Archives: 08/2010

TSA on the Prowl for Embezzlers

The TSA is exceeding its authority.

At what point does an airport search step over the line?

How about when they start going through your checks, and the police call your husband, suspicious you were clearing out the bank account?

This kind of thing was supposed to stop after the TSA revised its policies a year ago. The revision came in the wake of the unconstitutional seizure of Campaign for Liberty staffer Steven Bierfeldt for carrying cash donations (prompting a lawsuit from the ACLU). A federal judge had already determined that fake passports found on an airline passenger were inadmissible in court.

The TSA is not a law enforcement agency. TSA screeners aren’t supposed to search for anything beyond weapons and explosives. Or, as TSA policy currently reads, “Screening may not be conducted to detect evidence of crimes unrelated to transportation security.”

Kathy Parker, a business support manager for a large bank, was flying with a deposit slip and several checks made out to her and her husband. TSA screeners suspected she was skipping town in the midst of a “divorce situation.”

Two Philadelphia police officers joined at least four TSA officers who had gathered around her. After conferring with the TSA screeners, one of the Philadelphia officers told her he was there because her checks were numbered sequentially, which she says they were not.

“It’s an indication you’ve embezzled these checks,” she says the police officer told her. He also told her she appeared nervous. She hadn’t before that moment, she says.

She protested when the officer started to walk away with the checks. “That’s my money,” she remembers saying. The officer’s reply? “It’s not your money.”

Glad to see that we’re in good hands, and that no one has lost focus on the aviation security mission at TSA. Read the whole thing.

The Public Isn’t Buying

Today POLITICO Arena asks:

Angry Left Obama’s bête noir?

My response:

Would the president help himself by making a clearer ideological declaration – as many on the “professional left” are asking him to do? Hardly. POLITICO tells us this morning that those “professionals” lament “the president’s reluctance to be a Democratic version of Ronald Reagan, who spoke without apology about his vaulting ideological ambitions.” One of those professionals, Robert Reich, urges Obama to present “a clear and convincing narrative into which all the various initiatives neatly fit, so that the public can make sense of everything that’s done.”

The public is quite capable of making sense of everything that’s been done. It’s doing it, and it doesn’t like what it sees. Reagan spoke boldly about his vision because it arose directly from fundamental American principles – individual liberty, free markets, and limited constitutional government. Obama avoids presenting “a clear and convincing narrative” because if he stated his vision more clearly it would be even less convincing than it already is.

Thus, White House press secretary Robert Gibbs was right to complain about the criticism’s coming from members of the professional left, who spend their lives cloistered in academia, the mainstream media, and other such redoubts, talking to each other. But Gibbs’s problem is deeper: It’s the product, not the pitch.

Arne Duncan Tortures Facts on School Spending

During a recent media conference call, the education secretary made this outlandish claim:

The vast majority of districts around the country have literally been cutting for five, six, seven years in a row. And, many of them, you know, are through, you know, fat, through flesh, and into bone…. [M]any folks in the American public don’t understand how tough these cuts have been for a number of years in a row.

Somebody definitely doesn’t understand public school spending trends, and that somebody is Arne Duncan. How many of America’s 14,000 odd public school districts have cut spending for seven years in a row? Seven. How many have cut spending for even five years in a row? 87out of 14,000. You do not need to be wearing a pocket-protector while calculating satellite orbital velocities on your shiny new Droid X to see that neither of these numbers represents even one percent of the nation’s school districts. And yet, somehow, the United States Secretary of Education is under the impression that they represent “the vast majority of districts.” Um… NO. [These figures were computed by my intrepid research assistant Ian Hinsdale. Merci Ian].

What would possess Arne Duncan to depart so extravagantly from reality? Perhaps he has been duped by the chicanery that passes itself off as public school district budgeting. Clearly, only a tiny percentage of districts have actually cut spending for even five years in a row. But when public school districts make claims about “budget cuts” they are not using that term in the way that you, or I, or perhaps even the Secretary of Education expect. They are not comparing current year spending to the previous year’s spending. What they’re doing is comparing the approved current year budget to the budget that they initially dreamed about having in an idealized, make-believe world. Unicorn-per-pupil ratios in these initial budgets have been known to exceed one. It is considered impolite when drafting them to draw attention to such niceties as the actual amount of taxpayer dollars available.

Back in the real world, a k-12 public education costs 4 times as much as it did in 1970, adjusting for inflation: $150,000 versus the $38,000 it cost four decades ago (in constant 2009 dollars). The extra $10 billion that secretary Duncan, the Obama administration, and the congressional majority just threw at the public school monopoly did not serve children or the U.S. economy. They must dearly be hoping that the American public never hears the real story.

Congressional Budget Office Says We Can Maximize Long-Run Economic Output with 100 Percent Tax Rates

I hope the title of this post is an exaggeration, but it’s certainly a logical conclusion based on what is written in the Congressional Budget Office’s updated Economic and Budget Outlook. The Capitol Hill bureaucracy basically has a deficit-über-alles view of fiscal policy. CBO’s long-run perspective, as shown by this excerpt, is that deficits reduce output by “crowding out” private capital and that anything that results in lower deficits (or larger surpluses) will improve economic performance – even if this means big increases in tax rates.

CBO has also examined an alternative fiscal scenario reflecting several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period. That alternative scenario embodies small differences in outlays relative to those projected under current law but significant differences in revenues: Under that scenario, most of the cuts in individual income taxes enacted in 2001 and 2003 and now scheduled to expire at the end of this year (except the lower rates applying to high-income taxpayers) are extended through 2020; relief from the AMT, which expired after 2009, continues through 2020; and the 2009 estate tax rates and exemption amounts (adjusted for inflation) apply through 2020. …Under those alternative assumptions, real GDP would be…lower in subsequent years than under CBO’s baseline forecast. …Under that alternative fiscal scenario, real GDP would fall below the level in CBO’s baseline projections later in the coming decade because the larger budget deficits would reduce or “crowd out” investment in productive capital and result in a smaller capital stock.

There’s nothing necessarily wrong with CBO’s concern about deficits, but looking at fiscal policy through that prism is akin to deciding who wins a baseball game by looking at what happened during the 6th inning. Yes, government borrowing drains capital from the productive sector of the economy. And nations such as Greece are painful examples of what happens when governments go too far down this path. But taxes also undermine economic performance by reducing incentives to work, save, and invest. And nations such as France are gloomy reminders of what happens when punitive tax rates discourage productive behavior.

What’s missing for CBO’s analysis is any recognition or understanding that the real problem is excessive government spending. Regardless of whether spending is financed by borrowing or taxes, resources are being diverted from the private sector to government. In other words, government spending is the disease and deficits are basically a symptom of that underlying problem. Indeed, it’s worth noting that there’s not much evidence that deficits cause economic damage but plenty of evidence that bloated public sectors stunt growth. This video is a good antidote to CBO’s myopic focus on budget deficits.

China’s Rising Wages and Benefits

“Bashing Beijing Will Not Help Our Trade Deficit” was the admirable title of Robert Pozen’s Wall Street Journal article.   Unfortunately, he went on to suggest an alternative from of China bashing.  “American politicians should not push so hard for yuan appreciation … Instead they should support higher wages and a stronger safety net for Chinese workers.”

“If wages go up in China,” says Pozen, “then the prices of its exports will rise – absent a proportional increase in labor productivity… .And if wages rise in China, its workers would have more money to spend.”

A Bureau of Labor Statistics study, in the April 2009 Monthly Labor Review, found that “compensation costs in China’s manufacturing sector … increased more than 40 percent” from 2002 to 2006 − more than 10 % a year. The figure includes “employer payments for social benefits such as workers’ compensation, unemployment insurance, medical insurance, and old-age pension funds.”
 
Pozen urges American politicians to tell the Chinese government to somehow cause compensation costs to rise even faster than the gains in productivity.  That is, he advocates a government-mandated increase in unit labor costs, which would be quite impossible.  It would also be hypocritical advice, since unit labor costs in U.S. manufacturing fell steadily from 1992 to 2007 – by 16.4%.
  
By contrast, U.S. unit labor costs in manufacturing rose 4.6% in 2008 and 3.2% in 2009 (with a 5.6% rise in real hourly pay), which explains why so many manufacturing workers were fired.  For China, like the U.S., rising unit labor costs with stable or falling prices would squeeze profit margins to zero or less and result in mass layoffs.

Pozen rightly notes that assembly of goods in China “constitutes no more than 10%” of the value-added in many exports labeled “made in China.”  Prices of such multinational products cannot be arbitrarily increased to please American politicians, because higher prices would encourage more multinationals to do what many are already doing – namely, to move labor-intensive work on low-end products from China to cheaper places like Vietnam or Bangladesh.

Pozen also proposes that, “American politicians … should support higher wages and a stronger safety net for Chinese workers.”   If only China had Social Security, Medicare and Medicaid, he argues, then Chinese people could become as profligate as Americans, lulled by the increasingly naïve belief that government will take care of them.  

Lacking the equivalent of Social Security or Medicare/Medicaid, China has no payroll taxes at all, no capital gains tax, and only a 15-25% tax on corporate profits. It is not such a bad thing that China does not share America’s looming “safety net” crises in entitlements and public pensions.  By ignoring Mr. Pozen’s advice to emulate this country’s runaway spending on transfer payments, the Chinese government has not felt itself obliged to emulate this country’s impulse to tax the stuffing out of corporate profits, capital gains, and employer payrolls.  

Imagine what your 401k would be worth with no tax on capital gains.  Imagine what U.S. employment would look like with no payroll tax and a 15-25 %tax on corporate profits.

American politicians are giving them advice?

A Birthday Gift from Paul Krugman

I turn 41 this summer (thank you for the condolences). Along with the well wishes of family and friends, I received an unexpected gift from NY Times writer Paul Krugman: this column in which he bashes people who are critical of Social Security in its current form or who worry about its ability to deliver expected benefits.

At first glance, the column hardly seems like a gift: it’s long on pointless insults, short on thoughtful discussion, and misleading. But it offers such a poor defense of the Social Security status quo that I suspect readers will be more skeptical of the program after seeing the column, not less. Hence, Krugman’s gift.

He writes:

Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.

OK, 2037 — no worries. Except that, as I said, I turn 41 this summer, which means I’ll turn 67 and qualify for full Social Security benefits in mid-2036. The very next year, the Social Security trust fund will be exhausted, according to the “intermediate” scenario contained in the most recent Social Security Trustees Report, available here (see Section IV-B and Appendix E). The program will still pay out some benefits — but less than 3/4s of what it now promises. So what happens then? That’s not a good question if you’re my age or younger.

But suppose you’re not my age or younger. Suppose you’re 10 years older than me, and will have collected 10 years of benefits by 2037. Don’t feel smug — you’ll be asking “So what happens next?” when you’re 77. That’s not a good question at your age, either. 

In fairness to Krugman, the Trustees Report considers different Social Security cost scenarios, the most optimistic of which projects that the trust fund will not be fully exhausted over the 75-year period the report considers. Krugman says there’s “a significant chance” this will be the case, but my (admittedly quick) skim of the report suggests it’s more just “a chance.”

One quick aside about the 2037 exhaustion date: when Krugman wrote this column in 2005, the Trustees’ intermediate scenario projected that the trust fund would last until 2042. In five years’ time, that date has grown 10 years closer. Not good.

Krugman writes that, if the trust fund does run out, Social Security can maintain its benefits using money transferred into the program by Congress from elsewhere in the federal budget. In fact, Congress will have to direct money from elsewhere to Social Security much earlier than 2037. Under the Trustees’ intermediate scenario, beginning in 2018 the amount of money Social Security pays out in old-age benefits each year will be greater than what the public pension program takes in in payroll taxes. (The Disability Insurance component of Social Security is in even worse shape, according to the Trustees, such that the program overall will go in the red in 2015.) To cover the difference, Congress will have to begin paying off the treasury bonds that currently comprise Social Security’s trust fund in order to provide the promised benefits. (In fact, Congress will have to do that this year because, as a product of the recession, Social Security obligations are greater than revenues. Hopefully, the economy will rebound and give the program a few years’ respite before transfers become an annual necessity, though the pessimistic scenario predicts no such respite.)

Krugman is unconcerned by these transfers, dismissing those who worry about them as engaging in “three-card monte.” His column doesn’t acknowledge that these transfers would need to occur at a time when Congress will be scrambling to cover other growing costs: similar deficits in Medicare, obligations to the ever-growing federal debt, and Medicaid’s increasing burden on federal and state governments. I worry that future taxpayers will not be amenable to having so much of their tax money directed to retirees (who refused to reform Social Security when they could have done so at relatively lower cost) rather than to government services for current taxpayers.

Krugman ends the column criticizing the proposal to reduce Social Security’s cost by raising the age at which retirees become eligible for full benefits. As part of an adjustment that began in 2002, retirees must now wait until age 66 to receive full benefits; beginning in 2021, the age requirement will slowly be raised until it reaches 67 in 2027. (Retirees will still be able to take reduced benefits at 62.) Some have suggested raising the full-benefit age to 70. Krugman says that would be unfair:

America is becoming an increasingly unequal society — and the growing disparities extend to matters of life and death. Life expectancy at age 65 has risen a lot at the top of the income distribution, but much less for lower-income workers. And remember, the retirement age is already scheduled to rise under current law. So let’s beat back this unnecessary, unfair and — let’s not mince words — cruel attack on working Americans.

There is something to what Krugman says. From 1980 to 2000, life expectancy at birth for the poorest decile (i.e., 10%) of the U.S. population increased from 73.0 years to 74.7 years, while life expectancy for the wealthiest decile increased from 75.8 years to 79.2 years. (The disparity in life expectancy between the top and bottom decile groups does decline to 1.6 years at age 65, which is up from 0.3 years in 1980. H/T to Dr. Daniel Coyne at the Washington University in St. Louis School of Medicine.)

But inequality in Social Security benefits would exist whether the eligibility age is 65, 66, or 70. Because Americans are required to participate in Social Security, and because all Americans become eligible for full retirement benefits for the rest of their lives at a single threshold age, then the longer-lived wealthy will receive more in benefits than the shorter-lived poor no matter what that threshold is. This is the product of having a one-size-for-all public pension plan (with lousy benefits). The way to address this inequality problem is through Social Security choice.

As I wrote at the beginning, Krugman’s column should leave thoughtful and informed readers more concerned about Social Security, not less. He couldn’t have given me a better present.

On the Wisdom Not to Do Wrong

 Jim Harper may be “put off by the domestic political ramifications” of the continuing Ground Zero mosque debate — linking to my three POLITICO Arena posts over the weekend, when the story broke, and Chris Preble’s very different Cato@Liberty post on Monday — but that’s what this debate is all about. It’s not about the law or the Constitution, at bottom, because the law is clear: we respect the right to build that mosque there, even if it would not be prudent or wise to do so.

Thus, he misses the point when he cites “conservative icon Ted Olson” who, Jim says, “expresses well how standing by our constitutional values is good counterterrorism signaling.” That may or may not be good counterterrorism signaling, but those of us who oppose this mosque being situated there are standing by our constitutional values, contrary to the implication of Jim’s contention. We’re defending the right the Constitution protects, while engaging in the robust debate it equally protects — arguing that building the mosque there, as Charles Krauthammer put it in this morning’s Washington Post, “is not just insensitive but provocative,” given the facts of the matter.

But that’s not the only non-sequitur in Jim’s argument. He goes on to say:

Islam did not attack the United States on 9/11. It is simple collectivism—the denial of individual agency that libertarians reject—to believe that the tiny band of thugs who perpetrated the 9/11 attacks speak for an entire religion, culture, or creed. Our sympathy to families of 9/11 victims and our vestigial fears should not allow us to indulge gross and wrong generalizations about individuals of any faith.

Who’s saying that? Does Jim believe that those of us on the other side cannot distinguish the 19 long-dead “tiny band of thugs” — and all who supported them and continue to support what they did, as manifest around the world almost daily — from the great majority of Muslims who do not support Islamic terrorism?

There is a problem in the other direction, however, with those who minimize or dismiss “our vestigial fears.” The war against terrorism, which we are likely to be in for some time, requires a sober assessment of the circumstances we’re facing, neither understating nor overstating them. And one aspect of that is public opinion, including opinion, in particular, in the Muslim-American community. This morning’s New York Times has a page-one story about the divide in that community over the mosque issue. It’s those in that community who understand this issue that we need to encourage to come forward and stand for true American principles — including the principle that not everything a person has a right to do is right to do. It’s no more complicated than that.