25 August 2010

That Which is Unseen

Great little post here. Very good stuff regarding cash for clunkers:

No, the appropriate course would be to generalize, and to destroy all goods
in exchange for government scrip. Then we could play Monopoly, I guess, for what
all good the money would do. But we’d have to scrape a board in the dirt to do

That’s because money isn’t wealth. Money is at best a measure of wealth,
which actually consists of goods. Money retains its value as long as there are
goods to be traded for it. When the goods disappear, the economy grows poorer,
regardless of how the money is shuffled around.
And the payback isn’t long in
coming — today’s
used car prices are soaring
owing to reduced supply. (This link gives even
more dramatic numbers
, but I’m less sure of them. h/t Radley Balko.)

See how that works? You can’t get something for nothing. Cash for Clunkers
turns out to have been a highly inefficient wealth-transfer program, that is,
one that destroyed a bunch of wealth along the way. It gave wealth to those
already relatively wealthy people who did the government’s bidding (that is,
those who could afford to part with a used car and buy a new one).

And now it’s taking wealth from those relatively poor people who need a
used car today — in the form of higher prices.

Along the way, it destroyed hundreds of thousands of cars — that’s the real
wealth these poor people don’t have access to anymore, because the scrapped cars
aren’t a part of the economy.

And this is what passes for a successful government program.

10 August 2010


I've just about had it with politicians. John Boehner, the House Minority Leader (which is like being the captain of the team that loses the Super Bowl--sure, it's a nice title, but you didn't really do anything) was on Meet the Press this past weekend. Joining him was his fantastic tan:

He starts off well enough saying that BP should be held accountable for any negligence. I like how the interviewer assumes it is the role of the government to "go after" BP for negligence when the government suffered no harm, but that's another matter. Boehner makes the good point, made several times here, that it was no lack of regulations that caused either the financial crisis or the oil spill.

Then things go poorly. Boehner takes the position that taxes shouldn't be raised on anyone right now, which is fine so far as it goes. But, critics note, not increasing tax revenue would increase the deficit. What no one seems to understand is that if you spend less than you take in in taxes, then the deficit will decrease. There is another side to the ledger here. The concentration seems to be on matching taxes to desired spending instead of matching spending to what you're taking in. But, starting at the 5:00 mark, Boehner just stumbles along saying that increasing taxes during a recession is bad. Johnny boy, bad idea giving away the cart like that. Recessions end. So then it's a great idea to raise taxes?

The on to the "retirement age." Apparently Boehner said somewhere that the "retirement age" should be raised to 70 (which, during the interview, he never acknowledges). I think what everyone is talking about is when people can start to receive transfer payments from the Social Security Administration. Talk about "retirement age" is silly. First, one can retire anytime he wants to, before or after any arbitrarily set number of years when the government decides to give you money it took from someone else under the pretense that you're too stupid to arrange your own affairs and too irresponsible to take care of yourself.

Second, and here's the key point, the number the Roosevelt administration came up with way back when, 65, wasn't the age you were expected to retire, it was the age you were expected to die. And "benefits" (a wonderful euphemism for "someone else's money") weren't then pegged to inflation, for that we can thank Richard Nixon.

I love how politicians say stuff like "we should all, the American people, have an adult conversation..." when politicians go to almost absurd lengths not to have reasonable conversations regarding difficult things.

Republicans right now don't have to put forth any policy proposals. Politically, they only have to let Democrats keep doing things people don't like. That they don't have to do something is quite different than that they should. They won't say that spending needs to be cut because: 1) When they controlled the House, Senate and White House, spending went through the roof, after cutting taxes (which is a really bad idea), and 2) they never mention specifically what it is they intend to cut because that money goes to someone, and they don't want to upset that someone who would then not vote Republican.

So we're stuck with Republicans and Democrats who like to treat the public fisc as some big bowl of Halloween candy to be passed out amongst their favorite children (different constituencies, but it's the same thing: buying votes). The Republicans don't want to replace the money at all; the Democrats want to demonize the "wealthy" and tax them more to pay for their candy, which disincentivizes success, drags down productivity and spreads equally not just income, but misery.

Either way, we lose.

03 August 2010

Taxes, Spending and Deficits

The "Bush Tax Cuts" are set to expire at the end of this year. If allowed, is this a bad thing?

Generally yes. Because congress handled the tax law ham-handedly, it was passed with a "sunset." So the wording gets tricky. Is allowing the law to expire a tax increase? Yes, it is.

Is raising taxes during a recession a bad idea? Yes, it is a certifiably terrible idea. It should go without saying that I think any tax increase ever is a bad idea, but there is positive economics out there that backs the original point, the latter being a matter of personal norms.

But if the tax rate is kept where it is, won't deficits increase*? Yes. Yes, they will. But Democrats seemingly don't mind deficits and, well, neither do Republicans. But Democrats seem to enjoy taxing the "wealthy," however defined, so at least rhetorically, they want to balance things a bit. Republicans talk a good game about cutting spending, but whenever given the opportunity to do so, don't. They don't want the political fallout of having to tell people "no, the government will not do that for you or give that to you." Democrats, to their disgrace, whenever Republicans do actually rattle their sabers and threaten some sop or giveaway, bring in the people who may be "harmed" and get them to testify that were it not for the generosity of the state taking something from one person to give it to them, well their life would be difficult.

But do deficits matter? This question, posed to any sensible person, will get you a puzzled look and an answer approximating "of course, you dolt." But thankfully for Democrats (& Republicans) we have people like Ezra Klein and James Galbraith (son of John Kenneth Galbraith) who say that there is "zero" danger with long-term deficit spending. I won't get into all the minutiae (Robert Murphy at the Ludwig von Mises Institute gets into some here), but spending beyond means is not good, and our sensible person is right and Ezra Kelin and Galbraith and Keynes and Krugman and Romer** are wrong.

So, should the tax increase go into effect? No. Because deficits don't matter. And "progressive" tax rates are un-egalitarian, unfair and immoral. It is morally repugnant that income over $x should be taxed at a higher amount. This punishes that which we should want to foster in society, namely success. The tax code is used as a "levelling down" device. It is used as a tool to affect "social change." It is used to punish. It should be used to care of that which the state has a legitimate interest in; paying for that which the government was granted the authority to do, not whatever a majority of elected officials want to do at any one time. That is why we have a constitution.

Further, progressive taxation increases incentives to hide compensation and hinders productivity.

The federal government shouldn't be funding schools, meals, churches, museums, parks, military bases in dozens of countries, housing, drug wars, hot wars (except in certain extreme instances and then only briefly), cold wars, dictators, democracies, policemen, firemen, hospitals, sugar growers, corn growers, wheat growers, communications commissions, agriculture commissions, election commissions, equal employment commissions, blue ribbon panels, retirement funds, disability funds or medical care. Get rid of this nonsense and then you won't need a commission on how to reduce the deficit.

*Currently $14,000,000,000,000 (that's $14 trillion or 14 x 10^12-another generation or so and we'll be approaching Avogadro's Number). Not including future liabilities. N.b-there are no future assets to offset those future liabilities, only future taxes.

**Romer's argument: "Extending the high-income tax cuts would provide very little job creation in 2011." This is fatuous. Look at this from a moral perspective: the more successful you are, the more you are to be penalized because you keeping more of what you earn won't create jobs for someone else next year. First, Romer was one of the twits behind the notion that if the "stimulus" package didn't pass, unemployment might go as high as 9%. Well, they passed and pissed away almost $1,000,000,000,000 and unemployment went even higher than that, so, as always, consider the source. The government is not an employment agency and people shouldn't pay taxes to affect job creation (which, we've seen, it doesn't).

The Question isn't What Are We Going to Do

The questions is what can't we do? To Representative Pete Stark? Nothing.

I don't think the Health Care Bill violates the 13th amendment, but congress does overstep its bounds by requiring people to purchase a service that they may not want to.

Now, if congress meddles further and commands that doctors must perform certain services to certain people and accept a legislated wage, that could be construed as a form of servitude (even if we think the remuneration is adequate). It is no different or less reprehensible than the draft.

Stark isn't alone in his obnoxious conception of government (and of his own powers), but at least he's honest about it. Most Republican legislators talk about limiting or reducing government in fora such as this, and then do whatever they want in Washington.