Fifty Laboratories of Democracy – Demonstrating Paths To Freedom – with Jonathan Williams – [Ep. 221]

Linda J Hansen: Welcome. Thank you for tuning in to this episode of the Prosperity 101® Breakroom Economics Podcast. My name is Linda J. Hansen, your host and the author of Prosperity 101® Job Security Through Business Prosperity: The Essential Guide to Understanding How Policy Affects Your Paycheck, and the creator of the Breakroom Economics online course.

The book, the course, and the entire podcast library can be found on Prosperity101.com. I seek to connect boardroom to break room and policy to paycheck by empowering and encouraging employers to educate employees about the public policy issues that affect their jobs. 

My goal is to help people understand the foundations of prosperity, the policies of prosperity, and how to protect their prosperity by becoming informed, involved, and impactful. I believe this will lead to greater employee loyalty, engagement, and retention, and to an increased awareness of the blessings and responsibilities of living in a free society. Listen each week to hear from exciting guests, and be sure to visit Prosperity101.com. 

Thank you so much for joining with me today. We appreciate you listening each week to the podcast. And if you are a regular listener, please consider becoming a Prosperity Partner. Just go to the Prosperity Partner link on the website. And we'd love to have you join us to help get these messages out about freedom, prosperity, and human flourishing. We'd also like to invite you to support our Strategic Partners. You can find more information in the show notes, and you can find that information on our website as well. But today for the sake of time, I'll go directly into our guest. 

We all know that the economy is struggling. It's no secret that you feel the difference, and every week seems to be worse. My guest today is a good friend, a repeat guest, and someone who is very in tune to what is happening in the American economy. 

Jonathan Williams is the Chief Economist and Executive Vice President of Policy at the American Legislative Exchange Council, otherwise known as ALEC, where he works with state policymakers, congressional leaders, and members of the private sector to develop fiscal policy solutions for the state. 

He founded the ALEC Center for State Fiscal Reform in 2011 and co-authors Rich States, Poor States, The ALEC-sLaffer Economic State Competitiveness Index with Reagan economist, Dr. Arthur Laffer, and advisor and friend to Prosperity 101®, economist Stephen Moore. 

Prior to joining ALEC, he served as staff economist at the Nonpartisan Tax Foundation, authoring numerous tax policy studies. His columns and interviews are widely published. Published and promoted across the nation. He is a friend of mine and an enthusiastic advocate for Prosperity 101®, and I welcome him again to the podcast. Thank you, Jonathan, for taking time to share your wisdom with the listeners. 

Jonathan Williams: Well, thanks so much for having me back on the show, Linda, and as always, greetings from the Land of Make Believe out here in Washington, D.C. 

Linda J Hansen: Yeah, I love it that you call it that because for those people listening that don't live or work there, you might not know what we're talking about, but maybe you can explain why you call it the Land of Make Believe. 

Jonathan Williams: Well, the Land of Make Believe, I think Reagan called it, Washington is an island surrounded by reality. And, so it's, I think, a good way to think about just the way that Washington thinks versus the way that reality is, and the way that the rest of America feels, you know, and this is something that Washington doesn't create. It consumes wealth.

You know, this is that we redistribute and we consume wealth and we put bureaucracy and regulations in people's way instead of, you know, our goal, of course, with Prosperity 101®, your goal, Linda, and with our goal at ALEC is free markets, limited government, federalism, getting government out of the way of people so people can flourish and businesses can flourish.

And just as that disconnect between the way that D. C. thinks about, you know, D. C. thinks about accumulating power and taking more from individuals and businesses when we should be thinking about the absolute opposite and that's, of course, why we call it the Land of Make Believe.

Linda J Hansen: Well, exactly. And in the land of make believe, you can print as much money as you want. You know, it does grow on trees, which is how the government operates. It seems like, they seem to think money grows on trees, but for the rest of us, it's just flying out of our pockets is what it's doing. So, as you have really worked so many years and have published this Rich States, Poor States guide, what are you seeing in 2024 that is showing you again, the things that really work to help states be economically sound and beneficial for families and businesses and what has not worked?

Jonathan Williams: Well, it's a great thing that, we often talked about on this show. And anybody listens to me knows that where I go first nearly always is, you know, our American experiment is something beautiful in the history of the world, right?

I mean, this is just unique in that, you know, we have founders acknowledge that we are endowed by our creator with these inalienable rights, right? And that's something that's totally unique in that, the human experiment, more or less that, you know, government doesn't give us these rights, these rights come from God, our creator, right? And the natural rights.

And, you know, part of that, that the founders experiment was just incredible when you think about it is they wanted not central power because of this idea of, you know, That they were very nervous of government accumulating too much power is, they look at the experience of England and Europe and what had happened with that approach and what they thought about in America was something radically different in that we ought to decentralize power and that the states are co-sovereigns with the federal government.

You know, a lot of people forget about that point is that they think about Washington and the lofty goals and this Land of Make Believe and all these big government ideas here. And then the state somehow subservient. But as Reagan, President Reagan, always reminded us was, you know, it wasn't the federal government that created the states.

It was the states that created the federal government. And that's really essential to the work that we do, talking about what works and what doesn't across states. But it's so important to start from kind of the first principle there is that this wouldn't even be possible if it wasn't for our constitution and limits on government power and, you know, putting the rights in the hands of individuals. 

And that's what the 10th Amendment up to the Constitution and the Bill of Rights is all about is those powers not directly given to the federal government in the Constitution should be reserved for the states. And of course, at the end of the day, the people in the states.

And so that gives us the beautiful 50 laboratories of democracy that we often talk about it. We have a very clear view of what works and what doesn't across the states. We, you know, in now nearly 20 years of writing the Rich States, Poor States book with Art Laffer and Steve Moore, you can summarize up that work. And I've been to 50 states multiple times over and all of our trips and work to really one sentence is, you know, be more like freedom-loving states, Texas, Florida, et cetera, and less like big government states, California and New York. 

There's the huge difference of about how states go about creating policy. You have very different models of government, and that at the end of the day, is, should be celebrated, I think. Even though some states are making painful, bad decisions, and they're paying the consequences for them, and they're, unfortunately, their taxpayers are as well. It's important that we have this distinction because people compete, states compete.

And, as long as we have this freedom of association and businesses and individuals can and often do relocate to avoid bad policy, we have an incredibly dynamic marketplace to be able to take key ideas of what policies work and what don't, and it turns out the Prosperity 101® policies, the policies from Rich States, Poor States, and what we talk about are some of the most key factors—taxes, regulation, labor policy, just some quality of life, crime, education.

Those are just some of the key things that matter for economic growth and why some states are rich and some states are poor. 

Linda J Hansen: Well, so true. And, you know, you've seen these trends, be very evident year after year after year. And that always amazes me because as other states create policy, I just think, well, this is common sense.

Why don't you just look at this and see what actually works? But so often the policymakers have an entirely different agenda. They actually don't want the states to be as prosperous. They don't want the businesses to be flourishing. They don't want the families to have independence and opportunity. They want big government and a big government to be controlling everyone.

But we see that eventually that doesn't really work well. And we can see what's happening in California and New York, like you mentioned, but we can also see it in Illinois and other states where they have just ignored common sense economic policy. And it has hurt so many people and businesses are leaving these states in droves and going to more business friendly states.

And people forget that business is what drives the economy. It's not government driving the economy. We have to have the healthy businesses, the healthy business climate, so that businesses and individuals can thrive and make money, which then funds the government. But when the government just overspends, it's just like anyone, you know, we were talking about it being make believe.

You know, don't we wish that we just had a money tree to go to in our backyard sometimes when we need to pay our bills? 

Jonathan Williams: Well, I sure do. As a dad of a couple of kids, I can tell you, given what's happened with Biden inflation over the last three years now, I mean, I really do wish I had that money tree and, you know, to some degree, you know, that at the federal level, we know that they live in that strange reality where the federal reserve can continue to pump out money.

There's this discussion around the so-called modern monetary, you know, theory and MMT and minting trillion dollar coins and solving all of our financial problems. But at the end of the day, it gets down to the kitchen table, common sense, economic discussion of needs versus wants. I mean, economizing, that's the basics of it, right?

I mean, really the legend, Thomas Sowell out at Stanford at the Hoover Institute, you know, always put it this way. You know, the first law of economics is that we have a scarcity of resources. While we wish we had that tree, that tree doesn't exist. But the first law of politics is to ignore the first law of economics.

And this is where the big government folks in California and New York get in trouble, and certainly here in Washington. Now I will say, Linda, probably one of the most concerning things coming out of the last several years here in Washington is the Biden administration's unrelenting attack on this idea of federalism.

Because I think to the big government philosophy, this idea that the states are co-equals with the federal government, this idea that policies are being enacted in the states and then people get to move across state lines showing that the progressive style of governments doesn't work, you know, this is a big problem for big government folks in Washington. And so this common thread of the Biden administration is how do you take more power from the states and re-centralize it back in Washington? 

Whether that's a federal takeover of elections that has been in the domain of states and how they run their own elections as you know; whether that's banning state right to work laws, one of the key policies of prosperity across states that people shouldn't be coerced and need to join a union unless they'd like to, that was part of the proact being discussed in Washington; whether it's, you know, taking this bailout idea of saying, you know bailed states that haven't been able to budget or balance their own books ought to get more of our own hard-earned tax dollars from Washington and redistribute that out.

And then by the way, if you take the money, you can't cut taxes as a state because the federal government is going to put that restriction on you. You keep going down the line of all these anti-federalism principles that are being pushed by the Biden administration. And that is, I mean, you ask, you know, what are some of the more concerning, you know, things out there? 

That is probably one of the most concerning because at the end of the day, competition, whether it's in business or competition between states and may the best man or woman and product or service that they create win, that's essential to our American experiment and to our success going forward, I think. And that's what Washington wants to shut down right now, unfortunately.

Linda J Hansen: Well, they really do. And they want to, you know, shut down those incentives, everything. But, you mentioned before we were recording, some things that will be expiring with the Trump tax cuts. And we know that during those years under Trump, we had economic boom. It's just like back in the Reagan years, you know, it took a little while to get it calibrated to grow and really grow.

But then once everything falls into place, it just explodes. And so, some of those things have been scheduled to be retired soon. And so can you talk about what is actually happening with the TCJA and what is happening, as we move forward?  ecause businesses want to know like what's happening while Biden is still president, but then what can we hopefully look forward to if we get a more business-friendly president into the Oval Office? 

Jonathan Williams: Well, it's a great question. I'm glad you asked. It's something that I think there's a huge storm building on the horizon when it comes to the economy, right?

Not only do we have a really perilous times with the economic data, with the continued inflation, the kind of the redefining of inflation, which, you know, the reality is going to be much worse than the top line numbers even suggest right now. Plus, you combine that with stagnant economic growth, that horrible 1.3% percent GDP growth in the last quarter that we saw. 

I mean, this is really the reality of stagflation, loss of economic growth with inflation. We see it continuing, as we talked about, I think, in the last couple of times I've been on the show, that we've been really warning about, given the bad policy agenda in Washington, the threats of higher taxes and big spending.

Now, you add that and I talk about the storm on the horizon, you know, by the end of 2025, by the end of just next calendar year, all of the 23 individual provisions of the Trump tax cuts, that tax cuts and job act of 2017, which was the last major tax reform, what happened in Ronald Reagan's era. It had been 31 years between the time of Ronald Reagan's last tax reform and the Trump tax cuts of 2017.

Just incredible put us on this trajectory of growth that you were talking about during the Trump years and then, you know, because of back to the Land of Make Believe because of these senate rules in Washington. because the way that the tax cuts passed under what they call budget reconciliation, they only are good for a number of years before they automatically phase out. 

And so we are facing by the end of 2025, the phase out of the Trump tax cuts on individuals and small businesses. Some are already starting to phase out as you mentioned, but so many more to come, including some very popular items in those tax cuts, such as the lower, marginal income tax rates for individuals and small businesses, such as the change where, you know, most Americans, I think it was something like 90 percent of Americans now take the standard deduction instead of having to go through and itemized on their income tax returns.

That standard deduction was doubled under the Trump tax cuts. That goes away. And then you keep going down the list. The hated alternative minimum tax or some people used to call it the alternative maximum tax, more accurately, you know, that was something that was beginning to haunt the middle class in a lot of cases to say, well, it would take away then all of your deductions that you had. And after you filed your return, you find out that you get hit by this AMT and you have to pay more. 

All of those things start coming back with the bad provisions if the Trump tax cuts go away. And so this is a real problem and ALEC legislators are taking the lead. We actually just launched a letter with more than 350 state legislators from states all across America saying this is not acceptable going forward to allow this tax relief to expire in this time of by Bidenonomics and stagflation.

This is the last thing that our American economy can withstand. And it may be the very type of thing if the tax cuts are hard to expire, that pushes into a recession, but then beyond the macro effects at the broad national scale, what this would do to the average taxpayer could be absolutely crippling when on top of inflation all the other factors that hardworking families have had to navigate these last several years.

Linda J Hansen: Well, it can be so devastating. And I love some of the proposals that President Trump has talked about from eliminating the income tax to, which I think is exciting, and people think, well, how would we fund the government? Oh, there's so many ways to fund the government. 

And we could talk about that a little bit, but also one that has taken on a lot of discussion lately is his idea to not tax tips. And so, if you are a server listening or a hairdresser or anyone who accepts tips, this could really be beneficial for you, and just think about that. You know, when we earn money, we get taxed on the money we earn. When we spend money, we have to pay tax on what we buy. When we sell something, we have to pay tax.

So we earn the money, then we have to pay tax on it. Then we have to pay tax if we buy something with that money. If we sell something with that money, we have to pay tax. I mean, it is, if we die, we pay tax. If we, you know, it's just insane. 

And by the time we're done, we get about, you know what, 30 percent left of what we actually make when we add up every single tax or compliance fee or licensing fee, all these things that really cripple, not only individuals, but businesses. And, you know, obviously then cripples the nation because when we can't thrive, the nation can thrive. 

Jonathan Williams: On top of it, of course, is the inflation tax. I mean, that's what it is. It's an regressive tax on hardworking Americans across the board. And something that just came across my desk that I wanted to just share because a couple of key statistics in this piece from this week, from our friends at the Joint Economic Committee in Congress.

For the average U. S. Household to maintain the same consumption levels that they had back in 2021, in January of 2021 when President Biden took the oath of office, they would need to spend now an additional $1,085 each month or $13,021 per year.

Incredible, that inflation tax, on top of everything that government takes from us now because of the big government spending agenda, and you just mentioned there's lots of ways that we can cut spending and reduce the size and scope of government. 

That is the other side of the spectrum is when government then tries to come back and spend all that to take care of their political allies or whatever they like to do with their big government Keynesian surplus and spending ideas. This is the penalty of course. Not all, there's no such thing as a free lunch, as the great economist Milton Friedman always reminds us 

Linda J Hansen: Absolutely. And that's just so good that you brought that up. 

And you mentioned a term that I actually would like you to explain to the listeners, because you know, we hear in the news, Keynesian economics, Austrian economics, all of that. 

So for the listeners, tell them what both mean and what they should be looking for when they listen to the news and they hear all these proposals. Like, what should they be listening for so that when they go to their representatives, they can speak intelligently and in a well-informed manner? 

Jonathan Williams: Well, you know, this is, I mean, the Keynesian economics has been around really for decades now. And of course, John Maynard Keynes was the kind of famous or infamous economist that came up with the theory that, you know, essentially, and there are limits to this theory, and some people kind of, I think, take broad brushstrokes with it. And farther than even Keynes was probably comfortable with it. 

But essentially, it's the idea that more government spending and more government involvement in the economy is going to be something that will stimulate economic growth and build new aggregate demand, right? And this is something that people have taken the extreme to say, well, we just keep spending money and, you know, printing new money out there, and he's noting these trillion dollar coins taking. you know, Keynesian economics to the modern monetary theory, this is just going to make all of us rich, right?

And it's just this great sounding idea. It gets kind of back to the money growing on trees idea, though, that we were talking about is in reality, obviously, the basics of economics needs to come into play. But, you know, this is something that has fueled bad policy ideas, this Keynesian economics idea, for a very long time. 

And unfortunately, it has infiltrated the way that government does business here in Washington, D.C. and a lot of state capitals. And essentially to oversimplify, is it's the idea that government knows best of taking more and more, hardworking individuals and small business income, centralizing it in some central government in a state, or even worse, the central government in Washington, D. C., and then coming and divvying it up and deciding how to spend it to have the most “stimulative effect on the economy.”

And if we just, you know, the theory is, is if they just get it right and big government picking winners and losers can just pick enough winners, then maybe we'll all be richer and better off. You know, obviously great sounding theory, it doesn't work anywhere. It's really been tried when it's taken to the extreme, you know. 

Look at Venezuela. look at the way that socialist economies work. This is not how we should be working as certainly as an economy here in the United States, because, you know, A, from a Prosperity 101® perspective, that's not how we get there. We get Prosperity 101® through empowering individuals and businesses to make the decisions that are best for them. 

And that motivated self-interest of Adam Smith and that way that you create real wealth by creating and doing good things, creating new jobs and services for others, right? I mean, at the end of the day, in a free market sense, how you get ahead is by producing goods and services and helping your fellow man versus having a big government bureaucrat, you know, in a bean-counting machine saying, you know, we're going to put more stimulus into this area of the economy or that.

Government just doesn't know best enough to do that kind of thing very successfully, at least not for a long period. Now that's the classic debate of Keynesianism, a big government that command and control economy versus a free market mindset. 

Linda J Hansen: Absolutely. And, you know, it can be turned around, too. I mean, I was just, this is really about, like, America, state governments and our federal government, and economy that, you know, we're talking about now. 

But if you look at Argentina recently, they have a new president there and he has been turning this around. It's amazing what has been happening in their economy. So they've had big government, big inflation, everything. And he has come in and cut the size of government and the scope of government and cut the cost of government. And people are starting to thrive again. So, you know, we cannot feed the monster government with money that is being curtailed in terms of what we are allowed to earn and keep and use to put into the economy. 

It just can't happen. It's like an endless supply that just isn't there. And so, we just really need to pay attention to these policies. And so, people can go and they can go to alec.org and they can get the Rich States, Poor States guide. They can look at it. They can compare their states to how other states compare, and they can then have good information to share with their state legislators about what needs to be done to promote prosperity and freedom in their states.

And I would also like to add that while we talk a lot about economics with you, ALEC also has other areas where they focus on state policy. Can you just let listeners know a little bit more about the broader brush of ALEC? 

Jonathan Williams: You know, there's so many different policy areas where state legislators are, you know, coming to us with ideas and we're aggregating ideas and coming up with our research and analysis to get out to states to help them become more prosperous as states as well.

And, you know, going across the different issue areas, everything from healthcare and health and human services areas, huge areas, of course, in state government and state budgets. Education, where we've seen this just amazing wave of parental choice and education freedom happening in states all across the country now over the last several years post-COVID.

Another huge area for us, you look at deregulation and commerce and commerce policy and regulatory policy. There's going to be a major Supreme Court case coming out here soon on the Chevron deference, for instance, and kind of regulatory reform and administrative law reform issues, I think are going to be at the forefront going forward.

And we even get into things that, you know, things like election integrity and things like federalism based policies and even international policies, working with some of our allied nations across the world to bring better economic policy and better discussions between countries of allied nature.

So everything from international and every domestic issue, more or less, you can think of under the under the sun, ALEC has aggregated great research and analysis and model policy for state legislators to take and see if it works for their states. 

Linda J Hansen: Well, that's so important for listeners to know the breadth of what we need to understand when we make policy that works for the States, for individuals.

It's so many faceted. And that's what I try to do with Prosperity 101®  is helping all of these issues in, and it's like a big spider web that expands, but you know, each part of that spider web ends up coming back to the middle and we have to be able to understand how it's all interconnected.

And I do appreciate what ALEC does because that is one of the things they do. All of these issues come together and it eventually ends up having an economic impact because of how these issues impact every state and every business and every industry. And, it's so important and so, I really appreciate the work you and the other colleagues at ALEC are doing.

So if people want to get in touch with you, how would they do that? And before we close, I'd like to ask you if you have a couple of recommendations for employers who want to educate their employees about these issues, especially before they go to the voting booth. 

Jonathan Williams: Well, absolutely. You can go to alec.org, as a great resource, to get in touch with me and get in touch with our team. If you see things like Rich States, Poor States or Education Freedom Index, or we do energy affordability report every year, we're doing a new one on state regulatory regimes and how costly they can be for states and for taxpayers, you know, check out our website. It's a very dynamic place with new material going up every single day on some of these really key issues that we've been talking about today.

But, in terms of, you know, employers just staying engaged on, you know, what is happening in the policy environment in Washington, certainly, but in the state capitals, because at the end of the day, so many of the things that affect us on a day to day level, whether it's regulations or taxes or education policies or health care policies, are happening in the state capitals or even our local levels of government.

So staying engaged and making sure that regardless of which way employees are going to be engaged, that they're following the issues and that they're being active, good citizens and participants because the information gap is so huge right now, and the Washington, D. C. media, the New York corporate media are so focused on everything, you know, in D.C. 

But paying attention to those key policy issues that are happening in your state capital and watching what we're doing at ALEC, you know, watching Prosperity 101®, it's such a great a guide to stay engaged on the key issues that are going to make a difference for the success of America, for the success of individuals and the success of your business going forward.

Linda J Hansen: That's so important. And thank you so much. So listeners, please go to alec.org. You can reach Jonathan there. You can access all of their resources. you can contact me at Prosperity101.com. And don't forget to find out how to become a Prosperity Partner and help support these broadcasts. 

But, most importantly, we want you to be an informed voter. We want you to be able to inform others with accurate information that will truly help their life. And employers, if you talk to your employees and you let them know that this matters to their daily life, it matters to them being able to go on vacation or put braces on their kid's teeth, or pay for a new car when they need one, you know, whatever it is. It matters and you just help them connect the dots. 

That's what I try to do. I know ALEC is trying to do that. And you know, when we have people who are better informed then they are better informed voters, and that is what can really turn around our country. So do you have any other closing comments before we let you go?

Jonathan Williams: Well, it's great to be with you as always, and really appreciate your educational mission of talking with employers and employees about the key issues that are out there today. And it's, you know, I think you and I are both optimists about the future though, because, you know, we know that we have a unique and special thing in America.

I mean, America is the last best hope for freedom on earth, as Reagan would put it. And this fight for freedom is an important one, but having this positive discussion around what makes people lives better off based on free market policies, it's going to be essential to make that happen. So thank you for everything you do, and thank you for your listeners out there. 

Linda J Hansen: Well, thank you as well. And we'll just keep on the fight and a strong America makes for a stronger world. So, we'll just keep on it. May God bless America. So thank you, Jonathan. 

Jonathan Williams: All right. Thanks. 

Linda J Hansen: Thank you again for listening to the Prosperity 101® podcast. If you enjoyed this episode, please subscribe, share, and leave a great review. Don't forget to visit Prosperity101.com to access the entire podcast library, to order my newest book, Job Security Through Business Prosperity: The Essential Guide to Understanding How Policy Affects Your Paycheck, or to enroll you or your employees in the Breakroom Economics online course.

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Please contact us today at Prosperity101.com to let us know how we can serve you. Thank you.