- Osama bin Laden’s death gives us a chance to end what might have become an era of permanent emergency and perpetual war.
- The Cold War ended–what are we doing in Korea?
- Two cheers for President Obama for ending eight (well, three) tax breaks to oil companies.
- Does Osama bin Laden’s death mean an end to U.S.-Pakistan relations?
- Please join us next Tuesday, May 10 at 4:00 p.m. Eastern for a Cato Book Forum on America’s Allies and War: Kosovo, Afghanistan, and Iraq, by University of Mary Washington political scientist Jason W. Davidson. Council on Foreign Relations senior fellow and Georgetown University international relations professor Charles Kupchan will join Professor Davidson in a discussion of the book and its themes, particularly U.S. relations with NATO allies, moderated by Cato director of foreign policy studies Christopher A. Preble. Complimentary registration is required of all attendees by Monday, May 9 at noon Eastern. We hope you can join us in person, but we encourage you to watch online if you cannot attend personally.
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Seven Reasons to Oppose Higher Taxes
As I have explained elsewhere, tax increases are a bad idea — unless you favor bigger government.
And I’ve already added my two cents to the tax debate between Senator Coburn and Grover Norquist regarding the desirability of higher taxes.
So it won’t surprise anyone to know that I fully agree with this new video from the Center for Freedom and Prosperity, which offers seven reasons why higher taxes are a bad idea.
The video is narrated by Piyali Bhattacharya of Young Americans for Liberty, and here are her seven reasons.
- Tax increases are not needed
- Tax increases encourage more spending
- Tax increases harm economic performance
- Tax increases foment social discord
- Tax increases almost never raise as much revenue as projected
- Tax increases encourage more loopholes
- Tax increases undermine competitiveness
I think reasons #1, #2, #3, and #5 are the most powerful.
To a considerable degree, my video on balancing the budget makes the same point as reason #1 about why higher taxes are unnecessary. Simply stated, balancing the budget merely requires a modest degree of fiscal discipline, such as capping spending so it only grows 2 percent per year.
And if tax increases are not needed to balance the budget, then the only purpose they serve is to facilitate a bigger burden of government spending, which is why I like reason #2.
And reason #3 is standard economic analysis, making the common‐sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship.
Last but not least, reason #5 is just another way of saying that the Laffer Curve is real, as I explain in this tutorial.
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More HUD Community Development Duds
Local officials, like their federal and state counterparts, spend other people’s money. Policymakers are naturally unlikely to spend other people’s money as carefully as they would their own. This situation is exacerbated when local officials spend money obtained from federal taxpayers. At least when local taxpayers foot the bill, they have an incentive to keep an eye on how their money is spent. That incentive is largely nonexistent when the money comes from Washington.
HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers. Originally targeted to large cities in decline, community development funding is spread widely to communities rich and poor, large and small.
Local officials love these programs because they amount to a free lunch. As a result, they lobby Washington hard for these subsidies, which means federal policymakers generally only hear wonderful tales of the “economic growth” and “job creation” fostered by the programs. However, a Cato essay on HUD community development programs explains that in addition to complexity and wasteful bureaucracy, these programs are susceptible to financial abuses.
Recent stories in the news provide further evidence.
First, years of mismanaging federal community development funds have caught up to the City of Buffalo. The Buffalo News reports that a HUD inspector general audit says the city “could not provide assurance that more than $20.1 million in transactions was properly accounted for.” According to the article, the audit findings are not surprising:
An investigation published in The News in 2004 found the city had frittered away much of its block grant money through parochial politics and bureaucratic ineptitude.
More than half the spending went to “soft costs” that include covering bad loans, paying city salaries and subsidizing an overblown network of neighborhood agencies, The News found. Relatively little went to brick‐and‐mortar projects, and what was spent to revitalize downtown and neighborhoods was haphazard, with money sometimes going to risky and futile projects.
The mayor and Common Council failed to make major reforms in the program in recent years, and problems have persisted. Two years ago, a HUD monitoring report found continued shortcomings that included too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management of several programs.
Next, LA Weekly reports that the City of Los Angeles plans to give $1 million in federal community development funds to the global architecture firm designing the downtown’s proposed NFL football stadium:
Gensler plans to move from Santa Monica to downtown L.A., where it will use the $1 million in federal community‐development block grant funds to create a hip, new atmosphere for its relocated employees at the “jewel box,” a three‐story building nestled between two skyscrapers at City National Plaza.
Unfortunately, the “hip, new atmosphere” paid for by federal taxpayers probably won’t be the “job creator” that city officials are claiming:
[Mayor] Villaraigosa and City Council members since February have claimed that enticing Gensler from Santa Monica to downtown L.A. is a job creator. But that’s debatable. Some temporary jobs will be created for the jewel box renovation, but Gensler is moving its offices just 20 miles. Many economists would describe L.A.’s action as merely shifting jobs within an intricately intertwined economic area.
A HUD official called the situation “entirely healthy.”
Finally, HUD recently informed the City of Montebello (California) that it had uncovered 31 violations regarding the city’s use of HOME program funds, which are to be used for affordable housing. According to the Whittier Daily News, the report “was so damning it brought interim city administrator Peter Cosentini to tears”:
Last year, HUD demanded that Montebello repay $1.3 million because the city gave a developer HOME money to help build a housing project with affordable units and reported to the federal agency the project was complete, but construction hasn’t started. And a key document submitted to HUD appeared to have been forged, according to the report.
In February, HUD notified city officials that Montebello must also repay nearly $900,000 it used to purchase another parcel of land. The city failed to give HUD needed documents on the property acquisition, including an appraisal, documentation of expenditures and current ownership, according to a Feb. 18 letter from [HUD official] Vasquez to the city.
Cosentini responded in writing, saying city staff has been sent to training as recommended by HUD. Montebello is also conducting an internal investigation into the possible document forgery. The city’s internal investigation of the $1.3 million has been slowed because the developer isn’t cooperating and is “stonewalling” city staff, he wrote. Cosentini also asked for more time to repay the money.
But the city missed a March 1 deadline to submit a repayment plan, according to a letter from Vasquez. And HUD will seek an additional repayment of $2.7 million, Cosentini wrote in the memo.
Take heart federal taxpayers – Montebello city bureaucrats are being “sent to training” per HUD’s recommendation!
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A Message From The Ivory Tower’s Friendly Neighborhood ‘Reactionary’
There is a reason “ivory tower” has a negative connotation, evoking images of effete snobs walled away in ivory opulence as they look down on the commoners and demand outsized respect. The image, unfortunately, is occasionally accurate for individual academics, and almost always so for the whole of academia, which is funded by massive subsidies taken from taxpayers, but walled off by claims that no price can or should ever be affixed to the “public good” it produces. Add to this its professorial residents often demanding limitless freedom — and job security — to say whatever they want about such evil pursuits as “big business” that generate the tax dollars that keep the tower cushy and its jobs secure, and disdain for the tower is well deserved.
The distasteful side of academia is on display in an article by journalism professor Robert Jensen, in which he responds to a recent Texas Public Policy Foundation conference that he attended, and in which I participated. And by “I,” I mean Neal McCluskey, a “reactionary” ideologue suffering from “libertarian fantasies,” to use the good professor’s insightful and even‐handed characterization of me and my positions. He also throws in a guaranteed lefty applause line about the free market causing the recent economic downturn — who the heck are Fannie and Freddie? — and in so doing displays why many people see academia not as a haven for objective truth‐seekers, but a castle for axe‐grinders who want to place themselves high above the people and institutions they just don’t like.
This would perhaps be palatable if our betters sought to fund their lofty positions through the voluntary contributions of others. But many don’t. No, they insist that they should be able to do and say whatever they want using money extracted from taxpayers — including taxpayers they plan to rhetorically assault — whether those taxpayers like it or not. In an equal society — which so many of them, including Prof. Jensen, say they’re defending — they insist that they should be most equal of all.
Perhaps the most ironic part of Prof. Jensen’s commentary is that in his apparent haste to ignore my message and demean the messenger, he missed that he and I are likely in agreement about whether No Child Left Behind‐esque rules and regulations should be applied to colleges and universities. It seems he just infers that my arguing that ending subsidies is the key to meaningful accountability means that I support such efforts as those being pitched by TPPF to impose transparency and accountability on public Texas colleges. I offered no such support, and though I would like to see TPPFs proposals tried in some schools, I would never demand that they be imposed by government. Unfortunately, it appears Prof. Jensen just didn’t do due journalistic diligence by researching what I’ve written on these topics before branding me a bad guy, including taking in my opposition to standardized testing proposals that emanated from the Spellings Commission, or, for that matter, reading my writings on NCLB.
In the end, all I want is for professors to be on the same starting level as the average person: having to get the voluntary support of others to do their vaunted work. But too many academics, like Prof. Jensen, don’t seem to care for that deal. They want to take your money whether you like it or not, lest they lose the ability to tell you how terrible you are.
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Can We Rely on Inflation Expectations?
The Wall Street Journal has pointed out that in his recent press conference Federal Reserve Chair Ben Bernanke used the words “inflation expectations” (or some variation) 21 times. His argument is that we need not worry about inflation because we will see it coming, and then the Fed will do something about it. Such an argument relies heavily on the ability of inflation expectations to predict inflation. Which of course raises the question, just how predictive are inflation expectations?
The graph below compares inflation, as measured by CPI, and inflation expectations, as measured by the University of Michigan consumer survey, the longest times series we have on inflation expectations.
Clearly the two move together. For instance, the correlation between current inflation and expectations is almost 1 (its 0.93), while the correlation between inflation and actual inflation a year later is slightly less at 0.81. The relationship declines as we move further into the future. So yes, consumer expectations appear a reasonable predictor of the direction of inflation. However, they don’t appear to be a great predictor of the magnitude or the frequency of changes. For instance, the standard deviation of actual inflation is about twice that of expected inflation. As one can easily see from the chart, expectations are quite sticky and rarely pick up the extremes. During the late 1970s and early 1980s, expectations did move up, but then never reached the heights actually experienced, nor did consumers ever actually expect deflation during the recent financial crisis (if we are going to base policy on expectations, we should at least be consistent about it).
For about the last decade we also have market based measures of inflation, based upon inflation‐indexed bonds. The TIPS measure tends to be less correlated with actual inflation, but does a better job of capturing the extremes. Although interesting enough, TIPS was already predicting that deflation would be short‐lived before we even experienced any deflation.
The point is that while expectations are useful for qualitatively purposes, they do not have a strong record of recording the extremes. Given that most of us expect some positive level of inflation, the real debate is over how much. In this regard, either survey or market‐based expectations are likely to be both a lagging indicator and an under‐estimate of actual inflation.
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“This time they said, ‘We’re not going.’ ”
“This time they said, ‘We’re not going.’”
That was the quote that caught my attention in last week’s PBS broadcast of “Stonewall Uprising,” a documentary about the “Stonewall riots” that launched the gay rights movement in 1969. And it made me think of other people who finally said “no” to oppression — like Rosa Parks in Montgomery, Alabama, and Mohammed Bouazizi in Tunisia.
At the Britannica blog I look at the connections among these resisters and movements and ask:
What causes some acts of resistance to succeed? Is it historical inevitability, just the right moment for the dry field of hidden dissatisfaction to be set on fire by a spark? Some libertarian — and other — radicals wonder why Americans don’t revolt against what the radicals see as tyranny.
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Release the OBL Photo
A lot of people are asking whether the White House will release photographic proof of Osama bin Laden’s death. It should. The operation to get OBL has been very successful thus far, including the decisions to conduct a raid instead of a standoff bombing and the burial at sea. The latter avoided a repeat of the race to dig up Che Guevara.
The Obama administration should release photos to confirm that we have ended bin Laden’s life. We do not need a decade of OBL sightings and conspiracy theories to undermine the positive steps taken in the last two days. Obama’s birth certificate has been vindicated, and Osama’s revoked. End of story.
And in case you’re wondering, it appears that no informant will qualify for the $25 million OBL award.