201712

December 18, 2017 9:34AM

Matt Damon in Downsizing

The new science fiction movie Downsizing with Matt Damon opens at theaters this week. Wiki provides a summary:

Downsizing imagines what might happen if, as a solution to over‐​population, Norwegian scientists discover how to shrink humans to 5 inches (13 cm) tall and propose a 200‐​year global transition from big to small, but with one catch: the procedure cannot be reversed. People soon realize how much further money goes in a miniaturized world, and with the promise of a better life, everyman Paul Safranek (Matt Damon) and wife Audrey (Kristen Wiig) decide to abandon their stressed lives in Omaha in order to become small and move to a new downsized community — a choice that triggers life‐​changing adventures. To Paul’s horror and outrage, he finds out that Audrey backed out at the last second. After the couple understands that they do not have a future together, they divorce and Paul must now figure out how to start his life over in a completely different world.

That sounds interesting. But I think the following tweaks would have improved the plot:

Downsizing imagines what might happen if, as a solution to over‐​spending, Cato social scientists discover how to shrink the federal government to 5 percent of GDP and propose a 20‐​year transition from big to small, but with one advantage: the procedure cannot be reversed. People soon realize how much further money goes in a world with a miniaturized Washington, and with the promise of a better life, most Americans abandon their partisan acrimony and embrace their newly empowered local communities — a choice that triggers life‐​changing adventures. To widespread horror and outrage, Americans find that a few big government zealots try to sabotage the peaceful transition. After the zealots understand that Americans want freedom, they emigrate to a completely different world to impose their ideas, which are divorced from reality.

For this version, I would cast Vince Vaughn instead of Matt Damon and Julienne Davis instead of Kristen Wig.


Anyway, while we are waiting for Hollywood to make Downsizing 2 along these lines, we should ask policymakers to pursue real‐​life downsizing of the federal budget. The proposals here would chop spending from 23 percent of GDP to 18 percent. More cuts would be needed to reach 5 percent, but remember that defense is only 3 percent of GDP, and other spending is less important. 


Down​siz​ing​Gov​ern​ment​.org discusses how to miniaturize federal agencies. Rather than shrinking bureaucrats to 5 inches tall, it proposes to eliminate their programs, allowing them to start over in the completely different world of the private sector.


Cato’s new E‑book, Downsizing Federal Government Spending, includes essays by Cato scholars on how to divorce federal taxpayers from farm subsidies, infrastructure spending, and other programs that shrink their wallets. 

December 14, 2017 1:38PM

Lower the Corporate Tax Rate As Much As We Can, While We Can

The recently concluded tax reform conference report draft includes a one-percentage-point increase in the corporate tax rate above what both the House and the Senate passed, with some of the revenue savings being used to keep a portion of the deduction for state and local taxes as well as forego delaying its implementation until 2019, as the previous bills proposed. There remains a chance the rate may tick up yet again before negotiations are concluded, especially if other targeted tax breaks get some traction in the Congress over the next few days.

However, even this small diminution in the rate reduction is a mistake: while a one point increase may seem to be a trifle, each uptick in the corporate tax rate represents a large opportunity cost that Congress won’t be able to easily rectify in the future.

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December 14, 2017 12:35PM

All I Want for Christmas Is…Civilian Leadership of U.S. Foreign Policy

In their infinite wisdom, the Founding Fathers warned against the dangers of standing armies and determined that it should be civilians, not military leaders, who had final authority over the size, shape, and use of America’s armed forces. Their reasoning was simple. Without civilian control of the military there would be no bulwark against military coup or dictatorship. 

But civilian control should not stop at simple control over the armed forces. Civilian officials must provide active leadership and management of the full spectrum of American foreign policy efforts, from intelligence gathering and alliance building to arms sales and crisis diplomacy and, most importantly, the decision to make war. The old chestnut that “War is too important to be left to the generals” is an old chestnut for a reason: It’s true.

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December 14, 2017 12:33PM

Explaining Commerce to the Commerce Secretary

As college students across the country begin their final exams, we are reminded of the unfortunate reality that much of what we learn in school or other parts of life will eventually be forgotten. Usually, this is more of a nuisance than a problem. A failure to recall the finer points of Shakespearean literature is unlikely to trouble most accountants, nor is a marketing specialist apt to lose sleep over the lost ability to define the Pythagorean Theorem. It’s a bigger problem, however, when the Secretary of Commerce forgets some basic lessons of international trade.

Appearing at an Atlantic Council event earlier this week, Commerce Secretary Wilbur Ross argued that the Korea-U.S. Free Trade Agreement (KORUS) should address the U.S. trade in goods deficit with South Korea. Despite the fact that economists generally agree that the trade deficit is not a good indicator of a country’s economic performance—or as our colleague Dan Ikenson argues, is not a problem to solve—Secretary Ross thinks otherwise. In the context of president Trump’s recent visit to Asia, he stated the following:

President Trump…underscored the need to rebalance the KORUS free trade agreement to reduce the substantial trade deficit that we have with Korea. That deficit has nearly tripled to $27.7 billion since KORUS went into effect. Among the most important reasons for the increased deficit has been the imbalance between automotive imports and exports. Our automotive imports from Korea are almost nine times our exports of autos to them. And remarkable as it may sound, we export to Korea more dollars’ worth of corn and beef combined, than we do cars—seems strange for an industrialized economy.

The solution he offered to this “problem” was for South Korea to agree to purchase more liquefied natural gas, petroleum, food products, machinery and industrial equipment from the United States instead of other countries.

There are two basic things Secretary Ross gets wrong with this line of reasoning. First, he misunderstands the one true and nontrivial principle in the social sciences, which is Ricardo’s theory of comparative advantage. Second, by focusing only on goods—and cars in particular—he ignores the diversity of the U.S. economy, and some of its greatest strengths, such as the services industry. We address both in turn.

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December 14, 2017 12:22PM

Would a Chilean‐​style Fiscal Rule Work for the US?

It was reported last week that a Republican working group is considering a proposal to link spending caps to the growth of actual or potential GDP. This is encouraging, and much more economically sensible than rigid balanced budget legislation.

I’ll write about other countries’ experiences with backward-looking rules in the future. But one country which uses forward-looking estimates of potential GDP to determine overall government spending is Chile. Indeed, economists such as Jeffrey Frankel have previously written glowingly about Chile’s fiscal rule, which Frankel concluded had constrained government debt whilst being flexible enough to allow automatic stabilizers to operate.

First, some background: in 2000 the Chilean government voluntarily adopted a structural budget surplus rule of one percent of GDP each year. This was lowered to half a percent of GDP in 2007, and then to a simple balanced structural budget rule in 2009 once government debt had essentially been paid off.

What does this mean in practice? A committee of independent experts meets once a year to provide the government with estimates of potential GDP. A separate committee assesses whether copper prices (a key driver of revenues) are higher or lower than trend. These two opinions are put together to determine an estimate of government revenues for the year if the economy was operating at its potential with copper prices at their long-term level. This determines the total maximum spending level allowed in the budget plan for the year. In other words, spending is capped based upon an estimate of tax revenues if the economy was at potential.

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December 14, 2017 11:52AM

All I Want For Christmas Is to Fight Just the Necessary Wars

All I want for Christmas is for the U.S. to only fight the wars it has to and to stay out of all the others. The lives of young Americans are too high a price to pay for wars driven by threat inflation, ego, or fool‐​hardy social experiments.


First, we’re Americans. Enough of the hand wringing. Islamist‐​inspired terrorists do not hide around every corner. Instead, we have been and continue to be quite safe. The threat from groups operating within failed states like Afghanistan, Iraq, Syria, and so on pales in comparison to Hitler’s armies marching across Europe and our nuclear Cold War with the Soviet Union, despite President Trump’s attempts to equate the three.


Second, the unseemly traits of ego, vanity, and hubris should not push us to fight when we don’t have to. Teddy Roosevelt had it right: Walk softly and carry a big stick.


Third, American lives and financial treasure should not be spent on cool sounding social experiments like, “democracy will flourish in Muslim‐​majority states in response to U.S. invasions.” Since 9/11, though, all three U.S. administrations have referred to Afghan and Iraqi leaders as “reliable partners” at one time or another, while extolling democratic progress in both countries.


The data, however, provide no support for those claims. As of today, Freedom House gives both countries it’s lowest rating — “not free.” And, in terms of corruption, Iraq and Afghanistan’s governments rank worse than 94 and 96 percent of all governments worldwide.


All war is darkness. My Opa spoke those words to me 40 years ago. I remember it vividly because as he shared that one sentence, he pointed to the bullet hole in his shoulder and the shrapnel scar on his neck. He had barely survived the war as an enlisted man in the German army; and when the war ended, he found his home country had become East Germany. Three years later, he took my Oma and (then) three year old dad and they escaped to the west. Eventually, they made it to America.


My war experiences have been much briefer than my Opa’s, but I get his point. All war is darkness, so for the sake of those sent to do the fighting, the war has to be a necessary one. And our war on terror isn’t.


Let’s bring America’s sons and daughters home for the holidays. We’ll all be the better for it.

December 14, 2017 11:36AM

All I Want for Christmas is the Travel Ban to End

On December 4, 2017, the U.S. Supreme Court allowed the third version of the President's travel ban, which limits the entry of citizens from eight countries, to go into effect. The White House claimed the Supreme Court decision as a victory, with spokesman Hogan Gidley saying, “The proclamation is lawful and essential to protecting our homeland. We look forward to presenting a fuller defense of the proclamation as the pending cases work their way through the courts.”

While the domestic implications of the Supreme Court’s decision will unfold in the next few weeks, the foreign policy implications will be widespread, and potentially damaging to U.S. interests and reputation.

Before delving into the foreign policy implications, however, it is important to note two important aspects of the U.S. Supreme Court that determine the impact of its decisions on U.S. foreign policy. First, even though the judiciary is constitutionally designed to check against executive power expansion, past administrations, along with the Court itself, have taken a narrow view of the Court's authority when it comes to interpreting international laws and foreign policy. Second, and most importantly, the Supreme Court has interpreted the Case or Controversy Clause of Article III of the Constitution in a way that prohibits the courts from issuing advisory opinions. The Court’s decision on the travel ban, however, is to stay the district court’s preliminary injunction, which is a temporary maintenance of the status quo. The Court has decided to the let the ban be implemented while the merits of the ban continued to be argued in lower courts.

Yet, even though the Court’s decision does not necessarily mean that the ban will ultimately be upheld, the decision has had three immediate—and negative—foreign policy implications. 

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