Free Markets, Free People

Bryan Pick


When the beast starves

I tend to be more optimistic than Dale about the near-to-intermediate future for the economy and for the culture. This may be unusual for a libertarian, but I’m heartened by many of the ways in which our opponents’ system is unsustainable.

Let me start by saying that, given a certain size of central government, libertarians could do worse than spending almost two-thirds of the budget on a few wealth transfer programs (Social Security and Medicare, both mostly funded by flat taxes, plus Medicaid, which gets much of its funding from the states) and a military like ours.  Imagine if that money was spent employing domestic police and busybodies.

But even that government is fiscally unsustainable, so we expect our government to eventually be forced to give up some of its “responsibilities.”  Assuming the country avoids a sovereign debt crisis, that adjustment might not be so bad for libertarians. Continue reading


How to respond to #OWS

My esteemed colleague George Scoville brought to my attention a post about how Republicans are making a mistake in their responses to the Occupy Wall Street protests/movement.  John S. Wilson at Mediaite argues that mocking OWS, tying the unruly protestors to the Democrats, and waiting for the protests to fade is just how Democrats set themselves up for a beating by the surprisingly resilient Tea Party.

Wilson is right: conservatives are underestimating OWS. While individual protestors on camera often have no idea what they’re talking about, that’s typical for a large protest; it doesn’t mean OWS is bound to flop.  Unless Republicans think Obama won such a convincing victory in ’08 because the voters knew him so well, they should absolutely take this movement seriously and respond energetically.

That said, a few of Wilson’s points are false.  Like:

“The message is as clear as the implications: income inequality has gotten out of control and is untenable.”

Is that what OWS is about?  Seemed to me that the original demand was to remove money from politics.  And why Wall Street if it was just about income inequality and not, say, bailouts and financial reform?  Why are there enough anti-war protestors to take notice?  Why haven’t they been able to organize around a clear income-equality agenda?

In any case, the best counter-messages so far have been the ones that place a wedge between the protestors and the Democrats who they might vote for.
  • Once they were reminded of how much money Obama got from the financial sector, Democrats were forced to get into the weeds about who’s getting more money from Goldman Sachs et al.
  • The anti-war protestors have to contend with the fact that it’s been Democrats running those wars, and getting involved in new ones, for the last 3 years.
  • The stimulus and bailout bills had plenty of giveaways to large corporations, many of whom were allies of Democrats who voted for those bills.
  • Student loan forgiveness is the worst stimulus policy ever, especially when college grads have a low unemployment rate and the average 2011 college graduate starts at over $50,000 — instantly vaulting them into the top 25% of incomes.

They’ll still think Obama is better than the Republican, but the idea is to make them less energetic supporters.

The college grad thing brings me to another misconception:

“that [tax cuts] message probably isn’t endearing to rural white voters who make less than $40,000 a year. How could it be?”

This is just denial.  Those voters voted GOP in 2010 when it was all about fiscal issues and Big Government.  What does Wilson think has changed about the GOP message since then?

Democrats keep thinking that if they promise to pick Group A’s pocket to give to Group B, Group B will always love them.  But electoral politics is less about policy than signaling loyalties and aspirations. What do the rural white low-to-middle-income voters see on TV and in photos?

  • a bunch of urban college kids bleating to have their loans forgiven
  • the usual screamers and hippies protesting war (is that endearing to the typical Southern or rural family? and does the anti-Israel contingent appeal to evangelicals?) and fossil fuels (which goes over really well in coal towns and places where families are supported by oil jobs)
  • city folk fighting with cops and local businesses and generally trashing their surroundings
  • bongo drums and twinkle fingers and “the people’s microphone”
  • unions openly organizing at these events

When they see that, they don’t think, “Hey, those are the kind of people who will look out for me.  Let’s give them a shot.”  They’re thinking, “Those are the unwholesome whiners who call me a hick and want to shutter the local factory when they’ve never worked as hard as I do.”

It doesn’t help the Dems that they’re technically the party in power, and have had the upper hand since early 2009.  This would be more fertile ground for Tea Partiers if they hadn’t become so associated with political division and gridlock; they should concentrate more on unifying policies like:

  • good government
  • opposition to bailouts or any special favors for special interests, especially Big Business
  • requiring that military interventions involve a clear national interest, which can be mixed with a message of maintaining support for the troops

Offering conservative/free-market solutions on each of those things takes the wind out of OWS’s sails.  Tax reform, more transparency/accountability in government, opposing all energy subsidies instead of just the “green” ones, etc.

That’s how I’d respond to OWS.  This is precisely the time for Tea Partiers to go out and remind everyone that they’re better-behaved protestors who are running against Washington and against special interests, and to remind the other side that the small-government folks still have energy of our own, and challenge OWS on just who they think their champions are.

Bryan in fewer than 800 words: Follow Bryan on Twitter.


Tax subsidies are a thing.

Many on the Right despise the very idea of a “tax subsidy” and think that a targeted tax credit or deduction is just letting people keep their money.  To say otherwise, so the conventional wisdom goes, is to assume that the government owns all our income.  I think there’s a well-meaning error in this thinking, and I’ll illustrate that with a simplified example.

Two countries are running deficits, or start with balanced budgets (take your pick).  Country A decides that next year they’re going to establish a tax credit for farmers worth $X.  Country B decides that they’re going to send an equal amount, $X, to their farmers as direct subsidy payments.

  • In both countries, farmers have an extra $X in their pockets.
  • Both countries must borrow an extra $X, meaning that future taxpayers in both countries are on the hook for $X plus interest.

There might be a minor difference in efficiency between having the IRS administer a tax credit and having the Department of Agriculture cut checks, but everything else is basically the same.  Yet Country A acted through the tax side of the ledger, while Country B acted through the spending side.  If Country B is subsidizing its farmers, then so is Country A.  Hence, tax subsidy.

There’s no trick here.  The key is that it’s not all about the spending and tax rates this year.  It’s about future taxpayers too. If current taxpayers don’t pay for what the government is spending this year, then future taxpayers must.  A deficit-financed “tax cut” without a spending cut is just shifting taxes into the future.  That doesn’t lower the long-term burden of government.

Importantly, there’s no claim here about who should pay, this year or in the future.  But the people who are really being “subsidized” are those who would be most politically vulnerable to getting taxed today if the burden wasn’t shifted onto future taxpayers.

Some on the Right say that if we raise taxes today, that won’t save future taxpayers anything because the government will just spend all the new revenues and then some, and we’ll be back in a deficit.  So we might as well “starve the beast” by cutting taxes, right?  That may have some strategic merit, but there’s still a tax subsidy to whatever extent “starving the beast” doesn’t work, and since big deficits tend to raise interest rates, there’s a built-in compounding cost to future taxpayers, so you better hope the strategy works well.  In the meantime, accepting big deficits makes it easy for supposedly small-government legislators to justify protecting their buddies first, and constant borrowing by its nature tends to risk fiscal crises.

Yes, cutting spending is harder than cutting taxes.  Promises to change tax rates and keep them there are more credible than promises to cut spending levels.  But spending is where the real battle is, so anyone who wants to carry the small government banner should be at least proportionally more credible on spending than he is on taxes.


Is there a student loan bubble?

You might have read one of the increasingly frequent stories (like this solid essay in n+1) about a student loan bubble.  The basics:

  • College is widely believed to be the ticket to success.  Degree-holders are more likely to be employed and they make more income than non-holders.
  • Many people tried to take refuge from a lousy job market by going to college, and the recession also pinched state budgets, forcing schools to raise tuition.
  • Consequently, the amount of student loan debt has exploded toward $1 trillion, eclipsing even consumer credit.  Since student loan debt is impossible to discharge even in bankruptcy, it was widely considered safe for lenders, and was securitized much in the same fashion as mortgages.
  • As punishing as the rules for paying student loans are, those saddled with the debt have been unable to pay—many fresh graduates aren’t competitive candidates for still-scarce jobs.  Only 40% of student loans are being actively repaid.  So lenders are starting to pull out.

Over the longer term, the growth in college costs has far outpaced inflation for decades (“Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation”), while the added-income value of those degrees has not grown at nearly the same pace.  The oft-quoted statistic that college graduates make $1 million more over a lifetime is misleading (it doesn’t take into account years of foregone income, for one thing), and there’s reason to suspect that much of the real discrepancy is due to correlation: students who have what it takes to pass through the filter of college admissions and stick it out are likely the kind of people who would make more money over their lifetimes anyway.

But is that enough to call it a bubble?

First, no one can really walk away from student loan debt like they can walk away from a mortgage, so many currently nonperforming loans can be expected to perform again when employment picks up.

Second, even if many people lose faith that a college degree is worth the price, tens of millions of kids have been groomed for college from a young age, and it’s true that employers still use college degrees as a significant signal of value.

That faith is unlikely to collapse overnight, and even if it did, it would take time for businesses to adjust.  Employers would have to start signaling a greater interest in other factors that prospective employees could substitute for accredited colleges.

Even entry-level jobs have college-educated competition, so how is a young adult to invest his time and credit, other than jumping on the subsidized college bandwagon?

  • Take a risk on going unemployed for a stretch?
  • Work for free?  (He’d still have to compete with college students.)  Aside from internships, working for less than the minimum wage to establish one’s value as an employee is generally prohibited.
  • Try to convince employers that alternative forms of study are as valuable as college experience?

These are luxuries many can’t afford.  There are federal guarantees for college money, but the closest thing a young adult can get to a subsidy for entrepreneurship or job hunting is the welfare state safety net if he fails.  The college path is blazed, even if it is the scenic route.

So for now, the lack of alternatives will help ensure there’s no big “pop” but a few marginal shifts:

  • Young adults will try to attend cheaper schools, work through college, and take on less debt.
  • Creditors will be less generous with student loans while repayment rates remain low.
  • And colleges will get by on less money than they planned to have.

As much as we need greater competition in postsecondary education, and better alternatives for young adults to build and signal their value, no student loan “bubble” will do the job.  It isn’t a bubble if the air has nowhere to escape.


Radio Free Internet

If you ever share anything on the web, you know that when you hear an interesting clip of someone speaking — part of an interview, speech, or podcast — you pretty much automatically resign yourself to the fact that it’s hard to share, so it’s unlikely to spread far even among people who you think might like what they hear.

But even that’s getting ahead of ourselves.  How often do you happen upon a piece of audio that says something interesting about the topic you’re researching?  And even when you do find a promising piece of media, is there anything you’d rather do less than sift through it for the useful parts, which you can’t easily break out and share anyway?

These problems can be solved with current technology, and open up new avenues for profit while we’re at it.  That’s what I discuss in a series at the blog of CRAFT | Media / Digital, where I work with QandO founder Jon Henke and one of the earliest bloggers, Sean Hackbarth.

Enjoy, and please share with anyone who might find this a cool idea:

Radio Free Internet

Part I: How Much of the Web Hears You?

Part II: Grasping and Spreading the Word

Part III: Integrating the Spoken Word into the Web


A Smarter Response to the State of the Union Address

[Note: You might have already seen this at The Next Right or mentioned at Politico.  I'm cross-posting here for more feedback and in the hope you'll help spread the word.]

After the election, I saw several Republicans discussing who should deliver the SOTU response speech.

No one should.

First, any speech is bound to suffer by comparison to a speech before a joint session of Congress, with the Supreme Court in attendance.  Republicans tried to capture some of the same spirit by having Bob McDonnell speak before a small crowd of supporters in the Virginia House of Delegates chamber, but if you can’t match the pomp and grandeur of the president, try to avoid a direct comparison.

Not only is the venue working against you, but the president is a nationally-elected official; no member of the opposition can have the same stature.  Appearing to try to match the president’s status just plays to his strengths.

And finally, a speech, to be delivered immediately after the president’s carefully-planned opening move, puts the responder at a disadvantage.  Since the response speech is written without knowing exactly what the president is going to say, what is supposed to be a criticism of the president’s speech or agenda is relayed in vague terms, not pointed responses.  A prepared speech can only talk past the president, appearing deaf to what the president just said in the marquee event.

This precious free airtime could be spent dismantling the president’s argument, then pivoting to counterattack and providing alternatives.

How can the opposition do this?

Take advantage of the fact that they have fewer restraints.

First, make it a table discussion with more than one responder.  As a suggestion, include at least one governor to remind the audience that there are independent sources of authority, laboratories of policy that should retain their power to handle local problems (a big-city mayor could also do), and also include a legislator representing the opposition in Congress to directly address the president’s agenda on the federal level.

This also takes the pressure off of any one person to speak for the party, and signals that the opposition is having a frank conversation, not speaking press-release style through the great filter of lawyers and focus-group-tested language.  Make good use of stars like Paul Ryan and Chris Christie who have shown they’re champs at off-the-cuff communication and aren’t afraid to take on big issues.  Bobby Jindal would have been far better suited to this than talking into a camera solo.

Second, use resources the president doesn’t have.  The president is limited by the tradition of giving his speech in the chamber of the House of Representatives, which only affords him a microphone, a teleprompter and an audience.  Instead of trying to beat the president at his own game, use a modern-looking studio, where the responders can make use of supporting staff and visual aids like charts and video.

And this extra content should come from a well-coordinated rapid-response team who provide ammunition for the response.

  • The model for responding to a speech in progress is liveblogging.  Certain people, by some mix of expertise, encyclopedic memory and quick wit, have proven they can tear apart a carefully-crafted speech in real time.  Identify these people—bloggers, political operatives, think-tankers—and (with their advance permission) borrow their best arguments and lines.
  • A media team would be responsible for matching the president’s remarks to earlier video and quotes from the president, his advisers and top congressional allies that contradicted the president’s SOTU message.  Anyone with a good memory and a well-ordered catalogue of video and/or transcripts can do this.  What could be more damaging than showing that the speech just delivered contained flip-flops?
  • To respond to specific policy proposals and claims, have a team of stat junkies, economists and others who can call up relevant charts and other visuals to help the responders on-screen.

This kind of rapid counter-offensive would be much more entertaining than the president’s exhausting, conventional address, giving viewers a good reason to stick around afterward.  And it would be much more effective than current efforts like sending out fact-check emails and post-speech press releases, the contents of which are read by only a tiny minority of people who saw the speech.

Don’t play to the president’s strengths. Use your own, leveraging all the media available to you that the president doesn’t have.


Mortgages, “tax expenditures” and jujutsu

I disagree with one point in Michael’s otherwise fine post about the mortgage interest deduction.  It’s something I hear frequently from fiscal conservatives, and it’s a nice sentiment, but we need a better argument.

Michael writes,

…we cannot accept the equivalence drawn between wealth transfers like Medicare, Social Security and Medicaid, and tax breaks like the mortgage interest deduction (MID). In one case, the government is taking money from someone else (despite how it has been characterized) and giving it to another, while in the other situation the government is simply deciding how much of one’s hide it will charge for its oh-so-wonderful services (a.k.a. taxes). It’s the difference between transferring money from one to another, and refraining from taking the money in the first place.

But targeted tax breaks aren’t really different, in practice, from subsidies.  The numbers would work out the same if the feds cut checks each year to people who hold mortgages, but we think of the tax break as allowing people to preserve their status quo, while we think of the subsidy as an intervention.

Somebody always has to pay for government spending.  A targeted tax break just means the government is going to force other taxpayers to pay for the spending, and when we’re running a deficit, that means future taxpayers.

I anticipate the counter-argument that if we send Congress more money to cover deficits, they’ll just ramp up their spending until they have equally large deficits again, so we won’t “save” future taxpayers a dime.  I have two responses:

  1. That sounds like a fine argument for requiring balanced budgets.
  2. It appears that nothing short of catastrophic deficits motivates politicians to cut back on spending, and even that is an iffy proposition, so if fiscal conservatives are serious about governing, we  need a better strategy than holding the Alamo on taxes.

What’s important for small-government tax policy is that taxes should (1) make people sensitive to increases in government spending (requiring balanced budgets helps), and (2) be simple and broad-based, not a tool for tinkering with social policy.

On the latter point, maybe I should give credit to Democrats for trying to undermine some of the biggest obstacles to the flat tax: the employer health benefits exemption and mortgage interest deduction.  I see potential for some political jujutsu: Republicans can let the Democrats take the heat for killing the deduction, and just push for other flat-tax provisions that tend to compensate the losers.  Lose the battle, win the war.


Observations: The QandO Podcast for 25 Apr 10

In this podcast, Bruce, Michael, Bryan, and Dale discuss the controversial Arizona immigration law, and the squeeze public employee unions are putting on state budgets. The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.


Immigration and the welfare state

Immigration seems to be the topic du jour at QandO today, and I take a slightly different tack than Dale and Bruce.

Let’s run through the main problems associated with illegal immigrants: state welfare costs, crime (or is it?), lack of assimilation (particularly if they’re allowed to vote), and suppressing wages for poor natives.

I think we can mitigate a lot of these problems with solutions far more realistic (in the short-to-medium term) than mass deportation, amnesty or ridding ourselves of the welfare state.

First, let’s recognize that the security threat becomes more complicated when you place wishful restrictions on immigration.  When there’s a flood of mostly non-threatening people crossing the border outside of any official process, it’s a lot harder to pick out the few really malicious ones.  And it’s really hard/expensive to stop that flood along such a long border.

We should be striving to funnel as many of them through official processes as possible, so we know who’s here, we know their backgrounds and we can separate the villains from those who just want to observe a basic civic peace and take advantage of opportunities in a freer country.  That means offering carrots and sticks to both prospective immigrants as well as those who are already here, and I’ll get to those incentives below.

Second, minimize how much the welfare state serves and controls non-citizens.

  • Uncompensated care makes up only 2.2% of medical costs in this country, and a good chunk of that doesn’t come from illegals, so the fact that many illegals wait until they need to use the emergency room, while irritating to some, isn’t a political hill to die on.  As long as it’s mostly limited to taking care of communicable diseases and real emergencies, which can be enacted into law, it’s tolerable.
  • Education is a much bigger problem.  I recall reading that there are 1.6 million illegal immigrants under age 18 in the States, and being from Southern California, where the largest budget item by far is education, I know that they (and natural born citizens born to noncitizens) represent a big cost.  Here we can do a bit of political jiu-jitsu: target guest worker families with a school voucher program.
    • They’re already in public schools, so it’s a win if they instead form the basis for a larger private school market.  The larger the market, the more the market can work its magic.
    • It can come with strings attached, like a requirement that any school accepting vouchers be able to show an improvement in English language skills at least as good as nearby public schools.
    • It’s not like Democrats have a good argument against it: it’s nearly the opposite of cream-skimming.  And when guests get this, naturally other groups are going to want it too.
  • Transfer payments (Social Security, unemployment, welfare, etc.), obviously, should be off the table for non-citizens.  I have no problem with people who want to take risks in a freer market; a host country owes them nothing more than securing their rights.

The idea here is to weed out those who aren’t seeking opportunity so much as handouts.  Those seeking opportunity are naturally more eager to assimilate.

Third, take the prospect of adding tons of dependent immigrants to the voter rolls off the table.  Instead, we can get most of what we want by creating a liberal guest worker program that virtually all prospective immigrants and current illegal residents can join simply by identifying themselves to authorities, as long as it’s clear that they’re going to generally be paying their own way, so that people with a dependent mindset are weeded out by attrition.

So what are the carrots and sticks here?  Without doing anything that would turn stomachs (and thus make reform politically impossible), we can get rid of the bad apples while not incurring the large costs associated with trying to throw 12 million people out of the country.

  1. A program allowing people to easily enter the country without being harassed should increase suspicion of anyone who’s still trying to immigrate the hard way — and that would increase public support for border security.
  2. Deport illegals who fail to register under the guest program and then commit serious crimes — violent crimes or big property crimes like auto theft.  Those who commit petty crimes and can’t prove their status can either apply for guest status and take their punishment here or accept deportation.
    • No sweeps or “asking for papers” for those who are just here peacefully.  Only those charged with another crime can be asked to prove their status within a reasonable time frame.
    • Come to an agreement to build cheaper-run prisons in Mexico to hold illegals during their sentences — no sense in keeping them in expensive American prisons if we’re planning on deporting them anyway.
  3. Illegals can’t access the school voucher program, but guest worker families can.
    • Perhaps also allow vouchers for English-language and Civics education for adults.

I’m open to any other ideas, but that seems like a good foundation, accepting (in the neolibertarian fashion) that the welfare state won’t disappear tomorrow, but offering a positive agenda that tends to increase liberty.


Observations Podcast for 04 Apr 10

In this podcast, Bruce, Bryan and Dale discuss the state of the economy and the Obama Administration’s foreign policy. The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.

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