I’m such a hopeless romantic

Here, I thought the Department of Justice didn’t take up an anti-trust case against Google’s online search prowess because the case doesn’t have merit.

After all, folks can choose to use any search they want with a couple clicks of the mouse. All, or most, search services are free to customer.

The fact that Google does such a disproportionate number of searches than competitors is more likely evidence that it delivers what searchers are searching for rather than strong-arming competition.

Alas…I should have known better.

The Wall Street Journal reported today (or perhaps opined) that Google’s $25 million of lobbying was money well spent to keep the government off its back.

Now, I won’t be surprised when politicians and government bureaucrats migrate to Google for plum jobs. Greasing skids is a growth industry.

This would have been nice to know

I love experiments. The results can be instructive.

In the Wall Street Journal, Merill Matthews and Mark Litow wrote about some health care experiments conducted in various states.

We compared the average premiums in states that already have ObamaCare-like provisions in their laws and found that consumers in New Jersey, New York and Vermont already pay well over twice what citizens in many other states pay.

I’ve written about insurance in New York before. Here’s one instance.

 

We get what we deserve

Here are some more on Obama’s remarks today from the New York Times:

“They [Republicans] will not collect a ransom in exchange for not crashing the American economy,” Mr. Obama vowed in the East Room, a week before his second inauguration. “The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.”

And from the Washington Post:

In the final news conference of his first term, Obama said Republicans were threatening to hold “a gun at the head of the American people” and that he would not trade spending cuts, as Republicans demand, for an agreement to raise the federal debt ceiling.

“To even entertain this happening — of the United States of America not paying its bills — is irresponsible. It’s absurd.” He vowed that congressional Republicans “will not collect a ransom in exchange for not crashing the American economy. The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.”

Now, I could address how ludicrous this is.

How, it reminds me of the type of fervent propaganda I learned about in places like the glorious\ Soviet Union.

Or, how these seem like mighty uncompromising words from a President who has bellyached a great deal about the other side’s inability to compromise.

Or, how dumb it is that the government has locked in a trillion dollar deficit, where they have turned a temporary stimulus spending level into the new government spending norm, where — after demonstrating abhorrent financial irresponsibility and avoiding making anything that appears to be a tough choice — they want an unlimited ability to write checks from ours’ and our children’s bank accounts.

But, I think we are well beyond all that. President Obama is becoming the classic example of we get what we deserve. 

And we’ll keeping getting it until we vote for adults who understand incentives that lead to prosperity, who can say no to special interests and balance a checkbook.

 

How Social Security can continue to be paid out without raising the debt limit

Here’s the New York Times reporting on President Obama’s remarks today:

“Treasury would be left to fund the government solely with the cash we have on hand on any given day,” he said, forcing it to choose among creditors, federal contractors, veterans,Social Security and Medicare beneficiaries and the many other claimants to federal dollars.

An enterprising reporter or Republican politician might do well to understand and point out what David Henderson has written on this topic here, where Henderson points to the Huffington Post’s debunking of the Social Security claim:

The Social Security Administration owns bonds that the U.S. Treasury has issued. To make up for a shortfall each month, the SSA could sell some of these bonds to the Treasury. But where would the Treasury get the money to pay for these bonds? By issuing bonds to the public. How could the Treasury do that if the debt ceiling is not raised? The debt ceiling includes the SSA bonds. So for every $1 billion the Treasury pays when the SSA redeems bonds, the Treasury could issue $1 billion in new bonds without affecting the official debt at all.

Assume the opposite

Unintended consequences of legislation are sometimes hard to predict.

But, it’s convenient that our politicians help us out by giving their packages of legislation names that should clue us into to what those unintended consequences will be. Whatever the name of the legislation, assume the opposite will happen.

For example, the name of the Obamacare legislation is the “Affordable Care Act,” so I expect it to make health care less affordable. Not so.

In 2009, the stimulus bill was passed under the name “American Recovery and Reinvestment Act”. Still trying to recover.

A good question is why does legislation so often produce the opposite of the intended result?

The cause of this is misdiagnosis of the problem and aiming solutions at those misdiagnosed problems distort things and cause more of that problem.

Should we raise the tax rate on wealthy people?

Here’s my attempt at using the Costco Connection format to look at this question from both sides.

Yes

What the experts say: Economists tell us that wealthier folks have lower utility for each marginal dollar than less wealthy folks, because they have more than met their basic needs.

Or, as most people believe, the wealthy can afford to pay more than the less wealthy.

The wealthy benefit more from government, so should pay more to support it.

Tax rates can help us remedy unfair income distributions.

No

The wealthy already pay more than the less wealthy.

It’s presumptuous of us to feel we have the right to demand more from the wealthy than we are willing to give ourselves.

Even if it’s true that the wealthy have less utility for each additional dollar than the less wealthy, that’s not the right comparison. Wealthy people have higher utility for each additional dollar than government bureaucrats have with other people’s money.

Diminishing marginal utility is not a good argument for taking stuff from people. If I stole all the stuff in your attic, would you accept my argument that what I did was right because you weren’t using it?

Everyone benefits from government and it’s fair to expect everyone to pay something for it.   In any situation where a minority pays for the majority of something that everyone benefits from (or thinks they benefit from), the tendency is for the majority to demand more and more, because it costs them nothing to do so.

Tax rates do not remedy envy. Higher tax rates on the wealthy can contribute to perceived income inequality, as wealthy folks respond to the incentives of their after-tax pay, not their before-tax income, while inequality is often based on gross income. In other words, if you raise taxes on the wealthy, they’ll seek to make even more income to make up for those higher taxes.

Higher tax rates also encourage the wealthy to make adjustments in their lives to avoid paying those taxes. Wealthy folks moved from England and France after those countries passed higher tax rates on the wealthy, for example.

My opinions

I think we spend too much time talking about tax rates and not nearly enough time talking about government spending.

I think everyone, no matter how rich or poor, should pay something.

I don’t begrudge the wealthy of their wealth, especially the wealth of those who have earned it fair and square. That means they’ve added value to society, something we fail to consider as we salivate over ways to take it from them.

Even with 20/20 hindsight, I’m appalled at how we fail to see that earned wealth often carried with it gut-wrenching risks, previous failures and an extraordinary amount of persistence against the odds. We act as if it was a given.

I don’t accept that wealthy people have less marginal utility for an additional dollar than the less wealthy. If that were true, I would expect to see more evidence of that in the financial behavior of less wealth people.

Editorials say a lot

In this article in Forbes magazine, the owner of 13 “hyperlocal” newspapers in Texas, John  Garrett, tells us that his local editions serve a niche because “everybody is interested in roads and taxes.”

Garrett also said something that complemented my thought about bad journalism in this post:

We don’t editorialize. We lose all credibility when we take one side of an issue.

I wish I would have written that. Of course. How dumb are we?

It makes me laugh when I hear folks who believe media bias only exists on Fox News and in the Wall Street Journal. Not I that I don’t think those sources are biased. Of course they are.

What makes me laugh is that many of these same folks don’t see the bias in their preferred media outlets.

But, here Garrett gives us such a simple and obvious test for that bias. Just look at which sides of the issues they come down on in their editorials.

If they consistently come down on one particular side, how can you trust their reporting to be objective?

Liberty

Add Bob Higgs to the list of non-pathetic economists, with his excellent essay on two libertarian camps and his thoughts on how best to persuade others that freedom is good (thanks to Don Boudreaux on Cafe Hayek for the pointer).

To describe the two camps, Higgs uses two words whose meaning may escape the causal reader who doesn’t even know that libertarians support liberty (notice the same root word).

Aside: I’ve found that many non-libertarians haven’t yet made the connection between the two words liberty and libertarian, as the word libertarian seems to occupy the same space in their brains as ‘conspiracy theorists with tinfoil hats.’

I’m often asked, “What does a libertarian believe in?”. I respond, “Uh…liberty.” They respond, “Really? Ah!”

The two camps Higgs describes are consequentialists and deontologists.

The first camp supports liberty because they believe it produces the best results, the most prosperity (i.e. has good ‘consequences’; same root word as camp name).

The second camp supports liberty because they believe that freedom is morally right.

Higgs admits that his journey to libertarianism started with understanding the consequentialist argument, after becoming convinced that central planning ruined civilizations like the Soviet Union. I too came this route.

Higgs then recognized his natural appreciation for the deontologist argument that liberty is morally right. He describes the deonologist argument as plainly as I’ve seen:

Yet no one really needed to persuade me that people by nature deserve to be free, that each person possesses a natural right to control his own life insofar as the exercise of that right does not conflict with other people’s exercise of the same right.

Higgs then wonders which strategy would be best to convince others to support liberty. Show them how liberty produces better results or convince them that it is morally right? He worries that the former leaves folks open to flip-flopping as others may present convincing cases that less liberty produces better results.

Higgs and I agree that the moral argument is intuitive for many people, maybe most people. But, even the moral argument has the flip-flopping weakness of the results-based argument.

Some folks are good at framing non-liberty-related-issues as anti-liberty arguments to play on our moral intuition.

Home ownership is a good example. Somewhere along the way, we stopped thinking of home ownership as a privilege earned by being responsible by making such choices as paying bills on time and saving for a down payment, and started thinking of it as a right.

If a lender denied you a loan because of your bad bill-paying history, then it was framed that the lender was oppressing your freedom to own a home, instead of correctly recognizing that you hadn’t earned the privilege because you had made bad choices. See how that re-framing works? Loads of people bought that argument.

Politics is filled with these arguments. Do we have a right to a living wage? Do we have a right to health care? Do we have a right to live comfortably? Many people think yes.

I also think Higgs overlooked more than the flip-flopping potential of the moral argument for liberty.

It’s not just by luck that people deserve to be free and that produces the best results. There’s no need for two camps for liberty. It’s part of the same idea. Separating that into two camps is like separating the component gases of air. You no longer have air. Those two things make liberty.

Having two camps entertains the belief that you might have one without the other. But, in this reality, you don’t. Having one without the other is an idea, liberty is real.

There’s yet another part to liberty that we don’t recognize. Higgs said that people, by nature, deserve to be free.

I disagree. We earn our liberty by respecting the liberty of others. Higgs said this in the second part of his quote. In my opinion, that eliminates the need for terms like ‘by nature’, because any study of history shows that liberty does not exist by nature. It only exists with others respect it.

When I think about my journey to liberty and what moved me to it, I recall a couple of  stunning revelations.

The first, which made me the most cautious about throwing my support behind seemingly well-intentioned (though I would come to learn the lesson of the bootlegger the Baptists), “for-the-greater-good” (and I come to learn that greater good cannot be measured) program was when I realized that a lot of the do-good beliefs I advocated conflicted with the liberty of others. I simply hadn’t recognized it before.

Do we have a right to a living wage? That sounds nice and well-intentioned. Breathing any hint of skepticism of this ‘right’ can bring on the wrath of the do-gooders. But, the reality is that trying to guarantee this right necessarily conflicts with the liberty of someone — even the very people you think you are helping. If you tell them that you do not want them working for a wage less than what you consider a ‘living wage’, even if they are perfectly willing to and their situation allows for it, then you are infringing on their liberty and you are making the heady assumption that you know what is right for them.

If you do not respect the liberty of those folks, why should they respect yours?

My second stunning revelation: I had not accounted for the risk that the actions I advocated to help some might be wrong and could hurt the very folks I thought I was helping.

Do we all have a right to a living wage? Again, sounds nice. But attempting to put that into practice has trade-offs beyond infringing on liberties, which is the is the source of the results-based argument for liberty. Rather than guaranteeing someone a living wage, you may reduce their opportunity to earn any wage and deprive them of chances to gain work experience that could lead to higher wages for them in the future, because you’ve priced them out of the market.

What if someone came along and determined that your wage is too low and forced your employer to raise it 20%. You might be happy. Until your employer decides it’s not worth it and eliminates your job. Your new buddy will claim they were just trying to help you out. You might tell them to mind their own business next time.

To convince others of the virtues of liberty, I favor two approaches. First, we should find eye-opening, compelling and truthful ways to demonstrate clearly when folks are trampling on the liberty of others. I don’t think many of them think of it that way.

Second, we should do the same to demonstrate that many arguments framed as a restricting liberty are dishonest and wrong. For example, expecting prospective homeowners to establish a pattern of responsible (especially financially responsible) behavior is a reasonable and effective hurdle for home ownership and not a restriction of their liberty.

Good reporting from a store?

Despite my concern about a Costco founder publicly supporting tax increases, then making a special December Costco dividend to avoid these higher taxes, I’d like to commend Costco’s member magazine, the Costco Connection, for setting an example of good journalism.

Costco members receive this publication each month. It mostly has information on products available at Costco, but there is a smattering of other content. One recurring piece is the Yes/No page.

Each month, the Costco Connection asks an issue-related question to which they publish the response from two “experts,” one supporting the answer Yes and the other supporting No. The Connection also includes three short sound bites from customers on each side of the debate.

That’s a model other publications can learn from. I often stop reading news articles because of how poorly the facts and opposing arguments are presented. Often there is no attempt to present the opposing argument. Other times, when opposing arguments are included, they are token attempts that misrepresent the actual arguments.

Consider the recent reporting about the fiscal cliff. What arguments for Republican resistance to raising the top income tax rate did your news source present? I heard inaccurate and inept reporting on both sides.

Liberals seemed to think that Republicans wanted to protect their wealthy buddies, or just didn’t want to compromise with Democrats or were beholden to the power wielded by puppet-master Grover Norquist (who?).

Even when a fairer presentation of the Republican resistance was presented, it seemed to come with editorial gestures, like eye-rolls, that made it clear that such intentions should not be trusted and you’d be stupid to believe it.

Why didn’t we see more of the style of reporting that I can only seem to find in the Costco Connection?

Why not present the arguments in as fair and clear a light as possible and let people decide for themselves?

Maybe the Costco Connection will cover this issue before it all comes up again very soon.

The Byrd Rule: Kicking-the-can-down-the-road government

A while ago someone thought it would be a good idea to require that tax or government spending changes (aka budget change) without a sunset provision (an expiration date) be passed with three-fifths Senate majority (or 60 votes).

Technically, a budget change without sunset provision can pass if the opposition doesn’t raise a point of order against the bill (which then requires the 60 votes to overcome), but that rarely happens.

A budget change with a sunset provision, however, can pass with simple majority in the Senate. This rule is referred to as the Byrd Rule. According to this Wikipedia article, it rule originated in 1985 and was modified in 1990.

Since it is rare that Republicans or Democrats hold the 60 votes in the Senate necessary to overcome the point of order, many budget changes get passed with a sunset so it can pass with a simple majority.

Many good-sounding, well-intended actions of government have unintended consequences.

The intention with the Byrd rule was to prevent government from making long-lasting budget changes without a strong majority. If Congress signs-up for something that costs a lot of money, they’d either need to be really sure they want to make that change, ensured by the three-fifths majority, or they’d force to come up for extension or go away.

The Byrd Rule sounds similar to the trick individuals use to keep from making impulse purchases. When you really want something, give yourself a cooling off period and see if you still want it in a week. If so, it’ll be there.

However, the Byrd Rule has a bad unintended consequence.  The Byrd Rule treats tax cuts the same as a spending increase, as having a cost. There’s much wrong with that (like recognizing a revenue reduction as a cost), but the bad consequence is that this builds in automatic, recurring political bargaining chips.

To recap, because of the Byrd rule, tax reductions are usually passed with a simple majority and a sunset provision, instead of being made permanent and risk requiring a three-fifths majority.

As the expiration dates for all the past legislation with sunset provisions approaches, politicians salivate as they get to rehash all the old arguments again and use their approval for extending the goodies as leverage for getting some of their other agendas passed (like raising taxes on select groups).

That’s why the “Bush Tax Cuts” for everyone, keep coming up for renewal. Before the Byrd Rule, Congress would change tax rates and those changes would hold until a future Congress decided to change them again.

The Byrd Rule has resulted in a government that spends a great deal of time deciding whether to kick the can down the road, as was done again last night with the fiscal cliff deal.

For example, without the Byrd Rule, the “Bush tax cuts” would have ceased being referred to as such about 2 years after they were initially passed, at which point they would have become known as the regular tax rates.

That wouldn’t preclude future Congresses from further changing the tax code. But, any change they wished to make would be justified and framed against those rates.

We would be less inclined to confuse the issue by treating the “Bush tax cuts” as temporary changes that cost the government lots of money over the past decade.

The truth is, NOBODY knows if those tax cuts actually cost the government anything. Did you know that Federal income tax collections grew for several years after the passage of the ‘costly’ “Bush tax cuts”, reaching record heights in 2007?

When someone says that the “Bush tax cuts” cost government $X over the past decade, they’re making an assumption that the economy would have happened the same as if the tax rates were never changed, or close to it. But, we have no idea if that assumption is correct.

Tax rates have incentive effects. Lower tax rates can result in more economic activity over time since individuals get to keep more of the value they produce. Higher rates can result in less, because they keep less of it.

What’s the solution? Get rid of the Byrd rule. Let’s stop kicking-the-can down the road.