The Enterprise Blog

Archive for March, 2011

Nick Schulz

Kansas City Hearts Churchill

By Nick Schulz

March 31, 2011, 7:03 pm

I’m in Kansas City participating in the Kauffman Foundation’s Economics Bloggers Forum (along with Mark Perry). More posts to come, but in the meantime tip your cap to Winston and Clementine Churchill. The fine people of Kansas City had the good sense to honor the couple with a public statue titled “Married Love.” Make sure you check out Brother Hayward’s book on Churchill and leadership, and his essay on why progressives should love Churchill.

UPDATE: The conference is starting and those who want to watch it (presentations by Tyler Cowen, Megan McArdle, Arnold Kling, Virginia Postrel, and more) can see it here.

Nick Schulz

A Tea Party in Moscow?

By Nick Schulz

March 31, 2011, 2:05 pm

It would be a shame if the Tea Party is running out of steam. There’s still much good work it can do in the United States; it’s also having a positive influence overseas. In the New Yorker Julia Ioffe reports about the activities of Alexy Navalny, an Internet activist in Moscow who is exposing the corruption at the heart of Russian politics and commerce. He recently spent six months studying the American political system as a fellow at Yale. Here was one observation:

I didn’t completely decipher [the American political system], but it’s still really interesting to see how these small groups are created and then begin to influence politics. The Tea Party, for example. It’s an incredible thing: some old ladies got together and are now hammering Obama from all sides.

Ioffe reports Navalny wants to “organize a similar movement in Russia.”

You have to read the whole piece to understand how gutsy this guy is. It’s possible he could be thrown in jail or killed for taking on Vladimir Putin’s United Russia and other corrupt elements in the country. But the corruption he has already exposed is extensive and shocking, and he’s getting results. He deserves support—and maybe a visit from some Tea Partiers.

If anyone is interested in tracking the population trends of 1.2 billion people, today is your lucky day. India released preliminary data from its 2011 census (like the United States, India conducts a census every decade, the last one was in 2001). Here’s a nice summary presentation the census has released.

Many of the findings were expected:

· The total Indian population grew by about 17.1 percent over the last ten years, or approximately 180 million people. That’s a little bit less than the size of the entire population of Brazil.

· The poorer states in India’s north–Bihar, Uttar Pradesh–grew the fastest. South Indian states like Kerala and Northeast Indian states like Nagaland, Mizoram, and Tripura grew the slowest.

· The rate of population growth has slowed down, however, and with the exception of the 1911-1921 period, this is the first decade in India where the added population was smaller than that of the previous decade. This makes sense considering declining fertility rates across most of India.

There were also some surprising results:

· The good: There are 217 million more literate people in India now than in 2001, and 110 million of them are women. This is a 38 percent increase among the total population, and a 29 percent increase among females.

· The effective literacy rate for women increased by 11.8 percent to 65.5 percent.

· The bad: The sex ratio of children in India (children ages 0-6) shows a decrease in the number of baby girls vs. baby boys. In fact, the female-to-male child sex ratio is at its lowest level since India’s independence in 1947. (See this article.)

The continued prevalence of female feticide in India should be a major concern to Indian policy makers and officials. Even as the country makes progress in education and health, cultural attitudes in many parts of the country appear to be distinctly pre-modern.

As more data is released, interesting tidbits will continue. Nerds, get your Stata and SPSS software warmed up. More on India’s census website.

Biggs:Impediments to Job Creation
Hess: Obama vs. Boehner on School Vouchers
Auslin:Asia Overview: Protecting the American Interest in China and Asia
Lachman:Portugal Will Follow Greece and Ireland to Failure
Pollock:Don’t Mourn the 30-Year Fixed Mortgage
Burkhauser and Daly: Excerpts from Declining Work and Welfare of People with Disabilities: What Went Wrong and a Strategy for Change

As Tea Party supporters come to Washington today for their “Continuing Revolution” rally, commentators are asking whether the movement is running out of steam. Our colleague Michael Barone raised some questions about this in his Examiner column yesterday. A new poll from CNN and the Opinion Research Corporation suggests that the number of people with an unfavorable opinion of the movement has risen substantially since the pollsters began asking people about it in January last year. Today, nearly half, 47 percent, have an unfavorable opinion, up from 26 percent last January.

The movement’s unfavorable rating is very similar now to the unfavorable rating of the major parties. In the same new poll, 48 percent had an unfavorable opinion of the Democratic Party (46 percent favorable). Responses for the Republican Party were similar: 48 percent had an unfavorable opinion (44 percent favorable).

At AEI, we have been tracking various pollsters’ assessments of the strength of the Tea Party. You can find our compilation here. When pollsters ask people whether they are actually involved, most people say they are not. In Quinnipiac’s latest poll taken this March, 31 percent considered themselves part of the Tea Party movement, but 61 percent did not.

What do Tea Party activists believe? Perhaps surprisingly, we know very little about Tea Party members’ views on foreign policy or trade. They tend to be conservative on social issues, although there is little indication that issues such as abortion and gay marriage are their top priorities today. Like everyone else, they are most concerned about the economy. They are fiscally conservative, taking a much harder line on spending cuts than do rank-and-file Republicans. They are also more critical of the performance of the federal government in Washington than are most Republicans.

Assessing the First 100 Days of the 112th Congress

By Jennifer Marsico

March 31, 2011, 10:18 am

April 14 will mark a hundred days since the convening of the 112th Congress this past January. What have we learned so far? AEI scholars Norm Ornstein and John Fortier will be joined by former congressmen Vic Fazio and Vin Weber, and Wall Street Journal congressional reporter Janet Hook to discuss the new Congress at AEI tomorrow morning. “The  First Hundred Days; An Early Look at the 112th Congress” will be the first D.C. event to assess the new Congress near the 100-day mark.

After a successful round of elections last November, congressional Republicans are eager to reassert themselves on the policy front and relations between the White House and Congress are more contentious. A government shutdown looms on the horizon. Congressional approval ratings remain low despite the House Republican takeover—there is ongoing discontent with both parties.

Panelists will compare the Republican takeover of the House in 1995 to today’s Congress, examining the strains and strengths of the current relationship between the legislative and executive branches.

To register or learn more about the event, please click here.

Representative Sander “Sandy” Levin (D-Michigan), former chairman of the House Ways and Means Committee, now ranking minority member—and the leading voice on trade for House Democrats—gave an admirable speech at the Peterson Institute Tuesday. Admirable for its candor and its blunt partisanship, and for an attempt to set forth a “new model” for future U.S. trade agreements.

Right off the mark, in the first sentence, he accused House Republicans of “holding hostage” the more important Korean free trade agreement (FTA) for flawed (in his judgment) FTAs with Colombia and Panama. For Levin, this stance is part and parcel of “the old conventional wisdom on trade.” I’m not going to detail a rebuttal to this twisted version of the Korea/Colombia FTA history here: for that, see Phil Levy’s American.com piece a few weeks ago.

What is more important are the elements of Levin’s new trade model, to the degree that one can discern them, as they are scattered throughout the speech and in the question period that followed. One should note first that, as with many (even supposedly more sophisticated) trade critics, Levin attacks the “traditional” Smith/Ricardo model based upon comparative advantage: “Globalization has challenged the very premises of this model.” Moving on, as the speech progresses, I picked up the following components of the new model: greater use of trade actions (anti-dumping and safeguards) to protect U.S. industries (such as tires which we no longer make here); industrial policies to foster (subsidize) and protect strategic U.S. industries; enforceable labor rights provisions that would allow the U.S. to intervene in the legislative and administrative procedures and policies of trading partners; the assumption international legal obligations that would allow challenges to U.S. labor laws (right-to-work, collective bargaining for public unions); mandatory adherence to UN environmental treaties and agreements; large new U.S. expenditures for social programs (viz, trade adjustment assistance, expanded unemployment insurance) as recompense to trade “losers”; and reinstituting “managed trade” (i.e., tying continued U.S. market opening to specific increases of exports to individual trading partners). There is more, but this gives the thrust.

Levin, whose trade experience was forged by the perception of America’s decline in the 1980s, ended his speech by vowing “not to let what happened in our trade policy toward Japan happen to our trade policy in this decade”—i.e., Japan won. This is a bizarre conclusion, given Japan’s economic history since 1990. No matter, for Sandy “active” intervention to subsidize and protect and “managed trade” in economic diplomacy “were right then … and are right now.”

As I said upfront—this is an admirably forthright speech. Those of us who still believe in the “old model” of Adam Smith at least can’t say we weren’t warned.

As Washington struggles to deal with a deteriorating Pakistan, an unstable Afghanistan, and now military action in Libya, it seems that the Middle East remains the most demanding realm for foreign policy makers. Yet the long game for us remains the Indo-Pacific, the only region on the globe that promises dynamism and growth, even amid its own instability. Positioning ourselves to take advantage of the Indo-Pacific’s opportunities, while preparing to ensure its security, is the key policy requirement for this and future administrations.

Today, the House Foreign Affairs Committee will hold a hearing entitled “Asia Overview: Protecting America’s Interests in Asia and China” at 2 p.m. in Room 2360 of the Rayburn House Office Building. I’ll be testifying on how not merely to protect our interests, but to promote them, drawing in part on my report “Security in the Indo-Pacific Commons,” released last December. That Congress is holding this hearing indicates it understands the importance of getting the Indo-Pacific right, even amid a host of other pressing problems.

Sometimes I think Brother Ornstein gets up in the morning and wonders, “How can I provoke Hayward today?” (I confess to thinking the converse of this—or is it the obverse? Whatever. . .) Today’s Ornstein’s Award for the Public Official Who Has Most Blatantly Violated His or Her Oath of Office goes to Don McGahn of the Federal Election Commission (FEC), for the sin of candidly admitting that “I’m not enforcing the law as Congress passed it.” Brother Ornstein adds the useful addition that “This astonishing revelation was accompanied by a disclaimer, that McGahn was actually enforcing the law as it has been shaped by the Supreme Court.”

I won’t get drawn into the broader argument about campaign finance reform that underlies this story.  That’s what I have a spouse for.

Rather, Norm’s prize ought to go to the entire administrative apparatus of the federal government (why should an obscure FEC commissioner have all the honor?), which much of the time enforces the law as Congress wrote it only when it finds it convenient to do so. This is partly the fault of Congress itself, for delegating legislative power to administrative agencies, often with vague and open-ended language that invites arbitrary government.

The most clarifying single moment of the last generation may well have been former Speaker Nancy Pelosi’s famous remark that we’d need to pass the healthcare bill to find out what was in it. Rather than being a matter of ridicule, I thought Pelosi expressed perfectly the innermost character of congressional legislation in the modern administrative state. What she said was quite true and accurate: even at more than 2,000 pages, the enormous discretion and policy responsibility delegated to executive branch agencies meant that in effect the actual operating law would be formulated by administrators rather than Congress. And the huge number of waivers being granted under ObamaCare reveals the essentially arbitrary (some might say lawless) nature of administrative government.

I’ll add that it is quite common for administrators to play a dance with the judicial branch over where the lines are—not Congress or the original statutory language. That’s how, for example, we are getting Environmental Protection Agency regulation of greenhouse gas emissions under the Clean Air Act. This is not a new story, and the ins-and-outs of it have seldom been told better than in Jeremy Rabkin’s classic book, Judicial Compulsions: How Public Policy Distorts Public Law. (For another, more accessible approach to this problem, see also Richard Neely’s old book, How Courts Govern America.) The point is, Brother Ornstein could break his award statuette mold if he gives this award to all who deserve it today.

Joel Kotkin and colleagues highlight the metro areas that are attracting the most minority-run firms. It’s striking (to me at least) that the top five metros are all south of the Mason-Dixon line. In his article “Lone Star Rising,” Joel profiled one of those top cities: Houston.

Remember those dangerous TSA body scanners? The brouhaha last November over the TSA’s new security measures seems like a distant memory now. Among other objections raised by the critics, we heard dire warnings that the backscatter x-rays were dangerous to your health, which led many travelers to refuse to go through the scanners and opt for hand pat-downs instead that many found invasive.

Well, it turns out those warning about the dangers of full body scans were wrong. The Wall Street Journal reports that a new analysis, published in the Archives of Internal Medicine, has determined that the scanners don’t pose a significant health risk to passengers:

Rebecca Smith-Bindman, a professor of radiology at the University of California, San Francisco and one of the article’s authors, said the amount of radiation emitted by a full-body scan “is a drop in the bucket” compared to the amount of radiation used by X-rays and other medical-imaging procedures such as CT scans. The amount of radiation women would be exposed to from a mammogram is equal to 4,000 airport scans, while the amount from an abdominal CT scan would equal 200,000 airport scans.

Dr. Smith-Bindman said air travelers are exposed to far more radiation from flying, and that going through a full-body scan “is like one or two minutes on an airplane.” She noted everyone is exposed to radiation on a daily basis from the sun and the Earth. Flying increases the amount of radiation exposure from the sun.

You can read the full study here. Bottom line: If your plane circles the airport for a few extra minutes waiting for a free runway, you are exposed to far more extra radiation than you’d go through in a TSA scanner. Of course, this news won’t assuage those who oppose full-body scans on ethical grounds. But for those concerned with health, if you don’t want the TSA to “touch your junk,” it’s perfectly safe to go through the scanner instead.

Image by Quinn Dombrowski.

I’m reviewing a fascinating book by Patrick French entitled India: A Portrait, which will be out in the United States in June. (You can see my colleague Sadanand Dhume’s review of the book in the Wall Street Journal here.)

In one chapter, French and an ambitious young Indian statistician delve into some data on family politics in India. When we look at the family tree of Indian National Congress’s President Sonia Gandhi or its General Secretary Rahul Gandhi, we immediately see evidence of this phenomenon in India. Sonia is the widow of former Prime Minister Rajiv Gandhi and daughter-in-law of Indira Gandhi, another prime minister. Indira Gandhi’s father was Jawaharlal Nehru, one of India’s founding fathers and its first prime minister. Sonia’s son is Rahul Gandhi.

But French and his colleague find that dynasty politics is a problem far beyond the upper echelons of the Congress Party. In fact, take a look at this fascinating chart, available on French’s website:

Continue reading

Pletka:Is There an Obama Doctrine?”
Yoo and Delahunty: In Libya, it’s “Mission Not Accomplished
Barone:Is the Tea Party Pooped? It Must Keep Making Its Case
Goldberg:Taking Feminism Overseas
Blumenthal: Networked Asia
Barfield:Patent Reform: A Rare Bipartisan Triumph for Innovation and Growth
Ornstein:Ornstein’s Awards Are Nothing to Brag About

Danielle Pletka

Assad Stays the Course

By Danielle Pletka

March 30, 2011, 11:11 am

It should have come as no surprise that when Syria’s President Bashar el Assad finally opened his mouth to speak to his nation, it was the same old rubbish. No word of lifting the state of emergency that has stifled Syria for almost 50 years. No real impetus for reform. Lots of creepy references to shadowy “enemies.” And none of the “reassurance” that Syria’s state-run SANA had predicted for the speech. Why would Bashar reform? His future is certain, and for him, it’s a binary sort between the presidential palace and the gallows.

It might have been different. When Bashar came to office after his father’s death, many (and many, many at the State Department) thought he would be the breath of fresh air that Syria needed. He was reportedly interested in the Internet, in slowly opening the country, in taking Syria forward. But on further reflection, it appeared that Assad was actually more interested in maintaining power. Family habits die hard, and it’s hard to disagree with the way the young dictator came to see things. The Assads are despised. Theirs is a cruel family, with a vicious coterie of Alawite thugs around them. They are killers, in contrast to many of the thieves and autocrats around them in the Arab world. (The Assads come from the Gaddafi/Saddam tradition of regional dictatorship.) There was no gracious way out.

For the same reasons that Assad pere et fils could never sue for peace with Israel—the raison d’etre of their dictatorship would evaporate—Bashar cannot loosen his grip on power. The Syrian people have staggered under asinine economic policies, ruthless political oppression, and their leaders’ penchant for supporting terrorism, pursuing a nuclear program, and general servility to Iran. But the Sunnis of Syria are entrepreneurs, with a vibrant culture, diverse politics, marginal interest in indentured servitude to Iran… well, I could go on. A small opening would inevitably have meant the end for the Assads. So they decided against a small opening.

Now the people of Syria are making that opening for themselves. No thanks to the United States, of course. But then again, that’s also what we’re learning is the norm in this Arab Spring. Libya, as President Obama and Secretary Clinton have told us, is the exception, not the rule.

Image by watchsmart
.

Kenneth P. Green

Now That’s a Sugar Rush!

By Kenneth P. Green

March 30, 2011, 10:29 am

Everyone knows about the great success that Brazil has had in converting its transportation system to rely on homegrown ethanol from sugarcane, allowing it to export oil and enjoy an economic boom, right? But what happens when you simply change your fuel dependency from something pumped out of the ground to something grown on it?

According to Iuri Dantas at Bloomberg:

Brazil may import ethanol from the U.S. in the short term in a bid to contain rising prices, Folha de S.Paulo newspaper reported, citing a decision by the oil regulator. Brazil’s oil regulator allowed an increase in the amount of water in ethanol to 1 percent from 0.4 percent, to conform to U.S. specifications and allow imports, the newspaper said. Brazil may import ethanol from the U.S. until April 30, when the sugarcane harvest begins, the newspaper said.

As the New York Times Green Blog explains it, it’s all about market prices for sugar:

Brazil may import ethanol from the United States in April, Brazil’s oil regulator says. The move comes as a growing number of Brazilian cane farmers choose to produce sugar, which has surged in price over the last year, rather than ethanol, leading to a spike in fuel costs. Earlier this month, Brazil also said that it would import 1.5 million barrels of gasoline in April, while reducing the mixture of ethanol required in gasoline at the pump.

U.S.-subsidized ethanol production is heading down south to a country whose cheaper homegrown ethanol we won’t import for American motorists. I’m sure that makes sense to someone.

In a recent article in the Financial Times, Jeffrey Sachs rues the race to the bottom in corporate taxes that is forcing countries like the United Kingdom, Canada, and the United States to engage in tax cutting at a time of budget deficits and fiscal pressure. He argues for international cooperation in tax and regulatory policies so that countries can place the burden of reducing deficits “fairly” on the “rich, who are enjoying a boom in living standards and an unprecedented share of national income.” However, that is exactly the wrong advice to heed at this time. Decades of research into the effects of corporate taxes on global flows of mobile capital suggest that capital flows from high-tax to low-tax jurisdictions.

Countries that raise tax rates lose revenues. It is not surprising that the United States, with one of the highest corporate tax rates in the OECD, is at the bottom of the list when it comes to raising revenues from these high tax rates. Indeed, that is one of the reasons that the Obama administration may even be in favor of a corporate tax cut. Further, even if all countries were able to agree to a uniformly high level of corporate taxes—not an easy feat by any means given every country’s unique fiscal and budgetary needs—it is still unclear that the “rich” would bear the burden of corporate income taxes. A growing empirical literature on the incidence of the corporate income tax suggests that firms are able to pass on the burden to workers in the form of lower wages. Therefore, a Robin Hood policy of taxing the rich to give to the poor may have exactly the unintended consequence of hurting the poor.

Before President Obama’s address to the nation, Secretary of Defense Robert Gates set off a firestorm when he declared on the Sunday shows that America had no “vital national interest” in Libya. In his speech Monday night, Obama did little to dispel that notion. The president used the word “interest” six times to describe the reasons for our intervention, but usually in the context of arguing that out action was necessary to avert a humanitarian catastrophe. Said the president:

Qaddafi declared he would show “no mercy” to his own people. He compared them to rats, and threatened to go door to door to inflict punishment … We knew that if we wanted—if we waited one more day, Benghazi, a city nearly the size of Charlotte, could suffer a massacre that would have reverberated across the region and stained the conscience of the world. It was not in our national interest to let that happen.

And later:

America has an important strategic interest in preventing Qaddafi from overrunning those who oppose him. A massacre would have driven thousands of additional refugees across Libya’s borders, putting enormous strains on the peaceful—yet fragile—transitions in Egypt and Tunisia. The democratic impulses that are dawning across the region would be eclipsed by the darkest form of dictatorship, as repressive leaders concluded that violence is the best strategy to cling to power. The writ of the United Nations Security Council would have been shown to be little more than empty words, crippling that institution’s future credibility to uphold global peace and security. So while I will never minimize the costs involved in military action, I am convinced that a failure to act in Libya would have carried a far greater price for America.

And still later:

I’ve made it clear that I will never hesitate to use our military swiftly, decisively, and unilaterally when necessary to defend our people, our homeland, our allies and our core interests… There will be times, though, when our safety is not directly threatened, but our interests and our values are. Sometimes, the course of history poses challenges that threaten our common humanity and our common security—responding to natural disasters, for example; or preventing genocide and keeping the peace; ensuring regional security, and maintaining the flow of commerce. These may not be America’s problems alone, but they are important to us. They’re problems worth solving. And in these circumstances, we know that the United States, as the world’s most powerful nation, will often be called upon to help.

These are all compelling moral arguments for the military action the president has ordered. And the president is absolutely right to say that we do have moral, as well as strategic, interests that are worth defending. But Obama could also have made a compelling, hard-nosed argument that military action in Libya was important to American national security. He could have explained that if the Libyan dictator survived he would not likely resume being the benign Muammar Gaddafi of recent years, who handed over his weapons of mass destruction, renounced terrorism, and made nice with the West. More likely, he will be the brutal Gaddafi of old—the state sponsor of terror who blew up Pan Am 103, set up terrorist training camps on Libyan soil, and deployed terrorists for attacks against the West. The president could have argued that Gaddafi would likely put a halt to the destruction of his chemical weapons stockpiles, and the danger would grow that these toxins could fall into the hands of terrorists. The president could have argued that Gaddafi’s survival would not only embolden the Libyan dictator, it would embolden other dictators from Iran to Syria to North Korea—who would see our failure to act as a green light to wreak havoc on the world stage without fear of a decisive American response.

These are but a few of the arguments for military action in Libya that involve compelling strategic interests beyond our moral interests and humanitarian concerns. But Obama did not make them. Indeed he could not make them. Because addressing these strategic interests would require an objective that the president has rejected in Libya: the removal of the Gaddafi regime. So while he made a compelling moral case for action, the best the president could offer in terms of strategic arguments was the need to defend “the writ of the United Nations Security Council.” That is not likely to inspire a lot of Americans to support military intervention in Libya.

Image by Pete Souza.

Nick Schulz

Talk to Chuck

By Nick Schulz

March 29, 2011, 2:42 pm

From the NYT (h/t RP):

Um, Senators, ever heard of the mute button?

Moments before a conference call with reporters was scheduled to get underway on Tuesday morning, apparently unaware that many of the reporters were already on the line, Charles Schumer of New York, the No. 3 Democrat in the Senate, began to instruct fellow senators on how to talk to reporters about the contentious budget process.

After thanking his colleagues — Barbara Boxer of California, Ben Cardin of Maryland, Tom Carper of Delaware and Richard Blumenthal of Connecticut — for doing the budget bidding for the Senate Democrats, who are facing off against the House Republicans over how spending for the rest of the fiscal year, Mr. Schumer told them to portray John Boehner of Ohio, the Speaker of the House, as painted into a box by the Tea Party, and to decry the spending cuts that he wants as extreme. “I always use the word extreme,” Mr. Schumer said, “That is what the caucus instructed me to use this week.”

A minute or two into the talking-points tutorial, though, someone apparently figured out that reporters were listening, and silence fell.

Then the conference call began in earnest, with the Democrats right on message.

“We are urging Mr. Boehner to abandon the extreme right wing,” said Ms. Boxer, urging the House to compromise on the scale of spending cuts and to drop proposed amendments that would deny federal financing for Planned Parenthood and for government agencies like the Environmental Protection Agency.

Mr. Carper continued with the theme, referring to some House Republicans’ “right-wing extremist friends.” Mr. Cardin decried Mr. Boehner giving into “extremes of his party.” Mr. Blumenthal closed by speaking of the “relatively small extreme group of ideologues” who are “an anchor” dragging down the budget negotiation process.

How news is made . . .

If only Adam Clymer could cover this story…

The Washington Post’s policy wunderkind Ezra Klein discusses a Social Security reform plan put forward back in 2005 by now-National Economic Council Director Gene Sperling, calling it “The pro-Social Security case for Social Security reform.” I admire anyone who’ll put pen to paper on Social Security reform and I think Sperling is a positive influence within the administration since, unlike some others in the White House, he seems genuinely to want to fix the program.

What I wonder about is how Klein himself seems so oblivious to how someone to the right of center would view a plan like Sperling’s. As Klein states, “Sperling suggests a 3 percent surcharge on all income over $200,000, which would wipe out half of Social Security’s shortfall. He suggests the rest could be made up through bipartisan agreement on benefits cuts or tax changes.”

Wow, what a bargaining strategy: you give me half of what I want and then we can bargain over the rest. I’m shocked the administration doesn’t have a bipartisan plan in hand already.

Klein then rather blithely states that

A simpler solution perhaps would be to uncap the payroll tax that funds Social Security. Right now, income over $106,000 is protected, meaning someone making $80,000 pays payroll taxes on every dollar of income while someone making $1 million pays on barely one of every 10 dollars. Does that make sense to you? Yeah, me neither. Uncapping it would pretty much wipe out the shortfall on its own. Add in some changes to the benefit itself — perhaps benefits for the wealthy could grow more slowly, as they rely on it less — and you’re done. Social Security is fully funded.

Except, as I point out in a recent AEI Retirement Policy Outlook, this “full funding” would rely on the same trust fund buildup/drawdown that a number of respected economists have found to be an accounting mirage that merely subsidizes current consumption. In other words, if we lift the cap, it’s most likely that the surpluses generated in the short term will produce higher spending or lower taxes than otherwise would be the case, leaving no real saving to pay benefits in the long-term.

Moreover, lifting the cap would lead to some scary marginal tax rates. In my AEI outlook, I calculate that the maximum marginal tax rate on earned income, inclusive of federal income taxes, state income taxes, and payroll taxes, would rise to an average of 62 percent, ranging from a “low” of 57 percent to a high of 68 percent, depending on state. I really don’t mean to be rude, but if you’re into “economic and domestic policy, and lots of it” wouldn’t marginal rates at this level—before, mind you, we’ve done much of anything to fix the larger Medicare and Medicaid gaps—be just a little bit worrying?

So this “easy solution” to Social Security relies on ignoring everything we’ve learned about the trust fund over the past three decades and imposing marginal tax rates that most countries in the world long ago abandoned. The worrying thing, and the thing that prevents a truly bipartisan solution to Social Security, is that to too many people on the Left these issues just don’t occur to them.

Kenneth P. Green

Zapping the Taxpayer

By Kenneth P. Green

March 29, 2011, 1:39 pm

Not content with the nearly non-existent sales of GM’s Volt and Nissan’s Leaf, lawmakers want to make it easier for car dealers to bribe shoppers into them. At present, buyers of the new plug-in hybrid and electric vehicles qualify for a $7,500 tax credit, but apparently, that whole delayed gratification thing is still an obstacle to buying.

So, according to the Washington Times, the Obama administration, which has promised to get a million such vehicles on the street by 2015, wants to change the tax credit into an instant rebate, right there at the dealership. Buy a plug-in hybrid or electric vehicle, and the dealer would give you the $7,500 off the price at the time of purchase, claiming the tax credit for themselves later.

Senator Debbie Stabenow (D-Michigan) is pushing the legislation, which isn’t surprising, because, as the Times notes:

It is pretty convenient that Ms. Stabenow, who represents a state where GM is headquartered, is pushing a bill that is also supported by Edison Electric Institute, whose president was loaned a Chevy Volt, Eaton Corp, the sole American producer of car recharge systems, and Battery Electric Vehicle Coalition, a lobbying group for the electric car industry.

Nope, no conflict of interest here…

The dynamism of the U.S. economy is frequently underappreciated. Several recent studies provide new evidence that American households experience considerable mobility over time in income, earnings, and wealth. Contrary to prevailing public opinion that households get stuck at a given income or wealth level for decades or generations, there is actually a significant amount of movement up and down the economic ladder over even very short periods of time.

For example, some new research from the Federal Reserve Bank of Minneapolis is summarized in the table above, based on data from the Panel Study of Income Dynamics that follows the same households over time. The results above answer the question: For households that were in a given earnings quintile (20 percent group) in 2001, what percentage of those households moved to a different quintile by 2007? Here are some conclusions about the earnings mobility for households that had positive earnings in both years:

1. For those U.S. households that were in the lowest earnings quintile (bottom 20 percent) in 2001, only 56 percent of those households remained in that quintile in 2007, and 44 percent had moved to a higher quintile by 2007. Five percent of low-income households in 2001 had moved to one of the top two quintiles in just six years.

2. For those households that were in the highest earnings quintile (top 20 percent) in 2001, 34 percent had moved to a lower quintile by 2007, and 5 percent of those households had moved all the way to the bottom quintile.

3. For those households in the middle earnings quintile (middle 20 percent) in 2001, about one-third moved to a higher quintile by 2007, more than one-fourth moved to a lower quintile, and only 42 percent remained in the same quintile.

4. More than half of the households in the second, third, and fourth quintiles in 2001 moved to a different earnings quintiles by 2007 (see bottom row in chart).

The Federal Reserve Bank study looked at a fairly short time period of only six years, and we would obviously expect to find even more earnings mobility over a longer period of time.

There is also significant mobility for U.S. households living in poverty, according to another study. The Census Bureau reported this month that of the 28.13 million Americans living below the official poverty line in 2004, almost 12 million, or 41.6 percent of those people, were not living in poverty by 2006. The L.A. Times reported these findings with an article titled “Poverty Often a Temporary State, U.S. Census Study Finds.”

Bottom Line: It’s a common misperception that earnings or wealth quintiles are static, closed, private clubs with very little turnover, so that once a household finds itself in an earnings quintile or living below the poverty line in a given year, it’s doomed to stay there for life. But the empirical evidence tells a much different story of dynamic change and turnover in the U.S. economy—people and households move up and down the earnings and wealth quintiles throughout their careers and lives. Many of today’s poor are tomorrow’s rich, and many of today’s rich are tomorrow’s middle class, reflecting the significant upward and downward mobility in the U.S. economy.

In suggesting that U.S. military action against Libya is only trying to protect civilians and not trying to achieve regime change, President Obama is trying to have it both ways. He no doubt sincerely wants to prevent the slaughter of innocents, but he also hopes to get lucky and knock over the Qaddafi regime from the air. But he’s deploying more than just luck. As reported by the New York Times this morning, he has deployed an array of lethal close-air support in the form of AC-130 gunships and A-10 attack aircraft. The Times reports that Muammar Qaddafi’s forces are taking a pounding:

From the air, the United States is supplying much more firepower than any other country. The allies have fired nearly 200 Tomahawk cruise missiles since the campaign started on March 19, all but 7 from the United States. The United States has flown about 370 attack missions, and its allied partners have flown a similar number, but the Americans have dropped 455 precision-guided munitions compared with 147 from other coalition members.

Besides taking part in the airstrikes, the American military is taking the lead role in gathering intelligence, intercepting Libyan radio transmissions, for instance, and using the information to orchestrate attacks against the Libyan forces on the ground. And over the weekend the Air Force quietly sent three of its most fearsome weapons to the operation.

Continue reading

Thiessen:A Fundamentally Dishonest Speech
Thiessen:Where is the Leader of the Free World?”
Yoo:Defending the Status Quo

Nick Schulz

Elizabeth Warren Has Been Busy

By Nick Schulz

March 29, 2011, 7:26 am

Defenders of Elizabeth Warren and the Consumer Financial Protection Bureau have lately been blasting the critics of Elizabeth Warren and the CFPB (more here). Eric Falkenstein points out why the critics have been right to worry:

A new regulator… is not encumbered with lots of banking experts. The CFPB, Elizabeth Warren’s new financial regulator, is excited to make a bang in home lending. A power point leaked to the HuffPost shows that the CFPA notes banks saved $20B by not applying ‘special servicing of delinquent loans’. Presumably, given foreclosed loans were found to all be truly delinquent, this would merely add more signatures and busy work to what is a fact. Somehow, I don’t see how adding costs to the intermediation process helps anyone, but that’s why I’m not in charge.

The CFPB presentation notes that it could ‘require 3.0 million principal reduction modifications over six months, exempting government FHA and VA loans.’ Why any private bank lends to homeowners any more is an interesting question. The CFPB notes ‘servicers fund write-downs (make investors whole)’, as if the problem with banks is they have too much money. That will really get the economy going.

With all the financial problems in the pipeline, I’m almost hoping the CFPB does something this bone-headed right out of the gate, because creating a big mess early is probably the best thing they can do. That is, if they did something subtle it would probably be worse because it would take longer to fester.

Alex Brill and Aparna Mathur pointed out the problems with Warren in this space a few months ago.

Marc Thiessen

As Libya Burns, Al Qaeda Plans

By Marc Thiessen

March 28, 2011, 5:07 pm

While the world focuses on the military conflict in Libya, al Qaeda is moving forward with plans for new attacks on the American homeland. In a little noticed story this weekend, The Washington Post reported:

U.S. spy agencies have gathered new intelligence indicating that al-Qaeda’s affiliate in Yemen may be close to launching a terrorist strike, according to U.S. officials who said the development has added new urgency to concerns about the turmoil in the Middle East.

The officials said the agencies have assembled only fragmentary information on the plot and do not have enough detail to issue a public warning or to take specific measures to counter the threat…

The new information goes beyond the routine level of terrorism chatter monitored by U.S. spy agencies tracking al-Qaeda in the Arabian Peninsula (AQAP), as the Yemen-based offshoot is known. A U.S. official described the recent intelligence as pointing to “a current and concerning threat.”

“We’re always at a very high level of alert and have been for some time with AQAP,” said the official, speaking on the condition of anonymity to discuss an intelligence matter. But the new information points to “more than that they are bent on attacking the West and continuing to plot.”

In an example of preemptive CYA, the administration is pointing to the turmoil in Yemen and other Middle Eastern countries and telling reporters this is why it is having trouble uncovering and disrupting the plot.

The threat comes at a time when counterterrorism operations in Yemen have been disrupted by mass protests that threaten the 32-year rule of President Ali Abdullah Saleh… A prominent concern, officials said, is that efforts to unravel the plot could be complicated by the political upheaval sweeping much of the Middle East… Saudi Arabia’s attention has also been diverted from counterterrorism efforts. The monarchy recently dispatched forces to help subdue a popular uprising in the neighboring Sunni-dominated country of Bahrain.

No doubt the current turmoil complicates matters, and our intelligence partners in the region are indeed distracted. But long before the Arab Spring—when Saleh was firmly in control and our intelligence partners were focused like a laser beam on the terrorist threat—the administration admitted that it had little intelligence on AQAP, the location of its leaders, or its plans for new attacks. Last November, the Washington Post reported that:

The United States has deployed Predator drones to hunt for al-Qaeda operatives in Yemen for the first time in years but has not fired missiles from the unmanned aircraft because it lacks solid intelligence on the insurgents’ whereabouts, senior U.S. officials said … The officials said senior members of AQAP, including the U.S.-born cleric Anwar al-Aulaqi, have taken advantage of Yemen’s rugged terrain and their ties to its tribal networks to all but disappear from view … Current and former U.S. intelligence officials said the drones’ surveillance prowess is often overstated and will be of limited use in identifying al-Qaeda operatives in Yemen without the aid of signal intercepts or human sources on the ground. “All Land Rovers look pretty much alike,” said a former high-ranking U.S. intelligence official familiar with operations in Yemen. “You have to have something that tells you this is the one to follow.”

So let the record show that the administration was blind as to the plans or whereabouts of AQAP leaders long before the current unrest. As I have pointed out in this space, the reason for that blindness is that we are not capturing or questioning senior al Qaeda leaders who could help us decipher the location, intent, and capabilities or emerging threats like AQAP. But if an attack on the homeland does happen, expect the Obama administration to lay the blame on the Arab Spring.

Image by U.S. Army.


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