On June 29, I posted a blog about dematerialization. I used the iPhone as an example of a technological improvement that enables increased output and resource conservation at the same time. I asked the readers of Cato@Liberty to tell me about additional gadgets and physical things (as opposed to services) that they no longer need thanks to their iPhones. Many have written and we have adapted our graphic accordingly. Please share it widely.
This morning Republican presidential candidate Mitt Romney spoke to the NAACP — not a group traditionally friendly to GOP pols — and made school choice a focus of his address. It was a politically smart message to deliver (though, importantly, federal vouchers outside of DC would be unconstitutional). School choice is very popular with African-Americans, who are often saddled with the worst public schools. Indeed, according to a 2011 Education Next poll, 50 percent or more of African-Americans either “completely” or “somewhat” favor vouchers for students to attend private schools, versus just 23 percent or fewer who oppose the idea. (The results depend a bit on question wording). When presented with tax credits for individual and corporate donations for private school scholarships, “somewhat” or “complete” support hits 57 percent.
It’s a not-so-well-kept secret that the strongest opposition to school choice comes not from the people it would most directly benefit, but the wealthier “soccer mom” demographic that doesn’t seem to realize that though they may like their public schools, not everyone can afford to choose a school by buying a house. Of course that’s an incredibly inefficient way for anyone to choose a school, but it goes from an efficiency afterthought to a life-altering problem when you can’t get your child into a place that is safe and able to maximize his or her potential.
Many Americans don’t grasp that. Most African-Americans do.
This month’s Cato Unbound is on the theme of Liberty, Commerce, and Literature. We all know that the western canon is often extraordinarily critical of the free market, sometimes without its authors appearing to understand very much about economics at all. But why should this be? Literature as we know it owes much to commercial society. Before the early modern era, one could almost never make a living as a writer. People read many fewer books — if they could read at all — and serious literature frequently belonged to the upper classes alone. It would be odd if literature were so unaware of the institutions that made it so popular in today’s commercial, market-driven world.
In her lead essay for Cato Unbound, literary scholar Sarah Skwire asks us to revisit the western canon’s portrayal of business and commerce. Mainstream scholars and libertarians both seem to agree that the “great books” portray business in a uniformly negative light, but Skwire finds the evidence for this contention to be thin. Good literature is not mere propaganda — for either side — and readings that collapse the great books into anti-capitalist polemic are likely to be missing a lot.
In his response essay, Robert A. Heinlein biographer William H. Patterson, Jr. reflects on the origins of liberty, commerce, and literature as we have come to understand them today. He finds that all three have a common root in the European Enlightenment. History, however, often comes in cycles or waves, and the fortunes of all three have risen and fallen over time. He expresses the hope that each of these “at-risk children of the Enlightenment” will flourish in the coming decades.
Poet and literary theorist Frederick Turner suggests a structural explanation for why scholars have been so eager to supply anti-commercial readings to the western canon — which is not, he adds, really that anti-commercial at all: Literary criticism began among gentlemen; it then passed to the anti-commercial meritocracy of the universities. Both built up their own legitimacy by arguing against that of mere businessmen. But alternate readings exist, and Turner even offers a startlingly pro-commerical reading of The Merchant of Venice.
Libertarian activist and science fiction scholar Amy H. Sturgis adds that much of the apparent anti-market bias in literature stems from elitism. By excluding genre fiction, mainstream literary critics also exclude many thoughtful and provocative treatments of markets and their place in political economy. Often the excluded works are highly sympathetic to libertarian ideals. Fiction shapes public opinion, including public opinion about markets, and popular fiction by definition reaches more than any other kind.
As always, our panelists will continue to discuss and debate through the end of the month. We also welcome your letters, which we may publish at our option. Send them to JKuznicki [at] cato [dot] org.
I’m not a big fan of government conspiracy theories, largely because the people in Washington are too bloody incompetent to do anything effectively. Heck, sometimes they can’t even waste money properly even though they have lots of practice.
But it recently crossed my mind that maybe President Obama was born in Denmark. Not in a serious way, of course, but you’ll understand my thought process when you read this passage from a report by the government-appointed Danish Economic Council. It doesn’t mention the Laffer Curve, but the report openly states that an increase in the top tax rate would lose revenue because of changes in taxpayer behavior.
…increased taxation on high income earners in Denmark at best is revenue neutral, and may even reduce total tax revenue. This result applies whether one considers the top 10, the top 5 or the top 1 per cent income group. …Using the base estimate of the elasticity of taxable labour income of 0.2, the conclusion is thus that the existing Danish tax system implies an effective tax rate on high income earners that is above — though close to — the tax rate that generates the highest tax revenue. …As an example, the revenue effect of an increase in the marginal tax rate by 6 percentage points for high-income earners is calculated. Using the base estimate of the behavioural response to taxation, this leads to a revenue loss of about ½ billion DKK. …Overall, the scope for acquiring extra tax revenue from high income earners in Denmark is very limited.
Yet there are some politicians in Denmark who want to raise tax rates, even though the damage to the economy will be so significant that the government loses revenue!
If you’re thinking this sounds familiar, you probably remember President Obama’s infamous statement during the 2008 campaign that he wanted to raise the capital gains tax rate for reasons of “fairness” regardless of whether tax revenues decreased (if you think I’m somehow exaggerating or distorting his words, just go to the 4:20 mark of this video).
By the way, the Danish study probably understates how much revenue the government would lose. Their base estimate about the elasticity of taxable labor income (economist jargon for how sensitive labor income is to changes in tax rates) is much lower than Alan Reynolds reported in his recent Wall Street Journal column.
Rich people, unlike the rest of us, have tremendous ability to change the timing, composition, and level of their income, which is a big reason why upper-income taxpayers paid much more to the IRS in the 1980s after President Reagan slashed the top tax rate from 70 percent to 28 percent.
I’m constantly amazed — in a bad way — that politicians and bureaucrats have been so successful in resisting the insights of the Laffer Curve. The U.S. Treasury Department, for instance, is to the left of the Danish Economic Council and basically assumes that tax policy has no impact on economic performance. The same can be said about the Joint Committee on Taxation on Capitol Hill.
This has to be a case of leftist ideology trumping reality, because the evidence for the Laffer Curve is quite powerful — some of it even being produced by international bureaucracies.
None of this is to suggest that “all tax cuts pay for themselves.” That only happens in unusual cases where a group of taxpayers — such as wealthy entrepreneurs and investors — have considerable flexibility in their economic affairs.
In most cases, the government will collect more revenue when tax rates increase. This is because the impact of the change in the tax rate is larger than the impact of the change in taxable income.
But the real question is whether it is ever a good idea to reduce private economic output in order to give politicians more money to spend. To sensible people, that’s the most important insight of the Laffer Curve.
P.S. While this discussion has focused on the foolishness of setting tax rates so high that the government loses revenue, this does not mean politicians should seek the revenue-maximizing tax rate. The ideal point on the Laffer Curve is the growth-maximizing tax rate.
I’m a bit late to this party, but Senate Minority Leader Mitch McConnell (R) was of course right to tell Fox News’ Chris Wallace last weekend that the federal government should not pursue universal coverage:
Wallace: In your replacement [for ObamaCare], how would you provide universal coverage?
McConnell: Well, first let me say the single best thing we can do for the American health care system is to get rid of ObamaCare…
Wallace: But if I may sir, you talk about “repeal and replace.” How would you provide universal coverage?
McConnell: …We need to go step by step to replace it with more modest reforms…that would deal with the principal issue, which is cost…
Wallace: …What specifically are you going to do to provide universal coverage to the 30 million people who are uninsured?
McConnell: That is not the issue. The question is, how can you go step by step to improve the American health care system…
Wallace: …If you repeal ObamaCare, how would you protect those people with pre-existing conditions?
McConnell: …That’s the kind of thing that ought to be dealt with at the state level…
Naturally, the Church of Universal Coverage caught the vapors. But Time’s Mark Halperin says McConnell’s stance, while embarrassing, is “not a politically dangerous place to be”:
McConnell would have seemed less evasive and could have stopped Wallace in his tracks had he said, “We will not pursue universal coverage because that causes more people–not fewer–to fall through the cracks in our health care sector.”
WASHINGTON — Critics of the new health care law, having lost one battle in the Supreme Court, are mounting a challenge to President Obama’s interpretation of another important provision, under which the federal government will subsidize health insurance for millions of low- and middle-income people.
Starting in 2014, the law…offers subsidies to help people pay for insurance bought through markets known as insurance exchanges.
At issue is whether the subsidies will be available in exchanges set up and run by the federal government in states that fail or refuse to establish their own exchange…
“The language of the statute is explicit,” Mr. Blumstein said. “Subsidies accrue to people who obtain coverage through state-run exchanges. The I.R.S. tries to get around that by providing subsidies for all insurance exchanges. That interpretation will almost certainly be challenged by someone.”
The most likely challenger, Mr. Blumstein said, is an employer penalized because one or more of its employees receive subsidies through a federal exchange. Employers may be subject to financial penalties if they offer no coverage or inadequate coverage and at least one of their full-time employees receives subsidies.
Michael F. Cannon, director of health policy studies at the libertarian Cato Institute, said the link between subsidies and penalties was a crucial part of the law.
“Those tax credits trigger the penalties against employers,” Mr. Cannon said. If workers cannot receive subsidies in states with a federal exchange, their employers cannot be penalized, he said.
Tax credits are not subsidies, of course. But ObamaCare’s $800 billion of refundable premium-assistance tax credits and cost-sharing subsidies are three parts subsidy (i.e., government spending) and only one part tax reduction.
Remember back in 2009, when President Obama and his team told us that we needed to spend $800 billion on a so-called stimulus package?
The crowd in Washington was quite confident that Keynesian spending was going to save the day, even though similar efforts had failed for Hoover and Roosevelt in the 1930s, for Japan in the 1990s, and for Bush in 2008.
Nonetheless, we were assured that the stimulus was needed to keep unemployment from rising above 8 percent.
Well, that claim has turned out to be hollow. Not that we needed additional evidence, but the new numbers from the Labor Department re-confirm that the White House prediction was wildly inaccurate. The 8.2 percent unemployment rate is 2.5 percentage points above the administration’s prediction.
Defenders of the Obama administration sometimes respond by saying that the downturn was more serious than anyone predicted. That’s a legitimate point, so I don’t put too much blame on the White House for the initial spike in joblessness.
But I do blame them for the fact that the labor market has remained weak for such a long time. The chart below, which I generated this morning using the Minneapolis Fed’s interactive website, shows employment data for all the post-World War II recessions. The current business cycle is the red line. As you can see, some recessions were deeper in the beginning and some were milder. But the one thing that is unambiguous is that we’ve never had a jobs recovery as anemic as the one we’re experiencing now.
Job creation has been extraordinarily weak. Indeed, the current 8.2 percent unemployment rate understates the bad news because it doesn’t capture all the people who have given up and dropped out of the labor force.
By the way, I don’t think the so-called stimulus is the main cause of today’s poor employment data. Rather, the vast majority of that money was simply wasted.
Today’s weak job market is affected by factors such as the threat of higher taxes in 2013 (when the 2001 and 2003 tax cuts are scheduled to expire), the costly impact of Obamacare, and the harsh regulatory environment. This cartoon shows, in an amusing fashion, the effect these policies have on entrepreneurs and investors.
Postscript: Click on this link if you want to compare Obamanomics and Reaganomics. The difference is astounding.
Post-postscript: The president will probably continue to blame “headwinds” for the dismal job numbers, so this cartoon is definitely worth sharing.
Post-post-postscript: Since I’m sharing cartoons, I can’t resist recycling this classic about Keynesian stimulus.