Since the Middle East Is Under Control, Let’s Rattle Russia’s Cage

Fred Kaplan has a sharp piece on Slate on the recent push to deploy a missile defense system in the Czech Republic and Poland, and the inevitable Russian fits over same.

The only thing I’d add to the Kaplan piece is to observe the ongoing and remarkable refusal on the part of the administration to accept the concept of tradeoffs in its foreign policy. We would like it very much if the Russians would become more amenable to adopting a US-friendly approach on Iran in the Security Council. Fine. But to expect them to do so while we steamroll their interests in Central and Eastern Europe is more than a bit naive.

Getting It Wrong (Again) on Social Security

Yesterday, the Social Security Trustees released their annual report on the programs finances and much of the national news media thought they saw good news. “Extra Year Expected for Retirement Funds,” was a typical headline, with nearly all the media reports focusing on the Trustees’ projection that the Social Security Trust Fund would be exhausted in 2041, a year later than was projected last year.

But, of course, that date is meaningless. The Trust Fund is not a pile of money that can be used to pay Social Security benefits. It is simply an accounting measure of how much money the system owes, a collection of IOUs. No one explained it better than the Clinton administration in its 2000 budget message.

These Trust Fund balances are available to finance future benefit payments…but only in a bookkeeping sense….They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits.

The important date in the Trustees’ Report is 2017, just 10 years from now. That is when Social Security will begin running a deficit. At that point, Social Security will have to begin redeeming the special issue bonds held by the Trust Fund. Since the federal government has no extra money with which to redeem these bonds (note our ongoing budget deficit), it will have to raise taxes, borrow more, or cut other government spending.

Moreover, the failure to reform Social Security has allowed the program’s financial problems to get worse. The system’s total unfunded liabilities are now $15.6 trillion (in discounted present value terms). That’s $100 billion worse than last year, despite $600 billion in savings from changes in technical assumptions.  And, of course, workers still have no legal, contractual, or property rights to their benefits.

That doesn’t sound much like good news to me.

If Inequality Is Okay, Let’s Redistribute Anyway

In an outstanding post, Alex Tabarrok explains how the changing economic and technological conditions that helped Harry Potter creator J.K. Rowling become a billionaire lead to inequality without apparent injustice.

Matthew Yglesias’s reply puzzled me:

Insofar as this is a large part of the inequality story, it does tend to undercut highly moralized objections to the right [to be] so darn rich. Rowling isn’t doing anything wrong to get so rich. But on the other hand, insofar as this story is right, it also seems to me that the primary pragmatic worries one might have about pro-equality measures likewise tend to melt away. If the very best in a range of fields are just bound to reap enormous windfall earnings under current technological conditions then it seems unlikely that tax measures aimed at limiting the size of those windfalls would significantly deter anyone from doing their work. One doubts Rowling set about down this path because she thought it stood any reasonable chance of making her a billionaire.

I am confused. If Alex’s account “tends to undercut” the moralized objection to wealth inequality generated by superstar effects, then it also tends to undercut a large part of the motivation for wealth-equalizing confiscation and redistribution, namely, so-called “distributive justice.” Despite his misguided insistence in referring to a sum created by millions of voluntary acts of exchange as a “windfall,” Matt has, it seems, conceded that Rowling’s riches have been justly earned–that the process by which all this money got “distributed” to her is fair. So there is no question of exploitation, injustice, cause for redress, etc. Nevertheless, Matt would like us to know that should political elites decide to confiscate a good portion of Rowling’s fortune anyway, despite the fact that she owns it justly, this policy may not actually be self-undermining in the long run. But then, what is the point of this kind of “pro-equality” redistribution once it is agreed that there was no moral objection to the prior distribution? I’m sure Matt has something in mind, and I hope he’ll share it.

In any case, regarding the “pragmatic” case for taxing superstars, in The Winner Takes-All Society, Robert Frank and Philip Cook argue that huge payouts for superstars induce inefficient overinvestment in their fields. The point of taxing superstars, on this account, is precisely to limit entry into superstar fields and to channel human capital investment that will otherwise be wasted in the largely futile attempt to become NBA players or Hollywood screen legends into more socially productive uses. Frank and Cook acknowledge that this may result in a reduced supply of excellence in certain fields, but argue that this loss is more than offset by more mundane economic gains from increased efficiency in the allocation of skills to people. Even if we don’t get the best rock stars, we’ll still have good rock stars, and we’ll have fewer people wasting productive years trying to be rock stars. And lower levels of inequality!

Now, I don’t know about Rowling’s motivations in particular, but Frank and Cook’s argument – the most sophisticated case I’m aware of for raising taxing on superstars – seems to me to undercut Matt’s general point. If Matt would like to change his argument to “Sure, by sticking it to big-money authors we might not have gotten Harry Potter, but we would have gotten offsetting returns from increased output among schoolteachers and lawyers, and a decrease in inequality,” then I’ll be happy to argue against that instead. As it stands, his current argument seems wrong both as a matter of morality and a matter of pragmatism.           

Free Market Has Lifted Millions Out of Poverty

Free market incentives are spectacularly changing lives over much of the world. In the last 25 years, hundreds of millions of people—400 million in China alone—have climbed out of the dire poverty of living on less than $1 per day. It is the largest movement out of poverty in human history. At 10 p.m. EST on Tuesday, April 24, HDNet will be premiering the documentary The Ultimate Resource, which tells the story of what can happen when ordinary people around the world are given the tools to help themselves. Cato senior fellow Johan Norberg, James Tooley, the author of several Cato policy papers, and noted scholars Muhammad Yunus and Hernando de Soto, are featured in the production.

The Chinese Defense Budget: Myths and Reality

About a month ago, I noticed that Heritage Senior Research Fellow John J. Tkacik, Jr. had argued that China’s defense spending equaled $450 billion, closing in on the U.S. defense spending figure. I thought this was bizarre, but didn’t devote a lot of time to figuring out how Mr. Tkacik had come up with such a figure.

But now I see that Heritage president Ed Feulner has taken to the pages of the Chicago Sun-Times to advance Mr. Tkacik’s claim, so it may merit some debunking at this point.

The claim that China’s defense budget amounts to “about what America spends” is absurd. Dr. Feulner is using a macroeconomic tool that gives a completely erroneous assessment of Chinese military spending.

Purchasing power parity is useful as a heuristic for comparing the overall economies of nations, because it accounts for the fact that one dollar—in U.S. currency—buys a different amount of a fixed basket of goods in one country than in another. Think of attempting to buy, say, one dollar’s worth of rice in the United States and one dollar’s worth in China. One could get more rice for a dollar in China, and PPP is a useful way of observing that fact.

However, as the highly respected International Institute for Strategic Studies warns, PPP’s “use for the purpose of [defense] calculations should be treated with caution.” Dr. Feulner does not heed this warning. He starts by taking the highest available estimate of Chinese defense spending—which is too high to begin with—and then blankets the total figure with the PPP conversion rate, yielding a figure of $450 billion. This ignores the fact that much of Chinese spending is dedicated to foreign military hardware—such as Russian airplanes—and other assets to which PPP should not be applied. Accordingly, IISS has begun, this year, applying PPP only to the personnel and other relevant costs of the Chinese military, since the comparison of “one dollar’s worth of soldier” applies relatively better.

Another problem with the argument that China’s military budget is as large as America’s is the question “Where’s All the Stuff?” If China is spending as much on its military as is the United States, where are the aircraft carriers? (America has 12, China 0.) Where are the many fleets of long-range bombers? What about our thousands of nuclear weapons compared to China’s couple hundred? If Dr. Feulner’s estimate held, the Chinese are being reassuringly wasteful with their money.

The attempt on the part of Mr. Tkacik and Dr. Feulner to inject a figure of $450 billion into the debate over Chinese defense spending does a profound disservice to a rational discussion of U.S. China policy. It is a stunning claim that threatens to create a seriously misleading picture of the People’s Liberation Army.

Multi-Millionaire Singer Proposes Toilet Paper Restrictions

Al Gore’s histrionics are amusing, but nothing he has said compares to Sheryl Crow’s proposal to restrict how much toilet paper can be used. Perhaps there can be a new monitoring bureaucracy to search our homes. Maybe government agencies can stand guard in public restrooms. The BBC reports on the latest in cutting-edge environmentalism:

Singer Sheryl Crow has said a ban on using too much toilet paper should be introduced to help the environment. … The 45-year-old…has just toured the
US on a biodiesel-powered bus to raise awareness about climate change. …The pair targeted 11 university campuses to persuade students to help combat the world’s environmental problems. … “I have spent the better part of this tour trying to come up with easy ways for us all to become a part of the solution to global warming,” Crow wrote. …”I propose a limitation be put on how many squares of toilet paper can be used in any one sitting.”

Crow’s publicists managed to get the BBC to reference her biodiesel bus, but her environmental bona fides do not stand up under closer scrutiny. exposes the demands she makes when going on tour:

The rock star’s performance contract includes specific day-to-day instructions on what kind of booze Sheryl needs in her dressing room (TSG has never seen such attention to detail in any other concert rider we’ve posted). … promoters are directed to purchase specific booze depending on what day of the week the concert falls, as the below rider excerpt reveals. Additionally, when the global warming warrior hits the road, her touring entourage (and equipment) travels in three tractor trailers, four buses, and six cars. Now that’s a carbon footprint!

It’s Not the Uninsured, Stupid

That’s the title of an oped I wrote for today, the opening day of Cover the Uninsured Week.

In that oped, I point to academic research that casts doubt on whether policymakers should be focusing specifically on expanding health insurance coverage per se.  That research raises some difficult issues for the mandate-and-spend crowd that wants government to guarantee “universal coverage.”

I also focus on the main reason why too many people lack health insurance and conclude:

There’s a lesson here for those who want to cover the uninsured: focus on the incentives facing the 250 million Americans who have health insurance, not on the estimated 45 million who don’t. If the federal government stopped encouraging people with health insurance to be less careful consumers, then coverage would be more affordable, the number of people without coverage would shrink, and the quality of care would improve.

My colleague Arnold Kling thinks that, even though I’m right, I’m painting a big bullseye on myself.  Mmeh.