Blog Post

The Comparative Advantage of Democracy

  • By Troy Deckert
  • •
  • 06 Apr, 2024
  • •
April 5, 2024

Democracy has a catch to it. Someone must practice it.

It may be time to reassess U.S. President Richard Nixon's idea that increasing business with dictatorial governments will liberalize them. It seems we've just empowered their oppression of their own people and their threats to others. To what extent have we in democratic republics left ourselves vulnerable to invasion and attack? Dictators may invade nations, including democracies and use their trading ties as weapons, like increasing the price of key products.

The economic theory of comparative advantage of David Ricardo holds a lot of weight. This is when nations or companies have an economic advantage, in comparison to others. Those with comparative advantage can profit handsomely, without having to be perfect in all trades and all markets. Under Ricardo's original concept, economically a nation or company need not have autarky, which is economic independence and self-sufficiency. With a comparative advantage,  people still can can prosper, even for a long, long time, without autarky. That's been proven.

What about viewing democracy economically as a trading block with its own comparative advantage, that of freedoms, relative to dictatorships? Witness how citizens and workers worldwide clamor to enter Western Europe and the U.S. This is evidence of the economic comparative advantage of democracy and freedom. People prefer freedom. Most, at least. So freedom has an economic advantage. People, the customers, prefer it. People, potential work forces, prefer it.

If democracies quit using their buying power to fund trade with dictatorial governments, the dictator’s own people may decide to make a change. Now, democratic dollars, euros, and yen are the safety valve by which dictatorial governments keep their oppressed populations bribed with consumer goods and income. Let's defend democracy by having the democratic trading block be independent of dictatorial price hikes in vital goods. Let the dictators attempt to stand on their own. Let them compete with each other, without our democratic, ample, free markets. Let them sink or swim as one oppressor competes with the other, or stabs the other in the back, as they often do. Let us see how their populations continue to hold up under the oppression, without the consumer goods and income extracted from trade from free nations.  Former German Chancellor Angela Merkel noted that no one's perfect, as nations and trading blocks decide these matters. But, really, it's not that hard to tell when people have true and free rights to vote, to speak out freely, to justice in a court system. Or to put it another way, it's pretty obvious when these things are lacking, isn't it?
Copyright 2024, by Troy Deckert

Deckert: Arizona needs to keep traffic moving

By Troy Deckert • December 18, 2020
From Pinal Central Newspaper Group, Feb 3, 2020, Updated Mar 12, 2020, ( https://www.pinalcentral.com/opinion/local_columns/deckert-arizona-needs-to-keep-traffic-moving/arti... )

Arizona has this problem: On interstates and highways, when there’s a major wreck, we have to sit in traffic for three, four or five hours to get past the wreck. Arizona should implement the Illinois Minutemen policy: As accident victims are cared for, the state reacts to clear the road, within half an hour or sooner.

Accident investigation standards are met with measurements, photos and video. The wreckage is not just moved to the side but taken out of visual sight to avoid a gapers block, which is when drivers slow down to gape at wrecked vehicles even when lanes are open, which often slows traffic about as much as a blocked lane.

This is done with dedicated tow trucks, powerful enough to remove semi-trailers. The drivers are on call, so time is not lost waiting on regular tow services.

This is cost efficient. Have you ever joined 10,000 other drivers in a line 30 miles long for five hours to pass a wreck? I have, between Phoenix and Tucson. Thus, combined we lost 50,000 hours of time. Try that, and you might think Gov. Ducey and the Legislature could spring for some good tow trucks to avoid all that.

Safety comes first, so when it takes longer to remove large vehicles or to work in extreme weather, that’s to be expected. But in Illinois to clear even a major wreck, it does not take three, four or five hours.

Per dollar spent, it’s an efficient infrastructure program. It’s cheaper to keep roads flowing properly rather than let them jam up regularly, and then build more roads, just to let them jam up too. Every extra hour taken to clear a road adds backup, multiplying the time it gets past the mile marker that has already been cleared of the crash. If we can clear wrecks quickly, then why take longer?

These delays hinder business, employees going to work and tourism, a major industry. Nothing like four hours stuck in traffic, missing meetings and events, wasting travel costs, to make people talk about Arizona, and not in a good way. These delays increase costs for police.

In multicar accidents, the tow-truck drivers should first drop the wrecks at the next exit on the shoulders of the side road or frontage road, then quickly return to get the next vehicle and the next. Only after the traffic is flowing should wrecks be transferred longer distances to a storage yard. The extra hours for a few tow drivers saves tens of thousands of hours for everyone else.

Articles about the Illinois program miss the main original and ongoing policy intent — to avoid huge traffic delays. Arizona’s system for stranded cars, however, works just fine.

Rather, Arizonans only need a policy change, starting with a handful of powerful tow trucks on call, to remove crashes quickly from highways. As much as we would like to avoid it, big wrecks will keep happening as our state grows, so let’s plan accordingly, eliminating these unnecessarily long delays.

Recent Federal Housing Spending Totals

By Troy and Lydia Deckert • January 23, 2020

SPENDING ON HOUSING OF U.S. FEDERAL TAX DOLLARS 2018: 52% for middle-and upper-income households and 48% for low-income households

TOTAL IS JUST UNDER 1% OF U.S. REAL GDP (0.724%)

COMPARED TO AUSTRIA, ALSO AT UNDER 1% (0.9%) OF GDP

From: Budget of the U.S. Government, Fiscal Year 2020, Analytical Perspectives, ISBN 978-0-16-090573-5, U.S. Government Publishing Office, Washington, 2019, from the White House, Office of Budget and Management: https://www.whitehouse.gov/wp-content/uploads/2019/03/spec-fy2020.pdf

2018 figures are used, since Table 17-2 has actual outlays for 2018, not estimates. Table 16-1 indicates estimates, but was published in 2019, so the 2018 figures should match actual outlays closely. The authors have placed the amounts into Middle- and Upper-Income spending (wealthier and middle-class households) and Low-Income spending (low-income households) with estimates, as discussed below. From  Analytical Perspectives Fiscal Year 2020, pp. 176, 179, 244 and 245.

Table 16-1  -  Line Items 2018 (in millions of dollars) 

Dollar amounts are listed, with a Middle- and Upper-Income Spending designation (Middle-Upper) or a Low-Income Spending designation (Low). Totals are below.

Exclusion of interest on owner-occupied mortgage subsidy bonds (see note 2) $890 (Low) 

Exclusion of interest on rental housing bonds (see note 2) $910 (Low)

Deductibility of mortgage interest on owner-occupied homes (Itemized on Form 1040) $37,160 (Middle-Upper)

Deductibility of State and local property tax on owner-occupied homes (Itemized on Form 1040) (*2019 estimate used, as the recent change was a significant decrease for this deduction which will reoccur.) $6,250* (Middle-Upper)

Deferral of income from installment sales $1,700 (Middle-Upper)

Capital gains exclusion on home sales (see note 3) $22,974 (Middle-Upper) & $20,786 (Low)

Exception from passive loss rules for $25,000 of rental loss $5,720 (Middle-Upper)

Credit for low-income housing investments (LIHTC) (see note 2) $9,140 (Low)

Accelerated depreciation on rental housing (normal tax method) $2,460 (Middle-Upper)

Exclusion of interest on veterans housing bonds (see note 2) $40 (Low)

Deductibility of nonbusiness State and local taxes other than on owner-occupied homes (*2019 estimate used, as the recent change was a significant decrease for this deduction, which will reoccur) (see note 1) $4,610* (Middle-Upper)

Table 17-2  - Line Items

Department of Housing and Urban Development - Discretionary

 Public and Indian Housing Programs

    Public Housing Operating Fund $4,382 (Low)

    Revitalization of Severely Distressed Public Housing (HOPE VI)  $18 (Low)

    Native Hawaiian Housing Block Grant $2 (Low)

   Tenant Based Rental Assistance (Section 8)  $21,384 (Low)

   Public Housing Capital Fund $2,708 (Low)

   Native American Housing Block Grant $755(Low)

   Housing Certificate Fund -$4 (Low)

   Choice Neighborhoods Initiative $58 (Low)

   Family Self Sufficiency $71 (Low)

   Rental Assistance Demonstration $.... (Low)

Community Planning and Development 

   Homeless Assistance Grants $1,340 (Low)

   Home Investment Partnership Program $1,362 (Low) 

   Housing Opportunities for Persons with AIDS $352 (Low)

   Rural Housing and Economic Development $1 (Low)

        HUD Shop Program (see note 6) $10 (Low)

   Permanent Supportive Housing $.... (Low)

Housing Programs

   Project-based Rental Assistance $285 (Low)

Department of Housing and Urban Development - Mandatory

Public and Indian Housing Programs

    Native Hawaiian Housing Block Grant $2 (Low)

The Bottom Line: Total 2018 of all standard U.S. Government Tax Spending for housing 

(in millions of dollars)

Middle- and Upper-Income Spending

$70,014      52%

Low-Income Spending

$64,492      48%

Total U.S. Housing Tax Spending

$134,506     100%

U.S. Real Gross Domestic Product (GDP) Chained (in millions of dollars) 2018

$18,575,000

Percent of U.S. Real GDP of Federal Tax Spending on Housing 2018: 0.724%

Percent of U.S. Real GDP spent on Low-Income households: 0.347%


2018 Total Actual Outlays Unified (in millions of dollars): $4,109,000

Total U.S. Housing Tax Spending (from above): $134,506

Percent of U.S. Federal Budget Spent on  All Housing: 3.3%

Percent of U.S. Federal Budget Spent on Upper-Income and Middle-Class Housing:  1.7%

Percent of U.S. Federal Budget Spent on Low-Income Housing:  1.6%


Notes:

1) From p. 180, endnote 17; Items 61 and 171 have "interactions" with each other and thus have a combined larger total each year. The singular figures are used for ease of following the tables, since the differences are not overly dramatic; 37% for 2018 and 8% for 2019, for example.  p. 180

2) Government bonds for housing (Table 16-1 - Items 58, 59, 66, 168) are placed in Low-Income Spending, since the proceeds of such bonds are not used for primarily upscale housing, but for moderate and low-income housing, although some housing might be considered solid middle-class  (for households in the median-income and just above range). Such bonds do also provide a tax reduction for purchasers (which are the actual Line Items dollar amounts), many of whom are wealthy, but bond purchasers also include pension funds for workers. Thus, these Item costs could also be split on a 50/50 or 40/60 basis between higher- and low-income households. If the split on bonds was 30/70, the difference would be $4 billion and the total spending split would be 55/45, not a huge difference from the 52/48 split we report in our Bottom Line. But we have chosen to bypass the direct tax benefits to wealthier bondholders and count that tax cost instead as benefits to housing users of the bond proceeds. In part this is to not be accused of trying to skew the numbers to increase totals for federal tax spending that benefits wealthier households. Nonetheless, in total of federal housing tax spending, low-income households do not receive more than middle-class and wealthy households, unlike the popular perception.

3) For Table 16-1 - Item 63;  47.5% of homeowners earned $49,000 or less in 2015, according to the Brookings Institution ( https://www.brookings.edu/blog/the-avenue/2017/10/09/who-is-the-new-face-of-american-homeownership/ ) Thus, as a rough estimate, the authors split the Item 63 total of $43,760 billion into $20,786 billion (47.5%) for Low-Income Spending and $22,974 (52.5%) for Regular Spending. This likely overestimates the tax savings to the lower-income homeowners. This also likely underestimates the tax savings to those with higher incomes, as the capital gains on more expensive homes would yield higher gross tax savings. We were unable to find statistics to distinguish this category further, such as profit levels on home sales matched to household income of sellers. Nonetheless, in total of federal housing tax spending, low-income households do not receive more than middle-class and wealthy households.

4) Regarding gross domestic product (GDP), from Table 2-1; the Real GDP figure was used. This is because the U.S. Bureau of Economic Analysis (BEA), which produces the GDP statistic, most often cites the Real GDP (chained), in its reports. The BEA, usually does not cite the other GDP category, Current GDP, which overstates the real GDP due to inflation. See:   https://www.bea.gov/resources/methodologies.

5)  Austria's total state support for housing is 0.9% or about 1% of GDP, at 2.7 billion euros, from page 254 of "Housing subsidies and taxation in six EU countries," by Robert Wieser and Alexis Mundt, Journal of European Real Estate Research, Vol. 7, No. 3, 2014, pp. 248-269, © Emerald Group Publishing Limited, as provided by Alexis Mundt to Troy and Lydia Deckert, Oct. 2019. See also: "The following observations on the overall housing situation in Austria can be made: The total expenditure on housing subsidies are 1% of GDP." from Sect. 5 Conclusion; first 2 sentences, from a report "The Austrian System of Social Housing Finance, by Dr. Wolfgang Amann  and Alexis Mundt, 2013. Dr. Amann is Director of IIBW - Insitut fur Immobilien, Bauen and Wohnen GmbH, the Institute for Real Estate, Construction and Housing, Ltd, Vienna, Austria and Alexis Mundt is an independent housing researcher based in Vienna, Austria. See: http://cms.siel.si/documents/170/docs/socialhousing-finance-amman-mundt.pdf. Please note that these totals match up very precisely in categories of funds spent, as Wieser and Mundt include in Austria's calculations the following: the mortgage interest tax exemption, the reduced capital gains tax in primary home sales (held for 2 years), direct tax spending on housing,  and tax exemptions on housing bonds, which were even reduced in Austria recently. All these categories are also included in the U.S. totals compiled by Troy Deckert and Lydia Deckert. The totals also match up in the other main tax category, that of tax exemption on imputed rent, which is not included in either the Austria or U.S. totals. This is because apparently only one country in the world, The Netherlands, taxes people for imputed rental income for living in their own home, and that is at a very low level. (p. 257, Wieser, Mundt). The U.S. and Austria do not tax imputed rent, thus this supposed tax break isn't included. Thus, the housing tax spending totals for the U.S 0.724%). and for Austria (0.9%) as a percentage of GDP are 

6) A $10 million cost of the HUD SHOP program under Rural Housing came from the HUD website totals for 2018, which we don't see included in Table 17-2, so it is added here. ( https://www.hudexchange.info/programs/shop/ )

7) We didn’t include the effects of FHA loans, VA loans, or of federal involvement in Fannie, Freddie and Ginnie, because those programs don’t change affordability, and often those programs make money for the budget rather than costing taxpayers.






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