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Archive for November, 2010

Back during the presidential campaign, Barack Obama proposed several tax increases. Some of those tax hikes, such as the proposed higher income tax rates on investors, entrepreneurs, small business owners, and other “rich” taxpayers, have received a lot of public attention.

But it’s also important to guard against stealth tax hikes, and Obama’s proposal to increase Social Security’s “taxable wage base” is a dangerous example. The video below explains the details of this scheme to subject more income to the Social Security payroll tax – and thus substantially increase marginal tax rates and penalize economic growth.

This issue has not received much attention in the past two years, and Obama hasn’t bothered to include anything specific in his budgets, but this may be about to change. The Chairmen of the President’s Fiscal Commission just put out a report endorsing a big increase in the scope of the payroll tax. And this was followed just today by a similar proposal for a steep tax hike from the Domenici-Rivlin Debt Reduction Task Force (as if copying Greek fiscal policy will lead to less red ink, but that’s another blog post).

As discussed in the video, this would be an unfortunate development. Bad tax policy. Bad economic policy. Bad entitlement policy. Bad Social Security policy.

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More TSA Humor

Here’s what Conan had to say about the Transportation Security Administration on his new late-night talk show.

In San Diego, a man refused to be patted down by airport security and some people are calling him a hero. I don’t mind being patted down by airport security, but I don’t like it when the guy says, “Now you do me.”

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I’ve never watched Keith Olbermann’s show (not being snarky, I rarely watch TV and don’t even have cable), so I’m not quite sure how his “worst person in the world” feature operates. But I want to nominate someone who hopefully is despicable to people on both the right and left.

A local politician in New Castle, New York, ratted out a couple of kids who were having a bake sale in a local park. Their sin (prepare to gasp in horror) was failing to get appropriate licenses and approval from government. There’s a blurb from a news report reprinted below. My only thought is that Councilman Wolfensohn is probably a kindred spirit to the petty thugs who man the ranks of Cuba’s secret police. If he doesn’t get defeated in the next election, I will lose all faith in the American people (or at least the people of New Castle, NY).

When Andrew DeMarchis and Kevin Graff, two 13-year-olds from Chappaqua’s Seven Bridges Middle School, set up shop at Gedney Park on a fall weekend last month, they were expecting a tidy profit. Instead, the two wannabe entrepreneurs selling cupcakes, cookies, brownies and Rice Krispie treats baked by them for $1 apiece got a taste of cold, hard bureaucracy. New Castle Councilman Michael Wolfensohn came upon the sale and called the cops on the kids for operating without a license. …”I am shocked and sad for the boys. It was such a great idea, and they worked hard at it,” said Laura Graff, Kevin’s mother. “But then some Town Board member decided to get on his high horse and wreck their dreams.” …”All vendors selling on town property have to have a license, whether it’s boys selling baked goods or a hot dog vendor,” said Wolfensohn, who was elected to the board in 2007… a New Castle parks use permit requires a $1 million certificate of insurance and a fee ranging from $150 to $350 per two hours.

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I’m utterly envious at how this video has gone viral, but I have to admit that it is quite clever. I don’t think my flat tax videos, for instance, have quite the same flair. In any event, one imagines “the Ben Bernank” is probably not happy about  this production.

If you really want to understand the Federal Reserve’s shortcomings, however, you should read this new Cato Institute working paper. Here’s the abstract.

As the one-hundredth anniversary of the 1913 Federal Reserve Act approaches, we assess whether the nation‘s experiment with the Federal Reserve has been a success or a failure. Drawing on a wide range of recent empirical research, we find the following: (1) The Fed‘s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed‘s establishment. (2) While the Fed‘s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

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The late-night talk show hosts are fairly good indicators of whether a politician is winning or losing the public image battle. The Bush-is-dumb theme in American culture almost surely was at least partly a result of relentless (and often genuinely funny) jokes from David Letterman and others.

If this Jay Leno joke is any indication, Obama should be worried. As they say, if you’ve lost Leno, you’ve lost middle America.

President Obama’s overseas trip has been such a disaster that people in Kenya now claim that he has an American birth certificate.

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If we believe in truth-in-advertising, TSA bureaucrats should wear these t-shirts as they get their cheap thrills.

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I have a column in today’s New York Post, where I pull no punches as I comment on how the rest of the world is increasingly worried about Obama’s policies of easy money and deficit spending. I note that other nations often are guilty of the same mistakes, but that’s no excuse for America sinking to that level.

Along with countries such as Germany, Brazil and South Africa, China’s worried that President Obama and Bernanke will destabilize the global economy by dumping too much money into the system. This distorts trade, creates bubbles and may prompt other nations to engage in similar devaluations. The fact that China is probably guilty of the same thing doesn’t change the fact that America is on the wrong path. …The monetary move is isn’t the only Obama policy causing unease around the globe. Having seen the destructive impact of too much deficit spending in nations such as Greece, Ireland and Spain, policymakers worldwide increasingly recognize that countries need to reduce the burden of government spending to prevent a spread of sovereign-debt crises. Nations such as Germany and the United Kingdom haven’t approached this issue in the best way. Too often, they’re using the fiscal crisis as an excuse to raise taxes rather than make long-overdue reductions in bloated budgets. But at least they recognize that the time has come to back away from the abyss of too much red ink. The United States, by contrast, is on a spending binge of historic proportions. …Some of these fears are overblown. Yes, the Bush-Obama years have dramatically boosted the burden of government, and one obvious symptom of this fiscal excess is a much bigger national debt. But America’s red ink, as a share of GDP, is lower than the comparable levels in many European nations, as well as Japan. But that’s hardly an excuse. We all tell our kids that their friends’ misbehavior is no excuse for them to the wrong thing as well. This is a good rule for the global economy. If China is keeping its currency artificially weak, that doesn’t mean we should do the same thing. If European nations have bigger governments and more debt, that doesn’t mean we should copy their mistakes.

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For those who follow the Drudge Report, you’ve presumably seen several stories about “Big Sis” and her plans to require either body imaging or a full pat down. I’ve always viewed this as a cost-benefit issue. There are crazies out there who want to blow up planes, so it is a legitimate function of government to figure out sensible ways of stopping this from happening.

But is the Secretary of Homeland Security, Janet Napolitano, using a sensible approach? Setting aside issues of modesty and privacy (as well as possible radiation risks), will this new approach stop terrorists? Steve Chapman of the Chicago Tribune is not overly optimistic.

When it comes to protecting against terrorism, this is how things usually go: A danger presents itself. The federal government responds with new rules that erode privacy, treat innocent people as suspicious and blur the distinction between life in a free society and life in a correctional facility. And we all tamely accept the new intrusions, like sheep being shorn. Maybe not this time. …The agency is rolling out new full-body scanners, which eventually will replace metal detectors at all checkpoints. These machines replicate the experience of taking off your clothes, but without the fun. They enable agents to get a view of your body that leaves nothing to the imagination. …Besides the indignity of having one’s body exposed to an airport screener, there is a danger the images will find a wider audience. The U.S. Marshals Service recently admitted saving some 35,000 images from a machine at a federal courthouse in Florida. TSA says that will never happen. Human experience says, oh, yes, it will. For the camera-shy, TSA will offer an alternative: “enhanced” pat-downs. And you’ll get a chance to have an interesting conversation with your children about being touched by strangers. This is not the gentle frisking you may have experienced at the airport in the past. It requires agents to probe aggressively in intimate zones — breasts, buttocks, crotches. If you enjoyed your last mammography or prostate exam, you’ll love the enhanced pat-down. …Though the harm to privacy is certain, the benefit to public safety is not. The federal Government Accountability Office has said it “remains unclear” if the scanners would have detected the explosives carried by the would-be Christmas Day bomber. They would also be useless against a terrorist who inserts a bomb in his rectum — like the al-Qaida operative who blew himself up last year in an attempt to kill a Saudi prince. Full-body scanning will sorely chafe many innocent travelers, while creating only a minor inconvenience to bloodthirsty fanatics.

I travel enough that all I care about is getting through the security line without losing an hour of my time. But I’ve been through these machines and they don’t seem to speed up the process (and if anybody checked me out, at my age, I’d be flattered). So chalk this up as another victory for senseless government policy.

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Are you an incompetent buffoon? Have you demonstrated spectacular inability?

If you answered “yes” to these questions, Uncle Sam wants you. Here’s an application for a federal bailout. It helps, of course, if you have some lobbyists and a political action committee.

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When politicians and bureaucrats spend our money, they rarely demonstrate any concern about waste and fraud. Why be conscientious, after all, if you’re spending other people’s money – especially if your real goal is to buy votes and get campaign contributions by providing unearned wealth to well-connected insiders?

I’ve always been more concerned about the negative economic impact of government spending and the failure of Keynesian fiscal policy, but it’s also important to focus on waste and fraud. The average taxpayer may not want to get into the weeds of economic theory, but you don’t need an advanced degree to get upset about $27 light bulbs.

Fortunately, auditors caught this example of waste and fraud, but one can only imagine all the nonsense that’s slipping through the net. Here’s an excerpt from a Bloomberg story:

Contractors billed New Jersey $27 for light bulbs, and ran up tens of thousands of dollars in other “unreasonable costs” on a $119 million weatherization program funded with U.S. stimulus money, the state auditor said. …One contractor sought $27 for light bulbs, while another billed $1.50 for similar items, according to the report and Assistant Auditor Thomas Meseroll. Another vendor charged $75 for carbon-monoxide detectors that it had provided to a different program for $22, the report said. Eells also cited $32,700 in auditing fees when “no services had been performed” and $69,000 in construction costs that couldn’t be verified.

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There is a famous statement attributed to Pastor Martin Niemöller, who was imprisoned by Hitler’s National Socialist regime and barely survived the concentration camps.

They came first for the Communists, and I didn’t speak up because I wasn’t a Communist.

Then they came for the trade unionists, and I didn’t speak up because I wasn’t a trade unionist.

Then they came for the Jews, and I didn’t speak up because I wasn’t a Jew.

Then they came for me and by that time no one was left to speak up.

Niemöller’s statement teaches us that we should guard against government oppression, even when we are not the target, because it may be just a matter of time before the goons of the state shift their attention to us.

Nothing can compare to the horrors of Hitler’s National Socialists or the brutality of various communist regimes, so I certainly do not want to imply any moral equivalence, but I can’t help but thinking about what Niemöller said as I contemplate the various hare-brained proposals being imposed on people by San Francisco’s nanny-state buffoons.

Last week, I put up a post about the city banning Happy Meals toys. That certainly seemed absurd, but the craziness is reaching new levels with a possible referendum on banning circumcisions.

One city resident is proposing a ballot measure that would ban circumcision in the City, according to the San Francisco Examiner. If passed in November 2011, the measure would change San Francisco’s police code “to make it a misdemeanor to circumcise, excise, cut or mutilate the foreskin, testicle or penis of another person who has not attained the age of 18.” The punishment for those who choose to cut away anyway would be up to a $1,000 fine and up to one year in prison.

What’s next, mandatory sensitivity classes? Morning calisthenics with the exercise police? Banning leather belts? Is there any limit once we acquiesce to the notion that other people have the right to tell us how to live our lives?

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Some of my Republican friends were disappointed with last week’s election results in Colorado, but something far more important is about to happen in the Centennial State. Douglas County, which is a significant jurisdiction with 240,000 residents south of Denver, appears to be on the verge of implementing a sweeping school choice system.  Here’s a blurb from the Denver Post:

Douglas County School District officials say an unexpected level of interest in a retreat exploring school choice today and Saturday is forcing them to add an overflow room and a video feed to allow the public to watch the discussion. The school board is investigating a voucher program that would allow students to use public money to help with tuition at approved religious schools and other private ones. The two-day retreat will discuss the findings of a school-choice task force that has been mulling several issues, including vouchers. …The board will officially discuss the school-choice recommendations at a meeting Tuesday night, during which the public will be allowed to comment. No Colorado school district has a voucher program.

Here’s a link to the proposal, but if you just want my summary, I’m told that parents will have a voucher for about $4,500 per child that can be used to finance tuition at any qualifying school. This is more than enough money to cover costs at most non-government schools, and the population is sufficiently large to make this program a dramatic test case.

Keep your fingers crossed that Douglas County officials resist special-interest groups that are seeking to thwart this reform. The teacher unions have been vicious in their efforts to stop this kind of development. If Douglas County succeeds in putting kids first, this could break the logjam and lead to better education policy across the nation.

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A friend sent me a photo of a license plate she saw yesterday.

I heartily agree with the sentiment. But I still think my license plate is better because it covers everything.

Does anybody have a better choice?

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The former governor of New Mexico explains why prohibition is a foolish idea. I couldn’t say it better myself.

I’m a bit of  a stick-in-the-mud. I’ve never used drugs. I am very strict with my kids on the issue. But I’m not dumb enough to think that giving massive power to the government is a solution to anything – especially the non-problem of people wanting to do potentially dumb things to their own bodies. It didn’t work for booze in the 1920s, and it doesn’t work for drugs today.

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I have many pet peeves, but one that causes me endless frustration is the Washington “spending cut” scam. This happens when politicians increase spending, but claim that they’re cutting spending because they previously had planned to make government even bigger.

The proposal unveiled yesterday by the Co-Chairman of President Obama’s Fiscal Commission is a good example. If you read through their report, it sounds like there are lots of spending cuts. But they never explain that these supposed cuts are really just reductions in previously-planned increases.

Here’s the bottom line. As shown in the graph, it is quite simple to balance the budget (and permanently extend all of the 2001 and 2003 tax cuts) if politicians simply limit spending growth. You can balance the budget within a few years with an overall cap on spending at current-year levels. But if you prefer a more moderate approach, you can let spending increase 2 percent each year and balance the budget by the end of the decade.

The proposal from the Fiscal Commission, incidentally, does not balance the budget – even though they have a big tax increase (which they assume will have zero negative impact on economic performance).

So what does this mean? Well, we know that the budget can be balanced (with the 2001 and 2003 tax cuts) if spending grows two percent each year. And we also know that the Fiscal Commission increases the tax burden, yet still doesn’t achieve fiscal balance. So this means that they must be letting spending grow much faster than 2 percent each year. I’m guessing 4-5 percent annual spending growth.

In other words, the Fiscal Commission is asking us to pay higher taxes so that government spending can grow at twice the rate of inflation. That’s not a good deal.

Moreover, that’s almost certainly a ridiculously naive best-case scenario. If past behavior is any indication (and it is), politicians will spend any additional tax revenue. Whenever there’s a budget summit, the folks who want higher taxes make all sorts of empty promises about spending discipline. And when the other side caves in on taxes, they grab the money and have a party.

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Don’t get too excited. We’re only talking about someone’s clever humor.

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One of my first blog posts (and the first one to get any attention) highlighted the amusing/embarrassing irony of having Chinese students laugh at Treasury Secretary Geithner when he claimed the United States had a strong-dollar policy.

I suspect that even Tim “Turbotax” Geithner would be smart enough to avoid such a claim today, not after the Fed’s announcement (with the full support of the White House and Treasury) that it would flood the economy with $600 billion of hot money.

As I noted in an earlier post, monetary policy is not nearly as cut and dried as other issues, so I’m reluctant to make sweeping and definitive statements. That being said, I’m fairly sure that the Fed is on the wrong path. Here’s what my colleague Alan Reynolds wrote in the Wall Street Journal about Bernanke’s policy.

Mr. Bernanke…believes (contrary to our past experience with stagflation) that inflation is no danger thanks to economic slack (high unemployment). He reasons that if people can nonetheless be persuaded to expect higher inflation, regardless of the slack, that means interest rates will appear even lower in real terms. If that worked as planned, lower real interest rates would supposedly fix our hangover from the last Fed-financed borrowing binge by encouraging more borrowing. This whole scheme raises nagging questions. Why would domestic investors accept a lower yield on bonds if they expect higher inflation? And why would foreign investors accept a lower yield on U.S. bonds if they expect exchange rate losses on dollar-denominated securities? Why wouldn’t intelligent people shift their investments toward commodities or related stocks (such as mining and related machinery) and either shun, or sell short, long-term Treasurys? And if they did that, how could it possibly help the economy?

The rest of the world seems to share these concerns. The Germans are not big fans of America’s binge of borrowing and easy money. Here’s what Finance Minister Wolfgang Schäuble had to say in a recent interview.

The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. …I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don’t recognize the economic argument behind this measure. …The Fed’s decisions bring more uncertainty to the global economy. …It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money.

The comment about borrowed money has a bit of hypocrisy since German government debt is not much lower than it is in the United States, but the Finance Minister surely is correct about monetary policy. And speaking of China, we now have the odd situation of a Chinese rating agency downgrading U.S. government debt.

The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy. Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the US by one level to A+ from previous AA with “negative” outlook.

This development shold be taken with a giant grain of salt, as explained by a Wall Street Journal blogger. Nonetheless, the fact that the China-based agency thought this was a smart tactic must say something about how the rest of the world is beginning to perceive America.

Simply stated, Obama is following Jimmy Carter-style economic policy, so nobody shoud be surprised if the result is 1970s-style stagflation.

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 I’ve already written about the terrible work of the Congressional Budget Office. The CBO did an awful job on the stimulus, for instance, repeatedly asserting that diverting money from the private sector to government somehow would create jobs. CBO also was a disaster on Obamacare, claiming that a giant new entitlement program would reduce budget deficits. And the legislative bureaucracy even has argued that higher tax rates boost growth.

That sounds absurd (and it is), but CBO is not the only taxpayer-funded bureaucracy on Capitol Hill producing this kind of nonsensical analysis. The Congressional Reserach Service just published a new report asserting that higher tax rates will boost economic performance. Here’s an excerpt from that CRS publication.

…it is ambiguous whether tax cuts lead to more or less work, saving, and investment. The expiration of the tax cuts would nevertheless reduce the budget deficit, absent other policy changes, which economic theory predicts would have a positive effect on the economy in the long run.

To be fair, CRS doesn’t actually claim higher taxes are good for growth. And neither does CBO. But CRS and CBO both assert that there is no clear evidence that higher taxes hurt growth. Budget deficits, however, supposedly have a very negative impact on economic performance according to these Capitol Hill bureaucrats. More specifically, CRS and CBO believe that government borrowing leads to higher interest rates, and they think that higher interest rates reduce investment. And since investment is a key to long-run growth, this leads them to endorse any policy – including higher taxes – that reduces red ink.

Taking the CRS and CBO analysis to its logical extreme (and neither bureaucracy has stated that there are limits to their methodology), tax rates of 100 percent would be the most effective way of maximizing prosperity.

This video explains that the real problem is spending, and that deficits are just a symptom of a government that is too big. This is not to say that CRS and CBO are completely wrong. We have record budget deficits and very low interest rates today, but it’s possible that interest rates might be even lower without all the red ink. And it’s certainly true that interest rates are one of the many factors that determine investment choices, so there’s nothing wrong with including them in the equation.

But magnitudes matter. For all intents and purposes, CRS and CBO want us to believe that more government borrowing will have a very significant impact on interest rates and that those higher interest rates will have a very negative impact on investment. Yet neither bureaucracy offers any evidence for these linkages, in large part because the academic research shows that the relationships between deficits, interest rates, and investment are weak.

By contrast, CRS and CBO have no problem supporting higher tax rates – including more double taxation of income that is saved and invested. Yet there is considerable evidence that punitive tax rates have a significant impact not only on decisions to earn income and be productive, but also on decisions whether to consume today or to save and invest (and thus consume in the future). CRS and CBO also assume, rather naively, that politicians would use any additional revenue for deficit reduction instead of new spending.

Let’s call this the triumph of left-wing theory over real-world evidence. To add insult to injury, the sloppy analysis at CRS and CBO is financed by our tax dollars. So we pay bureaucrats so they can tell politicians to seize more money from us. Gee, what’s not to love about a scam like that?

P.S. If Republicans are actually serious about restraining government spending, CRS and CBO are target-rich environments. Just saying.

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I saw a story linked on Instapundit, but it really belonged on The Onion.

Apparently, our tax dollars are being used to fund grief counseling for congressional staffers who will lose their jobs in January because of the elections. Can you think of a better example than this of how Washington is screwed up?

This isn’t just a symbol of fiscal excess (though it definitely belongs in that category). It’s also a sign of the wuss-ification (not a technical term, but you know what I mean) of American society. Are we really so pathetically fragile that we need professional hand-holders for something like this? It’s not like people who work on Capitol Hill don’t know ahead of time about elections.

Besides, there’s a what-goes-around-comes-around element to this story. I’m not trying to be callous. Unemployment can be a terrible thing, particularly for people who have kids. But these congressional staffers spent their days figuring out ways to impose costs on the rest of us. They schemed to reduce our freedoms and take our money. These are people who pushed policies that resulted in job losses for millions of people in the productive sector of the economy.

Asking me to feel sorry for these people is like asking me to have pity on burglars who dislike door locks, alarm systems, and armed homeowners.

Here’s an excerpt from the Politico story.

A staffer for a congressional Democrat who came up short on Tuesday reports that a team of about five people stopped by their offices this morning to talk about payroll, benefits, writing a résumé, and so forth, with staffers who are now job hunting. But one of the staffers was described as a “counselor” to help with the emotional aspect of the loss — and a section in the packet each staffer was given dealt with the stages of grief (for instance, Stage One being anger, and so on). “It was like it was about death,” the staffer said. “It was bizarre.”

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Tim Carney of the Washington Examiner has a great piece looking at the utterly indefensible panoply of ethanol subsidies and handouts that screw consumers and taxpayers in order to line the pockets of the politically powerful. Unfortunately, several senior GOP lawmakers have unseemly ties to the lobbyists for the industry. So this is a test, but don’t expect a passing grade.

Ethanol fuel (especially ethanol distilled from corn) is subsidized in dozens of ways by governments at all levels. Two of the longest-running subsidies — a 54-cent-per-gallon tariff on imported ethanol, and 45-cent tax credit for every gallon blended with gasoline — expire on Dec. 31, making them a top priority for industry lobbyists during the lame-duck session. …In recent years, Americans have learned about the downsides of ethanol subsidies. The 2005 and 2007 energy bills mandated the use of ethanol, igniting a corn boom, which crowded out other crops, contributing to spikes in food prices. Ethanol was even blamed for tortilla riots in Mexico. Growing and distilling ethanol uses immense amounts water (contributing to river and aquifer depletion) and energy (some scientists argue that more energy goes into making a gallon of ethanol than is contained in that gallon). The added corn demand means more fertilizer production and use, adding to harmful runoff, which is blamed for “dead zones” in the Gulf of Mexico that choke out aquatic life. There are plenty of policy reasons to kill ethanol subsidies, but historically, a powerful lobby has kept them alive. And while the GOP talks about free markets, Republican lawmakers are cozier with the ethanol lobby than Democrats are. Republicans raised more than Democrats from Poet, the nation’s largest ethanol maker. Former Republican Rep. Jim Nussle of Iowa is now the president of Growth Energy, a leading pro-ethanol lobby. Presumptive incoming House Ways & Means Chairman Dave Camp has long supported ethanol subsidies, as has Finance Committee ranking member Chuck Grassley. Republican coziness with corn growers and ethanol distillers could outweigh sound policy considerations.

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The White House recently released a video, narrated by Austan Goolsbee of the Council of Economic Advisers, asserting that higher tax rates on the so-called rich would be a good idea.

Since Goolsbee’s video made so many unsubstantiated assertions and was guilty of so many sins of omission, here’s a rebuttal video, narrated by yours truly.

This new Center for Freedom and Prosperity video includes the full footage of the White House production, so viewers can decide for themselves which side is correct.

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Reason TV has a new video in their great Nanny-of-the-Month series. The winner is a San Francisco politician who pushed through legislation to ban restaurants like McDonald’s from including toys in happy meals.

Here’s a great idea: How about banning politicians from trying to tell us how to live our lives? Our Founding Fathers surely would agree, but I guess that’s asking too much in the modern era. But is it too much to ask that maybe politicians focus on real issues, such as undoing the mistakes they’ve already made? 

If Supervisor Mar really cares about his city, he should be pushing legislation to reduce excessive pay, benefits, and pensions for bureaucrats. These are the policies that are pushing San Francisco closer to fiscal collapse with each passing day. When the city declares bankruptcy, I don’t think the average person will be overly concerned about whether McDonald’s is offering happy meals.

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Chairman Ben Bernanke has announced that the Federal Reserve will buy about $600 billion of government bonds as part of what is being called QE2 (because this is the second big stage of “quantitative easing”).

This actually isn’t printing money, but it has the same effect in that it creates more liquidity by putting more money into the financial system. The theory is that all this extra money will drive down interest rates, and that lower interest rates will encourage people to take on more debt to finance additional spending.

There are several reasons why this is a bad idea and one potential argument why it is a good idea.

* It is a bad idea because rising prices are the inevitable result when there is more money chasing the same amount of goods.

* It is a bad idea because it assumes that the economy is weak because of high low interest rates. That is nonsense. Interest rates already are very low. Trying to drive them lower in hopes of stimulating borrowing is like pushing on a string.

* It is a bad idea because you don’t solve bad fiscal and regulatory policy with bad monetary policy. The economy is weak in considerable part because of too much spending, new health care interventions, and the threat of higher taxes. You don’t solve those problems by printing money, just like you don’t make rotting fish taste good with ketchup.

* It is a bad idea because the easy-money policy of artificially low interest rates helped create the housing bubble and financial crisis, and “hair of the dog” is not the right approach.

* It is a bad idea because no nation becomes economically strong with a weak currency.

* It is a bad idea because it may lead to “competitive devaluation,” as other nations copy the Fed’s misguided policy in hopes of keeping their exports affordable.

So what about arguments in favor of the Fed’s policy? There’s only one possible reason to support Bernanke’s policy, and at least one monetarist friend has offered this as justification for what is happening. I hope he’s right.

* The only legitimate argument for quantitative easing is if more money needs to be put in the system to counteract deflation. In other words, if the Fed focuses on its one appropriate responsibility – price stability, and if there is a legitimate concern of falling prices in the future, then an “easy-money” policy today could offset that future deflation.

By the way, some people say that the stock market’s recent performance is a sign that Bernanke’s policy is good for the economy. This is wrong because it confuses portfolio shifting with long-term economic performance. When the Fed creates liquidity, that drives down interest rates. What does that mean for investors? Well, it means that putting money into bonds will yield a lower return, so the only other major option is stocks. That is why Fed policy often leads (seemingly inexplicably) to short-term results that are at odds with the long-term consequences.

Here are some excerpts from a Bloomberg report.

Federal Reserve Chairman Ben S. Bernanke said the central bank must focus on the U.S. rather than overseas economies when trying to spur the recovery by purchasing an additional $600 billion in Treasuries. …Bernanke came under fire yesterday from officials in Germany, China, and Brazil, who said his plan to pump cash into the banking system may jar other economies and fail to fuel U.S. growth. Critics including Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, have said Fed policy is encouraging investors to take on too much risk and threatens to undermine the dollar. …“We are showing insufficient stimulus,” Bernanke said yesterday in his remarks, mostly in response to questions. Asset purchases have “the goal of reducing interest rates, providing more stimulus to the economy and, we hope, creating a faster recovery and an inflation rate consistent with long-run stability,” Bernanke said to students.

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The old saying that “two wrongs don’t make a right” is especially true in the field of public policy. A good example is the crazy new proposal from the United Nations to collect billions of dollars by imposing global taxes on financial transactions and energy. That’s bad enough, but the international bureaucracy wants to impose these taxes in order to bribe developing nations into agreeing to cripple their economies with policies designed to fight global warming. So people in the real world would pay more money to support a misguided scheme, while a bunch of tax-free bureaucrats get more power. This is so absurd that even the Obama Administration is opposed – at least according to this Bloomberg story.

At least $65 billion might be raised by taxing foreign-exchange transactions and auctioning pollution permits, a United Nations panel said today in a report recommending ways to finance aid for fighting global warming. The panel, which includes billionaire investor George Soros and Larry Summers, director of President Barack Obama’s National Economic Council, said selling carbon-emissions permits would generate $38 billion and a financial transactions tax an additional $27 billion, according to the report released today. The findings are intended to guide envoys at UN climate talks that start this month in Mexico as they seek ways to pay for $100 billion in climate aid that was pledged by 2020 to poor nations at last year’s summit in Copenhagen. The report found that the goal is “challenging but feasible” to achieve. …Former U.K. Prime Minister Gordon Brown, French President Nicolas Sarkozy and labor groups including the U.K. Trades Union Congress have supported the idea. President Barack Obama’s administration opposes it. A tax of 0.05 percent on financial transactions may raise as much as $700 billion a year, according to WWF, a Washington-based global environmental activist group.

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At a recent speech in Atlanta, a somewhat famous former elected official made some rather blunt comments about welfare. According to a news report:

In discussing welfare, he said rules instituted by liberals to limit benefits to single mothers discouraged blacks from forming families. “Slavery didn’t break up the black families as much as liberal welfare rules,” he said.

So who was this Neanderthal? Was it Klansman/charlatan David Duke? Was it former Georgia Governor Lester Maddox, who made George Wallace seem cuddly by comparison?

None of the above. It turns out that the article was discussing comments made by Andrew Young, the former Mayor of Atlanta and Ambassador to the United Nations. He was at the Jimmy Carter Center to talk about his new book,  “Walk in My Shoes: Conversations Between a Civil Rights Legend and His Godson on the Journey Ahead.”

Setting aside my sarcasm, kudos to Young for putting concern for families before left-wing political correctness. As indicated by my previous post on welfare destroying the human spirit, luring people into dependency is a tragic example of misguided government policy (a problem that is particularly severe in certain states, particularly the Northeast). And Young is not the only one to note that African-Americans have been the biggest victims.

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Last year, I commented on a handful of crazed environmentalists who were sterilizing themselves because children boost carbon emissions. I thought this was a wonderful form of natural selection since it meant at least some statists weren’t passing on their…um…peculiar genes.

We have a related story, which also comes from the United Kingdom. Some nutjobs have launched an anti-bathing campaign because it is bad (so we are told) to use water and emit carbon. Having traveled extensively in Europe, I can say from painful experience that there already are lots of people who are on board with this effort, though I doubt it’s because they are environmentally sensitive.

Since I’m a glass-half-full kind of guy, I’m looking at the bright side of this development. I suspect that dirty, smelly, and greasy people are less attractive to the opposite sex. This probably means they are less likely to reproduce, so we should look at this as an indirect form of natural selection. It’s not a sure-fire approach, like the story mentioned above, but one hopes that it will reduce the birth rates of oddball leftists. Here’s a blurb from the The Guardian.

In a bid to reduce his carbon footprint to the absolute minimum, environmentalist Donnachadh McCarthy, 51, limits his showers to about twice a week. “The rest of the time I have a sink wash,” he says. “I believe that I’m as clean as everyone else.” It has helped him to get his water consumption down to around 20 litres a day – well below the 100 to 150 average in the UK. As McCarthy points out, it’s only recently that we have expected people to bathe or shower every day. “When I was a kid,” he says, “the normal thing was to bathe once a week.” Head much further back into history, and we find Elizabeth I bathing once a month, and James I apparently only ever washing his fingers. In 1951, almost two-fifths of UK homes were without a bath, and in 1965, only half of British women wore deodorant. Now we have begun to fetishise extreme cleanliness, to create the kind of culture where, as McCarthy says, it’s not entirely unusual for people staying in hotels to churn through 1,000 litres of water a day – showering in the morning, after a sauna, after the swimming pool, before dinner, before bed. The international market for soaps of all kinds is now $24bn a year. And some dermatologists fear that this intense, regular washing is stripping our skin of germs that could actually be beneficial to us, that help our skin stay healthy, balanced and fresh.

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This isn’t a video produced by an anti-welfare group. It’s not even from the United States.

Instead, you’re looking at a straight news clip from England that unintentionally offers a very powerful example of how welfare saps initiative, creates dependency, subsidizes irresponsibility, and destroys the human spirit.

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We’ve been spending too much time on elections, so let’s get back to pointing out inane, foolish, and destructive government policies. Our latest example comes from the United Kingdom, where politicians are pushing airline ticket taxes to punitive levels and harming the tourism industry. But the real lesson from this story is that it is very dangerous to give politicians a new revenue source.

The airline ticket tax was first imposed by a supposedly Conservative Party government in 1994 at a maximum rate of 10 pounds. During the Blair/Brown Labor Party reign, the tax was boosted to a maximum rate of 50 pounds. Now, the new government, led by ostensible Conservative David Cameron, is pushing the maximum tax up to 75 pounds (more than $120) per ticket. Here’s an excerpt from the story in the Telegraph.

Families are avoiding holidays Egypt and Caribbean because of the high cost of air taxes – even before the hike in passenger duty that comes into place on Monday. …The duty, which is paid by all travellers on leaving Britain and added automatically to the price when a ticket is booked, is to increase by 50 per cent to some destinations. It is the second significant rise in two years, and figures show that previous hikes have already influenced people’s choice of holiday destinations. …Bob Atkinson, travel expert at Travelsupermarket.com, said: “Families looking to book for this winter and summer next year will be faced with tax rises of up to 54 per cent on their family holidays. This tax rise is completely out of line with inflation and bears no relation to the original purpose of the tax. …The tax was introduced in 1994 at the rate of £10 on long-haul flights, but increased by the previous Government, which said it was a necessary “green measure”. …The increases mean a family of four flying to the Caribbean will pay £300 in duty compared with the old rate of £200 or £160 last year. Willie Walsh, the chief executive of British Airways, has branded the higher taxes a “disaster”. Earlier this month, he called the duty a “disgrace”.

No wonder families are choosing not to travel. But, more important, imagine what American politicians will do if they ever succeed in imposing a value-added tax. The rate initially will be low (just as the original income tax had a top rate of just 7 percent), but nobody should delude themselves into thinking the rate won’t quickly climb as greedy politicians get hooked on a new form of revenue cocaine to feed their spending addictions.

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In the grand scheme, I realize red-light cameras are not very important, but I was absolutely delighted to see that Houston voters approved a referendum to stop the city from using these devices. Red-light cameras should be called revenue cameras because local governments almost always use them to collect more money rather than to promote safety. Indeed, there’s good evidence that they cause accidents, in part because governments shorten yellow lights in hopes of raping more motorists.

 The same is true of cameras to catch speeding. In my life, I’ve been nailed a couple of times by those devices, and in every case it involved an absurdly (and deliberately) low speed limit (including 45 on an interstate highway and 25 on a four-lane road in a non-residential area).

The fringe benefit of this Houston referendum, by the way, is that the city will be forced to spend less. The City Controller acts as if this is a terrible result, but one quick solution for the city’s budget problems would be to limit average pay for all government officials to the average of private sector pay in the region. Here are some excerpts from a story in the Houston Chronicle. Read and enjoy.

Houstonians rejected the city’s red light camera program in a hard-fought ballot contest, delivering an immediate $10 million hit to an already dire budget situation at City Hall. With all votes counted, 53.2 percent of voters demanded a decisive end to the use of the devices, which had been used to issue more than 800,000 tickets and collected $44 million in fines since 2006. …City Controller Ronald Green said the loss of the devices would amount to a $10 million shortfall in revenues, a sharp decrease that would greatly complicate efforts to close a shortfall that was already nearing $80 million. “We’re going to have to cut expenses,” he said. “We need to really start talking about the fact that furloughs and layoffs may really be a potential option. … It’s now time for drastic cuts.” Jim McGrath, a spokesman for Keep Houston Safe, said he did not anticipate that the political action committee — backed by the Arizona-based company that runs the city’s red-light camera program – would try to fight the election results in court.

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Last week, I highlighted nine ballot initiatives that were worth watching because of their policy implications and/or their role is showing whether voters wanted more or less freedom. The results, by and large, are very encouraging. Let’s take a look at the results of those nine votes, as well as a few additional key initiatives.

1. The big spenders wanted to impose an income tax in the state of Washington, and they even had support from too-rich-to-care Bill Gates. The good news is that this initiative got slaughtered by a nearly two-to-one margin.  I was worried about this initiative since crazy  Oregon voters approved higher tax rates earlier this year. In a further bit of good news, Washington voters also approved a supermajority requirement for tax increases by a similar margin.

2. Nevada voters had a chance to vote on eminent domain abuse. This is an initiative that I mischaracterized in my original post. The language made it sound like it was designed to protect private property, but it actually was proposed by the political elite to weaken a property rights initiative that the voters previously had imposed. Fortunately, Nevada voters did not share my naiveté and the effort to weaken eminent domain protections was decisively rejected.  This is important, of course, because of the Supreme Court’s reprehensible Kelo decision.

3. California voters were predictably disappointing. They rejected the initiative to legalize marijuana, thus missing an opportunity to adopt a more sensible approach to victimless crimes. The crazy voters from the Golden State also kept in place a suicidal global warming scheme that is driving jobs out of the state. The only silver lining in California’s dark cloud is that voters did approve a supermajority requirement for certain revenue increases.

4. Nearly 90 percent of voters in Kansas approved an initiative to remove any ambiguity about whether individuals have the right to keep and bear arms. Let that be a warning to those imperialist Canadians, just in case they’re plotting an invasion.

5. Arizona voters had a chance to give their opinion on Obamacare. Not surprisingly, they were not big fans, with more than 55 percent of them supporting an initiative in favor of individual choice in health care. A similar initiative was approved by an even greater margin in Oklahoma. Shifting back to Arizona, voters also strongly rejected racial and sexual discrimination by government, but they narrowly failed to approve medical marijuana.

6. Shifting to the local level, San Francisco, one of the craziest cities in America rejected a proposal to require bureaucrats to make meaningful contributions to support their bloated pension and health benefits. On the other hand, voters did approve a proposal to ban people from sleeping on sidewalks. Who knew that was a big issue?

7. Sticking with the ever-amusing Golden State, voters unfortunately eliminated the requirement for a two-thirds vote in the legislature to approve a budget, thus making it even easier for politicians to increase the burden of government spending. The state almost certainly is already on a path to bankruptcy, and this result will probably hasten its fiscal demise. Hopefully, the new GOP majority in the House of Representatives will say no when soon-to-be Governor Brown comes asking for a bailout.

8. The entire political establishment in Massachusetts was united in its opposition to an initiative to to roll back the sales tax from 6.25 percent to 3 percent, and they were sucessful. But 43 percent of voters approved, so maybe there’s some tiny sliver of hope for the Bay State.

9. Louisiana voters approved an initiative to require a two-thirds vote to approve any expansion of taxpayer-financed benefits for government employees. With 65 percent of voters saying yes to this proposal, this is a good sign that the bureaucrat gravy train may finally be slowing down.

At the risk of giving a grade, I think voters generally did a good job when asked to directly make decisions. I give them a solid B.

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