Archives: 11/2009

The Reagan Tax Cuts, Budget Forecasting, and Government Revenue

While perusing the Internet, I saw an article by Iwan Morgan, who is the author of The Age of Deficits: Presidents and unbalanced Budgets from Jimmy Carter to George W. Bush. The author asserted in this article that, “The deficit explosion on his watch was a nasty surprise for Ronald Reagan not a deliberate strategy to reduce government.  In his rosy interpretation of Laffer curve theory, the personal tax cuts he promoted in 1981 would deliver higher not lower revenues through their boost to economic growth.”

The first sentence is an interesting interpretation, since many leftists believe that Reagan deliberately created deficits to make it more difficult for Democrats in Congress to increase spending. I’m agnostic on that issue, but Morgan definitely errs (or is grossly incomplete) in the second sentence. The Reagan Administration did not employ dynamic scoring when predicting the revenue impact of its tax rate reductions. It is true that the White House failed to predict the drop in revenues, particularly in 1982, but that happened because of both the second stage of the 1980-82 double-dip recession and the unexpected drop in inflation (the Congressional Budget Office also failed to predict both of these events, so Reagan’s forecasters were hardly alone in their mistake). Moreover, Morgain’s dismissal of the Laffer Curve is unwarranted. While several GOP politicians exaggerated the relationship between tax rates, taxable income, and tax revenue, this does not mean it does not exist.

The table below, which is based on data from the IRS’s Statistics of Income, shows what happened to tax collections from upper-income taxpayers between 1980 and 1988. Supply siders can be criticized for many things, especially their apparent disregard for the importance of limiting the size of government, but the IRS figures clearly show that lower tax rates were followed by more rich people, more taxable income, and more tax revenue. For those keeping score at home, that’s a perfect batting average for supply-side economics.

1980-88 Laffer

Chile Shows the Way on Trade

The longest and least uplifting chapter in my new Cato book Mad about Trade is Chapter 9, where I describe all the remaining duties and restrictions our government imposes on our freedom to trade with people in other countries. We are certainly not “the most open market in the world,” as a member of President Obama’s Cabinet asserted in China last week. In fact, by one measure we rank a lowly 28th.

After mentioning this fact in speeches lately, I’ve been asked more than once to name the markets that ARE the most open in the world. Here, according to the latest 2009 Economic Freedom of the World Report, are the top ten most open economies:

1. Hong Kong
2. Singapore
3. Chile
4. Ireland
5. Panama
6. Netherlands
7. United Arab Emirates
8. Slovak Republic
9. Hungary
10. Luxembourg

(The list is a bit different from the one I cite in the book, which was based on the 2008 EFW report.)

One of the most remarkable members on the list is Chile. Decades ago, it was one of the most closed, protectionist economies in Latin America. Today it is the most open. In fact, when you consider that Hong Kong is a special administrative region of China, and Singapore is a tiny city state, Chile is the most open full-sized country in the world. (I hope our free-trade friends in Singapore won’t take offense at that!)

It is no coincidence that Chile has become the economic star of Latin America.

Will our own president and Congress learn from Chile’s example?

Elmer Kelton’s Cowboy Individualism

John J. Miller of National Review introduces many of us to Elmer Kelton, who, he writes in an email, “may be the best writer you’ve never heard of.” Kelton, who died in August, wrote both classic and modern Westerns. And while he may not have written the Great American Novel, he just might have written the Great Texas Novel, The Time It Never Rained. It sounds like the story of a classic American:

The tale centers on Charlie Flagg, a stubborn rancher who battles the unyielding drought. He also resists the government’s relief programs with a determination that his friends find both admirable and strange. What emerges is the portrait of a rugged libertarian: “I just want to live by my own lights and be left the hell alone,” says Flagg.

The federal aid turns out to have bad consequences. It fuels inflation, turns neighbor against neighbor, and chips away at bedrock freedoms. Each time a rancher surrenders a piece of his independence, says Flagg, “he’s given up a little of his self-respect, a little of the pride he used to have in takin’ care of himself by himself.”

Kelton’s father might have preferred that he actually be a cowboy, but at least he became one of the great modern advocates of the cowboy ethic:

In 1995, based largely on the accomplishment of “The Time It Never Rained,” the Western Writers of America voted him the greatest western writer of all time. Finishing a distant second: Willa Cather.

Kelton may not have grown up to be a cowboy, but he devoted himself to explaining and defending the cowboy’s way of life. Last year, in the Texas Monthly, he observed that in certain circles the word “cowboy” has become a pejorative, as in “cowboy capitalism” or “cowboy diplomacy.” He responded by trying to explain “what the cowboy is and always has been—a common man in an uncommon profession, giving more than he receives, living by a code of conduct his detractors will never understand.”

We Should Not Praise Stalin, But Bury Him

Although the debate has been raging for months, it has just come to my attention that the man responsible for the second-most number of murders ever – after Mao, of course, with Hitler a distant third – is to have his bust placed at the National D-Day Memorial in Bedford, Virginia.

Defenders of the Stalin bust argue that, whether we like it or not, our uneasy alliance with the Soviet Union during the war is a part of history and should be recognized. Furthermore, they say that his visage is in no way glorifying the man or his deeds.

This argument misses the point entirely. Memorials are monuments to fallen heroes, not historical dioramas. There is no statue of Stephen Douglas at the Lincoln Memorial, no bust of Wendell Willkie at the FDR Memorial, and no plaques honoring Axis dead at our WWII Memorial. Moreover – and perhaps most importantly from a historical perspective – Stalin had no role in D-Day; the invasion of Normandy by U.S., British, Canadian, Australian, Free French, and other Western forces.

While there is no question that Stalin, by virtue of commanding the army fighting on the Eastern Front, played an indispensable role in defeating Hitler, it should escape no one’s memory that he too was an evil, mass-murdering despot.

Stalin and communism should be universally reviled in the very same way as Hitler and Nazism. (Note also that Stalin only fought the Germans because Hitler invaded the USSR in violation of the Molotov-Ribbentrop Pact that divided Eastern Europe and enabled the Reich’s western incursions in the first place.)

Finally, no one doubts or discounts the bravery of the Russian and other Soviet soldiers fighting in defense of their homeland and families, far removed from the politics of terror that permeated their government – including my maternal grandfather, a tank captain who helped take Berlin. Accordingly, if we are to honor the Soviet role at our D-Day Memorial, we should honor the common Red Army soldiers – whom Stalin treated as disposable bullet-stoppers, many of whom he murdered after the war because they had witnessed the world beyond communism – not the tyrant and the murderous system they represented.

You can read about the collective amnesia – if not willful blindness – about the evils of communism that has set in among Western elites in Paul Hollander’s excellent Cato Development Policy Analysis.

Real Competition

Democratic National Leadership Council chairman Harold Ford, former IBM chairman Louis Gerstner, and KB Homes founder Eli Broad have an op-ed in today’s Wall Street Journal in which they admonish the Obama administration to hang tough on the “Race to the Top” education sweepstakes. They also declare that ”competition brings out the best performance. That’s true in athletics and in business, and it’s true in education.”

Now, as I have pointed out on numerous occasions, the Race to the Top isn’t designed to be something that the administration hangs tough on. It is designed to be something that it talks tough on but states actually have to do little of substance to win. All that states have to do, for the most part, is submit plans to do reform-y things, not actually reform much of anything! And don’t forget, Race to the Top offers but a drop of cash compared to the lakes that the “stimulus” poured out to protect the status quo from any financial dry mouth. 

Then there’s the competition bit. It’s certainly true that competition is a key driver of quality and innovation, as we can see in countless things that we take for granted such as computers, restaurants, shoes, package delivery services, hotels, video games, toothbrushes, smart phones, and on and on and on. But the competition that Ford, Broad, and Gerstner are talking about isn’t that kind of competition – you know, the free-market kind we’d get from universal school choice – but state education monopolies ”competing” for federal taxpayer dollars.

To be fair, a bit of competition between states is a real, potential byproduct of federalism. It isn’t even remotely akin, however, to competition “in athletics and in business,” as Ford, Broad, and Gerstner put it. No, it is much closer to a contest between Beavis and Butthead to see who can do nothing the longest than a battle for supremacy between the Patriots and Colts, or Apple and Blackberry.

Unfortunately, two of these authors have tried to sell us hopeless, deep-inside-the-box reforms before.

While Ford has supported DC’s voucher program and has some school-choice credibility, Broad was co-funder – along with fellow education-windmill-tilter Bill Gates – of the milquetoast Strong American Schools. That initiative offered the same top-down, or just plain trite, “reforms” that have been limply proffered to us for decades, and it’s Ed in ‘08 effort to move education to the forefront of the 2008 presidential campaign was a dud.

How about Gerstner? Last we heard from him, he was calling for the elimination of almost all of what little competition there is in the public schooling status quo. In a December 2008 WSJ piece, he declared that the nation should have just 70 school districts (versus about 15,000 today and 130,000 in the late 1920s), national academic standards and tests, and a longer school year. In other words, exactly the kind of centralization that has proven a total disaster for decades…only on steroids!

Race to the Top, frankly, is a sham, and these guys can’t seem to figure out what competition is or whether they actually like it. Maybe they should think all this through and get back to us when they’re done.

Mistaken Moral Equivalency

Former Google executive turned Obama administration deputy chief technology officer Andrew McLaughlin made some unfortunate comments at a law school technology conference last week equating private network management to government censorship as it is practiced in China.

By many accounts, President Obama’s visit to China was unimpressive. It apparently included a press conference at which no questions were allowed and government censorship of the president’s anti-censorship comments. On its heels, McLaughlin equated Chinese government censorship with network management by U.S. Internet service providers.

“If it bothers you that the China government does it, it should bother you when your cable company does it,” McLaughlin said. That line is wrong on at least two counts.

First, your cable company doesn’t do it. There have been two cases in which ISPs interfered with traffic in ways that are generally regarded as wrongful.  Comcast slowed down BitTorrent file sharing traffic in some places for a period of time, did a poor job of disclosing it, and relented when the practice came to light. (People who don’t know the facts will argue that the FCC stepped in, but market pressures had solved the problem before the FCC did anything.) The second was a 2005 case in which a North Carolina phone company/ISP called Madison River Communications allegedly blocked Vonage VoIP traffic.

In neither of these anecdotes did the ISP degrade Internet traffic because of its content—because of the information any person was trying to communicate to another. Comcast was trying to make sure that its customers could get access to the Internet despite some bandwidth hogs on its network. Madison River was apparently trying to keep people using its telephone lines rather than making Internet phone calls. That’s a market no-no, but not censorship.

Second, if the latter were happening, Chinese government censorship and corporate censorship would have no moral equivalency. In a free country, the manager of a private network can say to customers, “You may not transmit certain messages over our network.” People who don’t like that contract term can go to other networks, and they surely would. (Tim Lee’s paper, The Durable Internet: Preserving Network Neutrality Without Regulation, shows that ownership of networks and platforms does not equate to control of their content.)

When the government of China forces networks and platforms to remove content that it doesn’t like, that demand comes ultimately from the end of a gun. Governments like China’s imprison and kill their people for expressing disfavored views and for organizing to live freer lives. This has no relationship to cable companies’ network management practices, even when these ISPs deviate from consumer demand.

McLaughlin is a professional colleague who has my esteem. I defended Google’s involvement in the Chinese market during his tenure there. But if he lacks grounding in the fundamentals of freedom—thinking that private U.S. ISPs and the Chinese government are part of some undifferentiated mass of authority—I relish the chance to differ with him.

More to Be Thankful For

In a new study, Glen Whitman and Raymond Raad demonstrate that America leads the world in medical innovations that ease and extend our lives. And in Tuesday’s Wall Street Journal, Melinda Beck details some of the health care advances that we should give thanks for this Thanksgiving Day:

• Fewer Americans died in traffic fatalities in 2008 than in any year since 1961, and fewer were injured than in any year since 1988, when the National Highway Traffic Safety Administration began collecting injury data. One possible reason: Seat-belt use hit a record high of 84% nationally.

Life expectancy in the U.S. reached an all-time high of 77.9 years in 2007, the latest year for which statistics are available, continuing a long upward trend. (That’s 75.3 years for men and 80.4 years for women.)

Death rates dropped significantly for eight of the 15 leading causes of death in the U.S., including cancer, heart disease, stroke, hypertension, accidents, diabetes, homicides and pneumonia, from 2006 to 2007. (Of the top 15, only deaths from chronic lower respiratory disease increased significantly.) The overall age-adjusted death rate dropped to a new low of 760.3 deaths per 100,000 people—half of what it was 60 years ago….

• Around the world, 27% fewer children died before their fifth birthday in 2007 than in 1990, due to greater use of insecticide-treated mosquito nets, better rehydration for diarrhea, and better access to clean water, sanitation and vaccines.…

• Twenty-seven countries reported a reduction of up to 50% in the number of malaria cases between 1990 and 2006.

Read it all. (I should note that Beck attributes more of this good news to government action than I would, and she counts the mere existence of smoking bans as a “health care advance,” despite the lack of evidence that they actually have any health effects. But that’s an argument we can save for next week. Today and tomorrow let’s just celebrate the good news.)

I wrote a couple of years ago about the good news of falling cancer death rates and falling heart disease death rates.

In his book The Improving State of the World, Indur Goklany examined, as the subtitle put it, Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet.