Archives: February, 2009

David Brooks Unhinged

David Brooks went completely off the deep end last night in critiquing Louisiana Governor Bobby Jindal’s Republican response to Barack Obama’s address to Congress. According to Brooks, “in a moment when only the federal government is big enough to actually do stuff- to just ignore all that and just say ‘government is the problem, corruption, earmarks, wasteful spending,’ it’s just a form of nihilism.”

Now, I thought Jindal’s speech was rather banal and poorly delivered, but since when is it nihilism to oppose “corruption, earmarks, and wasteful spending”? Apparently, government should just do “stuff.” It doesn’t really matter whether that “stuff” is good or not, whether it will actually stimulate the economy or not. And of course, there is no problem with the fact that that “stuff” includes a government takeover of our health care system, an unworkable and expensive energy policy, an extension of a federal education policy that has failed to educate our children, higher taxes, greater debt, and more spending on just about everything. To oppose all of that is “nihilism.”

Then count me as a nihilist – or maybe I just believe in liberty.

Prince of Darkness

Interesting interview with Robert Novak (AKA  The Prince of Darkness).

Some snippets:

Q: The atmosphere in politics today is so bitterly partisan. What do you ascribe that to?

A: I don’t agree that partisanship is more bitter now. In the 19th century, the overriding issue was slavery, and there was no more partisan issue than slavery. Preston Brooks, a proslavery Democratic congressman from South Carolina, walked onto the Senate floor and beat Charles Sumner, the antislavery leader of the radical Republicans, almost to death with the metal end of his cane. Now, that was partisan.

Q: You mention the names of a lot of sources in “The Prince of Darkness,” which is practically a who’s who of everybody in government or politics over the past 50 years. Who were the most skillful leakers, the ones who really knew how to give good leak?

A: The word “leaker” has an ignominious ring. It connotes giving you something you shouldn’t have. I think I should have everything. So there are no leaks – there are sources.

Q: In your memoir, you describe an early meeting in the Oval Office with Reagan in which he quoted a couple of obscure 19th-century British free-trade advocates and some little-known modern Austrian economists. How underrated intellectually do you think Reagan was?

A: He was extremely underrated, particularly by the press. The press was very derisive. They were derisive of Eisenhower, too – they thought he was just another Army officer – but the attacks on Reagan were harsher. He was portrayed as stupid, uneducated, out of his element. I think he was very well educated and understood a lot of things. He was also very flexible in his policies – too flexible for my taste.

Q: You’ve described yourself as a hero worshiper in a field that doesn’t have many heroes. Who were your heroes?

A: To be a hero – my hero – the person has to be in the process of risking his life or his livelihood or his way of life for a principle. That’s hard to find in the political world. I’ve talked about the great Czech distance runner Emil Zapotek, the greatest distance runner of all time, who ended up working in a uranium mine because he supported the 1968 uprising. He was a great hero of mine – an athlete who changed his whole life for principle.

Q: You’ve had a chance to look back on your life and think about what you’ve done that was good and what was bad. What stands out?

A: Looking back, I tried to find out what the politicians were up to, which is a difficult job. I find that politicians as a class are up to no good. Looking back on my life, I regret I was so determined to do that. I ended up writing a lot of political trivia, which really made my reputation. I think when people stop me now and say they miss my column, what they’re talking about is the behind-the-scenes trivia – the kind of thing that made me acceptable to people who disagreed with me. But I think I would have been better off to write about tax cuts and abortion and less about inside politics.

Q: Only those issues or others?

A: I was very negative about the invasion of Iraq. That’s another subject I should have written more about, explained more. I thought the war was unjustified. But my stand led to a Novak-hates-his-country piece in the National Review, which caused me a lot of grief and cut me off at the White House. I should have explained more about why I took the position I did.

Q: Let’s talk about the Valerie Plame affair, which caused you so much grief. If you had it to do over again, would you reveal who she was?

A: If you read my book, you find a certain ambivalence there. Journalistically, I thought it was an important story because it explained why the CIA would send Joe Wilson – a former Clinton White House aide with no track record in intelligence and no experience in Niger – on a fact-finding mission to Africa. From a personal point of view, I said in the book I probably should have ignored what I’d been told about Mrs. Wilson.

Now I’m much less ambivalent. I’d go full speed ahead because of the hateful and beastly way in which my left-wing critics in the press and Congress tried to make a political affair out of it and tried to ruin me. My response now is this: The hell with you.

I bet Mr. Novak recovers from his recent surgery and returns to work so he can report on the Obama presidency.

The Outsourcing Canard

“We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.”

    -President Barack Obama, Speech before Joint Session of Congress, February 24, 2009

To further Chris Edwards’ post earlier today, demonizing multinational corporations has long been a Democratic Party mainstay on the campaign trail. But the campaign is over. And given our colossal budget and debt disasters, it is almost criminal that our political leaders continue to tilt at windmills.

Chris notes that “U.S. corporations are moving investment and profits abroad, but it is because we have the world’s second highest corporate tax rate, not because of special loopholes as the president keeps implying.”

Punitive U.S. tax policy is beyond question a strong incentive for U.S. companies to invest capital and reinvest profits abroad. But there is also the fact that 95 percent of the world’s population lives outside the U.S. border. And those people have a hankering for U.S. products and services.

The main reason U.S. companies make direct investments abroad is to serve foreign demand, plain and simple — although politicians characterize competitive efforts to win foreign market share as “shipping our jobs overseas.” In many industries, it makes more sense to serve foreign demand through production operations in those countries (or in that region) than it does to produce in the United States and then export. Likewise, foreign-owned companies like Honda, Toyota, BASF, Thyssen-Krupp, Michelin, and Anheuser-Busch InBev find that it makes more sense to serve U.S. demand by producing in the United States. (The Organization for International Investment has a lot of useful information about “Insourcing” at its website.)

But there’s no need to reinvent the wheel here. My colleague Dan Griswold recently wrote a concise, fact-filled paper, attempting to interpret President Obama’s campaign pledge (and now presidential pledge) to “stop giving tax breaks to corporations that ship jobs overseas.” Dan’s analysis addresses three distinct questions raised by Obama’s pledge:

  1. Why do U.S. multinational companies establish affiliates abroad and hire foreign workers?
  2. What kind of tax breaks are they receiving?
  3. Should the new Congress and new president change U.S. law to make it more difficult for U.S. multinational corporations to produce goods and services in foreign countries?

You should read Dan’s paper and consider sending a copy of it to the White House. But here are some statistical highlights:

  1. More than 2,500 U.S. corporations own and operate a total of 23,853 affiliates in other countries.
  2. In 2006, U.S. corporations sold $3.3 trillion in goods (and $677 billion in services) through their majority-owned affiliates abroad, which was more than 6-times the value of U.S. exports. About 60 percent more services were sold through foreign affiliates than were exported from the U.S.
  3. U.S. corporations don’t use foreign operations as an “export platform” back to the U.S. (which is the primary gripe of those who oppose U.S. corporate investment abroad):
    • Almost 90 percent of the goods and services produced by U.S.-owned affiliates abroad are sold to customers either in the host country or re-exported to consumers in third countries outside the U.S.
    • More than half of the production of U.S. affiliates in China and Mexico is consumed in those markets, while only 17 percent of that production is sold to customers in the U.S.
    • There is no evidence that expanding employment at U.S.-owned affiliates comes at the expense of overall employment by parent companies back in the U.S.; in fact, there is a positive relationship between employment in the U.S. operations and employment in the foreign affiliates
    • In fact, foreign and domestic operations tend to move in tandem
  4. U.S. corporations don’t get any tax breaks from operating overseas; income on foreign operations that is repatriated is taxed at the much-higher-than-OECD-average U.S. corporate rate.
  5. Thus, “finally ending tax breaks for corporations that ship jobs overseas” can only mean extending the long arm of the U.S. tax code to apply to earnings on foreign operations that are not repatriated.
  6. And that would mean: “less investment in foreign markets, lost sales, lower profits, and fewer employment and export opportunities for parent companies back on American soil.”

Many Unhappy Returns

On this day in 1913, 96 years ago, the secretary of state notified Congress that the Sixteenth Amendment had been ratified and it was free to start taxing incomes directly. Some would say it’s all been downhill since then. Frank Chodorov called it “the root of all evil”:

The Sixteenth Amendment corroded the American concept of natural rights; ultimately reduced the American citizen to a status of subject, so much so that he is not aware of it; enhanced Executive power to the point of reducing Congress to innocuity; and enabled the central government to bribe the states, once independent units, into subservience.

Certainly the income tax makes possible the massive federal government that we have today. Without the ability to collect taxes directly from individuals – and through the veil of paycheck withholding – government could never hope to pay for troops in 135 countries, the retirement income of tens of millions of Americans, a vast army of federal employees, and all the other hallmarks of the modern state.

The very first issue of the Cato Journal looked at the income tax, including essays by Arthur Ekirch and John Buenker on its origins and by Ronald Hamowy on civil liberties and the IRS. In later issues Charlotte Twight looked at withholding, and Bruce Bartlett examined how the income tax helped to bring down the Roman republic.

Obama’s Shocking Speech

President Obama made good on his reputation for giving excellent speeches. He seemed calm and confident. It’s no wonder that instant polls show that most viewers liked it.

That reaction is all part of the guiding strategy of this administration: using a crisis atmosphere to amass more money and power in Washington. There’s a long history of government growth in times of crisis such as wars, natural disasters, or economic shocks. Think of FDR’s revolutionary “first 100 days” or LBJ’s driving through his Great Society programs in the wake of John F. Kennedy’s assassination.

George W. Bush did it, too, with both the Patriot Act and the invasion of Iraq after the shock of 9/11. And in so doing, he left his successor both a presidency and a federal government with unprecedented powers, ready to be employed for a different agenda.

The difference between the Bush and Obama administration is that the latter openly proclaims its use of the “shock doctrine.” As Rahm Emanuel says, “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before.”

And that’s the strategy behind the sweeping agenda that President Obama laid out. The president called his budget “a blueprint for our future,” and as my colleague John Samples notes, “A blueprint is a plan for the society as a whole just as a real blueprint is a plan for a building…. [This is] a plan for the remaking of America. The metaphor reveals a habit of mind at odds with a free society.” Obama promised that the federal government would impose comprehensive redesigns on energy, health care, and education. But the success of America has always been rooted in individual enterprise and free markets. Obama blames free markets for our problems, when it was cheap money from the Fed and misguided federal incentives that caused the mortgage debacle.

Voters respond enthusiastically to determined leadership at the moment of crisis. But laws made in a crisis atmosphere, from the Gulf of Tonkin resolution to Nixon’s wage and price controls to the TARP legislation, usually turn out badly. Democrats want to use this crisis to ram through government takeovers that they couldn’t achieve in any other period. We should slow down, take a deep breath, and carefully consider whether we want a clumsy, always-behind-the-times bureaucracy to take charge of our health, our access to energy, and our educational future.

[ Cross-posted from The Hill’s Congress Blog ]

Obama on Education: Ho-Hum and Hold On

Despite effusive praise from the education establishment – who, let’s be honest, will applaud anything that gets them more money – there was nothing remarkable about the education portion of President Obama’s Not-a-State-of-the-Union address last night.

Surrounded by broad generalities and standard promises to spend more money, the speech’s education centerpiece was arguably the president’s goal that “by 2020, America will once again have the highest proportion of college graduates in the world.”

This of course begs the question, why is having more college graduates in and of itself so important? The answer is, it isn’t. While economically we want people obtaining whatever knowledge and skills best fit their aptitudes, desires, and the needs of employers, the evidence clearly shows that we already encourage way too many people to pursue higher education. As I lay out in Cato’s new Handbook for Policymakers, the six-year graduation rate for bachelor’s students is hovering at just around 56 percent, literacy levels of degree holders are falling, and remediation rates for students are very high. Indeed, more than a third of college students have to take remedial classes.

So the reality is not that we aren’t pushing people to college. It’s that a large number of them just can’t handle it.

It’s also important to note that we’re not wanting economically for college graduates. As reported by the Bureau of Labor Statistics, 25 percent of all jobs in 2006 required a bachelor’s degree or higher. As of March 2007, nearly 29 percent of Americans ages 25 and older had at least that level of education.

Of course, these numbers don’t tell us whether all those degrees match employer needs – we may have a heck of a lot more English majors than employers require – but that doesn’t matter when the goal is just to get more college graduates. And it also doesn’t matter politically.

For politicians, there is simply little to lose and lots to gain from promising everyone a college education, no matter how wasteful that ends up being.