Archive for November, 2008
For the Good of Barack Obama, Mr. Rangel Should Step Aside
Or am I reading too much into the Washington Post editorial, “Step Aside, Mr. Rangel,” when it says:
At a time when President-elect Barack Obama is holding frequent news conferences to reassure the markets and the American people that he is ready to lead the nation to economic recovery, the last thing he will need is a chairman of Ways and Means caught up in a swirl of serious allegations.
The cult of the presidency, indeed.
Filed under: Cato Publications; General; Government and Politics; Political Philosophy
Are We Keeping Gates’ Defense Budget?
Barack Obama’s apparent decision to retain Robert Gates as Secretary of Defense is popular in the Beltway. One thing pundits admire is Gates’ talk about sacrificing expensive weapons systems designed for peer competitors to pay for the counterinsurgency campaigns that we are fighting. What Gates’ fans don’t point out is he has done little more than talk. Under his watch, the Pentagon recently drafted a fiscal year 2010 defense budget that requests a $60 billion increase over FY 2009 spending, not including war costs. That is a departure from prior Pentagon plans that envisioned defense spending leveling off next year. The 2010 budget proposal comes with a new five-year plan that would boost spending by $450 billion. The increase would avoid the kind of painful choices that Gates has discussed.
This request sets up a dilemma for the Obama administration. There are indications that the Democratic leadership on the Hill wants to contain defense spending to help pay for the proliferating bailouts. But the Pentagon’s plan is, by most accounts, an attempt to box Obama in — even a decision to hold spending at last year’s level could be called a cut, and open the President up to attack from the right. The services and Bush administration, including Gates, would like to fix defense spending at over four percent of GDP, even if the wars wind down and GDP resumes its normal growth. This budget serves that purpose, which is devoid of strategic rationale.
Ideally, Obama would force massive cuts on the Pentagon. Its budget is already far too big. At a minimum, if only to demonstrate that he won’t be bullied by the bureaucracy, Obama should tell the Pentagon to rewrite its proposed budget without the increase. If Obama is keeping Gates’ spending ideas along with Gates, it is one more indication that Obama’s defense policy is likely to be a kindlier, gentler version of Bush’s, a more competent imperialism.
Filed under: Foreign Policy and National Security; General
Larry Summers on Employer Mandates
President-elect Barack Obama has named former Treasury Secretary Larry Summers to head his National Economic Council. Obama also wants to require employers to offer health insurance to their workers.
It is therefore instructive to recall what the head of Obama’s National Economic Council has written about employer mandates:
Economists have generally devoted little attention to mandated benefits- regarding them as simply disguised tax and expenditure measures. Uwe Reinhardt’s reaction is probably typical: “[Just because] the fiscal flows triggered by mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax.”
Suppose, for example, that there is a binding minimum wage. In this case, wages cannot fall to offset employers’ cost of providing a mandated benefit, so it is likely to create unemployment….
Mandated benefit programs can work against the interests of those who most require the benefit being offered…
If policymakers fail to recognize the costs of mandated benefits because they do not appear in the government budget, then mandated benefit programs could lead to excessive spending on social programs. There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers…
It can plausibly be argued that mandated benefits fuel the growth of government.
Filed under: General; Health, Welfare & Entitlements; Regulatory Studies
Bailouts May Scare U.S. Economy to Death
A Pew Research poll conducted more than a week ago found that 57 percent of Americans are terrified by Bailout Mania 2008. That was several days, and many billions of dollars, before Bloomberg reported that U.S. taxpayers are now on the hook for $7.7 trillion in bailout bucks — half of the nation’s entire GDP for the past year. At this point, not even Carl Sagan could get a handle on the numbers we’re talking about.
What do people do when they’re scared about the state of the economy? They stop spending. With each new government “investment” announced by our new overlord Hank Paulson, Americans are going to clutch ever more fiercely at their wallets. They will eat out even less than they’ve been doing. They will rediscover the true spirit of Christmas and give each other hugs instead of Blue-Ray disc players. They will forgo that new coat or pair of winter boots. And they will bring the U.S. economy to a halt.
Even if all these bailouts could save the economy, other things being equal, other things are NOT equal. The bailouts themselves have an effect on consumer psychology, which has an effect on consumer spending. The Fed had better hire a shrink, quick, to let them know that they are on the brink of scaring the U.S. economy to death.
Filed under: Finance, Banking & Monetary Policy; General
Google Flu Trends and Privacy
The recent privacy dust-up about Google’s Flu Trends service is interesting – and confounding.
Flu Trends is one of many cool things that can be done with data. By tracking searches that suggest the existence of flu symptoms, Google can identify influenza outbreaks about two weeks faster than the Centers for Disease Control, as illustrated by this video graph.
Searches reveal our interests, and this service highlights that fact. So the good folks at Patient Privacy Rights and the Electronic Privacy Information Center wrote a letter to Google asking for more information about the privacy consequences of Google Flu Trends. This kind of inquiry and exposure is important to the successful operation of markets because it helps educate both the public and businesses about the privacy consequences of services like Google.
The letter is a little confounding, though. It asks, “Would you agree to publish the technique that Google has adopted to protect the privacy of search queries for Google Flu Trends?”
It’s an inartfully drawn question. Search queries don’t have privacy – they’re inanimate character strings. What the letter intends, I think, is to ask how the privacy of Google users is protected in developing the data for Google Flu Trends. Still, the request is a bit incoherent.
Google said in response to the letter:
Flu Trends uses aggregated data from hundreds of millions of searches over time. Flu Trends uses aggregations of search query data which contain no information that can identify users personally. We also never reveal how many users are searching for particular queries. The only information released publicly or to the CDC is what is seen on the Flu Trends website now: estimates of the percentages of people with influenza-like illnesses.
It’s essentially a given that drawing aggregated data from hundreds of millions of searches produces data that is not identifiable. The data relevant for display by Google Flu Trends is not identifiable. Google Flu Trends doesn’t affect the privacy of Google users. It’s using Google at all that affects their privacy.
There’s value in exploring these issues though, and here’s where I think there is pay dirt in the PPR/EPIC letter:
[T]he question is how to ensure that Google Flu Trends and similar techniques will only produce aggregate data and will not open the door to user-specific investigations, which could be compelled, even over Google’s objection, by court order or Presidential authority.
The rule of law has fallen this far: Advocates must cite the privacy threat from unconstrained, unilateral “Presidential authority.” The letter is also right to point out that courts can strip away Google’s control of the information it collects about its users.
This is a problem with use of all Google services, and a problem with the use of all Internet services. The heart of the problem lies not with the current leader in search, or any other Internet innovator. The problem lies with our unconstrained government.
Yes, Google is playing a dangerous game with the data it collects from us. It has nonchalantly beaten the CDC at its own game, and one can’t predict how the agency will respond. CDC may seek to deputize Google as its public health agent. As the PPR/EPIC letter points out, it may drive Google to reveal more precise – and identifiable – information about health-related searches.
Any agency could do this to any Internet service provider while our law about privacy/search and seizure is in such a shambles.
Again, I think advocacy of this type is a valuable part of market processes because of its educational value, but if I had written the letter, I would have written it to the head of the Centers for Disease Control asking for a pledge that the agency will not use any informal or extra-judicial means to collect personally identifiable health information.
Filed under: Health, Welfare & Entitlements; Telecom, Internet & Information Policy
What Exactly Does “Cost Neutral” Mean?
I won’t pretend to be the least bit able to keep track of who is getting bailed out how and at what price anymore. When we were talking about a nice, simple, $700-billion bailout of some type to someone, sure, that was easy to follow. But there’s practically a new proposal involving hundreds-of-billions of dollars every day now, and at this point it just seems that Hank Paulson is throwing out dollar signs like a random number generator set between $100 billion and $800 billion. Forget about any average taxpayer being able to figure it all out, especially how much he is ultimately going to be on the hook for.
One would hope that just a small piece of the action — in my area, student loans — would be easier to follow. It isn’t. Since May the U.S. Department of Education has been erecting financial Rube Goldberg devices of all sorts to ensure that no potential student goes without money for college. You can catch up on all the goings-on here, but one thing in particular concerns me: Who, ultimately, is going to pay for all this? Unfortunately, like the overall bailout (or bailouts? or rescues? or giveaways? whatever…) federal officials give vague promises not to hurt taxpayers, but how that miracle will be accomplished basically comes down to “trust us.” Witness the Education Department’s description of all that the feds will do to keep loan dough flowing. It promises that “these programs will be cost neutral and in the best interest of the taxpayer,” but how, exactly, will that cost neutrality be achieved? For those minor details, we’ll all just have to stay tuned:
To assure cost neutrality, different parameters may be placed on the terms for these programs. The Federal Register notice will include the final prices, terms, and conditions, as well as the Department’s methodology for determining cost neutrality.
Pardon me and my aching head if I don’t find this either helpful or reassuring. For some reason I just don’t trust these people.
Pointless, Political, and Pork-filled
Greg Mankiw speculates on the best alliterative description of the stimulus package:
Instead of fiscal stimulus that is temporary, targeted, and timely, John Taylor suggests that it be permanent, pervasive, and predictable.
What the Obama administration is aiming for, it seems, is helpful, hopeful, and humongous.
Critics fear it might end up pointless, political, and pork-filled.
—–
Update: A reader emails me that Larry Summers now calls for stimulus that is speedy, substantial, and sustained.
Other readers think it will be:
big, bloated, and borrowed.
immodest, immoral, and imbecilic.
clumsy, corrupt, and counterproductive.
expansive, extensive, and expensive.
weighty, worrisome, and wayward.
politicized, pandered, and pathetic.
socialized, silly, and sorry.
random, record-setting, and ridiculed.
ultimate utilitarian utopianism.
absolutely abjectly apocalyptic.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Tax and Budget Policy
The Constant Bailer II
The superintendent of the financially inept Miami-Dade Schools wants a federal bailout, and it’s hard to blame him for desiring a piece of Washington’s ever-bigger Ineptitude Rewards Programs. But, as I wrote a couple of months ago – and a professor echoes in the article about the Supt’s request — public schools are, essentially, constantly being bailed out. They live off of government money, which come to think of it, might be why they seem constantly to be in trouble. Something about government control just always seems to end badly.
I’ll Tell You What’s Tedious
Jonah Goldberg finds “conservative complaints about Barack Obama’s public-schools hypocrisy…all a bit tedious.” Well, aside from my not having actually seen many conservatives complaining about Obama choosing a private school for his kids while telling the rest of us to support public schools, I find arguments like Goldberg’s main one tedious. Very tedious. Like, we-should-just-keep-trying-to-force-excellence-out-of-socialism tedious.
Here’s the meat of Goldberg’s contribution to education reform:
The real issue is why the public schools are unacceptable to pretty much anyone, liberal or conservative, who has other options.
His culprit, talk about tedious:
Teachers unions, arguably the single worst mainstream institution in our country today.
Now, I’m sure not going to tell you the teachers unions aren’t a pain. They are. But they are not our root education problem in any way, shape or form. The root problem is that we have a system in which no one has a choice — that’s right, boring ol’ “choice” — about financing a government education monopoly, and there is little competition, innovation, or anything else decent as a result.
Oh, and why does Goldberg think the unions have so much power, anyway? Surely he knows that private-sector unions have been disintegrating for decades while their public-sector cousins keep going strong. That’s because no one can choose not to fund the public sector – unless, that is, they enjoy time behind bars – while industries that are disciplined by consumer choice simply can’t afford efficiency-crushing unions.
So let’s get one thing straight. School choice — especially universal school choice — is not some boring cop-out that dull folks reflexively whimper about because they’ve got nothing better to say. No, it is the essential ingredient to getting an education system that actually works, and no amount of pooh-poohing it for the sake of excitement, giggles, seeming cool, or whatever, can change that.
Is Hillary Clinton Unconstitutional?
So Hillary Clinton is “on track” to be the nation’s top diplomat, huh? Well, setting aside the wisdom of that decision — forget ideology; does she have both foreign policy expertise and a good working relationship with the President-elect? — it appears that there may be genuine constitutional problems with her expected nomination. To wit, Article I, section 6, clause 2 reads:
No Senator or Representative shall, during the Time for which he was elected, be appointed to any civil Office under the Authority of the United States, which shall have been created, or the Emoluments whereof shall have been encreased [sic] during such time…
That is, under this “Emoluments Clause,” members of Congress are expressly forbidden to take any appointed position within the government which was created or whose pay has been increased during their current term in office. Now, a January 2008 executive order, promulgated in accordance with a statute from the 1990s that addressed cost of living adjustments for certain federal officials, raised the Secretary of State’s salary, thus constitutionally prohibiting any then-serving senator who remains in office from taking charge of Foggy Bottom. (Sen. Clinton’s current term began in January 2007 and expires in January 2013.)
Not surprisingly, this is not the first time such a conflict has arisen in executive appointments and nominations and, equally not surprisingly, Congress has on several occasions legislated around it: To enable one of its own to assume executive office, Congress simply decreases the pay of that office to the pre-raise level for the full tenure of that specific appointee.
Although this legerdemain has been around since at least the Taft Administration — and was most recently used when President Clinton picked Sen. Lloyd Bentsen to be his Treasury Secretary – the move is called the “Saxbe Fix” after Sen. William Saxbe, whom President Nixon nominated for Attorney General.
The Saxbe Fix is not uncontroversial. UCLA law professor Eugene Volokh, for example, cites Steptoe and Johnson partner John O’Connor’s objection that the Saxbe Fix is inadequate for circumventing the Emoluments Clause. To O’Connor’s thinking, while simply lowering the salary — resulting in no “net” increase — does prevent the nominee from directly benefiting from a vote he or she cast, it would not substantively address the Framers’ intent to limit the size and scope of the federal government. That is, if, contrary to the Emoluments Clause’s terms, Congress can restore its Members’ eligibility for appointment by reducing the office’s salary, the Emoluments Clause ceases to serve its function as providing a constitutional disincentive for regular increases in the salaries of federal offices.
One could also argue that in this specific case, Congress did not act to increase anybody’s salary; it was that long-ago Congress that even gave that option to the president — and only in the form of an aross-the-board COLA, not some shady or opportunistic self-dealing. But, of course, if we are to follow the text of the Constitution, there is no exception for offices “the Emoluments whereof shall have been encreased” by a non-shady COLA granted via statutorily-enabled executive order.
Whether anyone could challenge Hillary Clinton’s appointment in the courts is another matter. Perhaps someone denied a passport, or who has had some other adverse action done to them by a Clinton-led State Department, would have standing to sue. In any event, in this time of constitutionally questionable bailouts, it cannot hurt to be vigilant even about the most obscure text from our nation’s governing document.
Much more on this issue can be found in Eugene’s fascinating post here.
Filed under: General; Government and Politics; Law and Civil Liberties
There’s No Change Here
He’s still months away from officially becoming president, but on education Barack Obama is already indicating that his brand of change is much more about high-flying rhetoric than sober reality. Whether it’s choosing a private school for his kids, or promising to expend billions to “modernize” public schools, so far Mr. Obama is turning out to be just as politicized as everyone else in Washington.
Start with Obama’s choice of the Sidwell Friends School for his kids, which was sneakily announced around 5:00 pm on Friday — perfect timing to ensure the decision got as little press as possible (not that the press was going to be tough, anyway). There is nothing wrong with the president-elect selecting the best possible school for his kids — indeed, doing so is his obligation as a parent — but as documented by Andrew Coulson, the hypocrisy is glaring for those who choose to see it.
“We need to focus on fixing and improving our public schools; not throwing our hands up and walking away from them,” Mr. Obama declared to the American Federation of Teachers this summer. But, of course, by “we” he meant “you,” just like all those folks in Congress mean when they send their kids to private institutions while opposing school choice and singing the praises of saintly public schools.
But perhaps even more aggravating than President-elect Obama’s eschewing public schools for his daughters — again, it is his responsibility to get them the best education he can — is his proposal to include presumptive billions (I’ve not yet seen an itemized breakdown of proposed spending) on public-school construction as part of his ever-growing economic stimulus plan.
As I testified to Congress earlier this year, heap all the federal cash you want on school construction, you’re neither going to fix most of the true problems nor get any kind of value for taxpayers. Indeed, in 1999 the National Center for Education Statistics estimated that it would take about $127 billion to get all U.S. public school facilities into good shape. According to School Planning and Management magazine, however, since 2000 school districts have completed projects totaling more than $166 billion. So why is our schooling infrastructure still crumbling? Because many districts build absurd School-Mahals featuring extravagances ranging from television studios to planetariums, while others are so bogged down in red tape they can’t get anything done.
Of course, as is far too often the case, it probably doesn’t really matter to Obama or others in Washington that money on school construction is almost sure to be wasted. The primary motivation behind Obama’s proposal isn’t educational, but political, with any project backed with federal money almost certain to carry union prevailing-wage requirements — a nice little hors d’oeuvres before the card check main course — and the appearance of caring and “doing something” is most important, anyway.
For a “change” administration still months away from official existence, this does not bode well at all.
Scrap E-Verify
The 111th Congress and the new Obama administration should scrap “E-Verify.” The federal government’s inchoate immigration background check system is the culmination of 20 years’ failure to create a tolerable “internal enforcement” program for U.S. immigration law. Rather than building on past failure, the new Congress and president should pull the plug on E-Verify and reform immigration law so that it aligns with the nation’s economic need for labor.
More here.
Filed under: Telecom, Internet & Information Policy; Trade and Immigration
The Broad-Mindedness of Richard Holbrooke
Lots of scuttlebutt today involving the name “Richard Holbrooke.” An emblem of the Democratic Party foreign policy establishment, Holbrooke is revered by some for his ruthlessness and ability to crack heads. A dedicated global interventionist, Holbrooke is high on the list of “people antiwar Democrats don’t want involved in an Obama administration.” In addition to ruthlessness, let’s take a walk down memory lane and attempt to determine how well Holbrooke would fit in an Obama administration that is supposed by many to be broad minded and determined to evaluate all arguments on a policy before leaping in. Here’s Holbrooke in 1994 chairing a meeting with mid-level officials to discuss NATO expansion:
Without having spoken to [Anthony] Lake or to the president, Holbrooke told the interagency group that there was a presidential policy to enlarge NATO that needed implementation. Holbrooke also made clear that [Warren] Christopher had asked him to set up and run the mechanism to expand NATO.
The new assistant secretary of state had a reputation for abrasiveness, and at this meeting, he demonstrated why. General [Wesley] Clark has recalled:
[Joseph] Kruzel spoke first, since he was the policy guy, and said, “Why is this the policy? It’s supposed to be an interagency process.” Holbrooke crushed him like a bug. He said, “It is policy.” Ash Carter walked out of the room. Then, as the meeting was about to conclude, I said, “I don’t know that a decision has been made.” Holbrooke said, “Anyone questioning this is disloyal to the country and to the president.” My ears turned bright red…and I demanded that he take it back. The room stopped. I got ready to leave. Holbrooke took it back.
That’s from James Goldgeier, Not Whether But When, pp. 73-74. So here you have it. Pursuing disastrous policies while impugning the motives of career military officials and labeling them anti-American if they have the temerity to object? Check. As compared to the tactics of the Bush administration, that’s not exactly “change,” but I sure can believe it.
Filed under: Foreign Policy and National Security; Government and Politics
The Left Embraces the Shock Doctrine
Last week Rahm Emanuel said to a prestigious audience, “You never want a serious crisis to go to waste. It’s an opportunity to do things you could not do before.”
And that’s just the strategy that bestselling author Naomi Klein accuses right-wingers of employing. Weaving a convoluted yet superficially simple tale of world events, she claims in her book The Shock Doctrine that right-wing ideologues and governments both use and create moments of crisis to implement their nefarious agenda.
“Some people stockpile canned goods and water in preparation for major disasters,” Klein writes. “Friedmanites stockpile free-market ideas.” Which is exactly what American left-liberals have been doing in anticipation of a Democratic administration coming to power at a time when the public might be frightened into accepting more government than it normally would. The Center for American Progress, for instance, run by John Podesta, who was President Bill Clinton’s chief of staff and is now President-elect Obama’s transition director, has just released Change for America: A Progressive Blueprint for the 44th President.
The ideas in that report mesh well with the opportunities that Emanuel identified. After re-emphasizing the opportunities that crisis provides, he told his audience that the Obama administration wanted to use the opportunity to implement central planning of health care and energy, higher taxes, a federal program directed at “training the workforce,” and tighter control of financial institutions and capital flows.
But Emanuel isn’t the only one. As I mentioned previously, Paul Krugman has also endorsed the “don’t let a good crisis go to waste” power grab.
And now Arianna Huffington, the founder of the left-wing bulletin board HuffingtonPost, makes the same point in a public radio appearance. On KCRW’s “Left, Right, and Center,” November 21 (at about 27:20 in the podcast), she declared: “A crisis is a terrible thing to waste. And it might be this particular crisis that will make it possible for the Obama administration to do some really innovative, bold things on health care, on energy independence, on all the areas that have been neglected.” (Hat tip: Thaddeus Russell.) Last year Huffington wrote a rave review of The Shock Doctrine, calling it “prophetic.” So it seems.
So . . . Emanuel. Krugman. Huffington. They’re all rallying around the theme that, well, that a left-liberal government should use this crisis to implement a more sweeping agenda than it could achieve in the absence of crisis. That’s the Shock Doctrine. Where are Naomi Klein and her legion of fans to expose and denounce it?
Of course, Klein might well decry their corporatist, big government/big business plans as just another example of Friedmanite/neoconservative/Pinochetist right-wing ideology. Anything other than local worker’s collectives smells like capitalism to her. So she can add the Obama administration to Milton Friedman, laissez-faire, the Bush administration, the Iraqi government, the Pinochet government, the Chinese Communist Party, and the ANC government of South Africa on the list of things that seem so many peas in a pod to her.
The San Francisco Chronicle says that Klein “may well have revealed the master narrative of our time.” The reviewer may have been more right than he knew.
Filed under: Finance, Banking & Monetary Policy; General; Government and Politics; Political Philosophy
Was There a Realignment?
Pollsters debate whether the 2008 election is a fundamental realignment of American politics, with liberals and Democrats now in the driver’s seat. But some ask, how can it be a realignment when the largest public opinion poll, the election-day exit poll, found liberals still a small minority of voters?
Twenty-two percent of those polled identified themselves as “liberal,” 34 percent as “conservative,” 44 percent as “moderate.”
One reason, not discussed in this article, is that liberal-moderate-conservative is a crude and one-dimensional view of the political spectrum. At the very least we should recognize that holding fiscally conservative views doesn’t necessarily make you a social conservative, and being a social conservative doesn’t make you a free-marketer. So when you add just one more dimension to create a matrix, you can get two new categories, whom we might call “populist” (socially conservative and pro-government activism, like Lou Dobbs and Mike Huckabee) and “libertarian” (fiscally conservative and culturally liberal).
In 2006, after another election that involved a sharp shift to the Democrats, Cato asked Zogby to poll voters on their political views. We asked half the respondents, “Would you describe yourself as fiscally conservative and socially liberal?” We were quite surprised that fully 59 percent said yes. And when we asked the other half of the sample, “Would you describe yourself as fiscally conservative and socially liberal, also known as libertarian?” we knew the number would go down. But it only went down to 44 percent. So 44 percent of American voters are willing to label themselves as “libertarian” if it’s defined as “fiscally conservative and socially liberal.”
Which is one reason that Democrats were able to roll up a big victory with an electorate that described itself as 78 percent conservative or moderate. Pollsters should ask more creative questions to get more revealing information about just where the electorate is and just what electoral changes mean.
Filed under: General; Government and Politics; Political Philosophy
Reply to Tax Policy Center on Corporate Tax Rates and Revenue
Len Burman, director of the Urban-Brookings Tax Policy Center, suggests I was “careless” in a recent Wall Street Journal article when I said, “the Tax Policy Center (TPC) estimate of corporate rate cuts . . . is also nonsense because it’s entirely static. The estimate assumes raising or lowering corporate tax rates has no effect on corporate decisions about where to locate production, income or costs, and no effect on the economy’s performance.”
Burman says, “That is simply untrue (as we would have told Mr. Reynolds had he asked). If corporate tax rates were 10 percentage points below the top ordinary income tax rate, there would indeed be increased reporting of corporate income. But individual income tax revenues would fall too, quite possibly by more than the pickup in corporate revenues. . . . Investors would have had a huge incentive to channel their income through closely-held corporations instead of reporting it on their individual tax returns. Many S-corporations and partnerships, which are taxed at individual rates, would have chosen to be taxed as C-corporations at a lower rate. . . .I know the Wall Street Journal editorial page tries not to let facts get in the way of its tax-cut narrative, but those facts do matter.”
Was it “simply untrue” for me to say the Tax Policy Center’s corporate income tax estimates are static? The footnote to their Table T08-0167 about “Senator John McCain’s Tax Proposals” could not be more clear: “Corporate income tax estimates are static (they do not include a behavioral response). Official estimates from the Joint Committee on Taxation would likely differ.”
Burman attempts to justify static revenue estimates by asserting that “quite possibly” there is no behavioral response to corporate tax rates, aside from shifting business income to and from the individual tax system. But that just proves he is assuming, as I correctly said, that lowering corporate tax rates wold have literally “no effect on corporate decisions about where to locate production, income or costs, and no effect on the economy’s performance.” If that static assumption made any sense, then doubling corporate tax rates would double revenues (though more of the loot would show up on individual tax returns). That is certainly not what the economic literature suggests. Many countries in which income switching is impossible or trivial have cut their corporate tax rates to 25% or less with no loss in revenue as a share of GDP.
Trying justify static estimates on the basis of undocumented conjectures about the scale income shifting looks like an ad hoc rationalization. Guessing what might “quite possibly” be true has nothing to do with “facts.” It amounts to abandoning economic theory and evidence in favor of a dubious hunch.
Under both the Obama and McCain plans the corporate tax rate would be 5-7 points below the individual tax through 2013. Yet the Tax Policy Center mentions income shifting only in connection with the McCain plan. If bias does not explain that, what does?
If income switching was as huge as Burman speculates, then the Tax Policy Center’s estimates of individual tax revenues from the Obama plan (which include a very modest behavioral response) are much too large, though corporate receipts would be somewhat higher. In fact, that is exactly what I estimated in the 60-page paper cited in the byline to my op ed, which is mainly an empirical critique of Tax Policy Center methodology. I estimate that corporate income tax receipts under the Obama plan would be larger than the Tax Policy Center expects (because they ignored income shifting in Obama’s case). But I also found their estimates of added receipts from higher tax rates on individual income, capital gains and dividends to be unbelievably rosy.
Filed under: General; Government and Politics; Tax and Budget Policy
Obama’s Shock Doctrine
Paging Naomi Klein. In her book The Shock Doctrine, the left-wing polemicist claimed that right-wing governments — which she defined very broadly — take advantage of crises, or “shocks,” to implement their dastardly policies of free trade, privatization, and tax cuts. Well, one government has now announced its intention to take advantage of an economic crisis to implement “things you could not do before.” And since this government no doubt includes a lot of people who have read Naomi Klein, she may very well be able to take credit for giving them the idea.
According to the Wall Street Journal, President-elect Obama’s first and most central appointee is excited at the opportunities presented by the current economic shock:
Obama Chief of Staff Rahm Emanuel, speaking to a Wall Street Journal conclave of business leaders Tuesday, said the economic crisis facing the country is “an opportunity to do things you could not do before.”
“You never want a serious crisis to go to waste,” Mr. Emanuel said.
“You never want a serious crisis to go to waste.” Klein’s fans would be all over that if a Republican had said it. Instead, Paul Krugman praises that very line. Maybe he’s learned a few things from Naomi Klein, too.
In Crisis and Leviathan, Robert Higgs demonstrated that government growth in the United States has not been slow and steady, year in and year out. Rather, its scope and power tend to shoot up during wars and economic crises. Occasionally, around the world, there have been instances where a crisis led to free-market reforms. Generally, though, governments seek to expand their power, and they take advantage of crises to do so. But they rarely spell their intentions out as clearly as Rahm Emanuel did.
See Klein’s thesis skewered by Johan Norberg here and here, and by Jonathan Chait here.
The Obamas Walk Away from Public Schools
A few months ago, Barack Obama told a gathering of the American Federation of Teachers that he opposes private school choice programs, adding: “We need to focus on fixing and improving our public schools; not throwing our hands up and walking away from them.”
It’s not clear whether or not the president-elect will be able to fix our public schools, and I don’t know if he’s thrown up his hands, but he and his two daughters have just walked away from the public schools. Again. When they move from Chicago to D.C., Malia and Sasha Obama will be moving from the prestigious private Lab School to the prestigious private Sidwell Friends school — Chelsea Clinton’s old stomping ground.
Not that there’s anything wrong with that. In fact, it’s wonderful that the Obamas had such a broad range of public and private school choices available to them. What’s puzzling is that the president-elect opposes programs that would bring that same easy choice of schools within reach of families who lack his personal wealth. By his actions, Senator Obama is demonstrating that he is not willing to wait for his own policy prescriptions to “fix and improve” public schools, but he expects folks with less ample bank accounts to patiently await his hoped-for change.
And while many reports will no doubt trumpet the $25,000+ tuition at Sidwell Friends, implying that this is extravagantly beyond what is spent in D.C. public schools, they will be mistaken. As I wrote in the Washington Post and on this blog, D.C. public schools also spent about $25,000 per child in the 2007-08 school year.
It’s not that president-elect Obama is against spending a lot of money on other people’s kids — he’s just against letting their parents choose where that money is spent.
Not Just a Program with Problems, a Program with Constitutional Problems
Recent reporting on the weakness of behavioral profiling in airports has overlooked a key dimension of the problem with it.
According to this story in USA Today, interviewing or patting down 160,000 people with (unreported) indicia of suspicion at airports has resulted in 1,266 arrests. It has failed to find wrongdoing 99.3% of the time. Occasionally, investigations based on behavioral profiling have turned up such things as drug possession and the use of fake identification.
Behavioral profiling has never turned up someone planning harm to aviation security. It has never turned up a person with weapons, guns, bombs, or any other implement that would cause a flight to be delayed, much less brought down.
A 0.7% success rate in finding crime is not relevant. Behavioral profiling has a 0% success rate in finding threats to aviation. Behavioral profiling does not have a proximate relationship to securing against harm coming to commercial aviation.
The Fourth Amendment requires searches and seizures to be reasonable. Courts give law enforcement considerable leeway and often use the stamp “experienced officer” to grant the police broad authority to follow hunches. What we have here, though, is a basis for suspicion that has a 100% failure rate. It never finds what it is looking for.
Filed under: Foreign Policy and National Security; General; Law and Civil Liberties
Observations about the Auto Bailout
Things went badly for Detroit’s automakers in Washington this week. What was to be a decisive lobbying blitz planned months in advance proved reminiscent of GM’s efforts to market the Chevy Nova in Latin America. Both were all show, no va!
The arguments against a bailout under any circumstances are well-established. A lot has been said and written lately, including this new piece, about the improprieties of so-called bailouts, generally, and in this case, specifically. Basically, we need a shakeout, not a bailout. What we’re witnessing is a shakedown.
Rather than emphasize those arguments here, there is a lot of subtext to this auto bailout frenzy. The subtext hasn’t received much attention, but is fascinating enough (to me at least) to write about.
Even before CorporateJetGate forced Democratic leaders Nancy Pelosi and Harry Reid to bid the CEOs an abrupt and scathing adieu, support for Detroit’s case to raid the Treasury was melting away. But there wasn’t that much of a partisan divide over the issue. In fact, early October’s limited government, fiscal conservative darling, Rep. Thaddeus McCotter (R-MI), who gave one of the most compelling, moving, forceful, principled floor-speeches I’ve ever seen on the House floor in opposition to the financial bailout, is this month’s political hack. Apparently, his principled opposition to bailing out the “very people who caused this problem” doesn’t extend across state lines into Michigan. What a bitter disappointment he turns out to be.
The failure to garner enough support for a bailout bill was mostly the result of intra-party squabbling between factions within the Democratic Party — the Greens and the Laborites. The Greens view Detroit as carbon-belching heathens who must be brought to their knees before the almighty Sierra, Goddess of Flora and Fauna. The Laborites view the Greens as the Palinistas view those big shots who go to college to learn and stuff.
A Wall Street Journal editorial today picks up on this theme, which colors the battle between Henry Waxman (of the ascendant Greens) and John Dingell (of the declining Laborites) for Dingell’s long-held seat as top Democratic on the House Energy and Commerce Committee. Much of the same cultural and class animus that popularly defined the Red State-Blue State divide is very much evident within the Democratic Party itself and could mean that we have some form of divided government after all.
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