Link: http://www.forbes.com/2009/05/04/supreme-court-justice-opinions-columnists-epstein.html

An excellent article about the upcoming Supreme Court selection. Court cases should be decided based on the facts and the law, not the feelings judges have for the parties involved. Obama’s words on the matter reflect a real intellectual immaturity on the matter; it’s astounding that he actually taught law.

This again shows that fairness is a trait found most lacking in liberals. For them, it is never adherence to rules and process that is respected, but about achieving their own end results. Now I understand the catchphrase. Instead of a system we can depend on and believe in, we get “change we can believe in,” as in the law changes with the sympathies or empathies of the court.

Epstein also points out the incredible short-sightedness of liberal thinking:

… it could lead to a regrettable disregard of the systematic consequences of judicial decisions. Focus too much on the homeowner or the tenant in the individual case, and it is easy to overlook the lenders and landlords who may cut back on lending and renting to these groups if stripped of their legal protection. Ex ante accessibility to credit and housing is of vital importance to everyone, members of vulnerable groups included.

In just about every policy arena, liberals are always trying to solve the problem of the moment without regard for how this affects future incentives and perceptions. Whether it be throwing money at poverty or promoting subprime lending or appeasing foreign dictators, it’s the same story: one-dimensional thinking.

Link: http://online.wsj.com/article/SB124104689179070747.html

This is one of the most important articles I have seen this year.

I don’t know if Arthur Brooks (President of AEI) reads my blog, but he’s certainly on the same wavelength as I am. I’m not just talking about politics or issues in general, but about what fault lines are most vulnerable and what strategy is best to repair them.

Making the moral case for capitalism and freedom is as important and timely now as ever. Fundamentally, most critics of free-market capitalism these days do not dispute its usefullness. Rather, they attack its “excesses", perceived “unfairness", and persistent “inequality". Even among conservatives they are winning the argument: neoconservatives like David Frum and pragmatic conservatives like Ross Douthat have said that liberals have identified what people want (the ends), but conservatives know how better to deliver them (the means).

But the ends do not justify the means.

In the end, liberals and progressives are plagued by static, or at best short-term, thinking. How do we solve the current crisis? How do we cushion the blow to those who blew it? There is no concern whatsoever for the long-term effects of policies, be they moral hazard, cultural degradation, or government dependency. Capitalism is simply the maximization of freedom coupled with responsibility. It’s core is a moral axiom: you are responsible for your actions and only your actions. Everything else is a choice.

Here is how he relates the cultural war over capitalism to the tax day tea parties:

Still, the tea parties are not based on the cold wonkery of budget data. They are based on an “ethical populism.” The protesters are homeowners who didn’t walk away from their mortgages, small business owners who don’t want corporate welfare and bankers who kept their heads during the frenzy and don’t need bailouts. They were the people who were doing the important things right – and who are now watching elected politicians reward those who did the important things wrong.

Here is the best passage from Brooks’ article:

Advocates of free enterprise must learn from the growing grass-roots protests, and make the moral case for freedom and entrepreneurship. They have to declare that it is a moral issue to confiscate more income from the minority simply because the government can. It’s also a moral issue to lower the rewards for entrepreneurial success, and to spend what we don’t have without regard for our children’s future.

Enterprise defenders also have to define “fairness” as protecting merit and freedom. This is more intuitively appealing to Americans than anything involving forced redistribution.

Link: http://www.weeklystandard.com/Content/Public/Articles/000/000/016/425yustu.asp?pg=1

Peter Berkowitz writes a very good article here about Obama’s supposed pragmatism. The following paragraph was especially enlightening:

To realize its utopian dreams, the new pragmatism makes use of a fundamental deception. Purporting to focus on practical consequences, it equates what works with what works to increase government’s responsibility to promote social justice in America. Although it reduces morality to interest and dismisses the distinction between true and false as a delusive vestige of an obsolete metaphysics, it treats the progressive interpretation of America as, in effect, good and true. Under the guise of inclusiveness, it denigrates and excludes rival moral and political opinions.

One reason why liberals often (though not always) like the pragmatist label is that any government program’s purpose is necessarily framed in terms of a governmental or social end. The individual or taxpayer is not part of the equation. This is why success is always gauged without regard to cost: does the program work to reduce poverty (or promote homeownership or reduce pollution or whatever)? Then the program is a success. Cost-benefit calculations are irrelevant because the costs are external to the program goal.

Here is another good passage:

A truly postpartisan pragmatist–or a pragmatist in the ordinary, everyday sense–would pay attention to the long-term economic consequences of massive government costs and expansion. He would also show interest in the full range of moral consequences of his policies, in particular the practical impact on citizens’ incentives for responsibly managing their lives of a great enlargement of government responsibilities for managing their lives for them. But a pragmatist for whom it is second nature to measure all policy by how well it promotes a progressive agenda might well ignore or deflect consideration of these awkward consequences.

Ideology has become a dirty word in our politics. But ideology is simply adherence to principle. Pragmatism is a useful path when no guiding principle is clearly apparent or perhaps even when principles conflict. But pragmatism as a principle or ideology in itself is nothing more than conformation to unprincipled interest.

Link: http://georgereisman.com/blog/2009/04/green-jobs.html

This article makes fun of the whole idea that Obama’s energy/environmental policies will create millions of new “green” jobs. Along with Reisman’s main point that these jobs “would require the performance of virtually unlimited labor in order to accomplish virtually zero result", I would also like to add that green jobs necessarily replace private sector jobs.

In fact, a new study by King Juan Carlos University in Madrid concluded that each green job created in Spain cost that country 2.2 jobs in non-subsidized industry. That’s not a big surprise to anyone who knows that government investment crowds out private investment (even if government is just subsidizing) and that government is necessarily less efficient, as it uses political rather than market considerations to drive decisions. But it sounds like still plenty of people in this country (including you know who) remain unaware.

Link: http://townhall.com/columnists/LorieByrd/2009/04/21/media_struggle_to_understand_non-violent_non-smelly_protesters

I’ve read a lot of news articles and editorials over the past week about the Tax Day tea parties. This one was probably the best and most comprehensive …

Link: http://online.wsj.com/article/SB123933106888707793.html

On the heels of my article “Tax Cut Socialism", here is a good article about tax reform from the National Taxpayer Advocate, Nina Olson. Olson makes some good points, but the most insightful is her analysis of the politics of reform:

American taxpayers deserve a simpler and less burdensome tax system. But given the near universal sentiment that the tax code is in dire need of reform, why hasn’t it happened? In my view, it’s because elected officials believe the political risks of putting forward a proposal to vastly simplify the tax code outweigh the political benefits. Each tax break has a constituency, and constituencies that stand to lose benefits tend to organize quickly to protect their interests.

While reforming the tax code would certainly meet some resistance from these special interests, I am confident the majority of taxpayers would enthusiastically support tax simplification. It is this constituency that can and should prevail.

As I have noted before, this residual constituency is the constituency of the Republican Party. Beyond the conservative and liberal dichotomy, the biggest difference between the two major parties is that the Democratic Party is an amalgamation of targeted special interests, and the Republican Party is everyone who does not look for a special favor from the government, i.e. everyone else, i.e. normal people.

A logical consequence of this is that tax reform needs to be the single biggest issue in an election in order to galvanize support. If it is a minor issue, the special interests will vote on the issue and the residual interests will not.

Olson’s optimism about Obama’s “task force” on tax reform is naive. The only Democrat who was serious on tax reform in the last thirty years was Richard Gephardt. It is in liberalism’s and Democrats’ nature to exercise power and pick winners and losers to satisfy their megalomaniacal machinations.

Olson also brings out a list of “six core principles” for tax reform. While they are areeable, every one of them basically assumes the continued existence of progressive rates, itemized deductions, refundable credits, and the rest of the garbage. I say, no more half measures! Dick Armey and Steve Forbes were very close to achieving national consensus with a flat tax in the 1990s. Let us shoot for that and make whatever political compromises are necessary from there.

Here are my core principles for tax reform (I have only two):

1. It must be a consumption tax. The current personal income tax taxes work. I do not think it is the business of the government to favor one activity over another, but if we must discourage something, it is better to discourage consumption than work. This can be done through a Value-Added Tax (VAT), National Sales Tax (NST), or even through an income tax (by excluding tax on interest, dividends, and capital gains). To see how an income tax can be made essentially the same as a VAT, see Joel Slemrod’s article “Deconstructing the Income Tax” in the American Economic Review (87.2).
2. It must treat everyone and all activity equally. This means no special provisions for anyone or anything. No deductions, no credits, no carveouts, no subsidies, no surtax, no rate structures. One rate that applies to everyone. That is equality. That is freedom.

(Revolutionary drumbeat in background)
We want tax reform! We want tax reform!

Link: http://townhall.com/Columnists/MichaelMedved/2009/04/08/the_dangers_of_leveling_-_at_home_and_abroad

This article continues the same line of thinking expressed by Charles Krauthammer last week (see my blog post KRAUTHAMMER: Obama’s Ultimate Agenda). However, it widens the scope to include the progressives global redistributionist agenda. That is, not just redistributing from the rich to the poor in America; but also redistributing from all of America (and other prosperous countries) to the poor and mismanaged economies in the rest of the world.

Link: http://www.washingtontimes.com/news/2009/apr/07/irs-heads-i-win-tails-you-lose/

Imagine you have two taxpayers. The first taxpayer invests $100,000 in a stock or mutual fund in 2007, sells it in 2008 for $150,000, buys a similar stock or mutual fund for the same $150,000 right after the sale, and then sells that second stock or mutual fund in 2009 for $100,000. Basically, he breaks even. The second taxpayer stuffs his $100,000 in a non-interest-bearing mattress. He also breaks even (in his own way).

Now what would you say if I told you that while the second taxpayer doesn’t pay any taxes on his “investment” in 2008 and 2009 (why should he?), the first taxpayer pays $10,000 in extra income taxes in 2008 … and gets a reduction of $600 a year from his taxes each year for the next 17 years, such reductions in total not to exceed the amount of $10,000 he originally paid. Does it sound like the government’s getting a long-term no-interest loan from taxpayer 1? Yes they are! And this is exactly how the tax system works. It is a travesty.

After the stock market plunge in the last six months, there are many many people who find themselves in this situation. Many people saved their money in mutual funds, got taxed when distributions (dividends) from these funds were distributed and reinvested, and now, after the stock market crashed and they want to (or need to) sell their investments, they are limited to $3,000 in capital losses per year.

Richard Rahn’s is good to bring up this terrible injustice in the linked article.

When you compare this to how the government treats investments in real estate (NO taxes on capital gains from the sale of owner-occupied homes; tax deduction of interest on loans to buy property; and bailouts for people who lost money in real estate), it is no wonder why this country is in such a mess. The government is not a fair dealer in anything it does. It’s a wonder people trust it to do anything, let alone all the things the current administration wants it to get into now.

Link: http://townhall.com/columnists/GeorgeWill/2009/04/05/car_designer_in_chief

A good column by George Will on the auto bailout. Actually, I like the latter half of the article better, when he discusses the plight of hybrid vehicles. I’ve never been too happy with the exalted status of the electric (or hybrid) car. What irks me is the self-righteousness of people who drive them, when what they should have is something akin to embarrassment. They rely on taxpayer money for their transportation like some people rely on food stamps for nourishment. If they can’t pay for their cars without government help, that’s bad enough. But to drive around all proud of the fact is a little absurd and a tad offensive.

Link: http://online.wsj.com/article/SB123871911466984927.html

Boskin gives a nice accounting of how much the budget deficit and the national debt grow under Obama’s policies as compared to doing nothing. Obama’s spin on the deficit and the debt just got unwound. This is a good follow-up to my post, Obama, You Did Not Inherit a Trillion-dollar Deficit.

Link: http://www.washingtonpost.com/wp-dyn/content/article/2009/04/02/AR2009040203287.html?hpid=opinionsbox1

Krauthammer argues here that Obama’s goals are about “fairness” and distributional issues, rather than about industrial socialism. I have argued this for a long time (see the intro to my JED ratings) with two central themes: (1) economic issues can be split between those intended to regulate markets and those intended to distribute income and wealth; and (2) in the 21st century, believers in capitalism are winning the argument against regulation but losing it against redistribution.

The first theme is definitional and still holds. The second one looks kind of shaky. The financial crisis and the ensuing call for more regulations seemed to disprove it, as faith in the productive and allocative efficiency of capitalism was called into question. However, I think this is a temporary, political setback.

Certainly there are still many on the left who want to regulate and government-micro-manage the economy, and the mainstream media has been successful in painting the financial crisis (but not the auto-bailout) as a failure of capitalism that demands a government response. But as Krauthammer points out, for them this is a diversion, and it is a long-term loser. They see the short-term political gain in blaming free-markets, but most educated Democrats know that the government can at best play the watchdog, not the sleigh-driver. Their real ambition is to push their warped notion of fairness and at the end of the day distribute the bounty that capitalism brings. Since that is a moral argument as opposed to an efficiency one, it is not easily rebuked. While they may yield to proven capitalist methods in how goods are produced, any notion of “fairness” trumps everything, even efficiency. Obama’s reasoning for capital gains tax hikes, despite revenue and efficiency losses, is a perfect example of this.

The risk for conservatives and libertarians is that they will continue to fight for free market principles by only claiming the high ground on efficiency, or in claiming that efficiency is more important than morality or fairness. This works on the regulatory side of economic policy, and the knee-jerk logic is to extend this to the distributional side. You can witness this when conservatives complain that higher taxes on high earners will harm economic growth, or that single-payer health care causes a brain drain, or that we need to bring competition to secondary education. All of these arguments are true. But until conservatives not only add on but lead with moral arguments, such as owning your own problems, or owning what you earn, or personal freedom and responsibility, will they win the victories against redistribution that are rightfully theirs.

Link: http://www.forbes.com/2009/03/30/stimulus-budget-deficit-opinions-columnists-bailout-employment.html

Good article by these regular Forbes contributors. It covers a wide range of current issues, but I was struck by their insight on two areas.

First, regarding the flub over taxing (not allowing the deduction of) charitable contributions, this was a good perspective:

Americans are the most generous people on the face of the earth, when measured in dollars donated to charities. At the same time, private charity does a great deal of good and often does it more effectively than government. But now the government wants to limit deductions for charitable contributions.

Some conservatives have argued that this might be a good trade-off if marginal tax rates were lowered. They argue that the benefits of higher GDP (resulting from lower tax rates) would outweigh the losses from slimmer donations (as a share of income). That is an economic argument that reasonable people can disagree about.

But this time around, the government wants to limit the charitable deductions and raise tax rates to make way for more spending. What government is really saying is that it doesn’t like the competition from private charities. It wants more people to depend on government.

As a proponent of a strict consumption tax (or a flat tax) over our behavior-influencing income tax code, I do not ideally favor deductions for charitable contributions. But if we do have this deduction, it is malicious to make it only for middle income taxpayers. If you want the rich to pay more taxes, raise their marginal rates, but don’t treat them differently from others just out of spite. What happened to equality before the law? And the authors are right, Democrats want to feel like they saved the world (with your money), rather than the philanthropists and the social workers on the front lines. So they make government bigger and find ways to squeeze out charitable giving.

The other passage I like is this one:

With bailouts, jobs will be saved in certain sectors, like autos, and politicians will be able to easily count the number of jobs they have saved. Meanwhile, many other sectors will face higher taxes and a higher cost of capital, resulting in slower job gains and some outright job losses in industries across the country. The problem is that no one will be able to identify with any certainty those who are worse off because the government bailed out someone else.

Not only this, but it is getting to be painfully obvious that these auto companies are going to go out of business eventually, and that the taxpayer funds plowed into them in the meantime is just money down a rathole. I bet the government will claim victory on both sides: that they saved these jobs, and then created the private sector ones that these people eventually migrate to, when in fact they’re doing neither.

Link: http://www.washingtontimes.com/news/2009/mar/20/prevailing-politics-of-envy/

I’m glad some other people aren’t just piling on.

By the way, isn’t it interesting that the Rush caller said his target was $250,000? That’s the level at which Obama starts raising taxes (or so he claims).

Link: http://www.nytimes.com/2009/03/17/business/17sorkin.html?hp

A voice of reason amongst all the hysteria about the AIG bonuses. As far as I’m concerned, the federal government deserves egg on its face for stepping in this dog turd. While I agree with this article for the most part, doesn’t the fact that AIG would have gone into bankruptcy give them wiggle room? Would the bonuses have survived the dissolution of AIG? Of course, the whole point is that AIG wasn’t allowed to fail, and may yet remain a viable business as a financial dinosaur.

Either the government plays hands-off and there is no accountability to the stockholder (i.e., the taxpayer) and there is moral hazard all over the place, bonuses being the least of problems. Or the government plays hands-on and 200 million taxpayers represented by 535 lawmakers are responsible for running a highly complex financial services giant, and run it with all the populist nonsense we hear from politicians these days with no eye for (taxpayer) profitability. Either way you look at it, the federal government’s involvement is recipe for disaster. So I think it’s time for the have-to bailout clan to cough up an apology to the taxpayers and naysayers.

Link: http://www.washingtontimes.com/news/2009/mar/17/shotgun-marriage-over-tarp/

Kudlow makes some good points here. Most free-market economists now view TARP as a misguided policy, and more taxpayer funds in that direction is recipe for trouble (look what happened with the AIG money). Kudlow’s absolutely right that the changes on mark-to-market accounting rules being looked at by the FASB and SEC are a big step in the right direction that costs us next to nothing.

However, I would like to see less cheering from the likes of Kudlow for the below-market interest rate policy the Fed continues to pursue. Kudlow has always been a solid pro-growth proponent, but his bias for easy money needs the wet blanket treatment. I do not think as Kudlow does that the Fed had “extremely tight credit policies” in 2006 and 2007, but rather had extremely loose ones in 2003 and 2004. This quixotic charge for a steep yield curve will end with inflation and more inflation.

As a side note, I’d like to give a cheer to Kudlow for considering a U.S. Senate run against Chris Dodd in Connecticut. The rumors of a possible 2010 campaign run have been around since late February. Dodd is one of the most bombastic politicians on the national scene, has been a friend of Fannie and Freddie (and CRA) over the years, and his departure would remove a bogeyman from the financial services nightmare we’ve been living in.

Link: http://www.washingtontimes.com/news/2009/mar/13/sparking-fond-thoughts-of-bill/

I was thinking along these lines two days ago. I mostly disliked Bill Clinton because he was insincere and dishonest, especially about policy and his political opponents. But on policy itself, while I disagreed with him in contrast to the alternative (Republican positions on domestic economic policy especially), he was closer to the middle than the Democratic Party as a whole (I would NOT say he was centrist). On free trade especially, he moved the goalposts in favor of less government intervention and more freedom.

This is far different than what we have today. I think President Obama is less crafty and dishonest on policy, mostly because he doesn’t need to be. But on policy he is within the left-most 20% of his party, which means the left-most 5-10% of the country. And this is even more pronounced in his economic policy.

Every conservative thought that Bill Clinton was so much of a threat because, unlike Jimmy Carter, he was seen as being politically effective. Obama is an even greater threat than Clinton because of his agenda. I think it remains to be seen whether he will be effective at implementing it, but for now I certainly wish Bill Clinton were in office over this guy.

Link: http://www.washingtontimes.com/news/2009/mar/12/will-fall-in-stocks-resume/

Actually, this article is not really about the stock market but rather who is to blame for the housing bubble and the resulting economic meltdown.

So, let’s play the blame game. Away with the righteous cowards who say, “Let’s not bicker over the past but work together to solve the problems of the future.” These are usually the guilty trying to escape blame so that we will give their implicated policies another chance. I say no! Let us expose the bubble-blowers! Let us roast the meltdown-makers! Behold the next great moral hazard: letting the rotten policies and policymakers of the past sneak away …

Link: http://www.washingtontimes.com/news/2009/mar/11/subsidizing-bad-decisions/

There is all kinds of juicy stuff in this article.

As a renter, I personally have had this feeling a lot in the past six months:

Why should taxpayers who live in apartments, perhaps because they did not feel they could afford to buy a house, be forced to subsidize other people who could not afford to buy a house, but who went ahead and bought one anyway?

Or, since the push for “affordable housing” was what created the subprime mortgage fiasco, how about this:

The same politicians who have been talking about a need for “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of “affordable housing” is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.

Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

Link: http://www.washingtontimes.com/news/2009/feb/27/deficit-charade/

What I said about Obama’s “inherited deficit” on Wednesday, elucidated a little differently by Terry Jeffrey.

Link: http://www.realclearpolitics.com/articles/2009/02/the_price_of_playing_by_the_ru.html

No, your glasses are not fogged. A died-in-the-wool liberal who ran Michael Dukakis’ campaign for president makes the Quite Right blog? Yes, indeed. There is so much to agree with in this article, certainly more than to disagree. And if Susan Estrich really believes this stuff, she will be voting Republican in 2010 and 2012. Because this ethic, personal responsibility–more precisely, financial responsibility–for one’s actions, is the road back for the Republican Party.

It is not so much the populist angle; I still very much oppose her view that the government should cap CEO pay of banks who take bailout money. It is the angle that a lot of people are still not vested as a government interest. They were not getting dole money before, and are not getting bailout money now. And generally, these are exactly the people who did everything right in life. And many of them are now being asked to pay for those who did wrong. Liberals only ever look at need, the effect, while conservatives look at the cause and effect, of what is earned. And while the share of voters who are not getting favors from the government is shrinking by the day and will be a minority before the year is out, those who do get a favor or two will soon be asking if their favor is earned, and is it worth the cost of everyone else’s.