Saturday, December 31, 2011

Baseline budgeting: legalized fraud in Congress

This past summer, the government reached a debt-limit deal where they agreed to cut federal spending by $2 trillion over the next 10 years. However, federal spending is still expected to increase by $7.5 trillion over that period. Keep in mind that the total expenditures for 2011 were about $3.4 trillion. How can it be, then, that after $2 trillion in so-called cuts, federal spending is still projected to triple in the next 10 years?


Part of the answer is a nefarious scheme called baseline budgeting. In baseline budgeting, every part of the budget automatically increases based on predictions by the Congressional Budget Office (CBO). For example, let's say that the budget for Health and Human Services (HHS) is scheduled to increase by 10% according to CBO projections. After a budget battle, fiscal conservatives in Congress successfully argue for a smaller 6% increase in the HHS budget. This would be reported as a 4% cut (and would result in much wailing and gnashing of teeth from progressives)--even though spending actually increases by 6% compared to the previous year.


On a larger scale, the CBO's "baseline" for the next 10 years includes a federal spending increase of $9.5 trillion. Say that Congress agreed to keep spending exactly the same for the next 10 years. That would be reported by the CBO as a $9.5 trillion budget cut. Democrats would be up in arms, vilifying Republicans for slashing social services and destroying the safety net--when in fact, not a cent of nominal federal spending would actually be cut. 


Some people have proposed zero-based budgeting (i.e. starting each year's budget from scratch) as an alternative, which would be preferable in theory. But that would greatly increase the time and complexity of the budget process because each line item would have to be re-approved every year, and the already terrible level of partisan gridlock would probably escalate by several orders of magnitude. A simpler solution would be to eliminate the automatic increases--in other words, the baseline for 2011 would be exactly the same as 2010 spending adjusted for inflation. This is how most corporations do their budgets. 


Now, it may be perfectly reasonable to occasionally increase some parts of the budget by a few percent due to population increases or higher costs. But that should be reported as a spending increase. Reporting it as a cut (because the baseline called for an even higher increase) is simply legalized fraud. If any business tried to report a 6% spending increase as a 4% cut (or vice versa), they would be thrown in jail right next to Bernie Madoff and the Enron execs.






Wednesday, December 28, 2011

As America gets poorer, Congress gets richer

In a previous post, I commented on how the president and Congress seem to primarily be working for the big guys. Big government has seen its power grow dramatically; Wall Street has been raking in dough; wealthy individuals and corporations can take advantage of numerous tax loopholes. Meanwhile, middle class jobs are being scuttled by powerful special interests such as the NLRB (in the case of Boeing) and the green lobby (in the case of Keystone XL).


One probable reason for this? Congress is populated overwhelmingly by the rich--and is getting richer while the country gets poorer. As you can see from the chart to the right, between 2004 and 2010 the median net worth of Congress grew by 15 percent while the median net worth of all Americans fell by 8 percent. Even more blatantly, the richest 10% of Congress saw their net worth increase by 33%, while the net worth of the richest 10% of Americans was essentially flat. In other words, if the Occupiers think that Congress currently favors the 1 percent, it is probably because Congress is the 1 percent.

Why is Congress getting so much richer? One obvious reason is that they can basically vote themselves a raise every two years regardless of their performance or that of the economy. But the huge windfall for the richest members of Congress is more a result of crony capitalism and insider trading. For example, during the Obamacare debates, John Kerry invested $200,000 in the healthcare company ResMed--and when Obamacare cut Medicare reimbursements, Kerry dumped his holdings in an insurance company that was heavily dependent on Medicare. Similarly, Dick Durbin liquidated a large chunk of his investments in September 2008 after Ben Bernanke warned him of a possible financial crisis. Rep. Darrell Issa (R-CA) once obtained $800,000 in federal earmarks for a road-widening project next to his land holdings.

Clearly, the rising cost of a political campaign (the average successful Senate run cost $10 million in 2010) is a major factor keeping the non-rich out of Congress, as well as giving significantly more power to special-interest donors. But sometimes I feel like we need a third elected branch of government, whose job is to investigate members of the executive and legislative branches and mete out penalties. In sports, athletes who take steroids are suspended for large portions of a season, and colleges that accept illegal donations are forbidden from competing in postseason games. If lawmakers who engage in business or land deals involving a conflict of interest, they need to be fined--or, for repeat offenders, banned from the next election.

Monday, December 26, 2011

Riots, fights break out among shoppers in line for $180 sneakers

On Christmas Eve, fights broke out at shopping malls across the country as people lined up before dawn to buy the new Air Jordan Retro XI shoes, which cost upwards of $180.

A crowd busted down the doors of a mall outside Detroit. Shots were fired around 6 am at a mall in Richmond, CA. Police were forced to use pepper spray in Seattle. People were trampled in Indianapolis. A woman in Atlanta left a 5-year-old and a 1-year-old in her car for over an hour while she went in to buy the shoes.

These actions seem even more disturbing to me considering the recent nationwide wave of protests over income inequality and against the so-called "1 percent." I doubt many of these shoppers were Wall Street executives, oil magnates, Fortune 500 CEO's, or their families. Yet these people are literally trampling each other in order to buy a pair of ridiculously overpriced sneakers (my last pair of sneakers cost about $35). According to Obama's logic, these shoppers are clearly not paying their fair share in taxes.

As I have said in many previous posts, I have no doubt that serious income inequality exists in this country. But something is wrong when people claim to be impoverished and then start tweeting on their iPhones. In fact, when I was a student teacher at a poor inner city high school, 100% of the students had smart phones. I feel like it would help a lot if people had better priorities, more responsible spending habits, and were not so addicted to consumerism.

Friday, December 23, 2011

Republicans nearly shoot themselves in the foot on payroll tax

Congress has agreed on a two-month extension of the payroll tax holiday, which prevents payroll taxes from going back up from 4.2% to 6.2% on January 1. However, this only happened because House Republicans finally gave up their bitter fight against the extension. The reasoning for their resistance made sense only from a pure economic-growth perspective. Historical data shows that stimulus payments and temporary tax cuts do little in terms of sustainable job creation or GDP growth. Long-term tax cuts, like those under JFK in 1961 or Reagan in 1981, have done much better at reviving the economy. A two-month extension could also create problems for businesses trying to budget their costs.

From a political perspective, however, repeatedly voting down the payroll tax extension was a colossal mistake. Ever since they gained back control of the House in January, Republicans have been stubbornly--and often understandably--resisting any and all tax increases. Most of the tax increases they fought against were, predictably, income tax hikes on the wealthy. Some Republicans, devotees of Grover Norquist, even fought against ending asinine tax breaks for special interests like ethanol because they considered that to be "raising taxes." 

Given that history, by trying to block the payroll tax extension the Republicans were simply asking to be portrayed as heartless, plutocratic buffoons. After fighting tooth and nail to extend the Bush tax cuts for the wealthy (warning of the dangers of raising taxes in a bad economy), the GOP was suddenly eager to let middle-class tax cuts expire. It seems like someone should have realized that putting themselves in a position to be blamed for millions of shrunken paychecks in a stalled economy was a really, really bad idea. Besides, I've mentioned in several previous posts about how destructive the payroll tax is--it's regressive for workers, and it directly discourages hiring. Better to just get rid of it completely and replace it with a national sales tax or something.

Saturday, December 17, 2011

Levin: Obama REQUESTED authority to detain US citizens

I would like to apologize for what appears to be a mistake in my last post.

I assumed that since Sens. John McCain and Carl Levin were the chief architects of the NDAA bill, and since McCain has been arguably the leading hawk in Congress for the past two decades, that they were responsible for writing the bill so that it would not exempt US citizens from indefinite detention. As for Obama, I assumed that withdrawing his veto threat was yet another example of his lack of courage--similar to delaying the Keystone decision or deferring entirely to Pelosi on the 2009 stimulus bill.

However, according to Carl Levin (see the video below), the original bill--which passed the committee--contained language that DID exempt US citizens from indefinite detention, but the Obama administration requested that that language be taken out. Unless Levin is lying through his teeth here, Obama is about to perpetrate the worst assault on civil liberties since McCarthyism and the Japanese internment.

And now I can only wonder why Obama--who was once so critical of the war on terror that he attempted to close Guantanamo and try Khalid Sheikh Mohammed in civilian court--would basically take a blowtorch to the Sixth Amendment.

Thursday, December 15, 2011

Congress passes act that could authorize indefinite detention of US citizens; Obama takes back veto threat

A new threat to civil liberties looms on the horizon. Congress recently passed the National Defense Authorization Act, which would open the door for indefinite detentions of anyone, including US citizens, that is considered to be "allied with al-Qaeda."

According to Forbes, the act allows for someone the government says is "a member of, or part of, al-Qaeda or an associated force" to be held in military custody without trial "until the end of the hostilities authorized by the Authorization for Use of Military Force." The hostilities it refers to are the conflict with al-Qaeda; in other words, the end of the hostilities is not in the foreseeable future. And there is nothing in the act that excludes US citizens from the authorization of military detention.

This is crazy. This act seems to completely throw away the protection of the Sixth Amendment in the name of security and the war on terror. Infinite detention of foreigners accused of terrorism is morally dubious; infinite detention of US citizens is appalling.

Earlier, Obama threatened to veto the act, which makes sense given his campaign promises to protect civil liberties and his earlier desire to close Guantanamo. But now Obama says he will not veto it. Instead of protecting civil liberties, Obama seems to be taking Bush's disregard for civil liberties even further. It is also saddening, but not surprising, that a majority of both houses of Congress voted for this bill. Congress' approval rating is in the single digits for a reason.

And finally, the sponsor of the bill? John McCain. I can only wonder if he would have gone even further with these draconian "security" measures had he won the 2008 election.

Wednesday, December 14, 2011

The case for a scaled tariff

Obviously, the jobs situation in the United States right now is not pretty. Unemployment remains high (and of course that does not include people who have stopped looking for work). Median inflation-adjusted wages have been stagnant for at least the past 10 years, if not the past 30. Income inequality is at an almost all-time high. Part of the current employment crisis stems from the Great Recession and the stalled recovery, but things have been trending badly for lower-middle-class workers since well before then.

Those on the right tend to blame excessive taxes and regulations which have hurt business, and they definitely have a point. But it's only half the picture. The other half is simple economics: if business owners can reduce costs by using automated labor or outsourcing their labor overseas instead of hiring American workers, they probably will. And they have. The manufacturing sector, in particular, has declined from 26% of all employment to 13% in the past 40 years, largely a result of technology and outsourcing. Some on the left gloomily predict that technology and globalization will lead to a steady decline in working-class jobs (leaving only a middling number of higher-paying jobs for well-educated or highly trained people) and result in cataclysmic income inequality. Predictably, they call for a large federal entitlement for everyone to "solve" the problem.

Clearly, a large new entitlement would result in much more centralized power, less economic freedom, and less incentive to work. Trying to curtail technological innovation would have the same effect. And according to classical economic theory, high tariffs only serve to protect inefficient import-competing industries while inviting retaliatory tariffs that hurt more efficient exporting industries.

The thing is, that theory only holds when trade is fairly balanced. The problem is that the US has a massive trade deficit with a number of developing countries (led by China) who limit their imports. So while we lose lots of jobs to outsourcing and imports from countries with lower labor costs, because of the trade deficit we gain a comparatively tiny number of jobs in exporting industries.

One possible solution, proposed by two authors at the American Thinker, is called a scaled tariff (look at the end of the article). In a scaled tariff, the tariff rate for each country is proportional to our trade deficit with that country. Thus the tariff would disappear once trade is balanced. Balancing trade might be one way to preserve our manufacturing jobs and our status as the world's dominant economic power.

Saturday, December 10, 2011

A three-man race: Mouch vs. Scrooge vs. C3PO


As we approach the Republican primaries, it is looking more and more like there are three clear front-runners in the race to be the next President of the United States. (Warning: this post is satire)

On the left, we have Wesley Mouch, the bureaucrat and orator whose goal is to "spread the wealth around." Every morning one can see a long line of special interest representatives in front of his desk, hoping that it is finally their turn to receive a waiver or special tax break from Mouch. He is hated by the 1%, who regularly check their closets and under their beds at night for fear that his ACORN minions will snatch their wealth away from under their pillows as they sleep. Small business owners have been seen stocking up on tea and fleeing into the Rocky Mountains, knowing the health-care penalties that await them if they dare to hire more than 50 employees. Mouch has a particular talent for delaying tough decisions until after the next election. Then again, since he was given a Nobel Prize for doing nothing, perhaps he is merely trying for a second one.

On the right, we have Ebenezer Scrooge. A tight-fisted hand at the grindstone, he is well remembered for the 1995 government shutdown, which caused much weeping and gnashing of teeth from lobbyists across the country and a large number of legitimate complaints as well. Miserly to the core, he has called for schools to save money by putting poor children to work as janitors. He maintains that he "cannot afford to make idle people merry"--and to him, the poor are all idle people, an inevitable result of growing up in neighborhoods where people have no work habits unless they are doing something illegal. He is also an outspoken proponent of "starving the beast". This angers many liberals who believe that the "beast" is really Prince Charming who was transformed into a beast by an evil Republican sorcerer sometime during the Reagan administration.

And finally, in the middle we have C3PO, protocol droid. He has a squeaky-clean appearance but a rather stiff demeanor. He also has a special talent for abruptly changing his programming in order to appeal to any particular constituency he wishes. However, he has struggled to convince evangelicals that he was in fact created by God and not by a young Darth Vader on Tatooine. Few doubt his competence, but he lacks charisma and sometimes displays a paranoia that causes him to flee from confrontations rather than engage political opponents head-on at debates. The presumptive Republican front-runner since 2008, he has nevertheless failed to put any distance between himself and his primary opponents, leading many of his supporters to admit that they "have a bad feeling about this."

Monday, November 14, 2011

Obama: A President For the Big Guys

By his own account, Obama is a protector of the little guy. However, when you look at who has actually benefited the most during his administration, the exact opposite becomes true. The two clear winners of the Obama presidency have been big government and Wall Street. The losers? Workers, small businesses, and small banks.

While Obama may denigrate Wall Street as "fat cat bankers," according to the Washington Post he has raised more from Wall Street than all of the Republican candidates combined. Not only that, Wall Street firms have earned more in the first 2 1/2 years of the Obama administration than they did during the eight years of the Bush administration. Think about that for a second. Under Obama, Wall Street has made three times as much money per year in a historically bad economy than they did under Bush in a generally good economy.

Smaller banks? They haven't fared as well. Regulations like Dodd-Frank are far too watered-down to prevent the problems that caused the 2008 financial crisis, but they are complex enough to force small banks to spend inordinate amounts of money on compliance.

And then there's big government, which now employs 140,800 more people than at the beginning of Obama's tenure. Obamacare has given unprecedented power to government officials--however, its passage in March 2010 was followed by a sudden halt in private-sector hiring. I don't see this as a coincidence. Again, big businesses have the resources to give government-approved health insurance to all their workers. But small businesses--the country's top job creators--often do not. The thing is, small businesses are only exempted from Obamacare cost burdens if they have less than 50 workers. So basically, Obama's message to small companies with 30-40 workers is "Don't expand, and stop hiring." Interesting message coming from a president who claims his top priority is jobs.

Speaking of jobs, a Canadian company wants to build a pipeline from Alberta to Texas that would employ over 20,000 workers. Obama, however, announced that he is delaying approval until 2013--after the elections. It seems that appeasing environmental activists in an election year is actually more important to Obama than jobs. I would almost understand it if he killed the project because he truly thought that a pipeline would do too much damage to the environment. But punting until 2013 just gives the impression that he is too cowardly to make a decision that might offend special interest groups. Winner? The environmental lobby. Loser? Once again, American workers.

Thursday, November 10, 2011

Supercommittee proposal would raise $500 billion in new revenue--but Democrats reject it

According to the Wall Street Journal, Pat Toomey and the five other Republicans on the Congressional "deficit supercommittee" recently proposed a plan with $750 billion in spending cuts and $300-500 billion in new revenue over 10 years. Under the plan, tax rates would be cut--the top rate would fall from 35% to 28%, and rates from other brackets would be lowered proportionally. However, the plan more than makes up for it by severely limiting deductions, very similar to a bipartisan tax reform measure that was enacted in 1986. The Joint Tax Committee determined that even with no economic growth, the tax changes would raise $300 billion in tax revenue over the next decade. (An additional $100-200 billion would come from changing the way tax brackets are adjusted for inflation.)

Democrats, however, rejected the proposal. And one can only wonder why. There were no cuts to Medicare or Medicaid. The 1.5 to 1 ratio of spending cuts to revenue increases is better for the Dems than the 3 to 1 ratio promised by the Simpson-Bowles plan.

It could be that Democrats see lower tax rates as symbolically intolerable, even if the rich (who reap most of the benefits from tax deductions) would actually pay more under the new plan. Or, it could be that they see "compromise" as a 1 to 1 ratio of spending cuts to revenue increases. In that case, it seems the Democrats would have rejected Simpson-Bowles as well, unless (as some conservative critics claim) it was a bluff containing spending cuts that would never materialize.

Either way, Democrats have just defeated a plan that provided the "balanced approach" to deficit reduction that they keep clamoring for. And by eliminating deductions, it would have made the tax code more fair and helped to curb special interest power as well.

Wednesday, November 9, 2011

More Government Ridiculousness: A Christmas Tree Tax!

Yep. That's right. President Obama’s Agriculture Department today announced that it will impose a new 15-cent tax on all fresh Christmas trees to support a new Federal program to improve the image and marketing of Christmas trees.

Honestly, this sounds like something Jon Stewart or Stephen Colbert would make up to parody the White House. How, exactly, will this help anyone? What is currently wrong with the image or marketing of Christmas trees, anyway?

Monday, November 7, 2011

Occupy Wall Street and the Tea Party need to work together

Yes, that's right. What we need is some form of collaboration between the Occupy movement and the Tea Party. That seems to me to be the best way--perhaps the only way--to have a good chance of fixing the status quo of dysfunctional partisan politics.

At first glance, Occupy Wall Street and the Tea Party seem like the Hatfields and the McCoys--no way would they ever work together. But they actually have quite a lot in common. Both are vehemently against the status quo. Both argue that the American people are being screwed over by a small minority of powerful people at the top. Both have widespread popular support. And in my view, both of their main points are extremely valid.

For the Occupiers, the enemy is the so called "1 percent," Wall Street in particular. For the Tea Party, the enemy is a different 1 percent: politicians and lobbyists and their ilk. They're both kind of right. Wall Street took lots of foolish risks that led to the 2008 financial crisis--but did so in large part because government gave them huge incentives to do just that. The government gave Wall Street massive bailouts and refuses to pass meaningful financial regulation, in large part because so many people in Congress and in the Obama cabinet are either bankrolled by Wall Street or former Wall Street employees.

Unfortunately, both movements have a tendency to go off the deep end as well. Occupiers tend to view government as the solution to the problem rather than a co-conspirator in the plot. In an era where trust in the government is as low as during Vietnam and Watergate, calls for more government are not going to be well-received by the majority of the people. Besides, given the government played a big part in causing the problem, more government will almost certainly make things worse. The Occupy movement also tends to have a negative view of business in general, also counterproductive during an unemployment crisis.

On the other hand, I am baffled and a bit disturbed by how often GOP candidates have railed against the so-called "47% of Americans who don't pay taxes," and by the continued support for Cain's 9-9-9 plan even though analysis has shown it will raise taxes significantly on lower-income people. I don't really know how much this is attributable to the Tea Party, but given the significant Tea Party influence in recent GOP politics, and the popularity of the 9-9-9 plan among GOP voters, I have to think there is a connection. Calling for more taxes on the poor is an almost surefire way to turn off large swaths of American voters. For two years I made less than $14,000, which put me among those despised 47% who paid no federal income tax. But payroll tax and sales tax still ate up about 7-8% of my income. That's quite a bit.

I really think that the Occupy movement and the Tea Party could find a common cause and become a considerable force for real reform in Washington that limits the power of both government and their Wall Street cronies. Given the polarized partisan nature of politics today, though, it probably won't happen.

Sunday, November 6, 2011

Fiscal Chicanery Fails: Obamacare's CLASS Program to be Suspended Indefinitely

During the debates on Obamacare, one of the major talking points for supporters was that "Obamacare will cut the deficit." The Congressional Budget Office (CBO) released estimates showing that Obamacare would cut the deficit over the period from 2010 to 2019. To me, however, this seemed to contradict common sense. How could a massive entitlement program actually cut the deficit without equally massive tax increases?

Well, one of Obamacare's gimmicks was exposed on October 14. The CLASS Act, a long-term care insurance program, was set up to charge participants for at least five years before they became eligible for benefits. It was estimated to create a $70 billion surplus for the first ten years, which could be used to pay for Obamacare and contribute to the program's so-called deficit savings. Conveniently, the CBO only projects the fiscal impact of legislation for the first ten years.

The problem is, of course, that after ten years or so, all of the people who had been paying into the system for five years would start receiving benefits. And healthy people would have no incentive to sign up for CLASS; it would only attract participants who expected to draw significant benefits. It was a budgetary time bomb. Democratic Senator Kent Conrad called it "a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of."

And it seems like the White House has been forced to admit that Conrad and other critics of the program were correct.

Saturday, November 5, 2011

9-9-9 solves some problems, but may create bigger ones

Herman Cain's "9-9-9" tax plan is an interesting and radical proposal. It would scrap the current federal tax code completely and replace it with a 9% income tax, a 9% national sales tax, and a 9% corporate tax. Since Cain continues to lead in the GOP polls, his plan clearly has some support at least among Republicans.

And it does make some major improvements on the current tax code.  The payroll tax discourages hiring, hurts small businesses and low-income workers, and is almost hidden from view. The current marginal rates are very high, including a confiscatory 35% on businesses, which discourage production.Worst of all, the tax code is loaded with deductions and loopholes, which (combined with high marginal rates) encourage the special-interest lobbying and economic sleight-of-hand that are poisoning the current system. Under the current tax system it is very easy for the government to pick winners and losers. By zapping most of the deductions and loopholes and eliminating the payroll tax, Cain's plan does well.

The problem, though, is that the 9-9-9 plan is simply not fair.

There are three kinds of taxes. In a progressive tax, the rich pay a higher percentage than the poor. In a flat tax, everyone pays the same percentage. In a regressive tax, the poor pay a higher percentage than the rich.

Clearly, a regressive tax system would not be fair. We would also not want a tax system that is overly progressive. A very good argument can be made for a flat tax, as long as there exists a reasonable individual deduction to prevent the tax from hitting the very poor. There is also a very good argument for a tax system that is somewhat (but not overly) progressive. In the words of Adam Smith:


"It is not very unreasonable that the rich should contribute to the public expen[s]e, not only in proportion to their revenue, but something more than in that proportion."


Where does the 9-9-9 plan fall? Well, there are two taxes for individuals, the 9% income tax and the 9% sales tax. The income tax, of course, is flat. The problem is the sales tax. Sales taxes are almost always regressive, because the poor need to spend a higher percentage of the money they make. So the 9-9-9 plan replaces the current progressive tax system with a combination of a flat tax and a regressive tax, which is overall regressive.

That's not to say a national sales tax is a bad idea. While sales taxes are regressive, they do not distort incentives nearly as much as income taxes, because they discourage consumption instead of production. However, a national sales tax would need to be combined with a progressive income tax in order for the system to not be regressive overall. If Cain proposed a four-tier income tax (say, 5-10-15-20) with no loopholes or deductions, combined with a 9% national sales tax, a 9% corporate profits tax and a 9% capital gains tax, I'd vote for that in a second.

Monday, October 3, 2011

"Occupy Wall Street" protesters call for more use of force by government

At first glance, I liked the idea of the "Occupy Wall Street" protests. I agree that Wall Street currently has way too much power (in a previous post, I compared Wall Street to Orren Boyle, the conniving crony capitalist villain from Atlas Shrugged). However, it seems that the protesters are completely misinformed about the source of Wall Street's power, and some of the "solutions" they proposed were fairly frightening.

Journalist and anti-war activist Adam Kokesh interviewed several of the protesters in DC. Many of them called for additional government regulations and the re-election of Obama. This seems a bit odd, considering the number of Wall Street operatives in Obama's cabinet, and the fact that one-third of the money he has raised so far for his 2012 campaign has come directly from Wall Street. These protesters seem to think that somehow a candidate that is bankrolled by Wall Street can effectively check Wall Street's power. They fail to understand that Wall Street has so much power largely because they have bought off so many people in government--and have received lots of sweetheart deals, loopholes, and bailouts in return.

While that is puzzling, this sign that was being carried at the protest is disturbing. It reads: "A government is an entity which holds the monopolistic right to initiate force." One of the protesters that Kokesh interviews also says that he supports the use of force by government if it will "maximize social justice...maximize freedom...and improve the lot of everyone." I believe that is very similar to the argument used by Hitler to pass the Enabling Act. And besides, how can people rail against Wall Street having excessive power...and then call for an even more powerful institution, the government, to use force? Do they actually want a totalitarian government?

Wednesday, September 28, 2011

Mitt Romney: Forced to flip-flop?

In a 1994 debate with Ted Kennedy, Mitt Romney stated that although he was personally opposed to abortion, he was "committed to the belief that we can believe as we want, but we will not force our beliefs on others on that matter." He also revealed that a close relative of his had died at the age of 21 after a botched illegal abortion.


As recently as 2006, Romney guaranteed by law that Planned Parenthood would appoint a member of the advisory board for Massachusetts' health care system.

Then in 2007, just in time for the Republican primaries, Romney began proclaiming his firm opposition to abortion. This has probably contributed to some people's view of him as a "flip-flopper," a "chameleon," or a "hypocrite." Certainly, however, he is not the first presidential candidate to be tagged with this label.

There are two questions that must be asked here. First, is Romney being completely honest now when he says he is firmly pro-life? I think the answer is no--the timing and suddenness of his change just seems too obvious. (For the record, I support abortion rights in most cases; I am commenting solely on his quick change of position).

Secondly, how much can we blame Romney for his flip-flop? His 1994 stance on abortion is not an extreme position--a clear majority of Americans think that abortion should be legal under at least some circumstances. Furthermore, I think that a fiscally conservative candidate with moderate pro-choice views would have a good chance against Obama in a general election. However, Romney must have realized in 2007 that because of his abortion views, he had almost zero chance of winning the Republican nomination. In order to have a chance at becoming President, he had to flip-flop.

I am in no way trying to argue for or against Mitt Romney as a presidential candidate. All I am saying is that, sadly, pro-choice Republicans or fiscally conservative Democrats or (in the past few elections) anti-war Republicans have almost no chance of becoming President. The current partisan primary system basically guarantees that every nominee will more or less follow the Republican or Democratic party line. If they deviate even a tiny bit, they usually have to pretend like they are more conservative/progressive than they really are in order to win the nomination. This is why so many candidates seem like flip-floppers.

In Year 1 of Obamacare, family insurance premiums rise 9%

Despite the many flaws in our healthcare system, one positive trend in the 2000-2010 decade was that family health insurance premiums increased by smaller and smaller amounts each year, as you can see in the chart on the right. In 2002, premiums rose by an eye-popping 13.3%. By 2010, however, the annual increase in health premiums was down to 2.9%. It seemed that insurers were finally figuring out how to keep costs down. And Obama promised that his new healthcare plan would also help to lower insurance premiums.

Except that in the year after ObamaCare, insurance premiums rose by 9.5%, the highest annual increase since 2004.

Some ObamaCare defenders are blaming "bad forecasts," although it's hard to imagine why the forecasts would be that much worse in 2011 than in 2010. More likely is that Hewitt Associates and the AARP was correct in predicting that ObamaCare would cause substantial premium increases. After all, if Obama's plan did actually lower costs, then why would he need to hand out all those waivers?

Sunday, September 25, 2011

Want to start a business? Sorry, not unless it's OK with your competitors.

In 2009, St. Louis entrepreneur Michael Munie wanted to expand his moving business to operate throughout the state of Missouri, and asked the state for a permit. However, under a 70-year-old law, the Missouri Department of Transportation cannot issue a permit without notifying the existing moving companies and giving them a chance to object. Of course, four of them did object, arguing that a new moving business could result in a "substantial diversion of traffic" from their own businesses. If I'm not mistaken, we used to call that "competition," and it used to be considered a good thing because it brought lower prices and economic opportunity.

After the existing companies submitted their objection, Munie was forced to go to a hearing and prove to a panel of bureaucrats that there is a "public need" for a new moving company. Sadly, I am not making this up. For the Missouri Department of Transportation, competition is apparently a bad thing, and it is only permissible to start a business if there is a "public need" for it.

This is not unique to the moving industry, either. The Florida House of Representatives recently tried to end heavy-handed licensing requirements that made it extremely hard for people to set up shop as interior designers. A fierce battle ensued in the legislature. Licensed interior designers warned lawmakers that ending license requirements for interior designers would result in "88,000 deaths every year" from poor fabric selection. "Do you know the color schemes that affect your salivation, your autonomic nervous system?" inquired one professor.

The state attorney general's office, however, has admitted that unlicensed interior designers pose no actual threat to public safety. Floridians need not worry about fatal color schemes.

With the help of government, Missouri moving companies and Florida interior designers have basically formed cartels, making it next to impossible for new people to enter those fields. Unless government gets out of the way, other cartels will be sure to follow.

Thursday, September 22, 2011

A second Gilded Age?

For those unfamiliar with the Gilded Age, it was an era of government dysfunction that lasted from about 1877 to 1900. The gap between rich and poor was enormous. Partisan gridlock in Congress was the norm. Powerful political organizations got out the vote for their candidate and were rewarded with generous favors once the candidate was elected. Large monopolies or near-monopolies wielded enormous power over the government and were said to have bought certain senators. And corruption and crony capitalism were rampant and bipartisan. In fact, as Pittsburgh Tribune-Review columnist Salena Zito argues, it was very much like the political situation today.


In this 1890's political cartoon, a number of bloated figures--representing the "Iron Trust," "Standard Oil Trust," "Copper Trust," "Steel Trust," and various other monopolies--have taken over the Senate. Today the cartoon is just as true; all that needs to change are the names on the figures' bellies. Instead of the Oil Trust and the Steel Trust, we have Giant Banks, Fannie Mae/Freddie Mac, the Military-Industrial Complex, Public Employee Unions, Giant Hedge Funds, Trial Lawyers, et cetera.

In response to the corrupt excesses of the Gilded Age, a populist movement--the Progressive movement--formed in the 1900's. This movement was the driving force behind several important changes: antitrust legislation, direct election of senators, state-level referendums, and (somewhat unfortunately) the income tax. The people largely blamed local and state-based political machines for the corruption, and thus enacted reforms that strengthened the federal government and made all levels of government more responsive to the people.

Similarly, the Tea Party is a populist response to the partisan bitterness and special-interest power that characterize today's politics. In contrast to the Progressives of the 1900's, the Tea Party blames most political problems on the federal government, and thus their goal is to weaken the federal government and give more power to the states and the people. Even outside of the Tea Party, independents in general are fed up with government (as shown by the record-low approval rating for Congress). In 2006 and 2008, independents angrily threw Republicans out of office. Since 2010, the voters have turned their anger towards the Democrats. One has to wonder how long this political ping-pong will continue before someone finally enacts meaningful reform.

Wednesday, September 21, 2011

Social Security: A Ponzi scheme that must be saved

When Rick Perry referred to Social Security as a "Ponzi scheme," he was right on. As Charles Krauthammer explains in the New York Daily News, in a Ponzi scheme, investors eventually get their money back with interest--but what they get back consists entirely of money put in by later investors. Eventually, the scheme runs out of investors and collapses, and everyone remaining in the system loses everything.

In Social Security, the same thing happens. A 75-year-old beneficiary is not getting her money back--that money went to pay someone who retired years ago. Instead, she is getting the money that is paid into the system by current workers. It works exactly like a Ponzi scheme.

The difference, of course, is that people are required by law to invest in Social Security. Thus it is assured that the system will never completely run out of investors, which is why Social Security has not collapsed. The thing is, even if it never completely runs out of investors, it will still fail if there aren't enough people paying into the system to support the current beneficiaries.

Fixing it, however, is not hard to do according to Krauthammer:

"Three easy steps: Change the cost-of-living measure, means test for richer recipients and, most important, raise the retirement age. The current retirement age is an absurd anachronism. Bismarck arbitrarily chose 70 when he created social insurance in 1889. Clever guy: Life expectancy at the time was under 50.

When Franklin Roosevelt created Social Security, choosing 65 as the eligibility age, life expectancy was 62. Today it is almost 80. FDR wanted to prevent the aged few from suffering destitution in their last remaining years. Social Security was not meant to provide two decades of greens fees for baby boomers.

Of course it's a Ponzi scheme. So what? It's also the most vital, humane and fixable of all social programs."

Wednesday, September 14, 2011

NLRB vs. jobs

In the words of the Chicago Tribune: "You have to wonder about a federal agency that sticks it to an American manufacturer creating thousands of good-paying jobs inside the nation's borders, instead of overseas.

Last week, President Obama gave a long speech about job creation. Boeing, however, has done more than give speeches: it is trying to create thousands of jobs--and not minimum wage jobs, either--by opening a new 787 assembly plant in South Carolina. Those jobs are in some danger, however, because of charges brought by the NLRB under the direction of the very same President Obama. The NLRB's complaint? Boeing is opening its new plant in South Carolina, a right-to-work state, rather than Washington where it has its headquarters. Never mind that no workers in Washington are going to be fired. The NLRB somehow thinks that it can tell companies where to build new plants.According to a poll by the Tarrance Group, 78% of Americans disagree and side with Boeing.

This leads one to wonder how much Obama actually does want to create jobs. If it was a priority of his, then it seems he would at least make sure that no part of the executive branch did anything to hinder job creation. Based on the actions of the NLRB, power, not jobs, seems to be Obama's chief concern. He seems to only be interested in creating jobs if the jobs are somehow under his control.

To stop the NLRB's overreach, Republicans in Congress have introduced legislation that prevents the NLRB from ordering employees to close plants or relocate employment. If that is vetoed or falls in the Senate, they may resort to stall tactics. According to the same Tribune article, Obama's recess appointment of board member Craig Becker runs out Dec. 31. and his departure would leave just two of the board's five seats occupied. So in the absence of any new appointments — which Republicans have vowed to block — the board will fall short of a quorum.

So what we have here is a federal agency trying to blatantly overstep its bounds and destroy thousands of jobs in the middle of a recession. Furthermore, Congress may not be able to stop it without effectively shutting the NLRB down completely, preventing it from performing its legitimate functions of investigating unfair labor practices. What a mess. 

Wednesday, August 31, 2011

GOP needs to stop resentment of low-income people who don't pay income tax

Traditionally, the Republican platform has been lower taxes for everyone, rich, middle-class, and poor alike. Both Reagan's and Bush's tax cuts benefited almost all workers. Recently, however, some Republicans, including several of the leading candidates, have been complaining about the poor not paying enough taxes. Specifically, they say it is a big problem that 47% of Americans do not pay income tax. In some ways, I see their point. If people are receiving social services but not paying for them, there is nothing to stop them from continuing to vote for more and more government services, ad infinitum. However, the working poor already pay quite a bit of tax: payroll taxes, sales taxes, and gas taxes. Saying they need to pay more tax--while also calling for less overall spending on social programs--is an extremely tone-deaf stance that could cost Republicans a lot of working class votes. It smacks of contempt for the poor and class warfare in reverse.

When I worked as an AmeriCorps volunteer three years ago, I made $900 a month before taxes. The $65 or so in payroll taxes that they took out of each month's pay was a huge hit. My AmeriCorps director encouraged me and my fellow volunteers to go on food stamps. I desperately wanted to avoid relying on government assistance, and managed to make it work--but that was possible only because I did not have to pay income taxes. If Republicans did raise taxes on the poor, many of them would probably just use more food stamps and welfare money. The end result would be more taxes and more government spending--which doesn't seem like what the Republicans want.

In fact, here is a Businessweek article by a conservative economist that calls for expanding the earned income tax credit in order to reduce dependence on welfare.

There is still, however, the issue of people receiving social services without paying for them. I can think of two ways to address this issue without raising taxes on the poor. One, limit the child tax credit, WIC, and similar programs so that credits/benefits gradually phase out after two children or so. At some point, parents have to be responsible for supporting their own children, and the government should not subsidize (i.e. encourage) people who have large numbers of children that they cannot support. Secondly, eliminate the payroll tax, replacing the worker's portion with an additional equivalent amount of income tax. I've already discussed the evils of the payroll tax (it's regressive, it often goes unnoticed, it discourages job growth by taxing hiring). Plus, that way, when Congress wants to cut or raise income taxes, every worker will feel the effects to some degree. Hopefully people will start to realize that they have to pay more to get more, and that tax cuts can help people at all income levels not just the rich.

As a candidate, Obama opposed an individual health-care mandate

During the 2008 primaries, Obama actually came out against an individual health-care mandate with this very sensible argument:

"If a mandate was the solution, we could try that to solve homelessness by mandating everybody buy a house. The reason they don't have a house is they don't have the money. So our focus has been on reducing costs, making it available."

Unfortunately, he abandoned this belief once he was elected, and signed a health care bill with an individual mandate that has been declared unconstitutional by several appeals courts. Perhaps someone needed to remind him of this quote during the Obamacare debates.

Speaking of presidents who abandoned previously stated positions, with decidedly negative results:

"Somalia...started off as a humanitarian mission then changed into a nation-building mission and that's where the mission went wrong...I don't think our troops ought to be used for what's called nation-building."
--Candidate George W. Bush

As president, of course, Bush led us into two very costly nation-building exercises on a scale not seen since the 1940's and which have dragged on for almost a decade. 9/11 may have justified the initial attack on the Taliban, but I don't understand why Bush changed his mind so dramatically on the wisdom of nation-building.

Tuesday, August 30, 2011

Environmental authorities cracking down hard on...musicians?

Musicians who play vintage guitars and other instruments are now increasingly afraid to take those instruments out of the country when they go on tour. A lot of old instruments contain materials (such as ivory, ebony, and various types of wood) that are now environmentally restricted. According to the Wall Street Journal, customs officials have been seizing them if their owners do not have complete documentation proving that no piece of the instrument (no matter how small) was obtained illegally. For instruments that may be 80 or 100 years old, that documentation can be very difficult or even impossible to get.

A blues guitarist (who is also a law professor) now says that he won't go out of the country with a wooden guitar. An Atlanta businessman recently tried to import several antique pianos, which clearly predated any restrictions on ivory keys. But he still faced criminal charges when he didn't have his paperwork straight, and he ended up pleading guilty to a misdemeanor and paying a $17,500 fine in order to avoid years of prison time.

Makes sense, right? I mean, musicians are such a grave threat to ecosystems worldwide.


Monday, August 29, 2011

Ten years after 9/11, has anybody won the war on terror?

With the tenth anniversary of 9/11 approaching, it's safe to say that Al-Qaeda has lost the war on terror--after all, Bin Laden is dead and much of their leadership and global influence has all but disappeared. But the real question is, who won? New York magazine columnist Frank Rich argues that America is suffering from a number of problems today that can be traced directly to our government's response to 9/11. And if you can look past a few of Rich's more partisan comments, I feel that overall he makes a good point. It could be that the war on terror, like Vietnam and WWI before it, has been a conflict with no real winner.

9/11 had the potential to unite us, and for a short while it did. But eventually, as Bush started using it as an excuse to invade Iraq, the unity died. Instead, one was either with the White House or with the terrorists. Many have accused the mainstream media of cheerleading the war and not providing a balanced analysis of the rationale for the invasion. People who criticized the president or the Iraq War were attacked as "unpatriotic." Instead of unifying us, the Iraq invasion and its aftermath seems to have ignited the bitter partisanship that now seems to pervade Washington. Before Iraq, Democrats and Republicans could actually work together. Now, any politicians who attempt to compromise are viewed by their base as "surrendering." Bashing the president was not nearly as popular in the media before 2003 as it has been in the past eight years, no matter which party has controlled the White House. Trust in government has plummeted to all-time lows.

Perhaps a bigger problem was, as Rich puts it, the war was fought by a "largely out-of-sight, out-of-mind" army and paid for by a "magic credit card." As support for the war waned, the military resorted to widespread dishonest recruiting and unprecedented use of stop-loss policies to keep up troop levels. Washington also thought that they could pay for the war almost entirely through deficit spending. Taken together, the Iraq and Afghanistan wars, the continuation of the Bush tax cuts, and the Medicare prescription drug entitlement are responsible for the majority of our national debt at this point, and played a huge role in the S&P credit downgrade.

The war on terror has clearly been a defeat for Al-Qaeda. But with bitter partisan divisions, massive debts, and a seemingly endless conflict in Afghanistan--all a result of the war on terror--can we really say that we have won?

Government by the special interests, for the special interests

As a candidate in 2008, Barack Obama focused much of his message around overcoming "politics as usual" and bringing about change that would benefit the true public interest. That was one of the main reasons I voted for him, despite the fact that I disagreed with him on most matters of economic policy. When Obama was elected, much of the country hoped that he would take steps to work with Republicans and to cut down the influence of lobbyists and special interests in Washington.

In reality, however, Obama, Pelosi, and Reid did exactly the opposite. In their two years of unopposed control over Washington, they rarely passed up an opportunity to throw red meat to their favored special interests, usually screwing over the American people as a result. Jay Cost of the Weekly Standard has the full story, but here's a summary:

1. A massive stimulus bill heavy on pork and various pipe dreams such as "green initiatives," but little actual stimulus.

2. Giving a majority stake in Chrysler to the United Auto Workers. (Isn't that a conflict of interest for a labor union to own the company that employs its members?)

3. The attempted cap-and-trade bill, which would have made environmentalists happy--but which would also have hit businesses and individuals extremely hard, likely causing a huge spike in unemployment

4. The toothless financial reform bill, basically a sweetheart deal for Goldman Sachs and all the other Wall Street mega-banks that donated large sums of money to Obama's campaign.

5. When trying to get votes for the health care bill in 2009, Pelosi actually told reluctant Rep. Jim Cooper (D-Tenn), "The store is open. Now is the time to get your provisions." Although, after the "Cornhusker Kickback" and the "Louisiana Purchase," that statement hardly seems surprising.

And all of this from a president who promised to minimize the influence of special-interest lobbyists. Very gifted in doublespeak, indeed.

Thursday, August 25, 2011

Rick Perry's proposal to repeal the 17th Amendment

In a book that he published last fall, "Fed Up! Our Fight to Save America from Washington," GOP front-runner Rick Perry lays out several ways he wants to change the Constitution.  Perhaps the most interesting is his proposal to repeal the 17th Amendment, which provides for the direct election of senators by the people. It's not exactly an argument that gets made very often. Repealing the 17th Amendment would restore the original language of the Constitution, which gave state legislatures the power to appoint senators.

Perry, and a few other conservatives, argue that the 17th Amendment undermined states' rights and upset the balance of power between federal and state governments, which helped lead to the federal government becoming extremely big and bloated. At some level, I see the point. Senators who were appointed by the state legislatures would probably have more of an incentive to resist federal encroachment on issues that should be reserved for the states. Some feel that direct senatorial elections have become dominated by Washington special interests and out-of-state campaign donations, and repealing the 17th would fix that.

However, it seems to me that repealing the amendment would have one fundamental problem: it takes power away from people and gives it to politicians. I do not want to think about what kind of corrupt bargains could take place if state politicians were allowed to elect federal politicians. Instances like the Blagojevich affair, where the Illinois governor tried to sell Obama's Senate seat, could become common. Strict party-line votes in state legislatures could also become the norm. If not for the 17th Amendment, Massachusetts voters could not have elected Scott Brown. Maintaining a balance between federal and state governments is important, but not as important as reflecting the will of the people in that state.

We need to decrease the size and power of the federal government, but repealing the 17th Amendment would probably cause more problems than it solves. As for Rick Perry, if he truly believes in states' rights, then his support of federal amendments that ban abortion and gay marriage make little sense.

Is "shovel-ready" still possible with today's regulations?

In the 1930's, FDR was able to create thousands upon thousands of jobs and stimulate the economy through infrastructure projects such as the Hoover Dam. In 2009, a similar attempt by Obama fell flat. Projects that were said to be "shovel-ready" were in fact nowhere near. According to this Wall Street Journal article, those projects failed to get off the ground largely because of a maze of environmental regulations and bureaucratic procedures that did not exist in the New Deal era. The effect of these regulations is substantial; according to a firm that advises on public works projects, a new bridge or a road through an urban area often requires five to seven years of planning before it is ready for a shovel. It is possible, says the author, that the Hoover Dam could not even be built today.

Obama is pushing for a new round of infrastructure spending to stimulate the economy, but any stimulus is unlikely to happen as long as these delays remain in place. I can't help but wonder what will happen to the country's infrastructure if it takes five years of bureaucratic haggling to even get started on a project.

Sunday, August 21, 2011

Republicans, inexplicably, want payroll tax cut to expire

Last December, Congress passed a bill that reduced the workers' portion of the payroll tax from 6.2% to 4.2% for one year. There is naturally a partisan disagreement in Congress over whether to renew the tax cut or let it expire. Some are arguing that the tax increase would hurt workers and the economy overall, while others are saying that the revenue is needed to balance the budget.

Surprisingly, however, the Republicans are the party that wants the tax cut to expire--a tax increase by their definition. This makes absolutely no sense to me. The GOP is fresh off a tense budget battle in which they fought vigorously to avoid any tax increases whatsoever. And now they are changing their tune?

Apparently so. According to the Associated Press (see above link), Republican congressman David Camp opposes extending the tax cuts because of the deficit, and Eric Cantor "has never believed that this type of temporary tax relief is the best way to grow the economy."

Wait a minute. I thought the Republicans believed that tax cuts were the BEST way to grow the economy. If they oppose "temporary" tax relief, then make it last 10 years instead of 1.

Mitt Romney did not come out for or against extending the tax cut, but said he would rather have the cut on the employer's side to spur job growth. I agree. However, why not cut both sides of the payroll tax? Better yet, why not eliminate the payroll tax altogether and replace the lost revenue by closing loopholes or raising the capital gains tax. The payroll tax discourages hiring and hits both employers and low-wage earners fairly hard.

I am completely baffled as to why many Republicans suddenly want to increase taxes on all working Americans. It almost seems to validate the progressives' claim that Republicans only care about rich people and corporations.

Wednesday, August 17, 2011

A good 8-point plan to fix politics (that will never happen)

The Daily Beast today outlined a pretty good 8-step plan to fix most of what ails American politics. (Of course, the special interests and party leaders would never let something like this happen). I would say that 5 of the 8 points are spot on, and 2 of them need only minor tweaks. Here is their nifty flowchart that describes the plan. In a nutshell, it consists of:

1. Independent redistricting.

2. A nationwide "clean elections" system. (My objection: This is probably unconstitutional. A better idea would be strict limits on campaign donations for all organizations, but no limits on donations from individuals).

3. Nonpartisan primaries: all candidates on the same ballot, top two advance.

4. More states committing to give their electoral votes to the winner of the national popular vote.

5. Fill vacancies in legislative committees randomly. (My suggestion: Require every committee to be evenly divided between Republicans and Democrats. Committees should not be tools of partisan power).

6. Eliminate the provision where senators can anonymously place holds on bills. 

7. Force filibusters to happen via actual on-floor debates.

8. Eliminate the debt ceiling. (My objection: It would be a bad idea to eliminate the last line of defense against out-of-control, over-budget spending. A better idea would be to pass a balanced budget amendment that also mandates a significant tax increase whenever the U.S. gets involved in a war).

$20 million for a green jobs program, but only 14 new jobs

Last year, Seattle won a $20 million federal grant to invest in weatherizing homes in poorer neighborhoods. The goal was to create 2000 jobs in Seattle and shrink carbon footprint.

More than a year later, only 14 jobs have been created--and worse, they are almost all administrative jobs. (That's $1.4 million per job, by the way). Community organizers are making various excuses and calling for more money. Perhaps if they get another $5 million, they can create three more jobs.

Could it be any clearer that job creation needs to be led by the private sector, and that the government--particularly the federal government--is just NOT GOOD at directly creating jobs?

Tuesday, August 16, 2011

Putting a leash on Wall Street

Traditionally, the function of the financial sector has been to provide capital for business. Over the last few decades, however, it seems that Wall Street has become much more than that. As William D. Cohan argues in this Bloomberg article, Wall Street has now become a huge casino--with speculation, hedging, and arbitrage instead of craps, blackjack, and roulette--where the players get to make bets that have consequences for the US economy but not for themselves.

In the past, Wall Street transactions mostly consisted of actually buying and selling shares of companies. Recently, however, we have seen an explosion in derivatives, which allow investors to speculate on the price of shares or commodities without actually buying the shares or commodities themselves. Credit default swaps, a type of derivative, played a huge role in the credit crisis of 2008. Even Warren Buffett has called derivatives "financial weapons of mass destruction."

Even worse is the concept of "too big to fail." Currently, Wall Street bankers have no consequences for making risky investments--they are rewarded with huge bonuses if the bets pay off, and with bailouts if they don't. Some people think that the banks should simply be allowed to fail. The problem is, if letting the banks fail could lead to economic disaster, that's still an awful situation. People on Wall Street should not be able to take risks that could submarine the whole economy if they fail. Banks that are too big to fail are too big, period, and need to be broken up. Reinstating Glass-Steagall would be a good start.

What is the government doing to prevent another financial crisis like what happened in 2008? Predictably, nothing. Wall Street simply donates too much money to candidates of both parties. Oh, and most of Obama's economic team has ties to Goldman Sachs. The Dodd-Frank bill claims to be "finance reform," but it specified almost nothing and left the reforms up to a team of bureaucrats. The best way to guarantee that nothing good will be accomplished anytime soon is to leave something up to a team of bureaucrats.

Some libertarians have compared the current American economic situation to the events of Ayn Rand's Atlas Shrugged. In that comparison, Wall Street--along with Fannie Mae and Freddie Mac--would be the obvious choice for the role of Orren Boyle, the incompetent businessman who keeps himself afloat by using his connections to get constant favors from the government. Although Wall Street is not incompetent, they have been taking way too many risks that endanger the whole economy. Government has only been encouraging those risks, and in some cases (e.g. housing) mandating them. It's a classic case of crony capitalism.

Monday, August 15, 2011

What to make of questionable comments from GOP candidates

Last week was not a good one for GOP sound bites. The leading candidates made a couple of statements that, if interpreted a certain way, could lead one to wonder if the party is careening off an ideological cliff.

First, during the GOP debate, every single candidate said that they would walk away from a deficit deal that had $10 in spending cuts for every dollar in tax increases. That is absolutely crazy. Anyone who would actually veto that deal has no business running for president. It's extremely unlikely that they would get a deal that was even that good. Do they think Democrats are just going to disappear? Do they not realize that those ten dollars in uncut spending will mean higher taxes later on? Would they really turn down a chance to substantially reform entitlements and move closer to long-term fiscal health in exchange for, say, ending the Bush tax cuts?

Like the author of the above article, I think that the mainstream candidates in the debate were most likely lying, and simply pandering to the hard-liners in the GOP base. Their statements are thus mostly an indictment of a primary system that is dominated by the radical wing of each party and forces candidates to throw red meat to their base, whether they truly believe what they are saying or not.

Secondly, Mitt Romney proclaimed at the Iowa State Fair that "corporations are people." Again, there are two ways of interpreting this. It could mean simply that corporations are made up of people, and as Romney said, all the money that goes to corporations eventually goes to people. It could, however, also mean that corporations deserve the same constitutional rights as people, an interpretation which the DNC is already using to attack Romney. This is a policy position that was unfortunately legitimized by the Supreme Court in the Citizens United case--in my opinion, one of the most destructive decisions in recent history.

As I stated in my first post, businesses are more akin to governments than to individuals; they are collective organizations which increase overall wealth, security, and efficiency but must be carefully monitored and limited lest they usurp the power of the people. The Citizens United case gives corporations (and unions) undue power over the political process, and Republicans who actually believe that "corporations are people" risk being labeled as protecting corporate fat cats at the expense of ordinary people.


Friday, August 12, 2011

Appellate court declares Obamacare's individual mandate unconstitutional

The 11th circuit has declared Obamacare's individual mandate to be unconstitutional. I've thought it to be unconstitutional from the beginning; Congress has the power to "regulate interstate commerce," but that does not give them the power to force people to engage in commerce by buying health insurance. A state-level health care plan (like the one that has already been implemented in Massachusetts) would still be OK, though. It seems to me that the states that want universal health care should implement similar plans and leave the rest of the country alone.

This raises questions about what will happen if the Supreme Court agrees with the 11th circuit's ruling that the individual mandate is unconstitutional, but the rest of the law can stand. Clearly, without the individual mandate, Obamacare is not financially viable, since only sick people will enter the insurance pool. The question is whether anyone will have the guts to do anything about it before the Obamacare subsidies blow the federal budget to smithereens.

Thursday, August 11, 2011

Bad news for Dems: Americans don't trust the government

We're almost three years into a crippling economic slump. Economic inequality is skyrocketing. Democrats are trying their hardest to blame the Tea Party for the recent debt crisis. Yet voters are not moving towards the Democrats or toward big government in any significant numbers. Democratic pollster Stanley Greenberg recently asked voters why, and his conclusion was quite enlightening. According to Greenberg, voters simply do not trust the government to carry out its policies fairly. This distrust in government translates to distrust of big-government progressives and of Democrats in general.

The voters' take on TARP, for instance, was that "government works for the irresponsible, not the responsible." "Average citizens," they said, "don't get money for free." Overall, the Americans in Greenberg's survey see a government made up of politicians that work only for themselves, Wall Street lobbyists, campaign donors, and special interest groups. The American people are ignored. The 2009 stimulus, the lack of seriousness about controlling the borders, the attempted cap-and-trade legislation, and the number of Obama cabinet members with ties to Goldman Sachs are all seen as indicators of how much Washington is controlled by special interest lobbyists and campaign money.

Greenberg goes on to suggest several ways that Democrats can "detoxify" government and renew voters' faith in progressivism. But is detoxifying government really possible? Hasn't Greenberg just pointed out the fundamental problem with big government? If we had a government of angels, I'd be a progressive too. The problem is, we don't. We have a government made up of people--all of them flawed, inherently corruptible, and inherently self-interested at least to some degree. We've all heard the saying, "Power corrupts." It is simply not realistic to expect that people, when given the power of a seat in Congress, will consistently put the interests of the people ahead of themselves and their campaign donors. I'd love for someone to think of a counterexample--a government that consistently did the right thing for its people, decade after decade.

But most of the time, at least, government doesn't work that way. As government gets bigger, those who benefit are mostly a well-connected few. That certainly happened under the big-government crony capitalists of the Bush administration and it's happening now. And Americans seem to be figuring that out.

Wednesday, August 10, 2011

A victory over special interests in Wisconsin

In general, I have no problem with private sector unions. They represent workers and negotiate with companies who have strong incentives to cut costs in order to make a profit. Public sector unions, on the other hand, are a completely different story. They are employed by government, whose goal is not to make a profit but to get votes. If anything, government has an incentive to overpay their workers in order to try to get their votes. It is also not fair that public sector unions, who take their money out of the taxpayer-funded salaries of public workers, are free to donate vast sums to political parties. Finally, we have George Meany, the former President of the AFL-CIO, who said in 1955 that "it is impossible to bargain collectively with the government."

Public sector unions, basically, are just another one of the special interests that are currently infesting governments throughout the country. Thus, I believed that Scott Walker's bill which limited the collective bargaining power of public sector unions in Wisconsin was a step in the right direction. Predictably, Democrats fought Gov. Walker tooth and nail, first by fleeing the state, then by organizing an attempted recall of the six Republican lawmakers they saw as most vulnerable. They needed three of the six seats to regain control of the Wisconsin senate.

What happened? Despite staggering amounts of money and effort from organized labor, the Democrats only managed to win back two seats--one in a solidly Democratic district, the other held by a man who had left his wife and moved outside his district to live with his mistress. The other four recall elections were not close.

It certainly helped that Walker's bill helped school districts save millions of dollars by eliminating the teachers union's monopoly power on health insurance contracts, and that Walker's administration has had a very good record on jobs. It's good to know that people can still stand up to powerful special interests.

Monday, August 8, 2011

Bush and Obama: More similar than different

Obama is (deservedly, in my opinion) taking a lot of heat these days for the debt crisis and the down economy. One of the classic responses from left-wingers trying to defend Obama is "Well, would you prefer Bush?" In some ways, that is a good point. More fundamentally, however, I feel like it misses the point. If you look past the "R" and "D" labels, Bush's and Obama's presidencies are really more similar than different. Obama is not really a liberal, although he does lean left; nor was Bush really a conservative, although he leaned right. They are both statists, dramatically expanding the power and the role of government. And both their administrations were characterized by grossly irresponsible spending and heavy-handed policies that backfired.

During Bush's eight years in office, the national debt ballooned from $5.7 trillion to $10.6 trillion--an increase of nearly $5 trillion. During Obama's 2.5 years in office, the national debt grew from $10.6 trillion to $14.5 trillion--an increase of nearly $4 trillion in about one-third of the time. However, Obama has done his borrowing in a historically bad economy, when some amount of deficit is acceptable or even advisable so as to allow for pro-growth tax cuts or spending. Bush's borrowing was mostly during good economic times, when deficits are much harder to justify. In addition, some of Obama's spending was the result of the two wars he inherited from Bush. Conclusion? Bush borrowed a lot when he should have been borrowing nothing. Obama is borrowing a ridiculous amount when he should only be borrowing a little.

Besides spending like drunken sailors, both presidents seemed to believe that more power from the U.S. government is a good thing. Bush attempted to expand American global influence with bombs and guns. He started two wars that turned into long, deadly occupations, while continuing to believe that the people of Iraq and Afghanistan would somehow appreciate the American occupation and the heavy American influence on their new governments. Obama, on the other hand, seems to believe that he always knows better than the American people--whether it means forcing people to buy healthcare, preventing people from buying incandescent lamps, trying to tell companies that they can't open a factory in a certain state, or trying to prevent workers from having a secret-ballot vote on whether to unionize. Obama clearly does not see individual economic freedom as anything worth protecting.

So forget the "R" and "D" labels. We should not automatically associate all Democrats with Obama or all Republicans with Bush. The next president, regardless of party, needs to be someone who is as unlike either of them as possible.

Sunday, August 7, 2011

Now is the time for tax reform

The United States is currently in an unenviable situation. The economic slump is approaching the end of its third year. At the same time, sky-high deficits and debt have resulted in a credit downgrade and a bitter partisan fight in Washington. Clearly, a return to economic growth would help solve both these problems.

Where will the growth come from, though? Stimulus spending has been tried--and has failed. Pro-growth tax cuts like those in 1961 and 1981 would not be politically feasible because of deficit concerns. One possible answer, suggested by WSJ columnist Stephen Moore, is revenue-neutral tax reform.

As Moore points out, a similar deal was struck in 1986, when the top income tax rate was lowered to 28%, which was balanced out by eliminating a host of deductions. The deal resulted in an estimated $1 trillion of economy-wide gains. This time, rather than lowering the marginal income tax rate (which was already done under Bush), a better idea would be to lower the corporate tax rate. Combining state and federal taxes, the US corporate tax rate is currently 39%, which is far higher than almost all other countries, and gives US companies a clear disadvantage in the global market. The employer portion of the payroll tax, which is basically a direct tax on hiring, also needs to disappear ASAP. If we want more hiring (which clearly we do), we shouldn't be taxing it.

How can we balance this out? For one thing, aggressively close off loopholes and tax subsidies. The real sad part of our corporate tax policy is that the largest corporations can hire armies of lawyers to figure out how to best exploit the loopholes--but mid-size businesses, without the ability to hire those lawyers, get hit with the full effect of the tax. That needs to end. Similarly, the favors to special industries (agriculture, hedge funds, green energy, etc) in the tax code need to be cut. Ethanol was a good start.

And if that doesn't balance the revenue effects of cutting the corporate and payroll taxes? Raise taxes on large high-yield capital gains, or put a tax on derivatives transactions. Unlike business, Wall Street does not create jobs or produce goods that add value to the economy. Large capital gains and derivatives are almost exclusively the province of the rich. And such a tax could discourage the kind of high-risk speculation that resulted in the 2008 crisis.

Wednesday, August 3, 2011

Two views on balancing the budget

Esquire today presented a very interesting left-right juxtaposition: two articles by former senators Gary Hart (D-Colo.) and Bob Packwood (R-Ore.) about balancing the federal budget. Here is Hart's article and here is Packwood's.

So who's right? Well, neither. Or both. Hart understandably decries the failure to regulate financial markets. Hart also correctly points out that the Iraq and Afghanistan wars combined with the Bush tax cuts were not good for the deficit. Given that both the wars and the tax cuts have continued for more than a decade, at this point they are responsible for a huge chunk of the federal debt.

Now, the Bush tax cuts, by themselves, were not a bad idea. Hart's biggest mistake is his refusal to acknowledge that tax cuts can stimulate the economy--a strategy that is part of Keynesian economics and worked undeniably well under both Reagan and JFK. The problem is, if you cut taxes you need to restrain spending, and Bush did exactly the opposite. Here's an idea: pass a law that requires a tax increase for any military operation that continues longer than 10 days. That will keep deficits down, and it might make the trigger-happy contingent of the GOP (which thankfully seems to be in decline) less likely to push for war.

Packwood's article discusses the worrisome increase in total federal spending, with a particular emphasis on entitlements. He is right on there: unless something is done to stop the runaway growth of entitlement spending, deficits will explode in the next few decades. However, by failing to discuss anything besides entitlements, Packwood exemplifies a certain conservative myopia. If the GOP focuses too much on slashing entitlements and leaves everything else alone, they will lose election after election. It would almost take a Vulcan to not see it as unfair for seniors and Medicaid patients to have to make all the sacrifices. While restraining entitlements are essential, fiscal conservatives need to be just as willing to consider things like dismantling the American empire, eliminating foreign aid, cutting federal payroll, closing tax loopholes, and probably--in a decade or two--raising taxes in some form.

Tuesday, August 2, 2011

"Terrorists" rhetoric completely crossed the line

With the signing of the debt deal, perceived as favorable to the GOP and the Tea Party, a whole mess of nasty rhetoric has come out of the woodwork. You might expect a leftist blog to compare the Tea Party to terrorists. It's a bit more surprising when you see a New York Times columnist claiming that the Tea Party has "waged jihad on the American people." Still, it's only an op-ed column.

However, when the Vice President of the United States says that the Tea Party "acted like terrorists," that's pretty despicable. He was responding to an even blunter comparison from Rep. Mike Doyle (D-Pa), who flat-out said that a “small group of terrorists have made it impossible to spend any money.”

Look, I realize political debates can get heated. You could call the Tea Party Republicans obstinate, pigheaded, or extremist, and I might agree with you somewhat. You could talk about GOP hypocrisy for not cracking down on spending when Bush was in office, a perfectly valid argument. You could call them cruel and heartless or talk about their supposed allegiance to millionaires and oil companies at the expense of the working class. Fine.

But terrorists? Terrorists want to blow up buildings and trains and kill people, ideally thousands of people. The Tea Party wants to cut government spending--that's it. Some people have tried to argue that the Republicans were leading the country toward default with their reluctance to raise the debt ceiling. That is hogwash. The government would still have had more than enough money to pay interest on the debt. The only way a default could have happened is if Congress decided that paying some bureaucrats in the Department of Energy was more important. The worst-case scenario was a government shutdown a la 1995.

So seriously, enough with the crazy rhetoric, or there might be knife fights in the Capitol before the end of the year.

Monday, August 1, 2011

The debt deal: kicking the can down the road

So, after a months-long fight over raising the debt ceiling, we finally have a deal. But what did it accomplish? Not much, according to this Washington Post analysisIn the words of Sen. Lindsey Graham:

“It’s a $3 trillion package that will allow $7 trillion to be added to the deficit over the next decade. We’re no longer running toward oblivion, we’re walking toward it.”


In the best-case scenario the deal will only cut 6-7% of federal spending over the next 10 years. That is ignoring the fact that federal spending is slated to increase by over 50% over the same time period. Meanwhile, unemployment is as high as ever. As fights go, the budget battle was reminiscent of the War of 1812, which featured years of nasty fighting and then a cease-fire that basically just restored the status quo ante bellum. 


In general, I like divided government. When one party controls the House, Senate, and the White House, they tend to do things like send us into a protracted war without a clear objective, or an exit strategy, or a way to pay for it. The downside of divided government, however, was on full display over the last few weeks. With Democrats stubbornly refusing to cut or reform entitlements, and Republicans stubbornly refusing to raise revenue by closing loopholes or eliminating tax subsidies, there was little chance of achieving significant long-term deficit reduction. They also ignored the ongoing jobs crisis in their obsession with the deficit, refusing to consider more small business tax cuts or infrastructure spending that could help reverse unemployment. Indeed, the only compromise they could settle on was just kicking the can down the road. 

Thursday, July 28, 2011

The GOP's Test: Reality or Ideology?

Although the debt ceiling fight is by no means over, John Boehner and Harry Reid have come up with two plans that avoid raising taxes, and either of them seems to be a realistic option. One obstacle in the way of a completed deal is President Obama, who continues to push for a tax increase. However, it is doubtful that Obama would choose to veto a plan that passed the House and Senate and thus expose himself to the majority of the blame for a possible credit downgrade or any other adverse effects of the budget stalemate. The other obstacle is a number of House Republicans who continue to insist on more aggressive spending cuts and refuse to eliminate special tax breaks.

This, argues the Wall Street Journal, would be a big mistake, and I agree. The Boehner and Reid plans are not perfect, but they satisfy the GOP's #1 priority (no tax increases) and seem like they have support in Congress. If House Republicans torpedo them, they play into Obama's hands, allowing him to blame the GOP for the budget impasse. They then might be forced to accept a tax increase in order to avoid suffering the political fallout of the debt limit not being raised.

This is somewhat similar to the situation that Obama and the Democrats faced in 2009-10. They came into office with an impressive mandate, and the GOP's popularity was at historic lows as a result of the disasters of the Bush administration. With a down economy, the Democrats had an opportunity to cement a long-lasting majority by taking a center-left approach that focused on jobs (particularly private-sector jobs) and financial regulation while perhaps also expanding the safety net. Instead, they went whole hog, driven by their ideology instead of by the reality of the situation. They passed a stimulus that contained some good programs and tax cuts but was also stuffed with pork, did nothing for small businesses, and in the end was largely a disappointment. Then, despite continuing high unemployment, they abandoned the focus on jobs and passed ObamaCare, a decades-long liberal dream, without a single Republican vote. Immediately afterward, new hiring almost stopped. The Democrats were crushed in the 2010 election.

If the Republicans want to keep any of the gains they made in 2010, they need to learn from this mistake.