Archive for September, 2011
Rating Congress on Transparency
Tomorrow morning, I’ll be officially releasing a paper entitled “Publication Practices for Transparent Government” at a Hill briefing entitled “Publication Practices for Transparent Government: Rating the Congress.”
If you’re a smart and savvy Internet user, you probably noticed that the paper is there at the first link above, unofficially released just for you. This qualifies you to read it and get some of the fascinating and different technical aspects of transparency.
This is all a teaser for our release tomorrow of “grades” on how Congress is doing with publishing data about the essential parts of its legislative work. For that, you’ll have to attend the event or watch it live-streamed (here, commencing at 9:00 Eastern with remarks from House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA)).
If you like transparency—and chances are you do—you can help spur discussion tomorrow (or even today) using the hashtag #RateCongress, along with, of course, #transparency. (Don’t know what a hashtag is? Well, here’s a little help.)
Despite good faith efforts on the part of the Obama administration and congressional leaders, government transparency hasn’t flourished as it could the last few years. The paper, event, and “report card” are intended to spur progress on that front.
Transparency is interesting not only technically and administratively, but ideologically. Libertarians and conservatives believe it will expose waste and corruption, fomenting downward pressure on the size and scope of government. Liberals and progressives believe transparency will expose waste and corruption, validating many government programs and roles.
I say let’s get on with exposing waste and corruption, so we can find out what happens next!
The Federal Reserve, the ‘Twist,’ Inflation, QE3, and Pushing on a String
In a move that some are calling QE3, the Federal Reserve announced yesterday that it will engage in a policy called “the twist” — selling short-term bonds and buying long-term bonds in hopes of artificially reducing long-term interest rates. If successful, this policy (we are told) will incentivize more borrowing and stimulate growth.
I’ve freely admitted before that it is difficult to identify the right monetary policy, but it certainly seems like this policy is — at best — an ineffective gesture. This is why the Fed’s various efforts to goose the economy with easy money have been described as “pushing on a string.”
Here are two related questions that need to be answered.
1. Is the economy’s performance being undermined by high long-term rates?
Considering that interest rates are at very low levels already, it seems rather odd to claim that the economy will suddenly rebound if they get pushed down a bit further. Japan has had very low interest rates (both short-run and long-run) for a couple of decades, yet the economy has remained stagnant.
Perhaps the problem is bad policy in other areas. After all, who wants to borrow money, expand business, create jobs, and boost output if Washington is pursuing a toxic combination of excessive spending and regulation, augmented by the threat of higher taxes.
2. Is the economy hampered by lack of credit?
Low interest rates, some argue, may not help the economy if banks don’t have any money to lend. Yet I’ve already pointed out that banks have more than $1 trillion of excess reserves deposited at the Fed.
Perhaps the problem is that banks don’t want to lend money because they don’t see profitable opportunities. After all, it’s better to sit on money than to lend it to people who won’t pay it back because of an economy weakened by too much government.
The Wall Street Journal makes all the relevant points in its editorial.
Read the rest of this post »
The Right Way to ‘Enforce’ Trade Agreements
On Tuesday, the Office of the U.S. Trade Representative launched a formal dispute at the World Trade Organization over China’s imposition of antidumping and countervailing duties on U.S. exports of chicken broilers. According to a summary of the U.S. complaint, China implemented its antidumping and countervailing duty laws in manners that violate that country’s WTO obligations. The alleged violations include: failure to observe numerous transparency and due process requirements; failure to properly explain the basis for its findings and conclusions; failure to properly calculate margins of dumping and subsidy amounts, and; failure to support findings of material injury to the Chinese chicken industry.
Under the WTO agreements, member governments are entitled to use their domestic “trade remedies” laws to measure and address imports that are alleged to be “unfairly” priced and injurious of the domestic industry. However, execution of those laws must comport with certain standards – fairly deferential standards, no doubt – that are spelled out in the WTO Antidumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures. The basis for the U.S. complaint is that those standards were not met by the Chinese government, when it investigated and ultimately foundU.S.chicken exporters to be engaging in injurious dumping and benefiting from government subsidies.
I would say something about “just deserts” or “comeuppance” or “what goes around, comes around,” but that would wrongly imply that the U.S. poultry industry is to blame for U.S. antidumping abuse or its protégé, proliferating global antidumping abuse. Besides, there’s a different point to be made on this occasion. That is, transactions between parties in the world’s two largest economies are going to generate frictions from time to time. Sometimes those frictions will rub raw. But, by and large, there are proven mechanisms in place to alleviate pressures and resolve disputes that should be respected. Regardless of the final outcome in this case – the parties could settle after consulting over the issues or, barring settlement, the issues could be adjudicated by a dispute settlement panel and, ultimately, by the WTO Appellate Body – the course being taken comports with the meaning of trade enforcement and respects the rules of international trade.
Kudos to the USTR and his General Counsel’s office for doing the legal research and analyses necessary to ensure the strongest of cases, and for reminding antsy lawmakers across town that there are reasonable alternative to trade unilateralism.
Ronald Dworkin: Heartless Libertarian?
Ronald Dworkin is probably the most prominent living liberal political philosopher in the United States. Unsurprisingly, he favors a national system of universal healthcare. But at a philosophical level, Dworkin also very clearly holds exactly the same position a lot of viewers seem to regard as not simply wrong, but self evidently monstrous when it was ascribed to Ron Paul (or at least Republicans in the audience) after the recent Tea Party debate. That is, Dworkin believes that if someone enjoys a fair share of social wealth and resources, and makes a free and informed choice about the level of health coverage and care they wish to purchase, then justice is satisfied when they receive the care they have chosen to pay for (either directly or by way of insurance). If it turns out that someone then needs care beyond what they chose to purchase under these conditions, it is not morally incumbent on society to provide that care. If you want to be melodramatic about it: Society (or at least the government) should “let him die.”
You don’t have to take my word for it, of course: Go read chapter 8 of Sovereign Virtue, Dworkin’s major work of political (as opposed to legal) philosophy. As he makes clear there, he believes government should provide some level of universal coverage under conditions where wealth and genetic luck are unjustly distributed, and the difficulty of becoming properly informed about the state of medical care and relevant statistics is so great. But he also reasonably rejects a general “rescue principle” for healthcare—the principle that society must never “let someone die” or go without care if there is money in the public coffers to intervene—as “useless,” “preposterous,” and one that “no sane society” would adopt. The correct standard for what kind of coverage a society should provide, he argues, is given by trying to figure out what kind of health insurance policy and coverage most members of a particular society would choose if they were well informed and had whatever fair share of social resources is specified by general principles of economic justice. (Those principles might specify that people just born with unlucky ailments are independently entitled to a larger share; Dworkin is mostly thinking here about people who begin life reasonably healthy and will require different levels and types of care over time owing to the vagaries of life.)
Most people, Dworkin acknowledges, would reasonably forgo coverage for many types of risks or treatments, preferring lower premiums and greater present consumption. He suggests, for instance, that most reasonable people under his idealized conditions would not find it worthwhile to purchase coverage that would support their indefinite sustenance in a persistent vegetative state, or heroic and expensive interventions likely to extend life by a few months in old age.
In a society where Dworkin’s background conditions are met:
[H]owever health care is distributed in that society is just for that society: justice would not require providing health care for anyone that he or his family had not purchased. These claims follow directly from an extremely appealing assumption: that a just distribution is one that well-informed people create for themselves by individual choices, provided that the economic system and the distribution of wealth in the community in which these choices are made are themselves just.
Now, again, Dworkin’s premise all along in this argument is precisely that our society does not meet his background conditions, requiring government to supply care as a kind of second best. In our far-from-ideal world, he writes, the government should simply “construct a mandatory coverage scheme on the basis of assumptions about what all but a small number of people could think appropriate, allowing those few who would be willing to spend more on special care to do so, if they can afford it, through supplemental insurance.” In Dworkin’s view, then, if someone needs medical care that the model informed consumer would not have chosen to cover under conditions of economic justice, that patient should get that treatment if and only if he has chosen to purchase supplemental insurance. If he has not chosen to purchase that coverage, there is no moral requirement for the public to provide it. Or again, if you still want to be melodramatic, society should “let him die.”
In a society that did satisfy Dworkin’s background ideal of economic justice—a society not perfectly egalitarian, but clearly far more so than our own—it follows from his argument that someone who made a free and informed choice to purchase less coverage than most also need not be provided by society with additional care. Our own society, of course, does not meet Dworkin’s background conditions. But Wolf Blitzer’s thought experiment at least arguably does satisfy them, if we take the liberty of reading his stipulation that the imagined patient “makes a good living” to imply that the person enjoys an economically just share of social resources, and has made the choice to forgo coverage after informed deliberation.
So under appropriate conditions—clearly not satisfied for very many poor Americans, but at least arguably satisfied within parameters of Blitzer’s hypothetical—the most prominent living liberal philosopher gives pretty much the same answer as Ron Paul: People should bear the consequences of their freely assumed risks, and “society”—or at least the government—should let them.
”But,” I hear the indignant cry, “Dworkin still advocates universal healthcare as a matter of public policy!” Well, yes. But you don’t pose stripped down, idealized, and unrealistic hypotheticals about single individuals to answer complicated public policy questions. You use them to get at very elementary moral principles. If the question is really about what kind of complex institutions should be established by statute in light of all we know about healthcare markets, reducing it to a single decision about how to respond to one imaginary person is obtuse. If the point is to reveal underlying principles, then those are valid or invalid independently of how they interact with other moral or political principles, or empirical considerations, to generate a real-world policy view.
Anyone who thinks Ron Paul’s answer to the hypothetical is appalling and outrageous, then, should direct some appalled outrage at Dworkin, because he gives exactly the same answer within its artificial, stipulated parameters. If Paul is a ghoul but Dworkin’s cool in virtue of their different policy positions outside the conditions of the hypothetical, then those who see Paul’s view as appalling should acknowledge that the reaction to the Blitzer thought experiment is an irrelevant red herring, and what matters is (say) Paul’s awful views on economic justice, where he pretty clearly does differ from Dworkin. Then at least everyone can work up a righteous lather about the correct issue.
Warren Buffett’s Tax Story Is Bogus
For years, Warren Buffett has been claiming that his secretary pays a higher tax rate than he does. Recently, President Obama has taken that claim and run with it. I don’t know Mr. Buffett’s particular tax situation, but I do know that his claim as a general matter is bogus.
Let’s look at some numbers. The first chart shows IRS data for income tax rates by income group for 2009. These are average effective tax rates, calculated as income taxes paid divided by adjusted gross income (AGI). The chart shows that taxpayers with incomes above $500,000 had tax rates averaging about 25 percent. Middle-income taxpayers had tax rates of half of that or less. A few years ago, Buffett claimed that his secretary earned $60,000 and paid a 30 percent tax rate. But looking just at income taxes, that seems way off. (Note that this data doesn’t include the “refundable” portion of tax credits, which wipes out taxes for many people at the bottom end).
Perhaps Buffett was referring to the fact that his secretary pays a heavy load of payroll taxes in addition to income taxes. But when you look at data which includes all federal taxes, the system is still highly graduated with much higher rates at the top end.
Chart 2 shows CBO data for 2007 on average effective tax rates, including essentially all federal taxes—individual income, corporate income, payroll, and excise. Buffett’s secretary would fit into the fourth group in the chart, where the average tax rate was 17.4 percent. So if she is really paying 30 percent, then Buffett needs to show her some of his tax-reduction tricks. Note in the chart that Buffett’s peers in the top 1 percent paid an average rate of 29.5 percent, which is double the rate paid by middle-income taxpayers.
In 2007, Buffett said that he paid a 17.7 percent tax rate. Alan Reynolds notes that Buffett earns large amounts of capital gains, which are taxed at a maximum federal rate of 15 percent. People in the top income groups do report a lot of capital gains, which reduces their overall effective tax rate. However, capital gains are included in chart 1, above, and you can see that the top income groups still pay much higher tax rates than others on average. One reason is that a large amount of income at the top is small business income, which is hit by ordinary income tax rates of up to 35 percent.
You have to go to the extreme top end of the income spectrum in order for capital gains realizations to really push down overall effective tax rates. The IRS publishes data for the 400 highest-income taxpayers. For these taxpayers, the average effective income tax rate in 2008 was 18.1 percent.
Since the beginning of the income tax, we have nearly always had special treatment of capital gains for some very good reasons, as I discuss here. I point out that virtually all high-income nations recognize that capital gains are different and that special rules are needed. A number of OECD nations have long-term capital gains tax rates of zero, including New Zealand and the Netherlands.
Another important aspect to this debate regards the link between capital gains and dynamism in the economy and dynamism in tax payments. The political left makes it seem as if there were a permanent aristocracy at the top end of the income spectrum in America. However, IRS data show the exact opposite—the top 400 are a highly dynamic group. Notice first in IRS Table 1 that 57 percent of AGI for these taxpayers is capital gains. That is a key reason why the people in this group are constantly changing—large capital gains realizations are occasional events that rocket people to the top of the AGI heap. One example is when an entrepreneur sells her successful and longstanding business and retires.
The last table in the IRS document reveals the dynamism. The IRS traced the identities of all taxpayers who showed up in the top 400 anytime between 1992 and 2008. The IRS found that there were a huge 3,672 different taxpayers who appeared during that timeframe. Of these 3,672, fully 73 percent only appeared once in the top 400! And 85 percent appeared only once or twice.
So at the top end of our capitalist system is a continual generation of new wealth and new wealthy people, and that dynamism reflects the still-energetic and free-wheeling nature of our economy.
Fiction Still Drives the U.S.-China Trade Debate
The Economic Policy Institute is at it again, asserting itself as an unrivaled purveyor of economic nonsense. Every year, the labor-sponsored lobbying shop produces a sensational report, which presumes to measure the deleterious impact of trade with China on U.S. employment. And every year those figures become scripture to the likes of Sen. Sherrod Brown and Rep. Mike Michaud, in their efforts to make Americans less free to choose how and with whom to transact.
This year’s takeaway is: “Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010.” In the report summary on EPI’s homepage, author Robert Scott makes the following claim: “Increases in U.S. exports tend to create jobs in the United States, and increases in imports tend to lead to job loss. Thus, a growing trade deficit signifies growing job loss.”
Well, that might be true…but for the fact that it’s demonstrably false.
As the chart below (which is based on easily verifiable figures published in the Economic Report of the President) reveals, the trade deficit and job creation appear to be positively correlated. When the deficit rises, employment increases; when the deficit shrinks, employment declines. So, right off the bat, a central premise of Scott’s analysis is in doubt.
Beyond that problem, EPI’s methodology is not taken seriously by most economists because, for one, it approximates job gains from export value and job losses from import value, as though there were a straight line correlation between the figures. There’s not. And it pretends that imports do not create or support U.S. jobs, which is clearly wrong. After all, U.S. producers — purchasing raw materials, components and capital equipment — accounted for more than half of the value of all U.S. imports last year ($1.05 trillion). In other words, the majority of U.S. imports support U.S. economic activity, which is the basis of U.S. employment. Yet EPI’s methodology counts those imports as jobs-reducing.
Last month, the U.S. International Trade Commission published its seventh update to the “The Economic Effects of Significant U.S. Import Restraints” study, which contains a special section on global supply chains. On page xv of the executive summary is a table that not only raises more serious doubts about EPI’s methodology, but should put to rest once and for all the hyperbole employed and anxiety caused by alarmist public relations campaigns and the politicians they serve.
Table ES.4 of that study indicates that there is more U.S. valued added (U.S. labor, material, and overhead) in U.S. imports than there is Chinese valued added in U.S. imports. Specifically, 8.3 percent of the value of U.S. imports (about $160 billion last year) is U.S. value, while 7.7 percent of the value of U.S. imports is Chinese value added. EPI’s methodology does not account for the U.S. jobs associated with the U.S. value added in U.S. imports.
Furthermore, that same table reveals that U.S. value added accounts for 89 percent of total U.S. consumption (a figure that confirms the findings in a recent San Francisco Federal Reserve study), which means that foreign value-added accounts for just 11 percent of U.S. consumption, making the United States a fairly closed economy—or at least, a relatively non-integrated economy. And China? Well, China only accounts for a measly 0.9 percent of the goods and services consumed in the United States. So, if 2.8 million U.S. jobs were lost to a country that produces less than one percent of what Americans consume, I say its about time we shed those highly inefficient jobs that have been a drag on the U.S. economy. The fact is, however, that 2.8 million is a fiction.
EPI’s jobs loss figures also fail to reflect the fact that the U.S. capital account surplus – the flip side of the current account deficit – is a considerable source of U.S. employment. Foreign investment in U.S. plants, property, hotels, equities, debt, and other assets provide employment for millions of Americans in much the same way that U.S. exports do.
Yes, the 2.8 million job loss figure is a fiction, concocted to support political talking points and a narrow agenda that distract the public from the real problems that ail our economy. Some Chinese government policies are genuine causes for concern, worthy of efforts to resolve, but we limit our capacity to address the real problems effectively when every last gripe becomes a call to arms.
Ayn Rand Novel or Real Life?
You’ll have to wonder this afternoon when Google CEO Eric Schmidt is hauled up before a Senate subcommittee on charges that the company he runs is too successful.
You can watch senators craft their sound bites starting at 2:00 pm Eastern on the Judiciary Committee’s website.
Free Market Capitalism vs. Cronyism in Russia
Russian philosopher Leonid Nikonov explains the differences between socialism, cronyism, and free market capitalism. Nikonov is a contributor to The Morality of Capitalism, a new book that is being distributed worldwide by the Atlas Network and the Students for Liberty. (You can download the introduction to the book here.) Students can obtain copies of the book here; all others can obtain copies here.)
Private Insurance Is More Efficient than Medicare–By Far
Diane Archer has a post at the Health Affairs blog arguing that Medicare is more efficient than private insurance. One can only reach such a conclusion through such sleights of hand as conflating spending with cost, and by ignoring most of Medicare’s administrative costs.
As a pre-buttal, I offer this excerpt from a paper I wrote about a “public option” (emphases generally added and citations omitted):
Is Government More Efficient?
Supporters of a new government program note that private insurers spend resources on a wide range of administrative costs that government programs do not. These include marketing, underwriting, reviewing claims for legitimacy, and profits. The fact that government avoids these expenditures, however, does not necessarily make it more efficient. Many of the administrative activities that private insurers undertake serve to increase the insurers’ efficiency. Avoiding those activities would therefore make a health plan less efficient. Existing government health programs also incur administrative costs that are purely wasteful. In the final analysis, private insurance is more efficient than government insurance.
‘The Difference Between Governments Where There Is Responsibility, and Where There Is None.’
Over at Volokh Conspiracy, Professor Orin Kerr has taken to defending the individual mandate on supposedly libertarian principles. Professor Kerr, a Cato Constitution Day participant and an excellent defender of civil liberties, argues that the individual mandate preserves our liberties better than a top-down, government-controlled program à la Medicare. He writes, “If the courts conclude that the mandate approach is unconstitutional, then the more market-oriented approach to benefits would be ruled out. Congress would have a choice: Don’t mandate benefits, or else mandate using a 1960s Great Society government monopoly model.”
While I have the utmost respect for Professor Kerr, his analysis here is woefully mistaken. First of all, I will only mention what my colleague Michael Cannon has tirelessly pointed out: ObamaCare will throttle the operation of a free market in numerous ways. It will not only stifle innovation, it will likely result in the evacuation of insurance providers from the market as they get caught in a “death spiral” caused by the simultaneous mandatory insurance of the sick while healthy individuals increasingly choose to pay the fine rather than purchase health coverage. Richard Epstein has also argued that ObamaCare’s regulatory controls on health insurance providers will “systematically strip[] the regulated health-insurance issuers of their constitutional entitlement to earn a reasonable rate of return on the massive amounts of capital that they have already invested in building out their businesses,” thus converting “health insurance companies into virtual public utilities.” Or, in the words of Cannon, “Compulsory health insurance enables, and ultimately would require, politicians and government bureaus to control nearly all aspects of health care and medical practice.”
But perhaps the most insidious thing about ObamaCare is precisely the aspect that Professor Kerr seems to fall for: This is a government take-over clothed in market-based rhetoric. This take-over has been facilitated by nearly a century of constitutional misinterpretations that have left us with the “choice” between one unconstitutional system, a single-payer health care system, and another, the “market reform” of the individual mandate. Professor Kerr, like so many others, has been taken in by the façade of choice and markets. But this façade not only has political significance, it has constitutional significance.
Tax the Rich? Depends On How You Define Rich
Q3 2011 Reason-Rupe Public Opinion Survey
As the myriad of media polls have made clear, Americans are typically averse to tax increases except if offered the option to tax the “wealthy.” However, few polls ask respondents how they would define wealthy. The latest Reason-Rupe poll takes on this task by asking respondents to define what level of income they would define as wealthy and thus would be subject to higher taxes. Similar to a step function, as individuals’ incomes increase their definition of “wealthy” increases also, especially for households with annual incomes over $200,000. For instance, the median household making $25,000-$49,999 a year believes that “wealthy” is defined as $200,000 year. However, the median household actually making over $200,000 a year believes that “wealthy” is defined as $500,000. More discussion can be found here.
‘Incredible Shrinking Presidency’? I Wish!
My Washington Examiner column this week looks at the eternal recurrence of a media myth, “the Incredible Shrinking Presidency.” We go through a cycle of media hand-wringing about a weakened presidency virtually every time a president runs into trouble in the polls. The most recent example is the Politico‘s September 7 cover story on “The Incredible Shrinking President,” examining “a once muscular presidency’s dramatic downsizing.” (Richard Cohen actually beat them to the punch, a year to the day before the Politico story ran, with “Obama’s Shrinking Presidency.”)
As I write in the Examiner, “it’s a peculiar office, the presidency. Apparently, it keeps shrinking, but — with an executive branch of some 2.1 million civilian employees and counting — it never gets any smaller.” I take a look at the “shrinking presidency” meme during the Bush years:
A little over 10 years ago, the Wall Street Journal ran a column by then-Washington editor Al Hunt with the same title, “The Incredible Shrinking President.”
President Bush was “on the defensive,” Hunt insisted — increasingly weak and irrelevant. Three days later, al Qaeda toppled the twin towers, and, in short order, America had embarked on a seemingly permanent war, with permanently enlarged powers for the commander in chief.
But the shrinking-CINC meme somehow refused to die. After Bush’s Republicans lost the House and Senate in the 2006 midterms, the Economist led with a story on, yes, “The Incredible Shrinking Presidency.” The magazine’s cover featured a caricature of a dwarfish Bush, his head peeking above the top of a cowboy boot.
During the Clinton administration, Arthur Schlesinger Jr., who coined the phrase “Imperial Presidency,” could be found announcing the institution’s demise—-and sounding almost despondent about it. In an August 1998 New York Times op-ed, “So Much for the Imperial Presidency,” Schlesinger complained that independent counsel Ken Starr had left the executive branch ‘‘harried and enfeebled.’’ Not too long after, the ‘‘harried and enfeebled’’ president carried out a 78-day air war over Kosovo despite Congress’s refusal to authorize it.
This silly meme is, it seems, as resilient as the modern presidency itself. But the truth is, as Yale’s Jack Balkin wrote on the eve of Obama’s inauguration, “in terms of the possibilities of power, the Presidency has never had more tools at its disposal….This trend in Presidential power building poses enormous risks for liberty whoever occupies the White House.” The presidency isn’t “shrinking”–but it should.
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