Wednesday, February 23, 2011

I knew federal policy caused a lot of the Great Depression; here's what the states did to kick the economy repeatedly in the shorts...

Last night, Art Laffer mentioned that many states started their income and sales taxes during the Great Depression. I knew about the many, amazingly stupid, federal tax increases during the GD-- but was unaware of those at the state level. Interesting-- and another detail to share about how govt caused the length and depth of the GD.

The following numbers come from Table 14 (p. 40-41) of this data source (hat tip: Dagney Faulk)...

State taxes imposed during the Great Depression:
-19 of the 41 states with an income tax (as of 1993)
-19 of the 44 with a corporate income tax
-24 of the 45 with a sales tax
-20 of the 50 with an excise tax on cigarettes
-29 of the 32 with an excise tax on alcohol

Laffer at IUS last night: Bush/Obama and "stimulus"-- very bad; Clinton-- very good; Reagan-- great

A good summary of Laffer's speech from Harold Adams in the C-J...

Some of his thoughts and my thoughts:

1a.) He said that all of the "stimulus" since 2007 adds up to about $3.5 trillion. I'd like to see how he gets that, but it sounds reasonable.

1b.) He noted that you could have ended all federal taxation for 21 months with the same money-- and to imagine what this would have done for the economy. (Alternatively, you could have cut all federal taxation by half for 3.5 years-- and even ignoring the truly stimulative effects of this and the subsequent boost to tax revenues-- it would have cost the same.)

2a.) He was apt at explaining the "income effects" of income transfers-- and that these must sum to zero. Although it is proper to talk about the stimulative income effects of stimulus, the full story includes the de-stimulative income effects of stimulus (where the money comes from) and the substitution effects of distorting (and disincentivizing productive) behavior.

2b.) He was effective in explaining that to get more employment, you need some combination of making workers more attractive to employers-- and making work more attractive to workers. Consumption-based stimulus cannot accomplish these goals, overall, within an economy.

3a.) Laffer exhibited the freedom I feel as a Libertarian. I don't have any need to defend politicians from either major political party. Laffer was very critical of Bush, equating him (properly) with Obama in terms of economics and, especially macroeconomics. Laffer talked about Reagan as a great president, but also Clinton as a very good president.

3b.) For Clinton, he listed seven major accomplishments:
  1. NAFTA
  2. getting rid of taxes on Social Security income
  3. appointing Greenspan twice
  4. welfare reform
  5. balanced budget
  6. reduced govt spending as a % of GDP more than any other president (3.5%)
  7. biggest capital gains tax cut in history (mostly eliminating cap gains on homes)

Thursday, February 17, 2011

I have a dream (about K-12 education)...

I wish people would "stand up for students" more than "stand up for teachers".

I wish people who generally believe that govt regulation is ineffective would reject standardized testing as an effective way to regulate a govt monopoly.

I wish people who want local control would support more options for local parents, such as charter schools and means-based vouchers.

I wish people who support welfare programs for the poor-- where they can obtain food, housing, and health care through the provider of their choice-- would allow them the same dignity and opportunity with respect to educational choice.

I wish that teachers did not have to deal with government red tape, to work with staggering government regulations, and to join labor market cartels in dealing with the govt monopoly.

I wish people would practice civil disobedience in the face of the government's brutally expensive and low-quality monopoly provision of K-12 education in the inner city.

Tuesday, February 15, 2011

three articles on fiscal conservatism: Bunning vindicated; it can be fine (politically) to cut spending; and the GOP's dismal record

A nice editorial in the Paducah Sun (hat tip: C-J) on Senator Bunning's vindication on spending/debt.

It turns out Bunning was ahead of the curve. And after observing how the voters responded, other Republicans and even some Democrats were emboldened to take a similar stand with subsequent spending bills...But he got the last laugh. Now Congress [has many more] Jim Bunnings, fiscal conservatives equally determined to end profligate spending and trillion-dollar deficits. Bunning went from poster child for GOP callousness to taxpayers’ champion. Now he hands off the baton to Rand Paul, 32 years his junior and equally committed to restoring fiscal discipline to Washington. The two have this in common: A year ago, the party elite deemed them both unelectable.

A good article in The Economist on why a recent academic piece-- on why/how cutting spending does not need to be political suicide.

The idea that imposing austerity is political hara-kiri is widely held. But a new paper* by Alberto Alesina of Harvard University, Dorian Carloni of the University of California at Berkeley and Giampaolo Lecce of New York University finds little historical support for it. “The empirical evidence on this point”, the economists write, “is much less clear cut than the conviction with which this conventional wisdom is held.”

And in case you need a reminder, here's Veronique de Rugy in Reason on why the GOP cannot be trusted on fiscal conservatism...

After two years of absolute Democratic power, many voters hope that the Republicans will restore fiscal sanity to Washington. But a look at the GOP’s track record and campaign promises should give us pause. Historically, Republicans have often been worse spenders than Democrats.

recent news in the War on Drugs

Here's a Cato Institute podcast from John McWhorter on the War's impact on African-Americans and race relations. I read the related (excerpted) article but have not heard the podcast.

Here's the AP story from Katherine Corcoran on the death of missionary Nancy Davis, a victim of the War on Drugs in late January...

Here's the AP article from Steve Szkotak on Pat Robertson's support for thinking about the costs of our laws against pot. He's an unlikely supporter, huh?

Here's the AP article from Deanna Martin on Sen. Karen Tallian's bill to form a study committee for legalizing marijuana in Indiana. To the credit of the GOP in general and committee chair Sen. Brent Steele in particular, they were willing to hear this in committee-- and today, passed the proposal in committee! (I was up there today to testify on behalf of the bill.)

Gastinger hits the nail on the pro-life (and pro-choice) head

A nice letter-to-the-editor in the C-J...

I'm not sure whether he was responding to a pro-life comment or only sees the pro-choice critique of the pro-life position. In any case, the pro-choice critique is equivalent and worth a look...

Politics 101 is to keep your base in place. Republicans' recent attack on a woman's reproductive rights is purely politics. For six years of George W. Bush's administration Republicans held both houses of Congress and conservative sway on the Supreme Court, yet little or no effort was made toward the abolition of abortion. The reason is that many of those who strongly oppose abortion are single-issue voters, and if you remove that issue from the agenda you will lose a large voting bloc from your base. The only time Republicans make strong efforts towards outlawing abortions is when they know they have no chance of getting them through the Senate or retaining a strong enough majority to get past a presidential veto. Class dismissed.


Clarksville, Ind. 47129

The same can be said of those who are avidly "pro-choice" on abortion. I suspect that there are fewer single-issue voters in that category, but they are not an insignificant number either.

This is reminiscent, more broadly, of evangelicals voting for the GOP; African-Americans for the Dems; and a variety of other single-issue or relatively "extreme" voters.

This is probably why the GOP didn't work to get rid of Planned Parenthood funding until 2007, after they'd lost the 2006 election (a point I raised against my GOP opponent in the campaign).

Finally, here is a terrific/provocative essay on why the pro-life position might have found-- and still might find-- a more comfortable home in the Democratic party.

why do liberals want to hurt the poor (revisited)? the case of Wal-Mart in NYC

Liberals advocate a number of policies that inadvertently harm the poor-- as use government policy to help favored interest groups (e.g., K-12 education and the case below). This is somewhere between repugnant and regrettable.

Liberals advocate policies that are a decidedly mixed bag in terms of helping the poor (e.g., welfare policies). This is understandable but unfortunate.

Liberals often miss ignore policies that hammer the poor directly (e.g., Social Security and payroll taxes)-- out of ignorance, crass politics, or statist impulses. This is somewhere between sad and ridiculous.

But on occasion, liberals go out of their way to support policies that directly harm the poor-- as in the following case. What can one say about such people?

Here's Charles Fishman in the WSJ...

Last year, New York City residents spent $196 million at Wal-Mart—enough shopping to support three of the company's Supercenters. Manhattanites alone dropped $1 million a week at America's biggest store. That's a pretty remarkable sum, given that there isn't a single Wal-Mart in New York City. It turns out that while city politicians and labor unions have successfully, indeed proudly, kept Wal-Mart out of the five boroughs, they haven't been able to keep New Yorkers out of Wal-Mart stores in New Jersey and Long Island.

The big-box retailer is making a major push to end that inconvenience. Having made an unsuccessful bid five years ago, this time the company is mounting a sophisticated campaign. It features a new website (, direct mail brochures, radio and newspaper ads, opinion polls, and the consulting savvy of New York Mayor Michael Bloomberg's former campaign manager and his former pollster.

Wal-Mart's poll shows that 71% of New Yorkers want the store to open. Even in Manhattan, where the prospect of Wal-Mart was least popular, 58% still favor it...

The question, though, is why in capitalist democracy those fears of competition should determine public policy. New York is famous as the center of the nation's media business. But the city didn't step in and ban the Internet 15 years ago out of fear that the city's magazines, ad agencies, TV networks and music recording would be devastated by the new media. And many were.

The city's small groceries, diners, coffee shops, food trucks and boutiques also aren't quite as fragile as the Wal-Mart critics would have us believe. They've already survived the big-box, national-chain onslaught.

Home Depot first came to New York City in 1994. It now has 21 locations, including two in Manhattan. Target first opened in New York in 1998, and now has 10 stores, including one in Harlem. New York has Kohl's and Best Buy, Costco and Ikea, Olive Garden and McDonalds. For those worried about low-priced competition, the city already has 50 Family Dollar outlets....Yes, Wal-Mart is nonunion, but Target and Home Depot and Starbucks are all nonunion as well, as are most mom-and-pop stores.

Perhaps most importantly, it's puzzling why elected officials would oppose a store that, everyone agrees, brings low prices to working-class consumers who need those low prices more than ever....

Friday, February 11, 2011

Project Labor Agreements

I testified before the relevant committee of the Indiana Senate a few weeks ago. It passed there. It looks like I'll do so for the relevant House committee next week.

Here's the follow-up article I wrote for papers across Indiana-- on PLA's ("project labor agreements")...

An Economist’s View of Project Labor Agreements

Project Labor Agreements (PLAs) are collective bargaining agreements that establish terms of employment for a specific project. PLAs typically require a contractor to hire workers through union halls and follow union rules on pensions, working conditions, and conflict resolution. Non-union workers are usually required to pay union dues during the project. Obviously, PLAs make it more difficult and costly for non-union contractors to bid on such projects.

At the federal level, the use of PLAs has varied with the party of the president. Democrats Clinton and Obama have supported such arrangements; both Bush presidencies opposed them. In Indiana, state legislators are considering a prohibition on PLAs for state and local government projects (SB333 sponsored by Sen. Greg Walker; HB1067 sponsored by Rep. Phil Hinkle).

Restrictive contract provisions and government regulations often result in unintended but perverse consequences. In this case, the most troubling result of PLAs is probably that union workers from other states are favored over non-union workers from Indiana.

What are some other concerns?

The most notable is that PLAs will reduce bidding competition and increase costs. Particularly as consumers, we realize that competition is helpful. If I were to arrange laws so that you could only shop at WalMart or eat out at McDonalds, you’d be upset. But for producers, limited competition is quite attractive. In the public sector, higher costs result in higher taxes or reduced spending in other areas. This is especially troubling with tight budgets in a rough economy.

Proponents of restrictions can point to certain efficiencies that come from monopoly power. For example, imagine a law that required you to deal with a single home builder. He might say that he could avoid the cost of bidding and pass those savings to you. Similarly, if we gave them monopoly power, McDonalds could reduce costs by eliminating advertising. Likewise, we could avoid campaign spending if we got rid of elections or held them once a decade.

The question is not whether monopolies have some efficiencies, but whether monopolies are a net improvement. The efficiency of monopolies is difficult to imagine. Beyond that, studies show that costs for public-sector projects with PLAs were 12-20% higher.

Second, note that the proposed legislation only speaks to PLAs in the public sector. Interestingly, we observe some PLAs in the private sector. The difference is a company would negotiate its own PLA. In the public sector, politicians vote to fund a project, but political appointees later negotiate the PLA (with different ends in mind). The bottom line is that, with the looser budget constraints and deeper pockets of government, one would expect PLA inefficiencies to be magnified in the public sector.

Third, from the field of “Public Choice” economics, we know that political intervention is attractive when there are concentrated and obvious benefits for one group—and diffuse and subtle costs for another group. The recipients are excited while those bearing the costs don’t notice. The recipients lobby for such restrictions and tell us why the legislation is good for us. Those in the general public are busy mowing their lawns and raising their kids—and won’t pay attention.

Likewise, we know that suppliers (of labor or product) have an incentive to restrict their competition with laws that prevent them from participating in the market—or indirectly, by increasing their costs and making it more difficult for them to compete.

These are especially important considerations because labor unions are famous for using public policy to reduce competition in labor markets (for example, through “prevailing wage” laws) and product markets (most notably, with respect to international trade). And by definition, unions are cartels in labor markets—groups of (labor) suppliers who collude to extend their market power. Putting it more succinctly: if PLAs are not to their advantage, why would they avidly advocate their use?

Indiana’s state politicians are left with a difficult choice. Will they benefit union construction workers (who are fewer but better-organized politically) over non-union construction workers (who are more numerous but less-organized)? And will they benefit union construction workers at the expense of taxpayers?

pro-choice blindness or duplicity

two recent examples...

First, President Obama marking the anniversary of the Roe v. Wade decision.

Obama also said in a statement Saturday that he remains committed to policies designed to prevent unintended pregnancies.

I appreciate his point here. Abortion is not desirable, even in a pro-choice mind-set. So, we should not subsidize it (except through Planned Parenthood). Interestingly, he's not particularly interested in preventing unintended unemployment-- by subsidizing it with Unemployment Insurance.

And he called on Americans to recommit themselves to ensuring that, in the president's words, "our daughters have the same rights, the same freedoms, and the same opportunities as our sons to fulfill their dreams."

Well, at least those daughters who have exited the womb...

Obama said the 1973 Roe v. Wade decision that legalized abortion affirmed what he called a "fundamental principle: that government should not intrude on private family matters."

Well, of course, the govt should intrude on some private family matters-- when the rights of family members are being significantly and directly violated. And again, it seems strange that he would be fond of intruding on some private family matters such as taxable income, decisions to purchase internationally-made goods without tariffs and quotas, and of course, health care.

Second, a recent C-J editorial...

The war against women's reproductive freedom rights has exploded again...

Wow, that sounds ominous; I wonder what's happened?

On Capitol Hill, House Republicans [want to] make permanent the 30-year-old Hyde Amendment, which is renewed each year to prevent federal funds from being spent on abortions...[And] a House vote to strip the organization of Title X family planning funds could come as soon as Monday.

Oh my, that is an act of war...if abortion is not being subsidized, then...?!

And then the C-J gets in bed with Planned Parenthood and its at least occasional efforts to commit crimes...

Up Interstate 95 in New Jersey, an anti-abortion group hired actors to impersonate a pimp and an underage prostitute and sent them with video surveillance into Planned Parenthood's office in Perth Amboy....

Surveys of Americans show consistent support for women's rights to choose whether to terminate a pregnancy.

Yep, that's how we decide what's right and wrong-- majority opinion. And I don't see the C-J'ers excited about majority opinion when it comes to, say, the election of Rand Paul.

Hey, you can be pro-choice if you want to be stuck in Neanderthalic view of science and various inconsistencies. But don't talk silly about subsidies, the dream of abortion, defend child molesters, and profess a desire to not have a lot of govt intervention. Can't we be a little more honest and thoughtful about our positions?

educational vouchers (to join food stamps) in Indiana?

Gov. Daniels is proposing educational vouchers (see: food stamps) for lower-income and middle-income families-- with the support of legislators, a national foundation for school choice centered in Indiana, and public support...if not some powerful interest groups.

This would allow them (far) more choice among educational service options. Of course, people have education options, on paper, independent of income. But in practice, access to alternatives is highly restricted for people with fewer means. This policy would inject competition into an arena where the government has tremendous monopoly power.

Opposition to vouchers comes from:
-self-interested government suppliers who want to continue with their monopoly power (can't blame them)
-those with wrong-headed and simplistic arguments about church/state (it's common to fall for "good stories")
-statists who value government, even at the expense of the poor and middle class (this is different from other "liberals" who value the well-being of the poor rather than the expansion of government as an end)
-those who generally embrace markets, but worry that onerous regulations would accompany the monies (this is a reasonable concern, but does not necessarily follow)

It's common for people to worry about adding competition to highly-regulated markets. Part of this is the abstract thinking required to imagine an unseen outcome. For example, people imagine a great expansion of religious education. But more likely, those willing to provide religiously-based education are already in the market, willing to self-subsidize their views. With government subsidies available, a wide variety of (secular) providers would move strongly into the market.

In any case, the status quo is clearly troubling and more spending certainly hasn't helped. At the end of the day, the question is whether this reform would improve things-- not whether it allow us to reach some utopia.