Convergence at Last?

Back in the days of the Cold War, pundits used to talk about how the conflict between capitalism and communism would end with the “convergence” of the two systems, “blending the personal freedom and profit motive of Western democracies with the Communist system’s government control of the economy.” Well, it didn’t happen, right? Instead, communism failed, and the communist countries moved rapidly toward capitalism.

And then came the Bush-Obama era, and today we read in the New York Times that “the Kremlin seems to be capitalizing on the economic crisis, exploiting the opportunity to establish more control over financially weakened industries that it has long coveted.” Ouch. That’s a little too close for comfort.

Obama’s Vast New Deal

Conservatives and libertarians seem to be reeling, as economic freedom takes another blow from both the outgoing and incoming administrations every day. Remember the good old days of the $1.5 billion Chrysler bailout? Heck, remember the good old days of the $700 billion financial market bailout? Barack Obama used to call for fiscal discipline and denounce “the runaway spending and the record deficits.” Now it seems the sky’s the limit. Pundits talk about whether Obama’s first deficit will come in closer to $1 trillion or $1.5 trillion, and Republican opponents are nowhere to be seen.

Throwing fiscal discipline to the winds, in his radio address Saturday Obama proposed the biggest expansion of government spending in history, ranging from roads and bridges to “a range of programs to expand broadband Internet access, to make government buildings more energy efficient, to improve information technology at hospitals and doctors’ offices, and to upgrade computers in schools.” I just hope Republicans and Blue Dog Democrats were reading the New York Times on Sunday, which actually explained the argument against such programs in its front-page news story:

Mr. Obama’s plan, if enacted, would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them….

President Bush and many conservative economists have opposed such large-scale government intervention in the economy because it supports enterprises that might not survive in a free market. That is the crux of the argument against a government bailout of the auto industry….

Mr. Bush and other Republicans have resisted such an approach in part out of concern for the already soaring federal budget deficit, which could easily hit $1 trillion this year. Borrowing hundreds of billions of dollars today to try to fix the economy, they argue, will leave a huge bill for the next generation.

Conservative economists have also long derided public works spending as a poor response to tough economic times, saying it has not been a reliable catalyst for short-term growth and instead is more about politicians gaining points with constituents.

Alan D. Viard, an economist at the American Enterprise Institute, told the House Ways and Means Committee recently that public works spending should not be authorized out of the “illusory hope of job gains or economic stabilization.”

“If more money is spent on infrastructure, more workers will be employed in that sector,” Mr. Viard added. “In the long run, however, an increase in infrastructure spending requires a reduction in public or private spending for other goods and services. As a result, fewer workers are employed in other sectors of the economy.”

Such warnings don’t carry much weight when they come from President Bush, the trillion-dollar man. But fiscally responsible Republicans and Democrats would do well to read the Times article and start actually making these points. And kudos to Times reporters Peter Baker and John Broder for including such balance in their story.

Meat Means Research!

Matthew Yglesias is less than impressed by the scientific rigor of my last post, pointing out that “if I wanted to be taken seriously as a researcher, I wouldn’t pretend to believe that the BLS-defined ‘Education and Health Services supersector’ of the labor market was identical to unionized primary and secondary school teachers.”


You know, come to think of it, if I’d wanted that post to be a major contribution to humanity’s understanding of American education, I probably shouldn’t have put a big picture of Meat Loaf on it, either! Heck, I probably shouldn’t have done it as a tiny blog post at all! What an idiot I am!

Fortunately, you’ll find a longer, more thoughtful explanation of the point I was oh-so-embarassingly trying to make here (though it, too, is on a blog), and then you can just take my little contribution for what it is: a quick bit of info suggesting that there could be some economic upside to being a public-school teacher.

Belarus Joins the Flat Tax Club

It seemed like 2008 was going to be a bad year for tax reform. After a flurry of activity in 2006 and 2007, which resulted in 10 new countries adopting simple and fair flat taxes, the global shift to better policy ground to a halt.

Fortunately, Belarus has picked up the baton of tax reform, replacing a so-called progressive system with a top rate of 35 percent with a 12 percent flat tax. So after a period of inactivity, it’s time to once again cue up the theme song of the flat tax revolution.

The Financial Times has more details on fiscal liberalization in Belarus: 

Life is improving for private business in Belarus, albeit from a position in which arbitrary action was the hallmark of economic policy. … Taxation remains high by regional standards, with general government revenue at over 45 per cent of GDP, compared with 30.5 per cent for Ukraine and 20 per cent for Russia. … Overall, says the deputy finance minister, Vladimir Amarin, next year’s budget will reduce the tax burden by 1.3 per cent of gross domestic product, and future budgets will shave a further 2.4 per cent of GDP off it. The nationwide turnover tax, which last year was 3.4 per cent, will be phased out entirely by 2010, while local sales taxes are, from 2009, to be levied at a flat 5 per cent rate from a 5-15 per cent scale. Personal income tax, hitherto levied according to a progressive scale of 9-35 per cent, will be a flat 12 per cent. … “The tax burden is now lighter and the system is simpler” says Dmitry Duchitsky, chief executive of lingerie maker Milavitsa, a major beneficiary of the planned reforms.

Supreme Court to Decide al-Marri Case

Today, the Supreme Court announced that it will hear an appeal in the case of Ali al-Marri, a Qatar citizen who, while a student at Bradley University in December 2001, was arrested under terrorism suspicions. He was initially charged with making false statements to the FBI and to financial institutions, but those charges were dropped in 2003 when President Bush designated him an unlawful combatant. Despite the lack of charges, Marri is being held indefinitely at the Naval Consolidated Brig in Charleston, S.C. He is the only person designated an enemy combatant who is known to be held in the continental United States.

This is another very important case that will consider the scope of executive power.

For previous coverage and background, go here and here.

Happy Repeal Day!

Today is a great day in American history. Exactly 75 years ago, the 21st Amendment was ratified, thus repealing Prohibition. But Prohibition isn’t a subject that should be studied by historians alone, as this failed experiment continues to have a significant impact on our nation. 

Groups like the Women’s Christian Temperance Union, a key force in the passage of Prohibition, survive to this day and continue to insist that Prohibition was a success and advocate for dry laws

Prohibition-era state laws, many of which are still on the books today, created government-protected monopolies for alcohol distributors. These laws have survived for three-quarters of a century because of powerful, rent-seeking interest groups, despite the fact that they significantly raise costs and limit consumer options. And because of these distribution laws, it is illegal for millions of Americans to have wine shipped directly to their door.

To learn more about the history and legacy of Prohibition, check out my podcast and watch the live webcast of Cato’s policy forum, “Free to Booze: the 75th Anniversary of the Repeal of Prohibition,” starting at 3:30 today.