• Rubin: “Tehran’s hollow Hormuz strait threat”
• Goldberg: “You can’t win for losing.” This year, victories have been quickly revealed as failures.
• Miller and Hillman: “How to get more Ivy Leaguers into ROTC”
• Blumenthal: “How did the Obama administration impact Asia?”
• Auslin: “Europe whole or divided (or 1648 and all that)”
• Eberstadt: “India’s demographic outlook: implications and trends“
As I mentioned earlier, I am currently reading Real Education by Charles Murray. In the book, Murray makes four big points: a) Ability varies; b) half of the children are below average; c) too many people are going to college; and d) America’s future depends on how we educate the academically gifted. It’s the third point I am concerned about for the moment. Here is President Obama is his recent Osawatomie, Kansas, speech:
But we need to meet the moment. We’ve got to up our game. We need to remember that we can only do that together. It starts by making education a national mission — a national mission. Government and businesses, parents and citizens. In this economy, a higher education is the surest route to the middle class. The unemployment rate for Americans with a college degree or more is about half the national average. And their incomes are twice as high as those who don’t have a high school diploma. Which means we shouldn’t be laying off good teachers right now — we should be hiring them. We shouldn’t be expecting less of our schools –- we should be demanding more. We shouldn’t be making it harder to afford college — we should be a country where everyone has a chance to go and doesn’t rack up $100,000 of debt just because they went.
Obama’s words remind me of this passage in the book:
The problem begins with the message sent to young people that they should aspire to college no matter what. Some politicians are among the most visible offenders, treating every failure to go to college as an injustice that can be remedied by increasing government help.
Murray makes several points that dispute Obama:
1. Only 20 percent of all students have the academic ability to do college work without decreasing the difficulty level.
2. For the student who wants to become a hotel manager, journalist, software designer, farmer, hospital administrator, four years of class work at a brick-and-mortar college is unnecessary — especially if K-12 did a better job a providing a classical liberal education.
3. The income for the people in a wide variety of occupations that do not require a college degree is higher than the average income for many occupations that do require a BA. For some, being an electrician is a better career path than being a middle-level manager, both in terms of wages and job satisfaction.
Now this is not to say education should end at high school. Certainly not, as Joel Kotkin points out in City Journal:
The shortage of industrial skills points to a wide gap between the American education system and the demands of the world economy. For decades, Americans have been told that the future lies in high-end services, such as law, and “creative” professions, such as software-writing and systems design. This has led many pundits to think that the only real way to improve opportunities for the country’s middle class is to increase its access to higher education.
That attitude is a relic of the post–World War II era, a time when a college education almost guaranteed you a good job. These days, the returns on higher education, particularly on higher education gained outside the elite schools, are declining, as they have been for about a decade. … The reason for the low rewards is that many of the skills learned in college are now in oversupply. … The oversupply of college-educated workers is especially striking when you contrast it with the growing shortage of skilled manufacturing workers. … Two-year colleges will be crucial to the effort to train skilled workers. One of these schools, Central Ohio Technical College, has recently expanded by 70 welding students and 50 aspiring machinists per year. Many of the college’s certificate programs are designed and partly funded by companies, which figure that they’re making a wise investment. …
Such shorter educational alternatives will become ever more important as industrial workers retire. The average skilled worker in the industries supplying the gas boom is in his mid-fifties. “At our plant, you have lots of people with 20 to 30 years’ experience,” says Kirk, who has three high-skill openings that he can’t fill. “But there’s no apprenticeship program—no way to fill the future growth. We are simply running out of people.”
Companies have announced plans to invest almost 2.5 billion pounds in renewable energy projects in the UK this year, the Department for Energy and Climate Change (DECC) said on Thursday. The plans could potentially create almost 12,000 jobs, DECC said, and compare with estimates from various consultants of around 2.1 billion pounds for the previous year.
So, let’s see here … (£2.5 billion * $1.55 /£) / 12,000 jobs = $322,917 per job
Sustainable energy, heh.
Over at Reason, my pro-market brother Nick Gillespie takes issue with my recent blog post, “5 economic heroes (and zeroes) for 2011.” In particular, he doesn’t like my two of my choices, Paul Ryan and tag-team partners Erskine Bowles and Alan Simpson. The guts of his argument:
Pethokoukis studs his praise of Bowles-Simpson with some “to be sures” and other reservations, but the plain fact of the matter is that their plan is built around a level of federal revenue that has never been reached even for one year. Paul Ryan’s budget plan, which was widely ignored by Republican leaders before a version of it was passed earlier this year by the House of Representatives, would increase annual spending from around $3.8 trillion to $4.7 trillion in 2021. That trillion-dollar increase comes on top of a $1.3 trillion increase between 2001 and 2010. Think about it: In 1991, total federal spending (in constant 2010 dollars) was about $2.1 trillion. By 2001, it was $2.3 trillion and by 2010, it was $3.6 trillion. And Medicare spending, the single-largest time bomb in the budget (along with interest on the national debt!), is set to go off.
This is no time to be praising folks who would lock in massive, historic increases in across-the-board spending (defense, entitlements, you name it). It is a time to push politicians to actually start talking about how to right-size government, whether it’s via “The 19 Percent Solution,” which would balance expenditures with historic levels of revenue or plans such as those authored by The Republican Study Committee or Sen. Rand Paul (R-Ky.), either of which would get the job done. With all due respect to Pethokoukis, those are the plans that need to be championed, not ones that jack spending even more over the future.
1. I think 19 percent of GDP is a great long-term target for government and revenue and spending. In fact, that is Ryan’s target in his Roadmap for America’s Future.” Bowles-Simpson have a target of 21 percent. Both are way below current spending levels and way, way, way below the federal government’s current spending trajectory over the coming decades. If spending is sitting at 21 percent of GDP in 2035, instead of 30 percent (and rising), I would still reluctantly call that a victory since there’s no way to keep spending at 21 percent without big, market-friendly, structural changes in entitlements.
2. Nick’s plan and Rand Paul’s plan are full of great ideas, but I wouldn’t cut defense spending as deeply as they would. Paul would have the Pentagon under 3 percent of GDP by 2016, which I think is probably at percentage point too low over the long haul.
3. But overall I agree that we should cut spending, both discretionary and entitlements, more quickly than many politicians currently advocate. So I am adding some honorable mentions to my heroes list:
– Sen. Rand Paul
– Nick Gillespie and Veronique de Rugy
– Larry Kudlow of CNBC
As AEI’s Charles Murray writes in the brief-but-great “Real Education: Four Simple Truths for Bringing America’s Schools Back to Reality”:
“… we are unrealistic about students at every level of academic ability — asking too much from those at the bottom, asking the wrong things from those at the middle, and asking too little from those at the top.”
The question of how to best educate the most gifted and promote academic excellence is tackled by the Manhattan Institute’s Sol Stern in a recent City Journal article:
Regrettably, the states haven’t done much better in helping gifted youngsters achieve their best. Perhaps the best indicator of the states’ neglect is that fewer than 100 science and math high schools currently exist across the country, and they enroll only 47,000 students. This is an absurdly low number, particularly when you consider the declining number of American students pursuing advanced science and engineering degrees. … Many states lack specialized math and science public high schools altogether. …
A decade after passing No Child Left Behind, Congress needs to correct one of the law’s most damaging oversights. An amended NCLB could direct the federal Department of Education to offer financial incentives to states to boost the number of competitive, specialized high schools like Gotham’s, but free of their bureaucratic and union constraints—just as the department already rewards states for such reforms as increasing the number of charter schools and creating new teacher evaluations based on students’ test scores.
These specialized high schools, in fact, could be charter schools. Education reformers under the sway of NCLB’s reigning philosophy have viewed charters almost exclusively as a way to lift up the educationally disadvantaged. But charters could also play a constructive role in improving instruction for the smartest students. Why shouldn’t we encourage universities’ engineering schools, say, to create charter engineering high schools? Competitive entrance exams for such a school could take place at the sponsoring university’s campus. Top students at the school could take college-level engineering courses and even obtain early admission to the university. Companies like IBM and Microsoft could sponsor similar charter schools for science and math.
America will gain if school reformers get over the idea that elite education is undemocratic or comes at the expense of the disadvantaged. … ” The next iteration of No Child Left Behind should have a great deal more of this Jeffersonian belief that, though America’s schools should educate all children well, they should also nurture academic excellence for the good of our democracy.
New Year’s Resolutions? Thirty-eight percent of Americans told Marist interviewers recently that they plan to make a New Year’s resolution this year, but 62 percent do not. Interest declines with age: 64 percent of 18-29 year olds plan to bring in the new year with a resolution; only 23 percent of those 60 years and older will.
When those who said they made a resolution last year (27 percent of the sample) were asked whether they kept it, two-thirds said they did.
Grow Old Along with Me? According to a new Marist poll, the age at which someone is considered to be old increases for each generation. Millennials put the demarcation at age 62, Gen X-ers at 71, Boomers at 77, and members of the Greatest generation at 81. In the poll, each generation wanted to, and expected to, live longer than the age they defined as old. Men said a woman was old at age 69; women said 75. Men said they would be old at age 70, while women put the age at 74.
Capitalism and Socialism: The Pew Research Center recently updated a question they asked in 2010 about a series of terms including socialism and capitalism. Fifty-percent in the early December poll had a positive view of capitalism and 40 percent a negative one. As for socialism, 31 percent had a positive view, and 60 percent a negative one. Young people were evenly divided about capitalism (46 percent positive, 47 percent negative), while they tilted in the positive direction about socialism (49 percent positive, 43 percent negative).
When I was on CNBC’s Kudlow Report last night, the other guests and I talked about the tax plans of Mitt Romney, Newt Gingrich, and Rick Santorum from a supply-side perspective. Now, I sometimes don’t like even using the term “supply-side economics” since so much of it is really a restatement of great economic truths that were abandoned but have been rediscovered over the past few decades. And perhaps none more key than this: Incentives — particularly taxes — greatly affect the supply of labor, savings, and investment. One of my favorite blogs, The Supply Side, has this to say in a new essay about the global acceptance of economist Art Laffer’s insight on marginal tax rates:
Since the 1980s, the top income tax rate has been raised twice and cut once, settling at 35% for the last decade. Income tax rate increases have been offset by cuts in the capital gains tax rate, now at 15%. More than 30 nations have adopted flat tax systems, including, ironically, most of the former Soviet bloc nations, and several other countries are considering them today. Recent discussions of lowering the US corporate tax rate have included bipartisan recognition that lower rates could bring in similar levels of revenue. While in the 1970s many developed nations had top tax rates well above 70%, today, most nations keep tax rates below 50%. In short, Art Laffer is a world historical figure who has helped lead the restoration of classical economics’ focus on production incentives. That his arguments about tax rates’ incentive effects have been accepted in broad terms today among economists of all political stripes is testimony to his tremendous skill as an economist and advocate.
And while I dissected on CNBC the differences between Romney, Gingrich, and Santorum on taxes, all three are proposing cutting tax rates of one kind or another to change incentives and boost growth. Even many liberal economists accept the Laffer Curve’s central economic cosmology and the danger of high-tax rates on worker productivity, except for perhaps the extreme superrich.
But where do we go from here? On taxes, at least, supply-siders should continue to push for lower personal and corporate marginal tax rates, along with the elimination of many market-distorting tax breaks. At the same time, the current code’s bias against savings must be fixed. First, households should not pay tax on interest, dividends, capital gains, or other income from saving. Second, firms immediately should be able to deduct business investments, rather than depreciating them over time. Here’s why:
The income tax’s penalty on saving is an undesirable distortion of consumer choice. It also causes less capital to be accumulated in the United States. The reduction in capital accumulation reduces labor productivity and lowers real wages throughout the economy, depressing the standard of living of future generations. Some studies have found that a switch to consumption taxation would increase the size of the U.S. economy by as much as 9 percent in the long run, although other studies estimate smaller gains.
But taxes and capital are only part of the equation. Certainly just as important in boosting growth is encouraging innovation and technological change. And having the proper reward and incentive system for potential innovators is critical. Taxes matter for this, too.
But two other elements are also necessary. First, America must remain open to the change and Schumpeterian creative destruction that innovation brings and not try to stifle it through regulation, crony capitalism, and anti-competitive trade barriers. Second, America needs to improve its supply of human capital so, as economist Joel Mokyr puts it, there is a “cadre of ingenious and resourceful innovators who are both willing and able to challenge their physical environment for their own improvement.”
This “cadre” can be both imported from overseas (via more high-skilled immigration) and developed at home (through an education system that better cultivates and challenges high-ability individuals). Education reform, in particular, should be the next great battleground for supply-siders. And just as the supply-side tax revolution started at the state level with California’s Proposition 13 in 1978, supply-side education reform is starting local, too, in Wisconsin and New Jersey as Republican governors there battle government teachers unions. This is going to be one my big policy themes for 2012, and hopefully I won’t be alone.
Congress has given Americans a real gift as the New Year approaches: they adjourned without renewing the insane subsidies to fuel ethanol! As the Detroit News reports:
The United States has ended a 30-year tax subsidy for corn-based ethanol that cost taxpayers $6 billion annually, and ended a tariff on imported Brazilian ethanol. Congress adjourned for the year on Friday, failing to extend the tax break that’s drawn a wide variety of critics on Capitol Hill, including Sens. Tom Coburn, R-Okla., and Dianne Feinstein, D-Calif. Critics also have included environmentalists, frozen food producers, ranchers, and others. The policies have helped shift millions of tons of corn from feedlots, dinner tables, and other products into gas tanks. [Oh, and me, of course]
Alas, this won’t end the insanity of turning perfectly good food and animal feed into a bad substitute for gasoline: fuel blenders are still required to buy the stuff and blend it into gasoline because of a congressional ethanol mandate.
There is hope, however. As the Detroit News points out:
The corn lobby has lost clout this year, losing votes in Congress. The Senate voted 73-27 in June to end the ethanol tax subsidy and tariff.
Ending the use of corn ethanol as fuel should have bipartisan and cross-interest group appeal, and even EPA admits the cellulosic ethanol idea isn’t panning out. Let’s hope that 2012 marks the end of the fuel-ethanol fiasco.
(h/t @Mark_J_Perry)
2011 saw some of America’s most infamous adversaries meet their ends—from al Qaeda leaders Osama bin Laden and Anwar al-Awlaki to North Korean dictator Kim Jong Il and Libyan strongman Muammar Gaddafi. But the Atlantic Wire reports that “Of all the famous people who died this year … the person who sent the most people searching for information on Google was … Jackass‘s Ryan Dunn.”
Yes, that’s right, the creator of a program in which people perform crude, dangerous, and asinine stunts, was the man Americans were most interested in learning about when he died. He beat out not only bin Laden (#2) but Apple Founder Steve Jobs (#3).
Awlaki—the man behind attempted bombing of a Northwest Airlines plane over Detroit, and an al Qaeda plot last year to blow up two planes over the Eastern seaboard with package bombs—did not make the Top Ten. Neither did Moammar Gaddafi, though the Atlantic suggests that this may be because there are more than 100 ways to spell his name. (They gave him honorary status as #10 “since if you combined the many different spellings, he would have ranked much higher.”) Also not on the Top Ten list was the Dear (departed) Leader Kim Jong Il. Maybe they should have checked Google searches for “Kim Jong the Second.”
Awlaki, Gaddafi, and KJ2 lost out to rappers “Nate Dogg” and “Heavy D” and pro wrestler “Macho Man” Randy Savage. No wonder its so hard to get a discussion of foreign affairs on the campaign trail.
You can see the full post and chart here:
Larry Kudlow over at NRO:
“The purpose of economic policy is growth, jobs, and prosperity,” supply-side founder Art Laffer told me today. As such, Laffer has endorsed Newt Gingrich and the Gingrich 15 percent flat-tax plan, which includes the 12.5 percent corporate-tax reform. “It’s nothing against the other candidates,” Laffer said. “But Newt’s plan is right, and therefore endorsing him is the right thing to do.”
Laffer is concerned with the fact that Mitt Romney has no tax-reform plan, and he worries that Romney doesn’t believe in the incentive model of economic growth. “He’s a good man,” Laffer said. “And he would make a good president. But he needs a bold tax plan.”
Art Laffer believes the Gingrich plan would help jolt the economy to 4 or 5 percent growth. And he also is impressed that Gingrich has been talking about King Dollar on the campaign trail along with his supply-side tax strategy. …
Whether Gingrich’s supply-side bus tour and Art Laffer’s endorsement help him in the remaining days of the Iowa campaign remains to be seen. Polls suggest that Newt is a stock still looking for a bottom. His campaign to use federal marshals to haul judges before Congress is way off the economic-growth message and did him a lot of damage. That’s what the latest polls suggest.
Now, if Gingrich can stay on message, and stick with supply-side solutions for growth, jobs, and prosperity, he could still bounce back over the next five days. But he must be disciplined and stay on message.
Herman Cain showed the efficacy of sticking to a simple economic message. Newt should have been “15 percent flat tax, 12.5 percent corporate tax” every day. Rinse and repeat. As I said the other day:
It surely helps Gingrich that he is back on message, talking about his econ plan and the flat tax rather than kid janitors, the space program, and dealing with a renegade Supreme Court. But is three times really the charm? The implosion of his campaign team and some tough remarks about Paul’s Ryan Medicare reform plan turned off many GOPers last spring. Gingrich rebounded only to fade again. Not sure if voters will give him a third look.
Soon-to-be former Congressman Barney Frank continues to try to defend his record on Fannie and Freddie by distorting, or simply reversing, the truth. Here he is in the TheAtlantic.com today on his history as he hopes we will remember it:
In 2004, the administration of President George W. Bush began a conscious plan of trying to increase levels of homeownership as part of its ‘Ownership Society,’ raising affordable housing targets for Fannie and Freddie. I opposed this policy because I thought people could end up with mortgages they could not afford.
A pretty categorical statement, right? Replete with context that makes it sound as though it actually happened. Unfortunately for him, there’s a written record—a letter to President Bush, dated June 28, 2004, that he authored for 76 colleagues, including minority leader Nancy Pelosi:
We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing. Until recently, we have been disappointed that the administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the administration’s legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. While the GSEs’ affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.
We have been led to conclude that the administration does not appreciate the importance of the GSE’s affordable housing mission, as evidenced by its refusal to work with the House and Senate on this important legislation. It now appears that, because Congress has not been willing to jeopardize the GSE’s mission, the administration has turned to attacking the GSEs publicly. We are very concerned that the administration would work to foster negative opinions in the financial markets regarding the GSEs, raising their cost of financing. If the intent is to get prohousing members of Congress to weaken their support of the GSEs’ mission, it is a mistaken strategy.
Our position is not based on institutional loyalty, but on concern for the GSE’s affordable housing function. We appeal to you to agree to work on legislative proposals that foster sound oversight and vigorous affordable housing efforts instead of mounting assaults in the press. We also ask you to support our efforts to push the GSEs to do more affordable housing.
If Barney Frank has any credibility after this, it will only be with those who—for ideological reasons—support him in his efforts to distance himself from the government’s affordable housing requirements, which were so destructive to Fannie and Freddie and the financial system as a whole.
• Danielle Pletka: “The top 11: What’s in and what’s ‘so last year’ in foreign policy”
• John Yoo: “An unavoidable challenge: Now is the time to make the case for military action against Iran“
I got into a good-natured argument with my friend Pete Wehner of the Ethics and Public Policy Center over lunch last week about the importance of incarceration in explaining the gratifying drop in crime since the 1990s. Pete cited some credible technical analyses (summarized in John DiIulio’s fine overview on crime trends showing that increased incarceration accounts for only 10 to 35 percent of the reduction in crime), while I muttered that we would see how true that is if we freed a whole lot of violent criminals. Without pretending to refute the technical analyses, let me give a quick illustration why I think simple incapacitation—we’ve locked up a huge percentage of the really nasty guys—plus a substantial deterrent effect is a plausible explanation for why violent crime dropped at all.
I specify violent because I’m sure that much of the drop in property crime is explained by target hardening. It’s impossible to steal most new cars this day because there is no way to get the engine started without the key. Hot-wiring is futile. Try to burgle a home in a neighborhood where homes have much worth stealing, and you’d better be prepared to get in and out before the high-tech security system brings the cops. If you’re in a commercial area, you’ve got omnipresent surveillance cameras to worry about along with the security systems. The effect of these innovations on violent crime has been much spottier. Yes, it can be harder to rob a convenience store (robbery is classified as a violent crime), but for the most part, robbery, homicide, aggravated assault, and rape are not technically more difficult to commit than they used to be.
Here is a graph that shows the violent crime rate per 100,000 population and the number of prisoners per 1,000 violent offenses from 1960–2010:
Source: Bureau of Justice Statistics, FBI Uniform Crime Reports. “Prisoners” refers to inmates of state and federal prisons and does not include persons in jail.
The red line shows the shape of two trends: the risk of going to prison if you commit a violent crime and the proportion of all violent criminals who are behind bars at a given time (they are not the actual risks and proportions for various reasons, including the large number of persons in jail who are not included in the count of prisoners—748,728 in 2010). Here’s how I interpret those shapes:
When crime gets safer, crime goes up very quickly as a response. In the late 1950s, the “prison only makes people into smarter criminals” school became dominant in criminal justice circles. By the early 1960s, imprisonment rates were plummeting. For that matter, even the raw number of prisoners fell. One consequence was that every cohort of young people saw acquaintances start to get probation for offenses that would have sent them to prison or reform school in the 1950s. I still remember my shock as a 17-year-old in that era when a friend of mine who shoplifted several thousand dollars of clothes from the store where he worked got probation. Once he had been arrested, it had not occurred to me that he wouldn’t go to reform school.
Pushing that toothpaste back into the tube takes a lot longer. Kids who are amazed when a friend gets away with a serious crime aren’t amazed when, say, 19 percent of their friends arrested for a serious crime are incarcerated instead of 15 percent. Understandably, crime continued to rise after imprisonment rates started to rise after 1974. Even in 1990, after 15 years of rising imprisonment rates, the risk of going to prison if you committed a violent crime was still far lower than it had been in 1960.
Cumulatively, however, two things happen. First, more and more of the “dirty 7 percent” of offenders who commit about 50 percent of all crime end up in prison. They cannot commit crimes, except against other criminals. Second, the cumulative impact of much higher imprisonment rates does make an impression—the idea that crime doesn’t pay is no longer completely a joke. For violent crime, the tipping point occurred in 1992, when imprisonment rates were heading straight up. By the time that the imprisonment rate for violent crime reached its 1960 level in 1998, the downward trendline was well established.
So how much of the reduction in violent crime was produced by increased incarceration? This kind of analysis doesn’t tell us. But neither am I sure that the armory of social science quantitative techniques adequately models what has gone on. Here is my simple-minded thought: Suppose we had maintained imprisonment for violent crime at the rate that applied in 1974. In that case, we would have had 276,769 state and federal prisoners in 2010 instead of the 1,518,104 we actually had. Suppose tomorrow we freed 1.2 million inmates from state and federal prisons. Do we really think violent crime would continue to drop at a somewhat slower pace?
In one sense, it is a silly question, as all counter-factuals must be. And I’m not saying that our current incarceration rates are appropriate. We may very well have been in a state of diminishing returns to incarceration for the last decade, as the experts DiIulio cites have argued. But I continue to harbor the belief that without the massive increases in incarceration after the mid 1970s, crime rates wouldn’t have turned around at all. Higher imprisonment was the necessary condition for 100 percent of the reduction in violent crime.
Now that Rick Santorum is surging in the Iowa GOP caucus polls, I thought it would be a good time to look at his economic plan. He markets it as “Made in America: Empowering American Families, Building Economic Freedom.” Unlike frontrunner Mitt Romney’s 59-point plan, this one has 31 points, many of which are standard Republican fare—repeal Obamcare, cut the corporate tax rate, etc. But there are a few interesting differences:
1. Cut and simplify personal income taxes by cutting the number of tax rates to just two – 10 percent and 28 percent, returning to the Reagan era pro-growth top tax rate. | This suggests the 1986 tax reform act. Certainly slashing that top rate would be pro-growth, especially considering it is currently headed to 40 percent or higher. And I like the idea of creating a “Reagan ceiling” on tax rates. But Santorum’s top rate would be higher than what Rick Perry and Newt Gingrich want, and also higher than the 25 percent rate found in Paul Ryan’s budget plan.
4. Lower the Capital Gains and Dividend tax rates to 12 percent to spur economic growth and investment. | You tax what you don’t want. We want more investment in America. So any move to reduce investment taxes—which are double taxes, really—is a good one. The current rate is 15 percent, headed to 20 percent in 2013. A zero rate would be better, but I’ll certainly take 12 percent to help reduce the tax code’s bias against investment.
5. Reduce taxes for families by tripling the personal deduction for each child. | Santorum here presents a completely different view of tax reform than the one offered by many economists and the recent Bowles-Simpson deficit commission, which is to lower tax rates and eliminate tax deductions in the name of growth and efficiency. This is also how supply-siders view tax reform. Santorum and many conservatives, however, think tax reform should address the distortions and burdens the current code imposes on American families. As economist Robert Stein wrote a few years back in National Affairs:
In particular, it is time to rethink how the tax code treats parents. Too many free-market economists still consider families an afterthought — arguing that the tax code should be “neutral” about raising children, as if parenting were merely one hobby among many. But raising children is hardly just another pastime: It is one of the most important services any American can perform for our country.
Even if we ignore the societal and cultural implications of parenting and consider economic factors alone, no government — especially not a government committed to an entitlement system like ours — can be neutral toward the very existence of future generations of taxpayers. Our nation’s long-term economic prospects are threatened by a declining fertility rate that, if it remains constant, will only barely manage to replace our current population. And even as Social Security and Medicare depend on large numbers of future workers, they have created an enormous fiscal bias against procreation, undermining an important motive for raising children: to safeguard against poverty in old age. …
To correct for this inadequate treatment of households with children, the existing dependent exemption for children, the child credit, the child-care credit, and the adoption credit should be replaced with one new $4,000 credit per child that can be used to offset both income and payroll taxes. (This amount is set much closer to the $3,250 figure than the $8,500 one mostly to reduce the plan’s negative impact on federal revenue.)
Some economists would justify this sort of pro-natalist policy by saying it allows parents to recapture more of their economic investment in children, which is only fair since they are providing a tremendous benefit to society by birthing, raising, and training its future. And perhaps it would also boost birth rates. (Another suggestion by some economists is reducing the payroll tax on parents depending on how many kids they have.) The politics are smart, too, since the plan would directly impact middle-class families and not just entrepreneurs and business.
6. Reduce and simplify taxes for families by eliminating marriage tax penalties throughout the federal tax code. | Again, more pro-family tax policy by Santorum.
7. Retain deductions for charitable giving, home mortgage interest, healthcare, retirement savings, and children. | Again, Santorum would keep tax breaks targeted at families, especially those that affect charities (including churches) and children. Tax policy as social policy.
9. Eliminate the corporate income tax for manufacturers—from 35 percent to 0 percent—which will spur middle income job creation in the United States and will create a job multiplier effect for workers. | While Santorum would cut the tax in half overall—from 35 percent to 17.5 percent—he would eliminate it for companies that make stuff here in America. In other words, not for banks and not for companies that move their research centers to China and India.
10. Spur innovation in America by increasing the Research & Development Tax Credit from 14 percent to 20 percent and make it permanent. | Many right-of-center economists would prefer just lowering the tax rate and getting rid of these sorts of industrial policy-like tax breaks.
Bottom line: Santorum has one of the most politically and economically cohesive policy plans in the GOP field. He wants to help middle-class families and sees tax policy as a way of directly doing that, beyond trying to boost GDP growth. It’s more populist-conservative in many ways than pure free-market/libertarian, the latter of which seems to more reflect the Tea Party trend in GOP economic policy. Not something a Wall Street or Ivy League economist would cook up, certainly. And supply-side economics is about altering incentives to boost growth (and incomes and jobs), not altering fertility rates to boost human capital or easing the tax burden on families. No matter Santorum’s political fate, his ideas may gain further traction on the right as some policymakers and wonks see the limits of an economic approach geared almost exclusively around lowering marginal tax rates and cutting spending.
Dany has an important piece in USA Today explaining why the United States got out of Iraq too soon. She writes:
[T]he future of Iraq, which seemed clear after our post-surge military victory, was again rendered uncertain by the premature departure of American forces. Institutions like the military were not fully formed, territorial disputes were not resolved, and key questions relating to oil were up in the air. In such circumstances, opposing groups move to maximize their own power for the inevitable struggle.
As if to underscore her point, the same day her piece came out al Qaeda publicly took credit for the wave of bombings that ripped through markets, cafes, and government buildings in Baghdad last week and killed 69 people—the first major terrorist attacks following the U.S. departure. It was a clear statement to the Iraqi people and the world that, while the United States may have retreated from Iraq, al Qaeda has not.
In a statement, the Islamic State of Iraq (al Qaeda’s political front) called the bombings a “series of special invasions … to support the weak Sunnis in the prisons of the apostates and to retaliate for the captives who were executed by the Safavid [Persian or Iranian] government” of Prime Minister Maliki.
This renewed al Qaeda violence is an ominous sign. During the surge, Sunnis abandoned the insurgency in droves, turned on al Qaeda, and joined with America to drive the terrorists out of the sanctuaries they had established in Anbar and other regions. After the surge succeeded in achieving these goals, the continued U.S. military presence—and the security umbrella it provided—allowed Sunnis to make peace with the new political order in Iraq. Now that the Obama administration has withdrawn all U.S. forces and the security umbrella they provided, our Sunni allies are in a vulnerable position. The Maliki government is taking advantage of the U.S. withdrawal to launch a sectarian crackdown on its Sunni opposition—and with its attacks last week it is clear that al Qaeda is positioning itself to benefit from this confluence of events.
Just as al Qaeda’s repression drove the Sunni tribes into America’s arms in 2006, Maliki’s repression could drive them back into al Qaeda’s arms in 2012. We could see a revival of the insurgency and a return to the sectarian bloodshed that American troops quelled at such great cost—and al Qaeda will then use the ensuing chaos to re-establish the safe havens we took from them five years ago. If that happens, then Obama’s decision to reject his commanders’ advice and withdraw all U.S. forces will go from a disaster to a debacle.
• Alan Viard: “Let’s make Social Security pay its own way”
• Michael Barone: “Voters want growth, not income redistribution”
• Jonah Goldberg: Those denouncing it don’t seem to realize they’re a part of it. “Conservative establishment divided against itself”
• Mark J. Perry, Sy Banerjee, and Thomas A. Hemphill: “Crony capitalism shuts India’s doors to Wal-Mart“
It was another dreary year for the U.S. economy and political scene. But the combo did generate some heroes and, unfortunately, some zeroes. First, the good guys:
5. Erskine Bowles and Senator Alan Simpson. The co-chairmen of President Obama’s National Commission on Fiscal Responsibility and Reform put the lie to the idea that government must inexorably and massively grow in coming decades. Their long-term budget plan capped spending at 21 percent of GDP, far below the minimum level many on the left think necessary to adequately fund the old-fashioned entitlement system and needed government “investments.” They also advocated smart tax reform ideas like lowering tax rates and getting rid of economically inefficient tax breaks. While I a) would like an even lower level of spending and b) don’t like the commission’s tax hikes, the panel overall performed a valuable service. And while the report actually came out in December 2010, the duo’s year-long advocacy of its ideas—despite Obama’s rejection of them—merit their placement on this list.
4. Herman Cain. The pizza mogul’s White House campaign may be defunct, but his 9-9-9 tax plan has a lasting legacy. America’s current tax code is a drag on economic growth, but the Republican presidential field was failing to offer bold reform. Then came Cain. His proposal was full of good ideas: dramatically lower tax rates, ending the bias against investment, simplification. Cain’s 9-9-9 was then followed by flat tax proposals from Rick Perry and Newt Gingrich. Even Mitt Romney is finally talking more about sweeping, pro-growth tax reform. No matter what the outcome of the 2012 race, the ideas embodied in 9-9-9 have pushed taxes back to the forefront of the GOP and national agenda.
3. Steve Jobs. The passing of Apple’s founder created the classic “teachable moment” on entrepreneurship and innovation and how an economy works. Jobs focused on producing and supplying innovative new consumer technology to the marketplace, creating demand for them. If you build it, they will come—and spend. And, of course, that is exactly what America needs: more producers, more employers, more makers. And in the Walter Isaacson biography of Jobs, the entrepreneur is quoted telling Obama that ”regulations and unnecessary costs” are killing U.S. manufacturing. He also told the president that America’s education system was being “crippled by union work rules” and until “the teachers’ unions were broken, there was almost no hope for education reform.” Right and right.
2. Scott Walker. The Wisconsin governor is acting as America’s Margaret Thatcher by fighting the corrosive power of government unions in the Badger State. Not only are union pensions and healthcare obligations threatening the fiscal solvency of many states, government unions are also—as Steve Jobs said—a big reason why our schools are not creating the citizens and workers America needs to compete and thrive in the 21st century. The recall effort against him will certainly be one of the big political and economic stories of 2012.
1. Paul Ryan. He decided not to run for president—this time around—but there’s no more important policymaker in Washington than the chairman of the House Budget Committee. Just as Ronald Reagan did in the ’80s, Ryan is shaping the debate today about what kind of government America will have for the next generation and beyond. So in that sense, it’s not just his policy proposals that matter but also his arguments. No U.S. public figure is as effective at reminding us how America became America, at reminding us of all that once was good, and what could be again. Free men pursuing happiness in free markets. As Ryan said in a recent speech:
You know, in the midst of all the joys and sorrows of our everyday lives, I think we sometimes forget why America was considered such an exceptional nation at its Founding and why it remains so. To me, the results of the Founders’ exceptional vision can be summed up in a single sentence: Throughout human history, the American Idea has done more to help the poor than any other economic system ever designed.
Americans, guided by our ideals, have sacrificed everything to combat tyranny and brutal dictators. We’ve expanded opportunity, opened markets, and inspired others to resist oppression; we’ve exported innovation and imagination; and we’ve welcomed immigrants seeking a fresh start.
Here in America—unlike most places on Earth—all citizens have the right to rise.
And now for the zeroes. And since it is the holiday season and I am trying to be upbeat, we’ll keep this short and sweet:
5. Lafe Solomon. Back in April, the acting general counsel of the National Labor Relations Board filed a complaint against Boeing seeking to force the airplane maker to bring a production line back to unionized Washington from non-unionized South Carolina. It was a chilling overreach of government power reminiscent of the worst of FDR’s New Deal excesses.
4. The Occupy movement. The self-proclaimed advocate of the 99 percent is, unfortunately, 99 percent wrong in its diagnosis of what ails America and its economy. Our problems are not ones of greed, inequality, and banks, but of too much government, slow growth, crony capitalism, and distorted markets.
3. Elizabeth Warren. The Harvard law professor and Democratic U.S. Senate candidate in Massachusetts claimed she created “much of the intellectual foundation” of the Occupy movement. More than enough to merit being on this list.
2. The White House. The bad news: Team Obama stiff-armed its own deficit commission, offered no long-term budget plan, pushed another Keynesian stimulus plan, and launched a populist, class-warfare campaign in pursuit of a second term. The good news: This was probably an improvement over 2010.
1. Kim Jong-il. He’s not an American, but there was no bigger economic zero in 2011. And, of course, the now-deceased dictator of North Korea wasn’t a zero as much as a monster who kept his hostage nation in economic and spiritual poverty. North and South Korea: Same people. Same culture. Same geography. But one a communist, totalitarian state, the other a democratic capitalist one. And that makes all the difference.
Jonah, you raise some good points about Jim’s post on Eamonn Fingleton’s claims that Japan’s economy is stronger (and larger) than either reported or realized. The concept of a government scheme to under-report growth is hard to believe, though whether there are different official accounting standards at play is another question that could lead to different growth/consumption/investment outcomes being reached.
I’m not an economist, either, but have been a Japan watcher for over 20 years, and I think there’s something to Fingleton’s overall argument that Japan probably hasn’t shrunk or weakened as much as traditionally reported. The questions I think we should be asking aren’t about statistics, but rather about what accounts for the stability we see in Japan during an extended period of supposed economic stagnation. My evidence is anecdotal, but comes from multiple visits per year. Seems to me, the strengths of Japan’s economy aren’t from trade figures but more intangibles that are social in nature. From basic goods and services to domestic production, public works (admittedly, often wasteful), and government administration, Japan continues to hum along with few interruptions. Its shift to value-added components production in the global supply chain replaced lots of full-assembly production, but also maintained skilled employment levels around the country. Perhaps most important, Japanese citizens never gave up on their economic (or political) system, the way that happened in the Soviet Union and may one day happen in China.
That’s not to ignore all the problems and weaknesses in the system. The obstacles to entrepreneurship are too high, which means many of Japan’s small and medium enterprises remain too tied to larger corporate groups. Foreign direct investment is woefully low, thanks to suspicion of foreign ownership, and of course agricultural subsidies keep the country’s farming sector completely inefficient. Most damaging of all may be that much of the system is running on inertia. That’s just to name a few. We need a real economist to weigh in here, but the social effects of Japan’s economic strengths and weaknesses are ultimately the most important thing. Its strength so far in maintaining enviable standards of living (even with wage stagnation) may be due to Japan’s corporatist model’s past success, but the big argument is whether that model remains viable in the 21st century. On that score, Fingleton may have put his finger on something, just not what he thinks he has.
Coal mining is dirty, risky, and environmentally destructive. It also produces low-cost fuel that provides about half of our electricity, employs a significant number of people, provides profits that go to shareholders, pensioners, etc., and generates significant revenues to the government.
So it’s no surprise that the government (even the coal-hating Obama government) is ambivalent about cutting off coal production entirely. As the Post reports:
Since taking office nearly three years ago, the administration has restricted coal-mining waste from being dumped into streams and imposed new pollution controls on coal-fired power plants. But on the fundamental question of whether the government should halt federal leasing, the administration’s answer has been: not yet.
They have, naturally, slowed things down a bit, as they have with oil drilling:
…the number of tons the government leased each year over the past three years has averaged 272 million. The Bush administration, by contrast, leased an average of 515 million tons annually between 2002 and 2008.
This, needless to say, frustrates environmentalists such as the Sierra Club and the WildEarth Guardians, whose agenda is to keep coal in the ground at any cost:
WildEarth Guardians’ general counsel, Jay Tutchon, describes his group’s strategy as “keep the coal in the hole,” as opposed to BLM, which he said “views its mission as ‘get this coal out of the ground and sell it.’”
Mitt Romney has been attacked by many for his record on healthcare while he was governor of Massachusetts. But with three governors in the Republican race, it is useful to compare the track records of all three as they relate to health spending. No matter how the figures are sliced and diced, it is clear that health spending, relative to the national average, rose more quickly during the Romney administration than during either the administrations of Governor Rick Perry or Governor Jon Huntsman. For example, ambulatory healthcare spending per capita was declining relative to the national average when Governor Romney first took office, but has steadily increased every year since then, climbing from 19 percent above the national average in 2003 to 29 percent above the national average by 2007 (figure 12.6c).
In contrast, ambulatory health spending in Texas was steadily declining prior to the arrival of Governor Rick Perry and continued to do so for the first four years of his term. Subsequently, it has risen only slightly, from a low point of 8.8 percent below the U.S. average in 2006 to being 6.3 percent below the average by 2009. Jon Huntsman inherited a somewhat similar situation except that relative spending already had begun to rise slightly before he took office and continued to rise for his first two years, followed by a noticeable relative decline.
The pattern for health facilities is somewhat different, but the big-picture result is the same. In this case, Governor Romney inherited rising relative expenditures on health facilities, which fell slightly in his second year, but then continued to rise (figure 12.6d).
Governor Rick Perry inherited relatively stable health facilities expenditures (i.e., rising at about the same rate as the rest of the nation). Relative spending has declined in subsequent years. Governor Huntsman inherited a stable pattern of health facilities expenditures which continued throughout his tenure.
What conclusions can we draw from this? First, the figures shown focus on the gross domestic product attributable to the two large categories of health spending shown and divides this amount by state population to obtain per capita estimates. This is similar but not equivalent to each state’s expenditures on these services. It reflects sales generated within a state, but not necessarily only to that state’s residents. Thus, it is not an exact measure of how much Massachusetts residents spend relative to those in Texas. But it is a rough approximation. And unless there is a great deal of year-to-year variation in the fraction of cross-border spending by a state’s residents, the trends in per capita health-related GDP should approximately mirror trends in health spending. It would be quite unusual for per capita health-related GDP to be steadily rising when correctly measured health spending of that state’s residents was falling, for example.
Second, the figures only include spending on ambulatory care services (including services of physicians, dentists, and other health professionals) and spending on health facilities. Notably excluded are spending on prescription drugs and durable medical equipment (which account for one seventh of national health spending), among other things. So the figures admittedly do not provide the whole picture of health spending, but they do include the lion’s share of medical costs.
Third, state governors clearly are not responsible for aggregate health spending in their state. That said, state policy most assuredly has some effect on health spending. Medicaid spending accounts for nearly one fourth of state government spending, exceeding the amounts spent on elementary and secondary education. Even though the federal government contributes a larger share of Medicaid spending than state and local governments, state policymakers historically have had a great deal of discretion over eligibility standards, benefits, and payment rates. Likewise, in most states, state employees, dependents, and retirees typically constitute the largest single group obtaining employer-sponsored health insurance. All told, state and local policymakers control more than one quarter of health spending through Medicaid, state employee health benefits, and other categorical health spending (e.g., local health departments). Thus, gubernatorial health policy decisions most assuredly have some impact on trends in health spending.
As well, there are vast differences across states in their degree of health services regulation, with some states requiring the state’s permission for every hospital bed built and others imposing no state restrictions whatsoever on health facilities expenditures. Here the story gets quite interesting. As of 2009, Utah had the 13th least regulated health system in the country whereas Massachusetts had the second most regulated health system and Texas was in between, having the 29th most regulated system. As one example, Utah and Texas eliminated their certificate-of-need restrictions on hospitals in the mid-1980s, whereas Massachusetts not only retained its CON program, but made the program even more stringent two years after enacting their health reform law. One would be hard put to infer from the figures shown above either that the Massachusetts CON program was effective in restraining spending or that failure to have CON programs has led to an “explosion” in health spending in either Utah or Texas.
Healthcare spending is surely not the most important issue in the 2012 election. But for those who care about this issue, the available evidence suggests that Jon Huntsman and Rick Perry boast much better records than Mitt Romney in holding down health expenditures.
Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research and an adjunct scholar at AEI. The charts shown are from his new book American Health Economy Illustrated, to be released in January 2012 by AEI Press. See PowerPoint versions of Figure 12.6c and Figure 12.6d and Excel spreadsheets on a) total population, total GDP, GDP for ambulatory health care services, and GDP for hospitals and nursing & residential facilities; b) per capita GDP, ambulatory healthcare services, and hospitals and nursing & residential facilities, and c) index per capita amounts for these measures of merit for data, sources, and methods.
OK, the Iowa caucuses are in a week, Jan. 3 to be exact. So where do things stand? A few thoughts, observations, and questions:
1. Is Romney a lock? Well, he’s done the round trip over at the Intrade betting market. He was in the 70s, then back down to the 40s, and now back to a 73 percent chance of being the GOP nominee. Next closest is New Gingrich at 8 percent. How could Romney lose? Performing well below expectations in Iowa—a weak third or lower—might make him vulnerable in New Hampshire. And a poor showing there, even if he wins, then puts him in a bad position come South Carolina and Florida. Romney also remains stuck around 25 percent in national polls, meaning he’s hardly closed the deal with GOP voters. Still, a recent CNN poll finds 80 percent of GOP voters saying they either support Romney or would consider supporting him.
2. I still think Gingrich needs to win Iowa or else the fade accelerates. He probably doesn’t need to win big, especially with the Ron Paul surge and several tough media cycles lowering expectations. It surely helps Gingrich that he is back on message, talking about his econ plan and the flat tax rather than kid janitors, the space program, and dealing with a renegade Supreme Court. But is three times really the charm? The implosion of his campaign team and some tough remarks about Paul’s Ryan Medicare reform plan turned off many GOPers last spring. Gingrich rebounded only to fade again. Not sure if voters will give him a third look.
3. Paul may be the most fascinating story. Will the barrage of newsletter news stories reverse his momentum? Will Romney ever attack him, which would risk alienating the libertarian vote inside the Republican Party? Will Paul ever wear a decent fitting suit coat?
4. Jon Huntsman needs no worse than a close loss in New Hampshire to keep his campaign going. But should he do that, or even pull off an outright win, maybe voters elsewhere will take another look at his conservative record as a pro-lifer who instituted a flat tax as Utah governor and supports the Paul Ryan approach to entitlement reform.
5. How does Romney lose the nomination? Well, given the number of delegates awarded on a proportional basis, Romney could conceivably not have a majority until summer. And to actually go into the Republican convention with less than a majority would probably require Romney weakness, Paul strength (which is possible due to his money and organization), and some other candidate(s) picking up delegates here and there. Gingrich? Rick Perry? Keep in mind that Romney and Paul are the only candidates showing real organizational know-how at the moment. Here is the real problem with the non-Romney scenario (via my pal Jay Cost):
When all is said and done, we might conclude that Romney had this nomination sewn up in September. By that point, all of the most impressive GOP figures who could have competed as “not Romney”—Jeb Bush, Chris Christie, Mitch Daniels, Bobby Jindal, Tim Pawlenty, Marco Rubio, and Paul Ryan—had either declined to run or dropped out. You cannot beat someone with no one, after all, and if none of the actual alternatives to Romney is of sufficient stature to challenge him, then he will not be challenged.
Jim—That’s an interesting theory and, like you, I have no idea if Fingleton is right. But I do think we should have a pretty heavy dose of skepticism. Fingleton is deeply invested in the idea that the Japan Inc. model is superior to America’s. In the 1980s and 1990s, he was one of the foremost champions of the idea. In 1995 he came out with Blindside: Why Japan Is Still Winning the Battle for Global Supremacy (alternative title Blindside: Why Japan Is Still on Track to Overtake the U.S. By the Year 2000). As far as I know he’s never given up on the idea that Japan’s corporatist model is superior to America’s messy version of capitalism (indeed, a chapter to one book is titled “Sayonara Capitalism”). Here he is earlier this year claiming that the two lost decades storyline is a myth.
Again, he may be right. But I would be extremely skeptical until an expert—several experts actually—in Japanese economics lacking his preferences and biases corroborates his conclusions.
While the folks at Think Progress deny the growing links between Iran and al Qaeda, more evidence of the terror network’s collaboration with the regime in Tehran emerged just before Christmas when the State and Treasury Departments put out a bounty for an al Qaeda leader operating in Iran under a secret agreement with Iran.
As I pointed out earlier this month, Ezedin Abdel Aziz Khalil was designated by the Treasury Department earlier this year as the leader of an al Qaeda network operating in Iran with the help and protection of the Iranian regime. Now, Josh Rogin at The Cable reports that the U.S. government has offered $10 million through the Rewards for Justice program for information leading to the death or capture of Khalil (a.k.a. Yasin al-Suri):
According to two U.S. officials who briefed reporters today, [Suri] stands at the center of the link between the Iranian government and al Qaeda… “From his sanctuary inside Iran, he has moved terrorist recruits through Iran to al Qaeda leaders in Pakistan and Afghanistan. He has also arranged for the release of al Qaeda operatives from Iranian prisons and their transfer to Pakistan. And he has funneled significant amounts of money through Iran to AQ leadership in Afghanistan and Iraq,” said Robert A. Hartung, assistant director for threat investigations and analysis at State’s Bureau of Diplomatic Security…. “We have reliable information indicating that there is an agreement between the Iranian government and this al Qaeda network [led by Suri],” said Eytan Fisch, Treasury’s assistant director of terrorism and financial intelligence.
This is the second time in the past six months that the Obama administration has taken action to highlight the links between al Qaeda and Iran. And it comes on the heels of a federal court ruling earlier this month which found that Iran was responsible for the 1998 bombing of the U.S. embassies in Kenya and Tanzania. The U.S. District Court for the District of Columbia found that the bombings would not have been possible without “direct assistance” from Tehran. “The government of Iran,” Judge John D. Bates wrote in his 45-page decision, “aided, abetted, and conspired with Hezbollah, Osama Bin Laden, and al Qaeda to launch large-scale bombing attacks against the United States by utilizing the sophisticated delivery mechanism of powerful suicide truck bombs…. Prior to their meetings with Iranian officials and agents Bin Laden and al Qaeda did not possess the technical expertise required to carry out the embassy bombings in Nairobi and Dar es Salaam.”
Considering the fact that the Shiite regime in Tehran and the Sunni terrorist network have already collaborated to attack the United States, their growing cooperation is an ominous sign. If Iran was willing to give al Qaeda the means to destroy two American embassies, what kind of assistance might a nuclear Iran be willing to provide them?
Whenever the U.S. Commerce Department or Labor Department comes out with some better-than-expected economic number, I am sure to get a few comments\emails\tweets accusing Washington of fudging the data like Greek bureaucrats. I am, to say the least, skeptical of such accusations.
But perhaps I shouldn’t be. Maybe even governments of leading economies shade the numbers. A former editor at Forbes and the Financial Times contends Toyko has been lying for years about the strength of the Japanese economy … and this is the really weird part .. to make it seen weaker than it really is. (Efharisto to Kevin Drum at Mother Jones for this.) Here’s a bit of Eamonn Fingleton’s evidence:
One of the key contradictions that must be addressed is the evidence of electricity statistics. In 2007 it was discovered that the long-term record in electricity output completely gainsaid the “lost decades” story. Adjusted to a per-capita basis, the figures showed that Japan’s electricity output in the 1990s rose 2.7 times faster than America’s! And Japan continued to outperform in the new century. As you know, electricity output is widely accepted as an impartial, culture-neutral proxy for economic growth and it is indeed relied on by international organizations such as the IMF and World Bank when a government may not be following international accounting standards in calculating GDP growth.
And his theory of the case:
For those who know Japanese history, a clue lies in trade policy. The fact is that, constantly since the 1870s (with the exception of a brief interlude in the late 1930s and early 1940s), Japan’s pre-eminent policy objective has been to keep ramping up exports. That policy came very close to derailment in the late 1980s as a groundswell of opposition built up in the West. By the early 1990s, however, the opposition had largely evaporated as news of the crash led Western policymakers to pity rather than fear the “humbled juggernaut.” It is a short jump from this to the conclusion that Japanese officials have decided to put a negative spin on much of the economic news ever since.
I have no idea if Fingleton’s right, none at all. But if he is, that means the Japanese economy could be nearly a third bigger than what official statistics show. Japan has a roughly $5.5 trillion economy. Let’s say it is actually a quarter bigger, or $1.4 trillion. To put that number in perspective, $1.4 trillion is like adding another Russia or Spain or Australia to Japan’s official GDP. Is Japan hiding a Spain? Drum adds some context:
On the other hand, if Japan really has been manipulating its official statistics for two decades, this is one of the biggest, most complex conspiracies in history to stay secret for so long. By now, it would amount to something like a 20-30% cumulative difference between reported GDP and actual GDP, which would be damn hard for the rest of the world not to notice, and it would require the active collusion and silence of thousands and thousands of bureaucrats with not so much as a single leak over the course of 20 years.
Big claims require big evidence. But a fascinating topic for a slow news week.
• Danielle Pletka: “We got out of Iraq too soon”
• Michael Barone: For all of the media hoopla, GOP caucusgoers in the Hawkeye State have a poor record of choosing their party’s eventual nominee. “As Iowa goes, so goes Iowa”
• Sadanand Dhume: The middle class and investors are frustrated with India’s corrupt and inept politicians. “Delhi’s year of drama and stasis”
• Scott Gottlieb, M.D.: Drug makers aren’t chasing blockbusters like Lipitor anymore, or uncovering compounds the same way. “Big pharma’s new business model”
• David Shaywitz, M.D.: “Do something while you can”
• Frederick W. Kagan and Kimberly Kagan: “Is Iraq lost?“
The American Enterprise Institute takes no institutional positions on policy advocacy or political campaigns. The views expressed on The Enterprise Blog represent those of the individual writers.
