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My must-reads of the day

By James Pethokoukis

October 31, 2011, 5:55 pm

1. Professor John Tamny of Forbes on consumption taxes: “Entrepreneurs can’t innovate without capital, and the capital formation possibilities under a consumption tax would be very grand.”

2. Mark Perry on the New World (Economic) Order:  ”Now the IMF is forecasting that Brazil will surpass the size of the U.K. economy this year for the first ever, and will overtake the U.K. to become the sixth largest economy in the world behind the U.S., China, Japan, Germany, and France.”

3. A warning from Avik Roy: “However, it’s critical that fiscal hawks don’t see the end of CLASS as the end of their involvement in long-term care reform.”

4. Arnold Kling has five thoughts on the decline in real earnings of young male college graduates over the last decade.

5. Russ Roberts has a few words for military Keynesians: “Interesting that Valerie Ramey’s work that concentrates on military build-ups (because they are reliably exogenous) often finds a multiplier that is less than one, meaning that government spending crowds out private spending rather than spurring it on. … Where is the evidence that military spending stimulates the private sector?

6. Jennifer Rubin has some tough things to say about Herman Cain and some nice things to say about me.

7. Bill Gross offers some more depressing analysis:

The situation, of course, is compounded now by high debt levels and government spending that always used to restart capitalism’s private engine. However, as economists Rogoff & Reinhart have shown in their historic text,This Time Is Different, sovereign debt at 80-90 percent of GDP acts as a barrier to growth. Because debt service and interest rate spreads start to rise at these debt levels, a greater and greater percentage of a nation’s output must necessarily be diverted to creditors who in turn become leery of reinvesting in a slowing economy. The virtuous circle becomes vicious in its reflexive counter reaction, spiraling into a debt/liquidity trap á la Japan’s lost decades if not stopped in time.

Halting the downward maelstrom is what current monetary policy is attempting to accomplish. With fiscal policy in most developed countries incredibly restrictive instead of stimulative, central banks have assumed the helm on their own—but it has been a long and relatively futile watch. Structural growth problems in developed economies cannot be solved by a magic penny or a magic trillion dollar bill, for that matter. If (1) globalization is precluding the hiring of domestic labor due to cheaper alternatives in developing countries, then rock-bottom yields can do little to change the minds of corporate decision makers. If (2) technological innovation is destroying retail book and record stores, as well as theaters and retail shopping centers nationwide due to online retailers, then what do low cap rates matter to Macy’s or Walmart in terms of future store expansion? If (3) U.S. and Euroland boomers are beginning to retire or at least plan more seriously for retirement, why will lower interest rates cause them to spend more? As a matter of fact, savers will have to save more just to replicate their expected retirement income from bank CDs or Treasuries that used to yield 5 percent and now offer something close to nothing.

My original question—“Can you solve a debt crisis by creating more debt?”—must continue to be answered in the negative, because that debt—low yielding as it is—is not creating growth. Instead, we are seeing: minimal job creation, historically low investment, consumption turning into savings, and GDP growth at less than New Normal levels. The Rogoff/Reinhart biblical parallel of seven years of fat followed by seven years of lean is not likely to be disproven in this cycle. The only missing input to the equation would seem to be how many years of fat did we actually experience?

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Nicholas Eberstadt

AEI Debate Prep: Europe’s fundamental long-term deficit isn’t measured in euros; it’s measured in babies

By Nicholas Eberstadt

October 31, 2011, 5:29 pm

This post is part of an ongoing series preparing for the AEI/CNN/Heritage National Security & Foreign Policy GOP presidential debate on November 22nd. See the rest of the posts here.

Last week’s Eurozone pact—which was intended to forestall contagion of the Greek debt crisis to Portugal, Spain, and Italy (and Belgium? and France?)—has temporarily revived market confidence in the euro, as well as European bonds and equities. But even regarded in the best possible light, the agreement was nothing more than a topical palliative for pains emanating from a deep underlying systemic distress. For at the end of the day, Europe’s current debt crises are a consequence of a region-wide crisis of the welfare state, whose vast promised benefits voters demand, yet are unwilling to finance through self-taxation.

No plausible amount of self-imposed budget austerity, furthermore, is likely to save these existing arrangements for the future, for Europe’s welfare states are being fatally undone by her public in another arena: the crèche. “Sustainability” is the term of the decade among Europe’s cognoscenti: and European birth trends have made the continent’s magnificent edifices of entitlement arithmetically unsustainable.

The chart below illustrates the problem.

Half a century ago, the 17 countries that currently comprise the Euro zone were bearing about 5 million children each year. In a pay-as-you-go welfare state, those babies are now men and women in the prime of their working lives, supporting the health and pension benefits of older (and smaller) cohorts that preceded them. (Today there are about 2.2 Western Europeans in their late 40s for each in his or her late 70s.)

Over the intervening decades, though, Europe’s birth totals have plunged—and although the Euro zone’s population is much larger now than it was in 1960, the region today registers 30 percent fewer births. Over that period, Europe’s childbearing patterns shifted into sustained sub-replacement fertility, and by 2009, the Euro zone was on a trajectory which, if continued, would portend a shrinking of each subsequent generation by about a quarter (absent compensatory immigration).

In practice, this portends a very different population structure for Western Europe a generation hence, as the chart below underscores.

Unlike today, when people in their late 40s far outnumber those 30 years older, the projected ratio for 2040 would be just 1.1 to 1—and by 2040 people in their early 70s would outnumber every other age group within the region! (Those projections, incidentally, envision plenty of intervening immigration, without which Europe’s population structure would look even more forbidding for pay-as-you-go social welfare policies.)

So, how does Europe manage to finance anything like the scope and scale of its existing entitlement policies in the future in the face of these impending demographic trends? The elegant version of the answer is: it might manage to do so, if its public were willing to accept permanent budget and debt crises, slower and unpredictable economic growth, and radically diminished benefits for the pension-age population who will account, on current paths, for an increasing share of the European electorate. The simplest version of the answer is: it can’t.

Fortunately, there are in theory feasible fixes for these daunting dilemmas. Europe has been blessed with a health explosion over the past two generations, and though they have generally been working less and less, older European are healthier, better educated, and more potentially productive than any who have ever strode the continent before them. “Unlocking the value of health” in Europe (as my colleague Hans Groth and I argued in our 2007 monograph) offers tremendous possibilities for growth in Europe over the decades immediately ahead.

By the same token, with new and very different approaches to education, pension, and health policies, it is not hard to imagine how Europe’s prosperity could be enhanced and its fiscal balances stabilized in the years to come. But all of this would require a wholesale revisiting of the ways that Europeans and their governments work today—and it is very difficult to imagine how the pay-as-you-go welfare state could survive such reconsiderations in any sustainable manner.

A prosperous and economically sustainable future can be attained by Europe’s healthy, aging population—even with a progressively unfolding baby bust. But no one said that getting there would be easy.

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Categories:  Economic Policy, Europe and Russia, Health Policy, Society and Culture   |   Tags: , ,

Poll: ObamaCare getting even more unpopular

By Karlyn Bowman and Andrew Rugg

October 31, 2011, 3:49 pm

A new poll from the Kaiser Family Foundation shows a sharp drop in views about the Affordable Care Act. In the mid-October poll, just 34% (down from 41% in September) had a favorable impression of it.

In AEI’s early October Special Poll Report on healthcare polls, we noted a sharp decline in views about how the law would affect the country as a whole and separately, and in views about whether the healthcare law would make things better or worse for individuals and families. In a February 2009 poll, 38% of respondents said they and their families would be better off. In September 2011, 27% gave that response. That’s now 18%. Views about whether the country as a whole would be better off dropped 10 points from September to October.

We suspect the new Kaiser findings say more about the miserable economy than changes in views about the bill, but that won’t be clear until we have a few more data points. A CBS News/New York Times question from October showed that 45% wanted to repeal all or part of the bill, while 41% wanted to let it stand. The September CBS/New York Times responses were virtually identical.

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Sorry, liberal media, income inequality really is way overblown

By James Pethokoukis

October 31, 2011, 3:36 pm

Over at the Columbia Journalism Review blog, Ryan Chittum takes issue with everything I wrote about income inequality in a recent post. (I don’t think he cared much for the font, either.) My piece merely pointed to several studies — ones rarely mentioned by the mainstream media — that suggest a) income inequality is hardly “exploding,” and b) the past 30 years have hardly been a lost three decades for the American middle class. My response:

1. Chittum thinks I have misused a study by Northwestern University economist Robert Gordon. Does Gordon believe inequality has increased? He does, indeed. The first sentence of the study, which Chittum highlights in his post: “The evidence is incontrovertible that American income inequality has increased in the United States since the 1970s.”

But lots of studies make that claim. It is the next part that I found interesting:

This paper shows that the rise in American inequality has been exaggerated in at least three senses.  First, the conventional measure showing a large gap between growth of median real household income and of productivity greatly overstates the increase compared to a conceptually consistent alternative gap concept, which increases at only one‐tenth the rate of the conventional gap between 1979 and 2007. … Second, the increase of inequality is not a steady ongoing process; after widening most rapidly between 1981 and 1993, the growth of inequality reversed itself and became negative during 2000‐2007.   

Chittum, nor other liberal economic pundits such as Ezra Klein, Jonathan Chait, Kevin Drum, Ryan Avent, have made an effort to dispute Gordon, hardly a conservative economist. Liberals don’t even like quoting that above bit.

2. Chittum really likes studies from the union-backed EPI. But when I looked at the issue of middle-class stagnation, I went with analysis from the Federal Reserve, more likely free of political influence. And here is what a Minneapolis Fed researcher found:

 I calculate that median Census income per person rose by 50 percent. … The claim that the standard of living of middle Americans has stagnated over the past generation is common. An accompanying assertion is that virtually all income growth over the past three decades bypassed middle America and accrued almost entirely to the rich. The findings reported here … refute those claims. Careful analysis shows that the incomes of most types of middle American households have increased substantially over the past three decades.

Maybe Gordon and the Fed and many other academics are just “deniers,” unworthy of serious debate. But to me that sound like a clumsy effort to silence debate rather than encourage a competitive marketplace of ideas.

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Categories:  Economic Policy, U.S. Economy, U.S. Politics   |   Tags:

Herman Cain may have just sung himself back into the GOP race

By James Pethokoukis

October 31, 2011, 2:31 pm

Sexual harassment scandal? That’s so two hours ago. Republican presidential contender Herman Cain gave a bravura performance at the National Press Club this afternoon where he explained his 9-9-9 plan, dismissed those Politico allegations … and sang a gospel hymn.

In addition to being melodious, Cain was funny and thoroughly at ease in front of a packed room of media. This was a high stakes moment for Team Cain, and their candidate seemed to thrive on it. Is he still fuzzy on policy details, including those of his signature tax plan? Pretty much. But that may not matter to Republican voters who see Cain as an authentically conservative, inspirational figure with a record of private sector achievement.

And singing gospel right in the belly of the Washington beast in front of the hated MSM? For many conservatives, it doesn’t get much better than that. Many political pros don’t take Cain’s polling performance seriously and believe Mitt Romney a virtual lock at this point. But something weird is happening in the GOP race. Cain has caught fire with a post-modern political campaign built on powerful personality, viral videos and a big, bold idea.

Is that enough to get him the nomination against the Romney Campaign Machine? That partly depends if there is anything more to the harassment scandal. But if not, Cain is tapping into a volatile GOP race where all the rules are being broken.

 

 

 

 

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Categories:  U.S. Economy, U.S. Politics   |   Tags:

John Makin

AEI Debate Prep: Contain the crisis

By John Makin

October 31, 2011, 1:03 pm

This post is part of an ongoing series preparing for the AEI/CNN/Heritage National Security & Foreign Policy GOP presidential debate on November 22nd. See the rest of the posts here.

Europe’s financial crisis has raised uncertainty in financial markets globally. The result has been to slow growth even in Germany, Europe’s strongest economy. The longer the financial crisis in Europe drags on, the greater the risk of a European economic collapse with substantial additional negative spillover effects on the United States and the rest of the global economy.

The financial crisis in Europe has resulted from the attempt to impose a single money on such disparate economies as Germany and Greece. Europe’s single currency regime has meant that Greece—along with some other European countries—has borrowed more than it can repay. With European banks and even the European central banks holding large amounts of risky sovereign debt, financial sector risks have risen to a point where they are harming economic growth.

So far the approach to Europe’s debt crisis has been to have richer countries—essentially Germany—lend more to Greece so it can continue to service its debt. However, the condition for such aid has been sharp fiscal retrenchment in Greece, which has caused the economy to collapse and created the riots being seen in news media. Better to recognize that Greece is insolvent, write down its debt, and contain the crisis there than to keep supplying Greece with the funds to service an ever-increasing level of debt. While not a pleasant outcome, such decisive steps could help to keep Greece’s debt crisis from spreading even further—to Portugal, Spain, and Italy—and thereby threatening to precipitate a European economic collapse.

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Herman Cain defends his 9-9-9 plan

By James Pethokoukis

October 31, 2011, 12:22 pm

Herman Cain showed up today at AEI to chat with tax guru Kevin Hassett, answer a few questions from me, and then take a few queries from the audience. I’m not sure I learned a whole lot more about the 9-9-9 plan from the candidate himself, though he did say he would soon be announcing detailed energy and Social Security reform plans.

But Cain did make it clear, I think, that he would not be fundamentally altering the plan to deal with criticisms leveled against it. For instance, don’t look for Cain to swap the 9 percent sales tax for a 9 percent payroll tax as some have recommended.

I was more interested by what I learned about Cain economic adviser Rich Lowrie. He is a true-blue believer in supply-side economics, Reaganomics, Jack Kemp, Jude Wanniski, the Laffer Curve — the whole shebang. Great stuff. And perhaps that is why skepticism about 9-9-9 from many conservatives hasn’t hurt Cain’s popularity. Whatever the details of that plan, they like Cain’s instincts and boldness. Indeed, he and Lowrie have put supply-side tax reform back on the national agenda. Flat tax fair tax, consumption tax — it is a great conversation to have.

 

 

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Categories:  Economic Policy, Fiscal Policy and Taxes, U.S. Economy   |   Tags: ,

Philip I. Levy

Just how great was the victory in Libya?

By Philip I. Levy

October 31, 2011, 12:15 pm

My colleague Michael Barone has a good piece arguing that the recent celebration of President Obama’s foreign policy victories may be a bit overdone. He is most tentative on Libya, where he writes that it is still unclear how things will work out. That’s certainly correct. We shouldn’t need reminding that the cessation of open conflict in the Middle East is not always followed by a period of tranquil democracy building.

I would just note that the situation with Libya is substantially worse than “let’s wait and see what happens.” What are the great achievements of the Libya campaign? A brutal dictator is gone, of course, which is worth celebrating. But:

1. Was a significant U.S. national interest furthered?

No. Secretary Gates told us there was no such interest at stake.

2. Did it demonstrate the efficacy of NATO?

Just the opposite. NATO looked feeble and split, unable to do much without the United States, incapable of beating a distinctly inferior force for many months, and unlikely to try this again anytime soon, even when our national interests are at stake.

3. Did it establish a model for future multilateral cooperation?

Hardly. We deceived the Russians, Chinese, and others at the UN. We told them it was a limited mission to protect civilians. This led to the Russian Foreign Minister’s wry recent question of how a French fighter jet attacking Qaddafi’s fleeing column was meant to protect civilians. Lest there be any doubt that these UN powers are now in “Fool me once, shame on you, fool me twice…” mode, look at the (trivial) UN response to events in Syria (where U.S. interests really are at stake).

It’s good that Gaddafi’s gone, but we degraded public respect for (or fear of) NATO in the process and damaged prospects for future cooperation. Given that the Obama administration initially disavowed regime change as its objective, this is a distinctly limited and costly victory.

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My morning with Herman Cain

By James Pethokoukis

October 31, 2011, 11:56 am

After the Politico sexual harassment story broke last night, I knew Herman Cain’s appearance today at AEI would become a mega-event. The official topic was Cain’s 9-9-9 plan and tax reform, but clearly the media throng wanted to ask The Question. And ABC’s Jonathan Karl gave it his best shot before being told economic policy questions only. (After his AEI chat, Cain did talk about the controversy on Fox.)

Given the media storm, I found Team Cain—and the candidate himself—to be cool, calm, and collected. No outward sign that they believed the Cain bubble has finally burst or were worried that this news would seriously slow his momentum. We’ll see if that attitude is justified. They bungled the response out of the gate last night, and better have a few more details about what exactly happened when Cain ran the restaurant trade group. Here is Cain, via Politico:

Herman Cain said he was “falsely accused” of sexual harassment while he was CEO of the National Restaurant Association but said he had no knowledge of any settlements paid to his accusers during a Fox News interview Monday morning.

“It is totally baseless and totally false,” Cain said. “Never have I ever committed any kind of sexual harassment.”

He added: “If the restaurant association did a settlement, I wasn’t even aware of it and I hope it wasn’t for much. If there was a settlement, it was handled by some of the other officers at the restaurant association.”

Is Cain really that sketchy on the details? Surely much more to come.

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Categories:  Economic Policy, U.S. Economy, U.S. Politics   |   Tags: ,

AEI Elsewhere—Plan Afghanistan, Obama needs respect from abroad, and more

By The Editors

October 31, 2011, 11:04 am

• Paul Wolfowitz and Michael O’Hanlon: Why the Colombia model—even if it means drug war and armed rebellion—is the best chance for U.S. success in Central Asia. “Plan Afghanistan”
• Michael Barone: “Abroad, Obama Needs Respect, Not Love”
• Frederick W. Kagan, Kimberly Kagan, and Marisa Cochrane Sullivan: “Defeat in Iraq”
• Katherine Zimmerman: “Yemen Crisis Situation Reports: Update 96“

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Taxpayers tricked into treating sugar farmers

By Matthew McKillip

October 31, 2011, 10:09 am

When you dig into your Halloween candy this year, does it taste twice as good as it did a few decades ago? Over the last 30 years, sugar subsidies have effectively doubled the price U.S. consumers pay for sugar. Annual food costs have increased by about $9 per person over that time—which doesn’t sound that large until you tabulate the $1.7 billion net gain to U.S. sugar growers. The sugar costs twice as much, but is the candy twice as sweet? No.

As Vince Smith and Michael Wohlgenant, two agricultural economists, wrote this summer, “That is a lot of candy to share among less than 20,000 relatively wealthy sugar farmers.” They’re not alone in recognizing this spooky policy. Congressmen Joe Pitts (R-Pennsylvania) and Danny Davis (D-Illinois) have called the sugar program “an outdated and tightly controlled government program that is long overdue for reform.”

The true scare comes from the findings in Wohlgenant’s American Boondoggle paper: every dollar of these farm benefits to sugar programs costs the U.S. economy 76 cents because of economic inefficiencies. Should the Farm Bill really be a vehicle for transferring income to wealthy farmers and landowners from poorer average consumers?

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Bridget Johnson

Cain: 9-9-9 plan is ‘fuel for the engine’ of struggling economy

By Bridget Johnson

October 31, 2011, 10:04 am

(Photo by Peter Holden)

Republican presidential candidate Herman Cain heavily referenced his business background as former CEO of Godfather’s Pizza in a discussion at AEI this morning on how to get the economy moving.

Cain, who has been leading the pack of GOP hopefuls in many polls, sat down with AEI’s Kevin Hassett before a packed house to answer questions about his 9-9-9 economic platform.

“In business you develop a solution to the problem; you don’t develop a half solution,” Cain said when expanding upon the differences between businessmen and politicians.

He said that after he took the helm at Godfather’s Pizza, he learned that parent company Pilsbury had decided the pizza chain would go bankrupt. Cain said to overcome this fate, “I went and talked to the people closest to the problem.” That included customers and employees, and the solutions including simplification measures such as eliminating three of four crusts offered.

“We simplified the operation dramatically,” Cain said. “That kind of thinking inspired 9-9-9.”

Two years after taking control of Godfather’s, Cain said he got the full picture of how government regulations can adversely affect business. “I had to contend with all of these external forces,” he said. “I became much more aware of the potential negative impact of government.”

Cain predicted that the business community would rally at simply the possibility that 9-9-9 could become law. “They’re going to get excited that we just might get this thing passed,” he said, predicting that businesses would have growth plans on the table, “ready to pull the trigger.”

“After I’m elected we will begin to work with members of Congress to tee up that legislation,” the candidate said.

“The business community is the engine of economic growth,” he added, noting that his plan would be “fuel for the engine.”

Sharing the credit for his plan—which eliminates the current tax system in favor of a 9 percent personal income tax, a 9 percent corporate income tax, and a 9 percent national sales tax—Cain said “there are [Jack] Kemp’s fingerprints all over 9-9-9.” Cain was an adviser to Kemp when he was the vice presidential candidate.

Cain said his plan can bring together fair tax and flat tax proponents. “Let’s get both of these groups to the table,” he said. “We have now a built-in support for the concept.”

“We want it to be fair—fair according to Webster’s dictionary, not according to Washington,” Cain said.

He expanded upon the fairness concept when asked what role government should have in creating a fair playing field.

“I believe that the government’s role in creating fairness is zero,” Cain said. “When the government steps into picking winners and losers—can we say Solyndra? … Where does it stop?”

He brushed off assertions that his plan mirrored a Value Added Tax (VAT). “It doesn’t matter what you call it,” he said. “The reason why some of my opponents are calling it a VAT is they want to scare people.”

In the realm of fright, Hassett asked Cain which of his GOP opponents he would be for Halloween.

Cain pondered the answer for a while. “I believe I would go as Ron Paul,” he said with a smile.

When asked by an audience member whether his candidacy would have staying power within the GOP, Cain said his grass-roots momentum hasn’t come from the Republican Party.

“The people, not the party,” Cain said. “The people have propelled my candidacy.”

“That’s why this flavor of the week is the flavor of the month and it still tastes good.”

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Mark J. Perry

Census Data show income inequality in the United States has been flat since 1994

By Mark J. Perry

October 30, 2011, 5:34 pm

Income inequality has been getting lots of attention lately, and one of the main topics of debate is whether income inequality in the United States has been increasing over time. And if income inequality is increasing, has it been accelerating in recent years, or even “exploding” as Jonathan Chait claimed? The Census Bureau has an extensive historical database of statistics on household income and income inequality, and the graphs below were prepared using Census data (Tables E-1 and F-4) to chart the trends in income dispersion over time to help answer those questions.

The graphs display three different measures of income dispersion from 1967 to 2010: the share of total U.S. income going to the highest-income quintile (top 20 percent) of American households, and Gini coefficients (a statistical measure of dispersion that is one way to quantify income inequality) for both U.S. households and families. As can be seen in the top chart, all three measures of income dispersion have gradually increased over time, but most of the increases occurred in the earlier period between 1967 and 1994. Starting in the mid-1990s, the three measures of income inequality stalled out and barely changed in the 16 years from 1994 to 2010 (see bottom chart of just the 1994-2010 period).

When income inequality stabilized around 1994, the share of total U.S. income going to the highest-income quintile was 49.1 percent, and 16 years later in 2010 that income share was essentially unchanged at 50.2 percent. Likewise, over that period the Gini coefficients increased only slightly, from 45.6 percent to 46.9 percent for U.S. households, and from 42.6 percent to 44 percent for families. The trends displayed in the two charts are completely contrary to the common narrative that the 1960s, 1970s, and 1980s were decades of much greater income equality than in recent years, when supposedly the incomes of “the rich” skyrocketed and income inequality “exploded.”

Bottom Line: According to three different Census Bureau measures, income inequality in America increased only gradually from the 1960s through the mid-1990s, but since then has remained relatively constant. Therefore, the factual record of income data in the United States certainly doesn’t support the claims that income inequality has “exploded” recently. A more accurate description of income inequality over the last several decades would be to say that it “flat-lined” starting in about 1994.

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AEI Blog Symposium: Can the flat tax (or anything else) revive Rick Perry’s presidential campaign?

By The Editors

October 28, 2011, 4:30 pm

For this online symposium, we posed the following question to a variety of all-star pundits and commentators: Will the Perry tax plan kick start his faltering campaign?

Jay Cost, staff writer for the Weekly Standard.

It probably will not buy him many votes, as the issue is a little too fine-grained for the respondents in these national surveys. What it might do, however, is earn him some credibility with the sorts of “establishment” fiscal conservatives who can cut him big, fat checks. If Perry is going to win the nomination, he’ll need to raise at least $50 million, and probably a lot more. A flat tax proposal that appeals to such donors could help.

Still, it’s a long shot. He’s got a chicken-and-the-egg problem: he needs more donations, but donors want to see his poll numbers rise before they’ll chip in; to get his numbers up, he needs money to run ads! That’s the near-impossible situation you find yourself in when you blow a first impression as badly as Perry has. This flat tax proposal might be a way out, but color me skeptical. My first reaction to this proposal was to remember Bob Dole’s Hail Mary pass in 1996—picking Jack Kemp and endorsing a huge tax cut. It didn’t do much 15 years ago, and I have my doubts this will do much for Perry now.

Jim Geraghty, campaign correspondent at National Review Online.

After several weeks of moseying for president and thoroughly squandering a debut as front-runner, Rick Perry is finally running for president. There’s a lot to criticize in the 20-20 plan, most notably that it aims to be bold but wants to mitigate the impact by making it optional, trying to have it both ways.

But the impact of Herman Cain on the field is now clear: whoever the Republican presidential nominee turns out to be, he or she must stand for a big, dramatic overhaul of the tax code that hopefully will include drastic simplification. The tax plan and its attending reforms—repeal ObamaCare, repeal Dodd-Frank, cut $100 billion in non-defense discretionary spending within the first year—are a tall order, but campaigns are times to think big and after three to four years of psychological recession, the public is much more open to big ideas.

Ideally, Perry will flesh out his ideas in other areas—how to enact entitlement reform, foreign policy, how to cultivate a culture of entrepreneurship—and reassure Republicans that he really has a clear vision of his agenda if elected president. After such a dramatic drop in the polls, it may be too late to save Perry, but he’s finally taken the advice to spend less time talking about what he’s done for Texas and more time talking about what he wants to do for America.

Matt Lewis, senior contributor at the Daily Caller.

Just as it took a series of missteps for Rick Perry to blow his early lead, it will take a series of successes to revive his faltering campaign. In that regard, the flat tax option proposed Monday is a great first step.

Perry’s plan—which drew immediate praise from conservatives ranging from Rush Limbaugh, to Grover Norquist, to the Club for Growth’s Chris Chocola—is bold, yet less vulnerable to criticism than Herman Cain’s 9-9-9 plan.

Voters are desperate to simplify America’s behemoth tax code—and Perry is hoping to satiate that conservative urge.

Can he do it? With $15 million in the bank, a new TV ad up in Iowa, and the addition of some top-notch new advisers, Team Perry is clearly aware they must run a better campaign going forward.

But blocking and tackling never excited anybody. The flat tax proposal means Perry’s campaign is about more than just making incremental changes on the margins—it is now about a big idea.

He got off to a rotten start, but don’t be surprised if Perry has a stronger second act up his sleeve.

Ed Morrissey, writer and columnist at HotAir.

Could Rick Perry’s new economic plan revitalize his campaign? It’s certainly possible. Until now, Perry has trailed his opponents in providing details on his policies in general, thanks to his late entry into the race. Having those details could make it easier for Perry to discuss policy in detail during debates, and increases his credibility on the stump. His overall plan has enough boldness for the media to take notice of it, not just in his alliance with Steve Forbes on tax reform but also on his endorsement of a balanced-budget amendment with a spending cap at 18 percent of GDP.

However, Perry’s rapid decline didn’t come from a lack of policy-wonk detail, at least not directly. Two bad debate performances followed by an incremental improvement in a third shook confidence in Perry as a candidate, with or without innovative policy positions. To the extent that having a solid policy foundation in his mind helps him debate, the plan could boost his standing again. However, this is not a simple plan, and it will take some eloquence to sell it to the general electorate. Can Perry overcome his apparent lack of talent in live debates to find that kind of eloquence? His performances so far do not give any indication that he will, and even a great policy won’t help Perry if he can’t demonstrate that he can keep up in a debate.

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Categories:  Economic Policy, Fiscal Policy and Taxes, U.S. Politics   |   Tags: , ,

Jonah Goldberg

No, OWS still isn’t conservative

By Jonah Goldberg

October 28, 2011, 2:49 pm

Allen McDuffee reads my column today and asks if I now think Occupy Wall Street is more conservative than I suggested last week.

He makes the leap that in order for Occupy Wall Street to get Obama out of office it would have to vote for the Republican presidential candidate. But that’s not true. It could tell people not to vote. It could throw its weight behind a third party candidate. I don’t see why Occupy Wall Street has to vote Republican in order for Obama to lose.

This assumption prompts him to ask:

So then the question is: Does Goldberg now suggest that the Occupy Wall Street movement does, in fact, have conservative tendencies or is he suggesting they abandon their ideals for the anybody-but-what-we-have strategy in 2012?

I don’t agree with the logic. But the short answer is no, I don’t think Occupy Wall Street is remotely conservative, save perhaps in some interesting but essentially fringe romantic, literary, or anarchist interpretations.

But I do think he pegs a more basic point about the nature of the two party system. Independent movements tend to hurt the ones they’re closest to. The Naderites hurt Democrats in 2000. Ross Perot hurt Republicans in 1992. Roosevelt stole votes from Republicans in 1912. Occupy Wall Street is by no stretch of the imagination a third party. But, generally speaking, it is much closer to Obama’s worldview than anybody in the GOP field.

I wasn’t offering tactical arguments to Occupy Wall Street, largely because I don’t think they’d listen and I don’t think they much care about such matters anyway. My point was that the OWS flame can’t become a prairie fire so long as Obama is soaking up all the political oxygen.

Still, McDuffee’s sort of right in the sense that, to paraphrase Orwell, being pro-OWS is to be objectively anti-Obama.

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‘Occupy’ the Farm Bill?

By Matthew McKillip

October 28, 2011, 2:34 pm

There’s another 1 percent that members of Congress and taxpayers should be increasingly wary of: the 1 percent of farming entities that received over 20 percent of all direct payments from the federal government.

On Wednesday, a broad coalition, including AEI’s Henry Olsen, joined Congressman Blumenauer as he released his Farm Bill reform proposals in a report entitled, “Growing Opportunities.” This report seeks to alter the current Farm Bill dramatically, as this bill “spends too much money supporting large corporations” and does little to help mid- to small-size farmers. Representative Blumenauer’s principles for reform drew heavily from a number of papers that were part of AEI’s American Boondoggle project.

At the event, Olsen (see him talking about the farm bill with Vince Smith in this video) emphasized two areas of overlap: the elimination of the direct payment and crop insurance programs. Olsen highlighted the plain unfairness of Farm Bill direct payments and crop insurance, calling the insurance a system that amounts to a “taxpayer bonus for showing up and doing your job.” No one would stand for these types of payments for any other sector, especially one that’s reaping historic profits like the agriculture industry.

Olsen also warned that reformers must remain vigilant in preventing the expansion of the ACRE program, an area not in “Growing Opportunities.” The expansion of ACRE-like safety nets have been proposed as part of a deficit reduction compromise—but they could cost taxpayers up to $6 billion in a given year.

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AEI Elsewhere—OWS needs a Republican president, the Schumer-Lee housing proposal comes up short, and more

By The Editors

October 28, 2011, 2:21 pm

• Jonah Goldberg: It’s tough to have a revolution while supporting the status quo. “OWS Needs a Republican President”
• Alex Brill and Rohan Poojara: “The Schumer-Lee Housing Proposal Comes Up Short as Stimulus”
• Nick Schulz: “The Four Players Driving Innovation”
• Thomas Donnelly: “Devaluing the Concurrency”
• Peter J. Wallison: “Three Narratives About the Financial Crisis“

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AEI Debate Prep: Wanted: A real U.S. strategy for Pakistan

By Reza Jan

October 28, 2011, 1:50 pm

This post is part of an ongoing series preparing for the AEI/CNN/Heritage National Security & Foreign Policy GOP presidential debate on November 22nd. See the rest of the posts here.

Much as the Republican candidates (and, indeed, their incumbent opponent) might desire to wish away the problem of Pakistan, how to deal with the enigmatic nuclear state is likely to be one of their more enduring foreign policy burdens. At the core of the matter are these questions: What are American interests in Pakistan and what are the best means by which to pursue them?

For ten years, the war in Afghanistan has encouraged American presidents to interact with Pakistan with a purely “Af-Pak” mentality. The truth is that Pakistan is, in and of itself, far more important than the war in Afghanistan, or the Haqqani network, or any other single issue that seems to dominate domestic news cycles. Hackneyed but true, Pakistan is a country with a fast-growing nuclear arsenal, 180 million people on the wrong side of a radicalization trend, a hemorrhaging economy, and a safe haven for some of the world’s most virulent regional and international terrorist organizations. The U.S. has enormous interest in ensuring that Pakistan does not fail as a state.

Helping a successful, responsible Pakistani state emerge will go a long way towards neutering many of the dangers emanating from Pakistan, but the result is heavily predicated on whether the United States acknowledges what is in the interests of Pakistan. This means understanding that the welfare and aspirations of Pakistan’s people are of greater importance than the convenience of primarily interacting with, and therefore empowering, Pakistan’s military establishment, or throwing money at Pakistan’s venal political class. The United States might start by suffering through the difficulty of building relationships with facets of the state that seek to bring benefits to the whole rather than the corporatist interests of the few.

At the risk of showing too much cheek, any serious candidate will recognize that a return to the “Presslerism” of the nineties is entirely counterproductive. As cathartic as it may be to cut all ties with Pakistan each time revelations of its intransigence in Afghanistan come to the fore, doing so solves none of the vexations laid out above. At worst, it would compound those problems by diluting America’s ability to influence them. One novel proposal might be, as others have suggested, to employ targeted sanctions against those individuals, soldiers or otherwise, with irrefutable ties to terrorist groups, rather than to impose conditions that would weaken the entire military or impoverish a population with no control over its foreign policy agenda.

What is unambiguous is that U.S. interests in Pakistan are broader than the narrow basis on which interactions currently take place, and that improving the relationship will take more engagement and nuance rather than less. A too-large chunk of America’s foreign policy woes are contingent on how well its leaders (candidates and incumbent alike) understand, and choose to address, these stark realities. At its simplest, all candidates, President Obama included, must be able to explain how they plan on moving beyond a Pakistan “strategy” that is reliant on drone strikes and trying (and failing) to pay off the Pakistanis to do what they don’t want to.

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Categories:  Critical Threats, Foreign and Defense, South Asia   |   Tags:

Alex Brill

Tax reform: Legislating vs. campaigning

By Alex Brill

October 28, 2011, 1:26 pm

Bold tax reforms are popping up everywhere these days, from presidential candidates and members of Congress alike. A comparison of the plans highlights the stark difference between campaigning and legislating.

First, let’s look at some campaign proposals. Herman Cain’s surge in popularity seems tied to the appeal of his 9-9-9 plan, a combination of a 9 percent income tax and two 9 percent consumption taxes. Governor Perry grabbed headlines with a proposed 20 percent flat income tax that would exist as a parallel, optional alternative to the current tax system.

The second category of reform proposals are those originating with legislators themselves. Senators Wyden and Coats introduced the Bipartisan Tax Fairness and Simplification Act of 2011. Congressman Charlie Rangel introduced a bill in 2007 that increased the progressivity of the tax code, cut the corporate rate to 30.5 percent, and increased the tax penalty on income earned abroad.

Enter Chairman Dave Camp of the House Committee on Ways and Means, who this week began to unveil his own tax reform agenda with a proposal to adopt a territorial tax system. The draft proposal represents a fundamental shift from taxing businesses on their worldwide income to a territorial tax system that generally doesn’t tax income earned abroad.

The concept of territorial tax reform is not new. In fact, most of our major trading partners have it and territorial tax reform was a key component of the Simpson-Bowles Commission’s recommendations. But Chairman Camp’s proposal gets specific. It deals with dozens of technical details that must be addressed, such as foreign tax credits under the new regime, Subpart F, and rules governing sales, gains, and losses of controlled foreign corporations. This is only the beginning, as Chairman Camp’s draft legislation indicates that both individual income tax reform and more corporate tax changes are forthcoming.

Presidential candidates enjoy the luxury of bumper-sticker campaign policies and are able to avoid the difficult tradeoffs inherent in specifying the details. Their audience comprises primary voters too occupied with everyday household concerns to be experts in tax policy. As such, the utter legislative infeasibility of Cain’s 9-9-9 plan doesn’t seem to have diminished his popularity.

Lawmakers don’t have the luxury of the stump speech for their bread and butter. They must face the realities and complexity of legislating. In the coming weeks, tax lawyers, accountants, and economists will pore over the pages of Chairman Camp’s legislation and, as he has asked, offer suggestions and comments. That feedback will further inform this bold effort and lead to more refinement and detail.

This week’s tax reform news should remind us that although Congressman Camp isn’t running for president, his views on tax reform may matter more than the catchy slogans we hear from candidates.

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Categories:  Fiscal Policy and Taxes, Politics and Public Opinion   |   Tags: ,

Frederick W. Kagan

AEI Debate Prep: After the retreat from Iraq

By Frederick W. Kagan

October 28, 2011, 11:24 am

This post is part of an ongoing series preparing for the AEI/CNN/Heritage National Security & Foreign Policy GOP presidential debate on November 22nd. See the rest of the posts here.

President Obama’s decision to terminate negotiations extending the presence of U.S. forces in Iraq beyond the end of this year is a critical strategic inflection-point not only for Iraq, but for American national security and the global order. Its significance lies both in the important strategic victory it has handed to Iran and in the broad and unqualified statement of American retreatism and isolationism in which the president announced it to the world. This decision ensures that America’s next president will face significantly greater challenges in the tasks of protecting America’s interests in the Middle East and around the world, but will have fewer resources–both material and moral–with which to meet those challenges. Barack Obama appears to have indicated how he intends to respond to them in that statement. A central question for the Republican candidates for president must be: How will you respond, if elected, to the challenges emerging from this decision to retreat?

Many Americans are pleased at the prospect of “ending this war” that the president has promised, for the issue has always been framed in such isolation. Even pollsters generally frame their questions as if Iraq were disconnected from the rest of the world: “Do you think there are too many, too few, or just enough U.S. troops in Iraq? Do you think the U.S. can succeed/is succeeding in Iraq?” e.g. President Obama appears to have made policy decisions about Iraq in a similarly segmented fashion. The administration has never addressed, for instance, how it intends to maintain an intensified sanctions regime against Iran without having any support or assistance from the country that shares the longest land-border with the Islamic Republic.

But only Americans see Iraq as an isolated thing unto itself. Tehran has clearly seen Iraq as a larger part of a regional strategy whose aims include excluding the U.S. from the Middle East entirely and establishing Iran as the hegemon of the entire Persian Gulf and Mesopotamian area. Iran’s success in driving the U.S. out of Iraq opens new opportunities for the Islamic Republic in the region even as it causes America’s beleaguered allies there to lose confidence in the U.S. It undermines not only the sanctions regime, but also regional efforts to rein-in Iranian guerrilla and terrorist proxies such as Lebanese Hezbollah, which operates also in Iraq in conjunction with separate Iraqi-focused Shi’a militias.

Lest we imagine that those militias were of concern only while we were in Iraq, however, let us consider the key figure in the recently revealed plot by the Iranian Qods Force to assassinate the Saudi ambassador to the U.S., Abdul Reza Shahlai. This Qods Force senior officer, known more commonly as Haji Yousef, also directed Iranian support to the most virulent and effective Shi’a militia and terrorist groups in Iraq. His connections to those groups, as well as to Lebanese Hezbollah, which was heavily involved in supporting them, is deep. He has just attempted to make a further connection to Mexican drug cartels in order to export Iranian terrorism directly into the U.S. That plot was foiled, but the Qods Force leadership, including Haji Yousef, remains at large and undeterred. Other plots will surely follow, and they will be able to draw from an increasing pool of militants trained in and based out of Iraq, a country with which the Obama administration claims to seek a friendly and mutually supportive relationship.

Secretary of State Hillary Clinton and Secretary of Defense Leon Panetta have tried gamely to cover with words the enormous hole in any attempt to isolate Iran that this decision has created. The Iranians will not be deterred by their words in the face of our deeds, of course, but Tehran has additional reason to ignore their statements of defiance after the president enunciated a strategy of American withdrawal across the board. Why should Supreme Leader Ali Khamenei, or Qods Force Commander Qassim Soleimani, believe statements of commitment by Panetta and Clinton when the president has declared his intention to withdraw our forces from commitments throughout the region as quickly as possible?

Iraq is almost certainly lost now. Already the tempo of purges of Sunnis and even Shi’a not loyal to Prime Minister Nuri al Maliki–or Iran–is accelerating. The prospects for renewed sectarian fighting are growing by the hour. Reports of Iranian efforts to consolidate their control of Iraq are piling up. It is impossible to know exactly what situation will face the president on January 20, 2013, but the questions any candidate must answer today are simply these:

Faced with the likelihood of spreading violence and Iranian influence in Iraq and throughout the Middle East, will you make the hard choices to confront those threats to American national security, or will you seek to remain aloof? Will you continue the process of ceding Iran hegemony in the Middle East or will you pursue a meaningful strategy of resisting or even pressing Iran, defeating or neutralizing its proxies, and re-creating space for America’s Arab partners and allies to join in that resistance? Will you have the stomach to pursue such a strategy even if Iran acquires nuclear weapons? Republican candidates have to answer these questions in debates. The president of the United States in 2013 will have to answer them in real life.

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Categories:  Critical Threats, Foreign and Defense, Middle East, War on Terror   |   Tags:

A conversation with Herman Cain at AEI! And you’re included!

By James Pethokoukis

October 28, 2011, 11:22 am

What treat on Halloween! GOP presidential candidate Herman Cain is coming to the American Enterprise Institute on October 31st for a 9 AM chat with AEI tax guru Kevin Hassett. (I just might sneak in a few questions, too!)

As you know, Cain’s 9-9-9 tax plan has incited energized discussion about the impact of taxes on Americans. The plan would throw out our current tax system and replace it with a 9 percent business tax, a 9 percent personal income tax, and a 9 percent national sales tax. Many economists believe that this move would promote growth, but detractors argue that the plan might raise tax rates for low-income Americans.

Following the discussion, a panel of experts will debate the merits and liabilities of 9-9-9. You can watch the whole thing live here.

Even better, you can participate by asking questions! Option 1: Pop a question into the comment section of this blog post. Option 2: Tweet a question to the Twitter hashtag #AEICain. That’s all there is to it!

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Categories:  Economic Policy, Fiscal Policy and Taxes, U.S. Politics   |   Tags: ,

Roger Bate

Fake drugs and the Internet: Consumer Reports misleads, but it’s for your own good—honest!

By Roger Bate

October 28, 2011, 10:59 am

St. Lucia—Investigating fake medicines has its glamorous side. For every investigation I’ve done in the dangerous and dingy back alley of Lagos, Luanda, or Lubumbashi there are far prettier and less lethal locations, such as the one I find myself in today. Increasing numbers of islands in the Caribbean have been used as transit points for websites selling unregistered drugs, some of which are fake and could be lethal to patients. Such fake Web sellers are a menace and it’s good the government tries to protect U.S. citizens from them. It is also helpful when independent organizations write about the fake drug trade and expose its dangers.

For example, Len Maniace has a well written and largely correct article for Consumer Reports today.

I was interviewed by Maniace for this article in March this year, and although he doesn’t quote me for the piece, he cites my study in a Public Library of Science peer-reviewed journal (incidentally, this is the only peer-reviewed study he quotes). His interpretation of that study is accurate, as far as it goes. But it misleads the reader by not explaining the main conclusion of the study. My research team concluded that if one bought from foreign online sellers credentialed by independent group www.pharmacychecker.com, there was no more demonstrated risk than buying from sites approved in the United States by the National Association of Boards of Pharmacy. But to mention this would undermine the message Maniace and Consumer Reports were making in the rest of the article.

I have no objection to a robust debate about the dangers inherent in buying drugs from foreign websites, but I do object to misleading readers into thinking that all foreign pharmacies and foreign drugs might be lethal. The U.S. Food and Drug Administration is not the only competent regulatory agency in the world and Pfizer and AstraZeneca (the two manufacturers whose products we tested) do not produce worse versions of their medications for Europeans or Canadians as compared with what we might buy in the United States.

Searching out lethal sellers from China to the Caribbean is important, but misleading impoverished Americans into believing foreign means lethal is unacceptable.

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Categories:  Global Health, Health Policy   |   Tags:

What you may have missed in the polls: Hillary vs. Joe, regulation, and more

By Karlyn Bowman and Andrew Rugg

October 28, 2011, 10:47 am

Hillary vs. Joe: When Jay Leno asked President Obama about a possible vice president-secretary of State swap on the 2012 ticket, the president responded that Joe Biden and Hillary Clinton were “doing great where they are.” The idea is that Hillary would shore up the president’s position among women. In Gallup’s latest, 44 percent of women approved of the president’s job performance, down from around 50 percent in January. The president’s ratings among white women are worse. Hillary Clinton and Michelle Obama are the two most popular figures in the administration.

Joe’s Future: Vice President Biden told reporters this week that he hasn’t ruled out a run for the top job in 2016. In a late September CNN/Opinion Research Corporation poll, 42 percent had a favorable opinion of him and 41 percent an unfavorable view. In January 2009, those responses were 52 percent favorable, 26 percent unfavorable.

Regulation: Virtually every poll we’ve seen this year shows a sharp shift in a negative direction about government regulation. A new CBS/New York Times poll found that half thought it was probably a good idea to repeal or reduce existing regulations on U.S. businesses to try to create jobs. Thirty-one percent thought it was a bad idea. A solid majority of Republicans (67 percent) said it was a good idea; pluralities of Independents (48 percent) and Democrats (41 percent) agreed. In a new poll, Gallup and Wells Fargo asked small business owners about the most important problem they faced. The top response was complying with government regulations.

The Tea Party, Wall Street, and the NRA: Democratic pollster Stan Greenberg released a Democracy Corps/Center for American Progress poll this week in which the pollster asked people how warm or cold their feelings were to a bunch of different groups and people. The mean response for Wall Street was a chilly 33.7. The Tea Party’s temperature was 40.2. People felt much warmer about the National Rifle Association (54.5).

Guns, Guns, Guns: Speaking of the NRA, Gallup released a new poll this week showing support for a legal ban on the possession of handguns at a record low (26 percent). Seventy-three percent said there should not be a ban. When the question was first asked in 1959, 60 percent favored a ban and 36 percent were opposed.

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Andrew Biggs

The chained CPI is a stealth tax increase

By Andrew Biggs

October 28, 2011, 10:28 am

Various news sources are reporting that congressional Democrats on the deficit Super Committee have floated the idea of changing the measure of inflation used for most federal policies. The shift would move from the conventional Consumer Price Index to the so-called “chain weighted” CPI, which better accounts for how buyers change their purchasing habits as relative prices between goods change. The chain weighted CPI generally shows lower inflation by around 0.3 percentage points.

The chained CPI would affect both spending and revenues. On the spending side, Social Security, federal pensions, and certain other payments are indexed to the CPI, so using a lower measure of inflation would reduce Cost of Living Adjustments (COLAs). Likewise, the CPI is also used to index income tax brackets and certain other aspects of the tax code. A lower measure of inflation would push a greater share of individuals’ incomes into higher tax brackets, thereby raising average tax rates and total revenues.

As I’ve argued here, I don’t think the chained CPI is the best measure for Social Security COLAs because it is based on the buying habits of working age Americans, not seniors. A new measure—a chain-weighted CPI specifically geared toward the elderly—would likely show somewhat lower inflation than the current CPI, but not as low as the standard chained CPI.

Likewise, it doesn’t make sense for the tax code to automatically raise revenues over time without Congress having to weigh in. Using the current CPI, income tax revenues would rise to record levels relative to GDP even if we made the Bush tax cuts permanent. Accelerating that increase in taxes—and it is a tax increase—by stealth bypasses the choices we need to make regarding the size of government going into the future.

It would be nice to think that Congress could walk and chew gum at the same time—that is, that they could both balance the books and create good public policy. But it looks like we may have to choose.

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Categories:  Economic Policy, Fiscal Policy and Taxes, Retirement and Social Security   |   Tags: , ,

Nick Schulz

Red States out of the red faster?

By Nick Schulz

October 28, 2011, 9:57 am

Dan White at the Dismal Scientist has written a fascinating analysis of how states get their fiscal houses in order after an economic downturn—do they primarily cut spending or raise taxes, and which strategy is better for subsequent economic performance?

Under some circumstances, raising taxes has proven a better strategy than cutting spending. Under other circumstances, the opposite strategy is better. You have to read the whole thing to appreciate what a fine piece of analysis it is, but here’s the upshot for today:

While implementation of a cuts-only approach is often politically impossible and at times irresponsible, in general, states that have weighted their budget fixes toward expenditure reductions in recent years should outperform those that relied more heavily on tax increases.

Indiana and Illinois, which have similar geographies and industrial makeups, have approached the recent recession’s fiscal problems with diametrically opposed strategies. Indiana has relied on spending cuts, while Illinois has implemented some of the largest tax increases in recent memory. In the two years following the onset of the Great Recession, Indiana’s GSP growth has improved relative to the rest of the country at nearly twice the rate of Illinois’s.

To broaden the lens a bit to the national level, the Hassett, Biggs, and Jensen paper on the importance of relying on spending reductions as opposed to tax increases is still the definitive take.

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Categories:  Economic Policy, Fiscal Policy and Taxes, U.S. Economy   |   Tags: ,

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