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.

Tuesday, July 26, 2011

California's insane attempt to tax products sold on the Internet

In a latest effort to avoid dealing with their spending problems, California has decided to try to collect sales tax on products sold over the Internet. Never mind that it would lead to significant lost business for thousands of marketing affiliates--individuals and small businesses--that partner with online retailers. Never mind that it would most likely cause more unemployment in a state already struggling with joblessness. Never mind that it almost certainly violates a 1992 Supreme Court ruling. It allows Sacramento politicians to keep $200 million in pension benefits, social programs, and other pet projects--so it's clearly worth it.

Monday, July 25, 2011

Steny Hoyer accidentally tells the truth

They say a gaffe is when a politician accidentally tells the truth. So I suppose Democratic congressman Steny Hoyer committed a gaffe when he said that he opposes a constitutional balanced budget amendment because it would make it "virtually impossible" to raise taxes.

That's kind of the point. Raising taxes should not be easy to do. The last time I checked, we still have property rights, and it should not be easy for the government to simply decide to take more of our property and give it to whoever they want.

Obama's Tax Hike Obsession

President Obama has been very adamant about including tax hikes in any budget deal. Congressional Democrats, on the other hand, seem to have settled for raising revenue by eliminating special tax breaks. If the congressional leaders come up with a plan that combines eliminating tax breaks with real, immediate spending cuts (as opposed to "future cuts" that may or may not happen), the Republicans would be stupid not to go for it.

However, the question still remains: Why was Obama so insistent on raising taxes? Pretty much every school of economics, and Keynesian economics in particular, says that raising taxes in a down economy is a bad idea. It seems like a more sensible argument for the Democrats would be that we need to keep up spending now in order to increase aggregate demand, and that we shouldn't worry about the deficit until the economy recovers.

However, it turns out that the Democrats' eagerness to raise taxes has a simple explanation: they want to spend even more. MUCH more. Three liberal think tanks devised 20-year plans to balance the budget and pay down the debt. On average, they want the federal government to collect 23.9% of GDP--15% higher than during World War 2.

This article from Reuters has all the gory details.

Friday, July 22, 2011

The Obamacare Effect On Employment

Obamacare was signed into law on March 23, 2010. As shown in the following chart, the job market recovery basically stopped the following month:

Coincidence? Somehow I doubt it. A few reasons why Obamacare discourages hiring, according to this Weekly Standard article:

  • “Businesses with fewer than 50 workers have a strong incentive to maintain this size, which allows them to avoid the mandate to provide government-approved health coverage or face a penalty;
  • “Businesses with more than 50 workers will see their costs for health coverage rise — they must purchase more expensive government-approved insurance or pay a penalty; and
  • “Employers face considerable uncertainty about what constitutes qualifying health coverage and what it will cost. They also do not know what the health care market or their health care costs will look like in four years. This makes planning for the future difficult.”

Thursday, July 21, 2011

Why we need a (low) minimum wage

I was recently asked why I believe in minimum wage laws, since they seem to violate free-market principles. The short answer is that the labor market is not a completely free market. Workers cannot simply change jobs whenever and wherever they want. Moving to a new location is difficult and costly. Workers with two jobs who want to leave one of them have to find a new job that fits into their same schedule. People who live paycheck-to-paycheck will be unwilling face the uncertainty of being "between jobs" for any significant length of time.

The labor market thus has some elements of a free market and some elements of a captive market. It is thus possible for businesses to take advantage of this inertia in the labor market and reduce wages to a level that is far below the value of the employees' work. In a worst-case scenario (e.g. a city with very high unemployment), some companies could theoretically reduce wages to starvation levels in order to maximize profits. We need a minimum wage to guard against this possibility. The United States' inability to enforce its immigration laws only adds to this problem because illegal immigrants can flood the labor market.

When the United States transitioned from a society of independent farmers to an industrial society, we made an important trade-off. While we gained efficiency, wealth, and longer lives, we ceded some control of our individual livelihoods to corporations. Because of this loss of control, we need measures in place to prevent corporations from exploiting individuals.

At the same time, if minimum wage laws force companies to pay employees more than the value of their work, those employees will not be hired. Clearly this is another scenario that needs to be avoided as much as possible. Employers do not have a duty to pay their employees a "living wage" (an extremely ambiguous concept in itself). That is why the minimum wage needs to be kept low so as to not drive up unemployment, but cannot be eliminated altogether.

Wednesday, July 20, 2011

Another article about the financial crisis and the housing bubble, focusing on Fannie and Freddie

The fastest road to hell is paved with government's good intentions

We've all heard the phrase, "The road to hell is paved with good intentions." The corollary to that should be that the fastest road to hell is paved with government's good intentions. Nothing but government has the power to take a good idea too far and turn it into an albatross around everyone's neck.

Obamacare is one obvious example. Nation building in Iraq and Afghanistan is another. High-speed rail in California or in the Midwest is a third. What usually happens is that government decides that something is a good idea and simply ignores the repercussions and costs of their actions. They don't stop to think about what Obamacare will do to small businesses' costs, or how many people will actually use high-speed rail in California, or whether the Iraqi and Afghan people will actually welcome us as liberators or not.

Perhaps one of the most powerful examples of government's good ideas gone bad is the National Homeownership Strategy, started by Clinton in 1994 and continued under Bush (see this BusinessWeek article for a full discussion). Basically, government decided that it was a good idea for more people to own homes. Here is an excerpt from the plan:

For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.

Translation: Many people wouldn't be able to afford mortgage payments, but it would be a good idea if they were able to buy homes anyway. So we need to use "creative financing strategies" (such as sub-prime lending) to "address these financial barriers."

Even "creative financing strategies," however, cannot make money appear out of thin air. So what happened? A lot of people bought homes with mortgages they couldn't afford. At the urging of government, many of these shaky mortgages were purchased by Fannie Mae and Freddie Mac. Eventually, starting in 2007, lots of people began defaulting on these mortgages. Fannie Mae and Freddie Mac collapsed. And the rest, as they say, is history.

Monday, July 18, 2011

The rise and decline of the welfare state

As this Weekly Standard article explains very well, most of the core programs of the welfare state were established in the 1930's or 1960's, times when the life expectancy in America was well below 70, and lifesaving but expensive treatments for cancer, heart disease, and organ failure were still somewhat rare. At the beginning, entitlements such as Social Security and Medicare were the result of good intentions and the knowledge that the costs would be relatively low. They had no way of knowing that one day it might get too expensive. Perhaps more importantly, they had no way of knowing that any attempt to deal with increasing costs by limiting benefits or raising the minimum age would be rejected out of hand by leftists as "greedy" and "mean."

This quote at the end of the article provides a good summary of the issue:

"Pensions and access to health care remain social goods that a decent society will try to provide to its people. But goods are not rights."

The distinction between social goods and rights is an important one. It is important for an advanced society to ensure some minimum standard for its people, such as a minimum wage, a standard workweek, and basic/emergency health care. But these are not rights, and when people begin to insist on equal health care or generous benefits for all, they find that it soon becomes prohibitively expensive. 

Sunday, July 17, 2011

How many corporate lobbyists does it take to change a lightbulb?

An interesting article from the Boston Globe suggests that the looming ban on incandescent lightbulbs was as much a result of corporate lobbying as it was a product of the green movement. Big bulb manufacturers, unable to convince consumers to switch to the more expensive and more profitable compact fluorescent lights, joined forces with environmental lobbyists and got Congress to force them to switch. Never mind that compact fluorescent lights don't work in many fixtures and contain toxic mercury.

Thursday, July 14, 2011

America is Tuning Out Obama

In a Wall Street Journal article, Michael Goodwin of the New York Post talks about how he has stopped paying attention to Obama's speeches:

"He is the Man Who Won't Listen to Anybody, so why should anybody listen to him?"

"There is not a single example on domestic issues where he voluntarily staked out a spot in the American middle. . .  Obama's default statist position remains unmolested by facts or last year's landslide that was a rebuke to his first two years. He continues to push bigger and bigger government, higher and higher taxes and more and more welfare programs."

On Monday, a CBS News correspondent asked Obama how he was going to convince people that the debt ceiling needs to be raised (despite polls showing that 69% are against it). Obama's response?

"Well, let me distinguish between professional politicians and the public at large. The public is not paying close attention to the ins and outs of how a Treasury option goes...We're paid to worry about it."

Great. When the public disagrees with him, Obama's default response is "Well, we know better than them." No wonder people are tuning him out.

Wednesday, July 13, 2011

The Problem With Employer-Based Health Care

I had an interesting conversation today with a co-worker who was complaining about her health insurance bills. She is 60 and fairly healthy, but we work at a small company that does not provide health care benefits. She and her husband make about $60,000 per year combined, too much to qualify for Massachusetts' subsidized health care plan. She told me that her premium for her private health care plan had just risen to over $500 per month. Her husband is 65 and on Medicare, but he has a number of health problems and Medicare does not cover all his medications, so he has to purchase supplementary insurance.

I explained that in order for Medicare to cover more things, everyone would be forced to pay a lot more money in Medicare taxes for things that they might not need, and that wouldn't be fair. She seemed to understand that. But I had no answer for her problem of being "squeezed in the middle," where she was not poor enough for a subsidized plan but not rich enough to be able to comfortably afford a private plan.

Generally, I am all for individual freedom. But health insurance doesn't work that way; it is often prohibitively expensive for individuals, and only affordable in group plans that can be provided either by medium-to-large corporations or by government. I am certainly wary of being dependent on government for health insurance. But is it any better to be dependent on large corporations? It seems to me that our current system penalizes anyone who does not work in a medium-to-large company by making it very difficult and expensive for them to get health insurance. It also seems to penalize the corporations themselves, since they compete in a global market with companies who do not need to provide health benefits for their workers.

ObamaCare is clearly not the solution, either. The individual mandate violates any reasonable interpretation of the U.S. Constitution; Congress can "regulate interstate commerce," but it cannot force people to engage in commerce. Also, ObamaCare only increases the costs to business with its new taxes and penalties for businesses that cannot afford to provide health insurance. But could we have a public option that would end the dependence on big companies without requiring massive tax increases? Two essential criteria would have to be met:

  1. The health care programs would have to be implemented at the state level, not the federal level. A federal health care program containing an individual mandate would almost certainly violate the U.S. Constitution as mentioned above. Huge federal bureaucracies are always extremely wasteful and inefficient. The existence of different health care programs would allow citizens to vote with their feet if one state's health care program became bloated and expensive (sort of like businesses are choosing to leave California). And finally, some states could decide not to have a public option at all.
  2. The programs would need to provide several accordingly priced levels of coverage, including one low-priced, basic plan (no chiropractic, no sex change operations, no substance abuse treatment, etc).
 I have to say that Massachusetts' public health care program was very useful when I was serving in AmeriCorps, and thus obviously had no employer-based health insurance. There are problems with costs that need to be addressed (tort reform would help lower medical costs overall), but I don't see why a similar program couldn't be implemented in other states.

IBD/TIPP Poll: 70% of Americans oppose raising the debt ceiling

A large majority of Americans are telling Congress not to raise the debt ceiling. The 70% figure includes 86% of Republicans, 74% of independents, and even 55% of Democrats.

Tuesday, July 12, 2011

No good deed goes unpunished by the IRS

On Saturday, Yankees shortstop Derek Jeter got his 3000th hit, a milestone that has only been reached by a handful of players in the history of baseball. The hit was a home run. The fan who caught it, Christian Lopez, graciously returned it to Jeter rather than selling it for a price that would have likely exceeded $100,000. The Yankees rewarded Lopez for returning the ball by giving him luxury box tickets for the rest of the season as well as signed jerseys, baseballs, and bats.

A nice reward for a good deed? Not quite. Apparently the IRS might characterize the tickets and other items as income rather than gifts, which means that Lopez could owe a tax bill of up to $14,000. And he would have to pay in cash, not in tickets.

Out-and-out theft, if you ask me.

If the Debt Ceiling is Not Raised, We Can Still Survive. We Can Even Keep Social Security and Medicare Untouched.

A great article from American Thinker that shows one possible way to balance the budget if the debt ceiling is not raised, without defaulting, and without cutting Social Security, Medicare, or military pay. And since we're talking about this year's spending, with revenues already in, any revenue increases would be irrelevant here.

A couple key numbers:

The Office of Management and Budget (OMB) estimates that FY2012 revenues (starting Oct. 1, 2011) will be $2.6 trillion. That is more than the federal government spent in any year prior to 2006.

Since 2006, federal spending has risen to $3.7 trillion, a mind-boggling 29.5% increase in spending.

How does this author balance the budget? For one thing, he cuts defense spending to 2005 levels, while leaving military pay untouched. He also eliminates foreign aid (why do we still give foreign aid?), cuts Medicaid back to 2005 levels, eliminates federal income security programs (welfare, food stamps, etc) except for disability and unemployment, and eliminates the Department of Education and the Department of Energy. He makes the point that neither department existed prior to 1980. Also, he points out that Department of Energy spending totaled only $429 million as recently as 2005, but has grown 50 times bigger in the past 5 years as a result of Obama's "green initiatives."

Do I like everything about this plan? No, I'd tweak the numbers a bit. I'd probably make modest cuts to Social Security and/or Medicare through means testing, preserve funding for federal financial aid to college students, and keep income security at 2005 levels instead of eliminating it completely. But the point remains: Even in a worst-case scenario where the debt limit is not raised, we can avoid Armageddon.

Monday, July 11, 2011

Obama's dismal performance on jobs

Obama came into office saying that he would revive the economy and create jobs, but at this point his handling of jobs and the economy has pretty much been a complete failure, as this article explains quite well.

The White House Council of Economic Advisers' latest report showed that the so-called stimulus created or saved only 2.4 million jobs, at a cost to the taxpayer of $250,000 per job. That doesn't exactly inspire confidence in our leadership or the economy. As the author of the article says, it is "difficult to rally around what looks like foolishness."

Then, with the economy still down, the Democrats forced through ObamaCare. This was despite the fact that arguably the most liberal state in the country (Massachusetts) voted for a senator (Scott Brown) whose platform centered around his opposition to ObamaCare and the fact that he would be the crucial 41st vote needed to block it in the Senate. The health care law imposed a litany of new taxes and regulations on small businesses that drive up the cost of employment. Environmental regulations heaped further costs onto business, particularly manufacturing. Is it any surprise that the private sector is not eager to start hiring?

It seems that Obama thinks that jobs are created by government, not by entrepreneurs. The current economic slump has been a testament to that delusion.

House GOP insists on spending cuts to reduce the deficit...then balks at military spending cuts

As I stated in my previous post, the government has a spending problem, period. Spending is projected to rise to unprecedented levels and I believe the Republicans are correct to take income tax increases off the table and insist on getting spending under control.

If they want to take this stand, however, then how can they refuse to make any defense cuts whatsoever, and pass a $649.2 billion appropriations bill that includes $118.6 billion for wars overseas? Not only did the House GOP refuse to freeze Pentagon spending at 2011 levels, they even refused to cut funding for military bands or Pentagon sponsorship of NASCAR.

This is not only stupid, but frankly, hypocritical. Yes, entitlements comprise the bulk of the long-term budget problem. But how can you repeatedly make a case for the need to cut spending, then refuse to cut ANY spending from a huge number of programs that you happen to like? This is the kind of political brinkmanship that needs to disappear from Washington, ASAP.

And House Republicans would do well to remember this quote from President Eisenhower, who if I recall correctly was both a general and a Republican:

"Every gun that is made, every warship launched, every rocket fired signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed...Under the clouds of war, it is humanity hanging on a cross of iron."

A historic comeback by the US women's soccer team

Playing against favored Brazil, they were down a player for nearly 60 minutes, and also down a goal after a truly horrific call by a referee who insisted on inserting herself into the game. Incredibly, they tied the game on an Abby Wambach header with just over a minute left in injury time and then won the game on a penalty kick shootout after an acrobatic save by goalie Hope Solo. An inspiring display of American spirit.

Sunday, July 10, 2011

Why the obsession over the deficit?

Obviously, the national debt is something that needs to be fixed in the medium term. We can't just keep spending like drunken sailors and leaving future generations with the bill. However, with unemployment still a major problem, is this really the time to crack down on deficit spending?

Let me use an analogy here. Suppose you are the coach of a pro sports team. One of your star players comes to training camp out of shape and having gained 15 pounds, and on the first day of practice he slightly tears the meniscus in his knee. Clearly, the best course of action would be to first repair his knee, then after his knee has healed get him back into shape. It seems like the Republicans, however, believe that it is best to immediately get him back into shape and pray that the knee doesn't get any worse. Major budget cuts certainly won't help employment, and they might make it worse. Is it really the right time to start making deep budget cuts?

Of course, the question that remains is how to fix private-sector unemployment. I can think of a few possible ways:
  1. Cut corporate income taxes, while closing loopholes.
  2. Eliminate some of the regulations that are most burdensome and expensive for businesses.
  3. Declare a one-year payroll tax holiday, or eliminate it altogether (since the payroll tax is basically a tax on hiring).
  4. Implement a tax credit or subsidy for buying American goods.
  5. Invest in maintaining American infrastructure (which the 2009 stimulus somehow failed to do).
Naturally, none of these are very popular with partisans on Capitol Hill. #1 and #2 are anathema to Democrats, while #4 would be a tough sell to Republicans. #5 is not likely to survive the political process without being turned into something more "glamorous" (like a new museum) that a representative can show off to people in his/her district. And that is probably why the economy has been in a slump for nearly three years now and Congress still hasn't implemented even a half-decent solution.

Warren Buffett: "I Could End the Deficit in Five Minutes."

"You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection."

The full story is here.

Friday, July 8, 2011

We need to control spending, but Grover Norquist's dogmatism doesn't help

As the following chart shows, the government is spending money at record levels, and that spending is expected to increase even more in the following decades:

Given this unprecedented level of spending toward which the country's current fiscal path will take us, it makes perfect sense that the Republicans should take income tax hikes off the table. Clearly, the problem is almost entirely spending. Despite all the rhetoric about raising taxes on "millionaires and billionaires," there are just not enough of them to make much of a dent in the debt even if we taxed them at 80-90%. Raising taxes to the levels shown in the chart would require suffocating tax hikes on all levels of the middle class.

What puzzles me, though, is how much resistance there has been to ending certain tax breaks for select groups of people. Consider the ethanol tax break, for instance. Putting corn-based ethanol in gasoline hurts almost everyone: it raises food prices, wears out car engines, requires tons of fertilizer (which pollutes the water), and significantly lowers gas mileage to the point where the effect on carbon emissions is practically canceled out. The Senate recently voted to end this tax break, only to be rebuked by Americans for Tax Reform president Grover Norquist. Norquist claimed that the vote was not about ethanol at all, but about raising taxes.

This seems to be going too far. If we want to balance the budget, we will need to roll back more of these tax breaks and loopholes that only serve to give artificial advantages to certain people. This is not akin to raising taxes on everyone. Quite the opposite, it will allow government to keep tax rates low by making sure that no one is able to skirt the system. It will also cut down on the crony capitalism that has become more and more endemic in Washington over the past decade.

Thursday, July 7, 2011

Does the US military have a clear purpose?

An important question to ask, at a time when we are mired in three conflicts, two of which have dragged on for over eight years and none of which have a clear end in sight. The US military budget is eight times the size of the next largest country and over the past decade that has been a major reason for the deficit explosion. And as the author says, what exactly are we defending ourselves against in Libya? At this point, what exactly are we defending ourselves against in Afghanistan, if Al-Qaeda can just move into other countries?

It's time to stop nation-building, as a presidential candidate by the name of George W. Bush ironically said in 2000. But few seem willing to say it.

A pretty good summary of the entitlement culture that is eroding personal responsibility

This author makes a good point: we have a right to the pursuit of happiness, but we do not have a right to happiness. That was exactly the kind of attitude I saw when I interned in a public high school for a semester. The kids believed that they were entitled to an education and could not be held responsible for anything, and the administration seemed to share that belief. Kids would disrupt class on a daily basis or skip detention and they would have to be let back into class after only an insincere apology. It was always "society's fault" or "teachers not caring enough."

Tuesday, July 5, 2011

Starting off

I believe strongly that individual freedom is the cornerstone of a successful nation. Consequently I also believe strongly in personal responsibility, for without personal responsibility individual freedom cannot exist. While governments, businesses, and other organizations are obviously necessary for protection and prosperity, it is of paramount importance that those organizations do not undermine the freedom of the individuals within.

The principal role of government should be to defend the nation, ensure individual freedom and equality under the law, and work toward equality of opportunity WITHOUT trying to enforce equality of outcome. One could call me a libertarian; however, unlike most libertarians I believe that businesses and other large collective bodies--not just government--can be a significant threat to the individual if they grow too powerful. Businesses have an obligation to treat workers and customers fairly, especially since the labor market is by its nature not a free market. It is particularly dangerous when businesses or industries work in cahoots with government, procuring special favors which distort the free market and throw equality of opportunity out of whack.

I also do not intend to advocate for selfishness; as an AmeriCorps veteran I do not share the Objectivist belief that selfishness is a virtue. With individual freedom comes a responsibility to look out for others. Selfishness, instead, is precisely the reason why centralized power fails. There are very few truly selfless people in the world, and those people cannot be found in public office. Power only increases a person's selfish tendencies. And that is why we have seen so many politicians who claim to act for the public good, but end up serving only their friends, their campaign donors, and segments of the population that they think they can bribe into voting for them again.