Be Wary of Late-Night Legislating

SANTA FE – I’ve received a few reports now that the bill Congress passed in the wee hours of this morning would increase the amount that most people can contribute to a health savings account (HSA). 

Most reports claim that the bill would let all those who qualify for an HSA (i.e., those with a high-deductible health insurance policy) contribute the maximum amount to their HSA ($2,850 for individuals and $5,650 for families; figures are for 2007), rather than set a lower contribution limit for those who have insurance deductibles lower than those maximum contribution limits. That’s probably a good idea, and moves HSAs in the direction we should be taking them.

However, the Washington Post reports this morning something different, and alarming.  Lori Montgomery writes:

The package also would repeal a $5,450 limit on contributions to health savings accounts, allowing taxpayers to shelter an unlimited amount of money as long as they choose certain insurance plans with high deductibles.

I doubt that description is accurate. But Thomas and the Government Printing Office don’t have copies of the full bill online yet, so you and I can’t check it out. 

If it is accurate, that means taxpayers would be able to put all their income into an HSA and only pay taxes on it when they withdraw funds for non-medical purposes. They would pay income taxes and a 10 percent tax on non-medical withdrawals. (That 10 percent tax would disappear after the account holder turns 65.) In many cases, they would pay no payroll taxes on those funds. Less money would flow into Social Security and Medicare, and many workers would accumulate fewer benefits under those programs.

All that sounds like good news to a libertarian. But it would be a messy change that would further complicate the tax code. And it would have been enacted with no public debate, which would make HSAs a prime target for the incoming Congress when Democrats might have otherwise ignored them.

But maybe what the Washington Post reported was inaccurate. I don’t know. And right now, I can’t find out. A populace that’s kept in the dark is just one of the perils of late-night legislating.

(In other health care news, that same bill would cancel a scheduled pay cut for doctors under Medicare, a prospect over which I’ve been unable to muster anything but, “So what?”)

Second Amendment Legal Battle

There is a landmark Second Amendment case that is working its way up to the Supreme Court. The case is Parker v. District of Columbia and it was argued to the appeals court here in D.C. yesterday. Even if the appeals court upholds the strict handgun ban that is in place here in D.C., the plaintiffs will be anxious to get the case to the Supreme Court. 

For additional background on the lawsuit, go here. For Cato scholarship on this subject, go here.

More Trade, More Jobs, Higher Wages

Critics of international trade argue that imports mean fewer jobs and lower wages for American workers. They repeat this mantra despite plain evidence to the contrary.

The latest evidence comes this morning with another U.S. Labor Department report that the U.S. economy continues to create new jobs at a healthy clip. U.S. payrolls grew by another 132,000 in November. The unemployment rate ticked up slightly to a still relatively low 4.5 percent because new workers surged into the labor market.

In the past year, total payroll employment has jumped by 1.8 million. Since mid-2003, payroll jobs have grown by 6.2 million, and since 1990 total payroll jobs have grown by 27 million. That impressive job growth has occurred against a backdrop of rising U.S. trade with the rest of the world, so clearly trade does not mean fewer jobs for American workers.

What about wages? They too are rising again, according to the same labor-market reports this morning. Average wages are up 4.1 percent from a year ago, ahead of inflation. When benefits are added, total compensation for U.S. workers continues to rise faster than inflation and is up significantly in real terms compared to previous years.

Like technology, trade can cause turnover in the labor market. But also like technology, trade raises the overall productivity of American workers, leading to better jobs and higher real wages.

The best analysis on this subject remains the 2004 Trade Briefing Paper, “Job Losses and Trade: A Realty Check,” by my Cato colleague Brink Lindsey.

Dasgupta Corrected

I am deeply chagrined to see Brad DeLong take me to the woodshed for mischaracterizing one aspect of Prof. Parth Dasgupta’s criticism of the Stern Review on the Economics of Climate Change. 

Prof. Dasgupta does not criticize Stern’s use of a 0.1% discount rate (that’s Prof. William Nordhaus’ job) per se. He criticizes the use of that discount rate while simultaneously ignoring the difference in well-being between present and future generations. That was indeed the point of my post, but I inadvertently suggested that Prof. Dasgupta complaint resided in the discount rate. 

Mea culpa.

If Growing Inequality Is a “Serious Problem,” Please Explain Why

Via Greg Mankiw comes this suggestion of Yale economist Robert Shiller reported in Tax Notes Today:

The IRS should be instructed to automatically adjust tax rates to keep economic inequality from getting worse, according to a new proposal outlined by Robert Shiller, a Yale University economics professor.

“We have a serious problem, and it’s a problem of growing inequality,” Shiller said on December 6 at a Library of Congress discussion in Washington. Shiller developed the proposal with Len Burman, director of the Tax Policy Center, and the two are planning to write a book on the idea.

“We need a standard or principle of income inequality. We don’t have one now,” he said. Inequality provides motivation to work harder and benefits hard work, he said, so “we do want some inequality, but we don’t have any clear idea about where we’re going and what is appropriate.”

The standard, which Shiller calls “inequality indexation” of the tax system, would instruct the IRS to adjust brackets and rates whenever inequality worsened beyond an agreed-on level.

The question that leaps to mind is: why?

Shiller’s proposal illustrates the extent to which policy is a normative enterprise.  In order to defend Shiller’s “inequality indexation,” you need some principled basis for believing that growing income inequality is a “serious problem,” and an explanation of why it is a problem. How greater inequality per se is a problem strikes me as utterly mysterious. There are many possible causes of income inequality. Some of them reflect injustices in the system, or barriers to the development of adequately fulfilling human lives. But in this case, inequality is a side-effect of some other injustice, and isn’t really the problem. And some causes of inequality don’t reflect injustice of any kind. How a change in the pattern of the income distribution over time can be a serious problem by its very nature is baffling.

Take an highly idealized example. Suppose for a moment that all of a society’s basic laws, institutions, and rules governing market exchange are fair. Everyone starts with a perfectly equal endowment of capital of various kinds, but with different preferences and goals. There will be, say, 1,000 rounds of exchange. Now start the clock. Some people will sit out some rounds. Some people will participate every round. Given different preferences, people will be motivated to invest in different forms of knowledge and skill, pursue different kinds of work, and purchase different kinds of goods and pick different kinds of trading partners. After round 1,000, stop the clock. Now count everybody’s money income over the period. There will be a certain amount of inequality in income. Start the clock again, and stop it after another 1,000 rounds. Suppose income inequality grew. What does that tell us?

If your answer is “It tells us that the laws, institutions, and rules” were not fair after all, then the question is “How does it tells us that?” And then, if the response is, “Because inequality is unfair,” that’s just begging the question. Justice and fairness, if those ideas mean anything, have something to do with giving people what they are due. If the basic rules aren’t keeping people from getting what they are due in each voluntary exchange (which would not have occurred unless the terms were satisfactory to each party), and each got what they were due every round in which they participated, then, when we stop the clock, what each ends up with over the period–their income–is just the sum of what they were due. But no one was due any particular sum. A fortiori no one was due a sum that is a particular ratio of someone else’s sum. So a change in the ratios between incomes across periods is irrelevant.

OK. Now suppose there are two social systems, A and B, with different basic rules running side by side, but in isolation from each other. A has lower inequality in each period, and lower inequality growth between periods that does B. Is A in any sense better? Maybe, maybe not. Suppose that the average income in each decile in B is higher than in A. Wouldn’t the denizens of A rather live in B, where there is greater inequality? I would. Indeed, this is the sense in which I think things like aggregate income is a matter of justice. People are due a system under which they can do as well as possible. If there is some alternative set of rules under which everyone could expect to be better off than in the status quo, failing to transition to that alternative system of rules would be a mark of injustice. Justice may require us to shoot for a system with greater inequality.

Shiller says “we do want some inequality,” since leveling would kill effort, leaving everyone worse off.  But I don’t think we really want “some inequality.” We want a system in which everyone is doing as well as possible, and inequality is going to be a side-effect of that.  Shiller needs to say why we should want less inequality. I am willing to believe that rising income inequality does reflect some injustices in the system. Perhaps some of the rules that regulate the governance of corporations. Or elements of the electoral and regulatory system that enable predatory rent-seeking. Or the system of monopoly public provision of education that systematically disadvantages certain classes of citizens on the basis of morally arbitrary characteristics, like the property tax rate in their neighborhoods. Or price floors and labor regulations that exclude low-skilled workers from the labor market. But in each case, inequality is the symptom, not the disease. The attempt to “correct” increases in inequality through the tax system is completely arbitrary, beside the point, and almost certainly itself unjust, if rising inequality is a side-effect of deeper injustice in the structure of our institutions. And if it is not a side-effect of injustice, but just a side-effect of exchange according to just rules, then it is a non-issue.

Turkish Classical Liberal Defends Himself and Free Speech

Dr. Atilla YaylaI blogged earlier about the unpleasant experiences of a Turkish friend, Professor Atilla Yayla, whose remarks got him in hot water in Turkey, including suspension from his post as a professor at Gazi University and public denunciations as a traitor.  He has now written a vigorous defense of freedom of speech in Turkey for the International Herald Tribune, “Freedom of Expression in Turkey.”  As Atilla explains,

After my fear and panic in the first few days, I think I now understand why this is happening.

I am a well-known classical liberal. I openly defend human rights for everybody. That naturally includes the rights of Kurds and conservative Muslims.

The Kemalists hate my attitude, but they are not able to challenge and refute my ideas. Their opportunity came with this event and they turned my criticism of Kemalism into an insult against Ataturk.

But Turkish journalists, cartoonists, writers and academics face more than just state ideology and trial by media. Law 5816 prohibits publicly “insulting Ataturk’s memory.” Just to be sure, Article 301 of the penal code stipulates prison for “public denigration of Turkishness, the Republic or the Grand National Assembly of Turkey” or “the Government of the Republic of Turkey, the judicial institutions of the State, the military or security structures.”

Yayla is a well known classical liberal in Turkey.  He has devoted his life to defending the rights of everyone, regardless of religion, language, nationality, ethnicity, gender, or other characteristics.  Now it’s time for others to defend his rights.

‘New Lipstick on a Very Old Pig’

My friend Spencer Ackerman has an appropriately depressing piece on Baker-Hamilton online at the American Prospect. A snip:

There is something of an upshot to the commission, however. Even though it doesn’t really propose ending the war, it will shift the Iraq debate in favor of the modalities of extrication. Welcome to 1968: everyone knows the war must end and victory is unachievable, but the will to actually withdraw in full remains unpalatable to the political class. Bush will have a very hard time recommitting the country to a chimerical “victory” in Iraq. But in the name of “responsibility,” thousands more will die, for years and years, as the situation deteriorates further. Someone, at sometime, will finally have to say “enough,” and get the United States out.

Sometime. Read the whole thing.