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Saturday, December 16, 2006

KUDLOW REPLAY   Here's a YouTube video of my appearance on CNBC's "Kudlow and Company" yesterday. Should I feel guilty for using YouTube's free service to host the replay of me on television slamming YouTube's owner Google?


Posted by Donald L. Luskin at 1:47 PM | link  

DON'T SOLVE THE SOCIAL SECURITY PROBLEM!   For years futurist and friend George Gilder has begun speeches with the warning, "Don't solve problems!" Now he's giving me the same advice on his website, in relation to my public debate with off-the-rails Social Security reform advocate Peter Ferrara and his fellow travelers:
Don,

Thanks for your heroic work over the years. This website is a national treasure.

But please forget the social security "problem."

Don't solve "problems." When you solve problems, you feed your failures, starve your strengths, and achieve costly mediocrity.

Nothing good is going to come from political haggling over some bogus social security crisis decades in the future, when our economy will be entirely different and hugely more productive.

We have to get beyond the idea that any reshuffling of taxes and spending today will improve the economy's ability to support medical care, housing and transport for the aged, such as myself, in 2027. That will depend not on actuarial trumpery but on the realities of productivity, technology, and immigration.

Only if we raise tax rates and regulations and cripple the GOP and our defenses with delusionary spending cuts can social security become a crisis. Yet that sums up the likely grand compact, doesn't it? Higher tax rates in some form or other, some jerrybuilt pension scheme full of government regulations on our financial markets, and gimcrack spending cuts that end up focusing on defense.

We should take the offensive. Lower tax rates will yield the additional revenues and borrowing power we need to sustain social programs for the aged in coming decades.

As a key first step, we need to reduce the payroll tax by at least one third.

Indeed, as part of a flat tax program, we should eliminate the payroll tax.

Make the Democrats talk about that, not about spending cuts, which always turn out to focus on defense. In a dangerous world, we will need defense.

Eurofare economic policies like Germany's would obviously destroy our ability to supply goods and services to coming generations. Under those conditions we would have to inflate away the liabilities one way or another. It may be horrible, but no conceivable compact with the Democrats today can save us from the nemesis of socialism. Indeed, a compact with the Democrats will tend to cripple the necessary Republican resistance.

If we keep our tax rates low, however, we will discover that this economy in future decades can easily sustain the necessary 40 trillion dollars of additional debt. Read Ken Fisher's The Only Three Questions That Count [here is a link to buy that excellent book at Amazon, and here is a link to my review of that book for SmartMoney.com - DLL].

He believes that the US incurs too little debt compared to the productivity of incremental investment. His regressions show that the larger the budget and trade deficits the higher the stock market. We already command a steadily growing resource of some $110 trillion of assets. We are already running an all-governmental surplus. Our corporations are laden with cash. Our current debt asset ratio is sub-optimally conservative.

The only thing that matters, as you know, is economic growth. Focus on that. Let Democrat accountant economists grouse about debt.

Don't solve problems. Pursue Opportunities. This is the Wealth creation website!

George Gilder

I certainly appreciate those sentiments! I replied to George,
I understand that growth is the key. It is the case that the current Social Security program indexes benefits to growth, so that the more the economy grows the more the benefits are. It is difficult to "grow your way out of it." In that sense, growth becomes just another failed way to "solve the problem."

I blog a lot about the actuarial minutiae, but my heart and soul are with the dear departed Milton Friedman on this one. The correct approach to Social Security is abolition.

Refurbishment of the system with "solutions" is a mistake, as you say. Just kill the damn thing.

What bothers me the most about Ferrara's scheme is that it enshrines Leviathan bigger and badder than ever.

With warmest regards,

Don


Posted by Donald L. Luskin at 11:37 AM | link  

THE POVERTY-TAXES NEXUS   Great analysis in the Christian Science Monitor -- and it's hard to believe that something like this appeared anywhere other than the Wall Street Journal edit page!
When the US government ended "welfare as we know it" in 1996, it handed responsibility for reform to the states. In so doing, it also created a real-world test of two competing economic strategies used to fight poverty. The results are in and the lessons are clear: Low tax rates lift up the lives of America's poor...

Take Colorado. It reduced its childhood poverty rate by almost 27 percent. Meanwhile, Rhode Island's childhood poverty rate increased by almost the same amount. What accounts for those differences?

Using data from the Census Bureau, the report found that states with the lowest tax rates enjoyed sizable decreases in poverty. For example, the 10 states with the lowest total state and local tax burdens saw an average poverty reduction of 13 percent - two times better than the national average. The 10 highest-tax states, meanwhile, suffered an average increase in poverty of 3 percent.

Some high-tax states, such as California, Hawaii, and New York, suffered catastrophic increases in poverty. As California began to reject the low-tax legacy of the Reagan governorship, the state's poverty rate jumped 13 percent in the 1990s.

Thanks to reader Olivier Mermod for the link.

Posted by Donald L. Luskin at 12:45 AM | link  

A GREAT LIBERTARIAN MOVIE   I saw "The Pursuit of Happyness" this afternoon. Terrific true story of a beleaguered black man who, in 1981, through taking tremendous personal risks that allowed his innate talents and intelligence to shine through, rose from homelessness to wealth as a stockbroker. And all with no government handouts or affirmative action. My friend Art Patten at Symmetry Capital has a great take on it, comparing it to its 1980s antithesis, Oliver Stone's "Wall Street".

Update [12/16/2006]... our "public editor" Irwin Chusid checked out the trailer for "Pursuit" and highly recommends it. Click here.

Update 2 [12/16/2006]... My DC lawyer/lobbyist friend adds,

America is the place where great things can be created by people, no matter their origins or the odds against them. These "things" -- the rags-to-riches stories of glory -- happen elsewhere, of course, but they happen in America with regularity because of our (relative) high levels of freedom. When they happen in other countries, those people are described as being somewhat "American", aren't they? See this obituary of the Turkish immigrant who made it to the top, Ahmet Ertugen, and contrast it to Paul Krugman's laughable assertion from his recent Rolling Stonearticle:
America actually has less social mobility than other advanced countries: These days, Horatio Alger has moved to Canada or Finland. It's easier for a poor child to make it into the upper-middle class in just about every other advanced country -- including famously class-conscious Britain -- than it is in the United States.
Now, contrast the true American "sky's the limit" attitude with the latest noose from the petty bureaucrats at the NCAA who, knowing nearly nothing about sports, have managed to piss off the best female sports reporter in American journalism. So, the NCAA believes that the service to Title IX compels it to push a rule which will hurt women athletes. One day, President Hillary may appoint these kind of deep thinkers to the Supreme Court.

With the Democrats coming back in power, maybe we need to push the Republicans to adopt and publicly embrace a more libertarian path. Americans -- still -- wish for less strict rules in their lives, especially when they know that the rulemakers do not know the subject well, do not decide on the merits or fairly and do not abide by the rules themselves. Yes, Republicans are in the minority, but they are in large enough numbers to block bad bills. Will they? Or will they -- or some of them -- go along to get a few goodies?

Outgoing Speaker Denny Hastert used his last once of power to...extend tax cuts? No. To stop wasteful spending? No. Fix SarBox? No, his last act was to bestow a special favor worth $100 million on Aon, an insurance company with facilities in his district. Hey, Denny, here's a message from millions of Republicans, "Get the ---- out."

Former Congressman John Kasich tells the story that he joined the Republicans because it was the party of "fewer hassles." Well, we've got some brush to clear to get back to that.

In other former congressman news, Georgian Bob Barr has quit the Republican party, so things aren't all bad. With Barr in the party of the Libertarians, no doubt, its members will be looking to exit soon. Let's remake the GOP to invite them in.


Posted by Donald L. Luskin at 12:38 AM | link  


Friday, December 15, 2006

MORE SOCIAL SECURITY CONSPIRACY THEORIES   Larry Hunter is on the op-ed page of the Washington Times this morning, pushing the conspiracy fairy tale that the Bush administration is desperately seeking a Social Security tax hike as part of a reform compromise with Democrats. It's the same fantasy that Peter Ferrara and Tom Giovanetti have been spinning. Aside from the entirely fictional claims that "Advanced maneuvering for the coming White House sellout on Social Security is well under way," Hunter is an advocate of Ferrara's fiction-based solution -- a Rube Goldberg contraption that pretends to preserve benefits, not raise taxes, and add private accounts (why not make your teeth whiter and cure your dandruff, too?). Hunter correctly says,
By actuarial standards applicable to any private pension fund, the Social-Security Ponzi scheme already is insolvent, papered over by IOUs Congress has written to itself. Social Security's near-term cash-flow situation, however, is quite good, scheduled to remain in surplus until 2017; until 2027 if the annual interest due the Trust Fund is taken into account, as it should be. Therefore, higher tax revenues today that enlarged and extended the surpluses would not improve the program's solvency; they would only paper it over with more IOUs and magnify the size of the theft Congress perpetrates on the Trust Fund each year. If Congress wants to do something serious about Social Security's solvency, it should stop the raid on Social Security, not expand it.
But here's what he doesn't tell you. The Ferrara plan, which Ferrara will endlessly tell anyone who will listen (and those who won't) has been "scored" by the Social Security Actuary as restoring the system's "solvency" (a concept which, by the way, Hunter mocks in this op-ed when administration people cite it). Yet this actuarial analysis depends critically on the false assumption -- which Hunter admits is false -- that the Trust Fund represents actual assets that the system can draw upon. What's worse, it depends on dedicating $7.9 trillion in new corporate tax revenues to Social Security, and requires making $6.8 trillion in unspecified spending cuts in the federal budget. No new taxes? Hardly. No benefit cuts? Hardly. IOU's congress has written to itself? Suddenly no problem.

Update... an anonymous reader sends in this penetrating commentary:

Concerning Larry Hunter’s Washington Times piece this morning, I’m all for saving the surplus but it’s really just a tiny part of the whole problem. The present value of Social Security’s total shortfall is something like $13.4 trillion. The present value of payroll tax surpluses from 2007 through 2017 is about $600 billion (the interest part through 2027 is silly). So that means that even if we truly save every penny of that amount (which means cutting the spending currently financed by payroll tax surpluses, rather than just issuing new government debt) we’ve addressed less than 5 percent of the total problem. And the longer we go without addressing the big stuff the more likely it’ll be done on the tax rather than the benefit side, given the changing ratio of collectors to payers. So while I agree with saving the surplus, Larry’s approach is likely to lead to more tax increases, not less.

Concerning Peter Ferrara's plan, he certainly shows clearly why the President’s drive to reform Social Security in 2005 faced so many difficulties; any talk of tax increases or benefit reductions is bound to be politically difficult. But simply because Peter he has his own alternative reform plan doesn’t mean that his plan would actually have worked. In fact, it is highly unlikely a proposal like Peter’s could ever become law.

Economists have a saying that $20 bills don’t lie on the sidewalk for very long. In other words, if something looks too good to be true then it probably is. Congressional and White House staff are well aware of the details of Peter’s approach. And as people who actually deal with angry constituents and political attack ads, you’d think they would be the first to embrace a plan that contains no tax increases, no benefit cuts, no risk and no pain. The fact that they haven’t should indicate there’s more going on than Peter always talks about.

Here’s a quick outline of Peter’s proposal:

  • Workers get to invest around half of their payroll taxes in a personal account;
  • At retirement, they’re guaranteed the larger of their current law benefit or what their account could pay;
  • Transition costs are funded with transfers of general tax revenues;
  • General revenues would be freed up by reducing the growth of federal spending and assuming increased corporate tax revenues through higher economic growth.

More details are available through the SSA actuaries’ analysis of Peter’s plan.

I note a couple of issues:

First, over 75 years, Peter’s plan would cost several trillion dollars more than it would cost to fund current law Social Security, even under favorable assumptions. While it would pay higher benefits, if the rising cost of funding Social Security is the problem it is very hard to sell Peter’s proposal as a solution. (Hint: The solution should cost less than the problem.) If we have enough money to pay for Peter’s plan, we have more than enough for current law. ‘Nuff said.

Moreover, without these general revenue transfers, Peter’s plan would increase the Social Security deficit by almost 50% (see the “Change in actuarial balance”). So much for the idea that the accounts restore the system to solvency; in fact, it’s simply infusions of additional tax revenues that do it.

Second, Peter’s plan to pay transition costs by cutting other government programs is highly unlikely to succeed. Total government spending generally over time has remained at around 18-20 percent of GDP. Peter’s plan to fund transition costs would reduce government spending by around 1.5% of GDP, with the proceeds going to Social Security. This doesn’t sound like much, but it amounts to roughly 10 percent of all non-Social Security spending; or around one quarter of all spending other than Social Security, defense, interest, Medicare and Medicaid; or almost one-half of non-defense discretionary spending. Leaving aside the merits of cuts of this size, nobody should be fooled that they would be easy or uncontroversial. Moreover, under Peter’s plan the general revenue transfers to Social Security would take place even if Congress failed to cut a penny of other spending programs. Given Congress’s reluctance to make even small spending reductions, the most logical conclusion is that Congress would simply borrow the money. That simply wouldn’t sell.

Peter’s latest idea involves generating savings by block-granting spending programs to the states. But it’s not the block grant that’s generating actual savings, it’s the cuts. To generate any revenue the grants obviously have to be far smaller than what otherwise would have been spent. While block grants may or may not be a good idea, Peter is kidding himself if he thinks this won’t be controversial. And constructing a reform plan that’s not controversial and could easily pass is ostensibly what he is working on.

Third, most economists and financial experts believe that the true cost of the benefit guarantee in Peter’s plan is significantly higher than shown in the SSA actuaries’ memo. The reason is that, unlike private financial markets, the actuaries do not count the cost of market risk in making their estimates. If the guarantee were provided by private financial markets, which presumably are as efficient as government and have every interest in pricing it accurately, it would cost 2-3 times more than the $2 trillion or so estimated by the actuaries. In addition, if Peter’s plan succeeded in raising economic growth the guarantee would get even more expensive. Why? Because the growth would come through higher saving, which would increase wage growth and reduce interest rates. Since current law benefits are based on wage growth and the account returns depend on interest rates, this means the target he accounts would have to reach would be higher but their ability to reach it lower. Result: higher costs.

Fourth, the recapture of increased corporate tax revenues that Peter would use to fund a significant part of his transition costs would occur only if accounts were funded with spending cuts (which, as shown above, is implausible). Moreover, the estimates of increased corporate tax revenues seem optimistic; by 2075 the assumed increase in corporate tax revenues would equal almost 3 percent of GDP despite the fact that total corporate tax revenues today are less than half that amount. A tripling in total corporate tax revenues implies a tripling of the corporate sector of the economy; this is simply implausible under any standard economic growth model.

Finally, while Peter attacks other plans for having “benefit cuts,” in his own plan the traditional Social Security benefit is cut to zero (see column 4, titled “OASI benefit cut for IA participation”). Full career workers would derive their entire benefit from the personal account. To compare his plan to other personal account plans he would have to include the other plans’ benefits provided by personal accounts, which he usually doesn’t.

In sum, Peter’s approach avoids the tough choices of increased taxes, reduced benefits or market risk only through a number of heroic assumptions, the implausibility of which are clear to most analysts who examine his plan. In the real world of politics and policy, these difficult choices can’t be avoided. Some difficult choices are better than others and so coming to agreement on reform isn’t easy. But it certainly isn’t made easier by people who claim there are no difficult choices at all.


Posted by Donald L. Luskin at 10:30 AM | link  

OH, THE CHINESE MUST HAVE LOVED THIS   Treasury Secretary Henry Paulson cuts a deal. The New York Times reports,
Mr. Paulson asserted that as a result of the talks, China would move to open its economy and enforce intellectual property rights, and would adopt “greater flexibility” in exchange rates. The United States, he said, would strive to increase its savings rate so that it borrows less from China to feed an addiction to imports.
Translation -- US to China: do everything we want, and as your reward we'll buy less stuff from you.

Posted by Donald L. Luskin at 1:44 AM | link  

BLAME THE VICTIM   Ben Bernanke lectures the Chinese on their currency:
As the Chinese trade surplus has continued to widen, many analysts have concluded that the RMB is undervalued. Indeed, the situation has likely worsened recently; because of the RMB's link to the dollar, its trade-weighted effective real exchange rate has fallen about 10 percent over the past five years.
Uh... let's see here. The US dollar has lost 24% of its value on a trade-weighted basis over the last five years (see chart). Who are we to talk? If China's currency has lost value -- it's our fault!


Posted by Donald L. Luskin at 1:30 AM | link  


Thursday, December 14, 2006

WRITING WELL IS THE BEST REVENGE   Michael Crichton doesn't agree that there's a global warming problem -- so to his critics, he's a "global warming denier", as in "Holocaust denier." The choice of words is designed to make it seem as though Crichton is willfully ignoring established facts -- thus asserting indirectly that global warming is indeed a "fact" -- when Crichton's whole point is that global warming is not a "fact" at all, but only a very suspect forecast. But Crichton has gotten some revenge on one his critics, the New Republic's Michael Crowley. In Crichton's new book Next, he writes [caution to readers: disturbing language ahead]:
Alex Burnet was in the middle of the most difficult trial of her career, a rape case involving the sexual assault of a two-year-old boy in Malibu. The defendant, thirty-year-old Mick Crowley, was a Washington-based political columnist who was visiting his sister-in-law when he experienced an overwhelming urge to have anal sex with her young son, still in diapers. Crowley was a wealthy, spoiled Yale graduate and heir to a pharmaceutical fortune. ...

It turned out Crowley's taste in love objects was well known in Washington, but [his lawyer]--as was his custom--tried the case vigorously in the press months before the trial, repeatedly characterizing Alex and the child's mother as "fantasizing feminist fundamentalists" who had made up the whole thing from "their sick, twisted imaginations." This, despite a well-documented hospital examination of the child. (Crowley's penis was small, but he had still caused significant tears to the toddler's rectum.)


Posted by Donald L. Luskin at 10:21 PM | link  

REYNOLDS DEMOLISHES THE "TOP 1%" MYTHS   At last... Alan Reynolds' long-awaited blast against all the hype from the Left and the Right about so-called "income inquality," and the myth that the "top 1%" have suddenly started making all the money in this country. I don't normally do this, but Reynolds' op-ed in the Wall Street Journal on this today is just so damn good, I'm going to reprint every word here. So sue me. This is the best. I totally bow down before Alan Reynolds.
COMMENTARY

The Top 1% . . . of What?

By ALAN REYNOLDS
December 14, 2006; Page A20

As many others have done, Virginia's Democratic Senator-elect Jim Webb recently complained on this page of an "ever-widening divide" in America, claiming "the top 1% now takes in an astounding 16% of national income, up from 8% in 1980." Those same figures have been repeatedly echoed in all major newspapers, including this one. Yet the statement is clearly false. The top 1% of households never received anything remotely approaching 16% of personal income (national income includes corporate profits). The top 1% of tax returns accounted for 10.6% of personal income in 2004. But that number too is problematic.

The architects of these estimates, Thomas Piketty of École Normale Supérieure in Paris and Emmanuel Saez of the University of California at Berkeley, did not refer to shares of total income but to shares of income reported on individual income tax returns -- a very different thing. They estimate that the top 1% (1.3 million) of taxpayers accounted for 16.1% of reported income in 2004. But they explicitly exclude Social Security and other transfer payments, which make up a large and growing share of total income: 14.7% of personal income in 2004, up from 9.3% in 1980. Besides, not everyone files a tax return, not all income is taxable (e.g., municipal bonds), and not every taxpayer tells the complete truth about his or her income.

For such reasons, personal income in 2004 was $3.3 trillion, or 34.4%, larger than the amount included in the denominator of the Piketty-Saez ratio of top incomes to total incomes. Because that gap has widened from 30.5% in 1988, the increasingly gigantic understatement of total income contributes to an illusory increase in the top 1%'s exaggerated share.

The same problems affect Piketty-Saez estimates of share of the top 5%, which contradict those from the Census Bureau (which also exclude transfer payments). Messrs. Piketty and Saez figure the top 5%'s share rose to 31% in 2004 from 27% in 1993. Census Bureau estimates, by contrast, show the top 5%'s share of family income fluctuating insignificantly from 20% to 21% since 1993. The top 5%'s share has been virtually flat since 1988, aside from a meaningless one-time jump in 1993 when, as the Economic Policy Institute noted, "a change in survey methodology led to a sharp rise in measured inequality."

Unlike the Census Bureau, Messrs. Piketty and Saez measure income per tax unit rather than per family or household. They maintain that income per tax unit is 28% smaller than income per household, on average. But because there are many more two-earner couples sharing a joint tax return among high-income households, estimating income per tax return exaggerates inequality per worker.

The lower line in the graph shows that the amount of income Messrs. Piketty and Saez attribute to the top 1% accounted for 10.6% of personal income in 2004. That 10.6% figure looks much higher than it was in 1980. Yet most of that increase was, as they explained, "concentrated in two years, 1987 and 1988, just after the Tax Reform Act of 1986." As Mr. Saez added, "It seems clear that the sharp, and unprecedented, increase in incomes from 1986 to 1988 is related to the large decrease in marginal tax rates that happened exactly during those years."

That 1986-88 surge of reported high income was no surprise to economists who study taxes. All leading studies of "taxable income elasticity," including two by Mr. Saez, agree that the amount of income reported by high-income taxpayers is extremely sensitive to the marginal tax rate. When the top tax rate goes way down, the amount reported on tax returns goes way up. Those capable of earning high incomes had more incentive to do so when the top U.S. tax rate dropped to 28% in 1988 from 50% in 1986. They also had less incentive to maximize tax deductions and perks, and more incentive to arrange to be paid in forms taxed as salary rather than as capital gains or corporate profits.

The top line in the graph shows how much of the top 1%'s income came from business profits. In 1981, only 7.8% of the income attributed to the top 1% came from business, because, as Mr. Saez explained, "the standard C-corporation form was more advantageous for high-income individual owners because the top individual tax rate was much higher than the corporate tax rate and taxes on capital gains were relatively low." More businesses began to file under the individual tax when individual tax rates came down in 1983. This trend became a stampede in 1987-1988 when the business share of top percentile income suddenly increased by 10 percentage points. The business share increased again in recent years, accounting for 28.4% of the top 1%'s income in 2004.

As was well-documented years ago by economists Roger Gordon and Joel Slemrod, a great deal of the apparent increase in reported high incomes has been due to "tax shifting." That is, lower individual tax rates induced thousands of businesses to shift from filing under the corporate tax system to filing under the individual tax system, often as limited liability companies or Subchapter S corporations.

IRS economist Kelly Luttrell explained that, "The long-term growth of S-corporation returns was encouraged by four legislative acts: the Tax Reform Act of 1986, the Revenue Reconciliation Act of 1990, the Revenue Reconciliation Act of 1993, and the Small Business Protection Act of 1996. Filings of S-corporation returns have increased at an annual rate of nearly 9.0% since the enactment of the Tax Reform Act of 1986."

Switching income from corporate tax returns to individual returns did not make the rich any richer. Yet it caused a growing share of business owners' income to be newly recorded as "individual income" in the Piketty-Saez and Congressional Budget Office studies that rely on a sample of individual income tax returns. Aside from business income, the top 1%'s share of personal income from 2002 to 2004 was just 7.2% -- the same as it was in 1988.

In short, income shifting has exaggerated the growth of top incomes, while excluding a third of personal income (including transfer payments) has exaggerated the top groups' income share.

There are other serious problems with comparing income reported on tax returns before and after the 1986 Tax Reform. When the tax rate on top salaries came down after 1988, for example, corporate executives switched from accepting stock or incentive stock options taxed as capital gains (which are excluded from the basic Piketty-Saez estimates) to nonqualified stock options reported as W-2 salary income (which are included in the Piketty-Saez estimates). This largely explains why the top 1%'s share rises with the stock boom of 1997-2000 then falls with the stock market in 2001-2003.

In recent years, an increasingly huge share of the investment income of middle-income savers is accruing inside 401(k), IRA and 529 college-savings plans and is therefore invisible in tax return data. In the 1970s, by contrast, such investment income was usually taxable, so it appears in the Piketty-Saez estimates for those years. Comparing tax returns between the 1970s and recent years greatly understates the actual gain in middle incomes, and thereby contributes to the exaggeration of top income shares.

In a forthcoming Cato Institute paper I survey a wide range of official and academic statistics, finding no clear trend toward increased inequality after 1988 in the distribution of disposable income, consumption, wages or wealth. The incessantly repeated claim that income inequality has widened dramatically over the past 20 years is founded entirely on these seriously flawed and greatly misunderstood estimates of the top 1%'s alleged share of something-or-other.

The politically correct yet factually incorrect claim that the top 1% earns 16% of personal income appears to fill a psychological rather than logical need. Some economists seem ready and willing to supply whatever is demanded. And there is an endless political demand for those able to fabricate problems for which higher taxes are, of course, the preferred solution. In Washington higher taxes are always the solution; only the problems change.

Mr. Reynolds, a senior fellow with the Cato Institute, is the author of "Income and Wealth" (Greenwood Press, 2006).

Update... Reader Don Mackison reminds me of what it says in the bio following Reynolds' op-ed -- that he has a new book out. Do what Mackinson did, and buy it for yourself for Christmas! You'll love it, and that's a guarantee.

Update 2... Reader Rick Gaber, as always, gets right to the moral core of things:

While I appreciate Alan Reynolds' work on the actual income percentages the "top 1%" actually earn, and the skewering of economists who gladly meet unsavory demands for tax-hike justifications, I think it always needs to be pointed out that in the big picture:

1. The top 1% are the people who make the pie larger (and life easier) for all, NOT people who steal others' share of the pie,

2. Taxes on INCOME hurt those still TRYING to get rich, NOT the ALREADY-rich anyway,

3. Politicians who want to keep (and/or make) their constituents as poor and dependent as possible are morally no better than dictators who want to keep their subjects from escaping their countries. and

4. Appeals to, and the deliberate provoking of, hatred masked as envy are evil, in the objective sense of that term.


Posted by Donald L. Luskin at 12:31 AM | link  


Wednesday, December 13, 2006

DOESN'T HE REALIZE THIS MEANS THEY'LL PASS MORE LAWS?   Dick Morris heaps praise on Nancy Pelosi's plan to make the House work a full five-day week:
Forcing her colleagues to meet Monday through Friday is a real revolution. During 2006, the House of Representatives only met an average of two days per week — about 100 days for the entire year. The vaunted Tuesday-to-Thursday club became the Tuesday-night-to-Thursday-morning club as the members maximized their time away from Washington. In January of 2006 — not normally a vacation month — Congress met for only one day — Jan. 31 — and in February it gathered for only two days per week for three weeks. In March, it was in session for only nine days and the pattern continued throughout the year.

Posted by Donald L. Luskin at 8:58 PM | link  

CHINESE SARBOX   Sarbanes Oxley gives US public companies a big incentive to go private, to escape burdensome over-regulation. Here's an example of how Taiwanese public companies face the same problems -- due to regulations restricting doing business with mainland China. Our friend Mike Kurtz writes in the Asia Wall Street Journal:
...the recent NT$179 billion ($5.46 billion) private equity offer for Taiwan's Advanced Semiconductor Engineering...puts a price tag on commercial opportunities sacrificed by Taipei's China-phobic policies, laying bare the real costs of neglecting economics and likely blazing a trail for other so-called "vulture capitalists" to follow.

At an offer price of NT$39 per share, the late November bid by the Carlyle Group and its consortium partners was 10% higher than ASE's local share price at the time.

...A large part of the "value proposition" underlying Carlyle's buyout offer lies in charting a way for ASE to invest more fully in mainland China, where current Taiwanese policy restrictions considerably limit local firms' access. A key existing constraint, for example, restricts Taiwanese companies' investments on the mainland to no more than 40% of net asset value. Other strictures include curbs on the levels of semiconductor and flat-screen production technology that can be relocated to China, and restrictions on regular and direct cross-Strait air and sea navigation. Taiwan's banks also remain shut out of the mainland due to a lack of formal guidelines from their government regulator.


Posted by Donald L. Luskin at 12:32 AM | link  

NET NOT NEUTERED IN MICHIGAN   The Michigan legislature passed a "cable franchise" bill to level the competitive playing field in providing video services to homes. The result: an immediate $620 million investment in fiber-to-the-home by AT&T in 1,100 Michigan towns, creating 2,000 new jobs in the state. Liberal Democrats tried to thwart the bill by weighing it down with burdensome regulations under the banner of so-called "net neutrality" -- promoted by big Internet content providers as a way of hobbling competition. But those efforts were thankfully defeated -- prompting a personal apology from Michigan's governor Jennifer Granholm to Google's lobbyist.

Posted by Donald L. Luskin at 12:32 AM | link  


Tuesday, December 12, 2006

PINOCHET'S PRIVATIZATION   Tom Blumer at Bizzy Blog reminds us, on the death of August Pinochet, that for all his faults the Chilean dictator oversaw the very successful privatization of his nation's Social Security system.
Although this morning’s Washington Post editorial on the death of Augusto Pinochet gave proper credit to Chile’s economy as “leaving behind the developing world, where all of its neighbors remain mired,” it did not specifically mention one of the biggest, if not THE biggest contributors, to that success: its privatization of what had been a Social Security-like retirement system....

make[s] you wonder why Chile listened to the late Milton Friedman, and we haven’t...There’s still a window of opportunity to make this kind of increase in benefit levels possible for retirees 20 years or so from now by taking action quickly. Or we could dither for 5-10 years, and turn into Germany, where the situation is about as intractable as it can get.


Posted by Donald L. Luskin at 1:51 PM | link  

A WHITE HOUSE CHRISTMAS CAROL   Even if one is a fan of the Bush adminsitration, this little Christmas play featuring the laugh-a-minute antics of the First Family, the First Dogs, and cuddly retainers such as Karl Rove and Hank Paulson is just too much. Do presidents really need to do stuff like this? What does that say about the American people? Thanks to correspondent "Irrational Exuberance," who calls it "a rare display of fiscal restraint by the Bush administration."

Posted by Donald L. Luskin at 10:48 AM | link  


Monday, December 11, 2006

MORE BILGE FROM FERRARA   Initially I regretted having used the inflammatory word "lies" to describe how White House sources were characterizing Peter Ferrara's claims that the administration is poised to raise taxes to cut a Social Security deal with Democrats. But now I'm not so sure I was out of place. In a new blog posting, Ferrara writes:
...I responded to those who called me a liar for reporting that the Bush Administration was planning a deal with the Democrats on Social Security including tax increases. The response I got was, well, the tax increase is really an ok idea now.

So I guess I wasn’t a liar after all.

Huh? Click on this link that Peter embeds in the quotation above, and read what I said about a possible tax increase. Did I say anything like it's "really an ok idea now"? No -- I said that being willing to talk about it was an acceptable stance coming into a negotiation, and that if it were combined with other countervailing conditions, it could be acceptable. Having so unfairly mischaracterized my stance, what should I call Ferrara now? A "distorter"? A "misquoter"? One is tempted to use the "L-word" once again.

More fundamentally, my opinions on the matter of tax hikes -- even Ferrara's untruthful representation of them -- don't make true his false claims that the administration is actively pursuing a Social Security tax hike. If, in fact, he lied about that, no opinion of mine can change that fact. So why does he want to make it seem as though it can? That's not the rhetorical strategy of a man who has truth on his side.

Posted by Donald L. Luskin at 10:32 AM | link