Archive for November, 2010
A Budget Plan: Don’t Buy Stuff You Cannot Afford
Some 75 new Republican members of Congress got there by promising to stop the federal government’s massive overspending. And as Chris Edwards noted, there have been a number of lists of budget cuts proposed recently.
Saturday Night Live did a sketch back in 2007 that might be useful to Tea Partiers and new members of Congress. It’s about a self-help plan called “Don’t Buy Stuff You Cannot Afford.” Since the federal government is running deficits well over a trillion dollars a year, I’d say this plan would be good advice:
Hat tip to Jonathan Witt at the Acton Institute’s PowerBlog, who points out that if this were a perfect analogy, the book author would be more agitated because “the couple has been spending the author’s money using a credit card he had idiotically loaned them a few years before.”
How President Obama Can Make His India Trip Meaningful
To make his coming visit to India meaningful, President Obama needs to combat the impression that India fares better with Republican presidents than Democratic ones, because the latter are instinctively more protectionist. In his quest for economic recovery, he has bashed US corporations that outsource jobs to places like India, forbidden companies getting government rescue funds from outsourcing work, and has now enacted higher visa fees for visiting IT professionals which seem designed to hit Indian companies quite specifically. This may be designed to win votes in the Congressional elections, but will not win hearts and minds in India. President Obama needs to state categorically that he will not follow the Great Depression formula of trying to combat unemployment with protectionism.
A better way to create US jobs will be to relax labyrinthine export licensing rules for exports of dual-technology equipment and technology (which can be used for both civilian and defense purposes). India also needs to do its bit by shedding its reputation as world champion in anti-dumping actions (206 in the five years to 2009).
What Happens When Politicians Get a New Source of Revenue?
We’ve been spending too much time on elections, so let’s get back to pointing out inane, foolish, and destructive government policies. Our latest example comes from the United Kingdom, where politicians are pushing airline ticket taxes to punitive levels and harming the tourism industry. But the real lesson from this story is that it is very dangerous to give politicians a new revenue source.
The airline ticket tax was first imposed by a (supposedly) Conservative Party government in 1994 at a maximum rate of 10 pounds. During the Blair/Brown Labor Party reign, the tax was boosted to a maximum rate of 50 pounds. Now, the new government, led by ostensible Conservative David Cameron, is pushing the maximum tax up to 75 pounds (more than $120) per ticket.
Here’s an excerpt from the story in the Telegraph.
Families are avoiding holidays in Egypt and the Caribbean because of the high cost of air taxes — even before the hike in passenger duty that comes into place on Monday.
…The duty, which is paid by all travellers on leaving Britain and added automatically to the price when a ticket is booked, is to increase by 50 per cent to some destinations. It is the second significant rise in two years, and figures show that previous hikes have already influenced people’s choice of holiday destinations.
…Bob Atkinson, travel expert at Travelsupermarket.com, said: “Families looking to book for this winter and summer next year will be faced with tax rises of up to 54 per cent on their family holidays. This tax rise is completely out of line with inflation and bears no relation to the original purpose of the tax.”
…The tax was introduced in 1994 at the rate of £10 on long-haul flights, but increased by the previous Government, which said it was a necessary “green measure”.
…The increases mean a family of four flying to the Caribbean will pay £300 in duty compared with the old rate of £200 or £160 last year. Willie Walsh, the chief executive of British Airways, has branded the higher taxes a “disaster”. Earlier this month, he called the duty a “disgrace”.
No wonder families are choosing not to travel. But, more important, imagine what American politicians will do if they ever succeed in imposing a value-added tax. The rate initially will be low (just as the original income tax had a top rate of just 7 percent), but nobody should delude themselves into thinking the rate won’t quickly climb as greedy politicians get hooked on a new form of revenue to feed their spending addictions.
Currency Wars Also Have Unintended Consequences and Collateral Damage
The Fed’s planned purchases of $600 billion of long-term Treasury bonds were targeted for domestic problems, but are having international consequences. The expansion of the Fed’s balance sheet drives down the foreign-exchange value of the U.S. dollar, and (same thing) forces other currencies to appreciate in value.
Emerging markets with high short-term interest rates will attract “hot money” flows. These flows are not stable sources of funding, and disrupt the small capital markets in these countries. Long-term, the appreciation of their currencies harms their competitiveness in global goods’ markets.
Brazil has already imposed capital controls and other emerging markets may follow. The Chinese in particular have reacted sharply. According to a Reuters dispatch, Xia Bin, adviser to China’s central bank, said another financial crisis is “inevitable.” He added that China will act in its own interests.
In short, the Fed’s actions have undone whatever good came out of the G20 meetings. Any hope for cooperation on currency values and financial stability is out the window. There are potential spillovers in other areas of global cooperation.
Currency wars, like other wars, have unintended consequences and collateral damage. Some countries will predictably react by imposing capital controls. Moves to curb imports can follow. Monetary protectionism leads to trade protectionism.
However it might like matters to be, the Fed cannot simply act domestically. It has reached the useful limits of further easing.
Wishful Thinking about ObamaCare Investigations
NPR found two Republicans who caution House Republicans that their efforts to investigate ObamaCare could “backfire.”
But all those hearings could also have the opposite effect — giving the administration a chance to make its case in favor of the law, a case that often got drowned out during the election campaign.
“The next round of this, while there will continue to be the broad sloganeering on both sides, will presumably get a little bit more into the detail,” says Martin Corry, a health care lobbyist and former official at the Department of Health and Human Services during the Bush administration. “So if you’re a family with a 22-year-old still in college, you may not want to see that provision [that lets grown children stay on their parents' health plans] repealed.”
… Former Republican Sen. Dave Durenberger of Minnesota says he thinks the Democratic-led Senate could try to dampen the House repeal efforts by holding a series of hearings of its own.
Let me see if I understand. If House Republicans hold hearings, it will be a boon to ObamaCare. Even though House and Senate Democrats stoutly refused to hold such hearings. If House Republicans hold hearings, sloganeering will give way to detail. And if House Republicans hold hearings, ObamaCare supporters will finally be able to get their message out — something they were unable to do while they controlled both chambers of Congress and the executive branch.
Bernanke’s Twist on Price Stability
While it’s been obvious for years, Bernanke showed his rationale for more easing in today’s Washington Post. He believes we are in danger of too little inflation. While common sense might imply that price stability means neither inflation nor deflation, in Bernanke’s book, anything below the Fed’s target of 2 percent is bad.
First of all, there really needs to be a public debate over the Fed’s 2% target. After all, a 2% rate of inflation over, say, 30 years erodes almost half of one’s wealth. How that can seriously be viewed as “price stability” is beyond me. While a 2% rate of inflation is not going to bring the economy to a halt, it is still a massive theft of wealth over the long haul.
Bernanke has also expressed the fear that “low and falling” inflation could lead to deflation, which would raise the real value of debt, which could lead to additional defaults. But what Bernanke doesn’t seem to get is that inflation isn’t falling. Let’s go to the data.
The graph below is simply the consumer price index (CPI) over the last year. Does it appear to be falling? Of course not. In fact, the trend is one that is rising.
Now CPI includes lots of things, some of which are temporary trends. The Fed has a nasty habit of excluding those items it doesn’t like. But let’s take a look at something that matter to the typical family: food.
Tea Party Electees Might Get Early Chance to Prove Themselves on Education
Over the last couple days I’ve been arguing that the time might be ripe to start pushing the case in Congress to get Washington out of education. Educationally, fiscally, and constitutionally it is the right thing to do, and the negatives of being smeared as “anti-education” or “anti-child” could be countered by very powerful voter sentiments against big, wasteful government.
Well, it seems new Tea Party-type Congress members might get a chance to use education to prove their bona fides very early. In his post-pummeling presser yesterday, President Obama mentioned education as one area in which he could see bipartisan accomplishments being made, and several articles today — including on Politico and in The Washington Post — suggest that education might indeed be a Kumbaya issue.
That could be right, because presumptive House Speaker John Boehner (R-OH) was a lead force behind the No Child Left Behind Act, and the Obama administration has made a lot of noise (if just the opposite in terms of concrete action) about taking on teachers unions and fighting for charter schools. In other words, there seems to be some bipartisan convergence on education, with Republicans now favorable toward federal control and Dems willing to at least talk critically about mega-potent unions. That NCLB is far passed due for reauthorization only bolsters education’s chance of being used as a fence-mender.
That said, there are a lot of obstacles in the way of this happening, with the ideological fissures among congressional Republicans likely to be one of the biggest, as well as divisions among Democrats. But if the leadership in both parties see education as a place where they can all hold hands, the time to make the unapologetic, uncompromising case for getting Washington out of our schools will definitely be upon us.
Why Some People Think NPR Exhibits Bias
Listening to NPR on the way into work, I twice heard a reporter refer to Meredith McGehee, a champion of (ahem) campaign finance reform, as a “good-government lobbyist.”
Got that? If you disagree with McGehee’s lobbying agenda — if, say, you think campaign finance reform is an unconstitutional attempt by the Left to restrict political speech that they don’t like — then you are against making government better.
But did you catch the more subtle form of bias? I maintain there is no such thing as good government. (Call it Cannon’s First Law of Politics.) And I’m not alone. ”Government, even in its best state,” wrote Thomas Paine in Common Sense, “is but a necessary evil.” Not good. Less evil than the alternative, to be sure. But still, evil. Others disagree. The reporter, like many others and probably without even realizing it, took sides in that long-standing debate too.
Post-Election Outlook: Agriculture Edition
My colleagues have done a thorough job of analyzing the policy implications of Tuesday’s federal election outcome as it affects trade policy, health care, immigration, education, and the scope and size of government generally (more here on federal spending). Most of them are cautiously optimistic that a Republican-controlled House is good news for liberty-minded folk. Let’s hope so.
Unfortunately, there are fewer obvious reasons for optimism that Tuesday’s result will mean big changes in agricultural policy, a depressingly bipartisan area of federal intervention. Even Rand Paul, the poster child for the Tea Party, expressed “moderate” views on farm subsidies during his campaign.
On the positive side of the ledger, our friends at the Environmental Working Group make the excellent point that being a friend of Big Farming was not enough to shield many Democrats from defeat. Earl Pomeroy (D, ND) represents the congressional district that ranks Number One in farm subsidy receipts (now there’s a source of pride!) and even he got the boot. As did Senator Blanche Lincoln, chairperson of the Senate Agriculture Committee and shameless architect of a bailout package for farmers that was funded we-don’t-exactly-know-how. At least 15 (possibly 16 if Rep. Jim Costa (D., CA) loses his too-close-to-call race) Dem members of the House Agriculture Committee — friends of the farmer all — are now looking for work. In other words, support for Big Ag is not a sufficient shield.
On the other hand, it’s not clear that their replacements are an improvement as far as agriculture policy is concerned. With a new farm bill due to be written in 2012 (although soon-to-be-former House Agriculture Committee chairman Collin Peterson (D., MN) was trying to get that ball rolling earlier), it is not certain that the fiscal conservatism exhibited during most Republicans’ campaigns extends to farm policy. Indeed, probable new House Agriculture Committee chairman Frank Lucas (R., OK) has said he disagrees with getting rid of the fiscally offensive (but less trade-distorting) direct payments that flow to farmers regardless of what, or even whether, they farm. That was an area of reform that Collin Peterson was at least willing to look at. (More on the implications for direct payments here).
Chuck Abbott, agriculture reporter for Reuters, has more analysis on the outlook for farm policy. His is a more optimistic take, and I hope he’s correct. For my part, my skepticism is based on statements such as those by the CEO of the Renewable Fuels Association, speaking on a conference call yesterday:
[F]or the most part those that may have been defeated were replaced with equally strong advocates for value added agriculture and ethanol. Does anyone believe that Kristy Noem (R-SD) will not be a strong voice for ethanol?
Exactly. The fight’s not over yet, folks.
All of Your Money Belongs to the State
Yesterday, the Supreme Court of the United States heard arguments in an appeal of a 9th Circuit decision, Winn v Garriott, a challenge to one of Arizona’s education tax credit programs. It’s been getting more press than I’d expected, in the New York Times, the Washington Post, and USA Today. That’s great news, because the case is far more important than just saving a program that improves education and expands educational freedom.
The 9th Circuit’s reasoning arrogates to the state all property, dissolving the distinction between public and private funds as well as public and private choices. It is a disturbing, dangerous decision.
They assert that tax cuts are the equivalent of government funds, a conclusion possible only if one assumes that all personal income belongs by default to the state rather than to the individual who earned the money. It asserts as well that when taxpayers and parents privately choose to support religious educational organizations, they are in violation of the First Amendment. This reasoning blatantly ignores the logic and plain meaning of the 2002 Zelman decision upholding school vouchers, among others.
Here is a prediction; the court will have their absurd ruling on an Arizona education tax credit program posted on the wall of judicial shame like so many others issued from their Circuit.
But I want more from the Court. This ruling is so awful that I can only pray SCOTUS rules beyond the questionable standing of the plaintiffs and comprehensively dismembers this most egregious 9th Circuit decision.
On the Moral Dimension of the Election
Today POLITICO Arena asks:
Would a staff shakeup — and potentially Cabinet — help the White House and congressional Democrats recover ahead of the 2012 elections?
My response:
The Real Job Starts Now
Tea Partiers are celebrating the biggest swing against the incumbent party in the House of Representatives since 1938.
It always feels great to win an election. But the real job for fiscal conservatives and smaller-government advocates starts now.
The usual pattern is that after the election the voters and the activists go back to their normal lives, but the organized interests redouble their efforts to influence policymakers. That’s part of concentrated benefits and diffuse costs, which we talk a lot about here. People who want something from government organize PACs, hire lobbyists, fly to Washington, make phone calls, make political contributions, take senators to dinner, and otherwise “know no rest by day or night” (in the words of economist Vilfredo Pareto) in their effort to get their hands on taxpayers’ money. Meanwhile, it’s not in the interest of any taxpayer to become informed and seek to exert influence on each particular spending bill.
Tea Partiers must change that pattern. They must keep up the pressure on Congress and state legislators. They must demand actual performance, not just promises. And they must also seek to change the attitudes of the American people. It’s not enough to favor small government in principle; more voters have to agree to give up their own subsidies and benefits. There’s some evidence that Tea Partiers know this. As Jonathan Rauch wrote recently in National Journal:
But, tea partiers say, if you think moving votes and passing bills are what they are really all about, you have not taken the full measure of their ambition. No, the real point is to change the country’s political culture, bending it back toward the self-reliant, liberty-guarding instincts of the Founders’ era. Winning key congressional seats won’t do that, nor will endorsing candidates. “If you just tell people to vote but you don’t talk about the underlying principles,” [Tea Party Patriots coordinator Jenny Beth] Martin says, “you just have to do it again and again and again, in every election.”
… One hears again, there, echoes of leftist movements. Raise consciousness. Change hearts, not just votes. Attack corruption in society, not just on Capitol Hill. In America, right-wing movements have tended to focus on taking over politics, left-wing ones on changing the culture. Like its leftist precursors, the Tea Party Patriots thinks of itself as a social movement, not a political one.
As George Washington said in his first inaugural address, “The preservation of the sacred fire of liberty, and the destiny of the Republican model of Government, are justly considered, perhaps, as deeply, as finally, staked on the experiment entrusted to the hands of the American people.” We have a chance in the next two years to demonstrate that republican government can still work rather than spiraling downward into endless debt and depression.
And of course Congress has a big job facing it, too, especially the newly Republican House. To capitalize on their victory, the Republicans must demonstrate to the voters that they’re serious — finally — about more freedom and less government. They destroyed the Reaganite Republican brand during the Bush years. And it’s harder to rebuild a brand than to destroy it. But the backlash against the Obama-Reid-Pelosi big-government agenda has given them another chance.
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