The Real Story from the Interview with Saddam’s Interrogator

There’s been a decent bit of buzz over the 60 Minutes interview that ran last night with George Piro, Saddam’s Arabic-speaking interrogator. To my mind, though, there wasn’t too much new information in the piece. This, however, while not new, is as alarming as it’s ever been:

out of 10,000 FBI agents, only about 50 speak Arabic.

You go to war with the FBI you have, to be sure. But the fact that the administration has spread these people as thinly as possible by opening new fronts in the struggle against terror at every opportunity is a truly dark legacy.

Despite Losing Business to Flat Tax Neighbors, Hungarian Politicians Clinging to High Tax Rates

The Budapest Times has a feature story noting that many of Hungary’s neighbors have simple and fair flat tax system and wondering whether the nation can afford to retain a system base on high tax rates:

Bulgaria and Albania joined Russia, Slovakia, Romania and nine other Central and Eastern European countries by adopting a flat tax system at the beginning of the year. Four of Hungary’s seven neighbours have already chosen the flat tax option. In fact, flat tax is now the preferred system among the post-communist economies of Central and Eastern Europe. Is Hungary – already suffering the lowest rate of economic growth of the new EU member states – in danger of being left behind? …To western Europeans, this may sound like the utopian stunt of a madman, but in fact flat tax policies – until recently little more than a theoretical notion dreamt up by economists – have rapidly caught on in the developing economies of central and Eastern Europe since Estonia opted for the novel system in 1994.

In addtion to explaining how the flat tax improves tax compliance, the article notes that many companies are relocating in Slovakia because that country’s tax system is much more conducive to productive activity. The Hungarian fiscal system, by contrast, is very punitive:

With a flat rate of tax, regardless of how much a person earns, he pays the same proportion of his wage to the state. With progressive tax, a pay rise can lead to an increase in the percentage claimed by the government. …a simple, low-rate tax which is easy to collect and difficult to evade is likely to raise more money than a high-rate tax system that is full of loopholes and which nobody fully understands. …Compare Hungary with Slovakia. Hungary’s northern neighbour has opted for the purest of flat tax systems. Employers’ and employees’ income tax contributions are fixed at 19%, as is corporate tax and even VAT. Thousands of Hungarian companies have already relocated their headquarters to Hungarian-speaking southern Slovakia – not only are taxes lower, but accounting has been made child’s play. Hungarian employers must pay 16% income tax and 29% social security on payroll, while employees pay between 18% and 36% income tax plus a host of social and other contributions. The net result of this is that the government receives up to double what the employee takes home. 

Even though Hungary’s growth rate is sluggish and the nation is losing jobs and investment to other nations with better tax systems, the politicians are stubbornly refusing to join the flat tax revolution. This is bad news for Hungary’s workers:

The small, conservative opposition party the Hungarian Democratic Forum has long been calling for the adoption of a flat tax model. Party leader Ibolya Dávid argued last year, when the Czech Republic chose to follow its southern neighbour Slovakia into the flat tax world, that Hungary risks losing out in the battle for foreign investment and lagging behind if it does not follow suit. …Earlier this year, it was reported that two of four possible alternatives included the adoption of a flat tax model. However, last week Magyar Hírlap reported that the cabinet working group had ruled out any such move.

WaPo’s Marc Fisher on O’Malley’s REAL ID Misstep

Today Washington Post columnist Marc Fisher takes Maryland governor Martin O’Malley (D) to task for needlessly committing his state to implement REAL ID, the national ID law.

Fisher recognizes that REAL ID will not prevent illegal immigration, but will merely foster deepened criminality: “Maryland’s highways will soon gain tens of thousands of unlicensed motorists, thanks to an abrupt reversal by Gov. Martin O’Malley.”

O’Malley backtracked on campaign commitments to keep Maryland an immigrant-friendly state when he announced that the state would link driver licensing and immigration status. Somehow O’Malley and his secretary of transportation, John Porcari, convinced themselves (and apparently Fisher) that REAL ID requires them to refuse licenses to illegal immigrants, and that moving toward REAL ID compliance would allow them to avoid standing out:

Porcari says Maryland was forced to reject the two-tier system [in which the state would still license illegal immigrants] not because the governor is suffering from low popularity and wants to glom onto the anti-immigrant movement but because “the national landscape is shifting” and Maryland could have found itself nearly alone in resisting Real ID. But seven states are refusing to comply with Real ID, and 17 have condemned the law, which was passed after the 9/11 attacks and requires states to conduct time-consuming identity checks.

States can issue licenses to anyone consistent with REAL ID. Licenses that don’t meet the federal law’s strictures would simply have to be labeled as such.

On O’Malley’s pre-commitment to REAL ID, there are two possibilities. One is that Governor O’Malley and Secretary Porcari actually don’t understand what REAL ID requires and are ignorant of sentiment about the law among sister states. The other is that O’Malley, indeed, has abruptly reversed his professed friendliness toward immigrants.

Will the UK Chase Away the Geese with the Golden Eggs?

Allister Heath has an excellent column in the Spectator explaining how Gordon Brown’s class-warfare policies will discourage successful foreigners from moving to the United Kingdom.

London will be hit particularly hard because the attack on “non-domiciled residents” will be augmented by higher capital gains taxes and policies to discourage British expatriates from spending too much time (and money) in the city.

But some people will benefit. Swiss realtors are probably delighted with Brown’s self-destructive proposals, since many highly-productive people will now be looking to relocate to tax-friendly jurisdictions:

[T]he Treasury now admits that 3,000 non-dom expats will leave Britain in April, when the changes, including a £30,000 annual poll tax, are due to kick in. This is a truly remarkable admission, of which far too little has been made. Given how hard all economies, including Britain, strive to attract high-net-worth investors and the highly skilled these days, it is difficult to fathom why any government in its right mind would wish suddenly to begin penalising those it has sought to woo for so long. What is most absurd about this is that the Treasury readily acknowledges, in the very same document laying out its tax hike plans, that ‘in an increasingly globalised economy it is crucial for the UK’s competitiveness that the UK continues to attract international talent to this country’.

…[T]he assault on the non-doms is going hand in hand with a hike in capital gains tax, a rise in corporation tax on small companies, and a crackdown on the 29,000 non-residents who commute most weeks from Monaco or the Isle of Man. All of these changes add up to a simple message to the skilled, hard-working and above all footloose international talent to which today’s Britain owes so much of its success: don’t bother coming here, we don’t value you any longer.

…Tax lawyers are starting to warn their clients seeking to relocate to Britain that the current volley of tax hikes is likely to be merely the thin edge of a much more punitive wedge. Brown’s attack on the non-doms could easily become Brown’s very own Sarbanes-Oxley, the ultra-onerous piece of post-Enron legislation in America which chased away hundreds of companies to more welcoming shores. But what is most distressing to non-doms currently based in the City, and to many of those considering moving here, is that the Tories support an almost identical policy.

Keeping up Appearances in Higher Education

Over the last few days there’s been quite a to-do about colleges and universities with endowments that, in the case of wealth-leading Harvard, could buy almost eight aircraft carriers, nearly 1.7 million Toyota Priuses, or about 87 million 16GB iPod Touches. Just yesterday, in fact, Senators Max Baucus (D-MT) and Charles Grassley (R-IA) sent a letter to the 136 top colleges and universities on the latest endowment ranking asking what, exactly, all their booty was going to, and why it wasn’t being used to keep tuition down.

Grassley especially has been on a crusade over the last year-or-so to cajole wealthy institutions of higher education into keeping tuition down by spending from their endowments. If they don’t, he has threatened, federal law might be changed so that they have to spend 5 percent of their endowments annually to keep them tax exempt.

While it is absolutely legitimate to argue that government shouldn’t give preferential treatment to wealth hoarders, this is political grandstanding. Politicians use higher education as one of their greatest sources of middle-class bribery, and all the aid they lavish on students is almost certainly a much greater tuition inflator than tight-fisted endowment managers. Moreover, while Harvard has a ton of money, very few of the nation’s over four-thousand degree-granting institutions have even close to the kingly Crimson sum: only 19 have sufficiently hefty endowments to buy even one aircraft carrier, only 76 have endowments exceeding $1 billion, and most have either small endowments or none at all.

Interestingly, at almost the same time the annual endowment ranking came out, an article was published in Change magazine that gives the lie to one of the biggest justifications offered for throwing public money at students and schools: to survive in the flat world, almost everyone will need a college education. The final report from the Secretary of Education’s Commission on the Future of Higher Education put it right up front, declaring that, “ninety percent of the fastest-growing jobs in the new knowledge-driven economy will require some postsecondary education” and therefore “colleges and universities must continue to be the major route for new generations of Americans to achieve social mobility.”

According to Paul Barton, an analyst at, of all places, the SAT-producing Educational Testing Service, the notion that we’ll need vastly more college-educated people to fill the future workforce is pretty much bunk. He breaks down many workforce projections to make his point, and you should read his whole piece, but I’ll give you just one glimpse of why you shouldn’t take a politicized statistic like the one trumpeted by the higher education commission and make policy based on it:

Looking…at the 10 occupations with the fastest or highest rate of growth, six of the 10 require either an associate’s or a bachelor’s degree; the other four require from short-term to moderate-term on-the-job training. But looking at the projected increase in the number of jobs in the 10 fastest-growing occupations, 61 percent of those new jobs will not require college and 39 percent will. 

Even among the fastest growing jobs, it turns out, most positions won’t require any college education, which means that policymakers are wasting a lot of resources shoveling money into student aid and creating cozy conditions for colleges on the grounds that they need to ensure that more and more people can afford a college education. Don’t expect, though, to hear about that from any senators, colleges, or students. After all, like normal human beings, it’s not really what’s best for the country that they’re after, but what’s best for themselves.

Stimulus: Kindergarten Keynesianism

It is very curious that some top economists are pushing the Bush/Pelosi $100 billion stimulus giveaway.

  • For years, these same economists told us that more savings is good for the economy. Now they are saying that more consumption is good.
  • For years, these same economists have lambasted the budget deficit. Now, they support blowing a new $100 billion hole in the federal budget.
  • Finally, many economists have long complained that Americans are shopoholics and have far too much credit card debt. Now stimulus-supporting economists are demanding that Americans spend, spend, spend!

It is surprising that anyone takes economists seriously anymore.

Anyway, stimulus proponents say that mailing $100 billion of cash to families will cause the nation’s output to grow. Yet this simple Keynesian chart illustrates that the result will be higher prices, not more output.

The stimulus causes the aggregate demand curve to shift to the right, as proponents suggest. That moves us along the aggregate supply curve, which I believe should be drawn vertically in this case. The result is that prices jump up from P1 to P2, but output does not rise.

Stimulus proponents would argue that the aggregate supply curve should be sloped, at least in the short run. In that case, the figure would show a temporary bump upwards in output.

But that seems unlikely to me. Keynesian theories about why output might increase usually rely on imperfections in markets or information. Producers get fooled into increasing their output for a while, before the errors are worked out and output falls back to its long-term level.

But that wouldn’t seem to be the case here. Let’s say the rebate checks get mailed out in May and June. A U.S. cigarette producer may notice a slight uptick in sales in those months as smokers spend their government checks. But cigarette producers probably watch the news and they will know that this is just a temporary blip. As such, they won’t add any new workers or buy any new machines.

So output would stay pretty fixed, while prices would adjust upward slightly to clear markets. But I don’t claim to be a Keynesian expert, so if one of our Keynesian readers wants to tell me where I’m wrong, I’d be happy to hear it. Until then, I remain convinced that the Bush/Pelosi scheme is crack-pot.