Archive for May, 2007
Free the Scholars
Justin Logan discussed the “Travesty in Tehran” — the arrest and incarceration of Haleh Esfandiari — astutely yesterday. As he noted, these actions are a real provocation at a time when reduced tensions between Iran and the United States are devoutly to be hoped for. But more importantly, the unjust imprisonment of a peaceful scholar is a striking affront to human rights. The people of both Iran and the United States who want to see Iran as part of a peaceful and democratic world must deplore these actions.
And of course, to make matters worse, Esfandiari is not the only scholar currently being held by the Iranian government. The regime is also holding Kian Tajbakhsh of the Open Society Institute; journalist Parnaz Azima from the U.S.-funded Radio Farda; and Ali Shakeri, a peace activist and founding board member at the University of California, Irvine’s Center for Citizen Peacebuilding. There is no evidence that any of these people are engaged in espionage or threatening Iranian national security. Indeed, most or all of them have worked to improve relations between Iran and the United States and to turn both countries away from a collision course.
Leading human rights groups and activists have spoken out against these arrests. In a joint statement, Amnesty International, Human Rights Watch, Reporters without Borders, the International Federation for Human Rights, and 2003 Nobel Peace Prize laureate Shirin Ebadi urged Iran to stop “harassment of dual nationals.”
To add insult to injury, Esfandiari’s husband was informed yesterday that Citibank had frozen his wife’s bank accounts “in accordance with U.S. Sanctions regulations,” which stipulate that U.S. banks are prohibited from servicing accounts for residents of Iran. A resident? She’s an involuntary resident of the notorious Evin Prison. Late in the evening, after many phone calls and the intercession of the State Department, Citibank relented and unfroze the accounts. As painful as that experience was, her husband no doubt wishes that a day’s worth of phone calls could persuade an Islamic government to admit its mistake.
Filed under: Foreign Policy and National Security; General; Law and Civil Liberties
Is Fred Thompson a Small-Government Conservative?
With former Tennessee senator Fred Thompson creeping ever closer to a formal announcement that he will run for president, it is worth asking whether he is the genuine small-government conservative that has been missing from the top tier of the Republican field (with all due apologies to Ron Paul). A preliminary look at his record suggests that while he is not quite the second coming of Barry Goldwater or Ronald Reagan, he may be much better on most issues than the alternatives.
During his eight years in the Senate, Thompson had a solid record as a fiscal conservative. The National Taxpayers Union gives him the third highest marks of any candidate (trailing only Paul and Rep. Tom Tancredo). While he sponsored or cosponsored legislation over the course of his career that would have resulted in a net increase in federal spending of $3.1 billion, that is the smallest increase among the contenders. (By comparison, John McCain would have increased spending by $36.9 billion). He generally shared McCain’s opposition to pork barrel spending and earmarks, and voted against the 2002 farm bill. He voted for the Bush tax cuts and has generally been solid in support of tax reduction.
He has been a consistent supporter of entitlement reform, voting to means-test Medicare and supporting personal accounts for Social Security.
His record on free trade is solid. In the past he has been supportive of comprehensive immigration reform, but has been critical of the current bill, shifting toward a “control the borders first” position. Still, he has not been Tancredo-like in his anti-immigration statements.
On federalism, there may be no better candidate. His Senate record is replete with examples of his being the lone opponent of legislation that he thought undercut federalist principles. He took this position even on legislation that was otherwise supported by conservatives. He opposes federal action to prohibit gay marriage on federalist grounds, although he supports state bans. One blight on this record is his vote in favor of No Child Left Behind.
On the other hand, he supported McCain-Feingold, although he has now backed away from that position, suggesting the law has been overtaken by events. He told John Fund that he was now willing to consider scrapping campaign finance in favor of full disclosure. And his position on civil liberties generally is troubling. He supported the anti-flag burning constitutional amendment and expansion of federal police powers generally. So far he has given no suggestion that he breaks with the Bush administration on important issues like habeas corpus, torture, and surveillance.
On foreign policy he has been a hawk, and supports continuing the war in Iraq. Alas, that seems standard for the GOP these days, but Thompson appears to also take the neoconservative line on Iran, North Korea, and China. It’s hard to be a small-government conservative while favoring widespread military intervention. War is a big-government program.
Of course, spending the last several years in Hollywood has enabled Thompson to avoid taking positions on many current issues. Once he gets in the race, Thompson will have to be much more specific about his positions. But, given the fact that McCain, Romney, and Giuliani are clearly big-government conservatives, Thompson has an opportunity to seize the small-government mantle.
What You Need to Know About the Big TB Scare
. . . was written by a computer security expert.
Filed under: Foreign Policy and National Security; Telecom, Internet & Information Policy
REAL ID Proponents Miss Yet Another Chance
Writing in National Review Online, the Heritage Foundation’s James Jay Carafano argues that Democrats are killing the REAL ID Act (oh, and that the administration and Senate Republicans aren’t supporting it either). This apparently is a reason to oppose comprehensive immigration law reform. Notably, Carafano passes up yet another opportunity to tell us how REAL ID would add to our nation’s protections.
In my spoken testimony to the Senate Judiciary Committee’s hearing on REAL ID (written testimony here), I characterized the two schools of thought among supporters of REAL ID: the “Just Do It” school and the “Do-Overs” school.
Carafano is from Just Do It. Not engaging on the question whether REAL ID would actually add to our protections, he just implores for its implementation. He never explains exactly how REAL ID would secure us, or why counter-measures wouldn’t lay its alleged benefits to waste. Just Do It doesn’t even attempt making the affirmative case for spending $17 billion undermining our privacy through REAL ID.
The Do-Overs school is epitomized by consultant Janice Kephart, a terror profiteer of sorts, who is cashing in on having been a 9/11 Commission staffer. The Do-Overs school at least argues that REAL ID provides security, but somewhat fantastically.
Among their arguments: If we just had REAL ID back in 2001, maybe the fact that one or two of the 9/11 terrorists had overstayed their visas would have prevented them using a driver’s license at the airport, and they would have had to use a passport, and this would have created suspicion that there was an attack of some kind underway, and the plot would have been broken up.
Evidently, hindsight isn’t always 20/20. Had REAL ID been in place, the 9/11 attackers would have figured out that they should stay current on their visas. Had they not, using Saudi passports at the airport, they would have created no suspicion. Remember - this was before 9/11.
Another chance has passed for REAL ID proponents to make the case for its security benefit.
Filed under: Foreign Policy and National Security; Law and Civil Liberties; Telecom, Internet & Information Policy
Presidents Say the Darnedest Things
Just when you think things can’t get any weirder, the White House has announced, per Reuters, that President Bush would like to see a US military presence in Iraq modeled on the one in South Korea. Take it away, Tony Snow:
“The Korean model is one in which the United States provides a security presence, but you’ve had the development of a successful democracy in South Korea over a period of years, and, therefore, the United States is there as a force of stability.”
Readers may object that the US military has maintaned a robust presence on the Korean peninsula for half a century, and worry that such a position may not be tenable in Iraq. Not to worry, says the White House, since these bases won’t be permanent. Tony?
Snow said U.S. bases in Iraq would not necessarily be permanent because they would be there at the invitation of the host government and “the person who has done the invitation has the right to withdraw the invitation.”
As I recall, “permanence” relates to a thing or process’s enduring nature through time, not the volition of any agents contributing to its existence. Reality and The Onion creep ever closer together.
Rumors that the UK Will Abandon National ID
Via SecureID News, politics.co.uk reports on speculation that incoming Prime Minister Gordon Brown will abandon the UK’s national identification card scheme.
Back-handed encouragement for that has come in an open letter to Brown from Conservative shadow home secretary David Davis:
As chancellor you already bear responsibility for the £58 million of taxpayers money wasted on this expensive white elephant. . . .Experts in the field warn that, far from making us more secure, ID cards risk making us less safe. By clustering a mass of personal information in one place, ID cards will make us a prize target for hackers, fraudsters and terrorists.
Almost a year ago, the Sunday Times reported on leaked emails showing that the UK national ID scheme is in collapse. Much like the U.S. scheme is now.
Filed under: Law and Civil Liberties; Telecom, Internet & Information Policy
We’ll Have Fun, Fun, Fun till the Taxman Takes the Good Times Away
Rising property taxes may tear down a beach amusement park that has lasted 117 years at Ocean City, Md., where thousands of Washington and Baltimore families escape the summer heat. The Washington Post reports:
For 117 summers, generations of children have frolicked through Trimper’s Rides on this beach resort town’s signature boardwalk. But this Memorial Day weekend might begin the last summer they circle the antique wooden carousel, fling around the Tilt-a-Whirl and loop through the Tidal Wave roller coaster.
The Trimpers say they are considering closing the amusement park and arcade this year.
 Linda Davidson — The Washington Post |
As Ocean City has exploded into a megaresort, property taxes have soared for Trimper’s, which operates on the last chunk of undeveloped land on the town’s three-mile boardwalk. In the past three years, family members said, their assessed property value has tripled, from $21 million to $65 million.
You couldn’t blame the Trimper family if they decided to cash in on the value of their land. But it would be a shame if the family wanted to continue operating the oldest continuously owned amusement park in the United States, and rising property taxes forced them to sell. After all, their income isn’t going up nearly as much as the assessed value of the land. So an owner being taxed on the theoretical value of land that he isn’t planning to sell is then forced by the burden of taxation to sell his land after all.
The power to tax is the power to destroy charming old amusement parks.
We might note that the same phenomenon can destroy environmental amenities. A landowner who prefers to leave his land undeveloped even as development happens around or near him can find the assessed value of his land rising, and thus faces a higher tax burden, and thus feels compelled to sell the land to a developer. I have nothing against development if it’s a market phenomenon, but I don’t like the idea of conservation-minded landowners being forced by the property tax into making a decision they wouldn’t otherwise choose.
Of course, one might object that the Trimpers and the conservation-minded landowners have just as much obligation to pay for the state of Maryland’s budget as any other landowner. And you can hardly expect a big modern state like Maryland to subsist on the taxes it can assess on a three-block area valued at $21 million. So that’s part of the problem–governments today do so much that they can’t be supported with modest levels of taxation.
And then–to bring it full circle–the very people who demand bountiful government services that require burdensome taxes then bemoan the loss of cultural and environmental amenities; so they propose that government subsidize amusement parks, or buy up land and keep it undeveloped, or forbid development in designated areas. Thus requiring more government spending, more taxes, more forced sales, and the cycle continues.
So kids, when you see Trimper’s being demolished to build some more oceanfront hotels and condominiums, remember that big government did it.
A Poison Pill for China?
Last week top Chinese and American economic officials met in Washington for the second “Strategic Economic Dialogue.” While trade and exchange rates grabbed all the headlines, one less publicized subject was advice from the American side on how the Chinese can promote consumption in their domestic economy.
More consumption would presumably mean the Chinese would buy more American products and send less of their excess savings to the United States, leading eventually to a smaller Chinese trade surplus with the United States and the world.
How did U.S. government officials propose to promote more consumption in China? The Chinese were advised by their American friends to “create a social safety net for its population, similar to the Social Security and Medicare programs in the United States, so Chinese residents do not need to continue to save as much as 50 percent of their income for their retirement and future medical needs,” according to one trade newsletter.
Whoa. Would China’s economic managers really want to saddle its population with the same unsustainable government promises that characterize our two biggest entitlement programs? As my Cato colleagues have long noted, and as USA Today reported on its front page this week, the unfunded liabilities wracked up by those two programs has now reached more than $45 trillion (yes, that’s trillion).
I suppose saddling the Chinese economy with a huge, unfunded government obligation would be one way to “level the playing field.”
Filed under: General; Health, Welfare & Entitlements; International Economics and Development; Tax and Budget Policy; Trade
National Service Is Garbage
In Albania, anyway. NPR reports that garbage is piling up in the streets of Tirana, and “It’s something you could blame on the fall of communism.” As reporter Vicky O’Hara explained,
When communism collapsed here in the early 1900s so did the city’s system of garbage removal. Shpresa Rira, a teacher at the foreign language institute in Tirana, remembers that under communism families were ordered to spend part of their weekend picking up trash.
Ms. SHPRESA RIRA: It was called the communist Saturday because people were meant to come to come together and give their services to the community.
O’HARA: Rira says that people were not paid but they turned out anyway, because if they didn’t, the consequences could be dire.
So it was universal compulsory service, like Melvin Laird and John Edwards want for the United States. But it turns out it didn’t work so well in Albania.
The communist tactic, she says, destroyed community spirit in Albania.
Ms. RIRA: We thought that we were closely connected, but as soon as communism was over, you know, we understood that that community spirit didn’t exist at all. It was just a fake.
And like most collectivist systems, it did not “foster a culture of responsibility for our democracy.” Instead, it left people expecting that government would handle everything. So now, the government no longer threatens people with dire consequences for not picking up trash, and no one does. The city has been slow to create a normal garbage collection system. Maybe this forced community spirit stuff isn’t such a good idea after all.
Filed under: General; International Economics and Development; Law and Civil Liberties
Canadian Tax Exiles
Thanks to high tax rates, two successful Canadian artists have escaped to Switzerland. Both Shania Twain and Luc Plamondon have decided that the Canadian residence is not worth the price if government seizes too much of their income. One politician calls tax migration a form of “economic treason,” but the real problem is greedy politicians who think that successful people should be milk cows for wasteful government. The Montreal Gazette reports:
He’s one of Quebec’s highest-profile tax avoiders - moving to Ireland, and then to Switzerland to avoid paying Canadian and Quebec income taxes. For the last few weeks, successful songwriter Luc Plamondon is also the owner of an Order of Canada pin, presented to those who, through their achievements, set an example for other Canadians. Ironically, the presentation of Plamondon’s Order of Canada pin by Governor-General Michaelle Jean in a private ceremony last month comes as the Conservative government is moving to crack down on tax avoidance by Canadian companies. …some MPs, such as Liberal finance critic John McCallum, say they see nothing wrong with electing a residence outside Canada to avoid Canadian taxes, others, like New Democrat MP Pat Martin, strongly condemn the practice. “I call it economic treason to be a tax fugitive,” said Martin, suggesting that Plamondon return his Order of Canada pin. …In 1999, three years before he was named to the Order of Canada, Plamondon moved to Ireland, saying he was doing it to avoid high federal and provincial taxes in Canada and to take advantage of its special tax breaks for artists. “There is an enormous number of writers and musicians from around the world who have moved to Ireland because of the tax savings,” Plamondon said when he sold his Montreal home. …Among the other residents of the Montreux area is Canadian singer Shania Twain, also an Order of Canada recipient. …David Perry, senior research associate with the Canadian Tax Foundation, said countries like Canada, which has higher tax rates than some other countries, risk having some of their most successful citizens elect to live outside the country of their birth. “Any country that has had a very high level of taxation on the rich … soon finds itself exporting that type of talent.” A minority of wealthy Canadians elect to reside outside the country to escape its taxes, and the practice is less common than it once was, he said. However, it nevertheless increases the frustration for other Canadians left to bear the tax burden, he said.
Filed under: General; International Economics and Development; Tax and Budget Policy
Tony Soprano Earmarks
A commentary from Jeff Birnbaum of the Washington Post aired on American Public Media’s Marketplace yesterday. The topic was the evolving alternative to earmarks, what Birnbaum calls “phonemarks.”
Here’s the basic idea (from the transcript available at the Marketplace website):
Eager to avoid the bad publicity of legislative earmarking, lawmakers are secretly calling or writing bureaucrats and demanding that they fund their pet projects by fiat. These projects-via-telephone, or “phonemarks,” are the hottest new gimmick on the Washington scene.
Executive branch officials can dole out millions of dollars with impunity. And they avoid the scrutiny of the public, since they are done quietly and without any disclosure.
Earmarks actually have to be written down in a public law. Phonemarks, on the other hand, are accomplished through bureaucratic sleight-of-hand and nobody but the lawmaker and the bureaucrat need to know for sure.
My preferred descriptor is “Tony Soprano earmarks.” As I wrote in a January 22 column for Business Week:
Even if transparency leads to fewer earmarks, there are no promises these projects won’t reappear in other ways and other places. The congressional budget process is nothing if not a game of reinvention. You could call spending items Happy Funtime Projects instead and sock them away in another part of the budget, but they will remain the coin of the realm on K Street.
Of course, Congress could simply give a bucket of money to an agency with no strings attached. But then a member of the Appropriations Committee would write a letter to the department head suggesting something like: “Gee, wouldn’t it be nice if Project X got some of this pot of money?”
Can you really blame a government department head who reads a letter like that—from a member of Congress who controls his budget and oversees his agency—and obliges? It would strike anyone in that position as similar to Tony Soprano saying to the corner grocery store owner: “Nice little place you got here. Damn shame if anything were to happen to it.”
Now for a secret. The big problem in Washington isn’t earmarks. They’re just a symptom of the real problem: policymakers who believe the federal government should be all things to all people. Pork projects – disclosed or not – are inevitable in such an environment no matter what you call ‘em.
Filed under: General; Government and Politics; Tax and Budget Policy
Gov. Kaine Warns against Protectionism
Virginia’s Gov. Tim Kaine has a message for his fellow Democrats on the subject of trade: protectionism is for losers.
In an interview with Bloomberg News that was published this morning, Kaine said he disagreed with members of his party who criticize globalization and trade agreements such as NAFTA. Their attitude displays a “loser’s mentality,” Kaine countered, adding that, “The only way you’ll succeed [in the global economy] is by being an aggressive competitor rather than trying to hoard your dwindling assets.”
As I’ve argued elsewhere, the Democratic Party’s embrace of Lou Dobbs-style populism against trade betrays the party’s historical commitment to competition and internationalism. For its own and the nation’s good, party leaders would be wise to listen to Gov. Kaine’s advice on trade.
Filed under: General; International Economics and Development; Trade
A Travesty in Tehran
I’ve been out of the office for a bit, but coming back I see that the Government of Iran has now charged Woodrow Wilson Center scholar Haleh Esfandiari with trying to foment a “velvet revolution” in Iran. It is awful news for several reasons.
First, the charges that Esfandiari was plotting to overthrow the Tehran government seem ridiculous. The notion is entirely at odds with the body of Esfandiari’s scholarly work at the Wilson Center, not exactly a hotbed of ideological bomb-throwing. (The Wilson Center chief, Lee Hamilton, tried quietly approaching President Ahmadinejad starting in February, keeping the matter out of the headlines. He has as yet received no response.) It is also worth mentioning that Esfandiari had come under some criticism from neocons and right-wingers in Washington for being too sympathetic to Tehran’s position in the bilateral relationship. The notion that she is a U.S. or Israeli spy strains credulity.
Second, her arrest gives hardliners in Washington grounds to wag their fingers in the faces of those of us (including people like Esfandiari) who favor dialogue and reduced tensions. Reuel Marc Gerecht immediately charged to the pages of the New York Times to argue that the event made clear that his view of the Islamic Republic, “suspicious, cynical, hawkish and religiously oriented,” offered the most plausible explanation. In part as a result of the Esfandiari case, it is an argument with more momentum than this analyst would like.
Third, it greatly jeopardizes U.S.-Iran relations at a time when the Bush administration is seen (grading on a curve, admittedly) as taking small steps away from confrontation with Iran and toward conciliation. Whether Esfandiari’s detention and arrest were an attempt by hardliners in Iran to scuttle rapprochement or not, the events have an effect of putting a damper on pushes from Washington to get to the negotiating table and avert a catastrophe.
But all of the political implications pale by comparison to the fact that a human being–and one who has worked tirelessly to produce outcomes that would benefit the citizens of both Iran and the United States–has been imprisoned unjustly and without even the pretense of due process. One can only hope that the leadership in Iran will come to its senses, whether out of recognition of its error or out of the realization that this sort of confrontation serves no one’s interests: the regime’s, the Iranian people’s, or the world’s.
The American Islamic Congress has set up a “Free Haleh” website here, and for further back story, read the op-ed from Esfandiari’s husband, GMU professor Shaul Bakhash.
Filed under: Foreign Policy and National Security; General; Law and Civil Liberties
Tax Competition Catches the Attention of the International Herald Tribune
An article in the IHT reports on the rush to cut corporate tax rates in Europe. The story appropriately credits tax competition, though the story is incomplete in that it should mention the reductions in death taxes, wealth taxes, capital taxes, as well as the flat tax revolution in Eastern and Central Europe:
A tax-cut war is spreading across Europe as leaders of the Continent’s biggest economies give up criticizing smaller neighbors for cutting business-tax rates and decide to join them instead. … It comes after Ireland and new European Union members from Eastern Europe succeeded in attracting investment, and irking their larger rivals, with tax rates of less than 20 percent, among the world’s lowest. … The EU’s average corporate tax rate at the end of 2006 was a record low of 26 percent, and more cuts are in the works this year. … The rush to lower business taxes is a turnaround for the biggest European countries, whose governments once complained that their neighbors were engaging in “tax dumping” and threatened to cut aid to them. Just three years ago, Sarkozy, then the French finance minister, sought EU support to implement a minimum corporate tax rate throughout the bloc. Feeding the complaints were business-tax reductions by Poland, Slovakia and Hungary before their EU entry in 2004. Poland cut its levy to 19 percent from 27 percent. Slovakia adopted a flat-tax rate of 19 percent, down from 25 percent, and Hungary went to 16 percent from 18 percent. The lower rates helped lure operations from companies in higher-tax countries. PSA Peugeot Citroën, an automaker based in Paris, and Siemens, an engineering company based in Munich, for example, moved some production to Slovakia. … Supporters of lower corporate taxes point to the success of Ireland, whose 12.5 percent rate, the lowest in the developed world, is down from 47 percent in 1988. That proved a magnet for such U.S.-based technology companies as Microsoft, Intel and Dell and helped Ireland’s economy grow more than three times the rate of the euro area in the past decade, while still running a budget surplus in nine of the 10 years. … a study of 86 countries last year by KPMG International … showed corporate tax cuts allowed countries to attract and retain business investment with little loss of revenue.
Reno 411
Mike Reno, a Michigan blogger and elected school board official, critiques my recent study of school district size and spending here. My 411 on his analysis:
His chief objection to the study is that I use per capita income as a proxy for a community’s level of demand for education. Mr. Reno “cannot agree that all wealthier communities have higher standards than less affluent communities.”
This is a non sequitur. The fact that income has been found to be strongly correlated with educational demand does not mean that all wealthier communities will have higher educational demand than all low income communities. It simply means that, on the whole, the correlation between the two is strong and positive. There are surely exceptions.
I use income per capita as my main proxy for a community’s demand for educational services because that has been the norm in econometric research on school district spending since such studies got going in the late 1950s. It is not, however, the only such proxy that I used. I also control for the share of the district’s population actually enrolled in public schools (which captures the extent to which community members and their relatives are personally affected by the system — and hence stand to gain from higher spending on it). In addition, I tested out a control variable which was an index of parental level of education, also commonly used as a proxy for educational demand (the more education you have, the higher your expectations for the education of your children).
As I explain in the paper, the coefficient for the public school enrollment per capita term is unexpectedly negative, and the parental level of education term was statistically insignificant and so dropped from the final model. Hence, after controlling for the other dozen or so variables in the model, no proxy for educational demand explains a substantial share of the variation in district spending, and one actually has a negative relationship to spending.
A second of Mr. Reno’s concerns is my observation that student achievement is not, on average, related to per-pupil spending, after controlling for other factors. He observes that spending can matter when the stars align and a public school district has efficient leadership. This is not an objection to the overall pattern. It simply illustrates that, on the whole, public school districts do not have efficient leadership. The lack of substantial correlation between public school spending and student achievement is a very well established research finding. In most cases, public schools are simply not efficient. As I explain in my paper, the evidence suggests a reason for that pattern: the current system provides incentives for public officials to spend as much as they can, and, on the whole, they apparently heed those incentives.
Mr. Reno’s final concern is that I do not deal with any systematic variation in the service mix offered by districts of varying size. Presumably, he is suggesting that larger districts are able to offer a wider range of services, and that this explains their somewhat higher spending. A key conclusion of my paper, however, is that size does not matter all that much in determining district spending. Realistically, breaking up large districts would reduce total spending by about 1 percent (that would be for a hypothetical savings of $200 million from district breakups, out of a budget of about $20 billion).
As I point out in the paper, what really determines district spending is the ease with which officials can raise per pupil revenues. The easier it is, the more they spend. Is it any wonder spending is out of control?
Corporate-Style Accounting Shows Growing Burden of Entitlements
A feature story in USA Today reveals the staggering burden of entitlement programs if future deficits are recognized today. These figures are revealing, but they can also be misleading. The key concern, for instance, should be the size of government in the future, not the share that is debt-financed. Funded liabilities and unfunded liabilities, after all, both result in the transfer of resources from the productive sector to government. Another problem with corporate accounting is that it assumes that political promises are binding. In reality, politicians can enact laws to completely eliminate unfunded liabilities (though they are more likely to pass bills to make the problem worse). Even with these caveats, however, the data is sobering since the numbers show that the U.S. is destined to become a European-style welfare state unless dramatic reforms are implemented:
The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA TODAY analysis shows. The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006. …Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later. The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition. Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. …Unfunded promises made for Medicare, Social Security and federal retirement programs account for 85% of taxpayer liabilities. State and local government retirement plans account for much of the rest. This hidden debt is the amount taxpayers would have to pay immediately to cover government’s financial obligations.
The Wrong and Right Approach on U.S.-China Trade
The economic illiteracy that drives the “revalue-your-currency-immediately-and-dramatically-or-else-we’ll-impose-a-27.5 percent tariff” mantra has become a huge political problem. The more that policymakers (and columnists) imply parity between the economic effects of a stronger Chinese Yuan and those of a huge import tax on Chinese goods at the U.S. border, the more likely we are to cross the precipice into astoundingly stupid economic policy.
On that score, Washington Post business columnist Steven Pearlstein deserves scorn. In his column on Sunday, Pearlstein touted his preference for populist bromides over any desire to comprehend and convey truth to his readers about trade. Pearlstein has joined the ranks of those agitating for an across-the-board tariff on Chinese imports since China “cannot take the one step that would restore some [trade] balance—revalu[ing] its currency.” Though Pearlstein has grown increasingly hostile to trade recently, Sunday’s column, in which he describes the upside of a massive levy against all Chinese imports, is probably the most irresponsible one I’ve read from him.
The “currency issue” is the most prominent source of contention afflicting the U.S.-China economic relationship. But it is merely a proxy for broader concern over the U.S. trade deficit with China. From the large and growing deficit, many policymakers conclude that we are losing at trade, and we’re losing because China is cheating. Intervention in the currency market by China’s central bank to keep the Yuan artificially low is the chief form of cheating, which acts as a subsidy on exports and a tax on imports. Fix the currency manipulation, and you fix the trade account.
That is an extremely simplistic take on the cause and effect of Chinese intervention in the currency market.
Phil Bond Doesn’t Understand Security
Here’s an interesting Washington Technology article on the security issues that would be created by implementing the REAL ID Act. Complying with the law would require states to create huge, nationally accessible databases of information about all licensed drivers and ID card-holders. Computer security guru Bruce Schneier, chief technology officer at BT Counterpane Internet Security, is quoted, saying “Computer scientists don’t know how to keep a database of this magnitude secure.”
The really striking quote from the article, though, goes to a different kind of security: security against terrorist attacks. Information Technology Association president Phil Bond is quoted in a statement on the REAL ID Act:
“Today’s system is the system that helped to bring us the terrorist attacks of Sept. 11, 2001,” said Phil Bond, ITAA president, in the statement. “We know the problem, and we have the technology to fix it.”
How many different ways has Bond gotten security wrong? I can’t list them all, but . . .
The first is the implied causal relationship between our present-day ID card system and terror attacks. There are many causes of terrorism and terrorist attacks - Ron Paul recently stirred the Republican pot by suggesting they include an interventionist foreign policy. To respond to the literal import of Bond’s statement: the ID system in our country did not cause weak groups elsewhere to adopt the strategy of terrorism. Our current ID and licensing system did not “bring us” the terrorist attacks of September 11, 2001.
But Bond was making purposeful use of inaccurate language. His implication is that the current driver licensing system is so lacking in security measures that it can be treated as an equivalent to a real cause of terrorist attack. This is where Bond’s security ignorance shines like a beacon.
For all the benefits they provide, including a modicum of security, identity systems provide almost no security against committed opponents like terrorist organizations, criminal enterprises, or even hardened criminals. In my book Identity Crisis: How Identification is Overused and Misunderstood, I show how identity acts as an economic and social glue. It brings people together for all kinds of transactions, and it holds them together if and when things go wrong. But I also show how breakable this glue is. Identity does not reveal intention.
People who have studied identity and security know that you can’t extrapolate from the use of identity in every-day transactions to the use of identity in counter-terrorism. Commited bad actors will defraud, inflitrate, or corrupt card issuing systems, or create fraudulent identity documents directly - to say nothing of simply avoiding targets that are controlled by identification checks. (That’s not a big improvement in security. There are far more uncontrolled targets than controlled targets.)
Evidently, Phil Bond is not someone who has studied identity and security, which is a shame given that he is the highly regarded leader of a significant technology-industry trade association.
Filed under: Cato Publications; Foreign Policy and National Security; Law and Civil Liberties; Telecom, Internet & Information Policy
I’ll Take the Frying Pan over the Fire
Via Ars Technica, here’s a Quad-Cities Online report on the state of Illinois using $1 million in taxpayer dollars to fund litigation in support of an unconstitutional ban on video game violence. The money was taken from other budget areas, including public health, welfare, and economic development.
The ideal would be to give the money back to taxpayers. It rightly belongs to them. But given the choice between using the funds to erode free speech rights or using them to support the welfare state, I’ll take the welfare state.
Filed under: Law and Civil Liberties; Tax and Budget Policy; Telecom, Internet & Information Policy
The Search for the Libertarian Vote
An NPR report on independent voters in Nebraska included this comment from a hospital diversity director: “There’s a large group of people in this country that believe in smaller government, that believe in balanced budget. I think that’s a pretty popular concept. Where [the Republicans] run into trouble is strict adherence to a couple of social issues.” As we’ve been saying.
What does a diversity director do in Nebraska, anyway? I’m thinking he tries to persuade people that “the farmer and the cowman should be friends.”
Baltimore Sun on REAL ID: Heck No
The Baltimore Sun says “Heck No” to REAL ID.
Filed under: Foreign Policy and National Security; Law and Civil Liberties; Telecom, Internet & Information Policy
Of Tax Credits and Government Subsidies
Previously on Cato-at-Liberty, Michael Cannon (post 1, post 2) and Andrew Coulson (post 1, post 2) argued with Jason Furman (on health care) and Sara Mead (on education) about the nature of tax credits and tax breaks.
Furman and Mead claim that tax credits and breaks, because they represent forgone tax revenue, are little different than government subsidies (with a raft of implications). Cannon and Coulson (for various reasons) disagree.
The great “a-ha” moment of the discussion came when Mead pointed to Cato scholars’ criticism of ethanol tax credits as subsidies or “tax expenditures.” Even other Cato scholars agree that ‘tax credit’ equals ‘government subsidy,’ she says.
Surprisingly, up to this point, the argument has largely ignored the use of the credited money/forgone government revenue. I would argue the use of the credited money is fundamental to determining if the credit/tax break is a subsidy.
In the case of an education credit, it is true that government would lose revenue because of the credit. But government has also assumed the obligation to educate the nation’s children, and government would be released from that obligation in the case of the child whose schooling is funded by the credited money. Is the credit, thus, a subsidy?
Filed under: Education and Child Policy; Energy and Environment; Health, Welfare & Entitlements; Tax and Budget Policy
State to Young People: You Belong to Me
Under the benign headline “Turning Apathy Into Good Deeds,” former secretary of defense Melvin Laird endorses a strikingly authoritarian proposal: “a system of compulsory universal civil service for young people.” Laird recognizes that the military doesn’t need all the recruits a draft would produce and that today’s high-tech military needs longer-term training and commitment. But the drawn-out war in Iraq threatens to discourage future enlistments. So “universal service” might pressure just enough young people to join the army, while also producing a bumper crop of slave labor for schools, Head Start, Peace Corps, hospitals, the Department of Health and Human Services, and the State Department.
Laird thinks such a program would “foster a culture of responsibility for our democracy.” Not among free and responsible people, it wouldn’t. It may be no accident that Laird repeatedly mentions democracy, but the words freedom and liberty–the fundamental values of America, which our constitutional republic was created to protect–do not appear in his piece.
Laird does not address how you square compulsory service with the Thirteenth Amendment to the Constitution: “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.” Laird’s proposed “service” is clearly involuntary.
For generations and centuries, old people have complained that today’s young people just don’t appreciate the sacrifices of their elders. They talk too loud and they don’t care about the community. They need, in the words of William James, “to get the childishness knocked out of them, and to come back into society with healthier sympathies and soberer ideas.”
And meanwhile, they can do a lot of useful things that we older taxpayers would like to have done but don’t want to pay for. After all, in a market economy, if you want more people working in hospitals or day-care centers, you can pay them to do so. And if you don’t think $2.9 trillion is enough to pay for all the useful services of the federal government, you can propose a tax increase. But how much easier it might seem just to commandeer four million free or cheap laborers.
Of course, they’re not really so cheap. You do have to pay them something. And you’ll need massive new layers of bureaucracy to manage four million people (the approximate number of Americans who turn 18 each year).
And then there are the opportunity costs. Workers will be allocated to government make-work jobs instead of the jobs where the market demand is strongest. The economy will be less efficient and less productive. As Doug Bandow writes, “paying young people to sweep floors entails the cost of forgoing whatever else we could do with that money and the cost of forgoing whatever else those young people could do with their time. An additional dollar spent on medical research might be a better investment than one used to add an extra hospital helper; an additional young person who finished school and entered the field of biogenetics might increase social welfare more than one more kid shelving books in a library.”
What kind of message does compulsory service send to young people? It tells them that they are national resources, state property, that they do not own themselves. That’s not the message the Founders thought they were sending in the Declaration of Independence and the Constitution. It’s not an attitude appropriate for citizens of a free society. It’s a collectivist, authoritarian concept. It says, with much less charm than the old song, “You belong to me.”
Melvin Laird should be ashamed. So should John Edwards.