Topic: Government and Politics

Meet the New Boss, Same as the Old Boss

In his final press conference as Russian president, Vladimir Putin made clear yesterday that as prime minister he has no intention of playing second fiddle to his chosen successor, Dmitry Medvedev. “I have been president for eight years and worked pretty well. I won’t need to hang his portrait,” he remarked.

Putin added: “The highest executive power in the country is the Russian government, led by the premier.” One can’t imagine any of his prime ministers saying that and getting away with it during his presidency. He also made it clear he will remain prime minister throughout Medvedev’s turn in office, or for as long as “I am meeting goals that I myself have fixed.”

As if to emphasize that Putin will remain the real boss in the Kremlin, Russia’s new ambassador to NATO, Dmitry Rogozin, told the Financial Times, “Putin’s role will be as strong as ever.” Closely linked with Putin, Rogozin, a well-known nationalist politician, can even sound like the bullish outgoing president. Asked in the interview about Japan’s protest this week over a Russian bomber violating the country’s airspace, Rogozin joked: “It’s been a long time since the Japanese have seen the Russians in the air. They got quite a surprise.”

Putin’s marathon press conference yesterday was vintage stuff: he was full of his usual bluster. It was all in marked contrast and tone to Medvedev, who in a speech today in Siberia talked about how he wanted to improve relations with Russia’s neighbors. So it looks like we are going to see a routine of good cop, bad cop. Some analysts wonder if Medvedev will be prepared to play a secondary role to Putin. Will a divided power system emerge? My money is on Putin and his KGB friends to retain the upper hand.

Regarding Congressional Hearings on Baseball, the Glass Is One-Tenth Full

Andrew Coulson complained on this site yesterday about a House committee investigating steroids in baseball. Andrew sarcastically noted that the country must be in good shape if politicians are holding hearings on matters that have nothing to do with the legitimate functions of the federal government.

His analysis is correct, and politicians certainly deserve the scorn he tosses in their direction. But we should be careful what we wish for. If you watch this clip beginning at 3:50, I explain that there is a bright side to the committee’s ridiculous ploy to get TV coverage. Simply stated, every minute the politicians spend pontificating on baseball and steroids is one minute that they’re not using to create new taxes, increase spending, and add regulations.

Maybe next month, they can waste their time investigating Paris Hilton. Anything that keeps them distracted has to be good for the country.

Puncturing the Two-Americas Myth

John Edwards has dropped out of the presidential race, but the left continues to trumpet his class-warfare arguments. The two-Americas theme is endlessly regurgitated, particularly the notion that the rich are getting richer and poor are getting poorer (with the obvious implication that the rich are somehow causing greater poverty). These assertions have been repeatedly discredited (most recently by a Treasury Department study), but practitioners of the politics-of-envy seem impervious to factual arguments. So it highly unlikely that they will bother to read – much less understand – a powerful op-ed in the New York Times by Michael Cox and Richard Alm of the Dallas Federal Reserve Bank. Cox and Alm look at consumption data rather than income data and they find that there is only a modest difference in the living standards of the rich and poor:

…renewed attention is being given to the gap between the haves and have-nots in America. Most of this debate, however, is focused on the wrong measurement of financial well-being. …Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society. The top fifth of American households earned an average of $149,963 a year in 2006. …they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings. The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? …those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status. So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. …Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1.

Voters Refuse to Bear Teddy

Michael Tanner’s list of winners and losers from last night seems spot-on but it is incomplete in one regard – his list of losers leaves out the Kennedy clan. Despite the endorsement of Ted Kennedy, Massachusetts went for Clinton, surely one in the eye for the Bay State’s senior senator.

But then Ted Kennedy endorsements have never fared well in recent times. Since 1982 the Senator has had an unerring ability to back the loser when it comes to presidential races: those he supports either fail to win the party nomination or are beaten subsequently in the general election. Kennedy’s endorsements since 1982 have been: Dukakis, Mondale, Tsongas, Gore and Kerry. However, he did get it right in 1996, but that was an easy one.

The Kennedy clan was also dispatched to deliver latino votes in California for Barack Obama. A notable failure there, as well.

Thank You For Smoking

A central claim of those eager for restrictions on tobacco use is that smokers cost society more.

A new study from the Netherlands may help lay that oft heard chestnut to rest. The study shows that there would be no cost savings for governments and taxpayers from preventing obesity or reducing illnesses caused by smoking.

The study found, quite to the contrary, that healthy people cost more.

The study, undertaken by the National Institute for Public Health and the Environment in Holland, found that ultimately healthy people, who live on average four years longer than obese people and seven years longer than smokers, cost the health system about $417,000 from the age of 20 compared to $371,000 for obese people and $326,000 for smokers.

One of the economists working on the study commented: “if you live longer, then you cost the health system more.”

Super Tuesday Winners and Losers

A few thoughts in the wake of last nights elections:

Winners:

John McCain. He is clearly the front runner now. He might not have won big, but he won all the big states. And he benefits even more because his putative rival, Mitt Romney, was such a big loser. Now, can he mollify conservatives?

Mike Huckabee. He kept his vice presidential ambitions alive with a surprising showing. And he got to thumb his nose at Romney besides. But he is still a regional candidate with little appeal outside the south or evangelical circles.

Hillary Clinton. She held off the Obama wave (again), and won in the big states where she had to. The terrain going forward looks pretty good for her, with big states like Texas (Latino vote) and Pennsylvania (the Rendell organization) leaning in her direction.

Barack Obama. Both Democrats were winners. Obama won more states and may actually have won more delegates. The race will go on, which means there is more time for voters to reconsider the possibility of a Hillary (and Bill) presidency.

Losers:

Mitt Romney. He lost every contest he needed to win. Apparently, if you want to be the conservative alternative it helps to actually be a conservative. On issues ranging from health care to government spending, Romney was actually more liberal than McCain. Voters noticed.

Talk Radio. They said vote for Romney. Voters didn’t. They said a vote for Huckabee is a vote for McCain. Voters didn’t care.

Xenophobes. Once again the anti-immigration candidate didn’t win. The issue may play well on talk radio (see above) and on the far right of the Republican Party, but it doesn’t seem to move voters.

The Democrats. While attention has been focused on the divide in the Republican Party, Democrats are beginning to see fractures in their party. Exit polls showed that half of both Clinton and Obama supporters would be dissatisfied if the opposing candidate won. Michelle Obama says that she would “have to think about” whether she would support Hillary. If this goes the convention, it could get really nasty.

Pollsters. Obama with a 13 point lead in California? Romney leading by 7? Clearly, they need to go back and rework their models.

Limited Government. OK, John McCain is a fiscal conservative. But after that its pretty dismal. The choice on the Republican side was between three versions of big-government conservative. (Ron Paul was not a factor in any state). The Democrats seem to move further left every day. For those of us seeking limited government, it looks like a long election.

Larry Kudlow’s Question: “Is McCain Like Ike?”

Larry Kudlow, on last night’s CNBC show, remarked that I had e-mailed him comparing John McCain to President Eisenhower. One guest, Jerry Bower, realized this was not necessarily a compliment. He noted that Eisenhower Republicans kept tax rates extremely high on both individuals and business, viewing that as the “fiscally responsible” way to finance a big defense budget. The economy was in recession almost as often as not in those days – in 1953-54, 1957-58 and 1960. John F. Kennedy, Bower rightly noted, campaigned on slashing [Republican] tax rates to get the economy moving again. When tax rates were finally cut in 1964, it worked (as always).

The two parties switched sides recently, with Republicans adopting JFK’s approach by cutting the most destructive tax rates in 1981-86, and Democrats sounding and acting more like Ike since 1993. Similarly, FDR ran against Hoover’s protectionism in 1932, but Republicans and Democrats have taken turns being the most protectionist in recent years (the word “populist” in both parties often means advocating tariffs on necessities to further impoverish the poor).

The Eisenhower-Nixon years defined the phrase “fiscal conservative.” If Democrats spent too much, a “fiscal conservative” would regard it as his duty to do the honorable thing and raise tax rates as much and as often as required, if only to protect the military budget.

My quick e-mail to Kudlow is reproduced below, warts and all. It is obviously more opinionated and political than my public writing, yet not really partisan:

Larry,

McCain would be eager and enthusiastic to join with past co-authors – Kennedy, Edwards, Lieberman and Feingold – to raise tax rates on high incomes, capital gains, dividends and estates.

McCain could surely be persuaded to remove the cap on the Social Security tax. That move, added to a state-local marginal rate above 45%, would make the top tax in the U.S. much higher than in any other civilized country, including Sweden (which has the least progressive tax system of them all). Many European countries allow the payroll tax to be deducted from the income tax, but it’s a nasty add-on for us. It’s loosely tied to benefits, but Social Security would become a pure redistribution scheme if they uncapped the tax.

All the Democrats need to do in exchange for such higher tax rates on the rich is to offer to “fix” the AMT (to make sure it just hits the rich) and cut the nominal corporate tax rate (after “closing loopholes” like quick depreciation), and also to fund any and all U.S. troops in the Middle East.

In McCain’s view, this would be another bold act of leadership, like pushing McCain-Feingold after being tarnished as a member of the Keating Five.

It would show how marvelously bipartisan he is, how fiscally responsible, unlike that upstart George W. Bush. I can see the smug grin even now.

Recall Ike’s excess profits tax and 90% tax rates to bankroll the Korean “police action.” McCain is a reincarnation of Ike. He sees great national honor in (taxpayer) sacrifice, compulsory national service, etc. You may recall a WSJ column I wrote calling the Rubin crowd “Eisenhower Democrats” in contrast with Kemp and the “J.F. Kennedy Republicans.” It caused Bill to yell at his staff, but they still didn’t get it.

All that matters to McCain is a big military/VA budget. He does hope to be frugal on domestic discretionary spending, but can’t accomplish nearly enough with a Democratic congress to offset even 10% of military spending at the Bush pace (which he sees as inadequate).

Besides, he feels, big corporations and greedy investors need to sacrifice for the common good. He always said so., and he hasn’t changed. The only reduction in tax rates he supported in recent years was cutting payroll taxes for the poor (nearly all of whom don’t work, so that’s a cheap gesture).

In a WSJ interview with Tunku, Milton Friedman once said some people are natural economists. I spent a couple of hours with Mitt and large group of the best economists I’ve ever seen in one room, even the White House. Romney held his own quite well. Very credible, wise and tough on big spenders.

I didn’t sign on to any candidate’s team (Doug called too), partly because I want to remain an unpredictable maverick. McCain is 100% predictable – no maverick at all.

If it ended up being a contest between McCain-Huckabee populists on the Republican ticket versus a familiar Obama-Richardson shift from defense to nondefense spending (always popular, always overdone), Republicans would not view my writing as helpful.

The only comfort is that if the Dems controlled the White House, Senate and House, they’d go overboard quickly and lose control of Congress after 2-4 years.

The 2011 tax time bomb would actually explode beneath John or Hillary, leaving the market in shambles in 2010 and the economy in ruin in 2011. Mitt is not that suicidal – he’d like a second term.

Alan Reynolds