Author Archive
An Unnecessary, Expensive, and Probably Unconstitutional Board
Congress should pay attention to what is happening with one of their recent creations. The Securities and Exchange Commission will soon appoint two members of the Public Company Accounting Oversight Board (PCAOB), a private monopoly that was created by the Sarbanes-Oxley Act of 2002. This board is unnecessary, expensive, and probably unconstitutional.
This board was created to establish auditing standards for all public accounting firms and to monitor the performance of these firms, based on the presumed failure of Arthur Andersen, one of the formerly Big 5 public accounting firms, to adequately audit the financial reports of Enron. The Sarbanes-Oxley Act, however, left in place a major conflict of interest affecting these firms: The public accounting firms continue to be paid by the companies that they audit. Instead of correcting this conflict of interest, Congress established a new board to regulate all of the public accounting firms, although only a few such firms have ever been charged with a major breach of auditing standards. Congress could have corrected this conflict of interest by shifting the payment for audits from the audited firms to the stock exchanges on which the firms are listed; the stock exchanges would then recover the audit payments in their listing fees. In this case, the PCAOB would be unnecessary, an overreaction to what was apparently a rare breach of the existing auditing standards.
The PCAOB is outrageously expensive. The chairman is paid an annual salary of $615,000, and each of the other four members are paid an annual salary of $500,000 — in both cases, a multiple of the salary of the President of the United States who has many more serious problems to worry about.
Moreover, all of the candidates for the two open positions are current or former federal officials for whom a much lower salary was a sufficient incentive.
As a private monopoly with both regulatory powers and taxing powers, the PCAOB is probably also unconstitutional. The PCAOB sets its own budget that is financed by a mandatory fee on all public listed corporations. A case has already been filed that challenges the constitutionality of the PCAOB, which if successful would probably invalidate the whole of the Sarbanes-Oxley Act. So much the better.
For an update, see here.
Build a Wall around the Welfare State, Not around the Country
Most of the members of the conference committee on the immigration bill seem to have forgotten our own heritage.
Compared to the present, the United States had a higher rate of immigration just prior to World War I when we had no significant immigration controls (except against the Chinese) and no federal welfare programs. Most of these immigrants were from Ireland, Italy, Hungary, Poland, and other poor European countries; most spoke no English and had only crude manual skills. Many Americans from families who had been here for more than a few generations were prone to speak disparagingly about the status and prospect of the new immigrants. For all that, almost all of these new immigrants (including my grandfather) were work-oriented, family-oriented, no burden to others, and, within a generation, fully assimilated Americans.
Most current immigrants, other than being Hispanic, are very much like those who chose to make their future in the United States a century ago. The record of recent immigrants is impressive: a relatively high employment rate, a relatively low rate of birth to single mothers, and an unusually low incarceration rate. So far, the one major difference from prior immigrants is that the Hispanics are less education-oriented. Given the opportunity, there is every reason to expect them to be good workers, good neighbors, and fully assimilated Americans within a generation. Read the rest of this post »
House Faces the Dumbest Bill of the Year (So Far): A $2.10 Increase in the Minimum Wage
House Republicans have one last chance to demonstrate that they have any remaining intelligence or principles. On June 13, the House Appropriations Committee approved a bill that would increase the minimum wage from $5.15 to $7.25 per hour over the next three years. This bill, with the support of seven Republicans on the committee, would implement one of the highest priorities of the congressional Democratic leadership.
An increase in the minimum wage is one of the dumbest possible policies for the following reasons:
- The employment of the least-skilled members of the labor force—often new entrants—would be reduced.
- The non-wage benefits and working conditions of those who keep their jobs at the higher wage would probably be reduced.
- Most of those who keep their jobs at the higher wage would be secondary workers in non-poor families.
An increase in the minimum wage has long been a symbolic issue for the Democrats, however inconsistent with their other professed political values. House Republicans should challenge the Democrats on this issue, pointing out that an increase in the minimum wage would most hurt those that they claim to help. To do this, the House Republicans should split off the minimum wage provision from the appropriation bill, allow a separate floor vote on this provision, and demonstrate the absurdity of this proposal by a defeating this measure by a large margin. I’m waiting for a demonstration of good sense, in part, to determine whether there is any remaining reason to favor a Republican majority in the House.
A Case for a Different Libertarian Party
All of this blogtalk about which major party is likely to be more receptive to libertarian policy positions, I suggest, is a waste of time unless the winning candidate of either party is dependent on the votes of libertarians.
Increased outrage about the state of American politics and the prospect for a larger number of close elections increases the potential effectiveness of a different libertarian party — one that sometimes endorses one or the other major party candidate but does not run a party candidate for that position.
The Libertarian Party’s efforts to promote their policy positions by running Libertarian candidates is counter-productive when they reduce the vote for their favored major party candidates. A disciplined group that is prepared to endorse one or the other major party candidate in a close election, however, can have a substantial effect on the issue positions of both major party candidates. The following conditions must be met to achieve this effectiveness:
- The party cannot run a separate candidate.
- The size of the party must be larger than the expected vote difference between the major party candidates.
- After the major party candidates are selected, the party leadership must have the opportunity to bargain with both major party candidates on the issue positions of highest priority for the party.
- The party, as much as possible, must act in concert to support the major party candidate who is chosen by the members of the party in that district.
There is no reason for this libertarian party to be active in any district for which the party does not meet all four of the above conditions. (For most libertarians, the most difficult of these conditions to meet, I suspect, is condition 4.) In addition, the party should not emphasize the same issues in every district, because the choice of these issues should depend on those for which the major party candidates are willing to bargain.
This is a strategy to increase the approval of libertarian policy positions rather than the usually counter-productive effort to increase the number of votes for Libertarian candidates. Maybe it is better to term the organization that I have described as a libertarian political action group, not a libertarian party.
Republicans Need to Relearn How to Govern; Democrats Need New Policy Ideas
Harold Meyerson (Washington Post, May 10) was wrong to conclude that “The emerging Republican game plan for 2006…(reflects) their bankruptcy of ideas.” The Republican problem is not their lack of ideas but that the Bush administration has confused the politics of governing with the politics of campaigning. In 2005, President Bush proposed or endorsed major reforms of social security, taxes, immigration, and tort law. Most of these proposed reforms have not yet been addressed because the Bush administration would not work with Democrats to find a common ground, and the Democratic leadership would not even acknowledge the problems of current law that these proposed reforms would address. The prospect for comprehensive immigration reform is better only because of substantial support among the Democrats.
For all that, it is the Democratic Party that has been bankrupt of appealing policy ideas for the past 30 years. Marty Peretz, the editor of the New Republic, recently remarked that
It is liberalism that is now bookless and dying. Who is a truly influential liberal mind in our culture? Whose ideas challenge and whose ideals inspire? There’s no one, really. What’s left is the laundry list: the catalogue of programs…that Republicans aren’t funding, and the blogs, with their daily panic dose about how the Bush administration is ruining the country.
The policy proposals that are now bubbling up from the congressional Democratic leadership are a grab-bag of old ideas, some of which are remarkably dumb. An increase in the minimum wage is dumb because it reduces the employment of the least-skilled members of the labor force with most of the benefits accruing to secondary workers in non-poor families. An increase in the fuel economy standards is dumb because it reduces the cost of driving and applies only to new vehicles. One proposal that merits serious bipartisan attention is to revive the pay-as-you-go rules on federal spending and taxation that expired in 2002.
In summary, the Bush administration needs to learn how to govern, and the Democrats need to generate some appealing new policy ideas.
“Starve the Beast” Just Does Not Work
For nearly 30 years, many Republicans have asserted that the best way to control federal spending is to “Starve the Beast” by reducing federal tax revenue. Moreover, this assertion has been endorsed by two Nobel-laureate economists, Milton Friedman and Gary Becker.
There are at least three problems with this perspective:
- It is most implausible that reducing the tax burden of government spending on current voters would reduce the level of government spending that Congress would approve. In private markets, there is a consistent negative relation between the price of a good or service and the amount demanded.
- The “Starve the Beast” assertion is inconsistent with the facts, at least since 1980. My study finds that there was a strong negative relation between the federal spending percent of GDP and the federal revenue percent of GDP from 1981 through 2005, even controlling for the unemployment rate.
- An increased belief in the “Starve the Beast” assertion has substantially reduced the traditional Republican concern for fiscal responsibility – leading to a pattern of tax cuts, increased spending, and increased deficits. This pattern has been strongest during the current Bush administration, primarily because the Republicans control both the administration and a majority of both houses of Congress.
In 2005, federal revenues were 17.8 percent of GDP. My estimate is that an increase of federal revenues to about 19 percent of GDP would be necessary to stabilize the federal spending percent of GDP. Control of at least one house of Congress by the Democrats, however, is likely to be necessary to achieve this outcome. Republicans should not consider this inconsistent with Reaganomics. After the major reduction in marginal tax rates in 1981, Reagan approved tax increases in each of the next three years and a major tax reform that increased federal revenues in the short run.
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