Putin, Another FDR?

The Washington Post reports:

President Vladimir Putin, Kremlin political consultants and state-controlled news media have found an American to admire: Franklin Delano Roosevelt.

FDR, according to a consistent story line here, tamed power-hungry tycoons to save his country from the Great Depression. He restored his people’s spirits while leading the United States for 12 years and spearheaded the struggle against “outside enemies,” as the mass-circulation tabloid Komsomolskaya Pravda put it….

And Roosevelt ran for a third and fourth term because his country needed him. Translation: Putin, too, should stay.

Putin used the Roosevelt analogy Thursday when he spoke to reporters after a televised question-and-answer session with citizens….

In a glowing 90-minute documentary on FDR that aired Sunday on RTR, a state TV channel usually given to growling at Washington, a narrator said that America’s 32nd president “came to the conclusion that he was the only person in the country who could lead America in the right direction through the most difficult period in the country’s history.”

“He became the only president of the United States elected for a third time. Americans trusted him,” the narrator said. “They believed that at a turning point in history he would not make a mistake.”

Which seems an appropriate time to mention my review in the October issue of Reason of the book Three New Deals: Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s Germany, 1933–1939, by Wolfgang Schivelbusch. It’s in the actual print magazine; go out and buy a copy. But committed devotees of the online experience can find it here. I noted that Schivelbusch found surprising similarities in the ideas, style, programs, and even architecture of the three charismatic collectivists.

“To compare,” Schivelbusch stresses, “is not the same as to equate. America during Roosevelt’s New Deal did not become a one-party state; it had no secret police; the Constitution remained in force, and there were no concentration camps; the New Deal preserved the institutions of the liberal-democratic system that National Socialism abolished.” But throughout the ’30s, intellectuals and journalists noted “areas of convergence among the New Deal, Fascism, and National Socialism.” All three were seen as transcending “classic Anglo-French liberalism”—individualism, free markets, decentralized power….

In Rome, Berlin, and D.C., there was an affinity for military metaphors and military structures. Fascists, National Socialists, and New Dealers had all been young during World War I, and they looked back with longing at the experiments in wartime planning. In his first inaugural address, Roosevelt summoned the nation: “If we are to go forward, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline. We are, I know, ready and willing to submit our lives and property to such discipline, because it makes possible a leadership which aims at a larger good. I assume unhesitatingly the leadership of this great army.…I shall ask the Congress for the one remaining instrument to meet the crisis—broad executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.”

The Laffer Curve Straw Man

I’ve already addressed this issue, but here we go again. Commenting on the “totemic appeal” of the Laffer Curve for conservatives, Kevin Drum of Washington Monthly asserts that the concept is no longer relevant because:

…the current top marginal rate in the United States is 35%, and no one in their right mind thinks that’s anywhere near high enough to have a serious Laffer effect. When top rates are that low, lowering them further just reduces tax revenue.

Mr. Drum may know how (fairly) to mock politicians who exaggerate, but his critique of the Laffer Curve is based on the straw-man proposition that tax cuts are self-financing. Notwithstanding some of the political rhetoric, the Laffer Curve does not imply — and never has implied — that all “tax cuts pay for themselves.” That only happens if rates become sufficiently punitive to put the taxing jurisdiction on the downward-sloping portion of the curve.

The real issue is whether certain changes in tax policy will have some impact on economic activity. If an increase (decrease) in tax rates changes behavior and causes a reduction (increase) in taxable income, then revenues will not rise (fall) as much as “static” revenue-estimating models would predict. This is hardly a radical concept, and evidence of Laffer-Curve effects is very well established in the academic literature.

The reason there is a debate is that the government’s revenue-estimating bodies (the Joint Committee on Taxation on the Hill and the Office of Tax Analysis at Treasury) assume that tax policy changes have zero impact on economic performance. That’s right, zero.

For example, if the entire tax code was scrapped and replaced by a low-rate flat tax, JCT and OTA would assume no effect on macroeconomic aggregates. If tax rates were doubled, JCT and OTA would plug new numbers into their simplistic (yet totally nontransparent) models and estimate that tax revenues would double (to be fair, the government’s revenue estimators assume some microeconomic dynamic effects, such as higher tax rates causing people to shift the timing and/or composition of income, but this is akin to measuring the tail and ignoring the dog).

So what does all this mean? Two points are worth highlighting:

First, the current system is rigged against good tax policy by over-estimating the revenues that can be obtained by raising tax rates and exaggerating the revenues foregone when tax rates are reduced. This is why some of us advocate “dynamic scoring.”

Second, not all tax cuts (or tax increases) are created equal. An increase in the personal exemption or the child credit will have very little, if any, impact on incentives to work, save, and invest. As such, the “static” estimate of revenue losses will be reasonably accurate. A reduction in the tax rate on capital income, by contrast, will substantially alter incentives for taxpayers who have considerable ability to adjust their behavior. This will result in a Laffer-Curve response, though it is an empirical question whether the revenue feedback will offset 20 percent, 50 percent, or 75 percent of the static revenue loss (timing is also important since a tax rate reduction that yields a revenue feedback of 20 percent in the first year may generate a much larger revenue feedback five years in the future).

The left is very clever. Defenders of the status quo have created a straw man, and they find quotes from politicians and others with little knowledge to create the impression that advocates of lower tax rates believe in the fiscal version of a perpetual-motion machine. This tactic is then used to prop up the existing system of revenue estimating, which is based on assumptions that would earn an F if put forth by a student in an undergraduate public finance course.

Eminent Domain Abuse Still Rampant in Missouri

I’ve written a new study for the Show-Me Institute examining the problem of eminent domain abuse in Missouri. In the wake of the 2005 Kelo decision, a few state legislatures took decisive action to protect property rights, but many failed to enact comprehensive reforms. Unfortunately, Missouri was in the latter category. The legislature here passed a very timid eminent domain bill in 2006 that made some minor procedural changes and increased compensation for some property owners. But as I document in the study, the legislation has had little or no impact on the frequency of eminent domain projects that primarily benefit politically-connected private developers.

I make two major points in the study that are relevant across the country. First, the moment cities start to threaten the use of eminent domain by designating an area “blighted,” it casts a shadow over the affected area that retards economic development. After all, what home or business owner is going to invest in property that is likely to be demolished in a few years? As a result, “blight” often becomes a self-fulfilling prophesy; properties deteriorate as politicians draw up a new “master plan” for the area.

Second, I point out that eminent domain is most harmful to small business owners and low-income residents who lack the political clout or the deep pockets required to fight the seizure of their properties. As I argue in a new article in The American, “redevelopment” projects punish small business owners who choose to open up shop in struggling neighborhoods. And in McRee Town, the redevelopment project I studied in the most detail, the city demolished apartments that had rents between $275 and $550/month, and replaced them with single-family homes costing more than $200,000. Obviously, the previous occupants were forced to move to other parts of the city, presumably into neighborhoods that are just as slum-like.

Romania Joins the 31-Nation Private Retirement Account Revolution

An English-language story from the European press discusses the privatization of the retirement system in Romania. The system eventually will permit workers to put six percent of their income in personal accounts. This is good news, but there is a dark lining to this silver cloud. I challenged my colleague Jose Pinera earlier this year that the number of flat-tax nations would soon exceed the number of private-account nations. Unfortunately, Jose works too hard, and he keeps adding new nations to his list. Since there are now 21 jurisdictions with flat tax systems, this means I still have a long way to go:

Under a new system launched last month, more than 3 million Romanian workers under 35-years-old must opt for one of 14 competing private pension funds before January 17th, 2008. Those ages 35 to 45 can also decide to join one of the private funds. Starting in 2008, 2% of every worker’s general income will be redirected from the state budget to the chosen private fund. This contribution will gradually increase to 6% by 2015, and the current 9.5% social security contribution to the state system will diminish accordingly. “Several million Romanians will become investors, and the private pension system will educate them in the spirit of a free market economy,” says Romanian President Traian Basescu. …Romania cautiously now joins a club formed by 31 countries – Bulgaria, Macedonia and Croatia among them that have decided to address the demographic pressure on state budgets through privatisation.

Mitt: Educational Marxist?

According to MSNBC, yesterday GOP presidential candidate Mitt Romney called Hillary Clinton a Marxist, remarking that “she said we’ve always been an on-your-own society…we should be a we’re-all-in-it-together society, a shared responsibility society. So it’s out with Adam Smith and in with Karl Marx.”

Romney might be right about Hillary Clinton, but based on several things he’s said recently about education, one can’t help but wonder if there’s not a fair bit of Big Brother in him, too.

At the same event where Romney attacked collectivist Hillary, for instance, he lauded the intrusive, federal No Child Left Behind Act. He likes the testing, he said, apparently not caring that it’s mandated by the central government. Even scarier, he endorsed a national program requiring that “before a parent can send a child to school for the first time, they’ve got to go to a weekend where they learn about being prepared to support their child in school.”

To top all this off, yesterday the Associated Press reported that Romney has floated the idea of rewarding college aid based on what careers recipients choose. “I like the idea of linking the level of support that we’re able to provide to young people going to college to the contributions they’re going to make to our society.” So not only is Romney going to keep NCLB and force moms and dads into government parenting academies, he’s going to engineer who gets what based, apparently, on how much government decides different jobs contribute to society?

Maybe Hillary isn’t the only closet Marxist in the 2008 race.

Is Portland Light Rail a Success?

My recent Cato policy analysis, Debunking Portland, said Portland’s light rail is a failure. Paul Weyrich, the noted conservative and president of the Free Congress Foundation, responds that it is successful.

The question becomes, “How do you define success?” Weyrich claims that Portland’s light rail led to billions of dollars in economic development. But my paper shows that that development received billions of dollars in subsidies – and before the city started offering subsidies, not a single transit-oriented development was built along the light-rail line.

“Many (Portlanders) use their public transportation system,” says Weyrich. In fact, 9.8 percent of Portland-area commuters took transit to work before the region build light rail. Today it is just 7.6 percent. In a story repeated in numerous cities that have built rail lines, rail cost overruns forced the city to raise bus fares and reduce bus service. That’s a success?

To Weyrich, rail is successful if anyone at all rides it. My standard is somewhat higher. For a point-by-point response to Weyrich’s article, see my Antiplanner blog.