Archives: 06/2011

Female Force: Ayn Rand

John Blundell, former director of the Institute of Economic Affairs in London, has written a new comic book biography of Ayn Rand. Find it in comic book stores, at Barnes and Noble, or on Amazon. Publisher Bluewater says:

“Female Force: Ayn Rand” will hit comic shops and online retailers on June 22nd. The 32-page comic retails for $3.99….

The comic book provides an entertaining yet scholarly look at the author of such seminal works as The Fountainhead and Atlas Shrugged. Even 30 years after her death, her sales of her books continue to sell in the hundreds of thousands each year. Bluewater also worked with the Ayn Rand Institute on the comic book.

“When the American economy went into a nose dive recently what did we all turn to? Did we dig out battered old Econ 101 textbooks? Did we turn to the writings of some aged Ivy League professor? NO! Instead we dusted off or repurchased The Fountainhead and Atlas Shrugged those great classic American novels by Russian immigrant Ayn Rand which deal so brilliantly with the fundamentals of a free and prosperous society of responsible individuals,” said author John Blundell.

Blundell, author of Margaret Thatcher: A Portrait of the Iron Lady as well
as Bluewater’s Thatcher bio comic, and formerly the Director General of the
Institute of Economic Affairs in London, emphasizes the relevancy and
potency of Rand’s Objectivism ideas in 21st century America.

Blundell also has a book coming in September, Ladies for Liberty: Women Who Made a Difference in American History. That one, I think, will have words but no pictures.

President Obama’s Afghan Decision: Previewing the Speech

Tomorrow night, President Obama will announce how many troops will be withdrawn from Afghanistan over the next 18 months. CNN.com reported this morning that the president is expected to announce a plan that would bring all 30,000 “surge” troops home by the end of 2012. This would give them two more fighting seasons in Afghanistan. The Los Angeles Times reported administration and Pentagon officials told them 10,000 troops will leave Afghanistan by the end of this year. In an effort to quell the leaks, White House officials told Fox News that Obama has not made a final decision and that the reporting is “all over the map.”

But we should not allow this speculation over troop numbers to distract us from the bigger picture. Even if by the end of 2012 the size of the U.S. military presence is reduced by 30,000 (and I’m not holding my breath), that would still leave more than twice as many troops as were there in January 2009 when Obama took office.

We won’t know for sure what the president intends until tomorrow. More importantly, we won’t know if the president’s intentions translate into actual troop withdrawals until our brave men and women are welcomed back home. There will always be those arguing that conditions on the ground do not allow for a U.S. withdrawal. Some are making that case with respect to Iraq, a war that was supposedly won by David Petraeus and the surge back in 2008. For the U.S. military, it seems that every war is like the Eagles’ Hotel California: we can check out, but we can never leave.

Regardless of the president’s decision, the mission will not have changed. The military wants more time to put pressure on the Taliban. They believe that they have the Taliban on the run, and that continuing pressure will aid in negotiations on a political settlement. Meanwhile, the true believers of nation-building want to buy more time for the Karzai government to get its act together. They believe that if American troops and aid workers dig more wells, pave more roads, build more schools, and draft more legal standards, we will have achieved our essential goals. The public, and a growing number within the Congress, is skeptical.

And they should be. A nation-building mission is far too ambitious, and far too costly. Most importantly, it isn’t necessary. We could keep pressure on the Taliban, and deny al Qaeda a sanctuary, with perhaps as few as 10,000 troops in Afghanistan. If President Obama rejects that option, and declares instead that more than 60,000 U.S. troops will be in Afghanistan in 2013, he will have bowed to pressure from some within the Pentagon, at State, and a handful of think tankers, and ignored the clear wishes of the American people who want to turn their attention to building the United States, and allow the Afghans to build Afghanistan.

Cross-posted from The National Interest.

Ricardo Paging Alan Blinder

I almost hesitate to suggest that anyone actually read Alan Blinder’s defense of Keynesian economics in today’s Wall Street Journal, except that the piece lays out clearly in my mind why Blinder is so wrong.  The only part you really need to read is:

In sum, you may view any particular public-spending program as wasteful, inefficient, leading to “big government” or objectionable on some other grounds. But if it’s not financed with higher taxes, and if it doesn’t drive up interest rates, it’s hard to see how it can destroy jobs.

So in Blinder’s world, deficits are explicitly not future taxes, despite what I believe is a fairly strong consensus among economists that some form of Ricardian equivalence holds (see John Seater’s literature review and conclusion, “despite its nearly certain invalidity as a literal description of the role of public debt in the economy, Ricardian equivalence holds as a close approximation.”).  Perhaps Blinder is blind to the fact that deficits are so much a part of the public debate today because households absolutely see those deficits as future taxes.

I also think Blinder misses that fact that crowding out can occur without raising interest rates.  As Cato scholar Steve Hanke points out, the Fed’s current policies have basically killed the interbank lending market, which has encouraged banks to load up on Treasuries and Agencies, rather than lend to the productive elements of the economy.  While I sadly don’t expect most mainstream macroeconomists to focus on the link between the banking sector and the macroeconomy, Blinder has no excuse; he served on the Fed board.

As I have argued elsewhere, banks are indeed lending, but to the government, not the private sector.  The simplistic notion that crowding out can only occur via higher interest rates, as if price is ever the only margin along which a decision is made, has done serious harm to macroeconomics.  But then if macroeconomists actually understood the mechanics of financial markets, then we might not be in this mess in the first place.

Harold Koh and the Temptations of Power

So for three months now, we’ve been at war in a country that the president’s own secretary of defense admits is “not a vital interest for the United States.” Turns out, it’s also a war that the president’s own attorney general believes to be illegal.

That’s what I get from Charlie Savage’s recent reporting on how the White House “forum-shopped” its way to its current position on the War Powers Resolution, to wit, you’re not engaged in “hostilities” if you’re hitting someone but they can’t hit you back.

As the WPR’s 60-day deadline approached, the Pentagon’s general counsel and, more importantly, the head of the president’s Office of Legal Counsel, Caroline D. Krass, advised Obama that bombing Tripoli—even if done remotely, with little risk of immediate retaliation—counted as engaging in “hostilities” under the WPR, which meant that the president would have to terminate U.S. involvement or radically scale it back after the 60-day limit. As Savage reports, “Attorney General Eric H. Holder Jr. supported Ms. Krass’s view, officials said”—in other words, that if the president continued bombing Libya, he’d be violating the WPR.

Ordinarily OLC’s opinion would have the greatest weight here, but President Obama went with the advice given by White House Counsel Robert Bauer and State Department Legal adviser Harold Koh—who told him what he wanted to hear.

My Washington Examiner column today focuses on Harold Koh as an object lesson in the corrupting potential of power:

Harvard’s Jack Goldsmith notes that “for a quarter century before heading up State-Legal, Koh was the leading and most vocal academic critic of presidential unilateralism in war.” On the strength of that reputation, Koh rose to the deanship of Yale Law School in 2004.

And Koh seemed to take the War Powers Resolution pretty seriously. In 1994, for example, he wrote to the Clinton Justice Department to protest the planned deployment to Haiti, which was carried out without a single shot being fired:

“Nothing in the War Powers Resolution authorizes the President to commit armed forces overseas into actual or imminent hostilities in a situation where he could have gotten advance authorization.”

Who could have predicted that his legacy at State would be reading the WPR practically out of existence?

On Thursday, Koh took point at a press conference selling the administration line. The next day, he went before the American Constitution Society, the progressive alternative to the Federalist Society, to give a strikingly self-congratulatory speech about maintaining one’s integrity in “public service.” The relevant part starts at around 33:00 in. Highlights: “I’ve lived the life I wanted to live; I’ve said the things I wanted to say”…”I still believe in my principles”…”I never say anything I don’t believe”…”if you hear me say something, you can be absolutely sure that I believe it [including “the administration’s position on war powers in Libya”]”…”if I say it, I believe it, and I intend to stand by it”…”For what is a man?/what has he got? If not himself/then he has not…” (OK, not the last bit).

As I note in the column:

John Dean, who served prison time for his role in the Watergate cover-up as a young White House counsel to Richard Nixon, once said that young people should be kept away from top executive posts.

They lacked the life experience and independence needed to resist falling under the spell of presidents who want them to bend or break the law.

Koh was in his mid-50s when he joined the administration, coming off a distinguished career built on opposition to the Imperial Presidency. Yet the lure of being “in the room” when the big decisions are made seems to have turned him into the Gollum of Foggy Bottom.

Oh, and by the way, Charlie Savage reports today that piloted strikes continued past the 60-day time limit, so even if Koh’s legal rationalization could pass the laugh test, it wouldn’t fit the facts we have.

Miss USA Contestants: America in Glamourcosm?

A rabid fan of both Cato’s Center for Educational Freedom and The Miss USA Pageant (some may know him as Jim Harper) just sent me a link to this YouTube video. In the vid, all the contestants in the just-completed, aforementioned pageant discuss whether the theory of evolution should be taught in schools.

I didn’t tally their responses, but just listening to the contenders it seems their consensus answer represents America in microcosm: Most seem to have serious doubts about evolution, but support teaching it along with other viewpoints. It reflects both the overall split within the American public—40 to 50 percent of Americans are creationists, and roughly the same segment evolutionists—as well as the consensus view on teaching human origins: About 60 percent of Americans support teaching both evolution and creationism in public schools.

Of the most interest to us here at CEF is whether public schooling can even handle a hot-button issue like human origins. Is a government system of schools that all diverse people must support capable of dealing with a controversial subject like this, or will it spark conflict that ultimately ends with no side getting the view it wants taught?

The existing evidence shows that government schooling generally can’t handle controversy, but that is almost never even mentioned in the seemingly endless war between creationists and evolutionists. And the same is true for the aspiring Miss USAs. While a few appeared to conclude that the nation is too diverse for public schools to deal with this topic—see Miss Kentucky at the 5:07 mark, and Miss Utah at 12:36—the majority made no mention of the problem. Fortunately, only one gave the answer libertarians should fear most: Miss Indiana ( 4:25 ) said “I think we should leave that up to the government.” (In the Hoosier rep’s defense, she did eventually conclude that we should “just leave that out of the equation” because it would be too controversial).

At least when it comes to the teaching of human origins in schools, Miss USA contestants really do appear to represent their country.

Poll Finds a Libertarian Shift

Polling wizard Nate Silver of the New York Times today points to a couple of poll questions that David Kirby and I have often employed and finds some welcome new results, along with a great graph:

Since 1993, CNN has regularly asked a pair of questions that touch on libertarian views of the economy and society:

Some people think the government is trying to do too many things that should be left to individuals and businesses. Others think that government should do more to solve our country’s problems. Which comes closer to your own view?

Some people think the government should promote traditional values in our society. Others think the government should not favor any particular set of values. Which comes closer to your own view?

A libertarian, someone who believes that the government is best when it governs least, would typically choose the first view in the first question and the second view in the second.

In the polls, the responses to both questions had been fairly steady for many years. The economic question has showed little long-term trend, although tolerance for governmental intervention rose following the terror attacks of Sept. 11, 2001. The social libertarian viewpoint — that government should not favor any particular set of values — has gained a couple of percentage points since the 1990s but not more than that.

But in CNN’s latest version of the poll, conducted earlier this month, the libertarian response to both questions reached all-time highs. Some 63 percent of respondents said government was doing too much — up from 61 percent in 2010 and 52 percent in 2008 — while 50 percent said government should not favor any particular set of values, up from 44 percent in 2010 and 41 percent in 2008. (It was the first time that answer won a plurality in CNN’s poll.)

And then he offers this graph:

Check out that green line! Kirby and I used those same two poll questions in our studies beginning with “The Libertarian Vote” (see p. 9). Like Gallup, we combined responses to the two questions in a matrix, finding in 2009 (in “The Libertarian Vote in the Age of Obama”) that 23 percent of the public held libertarian views. Adding them, as Silver has done, seems much more fun.

Memo to Robert Reich: Rewrite Your Brief

Robert Reich posted a letter in June 20 Wall Street Journal responding to my article of June 16, “Why 70% Tax Rates Won’t Work.”

He argues that I distort his proposal (though I wasn’t talking about his proposal) and ignore his argument that, “Giving the middle class more purchasing power by lowering its rates while raising the rates at the top will help spur [economic] growth.”

This strikes me as a futile effort to change the subject.  Since I proved that past tax rates of 50-70% on relatively modest incomes raised less revenue than a top tax rate of 28%, how could Reich’s proposal of 50-70% rates at incomes above $500,000 raise more revenue?   And if 50-70% tax rates would not raise more revenue, then how could he possibly promise “substantial rate reductions [actually a refundable tax credit] for people with incomes under $100,000”?  

The original draft of my article was not focused on Reich, but included others − including two of his Berkeley colleagues (Brad DeLong and Emmanuel Saez) who recently suggested a tax rate of 70% would be “revenue-maximizing.”  The details of Reich’s proposal were not in the blog I quoted, but such details have no relevance to any points I made.

Only after top tax rates came down, I noted, were we able to afford very substantial reductions in taxes for people with incomes under $100,000.  Since President Reagan took office the average income tax rates have become negative for the bottom 40% and were cut in half for the “middle class.”   In 1980, when top tax rates were 70% and nearly 40% on capital gains, such rates brought in so little revenue that the Feds were compelled to tax low and middle-income families quite heavily to bring revenues up to the normal 8% of GDP.

At his blog, Reich argues that, “Reynolds bends the facts to make his case. The most important variable explaining the rise and fall of tax revenues as a percent of GDP has been the business cycle, not the effective tax rate. In periods when the economy is growing briskly, tax revenues have risen as a percent of GDP, regardless of effective rates; in downturns, revenues have fallen.”

For that to work as an explanation of why individual tax revenues were higher when the top tax rate was 28% than when it was 70-91%, Reich is logically obligated to argue that the economy was growing more briskly when the top tax rate was 28% than when the top tax rate was 70-91%.  Contradicting his own logic, however, Reich instead claims that “Giving the middle class more purchasing power by lowering its rates while raising the rates at the top will help spur growth.”

Reich is not proposing to add new tax rates to 50-70% on salaries, dividends and capital gains because he believes it will raise more revenue (my data show otherwise), but because he believes it will raise the growth of real GDP.   This is breathtaking. Reich should be glad that I ignored his “central argument” about super-high tax rates boosting economic growth by taking income from those who earned and giving it to those more likely to squander it.   I was just being too polite.

Within his hyper-Keynesian lawyer’s brief, Reich is logically required to argue that top tax rates of 70-91% (1) raised revenue, and that (2) this imaginary added revenue allowed imaginary tax reductions on poorer people with a lower propensity to save.  He must then arrive at the logical conclusion, which is that (3) the average savings rate must have been much lower when top tax rates were 70-91% than since 1988 when to tax rates have frequently been 28-35% and as low as 15% on capital gains and dividends. A low savings rate, in Reichian theory, is what makes the economy grow.

My article proved the first two premises are false.  High statutory tax rates on the rich generated less revenue, and the poor and middle classes paid much higher taxes as a result.

The third premise of Reich’s brief is key to the Keynesian fable about growth depending to incentives to consume rather than incentives to produce.  Once again, the facts are the exact opposite of what Reich imagines. The personal savings rate was 9% from 1959 to 1981 when top tax rates were 70-91%, and 4.5% from 1988 to 2007 when top tax rates were 28-39.6%.

Reich’s comment that “the richest 1% of Americans got 10% of total [pretax, pretransfer] income in 1980, and get more than 20% now” refers to income reported on individual tax returns, assembled by Thomas Piketty and Emmanuel Saez.   When top tax rates went way down, particularly in 1988, 1997 and 2003, the amount of reported income and capital gains went way up.  As Saez explained in the 2004 issue of Tax Policy and The Economy (MIT Press, p.120): “Top income shares … show striking evidence of large and immediate responses to the tax cuts of 1980s, and the size of those responses is largest for the topmost income groups.”   That is why revenues from high-income households went way up rather than down, and why it then became feasible to hand out refundable credits to the bottom 40% and cut tax bills in half for those earning less than $100,000.

Reich would apply his 50-70 % tax rates to reported capital gains and dividends, which is a surefire way to make taxable capital gains and dividends vanish from tax returns.  No high-income taxpayer can be compelled to sell property or financial assets for the sheer joy of paying 50-70 % of the gain to the IRS.  No investor can be compelled to hold dividend-paying stock rather than tax-free bonds.  

With the enormous amount of revenues lost under the Reich tax proposal, we would have no choice but to revert to the pre-1986 stingy personal exemptions and standard deductions while also repealing the Bush child credit and the vastly expanded earned income tax credit.