What It Says, What It Will Say

Yesterday, the School Choice Demonstration Project (SCDP) released several reports kicking off their five-year longitudinal study of the Milwaukee Parental Choice Program (MPCP), arguably the nation’s best-known school voucher initiative.

Throughout the most important of the reports—the one establishing achievement levels for voucher students and socio-economically similar Milwaukee public school kids—the authors warn readers not to use the scores to judge schools’ effectiveness. Because it is “snapshot,” baseline data, the scores alone say nothing about how much a school teaches over time, only where students sit at a single moment.

Sadly, some in the media didn’t listen, reporting that private and public schools perform equally poorly. As education reporter Alan Borsuk wrote in the Milwaukee Journal Sentinel, “the first full-force examination since 1995 of Milwaukee’s groundbreaking school voucher program has found that students attending private schools through the program aren’t doing much better or worse than students in Milwaukee Public Schools.”

It seems some reporters just don’t read research, don’t understand it, or want to push their agenda regardless of what the research tells them.

Unfortunately, as bad as reporting on school choice is, in the end Milwaukee-style choice probably won’t have a huge effect. Sure, the voucher kids will probably learn more than comparable students in traditional public schools, as research has found over and over again, but the research has never found large advantages, and there’s nothing in current school choice programs to suggest that that will soon change. The simple fact is that even with slowly growing school choice the amount of market freedom in American education is far too small to foster real competition and innovation. The public schools are still the 800-pound guerilla and what choice we have is seriously hamstrung.

Just look at Milwaukee. It has more choice than almost any other district in the United States, but has only about 17,000 students in its voucher program and 16,000 in its charter schools, constituting just about 28 percent of the city’s roughly 120,000 school-aged kids. Making matters worse, within those systems freedom is heavily curtailed. Charter schools are only given their right to exist by public authorities, their enrollments must be racially balanced, and they can’t deny admission for academic reasons. Similarly, the MPCP forbids parents from supplementing vouchers with their own funds, is open only to low-income children, and requires participating schools to admit all choice students for whom they have seats.

School choice in Milwaukee is light-years from the free-market at work, and though it’s better than no choice at all, it will likely make some news stories today come close to fitting the facts tomorrow.

The Politics of Freedom: Libertarianism with Sizzle

Brian Doherty, the author of the magisterial Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement, has some generous things to say about my new book The Politics of Freedom in Sunday’s New York Post. I especially like the subtitle in the reason.com version: “sells the libertarian message with sizzle.”

Brian discusses my claims about the extent of libertarianism among American voters and writes:

Whatever the near-term prospects for libertarian political victories, The Politics of Freedom reminds you of the service libertarians provide to public discourse: They can point out the hypocrisy, power grabs, hubris and counterproductive folly issuing from Washington under either political brand name since they are beholden to neither. …

No major political party has fully embraced the implications of the proper role of government that follow from Boaz’s simple limited-government vision. But when expressed that plainly, it’s a moral vision many Americans can cheer.

The Politics of Freedom is available at all fine bookstores, at Amazon, and from the Cato Institute.

The Laffer Curve: Reviewing the Evidence

I’ve been pleasantly surprised by the number of views and the positive feedback for the free-market tax videos I’ve been narrating. Part I of the Laffer Curve video series already has been seen more that 14,000 times - and nearly 15,000 times if the Capital Hill Broadcast Network is added to the count.

Part II of the Laffer Curve video series is now available for your viewing pleasure. Building on the theoretical discussion in Part I, this new video reviews some of the real-world evidence on the Laffer Curve.

As always, I’m interested in feedback. And feel free to circulate any of these videos to friends and colleagues. It seems that success begets success on youtube. More people watch a video if they see other people have watched it. And since, as of this morning, the Part II video is #49 for today’s most-watched list in the News & Politics category, it’s encouraging that it is getting some attention.

Demander-in-Chief

Bill Kristol’s column in yesterday’s New York Times contained an interesting, if disconcerting, quote from Michelle Obama:

Barack Obama … is going to demand that you shed your cynicism… That you push yourselves to be better. And that you engage. Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.

The President of the United States is the employee of the American people. He is not there to make demands of people. If I want to sit on my couch for the rest of my life eating Doritos and watching trashy television – unengaged, uninformed and uninvolved – that’s my prerogative.

(Hat tip: our beloved founder, Ed Crane).

Reviving Interservice Competition

I recently complained that the US defense budget fails to adhere to a strategy; that it avoids choice between means. This lack of choice is manifest in the preservation of service shares. Each military service has gotten about the same relative share of the defense budget each year under Bush, despite the war on terror. In fact, the shares have basically held since the Kennedy administration.

In recent decades, the Navy got about 26 percent of the defense budget; 31 percent including the Marines. The Air Force also got around 31 percent, and the Army 25 percent. The rest went to defense-wide programs like missile defense. Annual deviations are rarely ever above two percent. This year brings a slight uptick in the Army share; the numbers are 29 percent Navy and Marines, 28 percent Air Force, and 27 percent Army. Current budget shares deviate more from the historical norm if you include the supplemental war appropriations, which favor the ground forces. But the point of a supplemental is that it does not affect the future baseline.

In today’s Christian Science Monitor, Gordon Lubold writes that a Congressional “Roles and Missions” panel, formed under the auspices of the House Armed Services Committee, is set to release a report that questions this arrangement. That’s good news.

Congressman Jim Cooper (D-Tennessee), who chaired the panel, calls the continuity of service shares “a statistical indictment” of the Pentagon planning process. The current US national security strategy – as seen in official documents, rhetoric, and our two wars – is counter-terrorism via counter-insurgency. That is, counter-terrorism is our primary security task, and to accomplish it we aim to deny terrorists haven with wars of occupation meant to resurrect government in anarchic states like Iraq and Afghanistan. We have other objectives – contain rising powers, stem weapons proliferation, etc, but these are secondary.

This strategy favors the Army. Ground forces take center-stage in counter-insurgency and state-building, with contributing performances from aircraft and other government agencies. It follows that our defense budget would flood money into the Army and Marines and cut the Air Force and Navy’s budget to pay for it. Instead, we have given each service the same bump in funds – roughly 35% percent under Bush.

Personally, I think this strategy is foolish. I’d prefer to stay out of other people’s civil wars and hunt terrorists via intelligence agencies and police. Ideally, Congress would push a more workable and cheaper strategy. But helping align forces with the politics that theoretically govern them is still worthwhile. Insofar as we have this flawed strategy, military posture ought to reflect it.

The Monitor quotes the Chairman of the Joint Chief’s of Staff, Admiral Mike Mullen, responding to Cooper’s critique by worrying that ending fixed service shares will unleash interservice competition. I say let them fight. Everyone assumes that because jointness is helpful on the battlefield, it must be great in defense planning. But service cooperation in the Pentagon has become collusion that prevents civilian control and therefore the implementation of national policy. And competition for resources between government entities can spark smarter public policy, including military innovation, as political scientists I know argue.

During the Eisenhower administration, the Air Force, which wielded the big stick – strategic airpower – in Ike’s massive retaliation strategy, got about half the defense budget. The Army and Navy fought over the remainder. Their scramble for relevance made them advocates of alternative strategies that relied less on nuclear weapons, or at least less on nuclear weapons delivered by bombers (the Navy responded by inventing submarine launched ballistic missiles). The strategic debate gave policy-makers both well-crafted alternatives and ready bureaucratic allies for their implementation.

Were the ground forces given half of the defense budget – or if that merely seemed politically possible – the other services’ self-interest might propel them to articulate opposing strategies. Even the Army’s slight gains have recently pushed the Navy and Air Force to rearticulate their relevance. The results so far are disappointing, but more open competition could be useful. The Navy might champion an off-shore balancing strategy and attack the current small war strategy. Civilians might develop a sharper sense of their alternatives.

The beneficiaries of fixed budget shares are the military services, who get budgetary security independent of their contribution to national security. The losers are the civilians trying to run the Pentagon and taxpayers. Cooper’s report won’t change anything alone, but it may help.

Blame German Tax Law, Not Liechtenstein Privacy Law

While European politicians are ganging up in an effort to bully Liechtenstein into surrendering its fiscal sovereignty, a couple of reporters for Bloomberg point out that Germany’s tax laws are the real problem. Tax rates are too high and the tax code is senselessly complicated. As a result, almost everyone in the country seeks to evade tax:

When Andreas bought a new hard drive at a Munich computer shop the clerk offered it for 127 euros with a receipt or 80 euros without. He took the lower price. Most Germans make similar deals to avoid high taxes, the film production manager said. …Chancellor Angela Merkel has failed to fulfill a campaign promise to simplify the tax code and reduce tax avoidance. Germans evade about 30 billion euros in taxes every year, estimated Dieter Ondracek, head of the German tax collectors’ union DStG. …”Unfortunately, tax evasion has become a popular sport in Germany,” Ondracek said Feb. 19 in an interview with Bloomberg Television in Berlin. Germany last year increased its top income tax rate to 45 percent, ranking it eighth among the 27 European Union nations. Capital gains taxes of as much as 50 percent are also among the highest in Europe. …People of more modest means can find loopholes in books such as “1,000 Legal Tax Tricks” by Franz Konz, who’s helped Germans cut their tax bills for 20 years. His book, published last year by Droener/Knaur, is the bestselling tax volume on Amazon.com’s German language site. Part of the issue is that German tax laws have become increasingly complicated as politicians added more and more exemptions. Since German reunification in 1990, the number of tax advisers in the country has jumped 60 percent to 72,669, according to the latest statistics from the BStBK tax advisers’ federation. …”People feel they don’t know all the loopholes so they’re constantly uneasy about paying too much tax, which prompts them to do things that are sometimes illegal,” [Andracek] said. “A tax burden that’s generally seen as too high and wasteful government spending” contribute to discontent. Andreas agrees. “It’s not about greed, it’s about getting by,” he said. “It’s not a crime if everybody does it.”

This story deserves a personal anecdote. On my first trip to Germany, for a tax reform conference in the mid-1990s, a couple of us decided to take a 30-minute cab ride from our conference center to downtown Cologne. We hailed a cab and the first thing the driver did was ask whether we needed a receipt. Not aware of Germany’s national pastime of tax evasion, we must have looked confused, so the driver helpfully explained that we could save 30 percent if he got his fare “off the books.” What did we decide? Well, I’ll leave that to your imagination.

Saber-Rattling Academic Urges Aggression, Bullying, Sanctions, and Annexation

Writing for the Financial Times, a professor from the London School of Economics identifies a number of enemy jurisdictions that pose a grave threat to the world. Some of these jurisdictions should be subject to sanctions, he writes, but in other cases he urges much more aggressive tactics, including annexation. What makes his article so interesting is his choice of targets. He is not targeting Iran. Presumably he does not worry about nuclear weapons in the hands of Islamic fundamentalists. Nor is he targeting North Korea, a rogue state that lets its own people starve. Other despotic regimes such as Cuba, Saudi Arabia, Turkmenistan, and Venezuela also get a free pass. Instead, Professor Buiter’s Axis-of-Evil is comprised of places such as Liechtenstein, Jersey, Luxembourg, Andorra, Guernsey, Switzerland, and Monaco. These jurisdictions, because of their low tax rates and respect for human rights, attract capital from high-tax nations and therefore make it a bit more difficult for politicians in places such as France and Germany to buy votes with other people’s money. Interestingly, Buiter’s penchant for aggression varies depending on the expected level of resistance. He wants little countries such as Monaco and Liechtenstein to be forcibly annexed as part of a tax-motivated Anschluss. But he is much less bellicose in the case of Switzerland, perhaps because every able-bodied male is a member of the militia and possesses a fully-automatic machine gun. And he doesn’t even mention the United States, even though Delaware and Nevada companies are excellent tax havens for non-Americans. Perhaps it is just a matter of time before he bravely adds America to his hit list. If nothing else, his article makes for amusing reading:

The list of countries that make a living out of tax evasion and related activities (essentially the same countries that consciously created, and in some cases continue to offer, facilities, laws, regulations and institutions to facilitate money laundering) is long. The OECD lists 35 microstates with the tax haven designation, but this excludes larger countries with strong bank secrecy laws whom the shoe fits just as well (e.g. Austria, Switzerland, Luxembourg). …The vast majority of European countries - all those that lose out because of the existence of these tax havens - should unite in a determined effort to end these countries’ ability to offer safety to tax evaders by granting anonymity, confidentiality and secrecy. The exact modalities may differ from case to case. Jersey, Guernsey and the Isle of Man should simply be absorbed lock, stock and barrel into the UK, with English laws, rules and regulations applying across the board. The special status of these strange entities is not cute; it’s an enabler and facilitator of unethical and illegal behaviour. The EU should adopt a directive on bank secrecy that would end the nefarious practices of Luxembourg and Austria. Belgian dentists will just have to get used to paying taxes. Andorra, Monaco and Liechtenstein should be given the choice of ending bank secrecy or facing annexation (by France and (once it abandons its bank secrecy laws) Austria respectively). Switzerland is the big prize, as unlike the other tax havens, it is a country rather than a dwarf-state and postage-stamp curiosity, and it is outside the EU. It should be subject to sufficiently stringent economic sanctions from its neighbours (after all, it is landlocked!) to induce it to abandon the laws, rules and regulations, including its extreme version of bank secrecy, that make it the one of the countries of choice for parking illegal or extra-legal money.