Archive for January, 2009
Only the Little People Pay Taxes
Tom Daschle has joined Timothy Geithner in the not-so-exclusive club of Obama Cabinet appointees who evaded tens of thousands of dollars in federal taxes until they were vetted for their Cabinet nominations.
It’s too bad Leona Helmsley can’t be nominated as Commerce Secretary.
I sympathize with anybody trying to hold down his tax bill. Government is too big and too expensive, few of us feel we get our money’s worth from our taxes, and we all have better uses for our money than bridges to nowhere and free condoms. But honestly, shouldn’t people who want to increase taxes on the rest of us — like Daschle, Geithner, Eleanor Holmes Norton, Chairman Charles Rangel, Al Franken, Governor David Paterson’s top aide, Democratic National Convention staffers, Al Sharpton, and so on — pay their own taxes?
Coordinated Care: An Exchange with Greg Scandlen
Last month, Cato released a paper titled, “Does the Doctor Need a Boss?“ Our friend Greg Scandlen called it “one of the most offensive papers I’ve ever read.” Scandlen is one of the leading lights of the consumer-directed health care movement. He is a senior fellow at the Heartland Institute, founder and director of Consumers for Health Care Choices, a former Cato health policy scholar, and has written for health policy journals such as Health Services Research and Health Affairs. I invited Scandlen to exchange thoughts on the issues raised. Here I set up the issues and offer my first response.
In “Does the Doctor Need a Boss?“, Arnold Kling and I argue that “the traditional model of medical delivery, in which the doctor is trained, respected, and compensated as an independent craftsman, is anachronistic” given the growing complexities of medical care:
Patients with multiple diagnoses require someone who can organize the efforts of multiple medical professionals. It is not unreasonable to imagine that delivering health care effectively, particularly for complex patients, could require a corporate model of organization.
Kling discusses our paper in a recent podcast.
Scandlen disagrees. In the latest issue of his Consumer Power Report newsletter, Scandlen addresses our paper under the title, “Cato Goes Off Track.” Here are Scandlen’s comments in full:
Boy, I hate it when this happens.
Two gentlemen I admire have published one of the most offensive papers I’ve ever read. Arnold Kling and Michael Cannon just released a paper, “Does the Doctor Need a Boss?” in which they conclude that independent physicians may be okay for treating simple things, but when it comes to anything complicated they ought to be working for a corporation. YIKES!
Big Business and the Stimulus
I was asked by a radio host more than once this week what I thought of the fact that some big business leaders were standing by President Obama in his pursuit of the gargantuan “stimulus” package. There is an unfortunate public perception that supporters of free markets are knee-jerk supporters of anything that could be perceived as benefiting “big business.” As the thinking apparently goes, because free marketers favor business, and members of the business community favor the stimulus, shouldn’t free marketers therefore favor the stimulus?
Hardly. In his book, The Myth of the Robber Barons, historian Burton Folsom differentiates between market entrepreneurs and political entrepreneurs:
A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.
This afternoon I was forwarded an article regarding IBM chairman and CEO Sam Palmisano’s public endorsement of the “stimulus” package alongside President Obama. According to Palmisano, “We need to reignite growth in our country. We need to undertake projects that actually will create jobs.”
But as the reporter noted:
Since November, Palmisano has been making a pitch to Obama’s transition team that investing $30 billion in expanding rural broadband access, computerizing health-care records and improving the electrical grid could create 949,000 U.S. jobs. [ The stimulus package] could also create billions in revenue for Big Blue, which specializes in the technology and services used for health-care IT and smart-grid infrastructure, not to mention its recent $9.6 million contract to provide broadband service in rural America.
What we see here is IBM as the political entrepreneur.
While IBM would stand to make a killing on the “stimulus,” those companies unlucky enough to be left off the government gravy train, the market entrepreneurs, will get stuck partially financing the profligacy. According to Chris Edwards, “The U.S. statutory [corporate income tax] rate is the second highest of the 30 nations in the Organization for Economic Cooperation and Development, and by one estimate, the effective rate is the highest.” Of course, corporate taxes mean bad news for consumers, employees, and investors — not just the corporate owners, as many forget (or ignore).
A New Tone toward the Muslim World
After his first major interview with an Arab TV network, it is clear President Obama is striking a decidedly different tone in talking about terrorism. In today’s Cato Daily Podcast, legal policy analyst David H. Rittgers discusses the new direction Obama will take in the fight against terrorism.
“This is a serious departure from some of the message that the Bush Administration put forth,” says Rittgers, who served three tours of duty in Afghanistan as an officer in the Army. “Using ‘you are with us or against us’ is appropriate in certain circumstances, but as a blanket approach that is not the message we need to be sending.”
Susette Kelo Tells Her Story
No U.S. Supreme Court decision in the modern era has been so quickly and widely reviled as the infamous Kelo decision, in which the Court ruled that the government could take Susette Kelo’s house in New London, Conn., and the homes of her neighbors, and give the property to a private developer. The courts justified the ruling by saying the new use for her property could generate more taxes and jobs.
Kelo told her story at the Cato Institute on Monday.
For more on Kelo’s story, read Little Pink House: A True Story of Defiance and Courage, by Jeff Benedict.
35 Million Still Not Hungry
Once a grim statistic gets some play in the media, it keeps getting repeated even if it is completely erroneous.
On the Washington Post front page Saturday: “In soup kitchens, food pantries and universities across the country, activists are planting the seeds for an overhaul of the way America feeds its more than 35 million hungry people….”
Doesn’t 35 million seem kinda high to you? It did to me, and so I looked up the official data. As I noted in prior blog posts (and here), the the actual number of Americans going hungry is about 11 million, according to U.S. Department of Agriculture data.
Reporters seem to grab data from past stories, or get data from lobby groups, without going to the original government sources to check the accuracy. Hunger is a serious problem in America, but so is sloppy and biased newspaper reporting.
Pat Lang on Israel/Palestine
National Journal’s Sydney Freedberg asks a group of distinguished foreign policy types, “Is the two-state solution dead?” Pat Lang offers some sensible remarks:
It is expected ritual to say that the Palestinians and Israelis want peace. What is never specified as part of that incantation is the description of just what sort of peace each group wants. Here it is… What they still want (on both sides) is to win in the contest for that sad, beautiful, stony little strip of land and for their own group to live in peace and possession of the country.
There is no external power preventing the sides from making peace. If the Israelis and Palestinians wanted peace more than they want to win, they would make peace. They do not make peace because there is not enough good will toward the “other” among them to allow peace to exist. No. I no longer really believe that the inhabitants of Israel/Palestine want peace for other than their own side in the bloody mess that has persisted there throughout their lives.
Someone has said on this blog that the United States lacks the ability to “make peace” between these two peoples. That is profoundly true. It is part of our national illusion that we Americans think of the rest of the world as though we are the guardians of distant, unruly and childish folk who act in strange, inexplicable and unreasonable ways. We tend to believe that their quarrels are errors in information or simply bad behavior of the kind seen in school yards. This mistake on our part is persistent….
Then, however, I’d humbly submit that Lang goes astray in arguing that while neither side appears ready to make the sacrifices required for a workable peace deal, the problem will ultimately “require an external formulation of a peace settlement when they ARE ready.”
Why am I skeptical? Because, as Lang admits, what would be required for this to work is “a consensus of the interested parties across the Middle Eastern, Islamic and Western regions, a consensus that does not shrink from domestic political pressure, that does not fear to apply the inherent leverage provided by huge annual budgetary contributions to both sides and that values human life and happiness more than it does momentary advantage.” If both sides were ready for peace, why would pulling budgetary levers be required? Alternatively, it seems terribly unlikely that pulling budgetary levers could make either side amenable enough to genuine concessions to make peace work. And aside from the extreme unlikelihood of the blessed convergence described above happening in our lifetimes, I’m reminded of George Kennan’s concern in the 1970s about the responsibilities that come with imposing a settlement:
GDP Is Down 1% — Not 3.8%
The preliminary GDP estimate for the fourth quarter of 2008 is $11,599.4 billion (in 2000 dollars). That was 0.965% smaller than the third quarter — a figure commonly multiplied by four to convert it into a more dramatic 3.8% annual rate. But these quarterly rates are highly erratic, even in recessions, so converting them into compound annual rates is misleading if not foolhardy.
The table below compares recent quarterly GDP figures with those of 2000-2001.
The first quarter of 2001 and second quarter of 2008 look no worse than the third quarter of 2000. The second quarter of 2008 was stronger than the fourth quarter of 2000. Yet the entire years of 2001 and 2008 are labeled recessionary and 2000 is not.
Percentage Changes in Real GDP
| Quarterly | Annualized | ||
| 2000 | III | -0.115 | -0.5% |
| 2000 | IV | 0.52 | 2.1% |
| 2001 | I | -0.123 | -0.5% |
| 2001 | II | 0.307 | 1.2% |
| 2001 | III | -0.352 | -1.4% |
| 2001 | IV | 0.395 | 1.6% |
| 2008 | II | 0.699 | 2.8% |
| 2008 | III | -0.127 | -0.5% |
| 2008 | IV | -0.965 | -3.8% |
Looking at any extended period, such as the 2000-2001 figures or the 2008 figures, shows why annualized quarterly changes are a very poor guide to future trends. It makes no more sense to use this figure to suggest the economy will keep falling at a 3.8% rate than it would have been to cite the second quarter figure as evidence the economy would keep rising at a 2.8% rate.
The annualized fall in GDP in the first quarter of 1982 was 6.4%, yet the overall drop between the peak and trough quarters of that deep recession was only 2.3%. The annualized drop in first quarter of 1975 was 4.7%, yet that overall cyclical decline was 3.1%.
Obama’s First Broken Campaign Promise
Over on the Tech Liberation Front blog, I’ve been following the Obama administration’s early steps on transparency, a subject we dove into at a December Cato policy forum called “Just Give Us the Data!”
President Obama committed to make his administration “the most open and transparent in history.” Boilerplate promises like this often go into campaigns and electioneering. But as a senator, Obama was a leading proponent of the Federal Funding Accountability and Transparency Act, which created USASpending.gov. Unlike typical politicians promising the most ethical [whatever-they're-running-for] in history, President Obama and his staff know what transparency is and how to deliver it.
Breaking from the pack, who were (rightly) appreciative of early presidential memoranda calling for new guidelines governing the Freedom of Information Act and an Open Government Directive, I noted the absence of concrete action on the part of the White House itself.
The new administration did not port over the transition’s excellent “Seat at the Table” program, in which documents submitted to the transition team were posted online and subjected to public comment. That failure I called “The Transparency Dog that Didn’t Bark.”
The economic stimulus bill contains a helpful, if imperfect, requirement for disclosure of stimulus spending on a site called Recovery.gov — perhaps the most-visited non-existent Web site in history.
The White House is not walking the talk on transparency, and yesterday the president violated a campaign promise on transparency. Instead of posting bills sent to him by Congress for five days and taking public comment, President Obama signed non-emergency legislation the day after receiving it. PolitiFact.com rated this as President Obama’s first broken campaign promise.
The president’s good intentions are not in doubt, but nobody ever said delivering on transparency was going to be easy. So far, he seems to be having a rough time of it. The Obama administration can still deliver revolutionary change in the transparency area, but it has to actually work at it and take concrete steps.
Schools Have Plenty of Money!
How many times do we have to repeat that the United States spends more per elementary and secondary student than almost any other industrialized nation before our political leaders stop talking like our schools get by on pennies a day? And how often do we have to point to state spending to show that, annual cries of the sky falling notwithstanding, expenditures have been on a very long, inflation-adjusted upward trend?
Judging by this tired fare from new U.S. secretary of education Arne Duncan, and this standard story of rage from California, a lot more. So here you go:
Check out the OECD data here (table B1.1a)…
…see the figures for state spending here…
…and reporters who cover incessant assertions of financial misery from educators, please check out the contact info for Cato’s media department here.
Operators are standing by.
Week in Review
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Cato Leads Opposition to Fiscal Stimulus
In reaction to statements from Obama administration officials who say “all economists agree” that the only way to fight the economic recession is to go on a massive government spending spree, the Cato Institute took out a full page ad in the nation’s largest newspapers that showed that those words were not true. Signed by more than 200 economists, including Nobel laureates and other highly respected scholars, the statement was published this week in The New York Times, The Washington Post and many other publications.
On the day the ad ran in The New York Times, Cato executive vice president David Boaz added more names to the list of economists who are skeptical of the spending bill.
Commenting on the principles behind the stimulus, Cato adjunct scholar Lawrence H. White and fellow economist David C. Rose discuss why we can’t spend our way out of this mess:
You can’t solve an excessive spending problem by spending more. We are making the crisis worse.
In The Wall Street Journal, Cato senior fellow Alan Reynolds examines the numbers and discovers that each government job created will cost taxpayers a staggering $646,214 per hire.
Burden of Stimulus and Debt
Politico noted that those opposing the stimulus plan:
…say that borrowing more money to finance a stimulus package will pass a crushing and possibly permanent debt load on to the next generation. “The question is,” says Chris Edwards, the director of tax policy studies at Cato, “is this morally proper?” Edwards says no. “Policymakers are saying: ‘Screw the future generations.’”
Some people are skeptical of such statements, asking how government debt can impose a cost on future generations — after all, don’t we “owe it to ourselves?”
There is an economics answer to this, but you can also consider the basic libertarian theme of voluntarism vs. coercion.
Suppose there are three groups in society: beneficiaries of government programs, taxpayers, and creditors. Now suppose that in year one the government borrows $800 billion for a spending plan, which must be paid back in year two.
In year one, government beneficiaries are better off, taxpayers are not affected, and creditors are better off because they entered a voluntary financial exchange with the government. Since voluntary exchanges are mutually beneficial, nobody is worse off in year one.
The burden of deficit spending must be moved elsewhere — to year two. In year two, government beneficiaries are not affected and creditors receive their repayment. But taxpayers are hit with a bill for $800 billion plus interest, and this is no voluntary exchange. This is an $800 billion extraction with the full coercive power of the government coming into play.
Deficit spending pushes burdens into the future because it delays the use of coercive power. And unfortunately, there is a growing amount of federal coercion awaiting the next generation of young Americans, given that federal public debt is $7.2 trillion and rapidly rising.
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