Surprise! A Political Cheap Shot from "Think Progress"

Matt Yglesias opines:

Conservative Senators are currently saying that they will filibuster a middle class tax cut unless that tax cut is paired with tax cuts that exclusively benefit rich people. That’s because they care—a lot—about reducing taxes on rich people. If they cared about reducing the deficit they could threaten to filibuster tax cuts unless paired with spending cuts. But they’re not doing that because they don’t care about the deficit.

What’s more, conservative columnists could urge them to do this. So could Fox News hosts and conservative talk radio stars. So could the Heritage Foundation, the American Action Network, the American Enterprise Institute, or the Cato Institute. But none of them are doing so. It’s true, again, that they separately say they favor cutting spending but none of them are urging members of congress to make tax cuts contingent on offsetting spending reductions.

It’s a question of scope. Tax policy is a huge issue in itself, as is EACH of the big spending cuts favored by supporters of limited government. Policymakers can only grapple with so much at a time, and since the tax debate is occurring now, they’re focused on taxes.

Improving incentives for savings and investment is key to long-term growth. High-earners (i.e., high-producers) tend to save more and be more sensitive to tax rate changes than others (not to mention bearing the greatest direct burden of taxes). It is therefore good tax policy to reduce rates especially at the top, not for whatever goes to the rich, but because of the benefits to the rest of us from greater investment and productivity.

When this tax debate has passed, I expect free-market people will be happy to discuss spending cuts. But one thing at a time.

Why the Spending Fetish?

A headline on Bloomberg.com today blares, "Rich Americans Save Tax Cuts Instead of Spending, Moody's Says."

Timothy Homan reports:

Hand the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy.

Later in the article, economist Chris Cornell is quoted, "Spending by the top 5 percent of households seems much more closely tied to business- cycle issues than it does to tax-cut issues."

The entire article is based on a false premise. Why is it that we should care only what the wealthy spend?

What they save, after all, can become business investment, which is what has been hammered during this recession and especially by the extreme regime uncertainty that has characterized the past two years. The images below from this recent post by Cato scholar Mark Calabria reveals that consumption is back to normal, while fixed private investment is down by 20%. The fixation on spending reflects flawed neo-Keynesian reliance on over-aggregation and mythical "multipliers."

On the empirical point about the wealthy saving much of tax cuts, that seems consistent with the permanent income hypothesis, which postulates that we try to smooth consumption over our lives. Something that changes expectations of lifetime wealth tends to affect consumption patterns.

Tax cuts that are expected to be temporary, therefore, would mostly be saved, while those expected to be permanent would be mostly spent. If the wealthy save tax cuts, it's a clear sign they expect them to be raised again when the bills come due for the current government spending binge.

Debt and Deficits: Only the Tip of the Angry Iceberg

Barely had I published my last entry, when the Washington Post came out with a story about how many Democrats are adding fiscal austerity pledges to their campaign platform. I'm unimpressed.

On one hand, it's good that politicians of both parties have finally come to understand that Americans are fed up with deficits and debt. On the other, Democrats in general and many Republicans are missing the bigger picture: the American people want a reevaluation of the proper role of government and how that role should be distributed among the levels of government.

It's not just about the money; it's about being accountability. And if private enterprise cannot successfully undertake some collective action and government can do better, it should be the most local government that can address it, which also happens to be the level most accountable to the people. Suggesting that a congressman from Ohio can be held accountable for education quality in Florida, or a senator from New York for road congestion in California, is simply preposterous.

It's also about being left alone. The decennial census is supposed to count inhabitants for the purpose of apportioning members of the House of Representatives, nothing more. Yet it has morphed into a vast treasure trove for social science researchers. It sounds benign, but besides the privacy issues, the conclusions of that research provide justification for any number of wasteful and often counterproductive interventions.

Americans want more than cheap talk about the federal budget. They want their national political representatives to fundamentally reconsider the role of the federal government, eliminating, privatizing, or transferring to the states those activities that are not within its proper scope.

Gerry Connolly (D-VA-11) is Fiscally Reckless

Over the past few weeks, I've received a number of snazzy glossy flyers--booklets, really--from the office of Congressman Gerry Connolly (D-Fairfax, VA) touting his fiscally conservative bonafides. His campaign site make similar claims with issues section including headings of "Fighting Wasteful Spending and Budget Deficits" and "Holding the Line on Taxes."

[Begin tangent: The flyers, by the way, apparently meet the guidelines of the House Franking Commission, the congressional body that oversees mailings from representatives to the people they represent to make sure they're constituent service rather than campaign materials. They're obviously campaign materials--I've only received them this summer, despite being "represented" by Mr. Connolly since January 3, 2009. Just another example of the incumbent protection scheme our leaders have established. For our own good, of course. End tangent]

So I wondered, just how fiscally responsible is Mr. Connolly? Let's look at his votes on the big issues. Did he come down on the side of taxpayers? ("No" means he voted "yes," that is, not fiscally responsible.)
- The failed "stimulus" bill: no and no.
- The spendthrift Fiscal Year 2010 Budget Resolution: no, no, and no.
- Cap-and-tax: no.
- A toothless pay-go (touted in his mailers): sure. A decent pay-go: no.
- EFCA, the union payback: no vote, but Connolly is a cosponsor.
- Obamacare: no, no, no.
- The "Homestar Energy Retrofit Act" boondoggle: no.
- "Deeming" the Fiscal Year 2011 budget passed instead of actually passing a budget: no.
- The teacher union bailout: no.
- A resolution to prevent Congress from passing major legislation during a post-election lame duck session, once the voters have rejected the Obama-Reid-Pelosi radical agenda: well, it wasn't a recorded vote, but no.

Want something more rigorous and systematic? Fine. In the first session of the 111th Congress, Gerry Connolly scored a grade of "F" on the National Taxpayers Union congressional report card with a whopping 6%.

Let's face it: glossy flyers notwithstanding, Gerry Connolly is not being responsible with taxpayer dollars. To my fellow residents of Virginia's 11th congressional district, let's encourage him to make a career change after November 2nd.

Putting the "Auto" in Automobile

"Civilization advances by extending the number of important operations which we can perform without thinking about them."
- A. N. Whitehead (in F.A. Hayek, The Constitution of Liberty)

A little more than a year ago, my friend and colleague Randal O'Toole sent me a draft of a paper he was working on with a section on driverless cars. Although it didn't make the final cut of that paper, it got a full chapter in his excellent new book, Gridlock: Why We're Stuck in Traffic and What to Do About It. Initially skeptical, I've since become mildly obsessed.

In summary, it is now possible for cars to drive themselves under certain conditions. Adaptive cruise control, lane keep, and self-parking options already exist in a variety of higher end cars. As the technology improves, hardware and software become cheaper, and the public becomes more aware of the possibilities, it's becoming hard to envision a future without autos on autopilot.

Why should I care, you ask?

Lower pollution. Less congestion. Less of a need to increase expensive lane miles of roads, which means less construction. Less time on the road; more time for everything else. Using the commute or other driving to do something fun or productive. Less stress. Less road rage.

Increased mobility for the elderly, the young, and the handicapped. Getting drunks home safely (for themselves and everyone else on the road). No more teen-texting-crash tragedies. An end to driver error from distraction or fatigue. The list goes on.

Even as technical demonstrations proceed, the concept seems to be getting more attention in the press. Erik Morris over at the NYT Freakonomics blog has twice waxed enthusiastic (with promises of more to come), and it's been picked up in a variety of news articles throughout the country.

In addition to the links above, check out this Capitol Hill briefing we did with Volkswagen's Director of Research, Randal's WSJ piece "Taking the Driver Out of the Car," or just Google it.

"Anyone who fights for the future, lives in it today."
- Ayn Rand (The Romantic Manifesto)

If only.

Constitutional Reform Needed Soon

It's been almost four months since I last blogged, courtesy of a rather heavy reading list for the final lap of grad school.

Twenty books and many discussions later, my grasp of constitutional economics has never been better. In a nutshell, constitutional economics has to do with how the basic rules of governance lead to different political and economic outcomes. The basic challenge is to escape anarchy or despotism by establishing the protective (military, police, courts) and productive (basic infrastructure, environmental protection, monetary policy) functions while constraining the ability of political actors to use the power of the state to redistribute. As it turns out, no advanced country seems to have figured out how to constrain redistribution very well.

In thinking about these issues, I've come to a few tentative conclusions. Politics as usual hasn't been very successful at limiting government. It looks like we need to think about constitutional reforms, such as
- Term limits (5 terms House, 2 terms Senate)
- Spending limits (inflation + population growth)
- Balanced budget requirements (spending = revenue two years before)
- Prohibition on new debt issue
- Two-year budgeting (budget odd years, oversight even years)
- Zero-base budgeting (all programs reconsidered each time)
- Periodic automatic program sunsets (without congressional reapproval, they go away)
- Putting all implicit debts (unfunded Social Security, Medicare, Medicaid, and pension liabilities) on the official annual budget

All of these are aimed at limiting the discretion of politicians. They're our employees, after all, so why do we let them get away with acting like our masters? Government doesn't give us meaning, it's just an instrument to accomplish those necessary things that cannot by provided by voluntary action.

Forcing government to live within its means would stop the intergenerational theft that has run rampant for the last eighty years and force politicians to make choices about priorities. It would also make it easier to say 'no' to the special interests.

How these reforms could be implemented is unclear. But unless Greece's situation looks like fun, we better figure it out soon.

What Kind of Labor Market Do You Support?

If you live in the DC area and ever wondered whether the businesses you patronize have unionized workforces, here's the link for you. It lists the "companies represented by UFCW [United Food and Commercial Workers] Local 400."

You can find the UCFW affiliate in your area at http://www.ufcw.org/.

The phrase "companies represented by UFCW Local X" strikes me as pretty misleading. They may represent some workers, but certainly not customers, suppliers, management, or shareholders (as Ben Stein calls them, "widows and orphans").

Anyway, I was interested to find out that several places I shop are unionized--CVS, Macy's, and Safeway--and others--Walmart, Whole Foods, Target, Wegman's, among many more--presumably are not.

Whatever your preferences, it's good to know.

P.S. Incidentally, a report from the Bureau of Labor Statistics last week noted that public employees made up a greater share of union membership than private sector workers in 2009--the first year that's ever happened. Federal, state, and local government workers were 37.4% unionized (7.9 million workers), while only 7.2% (7.4 million) private sector workers belonged to unions. Apparently union membership hasn't been this low since 1900.

P.P.S. Also, the new Cato Journal seeks to answer the question, "Are unions good for America?" I haven't had a chance to dig in yet, but it looks like an interesting read.