Long before Mark Sanford’s very public affair and divorce, Reason featured the former South Carolina governor in our Annual Privatization Report for his work cutting the size of, and improving the efficiency of, government in South Carolina.
Former Gov. Sanford continued his road back on Tuesday night winning South Carolina's special congressional GOP primary. If he wins a Republican runoff election against the primary’s second place finisher (a recount is needed to determine Sanford’s opponent), he will face Elizabeth Colbert Busch, comedian Stephen Colbert’s sister.
A disgraced ex-governor and the sister of a popular comedian came out victorious on Tuesday in South Carolina's special congressional primary, possibly setting the stage for an uncommonly tight race for what is normally a Republican safe seat.
Republicans in South Carolina's 1st congressional district showed forgiveness by supporting Mark Sanford after a campaign focused as much on the former governor's personal transgressions as his record. Sanford came out on top of the crowded 16-candidate Republican primary, according to the Associated Press.
Sanford, who gained more than 35 percent of the vote, will face a runoff election on April 2 against the second place finisher. The race for the Republican runner-up was much closer and votes were still being tallied late into the night.
Also victorious on Tuesday was Elizabeth Colbert Busch — the sister of comedian Stephen Colbert — who easily won the Democratic primary and will face off against the winner of the Republican run-off election in May.
The seat opened in December when then-Rep. Tim Scott was appointed to fill the Senate seat vacated by Jim DeMint.
Let me be clear up front that in the long run the only way to make government truly efficient is to make it smaller, and this seems to me to be the real clarion call in highlighting the importance of privatization efforts. Efficiency and government are mutually exclusive in our system, and if our Founding Fathers had wanted efficiency I suppose they would have looked more closely at totalitarian systems. They wanted not efficiency, but checks on power in our republic.
In attempting to advance limited government, personal freedom and free markets over government fiat, here are a few things we have found in South Carolina:
Friedman, not freedom, sells: So much of why we should limit government is tied to freedom, but sadly we have found greater leverage in talking about how Thomas Friedman's new-found and so-called Flat World necessitates limits to government. The point we have made continually over the past three-plus years is that for our state to survive and thrive in this new competition of 6.5 billion people across planet earth, we must make changes to our government cost structure.
Business principles trump ideology in advancing limited government: As an example, many of the successes that were built into the $100 million in last year's budget savings in South Carolina were sold by talking about business principles. We argued that in the world of business, when your business model changes, you change with it.
It will be interesting to see if Sanford can continue his comeback by winning this House seat and return to his earlier efforts to limit the size of government.
Following weeks of delays, Harry Reid and the Senate finally sent the worthless legislation that is the STOCK Act to Barak Obama. Barring a staffer dropping it into the toilet en route to his desk, it will become law momentarily.
The STOCK Act is little more than a desperate attempt by Congress to retain what little confidence and respect is left for them in the hearts and minds of the American public. It accomplishes nothing, and addresses a non-issue. We have written about this fact since the Act’s first introduction last fall, which can be found here, here, and here.
Despite the Act and the legislative process leading up to its finalized language being nothing more than political grandstanding, what the STOCK Act really represents is a missed opportunity. If Congress were truly serious about policing themselves and not merely interested in gaining back the trust of Americans through a useless law, they’d design and pass worthwhile legislation. We wrote about this in our previous article:
“To prevent members of Congress and their staffs from cashing in on their positions while in office, a law needs to require them to report all financial transactions in real time, on the date they are made and prevent them from capitalizing on any nonpublic information they receive from any source gathered in the course of their public service.
The proposed STOCK Act has enough loopholes to drive a truck through. A simple fiduciary duty law that covers all financial vehicles and transactions - stocks, real estate, derivatives, etc. - would be more likely to protect taxpayers’ interests. This law would be better able to spot Congress‘ dubious financial deals because it includes all avenues by which members are able to use their privileged positions to enrich themselves, and it immediately shares the details of the members’ financial activity.
To give the law some teeth and make members of Congress think twice about using their positions to get rich, the SEC or the Justice Department must commit to forming an independent unit actively monitoring congressional stock activity and prosecuting offenders, which isn’t happening now.”
We wrote that in December, and since nothing has changed in the Act to reflect anything beyond just stocks. The law will pass, Obama and Congress will cheer their feeble attempt to demonstrate integrity, and status quo will be restored.
Referencing the STOCK Act, Obama had this to say:
“After I sign this bill into law, Members of Congress will not be able to trade stocks based on nonpublic information they gleaned on Capitol Hill. It’s a good first step. And in the months ahead, Congress should do even more to help fight the destructive influence of money in politics and rebuild the trust between Washington and the American people.”
America is tired of first steps. Why not just get the job done right the first go around and then move on to the issues that are truly important to this country like debt reduction, tax reform, monetary madness, and a host of others. Congress doesn’t need to waste time “rebuilding trust” and conning the American public into thinking their decisions aren’t made by special interests and money. The STOCK Act isn’t real reform. It’s yet another missed opportunity and a distraction from what really needs to be done.
Recently before Congress Treasury Secretary Geithner responded to a question from Rep. Paul Ryan saying, "You are right to say we're not coming before you today to say 'we have a definitive solution to that long term problem.' What we do know is, we don't like yours."
Those two sentences speak to a mentality so bereft of intellectual vigor, so stunningly and candidly shallow, so thoroughly irresponsible, so politically myopic, selfish, and cowardly, that it should disqualify this crew from a second term in office. What a disgrace. Remember this moment the next time Democrats accuse the GOP of being the "do nothing," intransigent, "party of no."
In what has been called a “legislative speed record,” the STOCK Act has been passed in both the Senate and House with 96-3 and 417-2 voting “yay” respectively after just two-and-a-half months of consideration. I wrote about the Act largely being a public relations stunt back in December in the Washington Times and in a blogpost last week highlighting the desperation of Congress to regain the public’s trust. Co-sponsor of the STOCK Act, Rep. Tim Walz (D-MN) said that hepatitis would be more popular than congress if the Act wasn’t passed.
Despite passing in both bodies of Congress, the STOCK Act must once again pass in the Senate as two major provisions were removed from the version originally passed in the Senate last week. One of the provisions requires that professionals who sell non-public information relating to legislation and rule-making to hedge funds and investors, so-called political intelligence, must register with the government like lobbyists. It was part of the original House bill, but is now nixed. The other provision, which “prohibits undisclosed "self-dealing" by state and federal public officials to ensure that officials cannot secretly act in their own financial self-interest at the expense of the public, and in violation of existing ethics rules and regulations,” was added as a rider by Sens. John Cornyn (R-TX) and Patrick Leahy (D-VT). It had been proposed on its own, but was snuck into the STOCK Act last minute because of the bill’s absolute certainty of passage. Both were removed by the House under the leadership of Rep. Eric Cantor (R-VA).
Though on the surface the latter provision may appear a worthwhile law, Joe Luppino-Esposito of the Heritage Foundation provides an insightful analysis to the contrary. He concludes:
“As appealing as it might sound to give members of Congress a taste their own medicine, this proposed amendment would have a more devastating, far-reaching effect on all elected officials, and in some cases private citizens, at all levels. The amendment is a textbook case of overcriminalization: over-reaching federal criminalization, unclear terms, and inadequate criminal intent language.”
The rest of the STOCK Act has been kept more or less the same, although some of the language has been changed to include securities other than just equities and swaps as the original bill had intended. A provision preventing Congress and their staff from participating in IPOs premarket was also added. The so-called Pelosi provision was aptly named in regards to Rep. Nancy Pelosi’s (D-CA) husband’s participation in Visa’s IPO in the spring of 2008. It coincidentally occurred around the same time as legislation curbing credit-card swipe fees. Never mind that Pelosi’s husband is a multi-millionaire financier who has participated in multiple previous IPOs and is a long-term investor – not a trader. The fact that the legislation and the IPO coincided with one another is pure coincidence. The idea that Nancy Pelosi acted on inside information through her husband’s investment is absurdly ridiculous. I am not one to ever defend Pelosi, but this is blatant political maneuvering.
Rep. Walter Jones (R-NC) called the Pelosi provision “absolutely unacceptable” and “petty.”
Representative Jones should have included the entire STOCK Act in his comment, because that’s about the best summation of the whole legislation. Americans shouldn’t welcome this new law (it will sail through the Senate and Obama will sign it in a heartbeat) as progress, nor a sign of Congressional efficiency, nor an occasion to restore trust in Congress. They should see it merely as a giant waste of time, a distraction from the real issues Congress should be dealing with, and a shining example of the spectacle that is American Politics.
After a “60 Minutes” report brought to the attention of the American public that Congress was capitalizing on non-public information, lawmakers quickly collaborated with one another and proposed two bills banning insider trading by members of Congress and their staff. One in the House and one in the Senate. The House bill had floated around for six years largely ignored until it was immediately embraced by 270 House members the week after the public became informed. The Senate bill took about two weeks to craft following the “60 Minutes” report. Isn’t it amazing how quickly our representatives can act when the issue threatens their lives and jobs?
This whole hoopla over Congressional insider trading is a non-issue. I wrote an op-ed in the Washington Times about this bill being largely a public relations campaign, a sorry and despicable attempt by members of congress to regain America’s trust by drafting and passing a law that at first glance looks like our representatives protecting our interests, but in reality accomplishes next to nothing and may even disrupt existing insider trading laws.
Congress has a public approval rating below 15 percent, and this bill reeks of desperation.
One of the creators of the Senate bill, Sen. Scott Brown, Massachusetts Republican, had this to say:
"We can send the message to the American people that we're trying to re-establish the trust that seems to have been lost with them, and who knows, maybe we'll be in double figures in terms of the approval rating pretty soon."
Co-sponsor of the House bill, Rep. Tim Walz, Minnesota Democrat, had this to say:
"If this thing doesn't move and doesn't happen, hepatitis will be more popular than the U.S. Congress, I can guarantee you that.”
The only thing that was accomplished throughout this lawmaking process was media time for our representatives to return to the pulpit, clamor to regain our trust, and most importantly, waste our time while not devoting much needed attention to real issues like deficit reduction, tax reform, a slew of government housing issues, relentless money printing, and the list goes on.
At least some sense came from one Congressman who voted no to the legislation. Sen. Tom Coburn, Oklahoma Republican, had this to say:
“The assumption here is that some of our colleagues are doing insider trading on the stock market. Nothing could be further from the truth. The real insider trading is the horse-trading that goes on in this body that is not always in the best interest of the country.”
As the post-mortem analysis of the South Carolina Republican presidential primary is written and we look ahead to the first Republican debate in Florida tonight, the thing that sticks with me most vividly from the South Carolina campaign was the reaction of the crowd in the Fox News debate, particularly when many in the audience booed Rep. Ron Paul for offering the notion of applying the Golden Rule to our nation's foreign policy.
Just to recap, the candidates had been discussing foreign policy and Iran. Newt Gingrich had just offered some false bravado and empty rhetoric about killing terrorists. Paul then tried to inject a little sanity about not carelessly beating the war drums. Following the crowd's boos, Mitt Romney, Rick Santorum, and Rick Perry then engaged in a pissing contest to demonstrate who among them was the most macho warmonger.
To the crowd's credit, they did cheer Paul 30 seconds after the initial boos when he finished his reply by imploring the country to bring the troops home and not delve into yet another needless war, saying, "This country doesn't need another war [with Iran]. We need to quit the ones we're in. We need to save the money and bring our troops home."
This exchange brought two thoughts immediately to mind. First, it reminded me of a similar exchange from a presidential exchange four years earlier, also in South Carolina, in which Paul and Rudy Giuliani got into a heated exchange over U.S. foreign policy and the war in Iraq. Giuliani acted incredulous that Paul had the temerity to suggest that our foreign policies, specifically, over 50 years of meddling in the Middle East, have had unintended—and, oftentimes, negative—consequences. Giuliani's response was greeted with wild cheers from the audience. Paul then schooled Giuliani and the others in attendance and those viewing the debate on our history of interventionism in the Middle East (namely, the U.S.-orchestrated coup d-état of the democratically-elected government of Iran in 1953 which installedMohammad Reza Shah Pahlavi and ultimately led to over a quarter-century of the Shah's brutal rule over the Iranian people) and the concept of "blowback," which is described on Wikipedia as "the espionage term for unintended consequences of a covert operation that are suffered by the civil population of the aggressor government."
I have since read many accounts of people, even former hardened neoconservatives, who, as a result of that exchange and further study, have since adopted noninterventionist foreign policy views based on Paul's simple wisdom that we, as a nation, should not treat others in a manner in which we would not like to be treated. One does not have to be religious to acknowledge that the Golden Rule offers a simple and sound moral code of conduct. It applies as well to international relations as it does to personal relations.
Some of the Republican presidential candidates have noticed that the phrase "American exceptionalism" plays well with Republican audiences, and they tend to use it every opportunity they get. They generally misinterpret the term to mean that not only is American society (by which they really mean American government) the best in the world, but that this somehow gives us the moral right to act in ways that other societies and nations cannot. America is an exceptional nation, but it has come to be that way because of the ideals of freedom and opportunity that it has embodied, and its willingness to lead by example, not by throwing its weight around and imposing its notions of the way people should live their lives on other societies and nations. Regrettably, it has strayed from that path and must rededicate itself to embodying the principles of individual liberty, prosperity, and, yes, peace, if it is to once again be considered that "shining city upon a hill."
Returning to the recent South Carolina debate, and the crowd's reactions, my second thought was of the sheer bloodlust displayed by members of the audience. It was like a feeding frenzy of war propaganda. It recalled to me Mark Twain's poignant short story, "The War Prayer." (Apparently, the same thought occurred to Laurence Vance, who wrote an excellent article for LewRockwell.com on the same topic.) It is the story of a church congregation implored by its minister to pray for their nation's troops during a time of war. After the preacher's passionate sermon, an elderly stranger makes his way up the main aisle to the front of the church and announces to the congregation that what has just been uttered is only half of the prayer that has truly been made. He then proceeds to lay bare the horrors of war and the unspoken payer that they have also necessarily intended.
"You have heard your servant's prayer—the uttered part of it. I am commissioned by God to put into words the other part of it—that part which the pastor, and also you in your hearts, fervently prayed silently. And ignorantly and unthinkingly? God grant that it was so! You heard these words: 'Grant us the victory, O Lord our God!' That is sufficient. The whole of the uttered prayer is compact into those pregnant words. Elaborations were not necessary. When you have prayed for victory you have prayed for many unmentioned results which follow victory-must follow it, cannot help but follow it. Upon the listening spirit of God the Father fell also the unspoken part of the prayer. He commandeth me to put it into words. Listen!
"O Lord our Father, our young patriots, idols of our hearts, go forth to battle—be Thou near them! With them, in spirit, we also go forth from the sweet peace of our beloved firesides to smite the foe. O Lord our God, help us to tear their soldiers to bloody shreds with our shells; help us to cover their smiling fields with the pale forms of their patriot dead; help us to drown the thunder of the guns with the shrieks of their wounded, writhing in pain; help us to lay waste their humble homes with a hurricane of fire; help us to wring the hearts of their unoffending widows with unavailing grief; help us to turn them out roofless with their little children to wander unfriended the wastes of their desolated land in rags and hunger and thirst, sports of the sun flames of summer and the icy winds of winter, broken in spirit, worn with travail, imploring Thee for the refuge of the grave and denied it—for our sakes who adore Thee, Lord, blast their hopes, blight their lives, protract their bitter pilgrimage, make heavy their steps, water their way with their tears, stain the white snow with the blood of their wounded feet! We ask it, in the spirit of love, of Him Who is the Source of Love, and Who is ever-faithful refuge and friend of all that are sore beset and seek His aid with humble and contrite hearts. Amen."
(After a pause)
"Ye have prayed it; if ye still desire it, speak! The messenger of the Most High waits."
It was believed afterward that the man was a lunatic, because there was no sense in what he said.
Let us hope that tonight's debate—and the remainder of the presidential campaign—will be characterized by greater reflection and civility, and that the candidate's views will be better informed by a respect for life (may they be as staunchly "pro-life" in international matters as they claim to be in domestic matters) and liberty.
While the Occupy Wall Street movement is often criticized for not having concrete goals, there are several clear categories the gripes fall into. Complaints about crony capitalism are completely understandable. Demonization of corporations is a missed target, the fewer opportunities those with money have to manipulate the regulatory system the better. But where the logic falls completely apart is over the host of claims related to income inequality/wealth inequality.
A video put together by the Center for American Progress a few weeks ago demonstrates many of these logical inconsistencies. The arguments are often emotive, and play on populist rhetoric to make some sharp claims. But when you break a lot of this down, I think the debates are really misplaced. The lack of perfect logic here is not to suggest that nothing is wrong in America—in fact there is a lot wrong. And the instincts of most Americans pick up on this. But if we're going to have the right solutions we have to properly understand the problems. Here is a breakdown of some of the CAP video arguments (the whole video is at the end):
"1% has 40% of the wealth"
To start, we should note the difference between wealth inequality and income inequality. Even if everyone in America had the exact same income, individuals would do all sorts of different things with it. Some might spend, others save, and still others directly invest. Some of those investments would succeed and others would fail. To talk about the problem of too much wealth concentrated among the few is to demand equality of outcomes instead of equality of opportunity (which is fine to argue, but then we're into a capitalism vs. socialism discussion). If everyone had the same income to start and ultimately 1 percent of those people wound up with 40 percent of the aggregate wealth over time, would that be an inherently bad thing? No. The deeper issue is how that comes about—whether or not the 1 percent have achieved their wealth through nefarious practices. And that would be a problem whether or not there was equal income in the first place. (This hypothetical also assumes a fixed pie of wealth, which would certainly not be the case since there is no fixed pie of wealth.)
When discussing wealth inequality, one could complain that the financial industry has manipulated the regulatory system and benefited from access to subsidized capital (FDIC, Fed discount window, better borrowing rates than smaller institutions from TBTF status, etc.) and suggest that the wealth derived from financial activities in the past would not be as substantial without these public benefits. Therefore the wealth gap was widened through a non-capitalist flaw. One could also note barriers to entry in the legal community (bar association, occupational licensing requirements) drive up the cost of legal services and increase the wealth of lawyers beyond what it otherwise might be. Similarly, problems with the lack of transparency in costs in the medical industry mean that medical professionals make more money than they might otherwise, increasing their contribution to the wealth gap.
So there are a range of government policy choices (whether you like them or not) that wind up distorting the ultimate wealth that can be achieved in various businesses away from where it would otherwise be. This doesn't necessarily make a value statement on those policy choices, but does suggest where the debate should go if you want to talk about wealth inequality. Consideration of how state, local, and federal rules influence wealth distribution becomes the more pertinent question, rather than just supposing there is an arbitrary size of the wealth pie (40 percent? 30 percent? 20 percent?) that is some how the objective max that any one percentage of the population should have before incurring the wrath of "the others."
Takeaway: There is nothing logically objectionable about the actuality of 40 percent of national wealth concentrated amongst 1 percent of the population; what could be objectionable is the nature of that wealth gap. I've listed some contributors to the wealth gap that have actionable steps to be addressed—let's hear about some other causes of wealth inequality. Then there can be a debate. You can't debate a benign number.
"In the past decade, most of the financial gains in the country have gone to the top 1%"
Logically, as the economic pie expands, if a majority of the gains go to a select group in society it does not say anything inherently positive or negative about the gains that go to the rest of society. Again, it is not the condition itself that should be discussed in a vacuum, as is frequently done in OWS marches, but the causes of the perceived problem. Is this majority of gains flowing to the top 1 percent because the top 1 percent just did way better in developing investments than the rest? Is it because wealth necessarily grows exponential the more that you have if you manage it well (i.e. It is easier to make money investing in equities with $100,000 than $100, so those at the higher echelons of wealth will necessarily be able to growth their wealth faster than those at the bottom)? Is it because bank licenses provide limited liability, allowing financial institutions to grow to gigantic sizes they never would have reached without the benefit of public support ultimately leading those financial institutions to beating down everyone in their path and generating massive amounts of wealth? Those are different scenarios (that are not necessarily mutual exclusive), and lead to different policy responses (or non-responses). They are causes that can be measured, debated, and addressed. Is there an objectively proper amount of financial gains that should flow to any particular percentage of the population?
Suppose much of the wealth that was generated in the past decade came from non-productive activities like high frequency trading picking up half-a-cent margins on rapid trades identifying nano-second arbitrage opportunities. While one could debate whether or not this has harmful effects or takes up talent that could otherwise be predisposed to something bringing more value to society, it does not necessarily reduce the wealth growth of others. Think of this as whip cream on the pie. It still counts as part of the pie, but whether or not it is there doesn't impact much of the nature of the rest of the pie. Theoretically the 1 percent could gain 90 percent of the wealth over a 10 year period, but if 40 percent of that wealth is from activities that created wealth that never would have existed anyway, then the 99 percent are not directly injured, even though they don't share in what was created. In this way the wealthy individuals in America didn't prevent others from generating wealth as much as they generated more than others. To complain about that is to lapse into plain old jealousy and envy. Instead, it is beneficial to concentrate on what tangible things, policies, laws, etc. contribute to where financial gains flow. Figuring out whether these are good or bad is a critical question when considering the efficacy of this statement that a majority of financial gain went to a particular percentage.
"Median income has decreased in the last decade"
This is true, according to the Census Bureau (see table H-8). From 2001 to 2010, Census reports median income fell from $52,005 to $49,445, adjusted for inflation (using CPI, in 2010 dollars). Of course this is somewhat of an arbitrary measuring point. If you were to measure from 12 years ago, the decrease would be worse, down from $53,252. Though if you chose to measure two decades back, you'd find median income has increased from $47,032 in 1991. What is the broader point. Well, like the story so far, the important thing to discuss what has caused this to happen. The dot-com bubble making millionaires out of previously lower income tech nerds contributed to median income being the highest in 1999-2000. It would make sense to see it fall in the aftermath of the 2001 recession, then peak again in 2007, only to fall once more in the current recession. Does the present state of median income actually say anything about the past decade? While median income has risen over the past few decades does that fact inherently suggest it should keep going?
If we've hit a technology plateau and picked much of the low hanging fruit from the American economy, then we should expect the structural problems in our labor market and capital markets to prevent continued growth in the median income. If this diagnosis were to be correct, it would suggest where the debate over how to address economic woes should take place. And it would yield much different policy results than might be suggested by supposing the wealthy are putting intentional downward pressure on the middle class.
"The wealth gap has grown 20% since the 1980s"
Again, this is inherently not a problem. The CAP video makes this argument. If you're already geared up to believe the wealthy are taking too much in society you'll see this as a bad thing. If you're looking at the statement from a logically indifferent perspective, the response would be, so what? When making an statement like this and then presuming the conclusion is "therefore this is bad" the argument falls apart because there is a missing theorem: what caused this gap and is that cause a bad thing? There is a need for more diagnostics in this debate. If a dozen diseases can have similar symptoms we can't just focus on the symptoms. Or even assume the symptom is an indication that something is wrong.
"The American Dream is that you can work hard, play by the rules, and you can get ahead. That is the essence of mobility. But social mobility is down."
No, that is not the American Dream. That is to suggest that the American Dream is everyone always wins, all the time. No one ever promised that every entrepreneurial idea would succeed. In fact, most small business ideas don't take off. The American Dream is that you can pick yourself back up. That there is always opportunity. The reason that libertarians complain about oppressive regulations (not all laws) and occupational licencing is because those things limit opportunity. They often fly in the face of the American Dream.
The nature of the American Dream is that if you succeed you can get ahead, and it is not necessarily at the expense of others. This statement in the CAP video is to suggest that those in the 1 percent are many who have achieved the American Dream. They have gotten ahead. That doesn't necessarily mean they've kept everyone else down. If everyone were to achieve the wealth status of those in the 1 percent (minimum of around $500,000 a year) then the 1 percent would just be some higher figure. If the American Dream is that you get ahead while pushing others back, then why would anyone want to support the American Dream?
The reality is that labor mobility is down because both progressive and conservative ideals have promoted homeownership as an investment all should have. This has encouraged debt. This has families weighed down by bills and unable to take advantage of opportunities. This has households unable to sell a home and move to a new place where there is work. This distorted view of the American Dream, that you can have it all quickly without having to work for it and there will never be problems, that is something that has contributed to the mess of today.
"The gap between wealthy and middle class has been growing, and it has become harder for those in middle class to break into the top"
These things are not logically consistent. Was it ever easy for the middle class to move into the upper class? Were the poor once easily mobile but now something is drastically different? There has always been a tough road for moving between classes of wealth. Such a statement needs to be quantified with causes, and it should not assume that the goal of individuals in society is to try and move up the wealth ladder. Sure, most people wouldn't mind more income and more wealth, but a lot of people are able to live happy, content, and full lives in wealth classes that are not the elite. There is a lot of assumption and little causal evidence to link some of these ideas together.
"1500 millionaires paid no income taxes in 2009; the average tax rate for wealthy has fallen; and the wealthy get a tax break on dividends"
Okay, so the tax code is broken. Let's fix it. All for that.
But before we move on, let's dig into this a bit. First, 1,500 millionaires is less than 1 percent of all millionaires in America. It may or may not be a problem, but in either way it is a low enough number to be statistically insignificant.
Second, to argue there is a tax break on dividends (as is done in the CAP video) is to suggest there is an inherently proper rate they should be. And what might that rate be? (Hint: the answer can not be "well because these other things are being cut" since that is not logically connected, just selectively attached.) From one perspective dividends are double taxed because after they are taxed and added to personal income they get taxed again. Even if one rejects this argument on some objective tax policy grounds (not appealing to social values), the 2003 tax law that changed dividend taxes only reduced them to the rate of capital gains taxes for most taxpayers. Is there something inherently different between dividends and capital gains such that they should be taxed differently? Unless this can be shown, it is inappropriate to argue there is a tax break on dividends.
The nature of this debate, though, gets at a deeper issue, one that should be addressed in comprehensive tax reform: on what grounds should anyone pay any taxes? Is the taxing of income the most equitable way to tax in society? Is there any connection between taxing income and paying for public services? Is it just an easy thing to tax that we've gotten used to. Maybe it is the best way to tax, maybe not. But it shouldn't be assumed that is the proper way to tax without a fundamental argument to back up that position.
That said, the sense that it is unfair that some have been able to escape taxation while others pay taxes is understandable. I share the frustration. The tax code is unjust, it is complicated, it distorts the use of resources, it grants political favors. But this sense of frustration should not lead to one of envy and rage, but rather to disgust in the political system for allowing for this to happen.
"We should stop tax breaks for people who ship jobs overseas"
There is nothing illegal about using foreign labor, and American businesses try to get foreign companies to come to our shores all the time. Global competition. Should we reject other people shipping their jobs to us? This idea that it is un-American to use foreign labor misses the value that using more affordable labor can have by freeing up American workers with skills to specialize in something that we can do better than anyone else. At this point I am making a value statement, since this is a more concrete matter to debate. In my view, it is problematic to want to get old jobs back instead of looking towards the future. Not all employment is created equal. No one is demanding that the U.S. stop importing food so that we can have more agricultural jobs, so why do we glamorize telephone operations and manufacturing work as somehow inherently needed to be done in America? But moving beyond the value statement, that is matter that should be debated. Not make a statement that presumes American companies that use labor beyond our shores are some how doing something elicit or getting some kind of unfair tax advantage.
As the topic of income inequality has become more discussed, solutions are generally focused at some kind of program to redistribute wealth to make society more equal. In order to do this, you presumably would need smart people to decide how to do the redistributing. The challenge is, as Hayek pointed out, that there is a knowledge barrier insurmountable by human ingenuity. The reason that socialism can work in a society of 12 people is that they can all voice their wants and desires and willingly join a collectivist society. A prime reason why it doesn't work for a nation is that it is impossible for the leaders of a country to fully know the demands of society which are constantly changing and evolving. Smart men can not perfect rules and regulations that would establish an equal society without there being eventual breakdown.
The value of a market system is that you can have very smart people as leaders, working to ensure justice is preserved and rule of law is maintained (including some regulatory requirements, including regulations against theft and murder), but not trying to direct all of society and the economy. Ross Douthat, who I generally find to miss the mark more often than not, addressed this idea in his most recent NYT column and it was possibly the best thing I've seen him write:
Inevitably, pride goeth before a fall. Robert McNamara and the Vietnam-era whiz kids thought they had reduced war to an exact science. Alan Greenspan and Robert Rubin thought that they had done the same to global economics. The architects of the Iraq war thought that the American military could liberate the Middle East from the toils of history; the architects of the European Union thought that a common currency could do the same for Europe. And Jon Corzine thought that his investment acumen equipped him to turn a second-tier brokerage firm into the next Goldman Sachs, by leveraging big, betting big and waiting for the payoff.
What you see in today’s Republican primary campaign is a reaction to exactly these kinds of follies — a revolt against the ruling class that our meritocracy has forged, and a search for outsiders with thinner résumés but better instincts.
But from Michele Bachmann to Herman Cain, the outsiders haven’t risen to the challenge. It will do America no good to replace the arrogant with the ignorant, the overconfident with the incompetent.
In place of reckless meritocrats, we don’t need feckless know-nothings. We need intelligent leaders with a sense of their own limits, experienced people whose lives have taught them caution. We still need the best and brightest, but we need them to have somehow learned humility along the way.
In an ABC interview last night, President Obama defended his economic policy actions saying he thinks he made "all the right choices." While one could easily point to the failure programs like ARRA, cash-for-clunkers, and HAMP to help lower unemployment, boost the economy, or help the housing market, success is all in how you define it. And the president is defining success in very short-term metrics. We don't have -10% GDP. We don't have 20% unemployment. And we still have houses. Yay.
This short-termism is exactly the same attitude that Wall Street took during the bubble years. Many traders and firms were just focused on short-term profit, and had little incentive to think about the long-term risks. That led to serious problems that undermine the structural integrity of balance sheets and our financial system. So why does the president continue to have a short-term focused attitude. He says:
the thing I'm spending most of my time thinking about right now is how can I put people to work right now and how can I improve the economy right now and stabilize it.
If, in 2009, we'd focused on policies that would have created long-term stability we might not be in this mess today. Or it wouldn't be as bad. President Obama says the American people can't afford 13 months of politics (until the next election), so maybe he should stop thinking about policies in a re-election perspective and focus on the steps that would promote a recovery in the long-term and fix the many structural problems in our own economic policy framework.
While many advocates of the free market have been quick to dismiss the complaints of the Occupy Wall Street protesters, at least one aspect of their critique deserves support. A sizable portion of the income received by senior corporate management—especially in the financial industry—stems from government-conferred privileges rather than from value creating activity.. While libertarians and free market conservatives frequently criticize outright corporate subsidies, they often fail to appreciate the extent to which the institutional structure of our economy is the product of state intervention, and to recognize how these structural interventions have conferred wealth upon a relatively small number of well connected individuals.
Modern corporate structure owes its origins to charters first granted by the British royalty and later by American state legislatures. The corporate form that evolved from these interventions is handicapped by a large universe of uninvolved corporate shareholders. Most Americans own corporate equity through mutual funds, ETFs and other investment pools. These investors may not even know which corporations they own, let alone how the companies are managed. Even investors who purchase individual common stocks usually have too small a proportion of their wealth tied up in a particular company to have a meaningful incentive to understand how their holdings are managed. Finally, with the recent inception of high frequency trading, institutional investors may own large blocks of shares in a given corporation for seconds—or even milliseconds—once again lacking the time, much less the incentive, to involve themselves in corporate management.
The pervasiveness of disinterested ownership enables senior management and boards of directors to extract economic rents from their corporations. Boards and management often form incestuous relationships that enable CEOs and other top officers to receive compensation packages far above their value added, along with severance arrangements that would never be tolerated by a sole owner or limited partners. In return, board members often receive out sized compensation for their limited involvement, not to mention the prestige associated with board membership.
This is not to say that high frequency trading, the corporate structure, big bonuses, or passive stock ownership are inherently bad. But they would not have arisen in their current form without the helping hand of government.
The state’s creation of a liquid market in share ownership is but one of many government interventions that have artificially enlarged and engorged the financial sector. Other privileges include banking licenses which allow financial firms to lend money they don’t have, the right to borrow funds from the Federal Reserve at rock bottom interest rates, and the expectation of a bail-out in the event of trouble.
While defenders of TARP often argue that the government actually made money on the financial industry portion the program (a dubious claim at best), TARP and other 2008-vintage interventions still constituted an enormous transfer of wealth to the financial sector. In the absence of government intervention, many large banks and brokerage firms would have faced liquidation. By backstopping these firms, the government enabled their managements to stay in the game and thereby reap enormous profits and high salaries in 2009 and 2010.
The not-so-implicit government guarantee backing large financial institutions allow senior management and highly compensated traders to place one way bets. If they put on risky trades that succeed, they walk away with terrific annual bonuses and appreciated stock. If their trades go south, the worst outcome is that they lose their jobs. A more likely result is that they receive a diminished or possibly zero bonus and have to make do on their $200k+ base salary.
Again, the Occupy Wall Street crowd should not get angry that financial industry executives have the potential to make large sums of money. What is considered “large” is arbitrary, and it would be inappropriate to claim a universal standard for any executive compensation package. Where the anger should be focused on is in the second half of the reality, that there is no liability, that the upside bonus does not have corollary risk. This skews incentives and profoundly distorts market activity. In a fully laissez faire system, it is highly unlikely that trading profits would be able to support multi-million dollar bonuses, since they would be arbitraged out at as markets became more liquid.
Libertarians should not feel an obligation to defend the current pattern of business ownership, let alone the makeup of the financial sector, when debating with progressives. Instead, we may find substantial common ground in our critique of the current system if not the solutions to the problems it suffers. For example, a millionaire’s tax fails to distinguish between individuals who have become wealthy through value creation and those who have extracted economic rents from their positions at the ramparts of the institutional structure. If the government could somehow capture wealth from those in the latter category without affecting the former, it would have more money to spend (or, preferably, to pay down the deficit) without further hindering economic growth. Unfortunately, the policy ideas from supporters of Occupy Wall Street make no such distinction.
Congressman Tom McClintock has written a cogent analysis of how California got itself into such dire straights:
Bad policies. Bad process. Bad politics. Those are the three acts in a Greek tragedy that tell the tale of how, in the span of a single generation, the most prosperous and golden state in the nation became an economic basket case.
He paints a bit of a golden era picture of California in the 60's.
When my parents came to California in the 1960’s looking for a better future, they found it here. The state government consumed about half of what it does today after adjusting for both inflation and population. HALF. We had the finest highway system in the world and the finest public school system in the country. California offered a FREE university education to every Californian who wanted one. We produced water and electricity so cheaply that some communities didn't bother to meter the stuff. Our unemployment rate consistently ran well below the national rate and our diversified economy was nearly recession-proof.
University was not free, it was paid for by taxes, as was electricity. But the fundamental fact that government provided services in California back then were some of the best in the country and consumed far less of people's wealth remains true.
One thing – and one thing only – changed in those years: public policy. The political Left gradually gained dominance over California’s government and has imposed a disastrous agenda of radical and retrograde policies that have destroyed the quality of life that Californians once took for granted.
McClintock goes on to point out how the Obama Administration is copying the worst practices California has pioneered:
Federal spending increased 26 percent in the last three years literally consuming and squandering the wealth of the nation at the worst possible time. Yet consider this: from July of 2005 to July of 2008, California increased its spending by 31 percent, under a Republican governor elected on the pledge to “stop the crazy deficit spending”. You can see how well that’s worked for us.
If stimulus spending, massive deficits and burgeoning government bureaucracies were the path to economic prosperity, California should be leading the nation from the top rather than from the bottom. After we lost the nation’s triple-A credit rating this summer specifically because of chronic deficit spending, it should surprise no one that California suffers the lowest bond rating in the nation for precisely the same reason.
He goes on to dissect the policies California has pursued that have undermined the quality of life Californians enjoyed in its golden age, running from water policy to education. But as he points out, process matters too. The state legislature used to do a fairly good job of a few things, but once it tried to do everything, it found it could do nothing well:
In the 1960’s, California’s legislature was respected throughout the country as the model for others to follow. It was professional, it respected process, and it worked. It did a few things, but it did them exceedingly well. It left local schools, local governments and local revenues in local hands. But beginning in the 1970’s this began to break down.
The humility that kept Sacramento from sticking its nose into the business of local governments gave way to the hubris that the state knew better what was important to local communities than those communities themselves. The appalling breakdown of federalist principles at the national level now geometrically compounds this problem.
McClintock also dissects the state's disastrous politics. It is a good read.
California's leaders, abetted by a short sighted, lazy polity too willing to vote themselves the wealth of others and to ignore any concept of tradeoffs, have eviscerated the state. There is nothing logical or sustainable about the path we have been on and appear dead set to stay upon. And the Obama administration appears to love what it sees and wants to take the disaster nationwide. Folks, please. Look at California, shudder, and vow "not the rest of us."
Moveon.org sent around an email early this morning praising the recent protests against the financial industry, saying "grassroots groups have shut down banks and held sit-ins to demand that giant banks pay their fair share of taxes, end the foreclosure crisis, and create jobs."
Ridiculous. Great to see that you can protest in the U.S. without getting shot (tear gas and arrests for disobeying police aside). But is that what this group is trying to prove? Those are very strange goals and they don't really make sense. This is just repeating our other work on this issue, but to sum up our critique:
Define "fair share" please, because that is totally an arbitrary term to use. Public banks are owned by people, it turns out, and those people also pay taxes. So first, please explain why people paying taxes twice amounts to something fair. And then provide a very objective answer for what a fair share is. Because when you try to do that, you'll find that you're suggesting that "everyone" should pay their "fair share" and that means the 50% of Americans who do not pay taxes should start to pay something. When did Moveon.org start to borrow Michelle Bachmann's talking points, its not very progressive of a tax theory for them. (I'd also demand a defense of the idea of the income tax period, but that's just piling on a bit.)
You know, the best way to end the foreclosure crisis is to stop dragging it out. And guess who is causing the foreclosure crisis to get dragged out: state attorneys general who, until Friday, were clogging up the foreclosure pipeline with their attack on mortgage servicers; HAMP and HARP just slowed down foreclosures by changing mortgages on the hope that those who'd stopped paying their mortgages could restart, but some 75% of those mortgages wound up back in foreclosure anyway; the Fed through monetary policy and the Treasury through use of Fannie Mae and Freddie Mac, both seeking to prop up housing prices at artificial rates, slowing the rate of underwater foreclosures that will eventually happen. There certainly is a common theme there to blame.
Once again, we do not have a right to demand that people create jobs for us. What right do we have to demand anything from others? Nevertheless, if you want banks to kick more money into the economy for job creators, then back off the regulatory structures that the government is imposing higher costs on them. The financial impact of Dodd-Frank is increasingly becoming visible and tying the hands of capital by rule of law.
In my post earlier today I neglected to link to the manifesto that the protesters put up. Essentiall, it says the banks are responsible for all of the evil in the world. It really isn't based on what we'd like to consider "facts" and many of the claims don't really appear to have any evidence whatsoever.
That being said, we've taken plenty of shots at Wall Street ourselves for being rent seeking manipulators so we don't want to defend them. We only to point out that this is not the list of complaints that should be filed.
Back in early 2009 the President opened his administration by telling Congress if they did not act immediately to pass a stimulus that unemployment would skyrocket, possible as high as 9 percent. The Recovery Act zipped through Congress, hundreds of billions were spent on infrastructure projects, on rescue packages to states to pay teachers and firemen, on tax cuts for the middle class, and tax credits for small businesses.
Two and half years later the President went before Congress and, terrified of a double dip recession, demanded his American Jobs Act be passed immediately. Once again terrified of unemployment and recession, he proposes spending hundreds of billions on... infrastructure projects, on rescue packages to states to pay teachers and firemen, on tax cuts for the middle class, and credits for small businesses.
You can not make this stuff up.
To be fair to the president, the form and flourish of the speech last night was better written than my proposed speech idea (though not in substance), and it was delivered with force that we have not seen for a while in his presidency. He certainly rallied many to his cause. And for a brief moment one might have thought he really could bridge the partisan divide.
Then everyone realized there was a Tea Party and the hopes for bi-partisanship disappeared. Not that this is necessarily a bad thing. A bi-partisan agreement to invade Mexico wouldn't be good. A bi-partisan constitutional definition of marriage between a man and woman would be terrible. And bi-partisan continuance of the Patriot Act is harmful.
The debate should be on substance. And if the goal of Jobs Act is to reverse the unemployment trend, then it is a bad plan and Tea Party principle should stop it in its tracks.
I don't think the plan is really aimed at reversing unemployment though. As I outlined yesterday, this can't be done in a short-time frame and we face not the remnants of a contraction and recession, but a shift in the fundamentals of the American economy.
I think the plan is about preventing a double dip recession. The White House probably thinks they can survive perpetual 9 percent unemployment when voting time rolls around next November. Double-digit unemployment might kill them. And a second recession (assuming the first one really ended given the weakness that is trying to measure GDP) would certainly be a huge hurdle to face. Looking at the details of this Jobs Act, it appears designed politically to try and give the economy a little jolt that can last 14 months or so before petering out like the few stimulating activities of the Recovery Act.
See the American Jobs Act here and then compare it to programs in our Taxpayer's Guide to the Stimulus. A lot of similarities. We'll be pointing out some of the differences on the blog later today.
Pepperdine University economics professor Gary Galles had an excellent column in the Orange County Register about the "moderates" vs. "extremists" debate in politics, and what the incessant calls for "compromise" really mean.
In California, whenever there is a state budget impasse, pundits blame the replacing of moderate members of the Legislature with extremists. What is really involved is that long-dominant Democrats have found it harder to buy off enough Republican votes to impose their budget priorities, which invariably involve increasing the burden on some to give more to others. When Republicans only moderately attached to the principle of self-ownership (moderates) are replaced with those more firmly attached to it (extremists), the rising price of necessary swing votes can rise dramatically, resulting in gridlock.
The treatment of the Tea Party during the debt-ceiling impasse was parallel. In the wake of an historic explosion of federal power and spending, pundits called for moderates, because they would compromise toward President Barack Obama’s demand for higher taxes, rather than extremists, who wanted to undo some of that profligacy.
In such cases, the moderation called for is always moderation in defense of some aspect of liberty, so that further inroads on liberty can be imposed, with those firmest in the defense of self-ownership tarred as unreasonable extremists.
He then offers some relevant quotes from 19th-century French classical liberal (not to be confused with today's "liberal" philosophy) political economist and statesman Frederic Bastiat. Here are a couple of my favorites:
“[A]re those who want to prevent the return of such excesses extremists? I mean those who want to inject a dose of moderation into spending; those who want to moderate the action of the people in power … those who do not want the nation to be exploited by one party rather than another.”
“[W]here can there be liberty when the government, in order to sustain enormous expenditures … [must] invade the sphere of private industry, to narrow incessantly the circle of individual activity, to make itself merchant, manufacturer, postman and teacher … Are we free if the government … subjects all its activities to the goal of enlarging its cohort of employees, hampers all businesses, constrains all faculties, interferes with all commercial exchanges in order to restrain some people, hinder others and hold almost all of them to ransom?”
[* As a side note, for anyone with an interest in liberty and the morality (or lack thereof) of the state, Bastiat's The Law (available for free online here and here) is a must read. First published in 1850, it has, unfortunately, proven to be remarkably prescient and is just as applicable today as it was when it was written.]
Ayn Rand also had some insight on the supposed virtue of compromise. As she stated bluntly through her iconic hero John Galt in Galt's dramatic radio speech to the nation in Atlas Shrugged (and reproduced in For the New Intellectual), "In any compromise between good and evil, it is only evil that can profit." In addition, she reasoned in The Virtue of Selfishness: "There can be no compromise between a property owner and a burglar; offering the burglar a single teaspoon of one’s silverware would not be a compromise, but a total surrender—the recognition of his right to one’s property."
It seems to me that we have been "compromising" in the direction of bigger and more intrusive government for generations, to our great detriment. Perhaps it is time we started defending liberty in earnest and compromising in the other direction, for a change.
It is no secret that most college campuses are breeding grounds for left-wing thinking, and that the professed desires of students, faculty, and administrators alike for tolerance and diversity end where those values are most important: the tolerance and diversity of thoughts and ideas.
It seems that in matters that hit closer to home, however, even liberal college students do not care for socialist/redistributionist policies when it comes to things they have earned, such as their grades.
In a clever, yet simple, experiment to expose the implications and consequences of socialism (not to mention liberal cognitive dissonance), recent college graduate and Exposing Leftists co-founder Oliver Darcy asked college students at the University of California, Merced, whether or not they would favor redistributing grade points from the highest-earning students to those most in need on the low end, the same way they tended to support the redistribution of wealth through tax policies.
Darcy discussed this thought experiment recently on the FOX News Channel with "FOX & Friends" co-anchor Gretchen Carlson.
As one student offered, "If I do give GPA points to students that don't deserve it, it just isn't fair. I work for what I have." When another student was asked why he needed that 4.0 GPA, he responded, simply, "Cuz I earned it."
And that is precisely the point. Free-market proponents oftentimes stick to arguing that free-market capitalism is a more efficient and prospoerous system than socialism. That is certainly true, but they should not ignore the even more important moral argument that it is simply wrong and unjust to forcibly take the wealth or property from one person and give it to another, no matter how well-intentioned the theft may be.
See the full GPA redistribution raw video here. Additional man-on-the-street-style interviews illuminating various issues — such as whether affirmative action should be applied to basketball teams and whether conservatives should be banned from radio and TV — can be found on the Exposing Leftists Web site.
As a recent Wall Street Journal article (paid subscription required) observes, in just the past couple years, there has been a drastic reduction in the number of Americans making adjusted gross incomes of at least $1 million a year.
In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more and paid $309 billion in taxes. In 2009, there were only 237,000 such filers, a decline of 39 percent. Almost four of 10 millionaires vanished in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42 percent.
According to the IRS, the number of people making at least $10 million a year fell 55% during this period, from 18,394 in 2007 to 8,274 in 2009.
Those who make $1 million accounted for about 0.2 percent of all tax returns but paid 20.4 percent of income taxes in 2009.
Those with adjusted gross income above $200,000 a year were just under 3 percent of tax filers but paid 50.1 percent of the $866 billion in total personal income taxes.
Before the recession, the $200,000 income group paid 54.5 percent of the income tax.
This means the top 3 percent paid more than the bottom 97 percent, yet the 3 percent are the people that President Obama claims don't pay their fair share. (Emphasis added)
If the Obama administration has its way, the number of millionaires (and those making $1 million a year) will continue to dwindle under the weight of new "taxes on the rich." But then where will the big-government types get the money for all their entitlement, welfare, and warfare programs once the teat of the rich has been sucked dry? (I'm looking at you, Middle Class.)
(Thanks to Bill Sardi and LewRockwell.com's LRC Blog)
Minnesota’s state government shutdown lasted for three weeks and grabbed headlines until the budget impasse was resolved on July 21, however one facet of the shutdown took longer to sort out: lawmakers’ pay.
In Minnesota, state employees that are designated nonessential status do not receive pay during government shutdowns – this policy affected approximately 22,000 state employees during the July 2011 shutdown. On the other hand, Minnesota House of Representatives rules allow legislators to reject, defer or accept their pay during shutdowns.
Eighteen Minnesota House members who declined paychecks during last month’s state government shutdown got their full salaries retroactively, the House payroll office said Monday… Another 32 state representatives followed through on a shutdown pay cut averaging $1,600, representing the amount they would have earned during the shutdown. The remaining 84 House members were paid normally during the shutdown. Fourteen senators who declined shutdown pay didn’t have the option of getting it retroactively.
There are no clear political points to be made here. Lawmakers from both sides of the aisle and across the state chose to reject, defer and accept pay from the shutdown period. Lawmakers worked differing amounts during the shutdown and they are spending their pay differently after receiving it (for example some have announced they’re donating their pay to non-profit organizations).
The more interesting story here is the role between legislator compensation incentives and budget negotiations. The following assumptions are made assuming all other things equal:
Lawmakers who reject pay have the strongest incentive to resolve the budget deficit expediently. They’re most likely to feel the strain the shutdown is having on public employees and the public. These legislators are less likely to be intransigent and more likely to accept fleeting compromise without adopting meaningful reform, thereby making another shutdown more likely.
Lawmakers who defer pay have an incentive to resolve the budget deficit expediently and feel the strain on public employees and the public. At the same time, they will receive compensation after the shutdown is resolved, so this ameliorates the aforementioned effects. For these legislators, more so than any others, additional factors (besides compensation) will have the greatest impact on their likelihood of intransigence and/or pursuit of meaningful reform.
Lawmakers who receive pay have little to no incentive to resolve the budget deficit expediently and are least likely to feel the strain the shutdown is having on public employees and the public. These legislators are the most likely to be intransigent because they suffer no compensation losses by entrenching themselves on issues. That being said, they have the strongest incentive to pursue permanent and meaningful reform that would make future shutdowns less likely.
All that being said, there are a wide range of other factors that impact budget negotiations, including but not limited to: legislator net worth, budget deficit magnitude, media coverage, duration of the shutdown, etc.
No one incentive structure is objectively “best” because each set of incentives contains competing tradeoffs. As states continue to grapple with budget deficits it would be wise for policymakers across the U.S. to revisit state rules on legislator pay to ensure they’re comfortable with the tradeoffs they would be forced to make.
Read more of Reason Foundation’s coverage of Minnesota’s state shutdown here, here and here.
California's high-speed rail (HSR) project is quickly becoming the poster child of how not to do public infrastructure: Costs have skyrocketed by more than half the original estimates, the project is going to lose money even though the authorizing language approved at the ballot box required it to (at a minimum) cover operating costs, and the first leg of the line makes it a literal "train to nowhere." And the Obama Administration is all for it.
Caliifornia's rail debacle (and more) is chronicled in a short pithy report by C. Kenneth Orski in his most recent Innovation Briefs newsletter (Vol. 22, No. 16, May 31, 2011). What I found most intriguing, however, were the following two paragraphs:
"At the urging of the Legislative Analyst’s Office, the rail authority asked the U.S. DOT for more flexibility about where and when to build the initial "operable" segment. The LAO went as far as recommending that "If the state can’t win a waiver from the federal government to loosen the rules and the timing for using high-speed rail grants, it should consider abandoning the project." Not only would the Central Valley segment, by itself, have insufficient ridership and revenues to stand on its own, the Legislative Analyst wrote, but "the assumption that construction of the Central Valley segment could move quickly because of a lack of public opposition has already proved to be unfounded." The LAO suggested several alternative segments that could be more financially viable and economically beneficial than the Central Valley segment. They included Los Angels-Anaheim, San Francisco-San Jose and San Jose-Merced.
"But in a remarkable exercise of inflexibility and delusion, the U.S. Department of Transportation turned a deaf ear to the request. "Once major construction is underway...the private sector will have compelling reasons to invest in further construction," the DOT letter stated in an assertion totally unsupported by any evidence."
What may be most intriguing from a political economy perspective is that high-speed rail is the quientessential progressive public policy project, but paradoxically, it exists solely because of a "vision" and funding provided by the central national government. One of the most important ideas underlying progressive politics is that of an efficient, expert driven, administratively powerful, and unified government, eschews political approaches to government programs in favor of evidence-based (or "scientific") public policy goals. Of course, if you recall from the 2008 election, President Obama is a self-described progressive politician and even called for "evidence-based" public policy on the campaign trail.
California's high-speed rail project fails virtually every test of progressive politics yet it remains a signature program of a self-styled progressive president:
HSR's support is based on political considerations (vision), not the practical provision of a true public service;
HSR's skyrocketing costs show that it cannot be implemented through an administratively efficient process (federal funding despite widespread skepticism over implementation and construction costs);
National policy is overriding more prudent and efficient local decisionmaking (route alignment);
The government investment in the project is faith-based rather than evidence-based (private companies will recognize its value in the long-run);
Leadership on the project is driven by a politician known for his ability to be political, not an experienced, policy expert or polished administrative leader.
At the end of the day, HSR may prove to be President Obama's philosophical undoing. By pushing this project, he is demonstrating that "progressive" politics isn't very progressive. Rather, it's just rebranding the same old, same old.
In an attempt to plug a $3.6 billion budget hole, Wisconsin Gov. Scott Walker is pushing a proposal to increase public employees' pension and health care contributions and reduce their collective bargaining rights. The measure has generated a massive backlash from government employees and Democratic legislators, who found themselves in the minority as a result of the November 2010 election. As many as 25,000 public employees have been rallying to protest the proposed changes, jamming the capitol building and calling in sick to work, shutting down schools in many school districts in the process. Others have staged counter-protests, and a Tea Party rally to support the labor and budget reforms scheduled for Saturday was expected to draw a crowd of thousands.
Democratic lawmakers fled the state in order to deny the legislature a quorum and prevent a vote on the measure. Republicans have plenty of votes to pass the measure, but are just shy of the supermajority required for a quorum. The state's 14 Democratic senators have threatened to remain out-of-state and hold up the government for weeks. (Despite the grandstanding and cowardice of the tactic, I couldn't help thinking how nice it would be if legislators left the state indefinitely in my home state of California, where the budgetary problems are even more severe than in Wisconsin.)
Under the governor's proposal, government employees' collective bargaining rights would be limited to wage increases no greater than increases in the cost of living, as measured by the Consumer Price Index, and public employees unions would be prohibited from requiring workers to pay union dues. State and local police and firefighters would be exempt from the measure.
As in California, New Jersey, Illinois, and a number of other states, rising public employee compensation costs in Wisconsin have been a major issue affecting the state budget. The proposal would require employees to contribute 5.8% to the pension system, which Walker asserted was "essentially right at the national average," and 12.6% of the cost of their health care premiums, which he said was about half the national average. The changes are expected to save the state $30 million by the end of the fiscal year ending June 30, and $300 million over the next two years. Gov. Walker estimates that the budget reform bill would prevent the layoffs of 5,500 state employees and an additional 5,000-6,000 local government employees (see press conference below beginning at 2:00).
In his press conference yesterday, Gov. Walker addressed the need for significant reform to balance the state's budget, his proposal to help do so, and the reaction of government employees and Democratic legislators. Below is an excerpt of Walker's comments.
Certainly, the thousands of people here and outside the capitol have every right to be heard, but I want to make sure that, not for one moment, are their voices drowning out the voices of millions of taxpayers all across the state of Wisconsin, who, as I've toured this state over the last couple days and even before that, have made it clear that they think while what we are doing is a politically bold move, it is a modest request of our employees at the state and local level.
It's modest in the sense that what we're asking for is very similar—in many cases, much better than—what the average taxpayer is getting all across the state of Wisconsin.
[. . .]
Doing this helps avoid layoffs. The last thing we need in the public or the private sector in this state is more layoffs at a time when we face an economic and budgetary crisis.
[. . .]
Like nearly every other state across the country, we're broke in Wisconsin. We don't have any more money to give. We don't have anything to negotiate with. It's either a matter of making reductions and making modest requests of our government employees or looking at massive layoffs at a time when we don't need anyone else laid off.
[. . .]
What we offer today is a very reasonable alternative to what they're doing in other states all across the country. It's still getting our budget balanced, putting it in order, without passing on massive tax increases that would cripple our state's economy, but doing it in a way that ultimately diminishes the possibility layoffs and makes sure that our schools and our core services continue to get the support that they need in the classroom and on the streets.
[. . .]
I was elected to get this state working again. I was elected to show that we could do things that would make the business climate better, to create more jobs in this state, and, ultimately, to get this state working again by balancing the budget. That is exactly what we are doing, no more, no less. It's about balancing the budget.
While the fights with government employees' unions have so far been rather partisan in nature since Republicans, such as Gov. Chris Christie in New Jersey and now Gov. Walker in Wisconsin, tend to have fewer political ties to Big Labor and thus have proven more willing to take them on, it is inevitable that Democratic leaders will increasingly be forced to butt heads with public employees unions as well. This is because unaffordable government worker pay and pensions is ultimately not a partisan issue. The simple fact is that the more money is spent to compensate current and retired government workers, the less is left over for everything else. Whether one's spending priorities are to reduce the size of government and lighten the burden on citizens by allowing them to keep more of their hard-earned money or to increase funding for welfare programs, the budget must be balanced without destroying the economy and taxpayers with massive tax increases or decimating the core services residents have come to expect.
States across the country are struggling with their finances as a result of overspending and the effects of the economic recession and stagnation. Some states are in more trouble than others, however. It is no coincidence that the states with the worst budget troubles, which predated the recent economic difficulties—California, Illinois, New York, and New Jersey—are also among the states with the strongest public employee labor union influence.
To combat the influence of public employee labor unions in California, a group called Californians for Public Union Reform has recently filed with the state in an effort to put an initiative on the ballot next year to eliminate union representation for all state and local government employees in California. The Sacramento Bee blog, "The State Worker," identified Lanny Ebenstein, UC Santa Barbara economics professor, president of the California Center for Public Policy, and president of the Santa Barbara County Taxpayers Association, as the treasurer of Californians for Public Union Reform. In October 2010, the California Center for Public Policy published a study written by Ebenstein called, "Reforming Public Employee Compensation and Pensions." Among Ebenstein's conclusions were the following:
Public employee compensation is out of line with the private sector in every area. There are thousands of individual government agencies in the state, employing almost 2 million individuals. Whether the standard is salary, working conditions, benefits, or especially pensions, public employees in California receive compensation far in excess of what workers in the private sector do. It is illiberal and unjust, and no true liberal or progressive should support current public employee compensation.
[. . .]
The California public employee compensation crisis will continue to cripple the state in the years ahead–and more so and sooner than most now recognize. As a result of inaccurate actuarial assumptions concerning a) long-term return on investment, b) the number of government employees in the future, and c) longevity, both the short-term and long-term fiscal crises at the state and local government levels require change immediately. The status quo is unsustainable.
Taxes are not too low in California, and public services should not be cut continually and further. Rather, the answer is to pay public employees fair salaries, benefits, and pensions–not salaries, benefits, and pensions greatly in excess of those in the private sector.
While collective bargaining for public employees is common, it is not universal. As a recent Wall Street Journal column cited in the SacBee blog notes:
At least 18 states already outlaw collective bargaining with some categories of government employees; Virginia and North Carolina prohibit it for all public workers. Two newly elected Republican governors, Scott Walker in Wisconsin and John Kasich in Ohio, have threatened to dismantle their state bargaining statutes if unions fail to make concessions.
Since the California State Legislature seems intent on not doing anything serious to tackle the state's significant budget problems, particularly those made worse by undue labor influence, which plays a large role in getting most of those politicians elected, it will probably be up to taxpayers to foment real reform. An initiative to end collective bargaining would be a good start, as it would put public employees on equal footing with the vast majority of the private-sector working taxpayers that pay those public employees' salaries.
Last night, acclaimed journalist John Stossel announced the winners of the Atlas Shrugged Video Contest on his Fox Business show "Stossel." The Ayn Rand Institute-sponsored contest sought short web videos on "how Ayn Rand's epic story (Atlas Shrugged) relates to current issues in society."
The first place video is very thought provoking. Personally, it reminded me of the tangible value of exposing college students to the philosophy and science liberty. The video (below) is under three minutes-long and definitely worth watching:
John Stossel is also a contributer to reason.com, see the archive of his work here. For Reason's recent coverage of the student liberty movement see here, here and here.
It is not the way Gov. Jerry Brown would have preferred to start his term of office, but he knew going in that his first order of business would be addressing the state's massive $25.4 billion 18-month budget deficit ($8.2 billion for the remainder of the current fiscal year and $17.2 billion in FY 2011-12). Thus, his first governor's budget proposal has plenty for everyone to hate. Below I will attempt to outline the good, the bad, and the ugly of the proposed budget.
First, the good. The governor's budget contains $12.5 billion in necessary cuts. These include significant cuts to health, welfare, and higher education, as well as pay cuts of 8% to 10% for state employees not covered by collective bargaining agreements. Curiously, Democrats legislators and labor unions are showing begrudging support for the cuts from the new Democratic governor, despite the fact that they vehemently opposed such cuts, including many of the very same reductions, when they were proposed merely a year or two ago by Republican Governor Arnold Schwarzenegger. According to a Los Angeles Times article, Senate President Pro Tem Darrell Steinberg (D-Sacramento) admitted, "I hate the cuts, but I am not going to reject the cuts." Added Barbara Blake, a registered nurse and state secretary of the United Nurses Association of California, "We're feeling a little better about this budget." The end of redevelopment funds would also be a good thing, as government should not be engaged in such subsidies.
The proposal would also rely on shifting some services currently provided by the state to local governments via block grants. Counties would be responsible for things such as foster care, adoptions, child abuse prevention programs, outpatient mental health treatment, psychiatric hospitals, and some firefighting duties. In addition, a number of prison inmates (defined as those convicted of "nonviolent, non-serious, non-sex offenses" who had no previous criminal records) would be housed in county jails instead of the more expensive state prisons. As Brown explains, "My proposed restructuring will return decisions and authority—as much as possible—to cities and counties and schools. And, in that way, there will be greater accountability, transparency, and hopefully citizen participation because government will be closer to the people." This is a welcome development for all the reasons the governor stated. To the extent that government is necessary at all, decision-making authority should be provided at the most local level possible (and, ideally, the individual level).
Gov. Brown was absolutely correct when he asserted during his press conference Monday on the budget proposal, "For 10 years, this state has put together its budget with gimmicks and tricks and unrealistic expectations that have pushed this state deeper and deeper into debt." Anticipating arguments that the state might try to address its fiscal crisis through borrowing or "kicking the can down the road," Brown said, "The problem is, next year, there's not that much more money, but then we'll have debt service and a much bigger burden to pay back. It's better to take our medicine now and get this state on a balanced footing." These are important acknowledgements, especially for a state that has been addicted to spending, for the first step in breaking an addiction is to admit the problem.
That admission must be qualified, however. Gov. Brown relies on $12 billion in tax measures to plug the remainder of the budget gap. This comes primarily from extending the "temporary" tax hikes imposed as part of the 2009 budget measure for an additional five years (assuming, of course, that the state is not still spending everything it can and more, requiring yet another extension of these "temporary" tax increases!). In addition to acknowledging that borrowing and gimmicks will not solve the state's budget problems, the governor and the Legislature must admit that spending, not revenue, is the real culprit.
California has experienced fiscal straits for many years, including long before the latest recession. The problem was that even when revenues were growing strongly the state's appetite for spending was insatiable and surpassed revenues even when its coffers were flush. And, even after suffering a significant decline of nearly $20 billion in General Fund revenues from FY 2007-08 to FY 2008-09 during the depths of the recession, revenues have actually grown $11.5 billion (14%) in the two years since.
California is already one of the highest-taxed states in the nation and consistently ranks at or near the bottom of states in terms of business climate. This is why we have seen an exodus of individuals, businesses, and jobs to more tax- and business-friendly states like Texas, Arizona, Nevada, and Utah in recent years. The state must focus on encouraging economic growth by simply removing the shackles it has placed on economic activity by reducing taxes and burdensome regulations.
The proposed budget also falls short by failing to incorporate a number of other reforms that could help plug the budget gap and get the state back on the road to fiscal responsibility. I have written about a number of these before but I'll mention a few of them here briefly. A good place to start would be the 1,200+ recommendations, estimated to save $32 billion over five years, made by the California Performance Review Commission in 2004 (and largely ignored since then). The state should also aggressively pursue privatization and employ a "Yellow Pages test" of state services. Basically, if the state is performing a function that can be found in the phone book, either the state should not be in that business in the first place or it should at least put those services up for competitive bid. Implementing priority-based and performance-based budgeting and spending/revenue and debt limits are also necessary to improve transparency, control spending, and result in a more rational budget-making process.
While Gov. Brown's proposed budget addresses many of the state's fiscal issues, it completely ignores the 800-pound gorilla in the room: state employee pay and benefits. Unionized state workers were conspicuously spared from the budget pain, despite the fact that U.S. government statistics consistently show that government workers typically earn higher salaries and significantly higher benefits than their private-sector counterparts, and that non-unionized workers are facing 8-10% pay cuts. Cuts to unionized state employees would require collective bargaining, but why isn't this being proposed, especially considering how state employees have largely been shielded from the effects of the recession while the private sector has been forced to adjust? And then there are the retirement benefits. According to several academic studies, California's unfunded pension liabilities lie somewhere in the neighborhood of $400 billion to $500 billion. That's several tens of thousands of dollars per California household—and that does not even include an additional $50+ billion in unfunded retiree health care obligations.
I realize that the governor is focused primarily on filling the budget gap in the immediate term, and that savings from pension reforms would take a few years before they really started to accumulate, but any serious effort to address the state's serious fiscal problems must incorporate state employee compensation reforms. Chief among these are: (1) switching new state employees from the existing defined-benefit pensions to 401(k)-style defined-contribution retirement plans in line with compensation levels received in the private sector and (2) implementing a constitutional amendment that would require voter approval of future state employee benefit increases.
There were two noteworthy announcements in the student liberty movement yesterday.
First, Students For Liberty (SFL) announced finalists for the 2010-11 Students For Liberty Awards. (See more on SFL here.) These awards were established by SFL in 2009 to recognize exceptional students and student groups advocating for liberty on campus.
There are few commonalities between the finalists. In fact, their accomplishments reveal the passion and diversity found amongst students, ranging from their work in TSA procedures and criminal justice, to health care reform and tax policy. Voting is being conducted online and award-winners will be announced at the 4th Annual International Students For Liberty Conference next month.
Second, Young Americans for Liberty (YAL) announced a new initiative called Year of Youth. (See more on YAL here.) Year of Youth's goal is to "identify, train and mobilize thousands of youth activists for a massive wave of youth campaigns across America in 2012." It is unclear what kind of impact this initiative is going to have in 2012, but regardless it will be interesting to follow.
For more of Reason's coverage of the student liberty movement, see this interview between reason.tv's Tim Cavanaugh and Michelle Fields, an undergraduate at Pepperdine University and SFL's Los Angeles Campus Coordinator.
Harris Kenny is a research assistant at Reason Foundation
In his introduction Napolitano described Gillespie, Mangu-Ward and Welch as "three stalwarts of the libertarian movement." The episode itself was a panel-based discussion on what it means to be a libertarian and how libertarian principles are relevant today. Discussion ranges from the TSA and tea party movement, to bailouts and ethics of war.
Watch the full 35-minute episode below:
Programming note: This episode will re-air on Fox Business channel this Thursday (December 23, 2010) - check local listings for time.