school closures against their costs. However, when we do so using the available evidence, the choice becomes clearer and clearer. A chief scientist at the WHO, Soumya Swaminathin, said in May that children are "less capable" of spreading the virus and are at "very low risk" of the illness. The accumulating data are showing that children are not a main driver of COVID transmission (Ludvigsson, 2020). The Royal College of Pediatrics and Child Health made an emphatic statement by saying how this risk is unprecedented and how it could scar the life chances of a generation of young people. As a study from The Lancet concluded, the evidence base for school closures is weak, whereas the costs are high (Viner et al., 2020). To quote the American Academy of Pediatrics, "all policy considerations for the coming year should start with a goal of having students physically present in school." While particularly hard-hit districts will have to reassess in light of exigent circumstances, the default should be to open schools for the upcoming academic year.

The American Academy of Pediatrics provides detailed guidelines on how to do so, but hand-washing, screening, physical distancing, environmental cleaning, proper ventilation, cancelling pep rallies and other large gatherings, staggered scheduling, and offering the possibility of high-risk employees either remote teaching or the semester off would go a long way in minimizing COVID-19 spread because truth be told, we cannot afford another semester without in-person learning. 

9-13-2020 Addendum: In case you needed more costs to the school closures. One paper from the OECD found that the school closures will reduce a student's lifetime income by 3 percent (Hanushek and Woessmann, 2020). Another paper from the National Bureau of Economic Research shows how school closures stunt skills attainment (Fuchs-Schündeln et al., 2020).

Welfare Magnet Theory: Do Large Welfare States Attract Low-Skilled Immigrants?

To leave one's home to live in another country is a huge undertaking. It involves leaving behind that which you once knew, and once you arrive, you have to get used to a new culture, a new way of doing things, and in some instances, a new language. This acclimation and shock are all the more pronounced if you come from a lower socioeconomic status. Why do these individuals decide to leave their comfort zones and migrate to another country? There are a number of reasons one makes the choice to live in another country. One possible answer is that of the welfare magnet theory.

The welfare magnet theory hypothesizes about the effect that the existence of a welfare state has on migration flows. The larger the welfare benefits, the more incentivized migrants, particularly low-skilled migrants, are to move to a given country. It seems intuitive enough of an idea. The question is whether it plays out in reality.

Harvard economist George Borjas was one of the first ones to argue on theoretical grounds that the phenomenon exists (Borjas, 1998). There has been some empirical work since then to rebut the theory. Here are four particular studies:

• The Personal Responsibility and Work Opportunity Act of 1996 included a provision to allow states to provide cash welfare to immigrants. Since some states opted not to, it would follow that immigrant families would have migrated to states that had the benefits. However, the law did not have that magnitude of migration (Kaushal, 2005). Perhaps the cash incentive was not large enough to induce migration. 
• One study showed that poor, single mothers were not particularly inclined to move across state lines for the welfare benefits (Levine and Zimmerman, 1999). 
• Another study showed that the empirical evidence for the welfare magnet theory "does not uniformly support this theory" (Bitler and Hoynes, 2011).
• One study from the Journal of the American Medical Association: Pediatrics came out earlier this week showing that the expansion of public health insurance for non-U.S.-born children does not create a "welfare magnet effect" (Yasenov et al., 2019).

To be fair, the aforementioned studies are measuring interstate migration patterns. Migrating across international borders involves a whole different set of incentives and challenges. On the other hand, if one is not willing to migrate interstate, one would a fortiori would not be incentivized to migrate internationally. What does international research have to say? One paper uses an econometric model for the European Union to suggest that it does exist (Razin and Wahba, 2011). One study countered by postulating that not only does the magnet not exist, but in some countries, immigrants experience less welfare dependence than their native counterparts (Giulietti, 2014).

If it didn't feel coincidental to have one study on the topic released this week, how about two studies? We already covered the first one (see above), but there was one released in the National Bureau of Economic Research (NBER). A Princeton economist, Henrik Kleven, worked with two of his subordinates to look at a Danish case study. According to this research, it turns out that the welfare magnet theory is much more than a theory (Kleven et al., 2019). The authors go as far as stating that this is the first real piece of causal evidence on the welfare magnet theory.

After sifting through this evidence, I still maintain some skepticism because there are multiple factors that induce migration. Let's use the United States as an example. The Congressional Research Service, a nonpartisan public policy research institute of Congress, found that major factors of Central American migration include poverty, natural disasters, political persecution, and gang violence. At best, I would say the recent NBER study would hold for Denmark only, and that it is a single case study.

I personally don't hold any stake into the veracity of the theory. I recognize that it has political implications for immigration policy throughout the Western world regardless. It could be used by anti-immigration movements to restrict migration flows. As I have brought up in the past, immigration is a net benefit for the host country, even when it comes to low-skilled immigrants. If the welfare magnet theory ends up being true, I would find it more of an indictment of the welfare state and provide an argument that we should scale back the welfare sate. After all, the famous economist Milton Friedman found the welfare state to be incompatible with open borders because of limited resources. At the same time, Friedman was against having a welfare state in the first place.

Plus, it is worth noting that the welfare magnet theory is not the same as the fiscal burden hypothesis, which states that migrants pose a net fiscal burden on the native population. Evidence shows that immigrants, especially low-skilled immigrants, do not cause a fiscal burden (see here, here, and here). If you're worried about welfare usage, look no further than Cato Institute research from 2018, which found that natives are more likely to use welfare benefits than immigrants.

Getting back on topic, the welfare magnet theory should not be weaponized against immigrants. Even if the theory does turn out to be true, it is also true that low-skilled immigrants are a net benefit to this country. If people are worried about draining the welfare system, perhaps they should ask how it got so big in the first place and what could be done to shrink it so insolvency doesn't swallow us whole.

Why Care About Denmark Putting Trump's Offer to Buy Greenland on Ice?

The real estate agent in President Trump came out last week. He made a proposition to buy Greenland from Denmark, much like President Truman attempted in 1946. Denmark's Prime Minister, Mette Fredericksen, said that Greenland is not for sale and the idea of doing so is absurd. Trump subsequently cancelled his plans to visit Denmark next month.

While it would be easy to dismiss this sales proposal as "Trump does that wildest things," there might be some rhyme and reason for Trump's move. Although Greenland is sparsely populated, Greenland is abundant in natural resources, especially in rare earth metals. These are the same rare earth metals that act as inputs for computers, smartphones, electric cars, and other electric goods. China already has such a large market share in rare earth metals, and has been mining for more in Greenland through an Australian company. Trump is assumedly trying to position himself in the rare metals market because he is anticipating a drawn-out trade war with China which he should have never started in the first place. And to think there are also copper, zinc, and iron reserves, as well (see Brookings Institution report here).

But Greenland's advantage isn't just about natural resources. Its geographic position combined with the melting polar ice caps allows for maritime travel to be shorter through its shipping lanes more quickly than the Panama or Suez Canals, but that might not transpire for about another century. China will continue to have geopolitical interests in establishing a presence in Greenland. Russia is also interested in Greenland as the major world powers vie for power in the Arctic region.

There are economic and national security interests for the United States to purchase Greenland from Denmark. Something tells me that Denmark is more aware of Greenland's worth than it is letting on. It does signal how a large island that historically was considered all but worthless is now playing an increasingly important role in international politics. While we will not see a purchase of Greenland anytime soon, this is not the last we will hear about Greenland's role in international affairs.

The Mortgage Interest Deduction: A Call for Repeal (Or at Least for Reform)

Owning a nice home with a white picket fence has been considered part of "the American Dream" for more than half of a century now. Often times, home ownership is used as a metric of that dreamlike prosperity, which is ironic given that the United States has one of the lowest home ownership rates in the developed world. The government tried engineering the American Dream through public policy, not only with using land-use regulation to induce suburban sprawl, but also to subsidize house ownership through the mortgage interest deduction (MID).

The MID is a tax deduction that allows for homeowners to lower their taxable income base by the amount of the interest paid on the loan that is secured by their place of residence. The purpose of the deduction is to incentivize home ownership. While the MID had existed in the United States since 1913, it was not explicitly mentioned in the tax code until 1986 (more on the history of MID here). If it has been part of the U.S. tax code in one way or another, it makes me wonder how good of a job it has done, especially since the lost revenue from the MID accounts for 7 percent of total personal income tax payments.

Last week, a study at the National Bureau of Economic Research was released. The topic of this study (Gruber et al., 2017) was the MID in Denmark. Although this applies to the Danish market, it has some relevance because, as the abstract states, this is the "first comprehensive long-term study of how tax subsidies affect housing decisions." The study spans back to the late 1980s, which is when the Danish government slashed the MID for wealthy taxpayers.

This Denmark study had two main interesting findings, the first being that it did not increase home ownership. The other main finding of this study is that it made homebuyers purchase more expensive homes than they would have otherwise, thereby increasing indebtedness. This Denmark study is hardly the first study to find adverse effects of the MID:

• In terms of straight-up cost, the Joint Committee on Taxation found that the MID is going to cost the U.S. $350 billion in tax revenue from 2016 to 2020 (Table 1), which makes it one of the most expensive tax breaks out there. This same report also found that those who benefit the most are those making $100,000 or more (Table 3), which makes sense since you can't take the deduction unless you itemize on your taxes and those who itemize tend to be upper-income.
• Looking at data from 1984 to 2007, economists from Harvard and MIT concluded that the MID only helps higher-income households, and on the whole, the MID neither promotes home ownership nor improves social welfare (Hilber and Turner, 2014; Toder et al., 2010; Glaeser and Shapiro, 2002).  
• Instead of encouraging home ownership, the primary effect of the MID is to artificially inflate housing prices, which makes housing less affordable for lower-income households (Landis and McClure, 2010).
• Repealing the MID would cause housing prices to fall. However, this would actually help with home ownership because the decreased in housing prices would help credit-constrained renters better afford a house. Also, since the MID disproportionately helps higher-income households, eliminating the MID would shift housing consumption more to lower-income households, thereby improving overall social welfare (Sommer and Sullivan, 2017, p. 37-39).
• A study from the Mercatus Center shows that the MID does not increase home ownership, and that the MID diverts resources from more socially valuable endeavors into more expensive homes (Fichtner and Feldman, 2014). As the Left-leaning CBPP points out, this non-optimal use of resources could potentially skew capital allocation, thereby lowering wages and living standards (also see Morrow, 2012). 
• Another study found that while the home ownership rate did not increase, the square footage of the houses purchased did increase (Hanson, 2012). 

To summarize, the MID is one of the largest tax breaks out there. It disproportionately benefits high-income households while doing next to nothing to improve home ownership rates, which was its primary goal. It also makes me question whether home ownership should be encouraged by the government (see more here).

There are some ways to reform the MID to improve the status quo. Replace the MID with a refundable credit would eliminate the artificially high demand for higher-end homes (Viard, 2013). Reduce the ceiling on the debt eligible for an interest subsidy (Lu, 2015) or cap the the income tax rate at which taxpayers can take itemized deductions (Katz, 2016). Personally, I am all for repealing the MID, especially since economists generally agree that removing the MID in exchange for lower taxes would be a more efficient use of resources. Plus, repeal would make conservatives happy by simplifying the tax code while making liberals happy since the MID is a regressive tax that arguably exacerbates income inequality. If Trump wants to make housing great again, and if Trump wants to cut taxes and simplify the tax code to improve economic welfare, Trump needs to add repeal of the MID as part of his tax plan.

Seattle and Denmark: More Proof of Minimum Wage's Harm to Low-Wage Workers

The minimum wage battle continues. In June, three newsworthy studies on the minimum wage were released, which is quite a bit in such a short time. One of the reports was on minimum wage in Denmark, and the other two were on the effects of minimum wage in Seattle. We'll get back to the Denmark report, but the Seattle reports merit background information. In 2014, the City of Seattle was the first city to pass a bill to raise the minimum wage to $15/hour. Beforehand, the minimum wage was $9.47/hr. It was raised to $11/hr in 2015, to $13/hr in 2016, and reached $15/hour as of January 1, 2017.

To show the effects of Seattle's minimum wage hike, its City Council hired economists from the University of Washington (UW) to conduct the study (Jardim et al., 2017). It's not as if University of Washington is some second-rate school. US News ranks its graduate-level economics program 35th in the country, which is not terrible by any means. It's a reputable institution, but yet is was still a problem, a problem which had nothing to do with the institution's reputation.

City Council member Kshama Sawant, who is a Socialist politician, did not like the results of the initial draft of the study. Sawant claimed the research methodology was flawed, although renowned economist David Autor found the UW study to be "very credible." The last thing a politician needs is a failed newsworthy policy months before municipal elections. Ideology and election season help explain why Sawant decided to contact Michael Reich, an anti-capitalist professor at the University of Berkeley. Fox News obtained emails between Reich and the City Council to schedule the release of the Berkeley paper (Reich et al., 2017) before the UW paper in attempts to discredit the UW paper.   (Side Note: The Albany-Union Times also found that the Berkeley research team has coordinated with minimum wage advocates to create supportive reports, so it's not just a Fox News conspiracy).

Yes, it is true that UW had some conflicts with the City Council beforehand, but this is still an example of selection bias. The City Council did not like the results they wanted to hear, so they sought out a Left-leaning, anti-capitalist economist at the University of Berkeley to get the desired results. What was so upsetting about the UW minimum wage findings? And how does the Denmark minimum wage report relate to the Seattle incident?

Before delving into the studies and their findings, I want to add this caveat: Given the nature of minimum wage, there are going to be more methodological issues than other public policy studies. Why? Because economists are trying to figure out how the minimum wage interacts with the greater economy. Much like I explained with Kansas' tax cuts last month, there are multiple factors in play, including taxes, regulations, economic performance of surrounding areas, industrial composition of a given city, the list goes on. As we'll see shortly, we'll find shortcomings for these studies. That does not, however, mean we cannot draw meaningful conclusions from the findings.

University of Washington Findings
The UW study was not flattering because it had a number of findings that were flattering for minimum wage proponents, including:

• The second wage increase to $13 reduced hours worked in low-wage jobs by 9 percent.
• Although the hourly wage increased by 3 percent, overall wages decreased by $125 per month for low-wage workers, which would mean a $1,500 per annum pay cut per person, or a $120 million loss for the City of Seattle (not huge, but also still worth noting with a city that has a $231 billion economy).
• A loss of 3.5 million hours worked per calendar quarter, which is an annual total of 14 million hours lost. 
• Low-wage jobs declined by 6.8 percent, which means a loss of 5,000 jobs. 
• Low-wage labor demand has an elasticity of -3.0 (p. 35), which is the economic way of saying "low-wage labor is easily replaceable."

If I were for an advocate for minimum wage, I would want to discredit this study to no avail, much like the Left-leaning Center for American Progress (CAP) and Economic Policy Institute (EPI) attempted (see criticism of EPI's criticism here), which is even more hilarious considering that one of the economists on the UW research team is a former EPI employee. The most valid and prominent complaint the Left-leaning think tanks had was that it excluded many multi-site firms, which removes 48 percent of low-wage earners. At first glance, this comes off as a huge misstep on UW's part. Fortunately for UW, they covered the reason for this omission (p. 14). Not only that, the omission does not negate the findings, or at least the magnitude of the findings, since multi-site firms were more likely to plan and implement staff reduction as a result of the minimum wage (p. 15). The only way that way the exclusion of multi-site firms would negate the results is if they massively expanded operations, which again, is implausible given the reported staff reductions. CAP also brings up that Seattle's tech boom is causing the increase of its higher-wage jobs, which means the adverse results of the minimum wage hike are overstated. This would be backwards because if Seattle's economy is growing faster than expected, imagine what we we would see if the economy were not booming, much like during the Great Recession.

I do, however, find merit with CAP's critique that the UW study is just one study that covers one city. It does not automatically denounce minimum wage increases. It could simply apply to Seattle in general or Seattle in this specific time period. I would say there is enough academic literature to support the idea that the UW study findings can be broadly applicable, but I think there is an even more important point that gives the UW study more weight than past minimum wage studies. This study was unique in that it was able to do something past studies were not able to do: permit the direct observation of hourly wages (Jardim et al., p. 34). Previous studies used proxies to get at that data on hours and wages. Thus, the study allows for more direct and precise measurement of the effects of minimum wage that past studies did not have.

While it is just one study on one city that does come with methodological flaws (because honestly, what study doesn't have methodological flaws?), it still carries with it a good amount of credence in terms of showing the effects that minimum wage hikes can have on an economy because it is conducted by an apolitical group and is done so with superior data.

UC-Berkeley Study on Seattle
The UC-Berkeley study shows the opposite results of the UW study, which is that minimum wage hikes have no real effect on employment or hours worked for low-wage workers. I am already skeptical of the UC-Berkeley study based on the politicizing that went into making the study a possibility. The study suffers from more flaws than the political, the major one being that it only looks at the restaurant industry. It is hypocritical for Reich to criticize the UW study for omitting 48 percent of low-wage workers while Reich himself omits 70 percent of low-wage workers in his own study by analyzing restaurants only.

But the Left could argue that looking at the restaurant industry has been standard in conducting minimum wage research. That standard came from the Card-Kruger study in 1994, which has been since scrutinized (see here and here). Interestingly enough, when the UW economists looked at the restaurant industry by itself, it came to similar conclusions that Card-Kruger came to in 1994 and that Reich came to in his Seattle study, which is that there are little net effects in the restaurant industry (Jardim et al., 2017, p. 35).

The UC-Berkeley study is inferior for two reasons besides the political contentiousness surrounding its creation. One is that Berkeley uses data from the food industry only, which represents a fraction of low-wage workers in Seattle. Much of past minimum wage literature suffers from only looking at one industry or looking at one demographic (e.g., teenagers), which makes it tenuous. The second, as previously mentioned, is that the UW-research team had detailed work hours data that the UC-Berkeley team did not have. The Berkeley study is nothing more than a political ploy to allow Seattle politicians give themselves a pat on the back before their re-elections.

Denmark Minimum Wage Study
In early June, The Centre for Economic Policy Research released a study (Kreiner et al., 2017) on Denmark's minimum wage, specifically with regards to youth minimum wage. Denmark has a peculiar minimum wage law in which the minimum wage increases for a Dane by 40 percent when they reach their eighteenth birthday. What happens in this case? Unemployment for this age demographic drops, and it takes two years before the age-specific employment rate is recovered (see below). What is even eerier about these findings is that it takes college and apprenticeships into account (p. 18), which is to say the drop in employment is pretty much due to the minimum wage hike (p. 3). Much like with the UW study, CEPR had similarly granular data to come to its conclusions. This study is also significant because it shows a) the negative effects of a sudden increase in minimum wage, and b) the minimum wage disproportionately affects youth [because they have less skills and experience] (p. 1).

Postscript
The Denmark study might focus on youth employment, but the connection between the Seattle and Denmark cases studies is the following. When you raise the minimum wage modestly, you'll have modest impact on the economy. When you raise the minimum wage more drastically, the effects will be more drastic. For those who are fiscally conservative, this comes as no shock. As conventional economics teaches, when the cost of a good, input, or service is increased (e.g., carbon tax), the consumer (or employer) wants to consume less. The same goes with the minimum wage: when you increase the cost of labor, the employer hires less workers (or alternatively, increases product price on consumers, reduces workers' benefits, or reduces hours worked).

What is worrisome about the Seattle study is that the UW researchers did not even measure the impact of the full hike yet because the hike to $15 only took place this past January, so we do not even know the extent of the economic damage the hike will cause. By raising the minimum wage from $9.47 to $13 (or 37 percent) in a matter of a couple of years, we already see the economic impact. It is no surprise that a significant increase in minimum wage significantly hurts the very people minimum wage laws were meant to help. While neither Seattle study has been peer-reviewed, it is clear that the results will have implications for the minimum wage debate across the country. If I had to take an educated guess, things just got a lot more difficult for minimum wage advocates, especially in light of the more detailed wage and hour data that was available in the UW study that has not been available in past minimum wage research. At the very least, this should put the kibosh on the "Fight for $15" advocates, and at the most, this should be the beginning of minimum wage advocates to re-examine the magnitude of the negative impacts that minimum wage laws generate.

Should There Be a Tax on Unhealthy Foods and Drinks?

I'm not about to have Christmas dinner, but I do know that Christmas dinners, and certainly those in an American context, can be some of the largest and elegant family meals out there. Christmas meals can vary based on family tradition and/or country, but there is typically some sort of meat dish, such as a Christmas ham, roast, or gamey bird. There is also some sweet dessert, such as Christmas pudding, pie, or cookies. Mashed potatoes or dinner rolls spread with butter also make it to the Christmas table. For many, it sounds delectable. For others, the overconsumption of excessively fatty and sugary foods could be viewed as a manifestation of the obesity problem in this country. What would happen if being able to have such a Christmas meal were a larger financial burden? What would happen if that were not just for Christmas, but people couldn't eat fatty or sugary foods year-round? What would happen if the culprit were not a downright ban on foods, but rather due to a food tax that was high enough to cause a health nut's dream to come true?

These were the sort of questions I was asking myself as I was reading a recent research report from the Left-leaning Urban Institute entitled Should we tax unhealthy foods and drinks? The report recommends a tax on unhealthy foods to deal with the economic and social costs surrounding obesity since a moderate soda tax could, according to their model, reduce obesity 1 to 4 percentage points (Marron et al., 2015, p. 2). As the Urban Institute report points out, obesity costs the U.S. healthcare system up to $300 billion per annum (ibid., p. 5). The Brookings Institution illustrated the economic costs of obesity a few years back. Could this type of tax help deal with our obesity issues?

I'm not thrilled prima facie about more taxes not only because I think tax rates are already too high, but also because much like a cigarette tax, this comes off more as a sin tax than it does a Pigovian tax. Increased government intervention in the healthcare industry, like we have witnessed with Obamacare, increases the extent to which health issues such as obesity become socialized costs. Nevertheless, there is a huge element punishing the "sinner" with higher tax rates. Even so, such taxes are relatively less objectionable than a downright ban on certain foods. A food tax or fat tax would act as a consumption tax, and on the bright side, consumption taxes are indirect taxes. Indirect taxation notwithstanding, I do have to wonder about effectiveness.

The Urban Institute lists places that have already implemented such taxes, emphasizing that the structure of the tax can play an important role in the tax's success of failure. For instance, Denmark instituted a 16DKK ($2.70USD) tax per kilogram on saturated fats in October 2011. This tax exemplifies the high tax rates for which Denmark is well-known. It is also noteworthy to state that only took about a year before Denmark, the first country to enact a fat tax, repealed it. Why? For one, it wasn't lowering fat consumption. Danes were simply heading over to Germany to stock up on fattier foods. It was also a bureaucratic nightmare for Danish food producers and distributors. It also attributed to inflation in Denmark. Overall, the effects of such a tax were decidedly negative for Denmark (Snowdon, 2013). Perhaps people have learned from the Danish debacle. Other countries that have implemented such taxes are Hungary, France, and Mexico. At least for Mexico, the tax does not seem to have accomplished anything significant. Conversely, some laud the Hungarian food tax as a success.

If one were to advocate for such a tax like Urban Institute does, then it depends on what is taxed, at what rate it is taxed, and the consequences of said tax (e.g., consumer behavior, product substitution, improved healthcare). In the Urban Institute report, the author points out that the type of food affects sensitivity to prices, what is known in economic jargon as price elasticity of demand. Soda has an elasticity of 0.9, which is higher than the elasticity [of 0.5] of other foods (e.g., fast food, produce). This elasticity could help explain why soda taxes are more popular than other food taxes, and why most of the countries that have implemented such taxes go after such sugary products.

Aside from collecting government revenue, the main function of a tax is to disincentivize behavior, which is probably why the Urban Institute recommends a food tax. The Urban Institute is astute enough to realize that taxes are most effective when there is a tight relationship between that which is being taxed and the negative externality. For instance, we know that cigarettes are the primary cause of smoking, and thus there is strong linkage between a cigarette tax and cigarettes. Dealing with obesity is not that simple. Obesity has multiple causes. Additionally, people have different reactions to food intakes and the effects of obesity, and going after fat or sugar with such a broad stroke is counterproductive and hubristic. Perhaps this is a reason why the Urban Institute recommends going after sugar dosages instead of a straight-up tax on sugary goods (Marron et al., p. 14). Furthermore, much like the Cato Institute specifies, there is another unintended consequence of a food tax or soda tax: regressivity. A food tax or soda tax wold hit the poor much more than the rich because the poor would pay a higher percentage of their income to food. A food tax would be less popular than a sin tax on cigarettes. Why? Not everyone smokes, but everyone eats food. It would hit lower-income families harder, which is certainly a drawback to such a tax (Marron et al., p. 2). Since people need to eat to live, the substitution effect is all the more serious of an issue than it would be with cigarettes (Fletcher et al., 2013).

The question of whether poor dietary decisions are a negative externality notwithstanding, we have to ask ourselves what to do with a lack of evidence that such taxation works, especially in light of its unfairness and inability to counter the substitution effect. A 2014 article from the Journal of Public Health (Cornelsen et al, 2014) summarizes it well by pointing out that the taxes might reduce certain consumption by a small amount, but fails to take in account food substitutions. As even the Urban Institute admits, there is a lack of data in determining the more indirect effects that could undermine the overall success of such taxes (Marron et al., p. 3). Food taxes, fat taxes, and soda taxes are not going away anytime soon. While we wait on the data regarding the overall effectiveness on the taxes, might I suggest removing subsidies for sugar, national school lunches, and agricultural protectionism via the Farm Bill that allows such ingredients as fructose corn syrup to flourish? We can correct the government policies promoting obesity, thereby making the American government less hypocritical if/when it attempts to lower obesity rates with these consumption taxes. As the Urban Institute study showed, obesity rates could only experience a reduction 1 to 4 percentage points at best, which would only moderately decrease what is currently a 34.9 percent obesity rate in this country. Even a British Medical Journal study showed that for fat taxes to even begin having effect, the taxes would need to be 20 percent, which is hardly an insignificant amount. We cannot count on some overbearing government regulation to do the work. We need to encourage others around us to lose weight, and more importantly, we need to take responsibility for our own health if we don't want obesity to be a cost to the economy, society, or ourselves.

The Bad and Good Features About Denmark Bernie Sanders Doesn't Want You to Know

In the Democratic presidential debate on Tuesday night, presidential candidate Bernie Sanders said that he's not a capitalist, and that he's a democratic socialist. In his explanation of what a democratic socialist is, he included that "we should look to countries like Denmark...and learn from what they have accomplished from their working people." Leaving aside for a moment that what Sanders is describing is technically social democracy, it's not the first time he has sung Denmark's praises, and it probably won't be the last. However, let's take Sanders up on his offer and actually take a look at Denmark.

Much like with Sweden, Denmark is not the socialist paradise that Sanders and other social democrats like to depict. Before delving in, I should point out that Denmark, much like any other nation-state, is fallible because it is run by fallible human beings. There are going to be facets about nation-states that we like, and others that we don't. Sanders brings up certain facets he likes, such a paid family leave, subsidized health care, and free college tuition. What I find interesting is what this anti-capitalist presidential hopeful omits, such as Denmark having a higher ecological footprint per capita than the United States, from his diatribes. Rather than write a narrative on Denmark, I'm going to divide this into two sections: the bad and the good. The bad will entail those inconvenient truths that democratic socialists don't want you to hear. The good will entail the extent to which Denmark has pro-growth, pro-market policies.

The Bad About Denmark

1. Housing market and household debt. The price-to-income ratio measures the affordability of a house. According to the OECD, Denmark's price-to-income ratio is above OECD average, which is to say that housing is more unaffordable in Denmark than it is in the United States. The OECD, as well as the International Monetary Fund (IMF), also points out that Denmark also has the highest level of household debt within OECD countries (IMF, p. 8).
2. High overall tax rate. The OECD points out that Denmark exceeds the average amongst developed countries for tax burden. Even the Danish government admits it has one of the highest tax rates in the world! The Danish levy their income tax not just on billionaires, but on those who make over 41,000 DKK ($6,251 USD). The Danish tax middle-class Danes quite heavily, which is contrary to what we are hearing from Sanders. Something tells me that Sanders wouldn't want to levy a tax burden of 37.48 percent tax on those with a $6,251 income. Another thing you won't hear Sanders mention is that an overly burdensome tax rate translates into stagnant economic growth, like this European Central Bank paper shows (also see Kreiner et al., 2014; Bergh and Henrekson, 2011). 
3. High levels of government spending and economic growth. The Danish government spends 57.1 percent of its GDP on government spending, which is about 20 percent points higher than the US. As the World Bank points out, large amounts of government spending have a drag on economic growth, which is to say that Denmark is doing well not because, but in spite of a largesse in government spending. Denmark also experiences spillover effects not only from the Marshall Plan or NATO (the latter of which has kept Danish military spending down), but also from technological process from more capitalist societies like America. 
4. Low fertility rate. Denmark's fertility rate is about 1.73. The good news is that it has increased from its low of 1.4 from the 1980s, but still could be higher to reach the replacement rate of 2.1 (same could be said about other developed nations). It's getting to the point where Danes are encouraged to have more sex [and children] in order to bring the fertility rate back up. 
5. Potential financial sector instability. Denmark's financial sector is 650 percent of its GDP (IMF, p. 15). This should be unsettling for someone like Sanders who has problems with the clout of finance. Danske Bank, which is Denmark's largest bank, holds assets that exceeds the size of Denmark's GDP. I guess the issue of Big Banks isn't an issue for Sanders when it comes to his Danish paradise, but on a less chiding note, Denmark has to be all the more careful with monetary policy with its exchange rate peg and fully-open capital account (ibid.). 

The Good About Denmark

1. More economic freedom. In spite of socialist rhetoric, Denmark actually is a place of economic freedom, even more so than the United States. On the Heritage Foundation Economic Freedom Index, Denmark is placed slightly higher on the ranking. Denmark has great respect for property rights and is open to foreign direct investment. The Fraser Institute gives similar high ratings for Danish economic freedom. You can also check out the Danish-based Center for Political Studies (CEPOS) for more information.
2. Comparable levels of well-being. Looking at the United Nation's Human Development Index, Denmark and United States have ranked roughly the same over the past couple decades. That means when looking at such factors as years of schooling, life expectancy, and gross national income, they're quite close. The countries are also neck and neck in the OECD's Better Life Index. This certainly helps in taking on Sanders' myth that the United States is a hellhole in comparison to Denmark. If anything, the U.S. is doing relatively well for itself. 
3. Lower corporate tax rate. The United States has the highest effective corporate tax rate in the developed world. A Danish corporate tax rate of 23 percent is not great (I personally would prefer that it's 0 percent), but it's better than 35 percent. And as a side note, the United States has a much more progressive tax system than Denmark.
4. Less burdensome business regulations. According to the World Bank's Ease of Doing Business Index, Denmark actually ranks higher on the list than the United States. As of date, Denmark ranks 4th on the list, which is three places above the United States. What does this mean? The regulatory environment is more conducive for businesses to start a firm. 

Overall, Denmark is doing pretty well for itself, which is why it wasn't easy to find some of the more negative aspects about the Danish macroeconomy. There are other points of context that shape the Danish experience, which are further elucidated upon in this report from the Institute of Economic Affairs. Denmark's success in average life span and overall wellbeing actually predated the growth of Denmark's welfare state in the 1970s. Nordic Americans also rate comparably in terms of poverty rates and lifespan (Sanandaji, 2012, p. 51-59).  There are also cultural differences of Scandinavians in terms of trust in strangers, which allowed for a welfare state of such size to even exist in the first place.

Denmark is also a smaller, more ethnically homogenous country. Economies of scale work better in smaller nations than they do in larger, which is why it would be interesting to compare Denmark to more analogous nations like Switzerland, Singapore, or Hong Kong. Yes, the Danish government has a largesse in government spending and tax rates. Yes, there are some policies in Denmark that are a democratic socialist's wet dream (or social democrat, whichever). Even with the largesse in government spending and welfare, Denmark, much like its Scandinavian counterparts, has trended in the opposite direction Sanders envisions, and has taken on more pro-market tendencies. Denmark maintains open trade, overall high economic freedom, a minimal amount of business regulations, and huge respect for property rights, and I can tell you that Sanders is not a fan of open trade (you can read more in economist Scott Sumners' paper on the neoliberal reforms of Denmark). What we should glean from this is that although there are some Sanders-approved policies that are implemented in Danish governance, there are quite a bit of pro-market, capitalist trends that Sanders simply does not want to discuss.


1-19-2016 Addendum: Otto Brøns-Petersen at the Cato Institute released an economic bulletin outlining why Denmark is not a model that the United States should be emulating.