Posts Tagged ‘Question of the Week’

I’m a big proponent of tax reform, so at first I was very excited to learn that Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) were launching an effort to clean up the tax code.

But on closer inspection, I don’t think this will lead to a simple and fair system like the flat tax. Or even a national sales tax (assuming we could trust politicians not to pull a bait-and-switch, adding a new tax and never getting rid of the income tax).

But judge for yourself. Here’s some of what’s contained in a letter they sent to their colleagues, starting with some language about the growing complexity of the tax code and the compliance cost for taxpayers.

…since then, the economy has changed dramatically and Congress has made more than 15,000 changes to the tax code. The result is a tax base riddled with exclusions, deductions and credits. In addition, each year, it costs individuals and businesses more than $160 billion to comply with the tax code. The complexity, inefficiency and unfairness of the tax code are acting as a brake on our economy. We cannot afford to be complacent.

Sounds good, though they also could have mentioned other indicators of nightmarish complexity, such as the number of pages in the tax code, the number of special tax provisions, or the number of pages in the 1040 instruction manual.

I’m a bit mystified, however, at the low-ball estimate of $160 billion of compliance costs. As explained in this video, there are far higher estimates that are based on very sound methodology.

But perhaps I’m nit-picking. Let’s see with Senators Baucus and Hatch want to do.

In order to make sure that we end up with a simpler, more efficient and fairer tax code, we believe it is important to start with a “blank slate”—that is, a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as “tax expenditures.”

I don’t like the term “tax expenditure” since it implies that the government taking money from person A and giving it to person B is equivalent to the government simply letting person B keep their own money. These two approaches may be economically equivalent in certain cases, but they’re not morally equivalent.

Once again, however, I may be guilty of nit-picking.

That being said, there is a feature of the “blank slate” approach which does generate legitimate angst. There’s a footnote in the letter that states that the Joint Committee on Taxation is in charge of determining so-called tax expenditures.

A complete list of these special tax provisions as defined by the non-partisan Joint Committee on Taxation.

This is very troubling. The JCT may be non-partisan, but it’s definitely not non-ideological. These are the bureaucrats, for instance, who assume that the revenue-maximizing tax rate is 100 percent! Moreover, the JCT uses the “Haig-Simons” tax system as a benchmark, which means they start with the assumption that there should be pervasive double taxation of income that is saved and invested.

This is not nit-picking. The definition of “tax expenditure” is a critical policy decision, not something to be ceded to the other side before the debate even begins.

As illustrated by this chart, the tax code is very biased against saving and investment.

Between the capital gains tax, the corporate income tax, the double tax on dividends, and the death tax, it’s possible for a single dollar of income to be taxed as many as four different times.

This is a very foolish policy, particularly since every school of thought in the economics profession agrees that capital formation is a key to long-run growth. Even the Marxists and socialists!

To make matters worse, double taxation puts America at competitive disadvantage. To get a sense of how the U.S. tax system is a self-inflicted wound, check out these sobering international comparisons of death tax burdens and the degree of double taxation of dividends and capital gains.

Here’s what the Haig-Simons tax base means.

1. An assumption that new business investment should be penalized with depreciation instead of being treated neutrally with expensing.

2. An assumption that IRAs and 401(k)s are loopholes to be eliminated, when they’re actually ways to protect against double taxation.

3. An assumption that various other forms of double taxation – such as the capital gains tax – should be retained.

But that’s not the only preemptive capitulation to bad policy.

The “blank slate” assumes that the class-warfare bias in the tax code also should be part of the benchmark against which possible reforms will be judged.

…we asked the nonpartisan Joint Committee on Taxation and Finance Committee tax staff to estimate the relationship between tax expenditures and the current tax rates if the current level of progressivity is maintained. …The blank slate approach would allow significant deficit reduction or rate reduction, while maintaining the current level of progressivity.

Since the internal revenue code already imposes a disproportionate burden on upper-income taxpayers – even when compared to European welfare states, it doesn’t make sense to automatically assume an ideological agenda such as progressivity.

This has been a very long answer to a simple question, but it’s very important to realize that tax reform is a three-legged stool. If we want to minimize the economic damage of generating revenue for government, we should have 1) a low tax rate, 2) no distorting tax preferences, and 3) no distorting tax penalties such as double taxation.

Unfortunately, too many people focus only on the first and second legs of the stool. And while tax rates and deductions are important, so is double taxation.

I’m not asserting that the “blank slate” should have assumed no double taxation (sometimes referred to as the “Fisher-Ture” tax base or “consumption” tax base).

But I don’t think it would have been unreasonable for Senators Baucus and Hatch to have told other Senators that one of their choices would be to pick either the Haig-Simons approach or the Fisher-Ture approach.

Heck, even the Congressional Budget Office acknowledged that there are two ways of measuring tax expenditures. To reiterate, the choice of tax base should be a policy decision, not a built-in assumption.

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As part of my question-of-the-week series, a reader sent me a story and asked if I could identify why putting the Puerto Rican flag on a beer can – as part of a celebration of New York City’s Puerto Rican Day – was politically incorrect.

I may not be the best judge of such matters, largely because I’m often oblivious to popular culture. It was only about five years ago, for instance, that I learned “oriental” was now inappropriate. And even though I’m not sure why that term is supposed to be bad, I switched to “Asian.”

But even with my self-confessed naiveté on such matters, I have no idea how to react to the following story.

As you can see from this Foxnews.com excerpt, a beer company is being attacked, but I don’t understand what it’s done wrong.

Coors PC

I have no clue why the Puerto Rican flag is offensive

Public officials and Puerto Rican groups had expressed outrage after the company used an image of the island’s flag on a specially-made Coors Light beer can made on occasion of New York City’s Puerto Rican Day Parade. MillerCoors is the main sponsor of the parade, which is on Sunday. …MillerCoors sent a letter to “Boricuas for a Positive Image,” a group that planned protests against the company over the beer can, and said it was pulling the product from distribution. “We apologize if the graphics on our promotional packaging inadvertently offended you or any other members of the Puerto Rican community,” wrote Nehl Horton, chief public affairs and communications director for MillerCoors, to one of the group’s organizers. “MillerCoors has a strong history of supporting the U.S. Latino community…” …The National Institute for Latino Policy said the beer company wasn’t the only one at fault. The group also said blame must be placed on the parade’s board of directors. New York City Councilwoman Melissa Mark-Viverito told the New York Daily News that the company’s decision to pull the product was a “victory.” But the Puerto Rican politician said she wasn’t entirely satisfied.  “I feel strongly at this time that the Board of Directors should resign and make room for new leadership for future parades,” Viverito said in a statement.

So why is this a victory for the Latino community? Is the Puerto Rican flag somehow offensive? And, if so, shouldn’t Puerto Rican politicians change it?

Or is it only offensive if an “Anglo” company uses it on merchandise? But the beer company was sponsoring (i.e., financing) the event, so their intentions obviously were completely benign. Surely that’s not a cause for protests?!?

Or is it that the Puerto Rican community doesn’t want to be identified with beer? That seems implausible. I can see why Mormons, Muslims, or Southern Baptists wouldn’t want their imagery on a beer can, but  Latinos? Or Catholics? I’ve already admitted my lack of knowledge about popular culture, but I assume even I would know if Puerto Ricans were anti-beer.

I realize that a Google search could probably help me determine why some people are upset about the flag, but the fact that such a step would be necessary suggests that political correctness may have gone too far. As a general rule, I think it’s good manners and common courtesy to respect the preferences of other groups, but if you can’t figure out why they’re upset without doing a bunch of research, it seems that we’ve reached the point where people should chill out.

P.S. For examples of the wrong kind of political correctness, click here.

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I feel like I’m on the witness stand and I’m being badgered by a hostile lawyers. Readers keep asking me to identify the revenue-maximizing point on the Laffer Curve.

But I don’t like that question. In the past, I’ve explained that the growth-maximizing point on the Laffer Curve is where enough revenue is raised to finance the legitimate – and limited – functions of government.

And one of the earliest posts on this blog explained that we don’t want to maximize tax revenue.

But I still get versions of this question, including a few that accuse me of dodging the issue.

So what the heck, I may as well give an answer to the question. But I won’t give my answer. Instead, I’ll provide the analysis of a Nobel Prize winner.

James Mirrlees won the Nobel Prize in Economics in 1996 and he’s researched this issue, starting with a left-of-center perspective.

Many economists, including Mirrlees, want to use the tax system to achieve a higher degree of equality than would otherwise obtain. This means taking a substantial amount of the additional income of high-income people, which would imply high marginal tax rates on them. But when the government imposes such high marginal tax rates on the highest-income people, it reduces the incentive of the most productive people to be productive. …Economists have long wanted to figure out the optimum, but until Mirrlees’s work no one had been able to solve it.

And what did Mirrlees find? Well, notwithstanding his own preferences, he calculated that the tax rate should be no higher than 20 percent.

Mirrlees started with no presumption against high marginal tax rates. Indeed, he has been an adviser to Britain’s Labour Party, which for decades imposed marginal tax rates in excess of 80 percent. But Mirrlees found that the top marginal tax rate should be only about 20 percent; and moreover, it should be about the same 20 percent for everyone. In short, Mirrlees’s work justified what is now known as a “flat tax,” more appropriately called a “flat tax rate.” Mirrlees wrote, “I must confess that I had expected the rigourous analysis of income taxation in the utilitarian manner to provide arguments for high tax rates. It has not done so.”

Not only a rate of 20 percent, but a flat tax!

Too bad the Labour Party politicians don’t listen to his advice. Heck, the Conservative Party politicians don’t follow his advice either.

But at least we have a rigorous estimate of the revenue-maximizing point on the Laffer Curve.

Though I hasten to add that it’s not the ideal tax rate. As the risk of being repetitive, the tax system should only fund the legitimate functions of government. For much of our history, the government only consumed about 10 percent of economic output and we didn’t need any broad-based tax. So you know where I stand.

That being said, it’s clearly destructive to have tax rates that are above both the growth-maximizing level and the revenue-maximizing level. And that’s where we stand now.

For more information, here’s my video on the Laffer Curve.

And if you want to learn specifically why Obama’s class-warfare agenda is misguided, here’s my Laffer-Curve-lesson-for-Obama post.

P.S. The Tax Foundation has estimated that the revenue-maximizing corporate tax rate is 14 percent.

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A reader wants to know if I think the American people are becoming more statist over time.

I’m conflicted. More and more people get lured into some form of government dependency every year, and this suggests Americans eventually will adopt a  European-style moocher mentality.

This worries me.

On the other hand, I periodically see polls suggesting that the American people have very libertarian views on key issues.

These are encouraging numbers. And here’s another bit of good news. A recent poll by Fox News found that a plurality of Americans would not give up personal freedoms to reduce the threat of terrorism. What’s especially remarkable is that this poll took place immediately following the bombing of the Boston Marathon by the welfare-sponging Tsarnaev brothers.

Terrorism Freedom Tradeoff

Interestingly, I had a conversation with a left-leaning friend who said this poll showed that Americans were a bunch of “paranoid nuts” because this poll showed that they viewed their government with suspicion.

But perhaps people are simply rational. I had an intern look up data on the probability of getting killed by a terrorist. He found an article from Reason that reported.

…a rough calculation suggests that in the last five years, your chances of being killed by a terrorist are about one in 20 million. This compares annual risk of dying in a car accident of 1 in 19,000; drowning in a bathtub at 1 in 800,000; dying in a building fire at 1 in 99,000; or being struck by lightning at 1 in 5,500,000.

In other words, the odds of being killed by a terrorist are very low. And with the risk so low, why give up liberty? Particularly when it’s highly unlikely that sacrificing more of your freedom will actually reduce the already-low threat of terrorism.

This reminds me of the money laundering issue. Just a few decades ago, there was no such thing as anti-money laundering laws. Then politicians decided we need these laws to reduce crime.

These laws, we were told, would give law enforcement more tools to catch bad guys and also reduce the incentive to commit crimes since it would be harder for criminals to enjoy their ill-gotten gains.

That sounds good, but the evidence shows that these laws have become very expensive and intrusive, yet they’ve had no measurable impact on crime rates.

So how did politicians respond? In a stereotypical display of Mitchell’s Law, they decided to make anti-money laundering laws more onerous, imposing ever-higher costs in hopes of having some sort of positive impact.

This is bad for banks, bad for the poor, and bad for the economy.

So when I see polls showing the American people are skeptical about surrendering freedom to the government, I don’t think they are being “paranoid.” I think they’re being very rational.

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I’ve received several variations of this question since starting my “Question of the Week” series. Having never studied the terrorism issue, I’ve been ignoring those queries.

But I got several new emails on the topic after what happened in Boston, so I’m answering simply to make one point. There’s no way to create a perfectly safe, risk-free society.

That being said – and with the caveat that I have no expertise in this field, here are some random thoughts on the topic.

Libertarians want less interventionism around the world, and perhaps that will reduce hostility against the United States, but some of these nutjobs hate us because of our freedoms. So even a perfect foreign policy (whatever that even is) provides no guarantee we won’t get attacked. That being said, I think Ron Paul has screwed up big time in some of his criticisms of U.S. actions. Being against nation building does not mean you have to be against killing terrorists.

If you want to cause trouble, find a bunch of young men with no purpose in their lives and lots of time on their hands. Combine that with religious extremists who tell those men that they will get a bunch of virgins* in paradise if they die while killing Westerners, and you have a nontrivial supply of future terrorists. I suspect part of the answer will have to come from within the Islamic community, though I confess that I’m puzzled by the inaction on that front even though one imagines that 99 percent of Muslims don’t support terrorism.

Terrorists and would-be terrorists get information from the Internet that fuels their hate and provides knowledge on how to conduct attacks. I’m rather sympathetic to drone attacks on the scum in the Middle East who are directly seeking to instigate/plan terrorism, but I don’t see any feasible or desirable way to control and/or regulate the Internet (just like I don’t see a feasible or desirable way to regulate video games, even if it was shown that violent games somehow inspired Newtown-type killers).

Close monitoring of pro-terrorist websites and chat rooms is a very legitimate and proper function of law enforcement and the intelligence community. Being a Muslim shouldn’t be a cause for investigation and harassment by the government. Being a Muslim who uses the Internet to visit such sites is a cause for investigation and harassment (and the same is true for members of any other group with a history of violence).

Monitoring of Mosques also is a proper function of government, just as I also have no objection of law enforcement monitoring militia groups, environmental groups, etc, etc. Obviously, the monitoring of any group should be selectively focused on those strains that are believed to espouse violence. I don’t know where you draw the line between freedom of religion and incitement of violence, but I have zero sympathy for radical Imams preaching hate inside the United States and would like to see them shut down/imprisoned/deported if they cross that line.

Yes, I’m disgusted by the leftists in the press who obviously hope for a “right wing” link any time there’s an attack. These are the same journalists, by the way, who weren’t even slightly bothered by Barack Obama’s association with Bill Ayers, a real-life terrorist who bombed the NYC police department, the U.S. Capitol, and the Pentagon.

I favor immigration, but I want people who believe in tolerance and hard work. There should be some sort of test, however imperfect, designed to weed out those who do not believe in assimilation. I’m still flabbergasted that the U.S. government is so bloody incompetent that it gave a green card to the so-called Blind Sheik. Such people should never be let in the country and there should be mechanisms for quick deportation (perhaps halfway across the Atlantic) if they do slip through the net.

*I hope these are the virgins they meet.

P.S. Like anybody with common sense, I want’ our anti-terrorism policies to be based on cost-benefit analysis, which is why I’m generally critical of the Transportation Security Administration.

Addendum: I’m getting lots of comments and emails about this post. In retrospect, I can’t claim to be speaking for libertarians, so perhaps I should have used a title such as “What Are Your Thoughts about How to Deal with Terrorism?” Though I don’t think there’s anything in my views that is inconsistent with libertarianism. Assuming, of course, you’re not an anarcho-capitalist. But even if I was in that camp, I would want to voluntarily contract with a private firm that would hunt down terrorists and kill them. Sort of like the group in the new Tom Clancy novels. By the way, I also like the Vince Flynn novels, so I probably am more bloodthirsty than the average libertarian.

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A month ago, I answered a question about reconciling the absence of libertarian societies with the supposed superiority of libertarian principles.

I gave an uncharacteristically optimistic response, arguing that the world in many ways has become more free thanks to libertarian policies (or, to be more accurate, a decline in statism).

This led to several follow-up questions, mostly premised on the notion that I must be smoking crack to think government has become less of a burden. My defense would be that the world is more free than it was 40 years ago, but probably less free than it was 10 years ago, so it depends on your benchmark. And I definitely agree that the world is trending toward less freedom (with these charts being a very sobering example).

But the question that caught my eye, and makes for a good follow-up, comes from a reader in Missouri: “Why aren’t libertarians more persuasive?”

To elaborate, the question assumes that libertarianism is the right approach and that the evidence supports libertarian policies, so another way of phrasing the question is: “What is wrong with libertarians that they can’t sell libertarian ideas?”

Rising DependencyThe easy and simple answer is to say the problem is that the people are too susceptible to being bribed by politicians. As illustrated by the chart, more and more Americans are getting hooked on the heroin of government dependency.

And as more Americans adopt the moocher mindset found in Vermont, libertarians have a hard time developing a winning message.

But I think the reader is really asking whether the problem with libertarianism is…well, libertarians.

This is a fair question. Having given hundreds of speeches and engaged in thousands of conversation, I can say that many people make the following assumptions about libertarians.

1. On economic policy, libertarians don’t care about the poor. Since I work on fiscal issues, this is the one I deal with all the time. I try to explain – ad nauseam – that we want smaller government and more economic freedom because faster growth is the only effective way to lower poverty and help the poor. But a lot of people think we’re defending the status quo.

2. On social policy, libertarians are libertines, embracing and endorsing hedonism. This is probably the most common stereotype, and there definitely are libertarians who are motivated by a desire to get rid of laws that impinge on their freedom to do things like smoke pot. But the libertarian position is not that pot is good, but rather that prohibition is bad.

3. On foreign policy, libertarians are oblivious to external threats such as al Qaeda. I’ve had several people, for instance, complain about Ron Paul opposing the killing of Osama bin Laden, and they assume that means libertarians are somehow the modern-day equivalent of Soviet appeasers. Yet our message is that we favor national defense, but that we think we’ll have far less need to defend ourselves if we stop intervening in ways that have nothing to do with national security.

4. And in general, libertarians are ultra-individualists who reject concepts such as community, family, and nation. While it’s true that libertarians are motivated by individual freedom, opposition to government coercion does not imply that people can’t be good neighbors or good parents. Indeed, we would argue that a free society promotes private virtue. And there’s nothing inconsistent with patriotism and libertarianism, as illustrated by this t-shirt.

Looking at what I’ve written, I realize I haven’t answered the question. All I’ve done is identified some stereotypes and explained why they’re not accurate.

So I’ll simply conclude by making a rather unremarkable observation that overcoming these perceptions is a big challenge for libertarians – assuming that we want to make greater inroads with the masses.

P.S. I got nagged by several readers for not posting a “Question of the Week” last weekend. What can I say, I’m old and forgetful. But you can always peruse previous versions if you’re somehow suffering.

But I’ll try to compensate for my oversight with some humor. Since this post is about the supposed shortcoming of libertarians, here’s some self-mocking humor. We’ll start with a video portraying Somalia as a libertarian paradise, followed by cartoons on libertarian ice fishing and libertarian lifeguards, then an info-graphic showing 24 types of libertarians, and close with a poster showing how the world sees libertarians.

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If you asked me that question 30 years ago, I would have said Jeff MacNelly without hesitation.

MacNelly Shutdown CartoonsNot that I was exposed to many options in the pre-Internet dark ages, so my choice may have been driven by lack of knowledge. Nonetheless, MacNelly was a genius with the details, as you can see from these cartoons about IRS complexity and government shutdowns.

But what about today’s cartoonists?

Based on the number of cartoons I’ve shared, the easy answer would be either Michael Ramirez or Chuck Asay, but there are cartoons from other artists that are absolutely superb.

So I’m going to turn this question around.

Here are my favorite cartoons from various artists and you can answer the poll about which one you would rank highest.

In no particular order, the options are:

Michael Ramirez – This gem about Obamanomics is the most-viewed professional cartoon in the history of this blog, and his European lemming cartoon is great, as is his masterpiece on taxes in the Garden of Eden. But if I had to pick only one, it would be his Julia cartoon.

Chuck Asay – Since I’m a budget wonk, I should choose his cartoon about the garbage-in, garbage-out approach of the Congressional Budget Office. But for mass appeal, this tractor cartoon and this regime-uncertainty cartoon are much better. And my favorite is this nothing-left-to-steal masterpiece.

Henry Payne – For sentimental reasons, I might pick this Robin Hood cartoon. But for political cleverness, his Obamacare-Romneycare cartoon is a classic, and his Valentine’s Fairness Act cartoon is satire that could become reality. But given what I focus on every day at Cato, you’ll understand why this cartoon about Greek fiscal policy is at the top of my list.

Lisa Benson – This cartoon about California tax hikes would be near the top of the list, except taxpayers were tricked into voting for the referendum. I very much like this fiscal cliff cartoon, this Keynesian economics cartoon, and this one about jump-starting the economy with tax hikes. But the top prize goes to this cartoon because it perfectly captures Obama’s fiscal policy.

cartoon-obama-icebergEric Allie – More than anyone else, he shows with this cartoon and this cartoon how even well-intentioned government goes awry. And the teetering-on-the-edge-of-the-cliff cartoon accurately shows Obama’s mindset on fiscal policy. If forced to choose, though, I’ll go with this forward-to-the-iceberg cartoon.

Robert Ariail – I think I’ve only used three of his cartoons, but the image he produced about Greece, the euro, fiscal policy, and the rest of Europe is a classic. The other two I’ve used (here and here) are funny, but not in the same league. But if you need some added humor to compensate, this map showing how the Greeks perceive the rest of Europe is very amusing, as is this video and this video about the Greek mindset.

Gary Varvel – Here’s a good Halloween cartoon, but Varvel is the best at exposing the spending-cut hoax in DC, as you can see from this sequester cartoon and this deficit reduction cartoon. This cartoon about Bernie Madoff and Social Security, however, is at the top of my list.

Scott Stantis – Here’s a cartoon strip about involuntary contributions to support the green-energy boondoggle. And we also have a cartoon showing Obama’s less-than-stellar appreciation of the Bill of Rights. But without doubt this cartoon about Keynesian stimulus is the best Stantis cartoon I’ve ever seen.

Jerry Holbert – I was tempted to use this cartoon about the rich involuntarily financing a continued spending spree. And the Obama-as-magician cartoon will make you laugh, as will Holbert’s sequester cartoon. My favorite, though, is the one showing big government as a ravenous, spoiled, and destructive brat.

Glenn FodenGoing to Greece in a handbasket doesn’t seem like an obvious topic for a cartoon, but Foden pulls it off. And you’ll understand why I appreciate a cartoon that makes fun of sequester hysteria. But for what it’s worth, I think his best cartoon is the one mocking Obama’s private-sector-doing-fine assertion.

Chip Bok – He’s got a couple of amusing cartoons about Obama’s class-warfare agenda that can be seen here and here. I’m also partial to his cartoon about the Fed helping to bail out the euro. But the one that makes me laugh the hardest is his cartoon about the “war against women.”

Glenn McCoy – He has a great pair of cartoons on condoms and gay marriage, and I also like his cartoon on sequester hysteria. McCoy’s cartoon on gullible voters being bribed with their own money normally would be a contender. I don’t think there’s any question, though, that his cartoon on media bias is the best of the bunch.

A.F. Branco – Since I’m sick and tired of Obama and the special interests complaining about the supposedly savage sequester, I obviously like Branco’s cartoon portraying the sequester as a roadblock that may save us from fiscal destruction. But I’m even more partial to his cartoon riffing on Obama for his you-didn’t-build-that comment.

Unknown – Last but not least, here’s one of my favorite cartoons, though it’s really a parody of the Wizard of Id. And I don’t have any idea about who produced it. But how often do you find first-rate analysis of labor-supply incentives in a cartoon?

That was more work than I thought it would be, but I enjoyed getting a second look at many of these cartoons.

Now it’s time for your input. Which cartoon/author would you rank first?

P.S. Though I lack any artistic talent, I’ve played a role in creating some cartoons. Here’s my photo-shopped cartoon that uses Lucy and Charlie Brown to show why it is utterly naive to think that tax increases will lead to deficit reduction. I even have an award for gullible GOPers who don’t grasp this simple lesson.

Welfare State Wagon CartoonsWe also have the famous set of cartoons showing how the welfare state begins and how it ends. These images were drawn by a Cato intern, but I selfishly take credit for developing the concept and guiding her work. Especially since these cartoons are the most-viewed post in the history of this blog.

I didn’t include either of these in the voting, though, since I’m sure they would have received all the votes. Right? Surely you agree? Hello…anybody there? Can you hear me?

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While I generally have a happy-go-lucky attitude toward life, I’m pessimistic about public policy.

So when I got an email asking me how I would reconcile the supposed superiority of libertarian principles with the absence of libertarian societies, I initially was tempted to assert that our principles are sound and then give reasons why I nonetheless expect freedom to continuously diminish.

There are probably other reasons, but I think you get the idea. No wonder I’ve been speculating about where people should move when America descends into Greek-style economic chaos.

But I want to be uncharacteristically optimistic and explain why libertarian principles are still very relevant and that the outlook is better than we think.

So while I don’t expect that there will ever be a libertarian Nirvana, I also don’t think it’s time to throw in the towel and meekly accept the yoke of statism.

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This is probably the most difficult question that I’ve received. I’m not an expert on the legal issues, I’m not an expert on defense issues, and I don’t even have any strong gut instincts.

On the pro side, I suspect the world is a better place every time a drone wipes out a nest of terrorists. And that’s true even when the casualties include traitorous Americans.

I’m glad terrorists are nervously looking up, but…

On the anti side, every good libertarian worries about the slippery slope of government expansion. So even though I’m somewhat happy about terrorists getting zapped today, I don’t like to think about who might be targeted by politicians 30 years from now.

Remember, the income tax started as a relatively benign one-page form and it’s become a 72,000-page monstrosity with a thuggish IRS.

Part of the problem is that governments grab additional powers during wartime, and it’s very difficult to unwind those powers once hostilities cease.

And to make matters more challenging, we’re now fighting a war that presumably will never end.

Yes, we can probably ameliorate the problem by reducing American interventionism, but I strongly suspect that radical Islamists also hate us because of our tolerant values and secular system. So we’ll still face a serious threat of terrorist attacks even with a perfect libertarian foreign policy.

I guess the only answer I can provide is that I want plenty of independent judicial oversight. No, that’s not a panacea, but it’s at least some form of check and balance on the executive branch.

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Since I routinely spread a message of doom and gloom about the ever-expanding welfare state and warn about the potential for European-style fiscal collapse, I guess I shouldn’t be surprised that I’ve received several emails asking me variants of this question: “Do you think the United States can be rescued?”

Or sometimes, I get questions that I think are somewhat related, such as “Doesn’t Washington drive you crazy” or “Why haven’t you given up?”

I’m not sure I’m good at introspection, but I’ll try to answer, and we’ll start with the main question and then deal with the secondary queries.

To be blunt, if I had to place a bet on the outcome, I think the United States will become a failed European-style welfare state. The burden of government spending already is far too high and our long-run outlook is terrible, as shown by these OECD and BIS numbers, and I don’t think the callow politicians in Washington will fix the problems because they rarely think past the next election cycle.

This doesn’t necessarily mean that we’ll have a Greek-style fiscal collapse. Perhaps we’ll simply descend into permanent stagnation, with anemic growth (at best) and widespread dependency and joblessness.

That being said, even though I would bet on a bad outcome, I think there’s a genuine opportunity to save the country.

My job: Putting my finger in the dyke, trying to hold back the flood of big government

No, I’m not talking about creating a libertarian Nirvana, with the federal government consuming only three percent of economic output. But I think we can at least hold the line and prevent government from becoming bigger than it is today. Sort of a watered-down version of Mitchell’s Golden Rule.

The key is the right kind of entitlement reform. Our long-run fiscal nightmare is entirely the result of programs such as Social Security, Medicare, and Medicaid, so the solution is obvious.

But is it achievable?

As I’ve already indicated, I wouldn’t bet on it. We definitely know there won’t be any good reforms for the next four years, but let me give you a plausible scenario for what might happen beginning in 2017.

We’ll start with the fact that the House of Representatives already voted for Medicaid reform and Medicare reform as part of the Ryan budget in 2011 and 2012. We also know that Republicans retained the House in the most recent election and there seems to be a political consensus that voting to fix the healthcare entitlements was not a political liability.

There was no Social Security reform in Ryan’s budget, but we also know that George W. Bush (for all his other faults) supported personal accounts in 2000 and 2004 and didn’t suffer any political backlash. Indeed, personal accounts still seem to be reasonably popular.

With this in mind, I think it may be possible to fix entitlement programs in 2017 assuming that the 2014 and 2016 elections lead to pro-reform lawmakers in the House, Senate, and White House.

That may not be likely, but it’s definitely possible.

My job, simply stated, is to help inform and educate people so that the climate is favorable to reform.

Which brings me to the secondary questions about whether Washington drives me crazy and whether I should give up.

The short answer is that I’m intellectually pessimistic but operationally optimistic.

In other words, my brain tells me that things will probably deteriorate but my heart tells me that this is a battle worth fighting.

So, yes, Washington does drive me crazy. It is both an immoral town and an amoral town, pervasively corrupt and filled with people who seem to think that it is perfectly okay to steal so long as it happens through the legislative or regulatory process.

And, yes, I may decide to give up if something really horrible happens, such as adoption of a value-added tax. Giving politicians a big new source of revenue, after all, would cripple any incentive for fiscal restraint.

But until that happens, I think I’m very lucky that I get to wake up every day and be part of the Cato Institute’s fight to preserve (and restore) American exceptionalism.

P.S. This is the second “Question of the Week” in two days, but I neglected to answer a question last week, so I had to catch up and get back on track. Yesterday’s question and answer generated a lot of interest, so I hope this one is equally thought-provoking.

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