Why Taxing the Rich Is Not Enough to Fund Big Government

Appearing on Fox News on Monday, Cato’s Daniel J. Mitchell explained why taxing the rich to pay for big government programs may make for a good sound bite on the campaign trail, but when there aren’t enough wealthy people to tax, the middle class ends up footing the bill.

“When politicians are aiming at the rich, it’s the middle class that winds up getting hit in the crossfire,” Mitchell said. “They use ‘tax the rich’ as the rhetoric, but they always go after the ordinary people to get more money to fund their big government schemes.”

Watch the whole thing:

Intervention Begets Intervention, Which Begets…

The logic in Washington is ineluctable.  If government provides money, then it needs to impose regulations.  If the government takes ownership, then it must provide management.

Bail out the banks.  Set bankers’ salaries.  Bail out the insurers.  Decide on corporate bonuses.

And if the government takes over the automakers, then it should run the automakers.  That, of course, means deciding who can be dealers. 

Reports the Washington Post:

Now that the Obama administration has spent billions of dollars on the bailouts of General Motors and Chrysler, Congress is considering making its first major management decision at the automakers.

Under legislation that has rapidly gained support, GM and Chrysler would have to reinstate more than 2,000 dealerships that the companies had slated for closure.

The automakers say the ranks of their dealers must be thinned in order to match the fallen demand for cars. But some of the rejected dealers and their Capitol Hill supporters argue that the process of selecting dealerships for closure was arbitrary and went too far.

Since federal money has been used to sustain the automakers, they say Congress has an obligation to intervene.

At a gathering of dozens of dealers who came to Capitol Hill yesterday to lobby their representatives, House Majority Leader Steny H. Hoyer (D-Md.) and several other congressmen spoke in support of the dealers. More than 240 House members have signed onto the bill, supporters said.

“We are going to stand with them for as long as it takes,” Hoyer told an approving crowd.

What is next?  Congress deciding the prices that should be charged for autos?  The accessories to be offered?  The colors cars should be painted?

I have no idea who should or should not be an auto dealer.  But I do know that it is a decision which should not be made in Washington, D.C.

The “Washington Monument Syndrome” Backfires in Massachusetts

While politicians and bureaucrats generally are on the same side, there are occasional conflicts. For instance, if politicians want to limit the growth of an agency’s budget (an infrequent impulse, to be sure), the bureaucrats get upset and sometimes they fight back. A common tactic is to try and generate public opposition by leaking to the press that they will have to curtail something that taxpayers actually value. This is known as the Washington Monument Syndrome, which is a reference to the National Park Service’s petulant decision about 40 years ago to close national monuments two days per week because of a very small budget reduction. A very perverse example of the Washington Monument Syndrome just took place in Massachusetts, where officials at the New England Zoo threatened to kill some of the animals if their subsidy was reduced. This was so over the top that even the state’s collectivist governor felt compelled to condemn the bureaucrats for using dishonest scare tactics. The Boston Globe reports:

Governor Deval Patrick yesterday accused Zoo New England officials of creating a false and inflammatory scare with their warning that state budget cuts may force them to close two Greater Boston zoos and euthanize some animals. “As a supporter of the zoo and a parent who has visited often, the governor is disappointed to learn that Zoo New England has responded to this difficult but unavoidable budget cut by spreading inaccurate and incendiary information,’’ Kyle Sullivan, a spokesman for the governor, said in a statement. And a second Patrick aide emphatically ruled out the killing of any animals. …Zoo officials declined to comment on Patrick’s remarks yesterday. They also canceled a public event to welcome two French Poitou donkeys to the Franklin Park facility in honor of Bastille Day tomorrow. John Linehan, Zoo New England chief executive, was scheduled to attend the event. …On Friday zoo officials released a statement saying the funding reduction might require them to shutter both zoos. Then on Saturday, they issued a statement that said state bureaucrats - and not animal-care professionals - would be responsible for deciding whether some animals would have to be killed if the zoos closed. …At least one visitor to the Franklin Park Zoo yesterday suggested the operator solve the budget crisis on its own. “I wonder why the Franklin Park Zoo doesn’t raise their prices so they can support themselves,’’ said Emanuel Achidiev, 28. “They shouldn’t have to rely on the state.’’

Who’s the Isolationist?

There may be no more vicious epithet from neoconservatives these days than “isolationist.”  One would think the term would mean something like xenophobic no-nothings who want to have nothing to do with the rest of the world.  No trade or immigration.  Little or no cultural exchange and political cooperation.  Autarchy all around.

But no.  ”Isolationist” apparently means something quite different.  Never mind your views of the merits of international engagement.  If you don’t want to kill lots of foreigners in lots of foreign wars you are automatically considered to be an isolationist.

President Bill Clinton called Republican legislators “isolationists” for not wanting to insert the U.S. military into the middle of a complex but strategically irrelevant guerrilla conflict in Kosovo.  (He made the same criticism against them for not supporting even more money for foreign aid, which presumably meant the Heritage Foundation was filled with isolationists at the time). 

But the definition is even broader today.  It means not willing to go to war for any country that clamors for a security guarantee irrespective of its relevance to American security.  At least, that appears to be the definition applied by Sally McNamara of Heritage.

On Monday in National Interest online I criticized the argument advanced by Ms. McNamara and others that alliances and military commitments automatically prevent war.  More specifically, the claim is that  if only the U.S. would bring the country of Georgia into NATO – or simply issue a Membership Action Plan, which neither offers a security promise nor guarantees NATO membership – Moscow would never dare take the risk of attacking Georgia.

History suggests this is a dangerous assumption.  Both World Wars I and II featured alliances that were supposed to prevent conflict but which instead acted as transmission belts of war.  One can argue whether or not the alliances were prudent.  One cannot argue that they prevented conflict as so many people thought (and certainly hoped) they would.

Thus, alliances should be viewed as serious organizations.  A promise to defend another nation should be treated as a momentous undertaking.  And the public should be aware of all of the risks of policies advanced by the nation’s leaders.  This should go double when a nuclear-armed power is involved and treble when the geopolitical stakes are trivial for the U.S. while significant for the opposing state.

For suggesting this Ms. McNamara argues that I am both an isolationist and a neo-isolationist.  (I’m not sure of the difference between the two.  Maybe the latter indicates that she realizes I believe in free trade, increased immigration, and international cooperation, which makes for a curious kind of “isolationism.”  Still, advocating a reduction in military commitments and the consequent risk of war, rather than a policy of galloping about the globe tossing security guarantees hither and yon, apparently means I am at least a “neo-isolationist.”)

Even worse, I am accused of “appeasement” for suggesting that being prepared to trade Washington for Tbilisi is a bad bargain.  Ah, the “A” word.  To count the cost and not support every commitment, no matter how distant or irrelevant, is the same as encouraging the next Adolf Hitler.


It is time for a serious discussion as to why we have alliances today.  If it isn’t to promote American security, let’s be clear about that.  If NATO is an international social club, or a second European Union, or a global Good Housekeeping seal of sorts, then policymakers should level with the American people who are paying the bills.

Even more so, if the alliance is geared to defending everyone else, then let’s admit that too.  Georgia would not be defending America.  Nor will Albania, Croatia, Estonia, and the other geopolitical titans recently inducted into the NATO fraternity.  The security commitment effectively runs one way.

So for what stakes are NATO expansion advocates willing to risk war with nuclear-armed Russia?  To hope that America’s commitment is never called is no substitute for honestly assessing the risks, interests, and trade-offs at stake.

If none of these considerations is relevant – if failing to constantly add new defense welfare clients is the same as “withdrawing from the world” and giving Hitler a green light – is there any stopping point? Presumably no.  If Georgia is to come in, then presumably Ukraine too.  If Ukraine, how about Tajikistan, Uzbekistan, Kazakhstan, Azerbaijan, and Armenia?  Why not Mongolia, Nepal, and Bhutan?  Maybe go a bit further.  Perhaps Sri Lanka? 

But why stop there?  Should not any nation which desires protection from any other nation be entitled to American protection?  After all, to say no would, in Ms. McNamara’s words, offer “a geo-political victory to Moscow” or someone else, whether Beijing, New Delhi, Ankara, or whoever.  Failing to protect weak states – East Timor, Congo, Belize, and more – would demonstrate that we have failed to learn the lesson that “appeasement simply does not work.”

It is easy to conjure up new missions for the U.S. military.  But the most important question is whether these tasks advance the security of America – this nation, its people, and its system of constitutional liberty.  Scattering security guarantees about the globe as if they were party favors – treating them as a costless panacea to the problem of war – makes America less, not more secure. 

And making that argument does not mean one is an “isolationist” advocating “appeasement.”  Unless the Founders were isolationist appeasers as well.

As George Washington observed in his Farewell Address:

Europe has a set of primary interests which to us have none; or a very remote relation. Hence she must be engaged in frequent controversies, the causes of which are essentially foreign to our concerns. Hence, therefore, it must be unwise in us to implicate ourselves by artificial ties in the ordinary vicissitudes of her politics, or the ordinary combinations and collisions of her friendships or enmities.

His sentiments apply even more today, when America’s adversaries are pitiful and few, and America’s friends are many and dominant.  The U.S. need not – and should not – withdraw from the world.  But Washington should stop making unnecessary and dangerous military commitments.

Response to Conor Clarke, Part I

Last week Conor Clarke at The Atlantic blog , apparently as part of a running argument with Jim Manzi, raised four substantive issues with my study, “What to Do About Climate Change,” that Cato published last year. Mr. Clarke deserves a response, and I apologize for not getting to this sooner. Today, I’ll address the first part of his first comment. I’ll address the rest of his comments over the next few days.

Conor Clarke: 

(1) Goklany’s analysis does not extend beyond the 21st century. This is a problem for two reasons. First, climate change has no plans to close shop in 2100. Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758. (This depends crucially on the rate of technological progress, and as Goklany’s paper acknowledges, that’s difficult to model.) Second, the possibility of “catastrophic” climate change events – those with low probability but extremely high cost – becomes real after 2100.

Response:  First, I wouldn’t put too much stock in analyses purporting to extend out to the end of the 21st century, let alone beyond that, for numerous reasons, some of which are laid out on pp. 2-3 of the Cato study. As noted there, according to a paper commissioned for the Stern Review, “changes in socioeconomic systems cannot be projected semi-realistically for more than 5–10 years at a time.”

Second, regarding Mr. Clarke’s statement that, “Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758,” I should note that the conclusion that net welfare for 2100 (measured by net GDP per capita) is not based on a belief.  It follows inexorably from Stern’s own analysis.

Third, despite my skepticism of long term estimates, I have, for the sake of argument, extended the calculation to 2200. See here. Once again, I used the Stern Review’s estimates, not because I think they are particularly credible (see below), but for the sake of argument. Specifically, I assumed that losses in welfare due to climate change under the IPCC’s warmest scenario would, per the Stern Review’s 95th percentile estimate, be equivalent to 35.2 percent of GDP in 2200. [Recall that Stern’s estimates account for losses due to market impacts, non-market (i.e., environmental and public health) impacts and the risk of catastrophe, so one can’t argue that only market impacts were considered.]

The results, summarized in the following figure, indicate that even if one uses the Stern Review’s inflated impact estimates under the warmest IPCC scenario, net GDP in 2200 ought to be higher in the warmest world than in cooler worlds for both developing and industrialized countries.

Source: Indur M. Goklany, “Discounting the Future,” Regulation 32: 36-40 (Spring 2009).

The costs of climate change used to develop the above figure are, most likely, overestimated because they do not properly account for increases in future adaptive capacity consistent with the level of net economic development resulting from Stern’s own estimates (as shown in the above figure).  This figure shows that even after accounting for losses in GDP per capita due to climate change – and inflating these losses – net GDP per capita in 2200 would be between 16 and 85 times higher in 2200 that it was in the baseline year (1990).  No less important, Stern’s estimate of the costs of climate change neglect secular technological change that ought to occur during the 210-year period extending from the base year (1990) to 2200. In fact, as shown here, empirical data show that for most environmental indicators that have a critical effect on human well-being, technology has, over decades-long time frames reduced impacts by one or more orders of magnitude.

As a gedanken experiment, compare technology (and civilization’s adaptive capacity) in 1799 versus 2009. How credible would a projection for 2009 have been if it didn’t account for technological change from 1799 to 2009?

I should note that some people tend to dismiss the above estimates of GDP on the grounds that it is unlikely that economic development, particularly in today’s developing countries, will be as high as indicated in the figure.  My response to this is that they are based on the very assumptions that drive the IPCC and the Stern Review’s emissions and climate change scenarios. So if one disbelieves the above GDP estimates, then one should also disbelieve the IPCC and the Stern Review’s projection for the future.

Fourth, even if analysis that appropriately accounted for increases in adaptive capacity had shown that in 2200 people would be worse off in the richest-but-warmest world than in cooler worlds, I wouldn’t get too excited just yet. Even assuming a 100-year lag time between the initiation of emission reductions and a reduction in global temperature because of a combination of the inertia of the climate system and the turnover time for the energy infrastructure, we don’t need to do anything drastic till after 2100 (=2200 minus 100 years), unless monitoring shows before then that matters are actually becoming worse (as opposing merely changing), in which case we should certainly mobilize our responses. [Note that change doesn’t necessarily equate to worsening. One has to show that a change would be for the worse.  Unfortunately, much of the climate change literature skips this crucial step.]

In fact, waiting-and-preparing-while-we-watch (AKA watch-and-wait) makes most sense, just as it does for many problems (e.g., some cancers) where the cost of action is currently high relative to its benefit, benefits are uncertain, and technological change could relatively rapidly improve the cost-benefit ratio of controls. Within the next few decades, we should have a much better understanding of climate change and its impacts, and the cost of controls ought to decline in the future, particularly if we invest in research and development for mitigation.  In the meantime we should spend our resources on solving today’s first order problems – and climate change simply doesn’t make that list, as shown by the only exercises that have ever bothered to compare the importance of climate change relative to other global problems.  See here and here.  As is shown in the Cato paper (and elsewhere), this also ought to reduce vulnerability and increase resiliency to climate change.

In the next installment, I’ll address the second point in Mr. Clarke’s first point, namely, the fear that “the possibility of ‘catastrophic’ climate change events – those with low probability but extremely high cost – becomes real after 2100.”

Continuing Erosion of the Iranian Regime’s Legitimacy

The gravest threat to the survival of the repressive regime in Tehran may be the continuing attacks on its perceived legitimacy.  Part of the factional infighting undoubtedly reflects a simple power struggle.  However, religious principles also appear to be at stake.  A number of Muslim clerics are denouncing the authorities for their misbehavior.

For instance, Iranian cleric and blogger Mohsen Kadivar recently applied several Islamic principles to the Iranian government:

The fourth question concerns attempts by some to cite the protection of the Islamic state to justify suppressing people’s efforts to defend their own rights.

The response is that an Islamic state cannot be protected through violence.

The fifth question is about what Shari’a law says are the signs of suppressive guardianship.

The response is that a leader who fails to respect Shari’a law, promotes violence, and rejects the public’s demands is a clear sign of oppressive guardianship and that leader is oppressive. The recognition of those signs is the responsibility, firstly, of Islamic jurists (experts in religious law) and, secondly, of ordinary people.

His words alone will not topple Mahmoud Ahmadinejad and those behind and around him.  But as the regime’s moral foundation further erodes, the long-term possibility of significant changes in Tehran grows.

Americans should cheer for the advance of liberty in Iran.  But the U.S. government, with precious little credibility for promoting democracy in Iran, needs to stay far away.  The last thing Iranian human rights advocates need is for their struggle to become a contest between the Iranian and American governments instead of the Iranian government and Iranian people.

Quadrennial Claptrap

Since the mid-1990s, the Defense Department has been legally required to review its strategy and force structure every four years, producing what’s called the Quadrennial Defense Review.

The result has been a series of vacuous documents that commingle vague, unsubstantiated claims about great historical shifts underway (think Tom Friedman but without the empirical rigor) with threat inflation. There is no evidence that these documents have produced much beyond wasted time and effort.

Naturally, the Department of Homeland Security decided to produce a quadrennial homeland security review, which is underway. Last week, ForeignPolicy.com reported that the State Department will get in on the act with a Quadrennial Diplomacy and Development Review.  Apparently grand strategy documents have great allure to policy-makers. So it’s worth reflecting on why the QDR has failed.

I say it’s because strategy is overrated. The idea is that government is a scientific enterprise where smart people get together, figure out the wisest course, and then marshal their bureaucracies to the new objectives. The trouble with this view is that government is political; it is about competing bureaucratic interests or ideologies trying to impose their preferences on each other.  Strategy documents have no inherent power over these forces.

In practice, because the military services participate in the QDR’s production, it is an output of the politics it is supposed to guide, a logroll that justifies existing realities. The services all employ manpower to defend their prerogatives. Consultants get hired. A great fuss occurs. Compromise language carries the day, and the thing winds up vapidly endorsing the existing force structure and programs.

A better way to go would for the Office of the Secretary of Defense to use strategy documents to give its views official heft; one more way to impose their preferences on the rest of the Pentagon. That argues for civilian authorship, not service inclusion. Of course, this method is only as good as OSD’s ideas.

The next QDR is due this year. The document will likely endorse the Secretary Gates’ desire to make the military better suited to counterinsurgency, which is OK, and overstate our ability to succeed in these wars, which is not.

The owner of the document is the Undersecretary of Defense for Policy, Michelle Flournoy, who previously founded the Center for New American Security, which has, in its brief life, exhibited great enthusiasm for counterinsurgency campaigns or US military-led nation-building.

Flournoy and a co-author just published a kind of preview of the QDR in Proceedings, the Naval Institute’s magazine. The article not encouraging. It cites the disastrous vehicle of Cold War threat inflation, NSC-68, as an example to emulate. Unsurprisingly it buys into the trendy idea that future US wars will be hybrid wars, mixing conventional and unconventional tactics as Hezbollah did in 2006 in Lebanon. It takes the conventional position that the United States has to police global commons (space, cyberspace, airspace and sea lanes), to protect the “international system.” This apparently means that free trade requires US military hegemony, a common claim with a hazy causal logic. The article makes the curious argument that because the commons are a public good, other nations have “powerful incentives” to help the United States police them. I am all for burden sharing, but this misunderstands the meaning of public goods, which are notoriously underprovided. Powerful incentives encourage free-riding, not mutual aide.

Worst of all, the article buys into the idea that the United States needs to fix failed states, which is a recipe for empire.

The good news is that there is time to fix all this. Maybe the Pentagon will embrace restraint. You never know.