Archive for August, 2011
Cato Unbound: Are Men in Decline?
This month’s Cato Unbound looks at the intersection of education, work, and gender, and asks: Are men in decline? As women have advanced in education, the workplace, and even politics, some fear that the emerging new economy—or perhaps some other factors—are dragging men down. We’ve all heard talk of the Mancession, and it’s well known that men are in the minority now on many college campuses. How long will the trend continue?
Lead essayist Kay Hymowitz makes the case for male decline; Jessica Bennett, Amanda Hess, and Myriam Miedzian give reasons to be skeptical. Hymowitz replies to her critics. (Men, alas, were so far in decline that I couldn’t find a single one to write for this issue.)
The conversation is just getting started, so be sure to drop by again or subscribe to Cato Unbound so you’ll never miss a post.
No Hope or Change When it Comes to Fannie Mae
The Washington Post is reporting that President Obama has assigned his staff with the task of designing a new set of government guarantees behind the U.S. mortgage market. Although as the Post also reports the “approach could even preserve Fannie Mae and Freddie Mac.” That’s correct. Despite their role in driving the housing bubble and the already $160 billion in taxpayer losses, President Obama appears to be considering just putting the same failed system in place. Of course, we’ll be promised that it will all work better this time.
Perhaps most offensive is that the Post reports that Obama “officials don’t want to punish the thousands of Fannie and Freddie employees who have specialized knowledge about the mortgage market.” Seriously? What about the many blameless employees of AIG, Lehman Brothers, or Bear Stearns? Or New Century for that matter. Did the janitors and receptionists at those firms really cause the crisis? The truth is that the employees of Fannie and Freddie have been lining their pockets at the expense of the taxpayer for years. What the Administration is really saying is that they wouldn’t want all the political operatives at these favored firms to lose their perks. After all, Obama officials will need somewhere to land after 2012 and Goldman Sachs has only so many slots.
What’s most depressing is that you can’t say Obama hasn’t been given the facts. As the Post makes clear, his economic advisers spelled out the case against massive subsidies for the mortgage market. Austan Goolsbee, chair of Obama’s Council of Economic Advisers, points out: by subsidizing mortgage investments, the government drives capital away from other types of investments. If Obama truly wants to help the middle and working class, then he’d want capital to flow into investments that increase labor productivity, which is the ultimate source of wage growth. Running up asset prices, like houses, does not make us wealthier in the long run.
But then what should I expect. The President has already entered campaign mode. It would be nice to see the economics win over the politics. But it looks like such a thing will have to wait for another administration.
Free or Equal on PBS
In 1980 Milton Friedman made a splash with his 10-part PBS documentary, Free to Choose, which also became a bestselling book. Thirty years later Cato senior fellow Johan Norberg travels in Friedman’s footsteps to see what has actually happened in those places Friedman’s ideas helped transform. From Stockholm to Estonia to India, from New York to Hong Kong to Chile and Washington, D.C., Norberg examines the contemporary relevance of Friedman’s ideas in the 2011 world of globalization and financial crisis. The result is a one-hour documentary, Free or Equal: A Personal View, which is now running on PBS stations across the country.
Visit the Free to Choose Network page to find out more about the documentary. Click on “Carriage Grid” to find showings in your area. Note that it’s arranged by size of media market, so New York is first, then Los Angeles, and so on down through 210 media markets. It’s searchable.
I missed the first Washington showing on Sunday, so check it out today. But note that showings will run into mid-September, so your friends will have many chances to catch the show.
And for a book by Norberg on related issues, check out In Defense of Global Capitalism.
Paul Krugman Meets E.T.
I’ve poked fun at Paul Krugman for his views on health care and British fiscal policy, and I’ve semi-defended him about unemployment subsidies and housing bubbles.
Now it’s time for some more mockery.
Back in 2001, Paul Krugman received some much-deserved criticism for stating that the 9/11 terrorist attacks would be stimulative for the economy.
He committed the “broken-window” fallacy, explained more than 150 years ago by a famous French economist, Frederic Bastiat.
Breaking a window at the local bakery, Bastiat explained, might generate business for the town glazier, but only at the expense of some other merchant, like a tailor, who would have benefited if the baker didn’t have to spend money on a new window.
In other words, the destruction of wealth is not good for an economy. At best, it makes us poorer and then shifts how current income is allocated. This is why Bastiat wrote (perhaps predicting the emergence of Krugman):
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
But we have to give Krugman credit for a bizarre form of ideological consistency. He is willing to advocate bigger government, no matter how sloppy the reasoning or how quirky the rationale.
His latest outburst was to say on CNN how wonderful it would be for the economy if the people of earth mistakenly thought we were on the verge of an alien invasion, which would lead to lots of military spending.
He even cited an episode of Twilight Zone to justify his assertions. I’m surprised he didn’t also mention the 1996 film, Independence Day.
As I wrote in a previous blog post, this is one of those moments when your only response is to say “wow.” This is even worse than when Keynesians assert that it would be stimulative to pay people to dig holes and fill them in again.
For those who want more info on why government spending does not boost the economy in the short run, here’s my video on Keynesian economics.
And if you want to know why government spending does not boost the economy in the long run, here’s a video looking at some empirical evidence about economic performance and the size of the public sector.
Warren Buffett’s Fiscal Innumeracy
Warren Buffett’s at it again. He has a column in the New York Times complaining that he has been coddled by the tax code and that “rich” people should pay higher taxes.
My first instinct is to send Buffett the website where people can voluntarily pay extra money to the federal government. I’ve made this suggestion to guilt-ridden rich people in the past.
But I no longer give that advice. I’m worried he might actually do it. And even though Buffett is wildly misguided about fiscal policy, I know he will invest his money much more wisely than Barack Obama will spend it.
But Buffett goes beyond guilt-ridden rants in favor of higher taxes. He makes specific assertions that are inaccurate.
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
His numbers are flawed in two important ways.
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When Buffett receives dividends and capital gains, it is true that he pays “only” 15 percent of that money on his tax return. But dividends and capital gains are both forms of double taxation. So if he wants honest effective tax rate numbers, he needs to show the 35 percent corporate tax rate.
Moreover, as I noted in a previous post, Buffett completely ignores the impact of the death tax, which will result in the federal government seizing 45 percent of his assets. To be sure, Buffett may be engaging in clever tax planning, so it is hard to know the impact on his effective tax rate, but it will be significant.
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Buffett also mischaracterizes the impact of the Social Security payroll tax, which is dedicated for a specific purpose. The law only imposes that tax on income up to about $107,000 per year because the tax is designed so that people “earn” a corresponding retirement benefit (which actually is tilted in favor of low-income workers).
Imposing the tax on multi-millionaire income, however, would mean sending rich people giant checks from Social Security when they retire. But nobody thinks that’s a good idea. Or you could apply the payroll tax to all income and not pay any additional benefits. But this would turn Social Security from an “earned benefit” to a redistribution program, which also is widely rejected (though the left has been warming to the idea in recent years because their hunger for more tax revenue is greater than their support for Social Security).
If we consider these two factors, Buffett’s effective tax rate almost surely is much higher than the burden on any of the people who work for him.
But this entire discussion is a good example of why we should junk the corrupt, punitive, and unfair tax code and replace it with a simple flat tax. With no double taxation and a single, low tax rate, we would know that rich people were paying the right amount, neither too much based on class-warfare tax rates nor too little based on loopholes, deduction, preferences, exemptions, shelters, and credits.
So why doesn’t Buffett endorse this approach? Tim Carney offers a very plausible answer.
For more information about why class-warfare taxes are misguided, this video may be helpful.
Iraq Violence Not an Excuse for US Troops to Stay
A wave of violence spread across Iraq today with 70 dead and some 300 injured. Iraqi security forces are blaming al Qaida affiliates, but no group has officially claimed responsibility. The New York Times puts the events in context:
Coming a little less than two weeks after the Iraqi government said it would negotiate with the United States about keeping some of its 48,000 troops here after the end of the year, the violence raised significant questions about the capabilities of the Iraqi security forces.
This is indeed a tragic loss of life, but this level of violence actually has become less common and usually occurs when the Iraqi government is making important decisions on the future of the country and U.S. troop presence. Each time a bomb is detonated in Iraq, commentators argue that it proves we cannot leave Iraq yet; the job is not done.
If the job isn’t done, it should be. And soon. There will certainly be violence in Iraq for the foreseeable future, but a U.S. troop presence is not going to prevent these horrific incidents and often serves as a pretext for them. The continued violence shouldn’t obscure one unalterable fact: the Iraqis must solve their internal security problems. That, in turn, will likely require them to also solve their political problems, something that they have so far refused to do.
As Ted Galen Carpenter and Doug Bandow have explained those calling for an extended U.S. presence in Iraq base their arguments on faulty logic that is devoid of serious considerations about strategic U.S. interests in the region. The most committed of the stay longer/forever crowd hopes our presence in Iraq will resemble that of U.S. troops in South Korea or Germany. But this isn’t only a false analogy; it is based on false premises about vital U.S. interests: namely, that the U.S. government, and U.S. taxpayers, should be responsible for the security of other countries.
Those who worry about us leaving too soon/ever shouldn’t fret too much, however. Regardless of what happens in the negotiations over an extension of the U.S. troop presence, the United States will still maintain a staff of 17,000 employees (including contractors) based out of the world’s largest embassy.
Through it all, President Obama has been relatively silent. He has claimed that we are “winding down” the nation’s wars, but the prospect of tens of thousands of Americans remaining in Iraq hardly constitutes an end-game there. And no one knows what sort of long-term presence the president has in mind for Afghanistan.
President Obama won the presidency due in part to his opposition to the Iraq war at a time when most other politicians were either supportive or silent. This stand allowed him to build credibility with the American people, despite his relative lack of foreign policy experience. While other so-called experts were calling for war, he was concerned that the Iraq war was likely to undermine American and regional security, cost hundreds of billions of dollars, and claim many tens of thousands of lives. Tragically, he was correct.
The combat mission may have ended, but Americans are still dying in Iraq. It is time for the President and his administration to keep the promise of ending U.S. military involvement there, and hasten the day when Iraqis are fully responsible for their own affairs.
More on Waivers and the Rule of Law
In my weekly Britannica column, I respond to the charge that I am dumb and expand the discussion of sweeping legislation, the apparently increasing use of waivers by Cabinet officials, and how that comports with the rule of law:
We’ve been reminded in the past few weeks that we live in a world where Congress passes vast, expansive laws that make grand promises and that few if any members of Congress actually read, and then inserts into them the power for the president or his appointees to waive sections of them when they become unworkable or bump up against the interests of the well connected. …
Over the past decade Congress has passed many such expansive and aspirational laws—the Patriot Act, the No Child Left Behind Act, TARP, the stimulus bill (“the Democrats’ Patriot Act“), the Patient Protection and Affordable Care Act—that put power into the hands of the bureaucracy. My colleagues at the Cato Institute and I have often warned members of Congress about the dangers of that practice, often pointing out that someday the White House will be in the hands of the other party, and they may not like what their opponents do with such sweeping powers. Appealing to conservatives in a column on the detention of Jose Padilla, Robert A. Levy wrote, “Even persons convinced that President Bush cherishes civil liberties and understands that the Constitution is not mere scrap paper, must be unsettled by the prospect that an unknown and less honorable successor could exploit some of the dangerous precedents that the Bush administration has put in place.” In a column on President Obama’s intervention into the economy, I asked Democrats, “If you still have warm feelings toward Obama and his good intentions, ask yourself this: Will you feel comfortable one day when the appointees of President Romney or President Palin are exercising unconstitutional, unauthorized, unreviewable authority to restructure the economy the way they see fit?”
And that’s why I wrote in the Britannica entry on libertarianism, “A fundamental characteristic of libertarian thinking is a deep skepticism of government power.” Would that liberals and conservatives displayed the same skepticism.
Full column here.
Federal Job Training Follies
It’s darkly comical that the same entity responsible for killing countless private sector jobs with its taxes and regulations operates job training programs. Cato has been documenting the failures of federal job training programs for decades, but “do something” policymakers in Washington refuse to accept the reality that they’re not the solution to problems that they help create.
Here’s James Bovard from a 1986 Cato policy paper on “The Failure of Federal Job Programs”:
Federal job-training programs have harmed the careers of millions of Americans, failed to impart valuable job skills to the poor, and squandered billions of dollars annually. For 25 years, government programs have warped work ethics, helped disillusion generations of disadvantaged youth, and deluged America with fraudulent statistics. After spending over a hundred billion dollars on manpower programs we have learned little or nothing: today’s programs merely repeat the mistakes of the early 1960s. Federal programs have reduced the incomes of millions of trainees and have helped create a growing underclass of permanently unemployed Americans.
We can now make that 50 years.
A couple of recent items in the news point to the wastefulness of federal job training efforts. In the first, federal money was used to send North Carolina youths to Walt Disney World for a leadership program. (Talk about a “goofy” use of taxpayer money.) In the second, a $19,155 federal grant was awarded by local officials in Lake County, Illinois to a firm so that it could train and hire one worker. The grant was awarded after officials “struggled to find local employers who wanted to participate.”
A recent Cato essay on federal job training programs cites similar examples compiled by Sen. Tom Coburn’s (R-OK) office, including a Tampa Bay government agency that spent tens of thousands of dollars of federal job training funds on lunches, hotels, flowers, event tickets, and other perks for managers. The essay explains that local officials have little incentive to spend federal funds wisely and end up wasting money just trying to comply with federal red tape:
This sort of waste in federal job training and employment programs has been ongoing for decades. Local administrators of these programs have been known to inflate program accomplishments, overcharge the taxpayer for superficial services, and divert funds to illegitimate purposes… Auditors catch some of the sorts of waste exposed by Senator Coburn, but federal taxpayer money is never efficiently spent when it gets thrown out the door in hundreds of subsidy programs to thousands of state and local governments. State and local governments consider the federal money “free,” and they have little incentive to spend it wisely.
Another problem with doling out federal subsidies to the states is the huge bureaucratic apparatus involved. At the federal level, for example, there are more than 750 well-paid employees in Department of Labor’s Employment and Training Administration (ETA). Or consider this taxpayer expense—the ETA spends about $100 million a year on various research studies and evaluations.
At the state and local levels, federal subsidy programs require a huge apparatus of administrators to follow all the federal regulations and write all the required reports to the federal government. For example, each state must prepare a massive annual “strategic plan” to the Department of Labor in order to receive its Workforce Investment Act funding. These reports, which can be examined at www.doleta.gov/usworkforce/wia, are often more than a hundred pages in length. One can imagine how many administrators in each state are needed to compile these reports every year.
As the essay concludes, federal job training programs should be abolished because they “provide little practical benefit, are duplicative of private efforts, and are not a proper federal responsibility under the Constitution.”
More on the 40th Anniversary of Nixon’s Wage and Price Controls
It is hard to imagine, but some people actually thought it was perfectly reasonable (and Constitutional) for the government to dictate to business what they should charge for their products and dictate to workers what their time was worth. I was working at J.C. Penney in Sacramento and going to grad school at night, but I took time out to send “The Case against Wage and Price Controls” to National Review in July. It became the cover story on September 24, and Bill Buckley later hired me over lunch in San Francisco. If anyone is interested, it’s available at SCRIBD here.
The Unhappy 40th Anniversary of Nixon’s Wage and Price Controls
Forty years ago today, President Richard Nixon shocked the country and the world, not with an escalation of the Vietnam War or a political scandal, but with an edict on the economy that reverberates to this day.
In a surprise televised speech on Sunday evening, August 15, 1971, the president announced that he would immediately impose wage and price controls, slap a 10 percent duty on imports, and suspend the international convertibility of the U.S. dollar into gold. All were to be temporary measures, of course, to promote jobs, dampen inflation, and combat “international money speculators” betting against the dollar. (You can read the entire speech here.)
What came to be known in the international finance world as the Nixon Shock is worth remembering four decades later as a warning against the abuse of executive power over the economy. Nixon’s intervention failed to boost the economy in a sustainable way while causing real damage that took years to correct.
The centerpiece of the Nixon Shock was its controls on prices. In a market economy, freely fluctuating prices are the nervous system that coordinates supply and demand. Yet in one of the more chilling statements delivered by a U.S. president, Nixon told the nation that evening,
I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days.
The price controls did tame inflation temporarily, but it came roaring back within three years to double-digit levels and persisted through the 1970s because of loose monetary policy. A tight lid on a boiling tea pot can only contain the steam for a time before it explodes.
The controls continued on gasoline, causing artificial shortages (as price controls usually do) symbolized by gas lines during the 1970s. Only when President Reagan finally lifted the controls on oil and gasoline in 1981 did the specter of short supplies finally disappear. (The 10 percent import surcharge did prove to be temporary, lasting only until the end of 1971.)
Closing the gold window was arguably inevitable given the lack of monetary discipline by the U.S. central bank. By 1976, the dollar and other major currencies were floating freely, which has turned out to work rather well, as Milton Friedman predicted it would. It also turned out that pressure on the dollar to depreciate was not driven by speculators after all but by the surplus of dollars that had been created to finance the Vietnam War and the Great Society.
One lesson of the Nixon shock is that if politicians are granted “emergency powers” they will tend to abuse them in situations that were never envisioned when the powers were originally granted. A second lesson is that “temporary” measures have a habit of becoming permanent. The big lesson is that the power of politicians over the economy should be limited. Any request for temporary emergency powers should be greeted with the deepest skepticism.
Colorado Court Halts School Voucher Program
Last Friday, a Colorado District Court halted the new and unique Douglas County school voucher program with a permanent injunction. School choice legislation is a little like the Field of Dreams: pass it, and they will sue–and we all know who “they” are. So there’s a tendency to dismiss legal setbacks for the choice movement as purely the result of self-serving monopolists exploiting bad laws or partisan, activist judges. There are certainly cases that fall into that category, but this Colorado ruling isn’t one of them.
Oh, the self-serving monopolists and opponents of educational freedom are no doubt cheering it, but the ruling does not read like the work of a rube or an ideologue, and not all of the state constitutional provisions on which it was based can be dismissed as outdated examples of religious bigotry. The state’s “compelled support” clause, in particular, seems to uphold a fundamentally American idea: that it is wrong to coerce people to pay for the propagation of ideas that they disbelieve. Thomas Jefferson, in his Virginia Declaration of Religious Freedom, called this: “tyranny.”
Obviously, conventional public schools have been a source of such coercion for a very long time–everyone has to pay for the public schools, despite profound objections they may have to the way those schools teach history, literature, government, biology, or sex education. That’s why we’ve had “school wars” as long as we’ve had government schools. And obviously vouchers offer the advantage of giving parents a much wider range of educational options for their children than do the one-size-fits few public schools. But despite this advantage, vouchers require all taxpayers to fund every kind of schooling, including types of instruction that might violate some taxpayers’ most deeply held convictions. That’s a recipe for continued social conflict over what is taught.
If there were no alternative to vouchers for providing school choice, perhaps it would make sense to have a debate over which freedoms should take precedence: the freedom of choice of families or the freedom of conscience of taxpayers–and then to sacrifice whichever one was deemed less worthy. But there is an alternative, and it does not require anyone to be compelled to support any particular type of instruction. I discuss this alternative, education tax credits, in a recent Huffington Post op-ed.
Welcoming a New Common Noun: ‘the Mubarak’
Officials in London are looking everywhere but the mirror for places to affix blame for the recent riots. Beyond the immediate-term answer, individual rioters themselves, the target of choice seems to be “social media.” Prime Minister David Cameron is considering banning Facebook, Twitter, and Blackberry Messenger to disable people from organizing themselves or reporting the locations and activity of the police.
Nevermind substantive grievance. Nevermind speech rights. We’ve got scapegoats to find!
[Events like this are nothing but a vessel into which analysts pour their ideological preconceptions, so here's a sip of mine: Just like a spoiled child doesn't grow up to be a gracious and kind adult, a population sugar-fed on entitlements doesn't become a meek and thankful underclass. Also: people don't like it when the police kill unarmed citizens. Which brings us to some domestic U.S. ineptitude...]
Two-and-a-half years ago, a (San Francisco) Bay Area Rapid Transit (BART) police officer shot and killed an unarmed man on a station platform in full view of a train full of riders (video). Sentenced to just two years for involuntary manslaughter, he was paroled in June. This week, upon learning of planned protests of the killing that may have disrupted service, BART officials cut off cell phone service in select stations, hoping to thwart the demonstrators.
[Update: A correspondent notes that the BART protest was in relation to another, more recent killing.]
The Electronic Frontier Foundation rightly criticized the tactic in a post called “BART Pulls a Mubarak in San Francisco.” It’s the same technique that deposed Eqyptian dictator Hosni Mubarak used to try to prevent the uprising that toppled him.
What’s true in Egypt is true in the U.K. is true in the United States. People will use the new communications infrastructures—cell phone networks, social media platforms, and such—to express grievance and to organize.
Western government officials may think that our lands are an idyll compared to the exotic savagery of the Middle East. In fact, we have people being killed by inept law enforcement in the U.S. and the U.K. just like they have people being killed by government thugs in the Middle East. What seems like a difference in kind is a difference in degree—and it’s no difference at all to the dead.
Among the prescriptions that flow from the London riots and BART’s communications censorship are the intense need for greater professionalism and reform of police practices. Wrongful killings precipitate (rightful) protest and (wrongful) violence and looting. Public policies in the area of entitlements and immigration that deny people a stake in their societies need a serious reassessment.
But we also need to keep in mind the propensity of government officials—in all governments—to seek control of communications infrastructure when it serves their goals. From the perspective of the free-speaking citizen, centralization of communications infrastructure is a key weakness. It gives fearful government authorities a place to go when they want to attack the public’s ability to organize and speak.
The Internet itself is a distributed, packet-switched network that generally resists censorship and manipulation. Internet service, however, is relatively centralized, with a small number of providers giving most Americans the bulk of their access. In the name of “net neutrality,” the U.S. government is working to bring Internet service providers under a regulatory umbrella that it could later use for censorship or protest suppression. Platforms like Facebook and Twitter are also relatively centralized. It is an important security to have many of them, and to have them insulated from government control. The best insulation is full decentralization, which is why I’m interested in the work of the Freedom Box Foundation and open source social networks like Diaspora.
The history of communications freedom is still being written. Here’s to hoping that “a Mubarak” is always a failure to control people through their access to media.
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