Czech Tax Reform

Because of the tenuous nature of the current government, plans for a flat tax may be postponed. But as the Prague Post explains, the government’s fall-back position is big, pro-growth tax cuts and expenditure limitations — so taxpayers will win regardless of the outcome:

Prime Minister Mirek Topolánek’s Cabinet, which won a slim vote of confidence Jan. 19, was voted into office thanks to an ambitious plan centered on economic reforms. …[T]he government plans to pursue canceling taxes on dividends and capital gains, as well as inheritance and gift taxes and the property transfer tax. …The Cabinet plans to reduce the share of mandatory expenditures on the overall state budget from its current 70 percent to below 50 percent by 2010. …The Cabinet’s weak support in the Parliament also makes it unlikely that the flat tax will be put in effect anytime soon.

Why Fight Educational Freedom?

As reactions to Why We Fight: How Public Schools Cause Social Conflict have started coming in, a few recurring objections have emerged to letting parents choose schools that comport with their values. Andrew Coulson, in an excellent post, responds to the arguments of one group in particular: defenders of evolution-only biology instruction. I won’t focus on that camp since Andrew handles them so deftly, and because many of their objections are really just specific examples of the more general complaints I’m going to tackle.

Unfortunately, many of the broadsides launched against Why We Fight employ what I’ll call the “boogeyman gambit”: attacking the entire notion of school choice on the grounds that some parents might choose fringe schools. As Red State Rabble contends:

Cato’s solution to Balkanization? Balkanize the schools. A Christian fundamentalists school here, a Muslim Madrassa there. Hey, there might even be enough money left for a school with a science department somewhere. 

These kinds of attacks are easy, and all too often effective, frighteningly suggesting without any support that somehow the nation will explode with maniacal kooks if we stop forcing people to fund public schools and let them go to institutions of their choice. Give people educational freedom, we’re supposed fear, and the name “Bob Jones” will replace “Horace Mann” on schools across the country.

Right.

Were such fringe groups truly the great threat Red State Rabble makes them out to be, then their schools would already swamp the nation. Parents are, after all, allowed to send their children to private schools as things stand now. Yet with very few exceptions, we hear little or nothing about a threat from private education. Which leaves two possibilities: either the malevolent hordes that Red State Rabble envisions going wild with school choice don’t actually exist, or they’re not so zealous that they’d be willing to part with private school tuition to indoctrinate their kids. Sure, we’re supposed to believe, they’re single-minded fanatics about their causes, but not so much that they’d sacrifice money for them!

Another frequent objection to letting parents choose their kids’ schools is that American children need to be steeped in a shared worldview, lest they be in constant combat as adults. This arose as a major line of argument in a Free Republic discussion about Why We Fight, and is very similar to the “Americanization” mission given to industrial-era public schools, where immigrant students were taught to reject the customs and values of their parents’ lands — and often their parents themselves — and adopt the values political elites deemed proper.

Now, if one were willing to accept a system that would, by definition, quash any thoughts not officially sanctioned, then in theory one would be okay with a public schooling system intended to force uniform thought. In the context of an otherwise free society, however, getting such a system to work is impossible, because it would require that incredibly diverse and constantly combative adults create and run an education system that somehow produces uniform and placid graduates. It’s no more realistic than hoping a tornado will drop houses in a more perfect line than it found them.

The practical result of our trying to make uniformity out of diversity has, of course, been constant conflict, as Why We Fight makes clear. Moreover, there is another by-product of this process that no one mentions when they weave scenarios about choice producing schools steeped in ignorance: our schools right now teach very little, especially in the most contentious areas like evolution and history, because they want to avoid conflict.

When it comes to teaching the origins of life, for instance, while evolution stalwarts might think they have the upper-hand because courts have regularly ruled in their favor, the reality on the ground is often that, courts or no courts, teachers dodge evolution. As the New York Times reported in February 2005:

Dr. Eugenie Scott, executive director of the National Center for Science Education, said she heard “all the time” from teachers who did not teach evolution “because it’s just too much trouble.”

“Or their principals tell them, ‘We just don’t have time to teach everything so let’s leave out the things that will cause us problems,’ ” she said.

So here’s what happens when evolution supporters fight to the political death to keep dissenters’ tax dollars in the public schools: Neither evolutionists nor creationists get what they want. It ends like a dispute between children, with someone taking their ball home and no one getting to play.

As one can imagine, because it potentially involves the stories of every group ever on Earth, history instruction often ends up even more denuded than science, thanks to the controversy-avoidance instinct. As Diane Ravitch explains in great detail in The Language Police, history textbooks — and, as a result, history classes — have been rendered utterly barren by the need to pass muster in highly contentious, politicized textbook adoption processes. The result is that nothing very critical ever gets said about any group, and students do not learn anything interesting or meaningful about history. The entire subject, it seems, has taken its ball and gone home.

Which brings us to the fundamental problems with the anti-choice arguments thrown at Why We Fight: they ignore the utter failure of the system we have now, and rest on baseless scare tactics. Choice opponents, however, can only ignore the very real consequences of not having choice for so long. Pretty soon, parents on all sides of the public school wars will unite around just two things: exhaustion with the all the fighting, and demands for school choice.    

‘Net Wars — Does It Matter?

In a scintillating previous post about telecom regulation, I gave a brief overview of the “net neutrality” fight. Net neutrality may be a fringe issue, but the politics surrounding it are very heated. And here’s the funny thing: I’m wondering if, from an economic perspective, the fight is of any real importance.

Let’s assume that Congress adopts net neutrality and prohibit the ISPs from charging fees to content providers. The ISPs would instead turn to their subscribers for additional revenue. The fear among net neutrality critics is that the ISPs will jack up rates equally on all users, whether a YouTube devotee or the little old lady who just uses the Internet to check e-mail and read the paper. But I seriously doubt that would happen — instead, the ISPs would likely target their heaviest broadband users with ”premium service” fees in exchange for consistent fast service. (Such differentiation already exists in the cost and quality differences between dial-up and broadband.) So, if I’m right, the YouTube devotee will have to pay extra in order to keep enjoying his favorite website.

Now, suppose Congress doesn’t adopt net neutrality, and the ISPs start mailing invoices to the broadband-intensive Web content providers. The content providers would likely respond by charging subscription fees to their visitors. So, in this scenario as well, the YouTube devotee will have to pay extra in order to keep enjoying his favorite website.

Notice: If I have this figured right, then no matter what Congress does, heavy bandwidth users will ultimately pay for the necessary Internet capacity expansion. The question is, on which bill — the ISP’s or the content provider’s — will the cost actually appear?

From a public policy perspective, there is an accompanying question: Would it be more efficient for that cost to appear on the ISP bill or the content provider’s bill? A priori, I see no reason why one would be more efficient than the other. Hence my wondering if this fight really matters.

This is not to say that we shouldn’t care that Congress may stick its nose into this issue. Politicians don’t have a strong reputation for enhancing efficiency and consumer welfare when they intervene in the marketplace. Indeed, I’d argue that Congress’ interest in net neutrality is prima facie evidence that neutrality would not be efficient or welfare-enhancing. But then, I’m a bit of a cynic.

Boston Tea Party? REAL ID Party!

Our nation has many gentle rivalries. As a northern California native, I have always known that I’m slightly superior to our friends in So Cal. (LA-LA land’s ignorance of our disdain validates it wonderfully, by the way.)

Maine people have a similar feeling toward their neighbors in Massachusetts (even while they root for Boston’s professional sports teams). This is among the things I enjoyed discovering this week as I traveled to the far northeast for some lively discussion of the REAL ID Act.

On a panel I was privileged to join at a community center in Augusta Wednesday night, George Smith, executive director of the Maine Sportsmen’s Alliance, stood to share his opinion of our national ID law and what Maine should do about it. A Norman Rockwell painting come to life, he spoke with all the directness (and accent) of a lifelong Mainer. Summarizing, his message was this: They had their Boston Tea Party. Let’s have a REAL ID Party!

All the spirit and independence that makes me so proud of Americans — without sparing that family rivalry for even a minute!

The result of George’s work — along with the Maine Civil Liberties Union and a bipartisan consensus of the state’s political leaders — was near unanimous passage of a state resolution refusing to implement REAL ID. Maine is now the first state to reject the REAL ID Act, and the tide against the bill is beginning to run. 

(For some equally stirring rhetoric in defense of liberty and against a national ID, here’s New Hampshire Representative Neal Kurk (R-Weare) on the REAL ID Act last year. New Hampshire is one of many states likely to join Maine in rejecting a national ID.)

I have tried to supply the intellectual arguments for rejecting a national ID in my book, Identity Crisis: How Identification is Overused and Misunderstood. I was pleased to offer Smith and a number of Maine’s political leaders copies of the book. 

The Chuck Hagel Surge

Nebraska senator Chuck Hagel burst onto the national scene this week as the leading critic of President Bush’s “surge” plan for Iraq. After his widely reported speech at a Senate Foreign Relations Committee hearing, he’s become a hot topic in the blogosphere.

His possible presidential candidacy made the front page of the Washington Post today, and he got a love note from Peggy Noonan at opinionjournal.com (probably to be printed in Saturday’s Wall Street Journal). The Post says, “He is reviled by his party’s conservative base.”

Yes, right now the only thing conservatives know about him is his opposition to George W. Bush’s war plans, and conservatives are still inexplicably in thrall to the big-government Bush. But I’ll predict that over, say, the next 12 months leading up to the Iowa caucuses, Hagel is going to look increasingly wise and prescient to Republican voters. And as they come to discover that he’s a commonsense Midwestern conservative who opposed many of the Bush administration’s worst ideas, he’s going to look more attractive.

To see what all the fuss is about, click here.

Taylor vs. Woolsey this Sunday on Foreign Oil

This Sunday, I’ll be debating former CIA chief James Woolsey at a “conservative summit” in Washington, D.C., sponsored by the National Review. The topic: “Resolved: That the federal government should act to reduce America’s dependence on foreign oil.” James Woolsey, of course, will take the affirmative. 

Unfortunately, it seems as if there’s no room for new attendees, so if you’re not already registered for this weekend confab, you probably can’t get in. There is a good chance, however, that the debate will air live on C-SPAN (either I or II). So if you’ve got nothing better to do at 10:30 am EST Sunday, you might want to tune in.

The last time I tangled with Woolsey directly, it was during a hearing of the House Armed Services Committee in July 2005. Both he and I were part of a four-member panel to testify about the Chinese National Oil Company (CNOOC) bid to buy a controlling interest in UNOCAL. Woolsey argued that the merger was the first shot of WWIII. I argued that it’s no business of ours whether UNOCAL stockholders sell their shares to CNOOC and that it’s no skin off America’s nose one way or the other. For those who missed the resulting fireworks, let me just say that I tore him apart and did so in grand style. I fully expect to do so again this weekend.

Each of us will have five minutes at the NR event to state our case. That’s a tall order. There is a lot that can be said — and has been said — about the alleged evils of foreign oil. Rather than get too deep into the policy weeds (that can wait until the Q&A), I think I’ll use the few minutes I have at the start to say something like the following:

The case for importing oil is the same as the case for importing, say, computer chips. If it’s cheaper to buy something from abroad than to produce it here at home, then the economy in general — and consumers in particular — are made wealthier by imports. Governmental interventions to discourage energy imports are, by definition, government interventions to discourage the use of cheap energy.

Mr. Woolsey contends that the government must act because foreign oil supplies are increasingly subject to disruption. True enough. But that’s why market actors are busily stockpiling oil in private inventories. They are saving oil for a rainy day in the hopes of making a profit if and when that disruption occurs. Private investors are also sinking increasingly large sums of money into oil futures in order to hedge against other investment bets and to diversify equity-heavy portfolios. This has further increased the stock of oil held off the market for future use. 

Many petroleum analysts, such as Philip Verleger and William Brown, think that private inventory buildup and the surge of dollars into oil futures markets is responsible for a large part of today’s price. How large is unclear, but Brown thinks that oil would sell for around $27 a barrel today were this not going on. Think of this as an oil tax — imposed by the market itself — to account, in part, for the possibility of future supply disruptions. In short, what makes James Woolsey think that the market isn’t already hedging sufficiently against the possibility of import disruptions?

And let’s not forget that a supply disruption anywhere in the world will increase the price of crude oil everywhere in the world. Accordingly, even if we imported zero oil, we would still be just as economically vulnerable to a terrorist attack on Saudi oil-producing facilities as we are at present.

Mr. Woolsey’s argument that dollars spent on oil imports funds Islamic extremism is only partially true. Oil revenues in the Middle East are established by global supply and demand, so even if the U.S. spent no money on Persian Gulf oil, producers would see the same revenue coming in the door — all things being equal. 

Regardless, there is no correlation between oil profits and Islamic terrorism. A thorough examination of oil prices from 1983 to present compared with data concerning Islamic terrorist attacks (both in frequency and in body counts) reveals no relationship between the two whatsoever. We’ll soon be publishing the regression analysis to prove it.

In sum, foreign oil is cheap oil. Market actors have every incentive to take the risks of supply disruption into account when they buy products from abroad. Consumers can hedge against these risks, if they are so interested, in any number of ways. Government has no business doing for us what we can do for ourselves. Conservatives have no business embracing government dictates about what oil companies can buy and sell absent Mr. Woolsey’s consent.

I probably can’t pack all that into a five-minute opening statement, but we’ll see.

Gruber & Simon: Crowd-out Is Clearly Significant

Have you checked your inbox for this week’s summary of the latest working papers from the National Bureau of Economic Research? 

If not, you might have missed the latest from Jonathan Gruber and Kosali Simon about how expanding government health programs reduces private health insurance coverage. Here’s the abstract:

The continued interest in public insurance expansions as a means of covering the uninsured highlights the importance of estimates of “crowd-out,” or the extent to which such expansions reduce private insurance coverage. Ten years ago, Cutler and Gruber (1996) suggested that such crowd-out might be quite large, but much subsequent research has questioned this conclusion. We revisit this issue by using improved data and incorporating the research approaches that have led to varying estimates. We focus in particular on the public insurance expansions of the 1996–2002 period. Our results clearly show that crowd-out is significant; the central tendency in our results is a crowd-out rate of about 60%…. We also find that recent anti-crowd-out provisions in public expansions may have had the opposite effect, lowering take-up by the uninsured faster than they lower crowd-out of private insurance.

In other words, for every 10 people added to the Medicaid rolls, the number of people with private health insurance falls by six.

And just in time for the debate over SCHIP reauthorization.