Published for www.online.wsj.com, February 29, 2012
Last week Treasury Secretary Tim Geithner said that the “most fortunate Americans” should pay more in taxes for the “privilege of being an American.” One can debate different ways of balancing the budget. But Mr. Geithner’s argument highlights an unfortunate and very destructive instinct that seems to permeate the Obama administration about the respective roles of citizens and their government. His position has three problems: one philosophical, one empirical, and one logical.
Philosophically, the concept that being an American is a “privilege” upends the whole basis on which America was founded. Privileges are things granted to one individual by another, higher-ranking, individual. For example, in my house my children’s use of the family car is a privilege. One presumes Mr. Geithner believes that the “privilege” of being an American is granted by the presumably higher-ranking, governing powers that be.
This is an age-old view that our Founding Fathers rejected. First, they argued that the basic rights of life, liberty and the pursuit of happiness (i.e., economic liberty) were natural rights, endowed by our Creator, not by government. Second, the governing powers do not out-rank the citizens. Rather it is the citizens who grant government officials their “just powers.” As Jefferson wrote in the Declaration of Independence, governments are instituted among men based on their consent in order to secure the rights of life, liberty and the pursuit of happiness. The notion that a governing authority grants privileges to those it governs directly contradicts Jefferson’s declaration.
But it is this same notion that recently allowed the Health and Human Services Department to order religious institutions to pay for things they find abhorrent. Religious freedom is presumably a “privilege” that can be revoked for some transient and novel public-policy reason.
Full post here
Published for The Wall Street Journal, June 28th, 2011:
Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal.
Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. There are at least three major reasons for concern.
First, a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.
The 10-year rise in interest expense would be $4.9 trillion higher under “normalized” rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.
Full article here
Published for The Weekly Standard, November 27th, 2010:
Quantitative easing won’t solve our deeper problem.
Fed chairman Ben Bernanke concedes that, while necessary, a new large purchase of government bonds by the Fed to help cover the deficit will not completely solve our problem of slow growth. Many in the markets and around the world express the same sentiment in a more negative way—saying this latest round of “quantitative easing” won’t work. Only time will tell, and our best guess is that, because it is only modestly effective by itself, quantitative easing will probably be part of Fed policy for quite some time. One reason we must hope that quantitative easing is not too successful is that its near term success would mean a catastrophe for government finances.
By the Fed’s reckoning, a successful quantitative easing policy will return us to a more normal economic environment with fairly low but stable inflation, similar to the inflation environment of the last two decades. But a normalization of inflation will also mean a normalization of interest rates. And normalized interest rates will mean much higher interest payments, especially by the world’s biggest debtor: the government of the United States.
Consider the math. This year the government will pay $200 billion in interest on debt held by the public (i.e., non-U.S.-government institutions) of $9 trillion. The average interest rate paid on the debt is 2.2 percent.
To simulate what will happen going forward, assume for the sake of argument some moderate reductions in future deficits from ending higher-end tax cuts, limiting the growth in discretionary spending to the rate of GDP growth, and cutting defense. Under these assumptions, the debt held by the public will rise to $13.1 trillion by 2015 and $16.7 trillion by 2019.
But if interest rates remain at current levels, interest payments will still be relatively manageable: $290 billion in 2015 and $355 billion in 2019.
Full article here
As published on weeklystandard.com on March 2, 2009:
Transforming a portion of the nation’s trucking fleet from diesel to natural gas would save roughly $32,000 per year in fuel costs. So why, even in these credit starved times, doesn’t the trucking industry begin the switch from diesel to natural gas?
Barack Obama met his President’s Day deadline for getting a stimulus bill to his desk. As soon as it was passed, the administration started backpedaling on how stimulating it will actually be. Instead of January’s projection of 4 million jobs and unemployment peaking in the third quarter of 2009, White House officials are now on the talk shows saying that it will take years for its positive effects to show up. That is kind of late for admitting that their critics’ observations about the bill were right. Maybe they’ll do better next time, and if they keep on schedule we’ll soon find out, as congressional action on setting a new energy policy should occur next month. Let us hope that March’s action is more energizing than February’s was stimulating.
Read the full article here
As published on weeklystandard.com on February 23, 2009:
Lack of a plan is only one of the problems with President Obama’s economic strategy.
Elections have consequences. That is what democracy is about after all. Barack Obama is correct when he states that his victory last November gives him the right, or more specifically the power, to have things his way when it comes to handling the nation’s economic challenges.
The country, moreover, could use some decisive economic action. The financial system is a mess, unemployment is rising and will keep increasing. The government will likely run a deficit of 10 percent or more of GDP both this year and next–roughly twice the share of the Reagan deficits and roughly three times the size of President Bush’s deficits. To fight the credit contraction, our central bank is expanding its balance sheet at a pace that might lead a visitor from another planet to confuse the United States with Argentina.
This makes it all the more frustrating that less than a month into his presidency, Obama has made a complete hash of economic policy, utterly squandering his mandate in a series of missteps that suggest he has not made the transition from campaigning to governing. This, even as Obama never stops reminding us in his constant televised appearances that the economy is slipping fast and time is of the essence.
Read the full article here
As published on WSJ.com on January 29, 2009:
For a similar amount of money, we could give workers $1,500.
Congress and the Obama administration seem near to deciding the details of an economic stimulus package. Unlike the efforts of President Ronald Reagan and President George W. Bush, who also inherited declining stock markets and shrinking economies, this package is heavily weighted toward direct government spending, transfers to state and local governments, and tax changes that have virtually no effect on marginal tax rates.
Today the Reagan tax cuts are widely viewed as successful. Opinions on the longer-term effects of the Bush tax cuts are more diverse, but the short-term effects of the 2001 and 2003 cuts are generally credited as having been well-timed.
And what of the plan being put forward now? As crafted, it is unlikely to produce the desired results. For a similar amount of money, the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker making $50,000, with a similar amount going to his or her employer. It would provide a powerful stimulus to the spending stream, as well as a significant, six percentage point reduction in the tax burden of employment for people making less than $100,000. The effects would be immediate.
Read the full article here