To oppose something ...

... is to maintain it. - Ursula LeGuin

So the sequester is supposed to kick in this Friday, March 1 - or, more accurately, the budget sequestration provision of the Budget Control Act of 2011. I had forgotten most of what I ever knew about how this came to be but Wikipedia explains that:

In 2011, sequestration was used in the Budget Control Act of 2011(BCA, P.L. 112-25) as a tool in federal budget control. This 2011 act authorized an increase in the debt ceiling in exchange for $2.4 trillion in deficit reduction over the following ten years. This total included $1.2 trillion in spending cuts identified specifically in the legislation, with an additional $1.2 trillion in cuts that were to be determined by a bipartisan group of Senators and Representatives known as the "Super Committee" or officially as the United States Joint Select Committee on Deficit Reduction. The Super Committee failed to reach an agreement. In that event, a trigger mechanism in the bill was activated to implement across-the-board reductions in the rate of increase in spending known as "sequestration".

The sequestration was supposed to kick in on January 1, 2013, but “the American Taxpayer Relief Act of 2012 delayed in until March 1 of that year.”

Ah, yes. Debt ceilings, sequestration, Super Committees, fiscal cliffs, all that. And once we get past March 1, it looks like we’ll need another Continuing Resolution by March 27. Then there’s another fight over the debt ceiling coming up in May. Another fiscal cliff. Another chance for the parties to squabble, another chance for the economy to tank, another chance to have our credit rating downgraded, another chance for everyone outside of government to pay still less attention to still another crisis that never quite happens.

I'm pretty much sick of all this. So here’s what I’d like the Congressional Republicans to do, assuming they can act together.

Call a press conference.

Talk about the lousy shape the economy is in. Talk about the unemployment rate and the number of people who have stopped looking for work. Talk a lot about the morality of leaving future generations with crushing debt so we can have what we want now.

Say that the best choice for the country is the Path to Prosperity. State that the House is prepared to pass a budget based on this proposal immediately if the Senate Democrats will agree to pass it unchanged and President Obama will agree not to veto it.

Say that if the Senate Democrats and President Obama will not so agree, then the second best choice for the country is Bowles-Simpson. Acknowledge its flaws but point out that it is better than what we have now. State that the House is prepared to pass a budget based on this plan immediately if the Senate Democrats will agree to pass it unchanged and President Obama will agree not to veto it.

Say that what is bad for the country are the policies the President and the Congressional Democrats want. Explain what they are and why they are bad. If the Congressional Republicans cannot explain what these policies are and why they are bad, they should find another line of work.

Then say that nonetheless there is something that is worse for the country than the policies of the President and the Congressional Democrats: our current situation. The unending crises, the constant fiscal cliffs, the partisan bickering, the name-calling, the accusing, the lack on a budget, the constant kicking the can down the road through Continuing Resolutions and suspensions of the debt ceiling - none of that is good for anyone. Therefore, if the President and the Senate Democrats will not agree to either the Path to Prosperity or Bowles-Simpson, the Republicans are prepared to do the following:

1) Raise the debt ceiling to $21.5 Trillion.* Explain that this will be the last debt ceiling raise ever approved by a Republican-controlled house of Congress and that no future suspension of the debt ceiling will be considered.

2) Pass whatever budget President Obama and the Senate Democrats propose. Explain that Republicans will vote for a continuing resolution to get the country to the end of June and give President Obama and the Congressional Democrats a chance to put together a budget bill. That will be the last Continuing Resolution ever approved by a Republican-controlled house of Congress.


End the press conference.

The Republicans should do all this while avoiding partisan sniping, sarcasm, loaded language, and pettiness like the plague. It would be nice for at least one side to discuss the issues rather than the people involved, the supposed motives of the other side, the history of the failures, and whose fault it all is. And if high-mindedness isn’t enough reason to take this tack, the fact that bad-mouthing President Obama doesn’t work should be.

Doesn’t advocating this make me a nihilist, rooting for disaster to prove my point - or at least to gain political advantage in the long run? No.

I believe we’ll end up with a debt ceiling of $21.5 Trillion before Obama leaves office anyhow so that’s not a giveaway. As for passing the Obama/Democrat budget, there are three possibilities. One is that this approach works and the country recovers economically: unemployment drops like a rock; housing sales pick up; young people buried in student loans find good jobs; small businesses spring up like grass in a meadow and flourish like poplars by a flowing stream; the infrastructure is healed; consumer confidence skyrockets; a new sense of purpose and energy spreads across the country - and 90% of those polled now call themselves Democrats. Bad for conservatives but good for the country so I couldn’t really complain.

The second possibility is that the economy will remain in the doldrums. I believe this is the best we can hope for if we keep doing what we’re doing now so this outcome would be a wash.

The third possibility, of course, is that things get much worse. This is worrisome but I think there’s a good chance that’s going to happen soon anyhow if we keep “solving” our economic problems the way we have been - and I’m absolutely certain that’s going to happen eventually if we continue the way we are and that “eventually” isn’t much later than “soon”. I also think there’s a limit to how much damage President Obama and the Congressional Democrats can do in four years - and to how much damage they will risk doing given that all but one of them will be up for re-election shortly. It’s easy for them to talk Big Left when they know their policies won’t be implemented; knowing they are going to have to live with the consequences should induce a certain amount of realism and caution into their approach.

I truly believe that continuing down the road we’re on is the worst possible path. Taxes are going up already; meaningful, intelligent spending cuts don’t seem on the table; wandering from one crisis to another is practically the definition of a climate of uncertainty; and no one on either side is accountable for anything.

So I’d like to see the Republicans ask President Obama and the Congressional Democrats to do the conservative thing and then, if they refuse, gracefully step aside. Doing so will require President Obama and the Democrats to actually sit down and put something detailed on the table and I hope that once budgeting stops being primarily an exercise in slash-and-burn partisan politics, the Democrats will come up with something less destructive. And even if they don’t, why keep putting the economy through these fiscal cliff upheavals if we’re going to end up raising the debt ceiling and doing nothing to fix our actual economic problems anyhow?

*****

Notes:

$21.5 Trillion is an incredibly big number. However:

When Obama entered office, the debt ceiling was $11.315 Trillion. It is now $16.394 Trillion - an increase of $5.079 Trillion in Obama’s first term. If we increase the debt ceiling by the same amount in Obama’s second term, we will end up with a debt ceiling of $21.473 Trillion. Round it up a little and we get $21.5 Trillion.

To look at it another way:

When George W. Bush entered office, the debt ceiling was $5.95 Trillion. When he left office it was $11.315 Trillion. That’s an absolute increase of “only” $5.365 Trillion but a percentage increase of 90%.

If we increase the debt ceiling during Obama’s two terms by 90%, we will end up with a debt ceiling of $21.4985 Trillion. Round it up a little and we again get $21.5 Trillion.

So $21.5 Trillion it is.

The Lifelong Endowment

T99 over at Grim's Hall recently put up a post called "The wages of consent". It points out that:

A welfare state threatens to become a system in which the most valuable service some voters can offer the market is to elect a politician who will drain resources from those who didn't elect him.  The politician pays for this service by routing a fraction of the loot back to his loyal voters.  The welfare state differs from our earliest attempts at state-administered charity in that the politician no longer is commandeering and redistributing only a small fraction of the nation's wealth to a small number of the most desperately needy.  Now he's commandeering from 49% of voters and redistributing to 51%.  Once the politician realizes that that's the path to staying in office (where he makes a handy living by skimming off the top of the redistributed funds), we are well on our way back to a command economy, one in which a centralized power directs where most of the resources shall be routed.  That way lies poverty for everyone.

and asks:

How do we stop a pernicious system of votes for hire?

I believe the ship has sailed as far as ever getting back to a system where people in the United States don't expect money to be taken from some of us to and given to others of us, so the fact that T99 is not asking, "How can we convince 51% of the people that wanting money to be redistributed to them is a Very Bad Thing?" seems to me to be a step in the right direction. That is, she is not asking how we can do the impossible but, rather, whether there's a way to do the maybe-perhaps-possible. There may be.

Quite a while back, someone who read my blog emailed me about a plan he had to address this very issue. Called the Lifelong Endowment*, the plan takes the government out of the equation by setting up a direct transfer of money from those who have more to those who have less. The plan document** detailing the Lifelong Endowment summarizes it thusly:

It assesses sixteen percent of all personal income and retained corporate earnings on a monthly basis, and distributes the full proceeds in equal shares to each adult citizen and quarter shares to minor citizens. Neither the assessment paid nor the benefit received is subject to federal income tax. [snip] Two pieces of companion legislation complete the proposal. The first eliminates the Social Security Old Age, Survivors, and Disability Insurance program (OASDI), and returns all employer and employee payroll taxes to the employee as wages. It also guarantees beneficiaries a total Lifelong Endowment benefit not less than the total OASDI benefit they would otherwise receive. The second measure is a corporate income tax rate reduction sufficient to make the proposal revenue-neutral for corporations.

The math here is simple and lovely. The Lifelong Endowment is:

- Flat in assessment: everyone pays the same percent.
- Flat in distribution: each adult gets the same as every other adult; each child gets the same as every other child
- Perfectly redistributive in effect: the poorer you are, the greater your net positive; once you become rich enough, the effect is a net negative

Thinking about this approach does require that we accept the inevitability of some kind of redistribution and turn our attention to minimizing its ill effects. Anyone who is still attempting to eliminate redistribution itself will not find this approach helpful. I encourage everyone, however, to think about how various scenarios would play out under this approach. When I did that, I usually found that this approach worked quite well even in those situations where I was sure I could find a fatal flaw.

How does the Lifelong Endowment "stop a pernicious system of votes for hire"? By getting the Federal government out of the redistribution business. This happens first because the sixteen percent assessment does not flow to the Federal government. Rather:

The collection of the tax and the apportionment of its receipts occur monthly. It is administered through accounts provided and maintained for that purpose by the banks of the United States, the choice among which is made according to the convenience of each individual.

The government has no control over this money and is unable to "make a handy living by skimming off the top of the redistributed funds". It "has no role other than to enforce [the plan's] operation". There is no reason to offer votes in exchange for loot since the politician has no loot to give. There are thus no special interest groups arguing for greater support for their group.

Second, because they have no control over the money, the government and its employees and sub-contractors also have no control over recipients of the money. In speaking of those who currently "look to … [government programs] to satisfy basic needs", the plan document says:

They must accept the definitions and priorities set by the [government program] for the problems that they face and for the solutions to those problems; but these and all other aspects of the [government program] emerge from public-choice processes that reflect interests unrelated to their own. They must forego productive activity on their own behalf in order to meet program eligibility requirements, but attend without fail to unproductive dealings with executive bureaucracies. Both the [government program] and the relationship of citizens to it depend solely on public-choice and resulting political factors that again reflect interests other than their own; but the possible (or threatened) loss of their [government program]-client status can command their support for those interests nonetheless. Through a combination of requirements, prohibitions, and incentives, current assistance programs are thus destructive of the personal, economic, and political liberties of those who must rely on them.

The Lifelong Endowment removes this power from the government. The money is distributed to everyone equally with no intervention from or direction by the government. Recipients need not adopt or forego specific behaviors in order to be "allowed" to receive this money; they need not support policies they don't like in order to elect the politicians who will continue to "give" them the money they need to keep body and soul together:

Citizens are not beholden for their benefit to the patronage of a political faction, but rely instead on the general prosperity that both their own efforts and the genius of their shared civic endeavor help to create.

The Lifelong Endowment also means that people who need financial assistance but would like to support themselves don't have to worry about losing the assistance when they start trying to help themselves. A young mother can take an entry level job without worrying that she'll lose subsidized day care: she goes right on getting her share of the Lifelong Endowment. Even if a big chunk of her salary goes to pay for child care her family is no worse off than it was before and she has her foot in the door of the work world. If a man with an injury that makes it hard for him to work 40 hours a week at his previous well-paid job finds an easy, low-paying job 15 hours a week, he doesn't have to worry he'll lose his disability payment:

All citizens alike can exercise and develop their personal autonomy, defining and ranking the challenges of life in accordance with their own perceived interests. All citizens have the identical incentive to pursue their economic self-interest through productive and voluntary market exchange.

The Lifelong Endowment has effects beyond interrupting what T99 calls "a pernicious system of votes for hire". One of the most important is that it undercuts the idea of a limited pie where more for the rich somehow means less for the not rich. Instead we are all tied together: the more money the Koch brothers make, the more money we all get. Everyone now has a rooting interest in policies which encourage making money. The Lifelong Endowment does this by:

… tying the benefit amount directly to national prosperity. It thereby enlists the self-interest of citizens toward the prosperity of their neighbors, and thus toward creating a nation where both they and their neighbors can prosper.

In other words, once the Lifelong Endowment is in place, proposing a plan that would limit the prosperity of anyone in the country would mean limiting the prosperity of everyone in the country. When a politician starts railing against those who are making too much money, everyone in the country can do simple arithmetic to figure out how much of that "too much money" will flow into the Lifelong Endowment and thence to them - and can see clearly that if that "too much money" flows into the government tax coffers instead, everyone will see far less direct benefit from it.

Although the plan document does not mention it, there is another aspect of the Lifelong Endowment I think is important. It brings into sharp focus the question, "How much of my income am I willing to give to other people?" That, after all, is really what's happening with all Federal income support programs: Social Security; disability payments; unemployment benefits; welfare; food stamps; housing subsidies. All of it. I am giving some of my income to other people: I get taxed; you get money. However, the Rube Goldberg contraption that funnels my taxes to your wallet is so opaque that the connection between the two simply can't be grasped. This makes it very easy to agree to an increased benefit for Person A because it appears to have virtually no impact on Person B's taxes - even if Person B is me. If we extend unemployment benefits for another six months, it may cost each of us, I don't know, $1 a year. That seems like a small price to pay to help those who need assistance. But $1 here and $1 there and before you know it you're talking either confiscatory tax rates or a multi-trillion dollar deficit.

WIth the Lifelong Endowment, we're starting from the other end. We aren't asking, "How much money do we want the needy to have?" but "How much money are we wiling to ante up?" If 16% seems like a lot to be assessed but we run the numbers and it turns out that the government is already redistributing the amount of money that a 16% assessment will provide, well, guess what? That means someone somewhere is already chipping in at least 16% to provide that money. Or, more likely, our grandchildren will be doing so here shortly. In other words, this approach also brings into sharp focus the realization that money given to people must be coming from somewhere and that somewhere is other people, either currently existing or soon to be born into crushing debt.***

I do have some concerns about the Lifelong Endowment as currently proposed. First, the plan leaves intact existing Federal income support programs. Since the Lifelong Endowment would leave most of the people currently receiving them above the means-testing line, the idea is that those programs would be unused without ever being repealed. I have serious reservations about this. I believe eventually the poverty line for participating in those programs would simply be raised and we would end up with a Lifelong Endowment and massive Federal income support programs. (The framework for that is already in place with the trend toward redefining poverty from an absolute condition to a relative one.) I would prefer that the existing income support programs be discontinued.****

That said, the plan document is not just about defining the Lifelong Endowment: it is also about building a coalition to pass it. Leaving the existing Federal income support programs in place may be necessary to build that coalition:

… the continuing availability of current aid programs … serve[s] to reassure voters that their support of the proposal carries little risk.

I am also hesitant about the proposed distribution formula; I lean toward simply giving each adult a full share and children no share. My concern here is about children being seen as little ATMs, whether we're talking about families getting more money the more children they have or divorcing couples whose child custody fights suddenly get much uglier. However, I can see the appeal of providing shares for children so I go back and forth on this issue.

Then there is the assessment on retained corporate earnings. I am leery of corporate income taxes in general so this makes me uncomfortable. However, again, the plan is designed to build a coalition to actually enact the Lifelong Endowment. It may be that the assessment on corporations is necessary to make the Lifelong Endowment large enough to be embraced by a "hyper majority" and/or that requiring corporations to "pay their fair share" may be required to garner support on the Left. Furthermore, the plan envisions an offsetting income tax reduction so the effect on corporations is neutral. We should be aware, however, that once we go this down this road it will probably be impossible to ever remove the Lifelong Endowment assessment against corporations. That means we will always have, a minimum corporate income tax (at least one retained earnings) of 16%.

Finally, what keeps the same "pernicious system of votes for hire" from kicking in and resulting in politicians increasing Lifelong Endowment assessment from 16% to 18%, then 20%, then 25%?

Nothing. Which is why it would be nice to set this up as a Constitutional amendment if possible.***** The plan's author takes the long view here:

The proposal envisions that some variant of a Lifelong Endowment would eventually be adopted as a constitutional amendment. An effort to curtail government powers rather than expand them has the advantage of tactical flexibility: this and other restrictions of government spending can proceed at first through legislation, and their effects can be studied and debated, before the more difficult task of adopting a constitutional remedy is ever attempted.

My own shorter view is that while this type of assessment creep will be a danger if the Lifelong Endowment is enacted through legislation, I believe it is less of a danger when how much is really being paid for a benefit is front and center. It can sound very reasonable to say, "Poor people need more money. Let's increase everyone's food stamp allowance." It can sound even more reasonable to say, "Poor people deserve better food. Let's loosen up requirements for food stamps on top of Lifelong Endowment shares." It should sound pretty unreasonable, however, to say, "Getting 16% of your money isn't enough; poor people need 20%." And if that doesn't sound unreasonable, we're pretty much toast anyhow.

So. Comments, questions, problems, screams of outrage?

*****

Notes:

* I like the name "Lifelong Endowment" because it removes the word "redistribution" and the word "entitlement". It emphasizes the idea that we are all in this together. It removes the stigma of government handouts. It also removes the implication of charity which is a serious consideration if a plan is going to garner support from the Left.

** The Lifelong Endowment plan does not exist in a website although a summary of it can be found in this comment to a PJ Media post. When I quote the plan, I am quoting with the author's permission from our correspondence, including an approximately thirty-page document detailing the plan. Throughout this post, I have snipped specific dollar calculations and amounts when I quote from the plan document. They are not the focus of my post and they are based on older data and need to be updated.

*** I disagree with the statement by Fabius Maximus here that "Proposals like this are dross unless we see the numbers". If the plan is a way out of our current situation then we figure out if the numbers can work. If it causes more problems than it solves then the numbers are irrelevant.

**** I believe health care/insurance issues must be handled separately so I would treat Medicare and Medicaid separately.

***** In the form of the plan outlined at the comment to a PJ Media post, the author proposed a variable rate, set by an independent board. This proposal was not part of the plan document I have. I am extremely leery of a variable rate since such rates seem to travel in only one direction.

Mirror image

I have to say that in general I think the Occupy Wall Street group is as dumb as a whole yard of grass (although I do think they’re right about bringing back Glass-Steagall). However, the juxtaposition of two posts at Contentions brought into focus the fact that it’s dangerous for the Right to simply dismiss the whole shebang.

In the first post, entitled “The Stupid Party”, Peter Wehner considers it stupid for the Democrats to associate themselves with people who think like this:

Another 37 percent [of Wall Street protesters interviewed] say capitalism can’t be saved; it’s inherently immoral. And when asked to explain how they would fix Wall Street, New York magazine received the following responses: “A maximum-wage law.” “President Elizabeth Warren.” And “Burn it down.

A few posts later on, John Steele Gordon is writing about Herman Cain’s 9-9-9 plan and says:

... as I suspect the people know and the chattering classes don’t want to know, the tax code cannot be reformed. Any changes just add to its monstrous and deeply corrupt complexity. It will be a dead weight on the American economy until it is replaced with a brand new tax system.

I agree with Steele and disagree with the OWS view of capitalism. But the same sense of helplessness in the face of an existing structure can be seen in both views: this can’t be fixed; we need to wipe it out and start over. Imagine the OWS position being stated as:

... as I suspect the people know and the chattering classes don’t want to know, the current economic system cannot be reformed. Any changes just add to its monstrous and deeply corrupt complexity. It will be a dead weight on the American economy until it is replaced with a brand new economic system.

Sounds a lot more reasonable, doesn’t it? In fact, it sounds kind of like what the Tea Party is saying. Now, the Tea Party means “get rid of crony capitalism, hack back the socialist elements, get government out of the way of business”; OWS means “get rid of crony capitalism, hack back the capitalist elements, get business out of the way of government”. But they’re both responding to the same sense that something has gone very, very wrong and, specifically, gone very, very wrong in the nexus of Big Business and Big Government.

I don’t think OWS speaks for - or represents - 99% of the people in the United States. But I strongly suspect that much of their anger resonates with much of the country. Instead of deciding OWS is stupid, those on the Right should be pointing out that what the protesters are angry about is what all Americans should be angry about - and then go on to lay out why the Tea Party’s solution of less government is a better way to fix things than is the OWS solution of more of the same.

Reduce, reuse, recycle

If I were the “bipartisan, bicameral committee on deficit reduction”, I would simply have my staff retype the Simpson-Bowles plan on committee letterhead. It would save a lot of time and a lot of money and produce an outcome at least as good as anything the committee will come up with in the next three months.

Everybody likes Ike

Yesterday the panel at Fox News Sunday included Liz Cheney and John Podesta. In one of their exchanges, Podesta said something that just didn’t sound right. Here’s the exchange; I’ve bolded the part I couldn’t believe:

CHENEY: [snip]

Finally, the president at the end of the press conference, says he wants to increase taxes and get through this initial crisis so that he can spend more on infrastructure. This is an insatiable appetite for spending.

(CROSSTALK)

CHENEY: It is driving the country off of a cliff. It is completely irresponsible.

PODESTA: I think that is so fundamentally wrong on the facts. President Obama has proposed taking the domestic government down to the size that it was in the Eisenhower administration. That is in his budget. We have taxes now lower than they have ever been since 1950, and have --

My immediate reaction was that Obamacare alone probably represented more domestic government - in terms of employees and raw spending - than we had during the Eisenhower era. I don’t know if that’s the case but it does appear that Podesta’s characterization of Obama’s proposal was inaccurate or at least sloppy in four ways:

1) I am not aware that Obama has a budget on the table. My understanding is that he withdrew his February proposal and has not presented a formal, specific budget proposal since.

2) Obama is not proposing cutting the size of domestic government as measured by Federal employees on the domestic side back to what it was in Eisenhower’s day.

3) Obama is not proposing cutting the size of domestic government as measured by raw spending on the domestic side back to what it was in Eisenhower’s day.

4) Obama is not proposing cutting the size of domestic government by any measure - employees, raw spending, share of GDP, whatever - back to what it was during the Eisenhower Administration. Rather, Obama said (emphasis mine):

That’s why I’ve called for a freeze on annual domestic spending over the next five years – a freeze that would cut the deficit by more than $400 billion over the next decade, bringing this kind of spending to its lowest share of our economy since Dwight Eisenhower was President.

Those four points speak to Podesta’s understanding, accuracy, or carefulness. There is one other point that speaks to Obama’s understanding and accuracy:

5) The “annual domestic spending” Obama wants to freeze does not include “the military, the entitlement programs Medicare, Medicaid and Social Security, and interest on that debt.” As JustOneMinute puts it:

But focusing on "domestic spending" sidesteps the philosophy espoused by Willie Sutton - since it excludes interest, entitlements and defense, it is not where the money is.

The current United States debt is over $14 trillion. Obama’s freeze on domestic spending would, by his own estimate, reduce the debt by $400 billion over the next ten years. By my calculation, Obama’s $400 billion is less than 3% of the debt. That’s less than 3% of the current debt, not of whatever the debt will be in ten years. Every little bit helps; journey of a thousand miles; and all that. But a plan to cut less than 3% of the current debt over the next ten years isn’t what I would offer if I wanted to prove Obama is fiscally responsibility.

Raising and lowering

A couple of links discussing courses of action I’ve written about previously:

Via The Corner, Spengler advising that the McConnell plan is the best route for Tea Party Republicans. Specifically, Spengler wants - as do I - to take a debt ceiling crisis off the table until after the 2012 elections. He believes that if Republicans can avoid a default and “put the onus [for raising the debt ceiling] on Obama”:

The Republicans would then have a year and a half to run against Obama's irresponsibility - his incompetent economic management, his demands for tax increases, his failure to address the deficit.

What he says makes sense but reading his essay - especially his version of the message Republicans would have to sell - makes me realize that his approach and mine require the Republicans to make a short, punchy explanation of what they’re doing and why they’re doing it, and to stay on message with that until November 6, 2012. I’m not sure that’s possible. I pay a fair amount of attention to this stuff and I have no sense that the Republicans have presented a single, coherent message on this so far. There’s no reason to think they’ll suddenly be able to do so. Members of Congress want to be re-elected so they’ll shade the message to appeal to their constituents. Having had to vote for the McConnell plan or any other approach that raises the debt ceiling could possibly impose sufficient discipline to keep current Congressional Republicans on message: they’ll have to have a coherent way to explain their vote. However, add in Presidential politics, in which you’ve got national candidates who desperately want to win and who will not have had to cast that vote, and disciplined messaging goes by the board.


Instapundit and TigerHawk suggesting a “5% across-the-board cut in spending” right now, then rinse and repeat next year and, presumably, some number of years after that. Like TigerHawk, I don’t think more targeted cuts are possible for reasons I outline in a previous post. However, I prefer cutting 10% per year and - in contrast to TigerHawk who is suggesting reducing the Bush tax cuts by 5% - I also want to cut taxes right along with spending, at 9% per year.

If, however, we could actually get a 5% across the board cut - and I mean really across the board - I’d take that. I’d also give the reduction of the Bush tax cuts to get it, if that reduction was also across the board; that is, no getting back 5% of the revenue by raising taxes only on the rich. Instead everyone at every income level loses 5% of the tax reduction they would have gotten under the Bush tax cuts.

Steyn and 'Puter

A few posts on the debt ceiling, cutting spending, and “revenue increases” (which I believe used to be called “tax increases”) that caught my eye.

Mark Steyn: No bargaining with Barack Obluffer (via TigerHawk):

In the real world, negotiations on an increase in one's debt limit are conducted between the borrower and the lender. Only in Washington is a debt increase negotiated between two groups of borrowers.

’Puter: First Principles and The Debt Ceiling:

Republicans have done a singularly shitty job of identifying the first principle in play here. That principle is: live within your means.

’Puter: Enough (I do love a good rant):

Elites of the liberal and conservative varieties, along with just about everyone living inside the Beltway, just do not get it. Let 'Puter put it simply.

This is not about sticking it to the poor. This is about standing up for the unsung makers in the country.

What do I think about raising the debt ceiling, cutting spending, raising taxes? I think we should all in one bill raise the debt ceiling enough to get us to January 31, 2013; freeze spending wherever it is right now; and not raise taxes. Then both parties should make the 2012 elections about whether we want to keep raising the debt ceiling, spending, and taxes, or whether we want to lower all three.

I doubt that approach will result in anything useful since it looks like most people want to keep the debt ceiling where it is; not raise taxes (except on the rich, a category which is ill-defined to say the least and is, by any definition, not large enough to fund our current level of spending); and cut only the spending from which they themselves do not benefit or about which no sufficiently touching sob-story can be found or created. But living in a democracy means letting voters make stupid decisions. Reality always cleans up the mess eventually.

*****

By the way, The Gormogons in general have been even more readable than usual lately. For example, here’s the Czar explaining how we can tell that Obama Does Not use Chicago-Style Politics:

If President Obama used Chicago-style politics, he would have a much more accomplished track record than he clearly has. Chicago would have won the Olympics. Nearly all of the stimulus package would have wound up here. His wife would be Secretary of something or other. Her brother, Craig Robinson, would be the head of a multi-million-dollar civic improvement commission and also own a concrete company he knew nothing about an hour ago. Windmills in China would mysteriously disappear and wind up in Oregon. Usâma bin-Lâdin would have been found face-down in a river, with a GOP campaign strategy plan stuffed in his pocket. The entire US Army would be spotted in a Florida resort, despite having paychecks that say they are currently in Afghanistan. And for the last four years, all of Iraq would be covered in orange cones and construction horses.

Oddities and annoyances

[Another post written a while ago, although it’s not really ancient - it was originally written within the last few months.]

Math is hard

A letter from MoveOn.org to its members says in part:

Imagine if someone told you in 2008 that Barack Obama was actually thinking about signing legislation to extend the Bush tax giveaways for the rich. I wouldn’t have believed it.

Now more than ever, we need the Barack Obama we elected in 2008—the smart, tough, hopeful progressive champion who inspired millions of us—to stand up and say “no” to a millionaire bailout.

I’ve seen and heard this particular bait-and-switch before, where $250,000 suddenly becomes $1,000,000. Two-hundred fifty thousand dollars is a lot of money - but it’s not a million. If there are those who think we should raise taxes on millionaires then they should argue for just that: letting the Bush tax cuts expire for those making over $1,000,000 a year. I’ll be a lot more likely to believe someone has the right solutions for our economic woes if he first convinces me he knows his numbers.


Shoulda looked Left

(Because there’s nothing like a dead skunk in the middle of the road.)

In discussing Max Baucus’ rather sad polling number, Jennifer Rubin quotes a poll that says:

At this point pretty much all of his support from Republicans has evaporated with only 13% approving of him and although his numbers with Democrats aren’t bad at 70/21, they’re not nearly as strong as Jon Tester’s which are 87/6.

Baucus’ plight is similar to that of a number of other Senators who tried to have it both ways on health care, watering down the bill but still voting for it in the end.

Rubin’s interpretation of this is:

That is a nice way of saying that while they posed as “moderate” Democrats, they voted like liberals.

Nope. This is a nice way of saying that they refused to fish or cut bait and we ended up with the worst of all possible worlds: no fish and rotten bait. Just as people on the Right believed we needed government to restrict its role in health care to figuring out how to make the free market work better, people on the Left believed we needed government to step up and step in rather than just shoveling business to the insurance companies. ObamaCare did neither. It’s a “compromise” which furthers the worst of both approaches.

Whether you’re a Tea Partier or a Move.Oner, you don’t have to be a genius to figure out that when Big Government gets in bed with Big Business bad things happen to the little people. It’s just that you’ll see different solutions: The Tea Partier’s solution is for government to get out of the way and let business do it; the Move.Oner's solution is for government to just do it. So, no, Democrats aren’t unhappy with Max Baucus because he voted like a liberal; they’re unhappy with him because he didn’t.


Trifles show character

One of the things that helped move me from leaning Left to leaning Right was hearing about George W. Bush from bloggers who didn’t hate him, especially The Anchoress. I discovered that his speeches were often remarkable* which was quite a surprise to me since I found his delivery of them so off-putting I never listened to what he said. And I discovered PEPFAR: the President’s Emergency Plan for Aids Relief. This program was started by President Bush in 2003 to provide funding from the United States to fight AIDS and related conditions, primarily in Africa. It was a source of amazement to me then that I had heard - as far as I could remember - absolutely nothing about this program from bloggers on the Left.

It was PEPFAR as much as anything that made me step back and take another look at Bush. Why would a man who was a racist, homophobic, stupid, war-mongering, isolationist, cowboy even know AIDS relief in Africa was necessary, much less set out to provide it - and in increasing amounts? Hercule Poirot teaches us that if we have constructed a theory and we find a piece of evidence that doesn’t fit, we cannot find the truth by doing what most people do: throw out the evidence that doesn’t fit our theory. Instead, we must develop a new theory that accounts for the new evidence. When George Packer treats Bush’s championing of PEPFAR as simply a weird aberration he does so at his own intellectual peril.

*****

Footnote:

* I found Bush’s May 2008 speech to the Knesset very powerful; you can read it at The Anchoress. Bush’s Sharm El Sheikh speech won my heart by talking about women in the Muslim countries; you can download a pdf of that speech here.

*****

Reading:

I ran across the John Derbyshire/Peter Wehner discussion (to put it politely) regarding PEPFAR while writing this post. It simply confirmed my distaste for Derbyshire. Here’s Wehner; I’m not linking to anything from Derbyshire.

Let's talk self-interest

It’s an oft-repeated belief on the Left that white* working-class voters who support Republicans are voting against their own economic interests. After all, Democrats will take money away from the fat cats and spread it around to everyone who isn’t a fat cat. Therefore, white working-class Republicans must be ill-informed or led astray by conservative rhetoric (or conservative lies) or stupid or all of the above. For those on the Left to say so is simply being truthful.

I don’t think so. What Democrats represent is the redistribution of wealth from those who have more to those who have less. Democratic rhetoric claims this redistribution flows from those few who have a lot to the masses who don’t have a lot. But that’s not what the white working class sees. The white working class sees that people who are poor get stuff for free - housing, food, medical care - while those who work have to pay for this stuff themselves. The white working class sees that people who are very rich somehow manage to stay very rich and even get richer: the working class guy who lost his job, lost his medical insurance, and lost his house is looking at the Wall Street guy who got buckets of money because letting his firm fail would destroy the economy. White working class guy has got to be wondering exactly whose economy has been saved from destruction; it certainly isn’t the economy he lives in.

I suspect the white working class is asking themselves exactly whose money has been taken to give to the poor and - since more redistribution is on the horizon as more of ObamaCare kicks in and if some variant of cap-and-trade gets through and as the effects of financial regulation begin to be felt - they must also be asking themselves whose money is going to be taken in the future. It can’t be people who are poorer than the white working class - they don’t have money to redistribute. So far it doesn’t look like it’s going to be people who are rich - even if their taxes go up there’s no reason to think their special relationship with the government will disappear. That would seem to leave the working class.** Their money will be taken if not through higher income taxes then through a VAT; cap-and-trade; inflation; having to pay bank fees; tighter and/or more expensive credit; forced purchase of particular forms of health insurance; more job loss; or simply by piling a incomprehensibly huge national debt on the backs of their children and their children’s children.

If you look at what the Democrats say they’re going to do then, yes, when the white working class votes Republican you can argue it’s voting against its own economic interests.*** But when you look at what the Democrats have actually done, I’d say the white working class figures - quite rationally - that it’s better to hold onto what little they have rather than risk being the people on the wrong end of the continuing redistribution. This doesn’t mean they think the Republicans are going to help them or, for that matter, hurt the wealthy. It simply means the working class hopes the Republicans will allow them to keep what they earn. They entertain no such hopes about the Democrats.

*****

* I write here of the white (presumably non-Hispanic) working class because that’s the contingent that swings between Democrat and Republican. I think the same economic factors apply to the non-white and Hispanic working class but they are more solidly Democratic.

** I’m leaving aside the middle class. I don’t think the working class is stupid enough to think anyone is going to take money from the middle class and give it to the working class. Nor do I think the working class is stupid enough to think taking money from just the middle class is going to be enough to accomplish the myraid forms of redistribution either underway or in the works.

*** Yes, we could have another whole discussion about whether even if the working class was on the receiving end of redistribution they would support it and want it (there are interests that are not economic) and yet another one about whether the Democrats’ program would be in the working class’ best economic interests in the long term. What I doing here, though, is ruminating on why the Left’s “voting against their own economic interest” claim is weak even in the very short term.

*****

Reading:

News Flash: Inflation Is on the Way - Kevin D. Williamson at Exchequer on the new issue of TIPS.

Trouble with the humans - The Economist article that jarred this post loose

Of Reds, Racists and Rubes - Anglachel. My favorite snippet (but read the whole thing): People are motivated by rational self-interest, especially in times of need.

Capital Expenditure - Anglachel again. This is one of her posts where our world views are so different I struggle to understand her and quoting Bob Somersby makes her even more opaque while quoting Paul Krugman makes her even less accessible to me. However, if I understand her correctly what she’s saying is that Barack Obama did not and does not have a unifying ideological view of how the world works or how the world should work and this has handicapped him. This combines with - or possibly causes - Obama to be timid in going after what he wants and even in arguing for his desired outcomes.

I agree - this is my view of Obama. He lacks a coherent view of what he wants to have happen, how to get there, and - most important - how all the pieces have to fit together to get him there; in addition, he appears unable or unwilling to take the heat for what he believes in perhaps because he doesn’t believe strongly in anything except himself. The result is the kind of half-hearted, piecemeal legislation we see in ObamaCare. It is neither a huge overhaul that has a chance of working nor a modest, step by step fix with few unintended consequences. Instead it’s Frankenstein’s monster; almost any other outcome - including doing nothing and moving to a Canadian system - would be better than what Obama’s combination of ideological laziness, political ineptitude, intellectual shallowness, and general incompetence have given us.

What Happened to Change We Can Believe In? - Frank Rich:

But the most relentless drag on a chief executive who promised change we can believe in is even more ominous. It’s the country’s fatalistic sense that the stacked economic order that gave us the Great Recession remains not just in place but more entrenched and powerful than ever.

An astonishing piece since Rich spends much of it chastising the Obama Administration for its failure to “unstack” the economic order but winds up by concluding that much of the blame rests with the GOP, its deep pockets backers, and the mean old Supreme Court. (As an aside, blaming the last makes me incredibly weary. I’m sick of hearing that when the Supreme Court does something a commentator agrees with , it’s rightfully the ultimate arbiter of our fates and perfectly justified in riding roughshod over elected officials and the wishes of the voters but when it does something that same commentator disagrees with, it’s a captured and corrupt political cesspool. Pick one.)

Obama the snob - Michael Gerson.

The Psychology of the Taboo Trade-Off - Scientific American on sacred values versus secular ones - especially monetary ones.

Tea Party to the Rescue - Peggy Noonan. Of particular note is Maureen Turner’s explanation of how she ended up supporting the Tea Party: I have voted Democrat all my life, until I started listening to what Obama was promising and started wondering how the hell will this utopian dream be paid for?"

Buyer Be Happy

That’s the current Best Buy slogan. It’s cute with that whole play on “Buyer beware” thing going on. The problem is it sounds an awful lot like, “Buy or be happy”. Which, given the problem of consumer debt, is probably closer to the truth.

I heart Colby King

This morning the panel on Inside Washington discussed the Administration’s moves to limit executive pay. Colby King suggested that the best form of financial regulation would be to essentially un-repeal Glass-Steagal. Put commercial banks back in the business of collecting deposits, loaning money, getting loans paid back, and being carefully regulated while letting investment banks take whatever risks they want and pay their guys ridiculous sums. Then when the investment banks did stupid things the government could just let them fail without crashing the whole world.

I heart Colby King.

Job creation

Greg Mankiw has linked to an article by Steven Davis about how to spur employment in the United States. Davis presents four ideas for improving the unemployment picture in the United States:

1) do away with or circumvent State mandates for employer-provided health insurance

2) suspend the Federal minimum wage or allow States to do so

3) make it crystal clear that the Employee Free Choice Act will not pass

4) do a quantifiable study of the success of various attempts to lower unemployment.

The issue of the minimum wage interests me not at all. I can see both sides of the argument and I think fighting over a minimum wage is a waste of time so long as there are no effective bars to employers hiring illegal aliens for less than the minimum wage.

Of Davis’ other three ideas, the fourth seems pointless and the first seems unnecessary. I’ll look at those and then have more to say about Davis’ third idea.

In presenting his fourth idea, Davis argues that we should:

Experiment with how best to put the unemployed back to work and assess the results. [snip] Some programs focus on job search assistance and interviewing skills. Others provide counseling about education and training opportunities. Yet others rely on re-employment bonuses for job losers or financial inducements to hire the unemployed. There is much potential to learn from these programs about which approaches are cost effective, and which are not.

The programs Davis discusses break down into two categories: helping people get jobs (job search assistance, interviewing skills, education and training opportunities) and persuading employers to create jobs (re-employment bonuses and financial inducements). If unemployment is high because jobs exist but job seekers are not qualified for them then the former methods will be effective. Yet Davis himself seems to say that the problem is not that we have jobs and lack qualified applicants; the problem is that we lack jobs:

The job vacancy rate is mired at 1.8% of employment, the lowest level in the history of the series.

If I understand this correctly it means there simply are not very many open jobs. If that’s the case training workers who used to be in the Widget industry how to complete for jobs in the Doodad industry isn’t going to help: not only are the Widget jobs gone, there aren’t any Doodad jobs either.

The second approach - persuading employers to create jobs - seems to be more what we need. Yet Davis begins his article by claiming that paying companies to hire workers is a fool’s game:

Another proposal circulating in Washington would offer tax credits for employers to create new jobs. Under one version, an employer receives a tax credit of $8,000 in the first year of a new job and $5,000 in the second year. But this proposal is even more costly than the proposal for unemployment insurance benefits. [snip]

Plans to whittle down the cost by restricting eligibility for the new-jobs credit would inevitably favor some employers and harm others. Eligibility restrictions would also inject greater complexity into our already-byzantine tax code.

Davis himself is thus arguing that these tactics will do more harm than good in the long run. It also seems to me - independent of anything Davis said - that providing an employer a financial incentive to hire a worker can’t possibly be that effective.

Let’s say an employer could really use another Shipping Clerk but his revenue numbers don’t quite make him feel comfortable hiring that clerk for the $30,000 salary his other Shipping Clerk is getting. The Feds pop up and offer him $8,000 to hire the clerk and suddenly he’s happy to do so. My question is: why didn’t the employer just advertise for a Shipping Clerk at a salary of $22,000?

This would almost certainly be impossible in a unionized business but according to the Bureau of Labor Statistics:

In 2008, union members accounted for 12.4 percent of employed wage and salary workers, up from 12.1 percent a year earlier, the U.S. Department of Labor's Bureau of Labor Statistics reported today. The number of workers belonging to a union rose by 428,000 to 16.1 million. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent, and there were 17.7 million union workers.

It’s pretty clear that most businesses are not unionized and it is therefore not written in stone that all Shipping Clerks must make the same amount of money. So why is the government’s offer of $8,000 so persuasive? Maybe the employer is so thrilled at the idea of being able to hire a $30,000 Shipping Clerk for only $22,000 that he can’t resist but I would think that in a recession those $30,000 Shipping Clerks would be a dime a dozen (so to speak) and a job offer at $22,000 would find several takers.

I have the same objection to Davis’ first idea: his call to circumvent or do away with State mandates on health insurance coverage. Davis argues that the “high cost of health insurance acts as a drag on job creation and wage growth.” He therefore wants State governments to make it cheaper for employers to offer health insurance by doing away with mandates that require insurance policies to cover treatments like “... acupuncture, alcoholism treatments, chiropractors, fertility treatments, marriage counseling....” Even better he wants the Federal government to allow companies to buy employee health insurance across State lines in order to avoid State mandates because “employers in states with onerous benefit mandates are stuck with high-cost health insurance.”

I’ve said before that I think State mandates are the States’ business. If a particular State wants to impose onerous mandates and pay the price in higher insurance costs and (if Davis is right) higher unemployment, that’s up to the State; the Federal government should stay out of the matter.* So I obviously consider his idea about the Federal government allowing interstate health insurance shopping a bad one.

I have no such principled objection to the individual States doing away with requiring certain medical services be covered by health insurance if that’s what the citizens of the State want. I do, however, think his idea is unnecessary. Assume businesses want to hire workers - or raise wages - but cannot do so because employee health insurance is so expensive. They don’t need the State or Federal government to help them out of this mess. They can simply not offer health insurance to new hires.** Employers could also presumably stop providing health insurance to their current workers, thus freeing up more money to hire new workers. This would probably have a devastating effect on morale - particularly if the employers did not provide a raise or at least a one-time “bonus” to make up for some of the loss - but presumably employers can get away with this sort of thing in a tight job market: the employees have nowhere else to go.

If you think Davis’ idea to eliminate or undercut mandates is a good one but you cringe at the idea of hiring new employees without health insurance benefits, consider that withholding health insurance benefits from new workers is far less draconian that what Davis proposes. Under Davis’ plan, employers will be able to shop for the cheapest possible health insurance plan with few (possibly no) rules as to what it must cover - and all employees will have to live with that plan. Those who favor this approach tend to emphasize the ability to drop mandates like alcoholism treatment and marriage counseling while ignoring the ability to drop mandates like regular mammograms, prostate screening, and well child care. On the other hand, I will freely admit that an employer deciding to take existing health insurance away from current employees is quite extreme. However, even that approach might appeal to the current employees if the choice was between all employees losing their employer-provided health insurance and some employees losing their jobs. After all, those rising unemployment numbers are swelled by people who once had jobs so it’s a good idea to help people keep the jobs they have while we’re scrambling for ways to help people without jobs find work.***

So there is no need for either State government or the Federal government to bigfoot themselves into the issue of employer-provided health insurance to improve the employment picture. Employers can simply choose to stop providing health insurance, either to new employees or to all employees, in order to free up more money to hire more employees. Similarly there is no need for the Federal government to pay companies to hire new workers. The companies can simply offer those jobs at whatever salary they could afford without government intervention.

Davis’ third point is his most interesting:

It's unclear whether the [Employee] Free Choice Act [EFCA] and card-check provision will become law. Fears that the act might become law are enough to chill investment by firms that could be targets of card-check union certification. To allay these fears and remove the chill from investment, President Obama and congressional leaders should forcefully renounce the act now. If they won't, moderate Democrats should step forward and publicly announce their opposition to the act. By taking this step, they would help restore business confidence and set the stage for more job-creating investments.

This makes sense. A business that is likely to be targeted by unions if EFCA passes has to consider that when thinking about whether to hire new employees - especially if those new hires will be stretching the company thin. It’s one thing to hire five new workers if you can pay them low wages and you know you can fire them if they don’t work out or if your business takes a turn for the worse. It’s quite another thing to hire five new workers if you fear that six months from now you’re going to be unionized, the new guys will have to start getting union wages, and you’ll be operating under an arbitration-imposed contract that prevents you from firing them. In the latter situation, wait and see is the smartest move for any company considering hiring.

The situation would be the same if the legislation hanging fire was good for employers. Let’s imagine the Union Retention Act. URA requires that all union employees must continue to be treated as their union contract specifies but that new employee cannot join a union and are not covered by the contract. Now employers will hesitate to hire because it will benefit them far more to do their hiring after such legislation is signed into law.

The issue is not whether the pending legislation is good or bad for employers; the issue is whether the legislation will change the employer-employee relationship in a significant way. If so, then as long as the legislation is neither passed nor clearly dead employers will wait and see.

Davis focuses on EFCA but I don’t remember a time when so many large potential policy changes were hanging around. EFCA is one. Climate change legislation is another. We’ve got Waxman-Markey but it hasn’t gone anywhere and now I gather someone else is putting together a different bill. We’ve got n+1 iterations of a health reform bill. Every so often someone mumbles something about regulation of the financial industry then disappears for a month. Limiting executive compensation - for companies that took TARP, for all financial companies, for insurance companies, for everyone? - drifts in and out of focus. As far as I know, even poor old PPIP doesn’t actually have a stake through its heart.

If the government wants companies to hire and the best hope of persuading them to do so is to make the business climate as certain as possible then the Administration’s efforts should be focused on getting everything and everyone settled down. Instead it’s as if Washington is doing everything in its power to make the business climate as unsettled, uncertain, and insecure as possible. The problem is not that the government is passing laws that are bad for business nor that the government is passing laws that are good for business. The problem is that the government is hanging fire on an armful of policies that will change the business climate - whether the change will be better or worse for business is irrelevant. So long as businesses do not know which way that cat will jump, they’re paralyzed. Anything they do now as far as hiring or salaries or promised bonuses or health insurance might - a month from now or a year from now - turn out to have been the wrong decision.

I understand that there are issues the Administration and the Congressional leaders believe need to be addressed: climate change; health care/insurance; EFCA; executive bonuses. But those issues should have been addressed and settled rather than allowed to drag on and on. Obama came in with a solid victory in the November election and a Democratic Congress. We would be in much better shape today if Obama had used his pre-inauguration time and team to write bills addressing each of these issues; had demonstrated his commitment to transparency by posting those bills at WhiteHouse.gov on January 20; and had flexed his popularity - and Congress’ abysmal approval ratings - by announcing he wanted an up-or-down vote on each bill within, oh, say, 100 days. If they were passed we’d know what the rules were. If they weren’t passed, Obama should have made it clear that the issues were off the table for the rest of his first term.

For example, Obama should have been able to get a simple carbon tax with revenues used to offset the additional cost to families making under $250,000. Any revenues over that could have been used to bring down the deficit or fund health care reform or whatever. Especially if the tax started small and went up gradually this should have been doable.

Similarly, Obama should have pushed for an up or down vote on single payer. If it didn’t pass, he should have had a fallback position that simply insured the uninsured. Once that passed - and I think it would have - the issue should have been tabled until after his re-election.

EFCA should have been voted on way back in February - it’s not like this is some new idea. If it passed, we’d live with it; if it didn’t, Obama should have declared the issue dead. By the same token all the other ideas floating around out there - new financial regulations; limiting executive compensation; PPIP - should have been addressed by now. Either new laws should have been passed or the issues should have been packed away so businesses would know the rules wouldn’t change for at least the next three or four years.

Is that a lot to have gotten done in 100 days? Sure. But remember the legislation didn’t have to be as complicated as it’s gotten. A carbon tax bill would have been much, much simpler than Waxman-Markey; the single-payer bill runs to less than 16 pages (in Arial 12); EFCA was already written.

Obama and those who call themselves “progressives” wouldn’t have gotten everything they want. But if Obama had been able to get make some progress on his big issues and had been able to stabilize the business climate enough to encourage companies to hire, he would have won himself a lot of credit for putting people back to work. Credit that he could have spent in his next term when a prosperous economy would make his larger plans look more affordable.

*****

“... anything that turns up in a footnote... takes on the character of divine revelation.” - Margaret Halsey

* The issue becomes more complicated because States which choose policies that cause higher unemployment are subsidized to some extent by States which don’t through mechanisms like Federal unemployment benefits. However, a disquisition on the pernicious effects of Federal funds on the issue of State responsibility is beyond the scope of this post.

** I am not aware of any Federal law that requires employers to provide health insurance. It does appear that Hawaii requires employers to provide health insurance to all full-time employees and California may or may not - I’ve found references to a 2003 bill but no discussion of it being currently in force. I have not seen anything indicating any other State has such a requirement although Massachusetts has its own thing going on.

*** This is actually how capitalism is supposed to work: when an employer is in a buyer’s market it can provide less compensation and still be able to hire and retain employees. As the employees receive less, the business frees up more revenue to lower prices, gain more volume, and expand. As the business expands it need more employees which means there are eventually more job offers than there are job applicants. At that point the business must begin offering better compensation to attract new workers and to retain existing ones. Now employees are in a buyer’s market so they demand more and more compensation to take a job or to stay in one they have. The business becomes less competitive as more of its revenue goes into employee salaries; layoffs begin - or the company fails - and the process cycles back to a buyer’s market for employers.

This process looks problematic to a country that increasingly wants security and stasis but I think of it as a variation on creative destruction - it is not industries that are being superseded but employees. I suspect that many people who abhor “creative destruction” when in comes to employees would be far more supportive of it when it comes to the large financial institutions that got themselves into hot water last year - even though allowing those huge institutions to fail would put thousands of people out of work. And vice versa: I suspect many captains of industry who can provide ten thousand reasons why their large companies absolutely needed to be saved by the government would also have ten thousand reasons why it’s preposterous for employees to expect their employers to save them from the normal ups and downs of a capitalist economy.

The Red Queen's race

Go, read Anglachel on the Red Queen on Ezra Klein.* Once you’ve recovered from outrage over the sheer arrogance of Klein, Coates, and Fallows claiming to “understand” why poor people eat so “badly”, come back here and explain to me why we as a nation have decided the family described by the Red Queen shouldn’t get food stamps. Unless you’re willing to argue that no one should get food stamps, I can’t imagine what explanation there could be.

Poor people - and especially poor children - shouldn’t go hungry. And it’s just plain stupid to not do everything in our power as a society to support the working poor who are doing their best to earn their own way and raise a family along with it. If they need a little help putting food on the table - and personally I don’t care if it’s kale and peppers or fried chicken in cream gravy as long as it shows up regularly - then we should give it to them. If we can give families like this even a little cushion against financial disaster we greatly increase their chances - and their children’s chances - of getting to a point where they really don’t need our help.

*****

* For a combination head shake and chuckle read Anglachel’s follow-up on the inability of some of her readers to solve mathematical word problems.

Speaking truth to power

One of the two issues that made me teeter on the edge of voting Democratic in the elections last year was the fact that income inequality is increasing in this country.* As I said back in August, writing about the Democratic National Convention:

Bill Clinton is the only speaker I heard raise the issue that makes me most uncomfortable about voting Republican: the increasing income inequity. Reasonable people can reasonably disagree about almost every issue and reasonable people can reasonably disagree about whether the country is, as a whole, heading in the right direction. But an increasing gap between have and have-nots is simply wrong. The problem is I fear the Democrat’s approach will not close the gap by making the have-nots better off but by attempting to make the haves worse off. That’s not helpful. On the other hand, if the Republicans approach simply widens the gap further that’s not helpful either.

Now comes Ross Douthat writing about the same issue and making a convincing argument that other policies I favor - school choice and limited immigration - and a behavior I favor - raising children in stable two-parent households - are factors that could do far more than tax policy and other forms of income redistribution to narrow the income gap.

I believe we would be better served in this country by a government that focused on getting the economy going again and left issues like cap-and-trade and major health care overhaul until the financial picture improved and steps had been taken to help those on the bottom rungs of the economic ladder hoist themselves up. Steps like school choice and limited immigration and explaining clearly that a single-parent household is almost always a good predictor of poverty:

The report found that sons and daughters have approximately the same likelihood of moving up or down the economic ladder. The exception is women whose parents were at the bottom of the income distribution. Partly because they are more likely to be single mothers, nearly half (47 percent) of daughters born to parents at the bottom remain at the bottom, compared to 35 percent of sons.

For those who cannot stomach such policy and behavior changes, Douthat does offer another path to income equality:

There is, however, one way that a Democrat majority can plausibly bring down inequality: Just let government keep growing. [snip]

The European experience suggests that ... [i]f you funnel enough of a nation’s gross domestic product through a bureaucracy, the gap between the upper class and everybody else usually compresses.

But economic growth often compresses along with it. This is already the logic of our current fiscal trajectory: ever-larger government, and ever-slower growth.

That combination could eventually create the more egalitarian America that Democrats have long promised to deliver. The question is whether Americans will thank them for it.

Thank them for it? Me, not so much. I’d prefer a nation in which those who are not sharing in the American dream are given the education they need to succed; are protected from unfair competition caused by an unending stream of immigrants willing to work for lower wages (yes, I would be willing to pay more for goods like hotels and strawberries); and clearly understand** that they do themselves and their children no favors by raising those children in an environment where success is far more difficult than it needs to be. That seems to me to be a formula for a more egalitarian America with greater economic growth for everyone.

(Via JustOneMinute.)

*****

* There is, of course, another side to the income inequality argument: a rising tide lifts all boats. I’ll have something to say about that in the next day or so.

** I am not arguing that single parents who do not carefully consider the economic effects of raising children alone - whether because the child is born our of wedlock or because of divorce - are stupid. Rather they are ill-served by the representations of single-parenthood they see around them. I watched “Private Practice” last week. The show has two single parents - one father, one mother. When the single father told his employer he was struggling to cope with getting his daughter settled in his household, the employer said it would be fine if he took some time off. I anticipate that when the single mother returns to work she will be able to cut back on her hours (despite a previous plot line about her firm desperately needing more income); flex her hours as she pleases; and bring her newborn to work.

The real world doesn’t work that way. Not even close. Employers are going to have limited sympathy - in some case, no sympathy - for a single parent who cannot make it to work because of childcare issues or who wants to bring his or her children to work or who gives a job less than adequate attention because of constant child-related distractions. Furthermore neither the sheer cost of having children nor the incredible drain on time and energy of having children is likely to be raised in popular depictions: television, movies, novels. Combine this with the idea that someone somewhere (or everyone everywhere) - the government, your employer, your co-workers, your neighbors - should and will help you bear the burden and you get an extremely unrealistic view of what single parenthood is like; of the financial constraints it puts on the parent; and of the barriers it raises to the children’s eventual success. This applies as much to a parent whose financial situation is worsened by divorce as it does to a parent who has a child without ever being married.

Phony capitalism

Luigi Zingales’ article, “Capitalism After The Crisis”, should be required reading for everyone. I’m relatively new to thinking seriously about the most desirable relationship between government and business so this article helped me understand the absolutely crucial distinction between being pro-market and being pro-business. As Zingales makes crystal clear the two positions are far from the same and in fact should more properly be understood as opposing each other.

It’s hard to pick just one quote from an article which needs to be quoted in entirety but in keeping with the theme of my immediately preceding post I chose this paragraph:

When the government is small and relatively weak, the way to make money is to start a successful private-sector business. But the larger the size and scope of government spending, the easier it is to make money by diverting public resources. Starting a business is difficult and involves a lot of risk — but getting a government favor or contract is easier, and a much safer bet. And so in nations with large and powerful governments, the state tends to find itself at the heart of the economic system, even if that system is relatively capitalist. This tends to confound politics and economics, both in practice and in public perceptions: The larger the share of capitalists who acquire their wealth thanks to their political connections, the greater the perception that capitalism is unfair and corrupt.

Via Greg Mankiw of course.

The quality of mercy

In response to an earlier post, commenter Mara quoted something I said and then talked about pre-existing conditions:

In particular, group insurance policies provided via large employers are good about this.

Yes, that's true, Elise. HIPPA (Health Insurance Portability and Accountability Act, written by Sen. Kennedy) requires that group insurance policies cover employees with pre-existing conditions. However, as you know, not everyone is covered by group insurance including the millions of folks who are self-employed, small business owners, the unemployed and those whose employers do not offer insurance. For them "pre-existing conditions" such as cancer, down syndrome, even pregnancy represent a costly if not insurmountable barrier to health coverage. You may be surprised to learn as I was that in a dozen or so states even women who have been victims of domestic abuse are deemed to have pre-exisiting conditions. It boggles one's sensibilities.

As for the details of the former Governor Palin's insurance coverage, I couldn't care one wit. I trust she'll continued to be covered by the State of Alaska as is the policy for most former state executives. My point is that I would have hoped she would care enough for all the families who have a down syndrome baby who already face discrimination. Ain't the first time nor the last that she'll disappoint.

I began writing a response to her comment and it turned into a post.

Actually HIPAA is not quite so straightforward with regard to pre-existing conditions:

Title I also limits restrictions that a group health plan can place on benefits for preexisting conditions. Group health plans may refuse to provide benefits relating to preexisting conditions for a period of 12 months after enrollment in the plan or 18 months in the case of late enrollment. However, individuals may reduce this exclusion period if they had group health plan coverage or health insurance prior to enrolling in the plan. Title I allows individuals to reduce the exclusion period by the amount of time that they had "creditable coverage" prior to enrolling in the plan and after any "significant breaks" in coverage. "Creditable coverage" is defined quite broadly and includes nearly all group and individual health plans, Medicare, and Medicaid. A "significant break" in coverage is defined as any 63 day period without any creditable coverage.

This 12-month exclusion is clearly intended to handle the problem of someone diagnosed with a high-cost illness who then seeks employment specifically in order to have coverage with a group health plan. And, yes, I did know someone who did this. Provided the illness is chronic rather than catastrophic or has a long latency period, this is a perfectly rational response to our current health care/insurance system. It is the pre-emptive strike version of continuing to work at a job you hate because you or your family need the health insurance.

That said, I certainly agree there are a lot of people who do not have jobs that include large group health insurance policies and can’t get such jobs. My preferred solution if we’re going to do a total overhaul of health care/insurance would be something along the lines of the Goldhill ideas I wrote about recently - which I think are very similar to what Singapore does. Goldhill’s plan is not fully fleshed out - the devil is always in the details - and I do not know all the ins and out of Singapore’s plan* but they both provide government assistance for those who need help paying while also requiring health care consumers to make choices about how they spend their money - whether they contribute it themselves or get government help. This seems to me to be the only way to restrain health care costs while making the government’s role in deciding what care will and will not be provided as small as possible. (As long as you have any government involvement that role cannot be non-existent.)

If we don’t want to do a complete system overhaul then I would like to see anyone who wants to be allowed to buy into the FEHP with the government subsidizing those who cannot afford it. (Actually, in my heart of hearts I’d like to see this - and a whole slew of other government functions - move to the State level - I don't think the less well off people of Alabama should have to subsidize New Jersey’s sky-high medical costs - but I’m talking realm of possibility here.)

Finally, I cannot begin to imagine the anguish of having a child who needs medical attention and not being able to provide it. I gather you don’t think much of Palin but it’s worth remembering that she does in fact have such a child and - unless you accept that she is a monster - must understand how parents who are not able to provide what she can provide would feel. This is why I would like to see her talk about what she thinks should be done for such children and their parents. Perhaps she truly is a monster who figures that since she and her family aren’t suffering, no one else matters. I don’t believe this but I’d be very interested in more information. (I’d also like some sources for your claim that State governors continue to get benefits once they leave office. If that’s true in NJ, my State legislators are going to hear from me.)

Many people seem to believe that once the government - especially the Federal government - provides a good that good can never be taken away. Thus people argue that if the government would just provide health care for all everyone would be set for life. I don’t believe that. I can remember my aunt’s anger over Social Security because, she said, her parents had been told by the government that if they would just pay this little bit of money then the government would provide fully for a comfortable retirement for them. Less personally the proposals to means test Social Security and Medicare; to raise the eligibility age; to change how increases in benefits are calculated are all examples of how a benefit once promised can be taken away. So is the proposal floated a while back that veterans’ own health insurance pay for some part of the care they needed as a result of being injured while on duty. The proposals make sense given the financial situation but that doesn’t change the fact that the government wants to change the rules and if it succeeds in doing so, those who counted on what the government told them will simply be out of luck. And if the rules aren’t changed voluntarily then we will run out of money at some point and the whole game will change. California is an example of what can happen when promise meets cost.

The Federal government is as capricious and ultimately as cost-constrained as any other entity and what is promised one day may be withheld the next either through choice or through necessity. I do not believe that is an argument that government should do nothing to help its citizens; indeed I’ve argued that to the extent a society can afford to do so it has a moral obligation to help those who cannot help themselves. It is, however, an argument to beware of putting ourselves in a position where government is the only source of a good. Sometimes there is no real choice about that: national security, for example. But if we have competing interests - both private and public - we are far less likely to find ourselves at the mercy of either.

*****

* Singapore’s numbers - if accurate - are astonishing. According to the BBC and various Wikipedia references:

- Singapore spends 3.4% of its GDP on health care; Canada spends about 10-11%.
- Singapore spends about $1,228 per capita; Canada spends about $5,100.
- Singapore’s infant mortality rate is 2.1 per thousand live births; the CIA 2009 figures say 2.31 versus 5.04 for Canada; the UN says 3.0 versus 4.8 for Canada
- Life expectancy in Singapore is 79.7 years; the CIA 2009 figures say 81.98 years versus 81.23 years for Canada.

Destructive destruction

I haven’t thought much about the Cash for Clunkers program. I knew it was designed to reduce carbon dioxide levels by getting older, less fuel efficient cars off the road while simultaneously stimulating the automobile industry. I certainly understood why neoneocon felt she was getting the short end of the stick - again - for having prudently bought a high-mileage car while all those who bought gas guzzlers were being rewarded for their feckless behavior. (Although, as my husband pointed out, she’s been able to laugh every time she sailed past a gas station for lo, these many years.) Still, beyond that it didn’t really register. Our car doesn’t qualify and besides we certainly don’t want to get rid of it.

Now the program has been so successful it’s running out of money and the Administration wants the Congress to cough up some more. This time around I’m seeing articles about how the government is destroying the cars so that not even their spare parts can be used which means that not only will cheap used cars for poor people and students be harder to find, cheap spare parts to keep such cars running will be more expensive. Fair enough but I still couldn’t get too worked up about it. In the context of all the money the government is spending on projects I find useless at best, Cash for Clunkers seemed like a drop in the bucket.

Then I read the Wikipedia entry on Cash for Clunkers, looking to see if there is a requirement that the new cars bought under the program must be from an American company. (There isn’t.) While wandering through the entry I ran across this description of what is done to the cars that are traded in:

To ensure that vehicles traded-in under "Cash For Clunkers" will not be resold by dealers, the program outlines a procedure for destructively disabling the engine (and thus also precluding the possibility that any mechanical engine components might be salvaged to be used in the repair of any other vehicles): the oil is drained and replaced with a sodium silicate solution, and the engine is then started and run until the solution, becoming glass-like when heated, causes engine internals to abrade and ultimately seize. In addition, the salvage or scrap facility which acquires the vehicle cannot sell any powertrain components from the scrap vehicle. This includes the disabled engine (most specifically the long block components), the transmission/transaxle, and in some cases the axle assemblies. The salvage or scrap facility can sell any other component from the scrap vehicle until they are ready to crush and/or shred the vehicle. The salvage or scrap facility has 180 days to ultimately crush and/or shred the vehicle.

Reading what is actually being done made me realize how terribly sad this program is. We’re a nation deliberately destroying its own wealth. What sane society does this?

Fire burn, and caldron bubble

Double, double toil and trouble;
Fire burn, and caldron bubble.

For some reason, the news that the Waxman-Markey cap-and-trade bill passed the House last night has made me feel very sad and very defeated. The bill is so huge - both page-wise and impact-wise - how can anyone possibly know what they’re voting for, much less what the impact will be? I find the size of the bill particularly distressing since I do not believe that human beings pumping CO2 into the air is going to result in apocalypse within a hundred years. Thus to me Waxman-Markey is a huge, expensive, unpredictable Rube Goldberg machine created to fix a problem that would be better addressed through case by case amelioration than through universal prevention. Passing this bill, creating this monstrous structure, is exactly like using an elephant gun to kill a mosquito - without knowing exactly who the elephant gun is pointed at.

You can read Maxed Out Mama and the links she provides for thoughts on what I guess we can call the first-order dangers of Waxman-Markey. I’m equally concerned about another kind of danger: a bubble. I first worried about this back in November. In discussing how the (in my opinion necessary) long, slow economic recovery could be cut short, I wrote:

The other possible interruption of the economic doldrums period is a new economic bubble. I’m not sure how possible this is since a bubble apparently requires the ability to take on lots and lots of debt. However, the government has pumped a lot of money into financial institutions and that money may be ripe for bubbling. One excellent candidate for a bubble is carbon trading.

It’s pretty clear that the Obama administration wants to address Apocalyptic Anthropogenic Global Warming. Leaving aside what I think of the basic idea of AAGW (not much), we have to decide how to address it. If the country is stupid enough to go with a cap-and-trade system rather than a simple carbon tax, the bubble won’t even need the money already pumped into the financial system: it can form itself solely from all the new government “money” handed out in the form of carbon allowances. (I find it hard to believe the government is going to auction those off given the sad financial state of most corporations; it’s more likely they’ll be given away.) The markets can go crazy bidding them up - heck, someone will probably even create derivatives - and we’ll have another bubble.

Like massive Federal handouts, though, a bubble is a bad idea in the long run. By definition, a bubble creates imaginary profits and fake productivity. That means there’s always a day of reckoning. Do we really want to concentrate our hopes and our efforts on pushing that day off on our children and grandchildren? We created this mess. I think we should take the hit involved in cleaning it up.

A bubble of any kind would be great for Obama and the Democrats, provided they could get it cranked up quickly enough and maintain it long enough. If they time cap-and-trade just right, the economy can begin to heat up prior to the November 2010 mid-term elections. Obama and the Democrats can take credit for the “recovery” and the Democrats can retain their control of Congress. If the CO2 bubble continues to grow through the end of 2012, the economy will look good for Obama’s re-election and the Congressional races and that should keep the Democrats in power. If the bubble can manage to stay intact through 2014, the mid-term elections could go to the Democrats yet again. That’s four years for the carbon trading bubble which seems a decent run so it could then pop and leave Obama’s successor with a mess that will have us all yearning for the economy of January 20, 2009.

There could, of course, be problems. If Waxman-Markey turns out to be more expensive than the $175 currently promised, people might get restless. Inflation might rear its ugly head. People might come to believe that AAGW is not really a threat. Still, an overheating economy can make increased energy costs and inflation look less serious than they are and if Waxman-Markey starts making the economy look good I imagine few people will even remember that the cap-and-trade boom was originally supposed to address global warming - and fewer still will care. Yes, I’d say Waxman-Markey looks like a winner for Obama and the Democrats.

Still, this is just one piece of legislation so it took me a while to figure out why I felt so sad about it. It’s because this bill, more than any other passed or contemplated, makes me think that before too long - 25 years, 50, maybe 100 - the United States is going to look exactly like a Western European nation. Don’t get me wrong: many of them are nice places. But they seem awfully tame, awfully limited and I suspect the reason for that is their financial constraints. The Western European nations have built good lives for their citizens within the terms of their current circumstances but I don’t sense in them a vein of daring, a sense of limitless opportunity, a belief that more is always obtainable - all the faith in ambition that has always been the hallmark of the United States.

With Waxman-Markey, this country is putting its economic engine in Park and - if things don’t go perfectly - in Reverse. There will never be more; the best has already been. What could be sadder?