Free Markets, Free People

Bryan Pick


Podcast for 28 Feb 10

In this podcast, Bruce, Michael and Dale discuss the Obama Administration’s security policies and the healthcare summit.  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.


Interview with Tom Campbell, CA Gubernatorial candidate

I spoke with Tom Campbell for over 45 minutes on a range of topics, and I’ve split my posts on that discussion into two posts, one here and one over at The Next Right. Here at QandO, I’m going to cover the more policy-oriented topics, and over at The Next Right the topics have to do with new media, elections, and the politics of fiscal conservative governance.

It pains me to see my native California in such dire straits. The state is broke, farms are collapsing, and unemployment is over 12 percent. The public colleges that might help retrain a lot of those workers are slashing classes.

The tax and regulatory burden has finally overcome the state’s many natural advantages, leading its citizens to abandon the Golden State. And these are people who can’t be having an easy time selling their homes: California, one of the first to suffer in the real estate collapse, is still near the top of the heap in foreclosures.

California, as we say, has issues. I talked with Tom Campbell about some of the most important ones: the budget deficit, jobs, health care, education, water and infrastructure.

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Should House districts cross state lines?

That’s the solution that came to my mind when I read this piece in the New York Times.

I don’t think my suggestion would violate the important aspects of our constitutional design.

As attractive as the idea of having fewer constituents represented by each Representative may be, increasing the number of seats to around 1,000 would make the House unwieldy.  Dunbar’s number reflects the difficulty of becoming familiar with large numbers of other people, so in very large bodies, it becomes difficult for one “side” to get to know the other.  That increases the tendency toward misunderstanding and factionalism, with negotiations handled entirely by a relatively small number of leaders, whips, and committee chairs.

Then there are logistical issues involved with more than doubling the size of the House (where will they all sit?), and — this might be a minor issue, but — do we want to pay 1,000 Congressmen and their staffs?  Do we expect that Congress will produce better legislation with 1100 members than it does with 538?

But the status quo does seem flawed.  The Senate may be designed to give some people more representation than others, but that’s because the Senate traditionally was supposed to be the great protector of the states.  The House was intended from the start to represent the people directly rather than the people as represented by their states, so for one legislator to represent 958,000 people (Montana) while another represents 527,000 (Rhode Island) doesn’t seem quite right.

There are a number of places where it strikes me as natural that a House district would cross state lines, because the people on either side of the border have more in common with each other than they do with other people in their state.

If an agreeable method of choosing where those lines are drawn can be devised, I see only one major difficulty with this idea.  That is: how to treat electors for the Electoral College.  If a district straddles two states that vote differently for president, the solution I see is this:

  • Each state delivers its 2 base electoral votes to whoever wins the state.
  • Any district which doesn’t cross a state border delivers its elector to whoever won the state.
  • If a district straddles a state border where the states voted differently, its elector votes for whoever won the district.

That might actually improve the Electoral College.

But perhaps I’m missing some other important snag here.  Your thoughts?


Against Obama’s Global Tax Hike

I’m not keen on many taxes to begin with, but as a practical matter, some are more destructive than others. Some are so bad that they’re a train wreck even by their proponents’ stated standards.

President Obama has proposed a package of tax hikes on the overseas operations of American firms. The supposed benefits sound like political winners: over the next decade the feds get $210 billion to shovel into the yawning budget hole, and at the same time discourage those companies from outsourcing jobs. Congressmen who promise more jobs but are wary of mounting deficits might think they’re hitting two birds with one stone.

But there are more appetizing birds than the goose that laid the golden egg.

See, there are just a few things that offer relief from the fact that the US is one of the few countries to tax its companies’ operations all over the globe. One is “deferral” – companies don’t pay taxes on most earnings until the money is returned to the US parent company, so they can delay getting slapped with the double tax by reinvesting their foreign earnings in foreign operations.

Another big relief is being able to claim credits on the taxes they pay to foreign governments.

Obama is proposing, among other things, to place new limits on deferral and clamp down on tax credits. These changes won’t work as advertised: they won’t reduce outsourcing (they may increase it) and won’t raise nearly as much revenue as originally claimed.

First, most American companies that expand overseas do it to get around trade barriers and get close to their customers. When a new KFC opens up in China, that’s not an outsourced American job; that’s an American business getting to expand into a growing market. The vast majority of sales made by foreign affiliates – think 90 to 94 percent – were to foreigners, not exports back to the US.

Second, the roughly 2,200 US-based corporations with overseas operations either employ or support the employment of 22 million Americans, and those companies create half of all American exports. Jobs here rely on providing direction to foreign workers (managers, engineers) and producing goods for affiliates to sell in foreign markets.

The growth of US foreign affiliates is “consistently accompanied(PDF) by the growth of their parent companies, the opposite of what you would expect from a zero-sum perspective on “outsourcing”. More expansion abroad means more jobs, compensation and investment at home.

So making American firms uncompetitive abroad not only threatens jobs at home but even encourages businesses to headquarter themselves outside the US.

And as a result of that, the policy changes won’t raise nearly as much revenue as Obama claimed.

  1. The global downturn has been worse than Obama suspected back when that $210 billion figure was calculated.
  2. We’ve tried cutting back deferral before: in 1986, the government repealed deferral for the shipping industry, and consequently we lost half of our shipping capacity, taking a bunch of jobs and tax revenues with it.
  3. Even still, never underestimate the creativity and industriousness of tax lawyers.

That last part might not be such a problem if Obama’s proposals simplified the tax code, like he claims. But they make things worse on that score, not better.

As a note to my fellow Virginians: these companies with overseas operations are responsible for over half of the private sector jobs in the commonwealth (PDF source), and they tend to be the better-paying jobs (averaging over $70k compensation) like computer systems design and telecommunications. Is that going to sit well with the likes of Sen. Warner?

Bills that hurt this many people are loaded with political liabilities, yet I got word a few days ago that a bill with Obama’s proposals may come up for consideration in the House in September.

Get the word out. The more people know what this is going to cost them, the harder it will be to sell. By all rights, Obama’s Globo-Hike should fail politically before it has a chance to fail as policy.


Podcast for 19 Jul 09

In this podcast, Bruce, Michael, Bryan, and Dale engage in the usual libertarian carping about government, and whether or not we “owe” the GOP something.  We don’t, by the way.

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 2007, they can be accessed through the RSS Archive Feed.


The Green Shift, again

QandO founder Jon Henke posted at The Next Right yesterday with a suggestion for Republicans that I didn’t think would be very controversial: that they should propose swapping out the payroll tax in favor of a carbon tax.  I’ve established that I’m all for that idea. Though I would go farther, it’s a good idea on its own, especially when unemployment is high and hours worked are very low.

Go over there and read his reasoning (please don’t comment unless you’ve read it).  It makes a lot of sense, whether you believe in anthropogenic climate change or not.  Well, unless you do believe in it, and think it’s such a good thing that it overwhelms the benefits of switching from a relatively destructive tax to a better one.


How many times do we have to tell you…

… that was then, this is now!

President Obama, to The New York Times, March 6, 2009, on how he’s not a socialist:

[I]t wasn’t on my watch that we passed a massive new entitlement… without a source of funding.

No sir. That wouldn’t be “entirely consistent with free-market principles.”

So I’m sure Pres. Obama will come up with something better than (a.) letting the Bush tax cuts expire and (b.) ending the Iraq War as a means of funding his massive new entitlement.  Because those things won’t even handle the existing structural deficit, much less a new program.


Embracing Paygo

Republicans and some allies are criticizing President Obama’s proposal for “pay as you go” rules that only cover new and expanded entitlement spending. They rightly point out that legislators can get around these new rules with budgetary tricks like relabeling spending so that “PAYGO” rules don’t apply.

But some on the Right have also warned that paygo will just lead Democrats to pass higher taxes. I’m not convinced that that’s a bad thing.

Don’t get me wrong: I don’t like taxes. But deficit spending is taxation — deferred taxation, with interest. If the government is going to spend a bunch of our wealth on things other than emergencies, enlightened fiscal conservatives should want the American people to see the price tag, the sooner the better.

Otherwise we’re going to continue this business of borrowing from our children to pay for our reckless spending today – that’s what a lot of those tea partiers were protesting against, wasn’t it?

So fiscal conservatives should propose even more comprehensive and stringent paygo legislation than the Democrats have. Force the Democrats to put it all on the table – lock in tax hikes or spending cuts, now.

We’re going to have to do pay the piper at some point, so how does it help to wait until a real fiscal emergency is upon us?

The longer we wait to pay for it through direct taxation, the more time we give the spenders to come up with clever ways to conceal the cost – whether through inflation, or carefully targeted taxes designed to create as little political backlash as possible. Paygo creates forced errors.

If the Democrats decide to cover the gap with tax increases, that’s an issue for 2010 and beyond. Every new big spending plan, like the Obama health care plan, comes with a surefire tax increase in the near future. And as Californians recently showed the country, even Lefty voters don’t like the prospect of actually paying for all those neat programs for which they voted.

Sure, it’s self-serving for Republicans who engaged in no small amount of deficit spending themselves to suddenly find religion on the need for a balanced budget.

But there are good reasons to suspect that this level of deficit spending (and the necessary money-printing that has followed) is going to hit us in all kinds of unpleasant ways. If we don’t commit now to eventually paying off these debts, the problems will get even worse.

So let’s do something about it – or turn the heat up on the Democrats until they do something about it. Let’s give them all the paygo and fiscal discipline they can handle, and then some.


The Threshold for Political Violence

Here’s a question for readers of all political stripes:

How big would a moral outrage have to be before you turned to violence?

Imagine that you live in a place in which what you perceive as a grave moral injustice–specifically violence against innocents–is enshrined in law.  You may perceive your opponents as anywhere from mean-spirited to perfectly well-meaning, but either way they are determined to continue, and your prospects for overturning this outrage through the normal legal process any time soon are scarce or nil.  In the meantime, you believe something horrific is happening on a massive scale.

For our purposes, try to think of different governments — direct democracy, representative democracy, oligarchy, monarchy, whatever.

At what point do you decide to act against law, by an alternative code?  And specifically, I mean turning to violence: threats, destruction of property, assault, assassination, even terrorism* and revolution.

What prevents you from acting violently up to that point?

  • The high personal cost?
  • The low probability of success?
  • The fear that things will turn out worse than simply allowing the grave injustice to continue?
  • Simple aversion to personally engaging in violence, despite your belief that the status quo is violence under color of law?

I’m trying to get at what flips a switch in someone to get them to turn to political violence.  Can you imagine a situation in which you would turn to such violence?

I suppose this turned into more of a thought experiment than a question.  But your input is welcome.

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* I prefer Philip Bobbitt’s definition of terrorism in Terror and Consent as “the pursuit of political goals through the use of violence against noncombatants in order to dissuade them from doing what they have a lawful right to do,” so remember, you oppose these noncombatants for supporting laws.


Right Policies: Opting Out

Yesterday Jon Henke challenged the Right to come up with policies that are popular, viable, workable, transformational and sustainable. (Follow the link to see what he means by each of those.) I’ve previously suggested a broad-based agenda that I thought could be sold as an alternative to the Democrats’ agenda, but I think a few of the specific policies are particularly strong, and they stick to a consistent theme.

Libertarian paternalism — which means that certain initial decisions are made for you, but you are left a way to opt out — can be a good or a bad thing, depending on the status quo. If the status quo is freedom, I’d just as soon not add in an element of paternalism in virtually any case. But if the status quo is paternalism, then libertarian paternalism is a step in the right direction.  Fortunately, giving people more options is much more popular than changing their status quo decision.

I propose that the Right should target existing paternalism and offer as many opportunities to opt out as we can devise. My main two examples are education and entitlements.

Education

I consider education to be any political coalition’s #1 long-term priority. If your opponents control education, chances are you will eventually lose on everything else. So, what policies should the Right pursue on education?

Vouchers aren’t a new idea, but we on the Right could be pursuing them in much more creative ways than we are now, to build a broad working alternative to state schools.  With variable-cost vouchers and pilot programs that target the “victim classes”, the Right can play full court press on vouchers in every school district.

Variable-Cost Vouchers

In every school district across the country, we should have vouchers at least equal to the variable cost of sending one extra child to public school. Democrats have argued for a long time that we need more spending per student to give kids smaller class sizes and better materials such as textbooks, and have used that to justify countless bond measures and tax increases to increase public school funding.

If a voucher just covers the variable cost of an extra student, then a voucher helps create smaller class sizes and increases the amount of money the public school can spend on each student.

You can see how a voucher for variable costs puts the Left in a Catch-22: Every extra dollar they want to spend per student is an argument for a bigger voucher, and an opportunity for the private sector to spend the dollar more efficiently than the public sector.

Make Friends in Low Places

We can do even better: pilot voucher programs should very openly target kids who are performing worst in the current system, in part because proposing vouchers for them undercuts the argument that vouchers just skim the cream of the crop.

Voucher proponents have already focused on several low-income and minority populations, using needs-based criteria and simple geography; the Right should be pushing this smart strategy much more aggressively – it undercuts Democrats’ arguments against vouchers beautifully, and makes a direct play for the Left’s base. The apparent success of the DC voucher system has made attempts to cut the program very embarrassing for Democrats; we need more of that.

Moreover, the Right should propose vouchers that help children who score on the bottom half of the test-score distribution. The research I’ve read indicates that these children show the greatest gains from voucher programs.  For the same reason, target kids with histories of disciplinary problems and special-needs children (paging Sarah Palin).

It would be a bridge too far for the Democrats to argue that these kids enhance the performance of public schools after using the opposite argument to fight vouchers for so long.

And finally, the Right should propose voucher programs to target the many minors who have already dropped out of school.  Kids who have outright given up on the public school system, or who rarely show up, aren’t doing anything to improve the performance of those schools.  If Democrats want to keep up the pretense that they care about these kids, they shouldn’t have any problem with helping these kids become part of a new private education market.

Those are just a small number of ways we can turn the Left’s most popular arguments against them and start to build a real market in education. In the meantime, the Right would be demonstrating that markets can work better than state-administered programs, and help the “little guy” who’s been screwed by the public system.

Where necessary to make the policy viable, the Right could be flexible on the matter of vouchers for church-founded schools (like Catholic schools); the first priority is building a broad education market outside of the state.

Entitlements

Here’s another place where reform would be truly transformational. The Right should push for an opt-out for the major entitlements – Medicare and Social Security. A reform doesn’t have to be a full privatization to accomplish a great deal of good.

Many people are currently collecting benefits from Medicare and SocSec, and we can assume that they will turn out to vote against anything that takes away those benefits. The Right can start making progress on reducing our crushing long-term obligations by (once more for effect) giving everyone as many opportunities to opt out as possible.

Social Security

Why not allow people to adjust their expected benefits, with higher or lower individual taxes to compensate for the change from the “standard” level?  The SSA could set a minimum level of contributions to guarantee its promised benefits, so that the legislation becomes non-threatening to beneficiaries, and thus politically viable.  To get the greatest tax cut, you opt out of all retirement benefits; you can change your mind later, but your benefit and/or tax level must be adjusted appropriately.  And the more people who opt out, the lower the minimum tax rate can go; that rate could be adjusted at periodic intervals, perhaps once a year.

Similarly, why not allow people to adjust their expected retirement age, again paying higher or lower taxes to compensate?

Both of these adjustments would introduce flexibility along with a price mechanism.

Yes, this means that some people might choose to pay the minimum tax and find themselves at age 67 regretting their earlier decisions, but everyone would know that they made a conscious choice to change from the status quo.  And in the meantime, those who opt out don’t feel like such direct stakeholders.

Medicare and other state medical benefits

To get more people off the rolls, allow them to opt out of Medicare eligibility and other state medical benefits in exchange for some mix of:

    • lower payroll taxes
    • tax-free health savings accounts
    • a tax cut on their individual health insurance
    • vouchers for private insurance and private disability coverage

… as long as the total cost of the mix is lower than the expected cost of Medicare benefits.  This way, the Right can not only cut into the massive expected costs on the near horizon, but also get fewer people to feel like stakeholders in the future of the state-administered system.

Conclusion

The most effective arguments against reform are allegations that people will lose the benefits they have now. Psychologically, we regret losing a dollar more than we regret not acquiring that dollar in the first place. That’s a big part of how the Right beat universal health care under Clinton: by telling the American people that they would lose their current insurance, with which most of them were satisfied.

Whether we like it or not, it is stupid to do a frontal assault on a hardened position. Instead, we should apply libertarian paternalism to divide and conquer by giving our opponents as many chances to defect as possible.

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