Rev. Huckabee at CPAC

A Feb 8 memo from Mike Huckabee’s campaign chairman and manger, Ed Rollins and Chip Saltsman, explained how the Governor expected to win the Republican nomination. “Governor Huckabee has done best among hardcore Republicans, the activist base. That’s one reason why we are looking forward to Governor Huckabee.s speech to the legendary CPAC, the Conservative Political Action Conference, in DC … You’d better believe that the folks gathered at the OmniShoreham hotel are the go-getters who make or break primary elections. Just wait till they get a load of Mike Huckabee! … And now, with the endorsement of Dr. James Dobson, who is the ‘gold standard’ of social conservatism, we fully expect that Movement Conservatives – those who fight the good fight on Life, on Marriage, on the Second Amendment – will increasingly rally to our cause.”

Gov. Huckabee, exuding all the charm of a southern preacher, told CPAC that he wasn’t schooled in math (or economics), he was schooled in miracles. But even miracles did not produce good math, even with that crowd. A straw poll of presidential favorites among 1705 attendees showed Mitt Romney first with 21% of the vote, followed by Rudy Giuliani at (17%), Sam Brownback (15%) and New Gingrich (14%). Huckabee was an also-ran among “go-getter conservatives who make or break primary elections,” even though he’s the only one running.

Stirring so much religion into politics seems to make even conservative activist nervous. Let the radical Islamists combine church and state –we prefer ours separate, thanks.

Or perhaps the CPAC activists were not persuaded that government agents trying to collect a 30% sales tax would be any gentler or less intrusive than IRS agents. Abolishing the IRS may sound great until you realize that collecting a huge sales tax at the retail level means the government would have to snoop into everything you buy or sell. And, no, the constitution does not grant feds the police power to force state tax collectors to do such dirty work.

There have been some excellent op eds questioning the Fair Tax in The Wall Street Journal by Bruce Bartlett last August 25 and Jerry Bower  on January 8.  Bartlett, a top Treasury tax official from 1988 to 1992, also wrote a solid longer paper on the topic. Disagree with them if you can, but don’t just shout them down. Logic and evidence tend to be more reliable than miracles.

I wrote to Bartlett and Bower saying they had courage to even mention the FairTax, since doing so always brings a flood of cultish email lecturing about the fairness of being fair and how unfair it is to say otherwise. Don’t bother sending such complaints to me, by the way – it now goes straight to my spam folder. Chances are, I’ve read a bit more about taxes than you have, and don’t really welcome any amateur lectures on the subject.

I just added the following comments about a explanation of “Huckanomics” (written by filmmaker Donovan Quinn) on the mikehuckabee.com site. I post it here on the off-chance that it might get, well, misplaced :

No economist would say, as such FairTax fans do, “With businesses no longer passing on the costs of payroll taxes and other imbedded [embedded] costs to their customers, retail prices will drop.” [although one implied that could happen if and only if wages fell too]

If that were true, then everything would be cheaper in states with no income tax, because all tax savings are assumed to be passed on to consumers. Yet the economists’ “Law of One Price” explains why the same good cannot sell for greatly different prices in two places, aside from shipping costs.

If businesses could simply pass on their income and payroll taxes by raising prices, why don’t we buy everything from tax havens which impose little or no direct taxes?

Why do we import anything from Germany and Japan, where income and payroll taxes are much higher than ours? Aren’t their higher income and payroll taxes embedded in higher prices? No, of course not. Business can’t just set prices wherever they like. Prices are set on global markets by supply and demand, not by average cost.

All taxes (including sales taxes) are borne by people in their capacity as suppliers of labor and capital – they can’t just be shifted at will by changing prices.

Experiments with sales taxes above 10% have always failed because intermediate (wholesale) transactions must be exempt to avoid multiple layers of taxation. With a high tax at the retail level, those with access to tax-free wholesale prices would have a huge incentive to sell on the black market. That is very easy with eBay and Pay Pal, and sellers do not have to be in the USA.

Taking a leap of faith is fine, but not when it comes to learning economics. That takes some work.

My 1991 Critique of Extended Unemployment Benefits

Some things never change. Another President Bush was ambushed with extended unemployment benefits shortly before another presidential campaign. Some data in this oldie are dated (though not wildly different from today), but the arguments seem worth another look:

The Cure for Unemployment
Alan Reynolds
The Wall Street Journal , October 3, 1991

Democratic Congressmen hope to make George Bush look like a hard-hearted villain because of his reluctance to spend an extra $6 billion to extend unemployment benefits beyond the usual six months. Yet the current job situation is scarcely an emergency. Unemployment was higher than it is today in all but two of the dozen years from 1975 through 1986. Today, the average spell of unemployment — 14 weeks — is still lower than it was even as recently as 1987. Half of the unemployed find new jobs in fewer than seven weeks.

The congressional push to extend unemployment benefits aims to help a relatively elite minority of the unemployed. Last year, only 39% of the unemployed collected any benefits at all. This was largely because about half of those unemployed did not lose their jobs. They either quit their jobs, were reentering the labor force after a prolonged absence or were young people who had not held jobs before. Another reason many unemployed do not qualify for benefits is that they already have another job lined up, and are just taking some extra time off between employers. Or, they find a new job within three weeks — the waiting period to qualify. And, of course, unemployed illegal immigrants are less than eager to register with government agencies.

Those who are not eligible for unemployment benefits rarely take six months or more to find a job. Conversely, those unemployed for long periods are usually among those who do receive benefits, and often receive supplemental union benefits that can approximate their usual after-tax wages (particularly with some casual labor “off the books”). Moreover, cyclical layoffs account for most of the long-term unemployed, who, because of their seniority, have good reason to wait to be recalled.

Robert Topel of the University of Chicago figures that unemployment benefits could be extended to an entire year without spending another dime. How is that possible? Simply make people wait four weeks rather than three before they qualify for their first check. There are so many more people who collect benefits for a few weeks than for a few months that the savings from that one week would cover the costs.

Regardless of how extended benefits are financed, though, the unemployment rate would surely be significantly higher than otherwise, simply because more people would be subsidized to remain unemployed for longer periods. Studies in the Monthly Labor Review have shown that those who have supposedly been “unable to find a job” in 26 weeks miraculously find one within a few weeks after their benefits run out. They either quit waiting to be rehired in cyclical industries, or accepted second-best jobs that required, for example, moving to a new city.

Giving people almost a year to search for the “right” job could nonetheless be justified, in theory, because it is not in society’s interest to have many people working below their ability. But too long a period of subsidized job search is likely to reduce the intensity with which people look for work, and to delay economically desirable relocation of workers away from areas of high unemployment to areas where they are needed.

Another negative effect of prolonged benefits is that it would further subsidize employers that frequently lay off workers at the expense of those that do not. The tax employers pay for unemployment benefits is already too high, in an actuarial sense, on firms that provide stable employment, and too low on firms that do not. If layoff-prone employers had to bear more of the cost of the dole, they would adopt less volatile strategies of hiring and firing.

Over the longer haul, the more serious problem is not a shortage of jobs, but a shortage of people willing to work at the after-tax wages offered. From 1980 to 1989, the percentage of working-age people who were either working or looking for work rose from 63.7% to 66.5%, as marginal tax rates fell. But labor force participation rates began to dip at the start of 1990, and have now fallen back to 66.2%.

Many wives with working husbands, young people living with parents, and people of early retirement age have simply dropped out of the job market since the 1990–91 increases in Social Security taxes and in marginal federal and state income tax rates. They are indeed “discouraged workers,” but they are discouraged because their added work brings little added after-tax income, not because they couldn’t find jobs if they tried. Leaving the labor force means not trying.

Considering that the economy emerged from recession only a few months ago, the percentage of the unemployed who have quit their jobs is quite high — over 12%, compared with fewer than 8% in 1982–83. And new jobseekers (graduates) account for an unusually small share of the unemployed — 8.4% at mid-year, compared with 13% in 1984. Like the decline in labor force participation, this suggests the problem is not simply a shortage of jobs, but insufficient incentive, after taxes, to accept job offers and stay on the job. Congress should be less concerned about subsidizing lengthy periods between jobs, and far more concerned about tax policies that are shrinking the labor force and the tax base.

What Newt Gingrich Can Teach Nancy Pelosi about Protecting Civil Liberties

I’ve got a new article in Reason taking the Democrats to task for their tepid defense of civil liberties. I suggest they take their cue from that noted civil libertarian Newt Gingrich, who in 1996 resisted President Clinton’s demands for expanded wiretapping powers:

Bush’s predecessor was also an ardent supporter of increased wiretapping authority. For example, on July 29, 1996, Bill Clinton unveiled a proposal to expand government surveillance by permitting the use of “roving wiretaps.” The nation was still reeling from terrorist attacks on the Atlanta Olympics and American barracks in Saudi Arabia, and many suspected that the explosion of TWA Flight 800 was also the work of terrorists. Clinton argued that these tragedies highlighted the need for legislative changes, and he pressed Congress to act before its August recess.

But Congress had a bipartisan tradition of its own to defend. As they had done since Watergate, Congressional leaders raised concerns about civil liberties. Then-Speaker Newt Gingrich said he was willing to consider changes to the law, but vowed to do so “in a methodical way that preserves our freedoms.” Senate Majority Leader Trent Lott vowed that Congress would not “rush to a final judgment” before going on vacation. In the end, the 104th Congress finished its term without giving President Clinton the wiretapping authority he sought.

Today’s Democratic Congress has been far less protective of Americans’ privacy rights. Last August, in a virtual repeat of the events of 1996, Bush demanded that Congress approve expanded wiretapping powers before going on vacation. This time, Congressional leaders showed few qualms about “rushing to judgment.” Indeed, both houses of Congress approved the White House’s preferred legislation with minimal changes within three days of its introduction.

Meanwhile, it seems to be Opposite Day over at the Heritage Foundation, as they chide U.S. senators who want to “include measures in an otherwise bipartisan reform of FISA that would punish US companies that helped US intelligence agencies.” Of course, these senators’ proposals wouldn’t punish anyone; they would merely remove provisions that excuse companies for breaking laws that are already on the books. The companies will only be punished if they broke the law.

Heritage says that these companies “cooperated with government requests to ignore possible technical violations of FISA’s outdated provisions.” That’s a lot of adjectives for one sentence, but it doesn’t change the fact that breaking the law — even a “technical,” “outdated” law — is illegal. I find it surprising that Heritage scholars, who are normally strong champions of the “rule of law” would enthusiastically push the theory that following the law is optional or that the president — who takes an oath to “take care that the laws be faithfully executed” — has the power to authorize other people to break the law on his behalf. He doesn’t, and it would set a dangerous precedent to let those who relied on such assurances off the hook for breaking the law.

Better Late Than Never

I was getting a little concerned about the portentous silence from the administration in response to the U.S. sugar industry’s proposal to manage trade in sugar between the United States and Mexico (more here and here). Like toddlers in another room, silence often means trouble when it comes to the government: they must be up to something.

A swift, clear rejection of the proposal might have instilled more confidence, but today’s statement by Secretary of Agriculture Ed Schafer and United States Trade Representative Susan Schwab rejecting the proposal was welcome all the same. The positive part:

[T]he Administration cannot support recent sugar policy recommendations and will oppose efforts to implement them through legislation.

And the ominous:

We believe we have the tools and the cooperative relationships with the Government of Mexico to ensure the further smooth integration of our sweetener markets.

The use of the phrases “cooperative relationships” and “smooth integration” are not encouraging.

Airport Security Technology Stuck in the Pipeline

The Washington Post has a story today on the slow pace of progress in airport security technology. We would see faster development of better, more consumer-friendly security technology if the airlines were entirely responsible for it. Here’s a glimpse of what I said about this in an written debate hosted by Reason magazine a few years ago:

Airlines should be given clear responsibility for their own security and clear liability should they fail. Under these conditions, airlines would provide security, along with the best mix of privacy, savings, and convenience, in the best possible way. Because of federal involvement, air transportation is likely less safe today than it would be if responsibility were unequivocally with the airlines.

Would Telco Immunity Be Unconstitutional?

Via EFF, a fascinating article on the possible constitutional issues raised by the push to give telecom companies retroactive immunity for illegal surveillance. Anthony Sebok points out that the courts have historically held that plaintiffs in tort suits have a constitutionally-protected property interest that the court cannot wipe away without compensation. I’m not a constitutional lawyer, so I won’t venture an opinion on whether his argument is right or not. But I think it does remind us of an important fact: the plaintiffs in these lawsuits are real people whose rights have allegedly been violated by these companies.

The FISA debate raises a lot of interesting policy questions about the appropriate relationships among the government, the courts, and the telecom industry. But while those questions are important, we shouldn’t lose sight of the fact that this debate is also about a contractual relationship between those telecom companies and millions of ordinary customers. Customers had a reasonable expectation that those companies would not share their private data with third parties unless doing so was legally required. It appears that certain large telecom companies may have violated that trust. If so, it seems to me that the customers should have their day in court.

Big-Gov Bush and America’s Ivory Tower

Today the House of Representatives is debating a terrible bill to reauthorize the Higher Education Act (HEA), the primary federal law governing America’s ivory tower. The legislation would, among other things, force states to keep up their higher ed spending to get federal money, forgive loans for people in myriad “public service” jobs, and interfere with private student loan markets.

The good news in all of this could be that the Bush administration opposes the measure. But then we see why that isn’t a silver lining: As Secretary of Education Margaret Spellings makes clear in an op-ed in today’s Politico, the administration dislikes the law because it would prohibit the Department of Education from forcing standards and testing requirements on the nation’s diverse colleges and universities. In other words, it would prevent Spellings from imposing No Child Left Behind on the Ivy League.

It’s the overall tragedy of the Bush administration in microcosm. Sure, they’re fighting the Democrats, but to get more government interference, not less. And this push is extra sad because No Child Left Behind has, if anything, made matters worse in K-12 education, and in trying to blame higher ed for our problems Spellings herself actually hints that government-dominated elementary and secondary schooling is our real crippler:

They “get” where the U.S. is lagging behind, and they know the culprits: rising tuition costs, a burgeoning debt load and the fact that only half of all minorities get out of high school on time [italics added] and fewer than half of all adults have a college certificate or degree, when 90 percent of the fastest-growing jobs in America require post-secondary education.

No matter how much Spellings and Bush inveigh against it for being “unaccountable,” in very stark contrast to K-12 schooling American higher education is the envy of the world, and it got that way precisely because it is not very accountable to government. Rather than answering to a central authority and teaching what politicians think best, our colleges and universities are autonomous, our students are able to choose the schools that are right for them, and competition and innovation are unleashed.

Of course, there are significant problems with America’s ivory tower, such as rampant tuition inflation and great inefficiency driven by government subsidies, but they are actually minor in comparison to the troubles in countries with centralized higher ed. But rather than fix the problems we do have, unfortunately, the Bush administration wants to give us new ones that are much, much worse.