Archive for June, 2010
Ninja Bureaucrats on the Loose
Quinn Hillyer has an excellent piece at the Washington Times highlighting the simultaneously farcical and frightening use of armed agents in enforcing suspected regulatory violations.
”The government,” wrote 50-year-old Denise Simon, “is too big to fight.” With those words, in a note to her 17-year-old son, Adam, she explained why she was committing suicide (via carbon monoxide) three days after 10 visibly armed IRS agents in bulletproof vests had stormed her home on Nov. 6, 2007, in search of evidence of tax evasion. Her 10-year-old daughter, Rachel, was there with Simon when the agents stormed in.
“I cannot live in terror of being accused of things I did not do,” she wrote to Adam. To the rest of the world, in a separate suicide note, she wrote: “I am currently a danger to my children. I am bringing armed officers into their home. I am compelled to distance myself from them for their safety.”
The IRS is not the lone culprit. The EPA, National Park Service, Small Business Administration and even the Railroad Retirement Board have acquired a taste for tactical enforcement of administrative sanctions.
Read the whole thing. And when you’re done, check out Tim Lynch’s book on the proper role of the criminal law, Radley Balko’s work on the unwarranted expansion of SWAT teams within American law enforcement, and the Heritage Foundation’s report on the uncontrolled growth of the federal criminal code.
Explaining Free Trade and Convincing Its Critics
Further to Tom Palmer’s illuminating post entitled “How to Explain Free Trade in Less Than Three Minutes,” let me add that, occasionally, skeptical professors, teachers, and our favorite protectionists muster up retorts to our sensible arguments. And sometimes further elaboration and exposition are necessary before we can convincingly dispense with those objections.
For those occasions, you will be happy to have been acquainted with the work of the Cato Institute’s Center for Trade Policy Studies, which has been producing arrows for free trade quivers for 12 years. Given the persistence of myths that feed trade’s skeptics, eradication of protectionism requires that our arguments appeal to those who can be convinced in three minutes, as well as those who may be more stubborn.
A Soda Tax Completely, Utterly, and Totally Unrelated to Individual Choice
An interesting article in Slate today about the social psychology of “sin taxes” and how people in general resent being told what to do. They may, in fact, react by consuming even more of the sinning item than before the nannies intervened, just to prove a point.
Unfortunately, the point of the article seems to be how to implement sin taxes — in this case, a soda tax – without annoying people to the point where the tax is counterproductive. Something about “refram[ing]” the tax so it doesn’t tip people off as to its real purpose. The author concludes with this gem:
If we want to implement a sweetened beverage tax and maximize its effectiveness, the best approach would be to dissociate it from the larger issue of individual choice and focus on its immediate practical benefits, such as the revenue it produces. Over time, we’ll get used to it. We might even wonder why we didn’t do it sooner.
To end on a positive note, many of the comments are striking a distinctly libertarian tone.
How to Explain Free Trade in Less Than Three Minutes
The professionally ignorant (and I’m thinking here of Lou Dobbs, among others) never “get it” about trade. They think it’s some complex swindle, in which we deny ourselves “jobs,” or that it should be about being “fair” or “balanced.” They don’t see how free trade creates prosperity and peace. I was inspired by the outstanding trade economist Doug Irwin of Dartmouth to explain what goes on when people trade. The challenge was to explain international trade in under 3 minutes. So here’s the result in 2:57: The Great Prosperity Machine.
Share it with your favorite protectionist, or with professors and teachers. (There’s more information at AtlasNetwork.org/BastiatLegacy.)
Political Economy in Three Panels
Indeed, every improved product or service may make us no longer value products and services we previously used. That’s what Schumpeter called “creative destruction.” A longer version of the same phenomenon was on the front page of Monday’s Wall Street Journal, in an article about how Wal-Mart’s rivals secretly fund “grassroots local campaigns” against Wal-Mart, organized by political consulting firms, to protect the existing firms’ positions. Every innovator puts somebody out of business, as Agnes’s friend recognizes.
Ruth Richardson: The Queen of Fiscal Squeezes
In my posting of June 3, 2010, “Prof Krugman Is Wrong, Again,” I argued and presented evidence to indicate that Prof. Krugman and other fiscalists, who peddle the idea that more government spending is the economic elixir for the United States, are wrong. They have latched onto an old idea — naive Keynesianism — that has congealed into a crust of dogma by endless repetition and obeisance.
When fiscal deficits and debt levels are “large” and the state of confidence is “low,” fiscal multipliers can be negative. Under these conditions, a fiscal consolidation, not a fiscal stimulus, is stimulative.
While my June 3, 2010 posting contained well-known contra-Keynesian cases, my friend Peter Redward in Singapore reminded me that I failed to include New Zealand’s 1991 budget squeeze. This leaves me a bit red-faced as another good friend, Ruth Richardson, was New Zealand’s Minister of Finance (November 1990 – 1993) and was responsible for the 1991 budget. As Ruth makes clear in her memoirs Making A Difference (Chapter 11 – The Mother of All Budgets), the purpose of New Zealand’s fiscal squeeze was to restore confidence and boost economic growth. Her squeeze worked like a charm, as Roger Kerr, Executive Director of the New Zealand Business Roundtable, recounts.
Problems with Nationalism?
I try to avoid Sunday morning talk shows like the plague, but somehow I happened to catch five minutes of Fareed Zakaria’s “GPS” show on CNN International. Elliott Abrams and Peter Beinart were arguing about the Gaza flotilla and Beinart’s New York Review of Books article about liberal Zionism.
What I found interesting about the segment was the exchange between the two men about the argument Beinart made in the article: that many young Jews saw the choice before them not as being between liberal Zionism and conservative Zionism, but rather between conservative Zionism and no Zionism. Beinart spelled out the argument, and this is what followed:
ZAKARIA: Elliott, you can briefly respond to this, and then we’ve got to go.
ABRAMS: OK. I think it’s quite historical.
What Peter is forgetting, that Jewish liberals have never supported Israel. They didn’t support the founding of the state of Israel. The reform movement was anti-Zionist for decades and decades.
Jewish liberals have a problem with particularism, nationalism, Zionism, and they always have. And it isn’t due to anything that is going on in Israel, it’s due to things that are going on inside their heads. They need to grow up and realize that Israel has a right to defend itself. (emphasis mine)
I’ve included his whole response for context, but I’m only really interested in the italicized part of the argument. Aren’t all Americans supposed to have problems with nationalism? Not our own nationalism, of course, which we have re-labeled “exceptionalism.” But foreign nationalism? Isn’t that supposed to be pernicious?
The way in which Abrams presented the argument struck me as being a normative claim, not positive. That is, “particularism, nationalism, and Zionism” were not just things that Jewish liberals have problems with, but rather they were things that Jewish liberals have problems with but should not.
Abrams’ inclusion of Zionism alongside nationalism ought perhaps to caution him about Zionism’s susceptibility to the perils that have plagued other nationalisms through history.
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Will Higher Tax Rates in 2011 Cause an Economic Collapse?
Art Laffer has a compelling column in yesterday’s Wall Street Journal, where he makes the case that future tax rate increases will cause considerable economic damage because people have an incentive to maximize income this year to take advantage of current tax rates — resulting in an artificial drop in economic activity next year. In effect, this will be a reverse version of the experiment in the early 1980s, when entrepreneurs and investors had an incentive to postpone economic activity since Reagan’s tax rate reductions were phased in over several years. I am reluctant to endorse Art’s prediction that the “economy will collapse,” since even good economists are lousy forecasters. But we certainly will see a large degree of tax planning, which will lead to less revenue than expected next year. And the higher tax rates will inhibit growth, though it is impossible to predict whether this means 2.1 percent growth instead of 2.3 percent growth, for instance, or 0.5 percent growth instead of 0.6 percent growth.
On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. …the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. …Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there’s always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere. …if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be. …In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%. But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011. …The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.
Overpaid Federal Workers
I posted an essay on federal worker pay over at downsizinggovernment.org. The essay gathers together ideas and data from my recent blogs on the topic.
As I’ve noted, the average compensation of federal civilian workers in 2008 was $120,000 a year, which strikes most people as rather high. Defenders of the current system argue that the generous pay is deserved because the federal government has a unique high-end workforce.
But consider some ordinary and mundane offices in the U.S. Department of Agriculture, which I happened to be looking at the other day:
- The USDA’s Office of Communications employs 77 people and will pay $9 million in wages and benefits this year. That works out to $117,000 each for these public relations workers, which is close to the overall federal compensation average.
- Similarly, the 62 employees of the USDA’s Office of Chief Economist will earn an average $177,000 each in wages and benefits this year, which is far higher than the federal average.
Apparently, it isn’t just rocket scientists that are earning high levels of federal compensation, it is also workers in many run-of-the-mill bureaucratic jobs.
(Data for fiscal 2010 from the appendix of the 2011 federal budget, pages 68 and 72).
The Obama Labor Market
In a recent speech on the economy at Carnegie Mellon, President Obama took great pains to remind us that he inherited an economy that was “shrinking at an alarming rate.” Of course his implication was that everything wrong with the economy today is George Bush’s fault. While Bush does deserve considerable blame for current recess, a new working paper by economists at the University of Michigan and the New York and San Francisco Federal Reserve Banks paints a picture of a recession that was on par with previous deep recessions until well into 2009, when the labor market started to deviate, for the worst, from past trends.
For instance the authors find that during the first part of the current recession, labor force participation remained high, despite increasing unemployment, yet starting in May 2009 the labor force participation rate fell at its steepest rate since the 1950s.
The authors also focus on what economists call “Okun’s Law” – which shows a relationship between GDP growth and employment. Historically Okun’s Law has shown that for every 2% GDP falls below trend, unemployment increases about 1 percent. Under the Bush half of this recession, that historical relationship continued to hold. Yet under Obama it broke down, and not in a good way.
The paper also examines the relationship between unemployment and posted job vacancies, called the “Beveridge curve” by economists. They also find that the Obama economy has been far outside of this historical relationship, so there has been growth in vacancies but little improvement in the unemployment numbers.
The paper offers a description of recent labor market trends, without being able to completely explain why current trends have been so different (and worse) than previous recessions. The authors do calculate that the extensions in unemployment insurance have likely increased unemployment by between 0.7 and 1.8 percentage points.
The real story, however, which this working paper misses, is that in the Obama economy, massive uncertainty coming from Washington and the increasingly intrusive nature of government is keeping employers from hiring, even when they are expanding output. President Obama needs to get past the blame game and start moving us back toward a country that rewards private enterprise and values free markets.
Baltimore Police Officer Fires 13 Shots, Kills Unarmed Man
An off-duty Baltimore police officer and a former Marine had a disagreement about the Marine’s advances toward the officer’s girlfriend. The officer ended it with thirteen rounds fired from his service pistol, six hitting the Marine and killing him. Baltimore police have confirmed that the Marine was unarmed. The officer refused a breathalyzer at the scene. (HT Instapundit)
It gets better. The officer was involved in another shooting five years ago, which was determined to have been justified, but the officer was disciplined… for being intoxicated.
I suspect that if your average citizen had defended his significant other’s honor with a dozen or so bullets, he would be in jail. Not so for the officer, who remains on administrative leave.
Of course, anyone recording the exchange that led to the shooting could be prosecuted for a felony under Maryland’s wiretapping law. Just ask Anthony Graber.
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