Petraeus and Iraq: The Story vs. the Headlines

Headline writers at several major newspapers have chosen to highlight Gen. David Petraeus’s proposal to reduce the number of troops in Iraq by 30,000, essentially returning the presence there to pre-surge levels.

  • “Petraeus Backs Partial Pullout,” proclaims the print edition of today’s Washington Post.
  • “Petraeus Eyes Troop Reductions,” blares the Washington Times.
  • USA Today’s lead story appeared under the slightly more qualified headline “General Plans Cut in Troops as Tension Rises over Timing.”

But these headlines obscure the true story behind Petraeus’ and Amb. Ryan Crocker’s testimony yesterday and today. Greg Jaffe and Neil King, Jr., at the Wall Street Journal do a better job of fixing on the essential unanswered question: How quickly will the pullout proceed beyond July?

Members of Congress have tried to get at this issue, but Petraeus and Crocker have – so far – deftly parried these questions. Not knowing the answer, we are forced to rely on a speculative but, I think, ultimately accurate assessment by Karen DeYoung and Tom Ricks on the front page of the Post:

“If Gen. David H. Petraeus has his way, tens of thousands of U.S troops will be in Iraq for years to come.”

Will he get his way? It will be up to the next president to decide. George Bush has already made up his mind: for as long as he is in the Oval Office, we’re staying.

You Know It’s a Dark Hour When…

…you’re having wistful fantasies about staff meetings. In all seriousness, though, there’s great news: once imprisoned by Iran, Wilson Center scholar Haleh Esfandiari is back at home in Washington–and back at work at the Wilson Center. But as she says, during her stint in Evin prison, she was indeed dreaming about being back at Wilson Center staff meetings:

I had blocked, you know, thinking about my husband, my daughter, my grandchildren, the house; I blocked all that out because that would have led me to despair. So, for eight months, or for the four months in prison, I didn’t think about it.

I dreamt of my first staff meeting at the Wilson Center. (Laughter.) I seriously did. I really did that, I said, OK, I would [not] tell anybody I’m in town … I would open the door Monday morning at 9:00, walk in to the staff meeting and everybody [would say], “She’s here!”

Full transcript of Esfandiari presser here. (.pdf)

Ramesh Ponnuru Joins the Anti-Universal Coverage Club

From his excellent article [$] on health care reform in the most recent issue of National Review:

No matter how cheap free-market reform made basic insurance policies, some people, chiefly the young, would not buy them. Republican reformers are divided about what to do about these holdouts. Some of them believe that they should be forced to buy insurance, so that they would not visit emergency rooms and send everyone else’s premiums higher. Others argue that the premium increase is small, and the risks of mandatory coverage large. The Urban Institute estimates that uncompensated care is less than 3 percent of health spending. Eliminating that cost through forced coverage would require the government to define a basic benefits package, which would be an invitation to provider groups to lobby the government to re-create the mandates that state governments have piled on insurance. My own view is that, in a fairly free system, the holdouts should be left to do as they please.

Click here for more on the Anti-Universal Coverage Club.

British Tories vs. Freedom

Margaret Thatcher is probably shaking her head with disgust that the Tories have become so vapid that the Party apparently is poised to support a ban on appliances such as plasma TVs because they use “too much” energy. The Sun also reports that the Tory working group wants to use a new measure of GDP based on nebulous indicators of happiness (which is probably a wise step since actual GDP probably will shrink if the Conservative Party ever wins another election and gets the chance to implement its nanny-state agenda):

The Conservatives will propose banning plasma screens and other energy-guzzling electrical goods in a report to be unveiled next week. The proposals target white goods like fridges and freezers, as well as TVs, personal computers and DVD players that use too much energy or operate on stand-by. …The group will also suggest scrapping Gross Domestic Product (GDP) as a measure of the nation’s success in favour of a model that measures people’s happiness drawn up up by Friends of the Earth. Under the proposals, a cap could be set on the energy use of each electrical appliance, and those exceeding limits could be banned from sale in the UK. …The proposals are set to be unveiled on Thursday in the final report of the Tories’ Quality of Life Policy Group, chaired by former Environment Secretary John Gummer and green activist Zac Goldsmith, a Conservative spokesman confirmed.

Topics:

Nanny-State Food Police Run Amok in Los Angeles

In an effort that probably is facilitated by behind-the-scenes payments from already-established restaurants seeking to stifle competition, the LA City Council is looking to ban new fast-food restaurants in some neighborhoods. An article in the LA Times explains that state politicians already are micro-managing school menus, while a Republican member of Congress – seeking to out-do Democrats in concocting new responsibilities for the federal government – actually has a bill that somehow would seek to make nutritious foods more available to poor people:

Los Angeles officials, among others around the country, are proposing to limit new fast-food restaurants – a tactic that could be called health zoning. The City Council will be asked this fall to consider an up to two-year moratorium on new fast-food restaurants in South L.A., a part of the city where fast food is at least as much a practicality as a preference. …”

While limiting fast-food restaurants isn’t a solution in itself, it’s an important piece of the puzzle,” said Mark Vallianatos, director of the Center for Food and Justice at Occidental College. This is “bringing health policy and environmental policy together with land-use planning,” he said. “I think that’s smart, and it’s the wave of the future.” …

A California law banning sugary drinks and limiting the fat and sugar content of foods sold in middle and high schools took effect in July. And the state enacted legislation last year to increase the purchase of fruits and vegetables to be sold in corner stores in lower-income communities. Rep. Mary Bono (R-Palm Springs) introduced a bill in Congress in June that, among other things, would try to increase the availability of nutritious foods in economically depressed areas.

Topics:

Tax Competition Pushing Taiwan to Cut Corporate Tax Burden

The global shift to lower tax rates is continuing, with Taiwan’s government announcing its intent to reduce the corporate rate to at least 16.5 percent. Tax-news.com reports:

A senior finance ministry official has indicated that the Taiwanese government is keen to cut the country’s rate of corporate tax to attract more investment… Chang Sheng-ford announced on Wednesday that the 25% corporate tax rate could be cut to 16.5% or lower, but revealed that this would not happen until the Statute for Upgrading Industries has expired in 2009. …A cut in corporate tax to 16.5% would put Taiwan on a par with Hong Kong, perhaps the most successful economy in the region.

The Economist vs. Cato on Gasoline Taxes

With the Pigou Club now having gone silent in the debate over the federal gasoline tax launched by our study of the same last month, the only party left standing to hold the flag for the federal gasoline tax is … The Economist. I hope the former reemerges for a more sustained conversation sometime down the road, but until they do, let’s consider the latest riposte from our favorite news weekly.

The Economist seems to agree that a federal gasoline tax is a very clumsy and inefficient way to deal with the negative externalities associated with driving. So far, so good. But then they claim:

The discussion over taxation of carbon emissions from tailpipes … comes down to arguments over cost efficiency (a gas tax may well be preferable if the cost of assessing emissions for tax purposes is too high).

Maybe I’m not reading this right, but is The Economist seriously entertaining the argument that it might be more efficient to tax carbon emissions via a gasoline tax than via a cross-sector carbon tax? Econometric investigations suggest that it’s twice as costly to reduce carbon emissions via taxes confined to the transportation and electricity sectors than via taxes imposed across the economy as a whole.

Perhaps The Economist meant to say that “The discussion of taxation of conventional pollutants from tailpipes comes down to argument over cost efficiency.” If so, that’s different … and fine. If the costs associated with monitoring and collecting information regarding tailpipe emissions were high, there would be room for an argument for gasoline taxes as a “second-best” remedy (a point we explicitly concede in our paper).

Even so, repairing to a gasoline tax as a second-best means of addressing environmental externalities still does not suggest the need for federal taxation. State or local taxation would be far better for reasons discussed in our paper.

The Economist then moves on to take issue with our most unconventional argument – that even perfect internalization of the negative externalities associated with driving via some set of Pigouvian taxes would make the economy less efficient because it would induce greater use of mass transit. Additional mass transit use is less efficient at the margin because the literature suggests that the discrepancy between costs and charges to users associated with mass transit use are even greater than those associated with automobile use.

The Economist makes four arguments. Argument #1:

The first and most obvious point is that a carbon tax and congestion pricing will quite obviously have the same effect on transit use, other things equal, as an increased gasoline tax … If a reduction in transit use is Mr Taylor’s guiding principle, then I fear his prescriptions are misguided.

A reduction in transit use is not my guiding principle. Nor do I prescribe carbon taxes or other emission taxes. We are instead making an If/then argument. IF one wants to internalize the negative externalities associated with driving (pollution, congestion, carbon dioxide emissions, whatever), THEN one should tax those externalities directly rather than indirectly via a tax on fuel consumption.

Sure, we could have stopped there, but many economists embrace Pigouvian taxes because they think they would improve economic efficiency. But according to Cliff Winston’s work, if all transportation options were priced optimally, there would be more automobile use and less mass transit use. Thus perfect Pigouvian taxes on automobile use but no reforms in mass transit pricing (i.e. reforms that would make users pay more of the costs) would have the paradoxical effect of making the economy less, not more, efficient.

So we are giving serious economists – including those of the Pigouvian variety – two very good reasons to oppose a federal gasoline tax. Either one will suffice.

On to argument #2:

Those cited authors [and by this, The Economist is referring to Mark Delucchi and Clifford Winston, whose work we highlight in our study] do make a very compelling case that transit is inefficient relative to automobile use, so long as you take as given the billions of dollars in annual government highway spending and eliminate that spending from your calculations. And that is exactly what the cited authors have done. The Washington Post reported this week that annual federal spending on highways is now over $40 billion, which is, of course, in addition to the billions spent by state and local governments on the construction, maintenance, and policing of roads. Include those figures in the analysis, and the inefficiency argument loses all coherence.

How so? Winston and Delucchi ask the following question; if everything were priced optimally, what would would the cost of driving be? What would the cost of mass transit be? And given those costs, how much of each would people use given the benefits they receive? Both authors conclude that, in a perfectly priced world, there would be less mass transit use than at present and more driving. Hence, if we want to “get the prices right” – the explicit goal of Pigouvian taxation – the result would be more driving.

Now, how does the fact that government has spent billions of dollars on roads affect this exercise? The Economist implies that this was some kind of gift to automobile drivers that Winston & Delucchi are happy to give them without cost. But that’s not true. Until 1975, road construction and maintenance was funded entirely by motorists via the gasoline tax (see Jose Gomez-Ibanez’s 1985 essay in a book reviewed here). During the high inflation period of the late 1970s and early 1980s, however, fees and taxes did not keep up with highway expenses. But over the entire 1975-1993 period, the federal gasoline tax increased from 4 to 18.4 cents per gallon (3.6 fold increase) while the GDP deflator increased only 1.3 fold.

The federal gasoline tax has not been increased since 1993, however, and according to our colleague Randal O’Toole, 2003 data suggest that motorists only paid approximately 89% of the total capital and maintenance costs of the highway system during that year.

So there are subsidies to motorists now, but they are tiny on a per-passenger-mile or vehicle-miles-traveled basis. And during the formative years of the highway system, motorists paid more than its costs. Hence, correcting the current imbalance between fuel tax revenue and road construction and maintenance - as Winston and Delucchi do - is sufficient.

Now, argument #3:

That omission is the most egregious, but it certainly isn’t the only one. The sources take the structure of the landscape to be exogenous, when in fact highway spending in outer suburbs reduces the cost of commuting from great distances, encouraging outward migration of urban populations. That, of course, then overwhelms existing infrastructure and generates new highway construction still farther out, continuing the outward spread of the city’s borders.

We have no complaint with the observation that long distance commuters are not paying the marginal costs associated with their commutes - and neither does Winston or Delucchi. We support getting those prices right via congestion pricing and user fees. and those costs are built into Winston and Delucchi’s calculations. But if we’re going to price road use efficiently, we should also price rail use efficiently. And doing so, as we said, would lead to more, not less, driving.

Finally, we arrive at argument #4:

In calculating the positive externalities generated by rail, Brookings Scholar Clifford Winston only considers the effect rail has on reducing highway congestion. But that’s far from the only positive externality produced by rail transit. Rail facilitates density in a way that highways cannot, producing and supporting the dense urban networks present in central cities. There is a long and rich literature on the positive externalities produced by such urban agglomerations; it has been suggested, for instance, that a doubling of urban population density leads to a 6% increase in productivity. Certainly that should be included in any consideration of the relative merits of mass transit.

If there are positive externalities generated by rail use beyond the effect of rail use on road congestion, let’s see some citations! We are unaware of any in the peer-reviewed urban economics literature. And remember, subsidized rail also contributes to urban sprawl because it allows people to work in the urban center and travel further out faster at peak rather than living closer to work.

There may be a case for the elimination of the gasoline tax, provided it is replaced with levies on the negative externalities produced by road transport. That case does not include a shift away from mass transit. If the Cato authors wish to make the point that transit use is bad on efficiency grounds, they need to work much harder.

You can lead a horse to water, but you cannot make him drink.