Archive for December, 2010
Will Governor Christie Pardon Brian Aitken?
Brian Aitken, a finance student at NYU and economic scholar at the Foundation of Economic Education, ran afoul of New Jersey’s draconian gun laws when he was arrested while transporting two handguns unloaded and locked in the trunk of his car.
After separating from his wife in 2008, Aitken moved from Colorado to his native home of New Jersey the end of that year, to be closer to his son.
Shortly thereafter, in January 2009, Aitken – according to one account – “became distraught, muttered something to his mother, and left his parents’ home in Mount Laurel, NJ,” after his ex-wife canceled a visit with their son.
At that point, his mother, who is a trained social worker, called the police out of concern. That’s when things went downhill for Aitken. After the police caught up with him, they determined he wasn’t a threat to his or anyone else’s safety, but proceeded to search his car anyway. Upon finding the guns, police pressed weapons charges against Aitken.
New Jersey law makes it nearly impossible to get a concealed carry license, and you can’t otherwise take a gun out of your home unless it is in connection with several enumerated exceptions. Moving from one residence to another is one of the exceptions. Aitken was in the process of moving; it took police over two hours to remove all of his possessions from the car before they found the two guns in the trunk.
The jury never heard about the moving exception, virtually guaranteeing Brian’s conviction.
Yet Judge Morley wouldn’t allow Aitken to claim the exemption for transporting guns between residences. He wouldn’t even let the jury know about it. During deliberations, the jurors asked three times about exceptions to the law, which suggests they weren’t comfortable convicting Aitken. Morley refused to answer them all three times. Gilbert and Nappen, Aitken’s lawyers, say he also should have been protected by a federal law that forbids states from prosecuting gun owners who are transporting guns between residences. Morley would not let Aitken cite that provision either.
Brian Aitken is currently serving seven years in a state prison. Now a website and Facebook page are asking Governor Chris Christie to pardon Aitken.
Gov. Christie has proven a sensible leader and shown political courage in taking on his state’s debt-ridden “Situation.” Here’s hoping that Christie, a former prosecutor, will see that Aitken’s continued imprisonment does nothing to serve the interests of justice.
GOP vs. GOP on New START
The major dailies feature dueling op-eds by a number of Republican luminaries pertaining to the New START treaty.
On the side of ratification are Henry Kissinger, George Schultz, James Baker III, Lawrence Eagleberger and Colin Powell in the Washington Post; and Ronald Reagan’s Chief of Staff Howard Baker in the USA Today.
In the Wall Street Journal, Ed Meese, former Reagan Attorney General, and Richard Perle, a Reagan-era defense official and prominent neoconservative, contend that the agreement impedes efforts to deploy missile defense, and argue that it should be rejected on those grounds. In an additional leap, they summon Ronald Reagan from the grave — though, in fairness, President Obama foolishly did the same. Where Obama claims that Reagan would have supported ratification, Meese and Perle assert that The Gipper would have opposed New START because he was so committed to missile defense as a concept.
I’ll leave it up to readers to decide which side has assembled the more credible voices on matters pertaining to national security. The pro-side of New START today boasts five former Republican secretaries of state (and a leading Republican senator and Reagan White House staffer thrown in for good measure). Plus Bob Gates. Plus Joint Chiefs of Staff Chair Adm. Mike Mullen. Plus a slew of retired generals. (I could go on.) The anti-New START forces bring forward a former attorney general and a gentleman who fellow Reagan administration staffer Ken Adelman suspected was an opponent of all arms control agreements. Adelman told author Alan Weisman “Richard had the attitude that no arms control treaty could be good.” Presumably that is still the case.
On the merits of ratification of this particular treaty, I commend this column in The National Interest Online by Cato’s own Benjamin Friedman and MIT’s Owen Cote. As for claims that New START impedes our efforts to deploy strategic missile defense, that piece concludes that the agreement does no such thing. For additional detail on this question, the good people over at the American Security Project have assembled a handy fact sheet.
Although I have given my qualified support to New START in the past, now is the time for a dispassionate and objective assessment of the pluses and minuses, not hyperbolic claims of the harms that would come either from ratification or a failure to ratify.
Battle of the Ilyas II: This Time It’s Personal
Last year, Cato adjunct scholar (and George Mason law professor) Ilya Somin and I engaged in the inaugural “Battle of the Ilyas.” Tired of being confused for one another — how many D.C. libertarian legal scholars named Ilya S. can there be? — we accepted Josh Blackman’s invitation to compete in a trivia contest whose prize was the exclusive use of the Ilya name. I won, but my one-year reign expired last week, so it was time for a rematch.
There were two components to this year’s competition, a written quiz based on Judge Danny Boggs’s famed clerkship applicant quiz — worth 75% — and an oral speed round — worth 25%. (Boggs is a friend of Cato, having given a B. Kenneth Simon Memorial Lecture and contributed to our Supreme Court Review.) Somin and I completed the written portion right before Thanksgiving and held the oral part during a conference call with Josh last night. To listen to how it all went down, including the announcement of the overall winner, read and listen here. And if you’re dying to know without going through all that, see below.
Taxes and Uncertainty
It looks like Republicans and Democrats may have made a deal on blocking the tax increases that loom on January 1. No details yet, but reports are that they will extend the current tax rates for one to three years. That means investors and businesses will face continuing uncertainty and the real prospect of a tax increase in one to three years.
Unfortunately, pundits continue to use terms like “extending the Bush tax cuts” or “tax breaks for the wealthy.” In reality, American taxpayers have faced a particular range of personal income tax rates for the past eight years. If the 2001 and 2003 tax laws are allowed to expire, then Americans will see increased tax rates on income, dividends, capital gains, and estates. So the issue is not “tax cuts” or “tax breaks,” it’s whether we should increase taxes in 2011.
And as I noted before, President Obama understands this. He said in mid-November, “I want to make sure that taxes don’t go up for middle class families starting on January 1st.”
The president’s got it right. Taxes are about to go up, and the debate in Congress is whether that’s a good idea. Unfortunately, President Obama does want taxes to go up for business owners, corporate executives, and investors on January 1, the very people whose decisions have the most immediate impact on economic growth and job creation.
And that’s the issue we should be debating: Is it a good idea, especially in a time of continuing high unemployment and slow growth, to raise taxes on investors and entrepreneurs. And even if Congress delays the decision, is it a good idea to leave investors uncertain about what tax rates they’ll face in a year or two?
Let’s hope Congress and the Obama administration soon learns that higher taxes, more regulation, a larger share of GDP shifted to government, fears of Fed monetization of soaring debt — not to mention newspaper reports of Obama budgeteers “flipp[ing] through the tax code, looking for ideas” and threats of “an array of actions using his executive power to advance energy, environmental, fiscal and other domestic policy priorities” — can only discourage employers, investors, and entrepreneurs. Robert Higgs has cited the role of “regime uncertainty” in prolonging the Great Depression, as investors worried about what FDR might do next. Will Wilkinson points to Treasury Secretary Tim Geithner’s saying “businesses want certainty. They need certainty so they can make long-term plans today.” Unfortunately, Will says, “Creating completely irresponsible, economically chilling regime uncertainty would appear to be the basic modus operandi of the Obama administration.” A temporary extension of today’s tax rates, with a continuing threat of a rate hike in a year or two, is entirely in keeping with a regime of uncertainty.
Holiday Gift Recommendations
I decided last year to give a young colleague a post-graduate course in political science and economics — P. J. O’Rourke’s books Parliament of Whores and Eat the Rich. So I went to my local Barnes & Noble to search for them. Not in Current Affairs. Not in Economics. No separate section called Politics. I decided to try Borders. But first — to avoid yet more driving around — I went online to see if my local Borders stores had them in stock. Sure enough, they did, in a couple of stores just blocks from the Cato Institute. Checking to see where in the store I would find them, I discovered that they would both be shelved under “Humor–Humorous Writing.” Oh, right, I thought, they’re not books on economics or current affairs, they’re humor.
Yes, P.J. is one of the funniest writers around. But what people often miss when they talk about his humor is what a good reporter and what an insightful analyst he is. Parliament of Whores is a very funny book, but it’s also a very perceptive analysis of politics in a late 20th century democracy. And if you read Eat the Rich, you’ll learn more about how countries get rich — and why they don’t — than in a whole year of econ at most colleges. In fact, I’ve decided that the best answer to the question “What’s the best book to start learning economics?” is Eat the Rich.
On page 1, P. J. starts with the right question: “Why do some places prosper and thrive while others just suck?” Supply-and-demand curves are all well and good, but what we really want to know is how not to be mired in poverty. He writes that he tried returning to his college economics texts but quickly remembered why he hated them at the time–though he does attempt, for instance, to explain comparative advantage in terms of John Grisham and Courtney Love. Instead he decided to visit economically successful and unsuccessful societies and try to figure out what makes them work or not work. So he headed off to Sweden, Hong Kong, Albania, Cuba, Tanzania, Russia, China, and Wall Street.
In Tanzania he gapes at the magnificent natural beauty and the appalling human poverty. Why is Tanzania so poor? he asks people, and he gets a variety of answers. One answer, he notes, is that Tanzania is actually not poor by the standards of human history; it has a life expectancy about that of the United States in 1920, which is a lot better than humans in 1720, or 1220, or 20. But, he finally concludes, the real answer is the collective “ujamaa” policies pursued by the sainted post-colonial leader Julius Nyerere. The answer is “ujaama—they planned it. They planned it, and we paid for it. Rich countries underwrote Tanzanian economic idiocy.”
From Tanzania P. J. moves on to Hong Kong, where he finds “the best contemporary example of laissez-faire….The British colonial government turned Hong Kong into an economic miracle by doing nothing.”
You could do worse than to take a semester-long course on political economy where the texts are Eat the Rich and Parliament of Whores. So, bookstore owners, leave them in the Humorous Writing section for sure, but also put copies in the Economics, Politics, and Current Affairs sections.
And of course P. J. would want me to mention his brand-new book on American politics, Don’t Vote: It Just Encourages the Bastards. Buy ‘em all and make it a year-long course.
A Wall Street Journal Column Understates the Size of U.S. Manufacturing
The Wall Street Journal’s December 1 “Ahead of the Tape” column, by Kelly Evans, says “manufacturing is a relatively small part of the economy; It employs about 9% of the work force and accounts for about the same percentage of GDP.” Actually, manufacturing accounts for about 12 percent of nominal GDP. But that, too, is misleading.
Chicago Fed economist William Strauss explains why neither U.S. manufacturing’s share of employment nor its share of GDP captures the actual strength of manufacturing:
Between 1950 and 2007 (prior to the severe recession), manufacturing output was just over 600% higher while over the same period growth in real GDP of the U.S. was only a slightly lesser 560%. Yet, the manufacturing share of GDP declined markedly over this period as measured in current dollar value of output. In 1950, the manufacturing share of the U.S. economy amounted to 27% of nominal GDP, but by 2007 it had fallen to 12.1%. How did a sector that experienced growth at a faster pace than the overall economy become a smaller part of the overall economy? The answer again is productivity growth. The greater efficiency of the manufacturing sector afforded either a slower price increase or an outright decline in the prices of this sector’s goods. As one example, inflation (as measured by the Consumer Price Index) averaged 3.7% between 1980 and 2009, while at the same time the rise in prices for new vehicles averaged 1.7%. So while the number (and quality) of manufactured goods had been rising over time, their relative value compared with the output of other sectors did not keep pace. This allowed manufactured goods to be less costly to consumers and led to the manufacturing sector’s declining share of GDP.
Those who imagine “we don’t make anything anymore,” as Donald Trump claims, don’t grasp the magnitude of America’s industrial productivity gains.
In reality, the U.S. is by far the world’s largest manufacturer, with China trailing by 22 percent according to U.N. data for 2008 and arguably much more when we’re not in recession.
On Happiness
The financial crisis and global warming have reinforced an age-old criticism of our traditional ways of measuring wealth, and a number of alternative indexes have been proposed that would instead measure people’s well-being and environmental sustainability.
There are problems with using GDP. It involves an incredible amount of guesswork; and even if it were perfect, it would be bizarre to use production of goods and services as the only yardstick to evaluate our societies. But finding problems is one thing; it is something completely different to find an alternative that is better. Any sort of well-being index would require agreement on what well-being is, and there is a risk that governments would be tempted to find a one-size-fits-all standard and try to make us all wear it.
In a new paper I examine some of the proposed alternatives and they all beg the question about well-being by defining it as the result of the particular kinds of policies that they happen to prefer. Bhutan’s famous National Happiness Index, for example, defines it partly as a strong, traditional culture, and has used it to oppress minorities. And the Commission on the Measurement of Economic Performance and Social Progress, created by French president Nicolas Sarkozy and led by economist Joseph Stiglitz, selectively chooses measures to show that France is richer in relation to the United States than it would otherwise be.
The advantage of GDP is precisely what it has often been criticized for — that it is a narrow and value-free measure. It does not even try to define well-being, and so fits liberal, pluralistic societies in which people have different interests, preferences and attitudes toward well-being. It tells us what we can do, but not what we should do; and since it measures what we can do, it also correlates with most of the things most people want from life: better health, longer lives, less poverty and even happiness. The latest research shows not only that people in rich countries are happier but also that countries grow happier as they become richer.
Read the paper here. Read Will Wilkinson’s Policy Analysis on happiness research here.
Robert H. Frank’s Non-argument for Higher Tax Rates
In The New York Times, Robert H. Frank of Cornell University repeated his perpetual argument that high tax rates on the rich do no harm to demand (not supply) because the rich can just draw down savings, year after year, to pay more taxes yet maintain a showy lifestyle. Then he resorts to the old trick of asserting there is no “credible” evidence that tax disincentives and distortions have any ill effects on the economy.
Frank asks, rhetorically, if an increase in top tax rates might reduce economic growth. And he replies, “There’s no credible evidence that it would.” This is a timeworn trick among people too intellectually lazy to look for a single academic study or statistical fact.
As I have shown before, Mr. Frank has a history of abusing bogus statistics culled from dubious sources.
To simply assert “there’s no credible evidence,” however, is much worse than distorting the facts.
It amounts to claiming that he has the ability and the right to suppress facts not to his liking.
Over the past year I have repeatedly cited several major studies showing that pushing the highest marginal tax rates even higher is extremely dangerous to economic growth; Stanford economist Michael Boskin lists half a dozen of them in his latest Wall Street Journal op-ed.
For Mr. Frank to assert that such studies are not “credible” simply reveals his own inability to find credible evidence to support his own untenable position.
The President’s Fiscal Commission: It’s a Start
Today POLITICO Arena asks
Will implementing President Obama’s Fiscal Commission recommendations require that everyone take a hit?
My response (with tax insights from Jagadeesh Gokhale):
President Obama’s Fiscal Commission Report offers a useful start in reducing our budget deficits and national debt, but it hardly goes far enough. As several of my Cato colleagues have just noted here, here, here, and here, the report recognizes, to its credit, that our corporate income tax structure puts U.S. corporations at a considerable competitive disadvantage against their foreign competitors. And the report keeps military spending cuts on the table, even if there is much more to be cut. Yet by proposing a reduction in government spending from 24.3 percent of GDP today to 21.8 percent over the next 15 years — total federal spending as recently as 2000 was just 18.4 percent of GDP – it plays the old Washington game of calling a slower increase than previously projected a “cut.”
As for taxes, this report should be read in the context of a powerful argument in last Friday’s Wall Street Journal to the effect that over the past six decades, tax revenues as a percentage of GDP have averaged just under 19 percent, regardless of the top marginal personal income tax rate or whether taxes were cut or raised. What this suggests is that low tax rates spur income growth to leave the government’s revenues undiminished over the long-term. High tax rates do the opposite. It doesn’t take a large leap of faith to believe that this effect would be stronger for those who earn more and pay more in taxes. Indeed, among high earners are the nation’s business leaders – innovators who create new products and jobs – who would respond positively to the growth opportunity provided by a stable, low-tax-rate environment. So those who believe that we help ourselves by more heavily taxing the rich need to ask themselves whether it might not be better to cut rates and keep them stable instead. Wouldn’t that promote a robust economy and lift all boats – with the government continuing to generate 19 percent in revenues?
None of this has anything to do, of course, with whether our current out-of-control federal government is constitutionally authorized to do all it is doing. But it’s a start toward returning the government to within its constitutional limits. Had those limits been respected – as the Framers understood, unlike New Deal progressives — we wouldn’t be in this mess.
Virginia Obamacare Lawsuit Dismissed
No, not the lawsuit brought by Virginia Attorney General Ken Cuccinelli (in which Cato has been filing amicus briefs), but rather one brought by Jerry Falwell’s Liberty University. Most notably, the district judge found the individual mandate to be a lawful exercise of Congress’s powers under the Commerce Clause because
individuals’ decisions about how and when to pay for health care are activities that in the aggregate substantially affect the interstate health care market…. Far from ‘inactivity,’ by choosing to forgo insurance, Plaintiffs are making an economic decision to try to pay for health care services later, out of pocket, rather than now, through the purchase of insurance. As Congress found, the total incidence of these economic decisions has a substantial impact on the national market for health care by collectively shifting billions of dollars on to other market participants and driving up the prices of insurance policies.
This analysis echoes that of the Michigan judge who granted the government’s motion to dismiss the Thomas More Legal Center’s lawsuit in October – and is fatally flawed because everything is an “economic decision” that “substantially affects the national market” in something. If that’s the rationale upon which the Supreme Court ultimately upholds Obamacare, then we are left quite literally with no principled limits on federal power. Something tells me it won’t be so simple, however, even if the forces of darkness big, “self-checking” government prevail.
Nevertheless, the White House blog is understandably delighted with such rulings, trumpeting yesterday’s decision as yet another on an inexorable and inevitable march to the full vindication of an unprecedented assertion of federal power. (Question: Was nobody there paying attention to what voters said about all that November 2?)
In any event, as I said in a recent blog post and op-ed, nobody should yet declare victory or concede defeat. There will be many, many rulings yet, both at the trial court level and on appeal. This will not end until the Supreme Court rules, most likely in June 2012. But if you’re keeping track, the next major event is a December 16 summary judgment hearing in Pensacola in the Florida-led 20-state lawsuit — and we should also soon see a final ruling from the Cuccinelli case right before or after Christmas. Expect the White House to be a bit less chipper about these events.
Overwrought On START
It is unclear whether New Strategic Arms Reduction Treaty (START) will make it to the Senate floor this year or if there are 67 votes for it if it does. According to the White House and arms control boosters, that uncertainty endangers us all by leaving Russia’s nuclear arsenal unmonitored and undermining our non-proliferation agenda. According to pundits, New START’s failure to pass in the lame-duck would be a grievous political wound for Obama adminstration, which is struggling to buy enough Republican votes for ratification.
In an op-ed out today on the National Interest‘s website, Owen Cote and I say this talk is mostly hot air. New START just isn’t that big a deal. We write:
[New START] would provide minor increases in intelligence and Russian goodwill. But passing it means handing taxpayers a substantial new tab on top of what we already pay for our bloated nuclear weapons complex. And rather than reducing the arsenal’s size and cost, the treaty props it up…. The real impact of New START is distraction. By faking a drawdown, the treaty keeps Americans from noticing that deterring our enemies requires nothing like the force structure we plan to retain.
Bright Spots in Fiscal Commission Report
President Obama’s Fiscal Commission has produced a serious and sobering analysis of the government’s budget mess, and it provides some of the needed solutions. Three of the report’s main themes are on target: the need to make government leaner, the need to cut business taxes to generate economic growth, and the need to impose tighter budget rules to discipline spending.
The report rejects the view of many Democratic leaders that the welfare state built over the last 80 years must be defended against any and all budget cuts. “Every aspect of the discretionary budget must be scrutinized, no agency can be off limits, and no program that spends too much or achieves too little can be spared. The federal government can and must adapt to the 21st century by transforming itself into a leaner and more efficient operation.” How lean the government should be, and how many agencies to eliminate, will be the central fiscal debate in coming years. Downsizing government is the order of the day.
The report recognizes the need to spur economic growth, particularly by cutting the corporate tax rate. “The corporate income tax, meanwhile, hurts America’s ability to compete… statutory rates in the U.S. are significantly higher than the average for industrialized countries … and our method of taxing foreign income is outside the norm…. the current system puts U.S. corporations at a competitive disadvantage against their foreign competitors.” The report recommends cutting the 35 percent federal corporate tax rate to 28 percent or less to respond to the Global Tax Revolution and to “make America the best place to start a business and create jobs.”
Finally, the report suggests that Congress impose new procedures to enforce budget restraint. However, the rules suggested by the commission are complex and not tight enough. It would be simpler and more powerful to impose a cap on overall federal spending. For example, a law could require that the government’s overall budget not grow faster than general inflation each year else the president would sequester spending across-the-board. Such a cap would be easy for the public to understand and enforce.
In sum, the report provides a useful menu of reform options that incoming members of a more conservative Congress can pursue next year. We need bigger spending cuts than the commission has laid out—as I’ve outlined in this balanced-budget plan—but the commission deserves credit for spurring a national discussion on how to downsize the federal government.
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