Private property ... is a Creature of Society, and is subject to the Calls of that Society, whenever its Necessities shall require it, even to its last Farthing, its contributors therefore to the public Exigencies are not to be considered a Benefit on the Public, entitling the Contributors to the Distinctions of Honor and Power, but as the Return of an Obligation previously received, or as payment for a just Debt. -- Benjamin Franklin
Tuesday, December 23, 2003
MAXSPEAK HAS MOVED and adopted Moveable Type. Now there is a real RSS feed and the big-ass blogroll is back. This is the new place. For now, archives will stay on the old pages.
Sunday, December 21, 2003
Thursday, December 18, 2003
Don't kid yourself -- whoever wins, taxes rise
You heard it here first: If President George W. Bush wins a second term, he will sign a tax increase into law. If a Democrat wins, you can expect the same. The budget is far too out of whack for any other outcome.
Growing deficits will eventually begin to damage the economy, probably with interest rate spikes followed by turmoil in industries like housing and auto.
The Bush administration says spending discipline can forestall the projected deficits. The fact is that high and growing deficits remain in the cards even with extraordinary spending restraint. Without tax increases or politically unpalatable service cuts, the only source of savings is a gigantic, wholly improbable 75 percent cut in so-called "discretionary spending" -- the kind of spending used to finance rockets to the moon.
Of course, Congress just added a new entitlement -- the drug benefit. Unless they opt to pay for it by reducing benefits for the tens of millions of baby boomers who will be retiring soon, the only alternative is tax increases.
If we put aside for the moment the current ridiculous fiscal path we're traveling thanks to the ill-advised 2000 tax cuts, there's a pleasant surprise even for the tax cutters. If we use pre-2000 tax law as our benchmark, we can preserve some tax cuts and regain enough revenue to improve the budget situation.
How to do it? The first goal should be simplicity. What are the chief sources of complexity in the income tax? One is the different tax rates for different kinds of income. Capital gains and dividends receive more favorable tax treatment than wages. Tax all income alike -- it's simple and fair.
Second, the 2000 rate reductions have to be reversed, starting at the top.
Does the result have to be spinach? No. The 1993 Clinton tax increase was leavened by expansion of the Earned Income Tax Credit (EITC). Folding in some tax cuts can take the edge off the difficult, inevitable political exercise of revenue recovery.
Once again, simplicity and fairness are the watchwords. For most people, the greatest source of complexity is the tangle of tax benefits for families with children -- in particular, exemptions, the Child Tax Credit, and the Earned Income Tax Credit.
The solution is to simplify, consolidate and expand tax credits for kids. First, for every dollar of the parents' earnings, starting with the first, allow a credit of 50 cents, up to a maximum of $2,000. Second, allow a credit against the payroll tax for every worker through the income tax. This combination would preserve the lion's share of "middle class" tax cuts already passed, while helping those who have yet to see any such relief.
Reps. Dennis Kucinich, Barbara Lee and Bernie Sanders have introduced legislation along these lines in Congress. Sometimes criticized as out of the mainstream, these members are ahead of the curve this time. It is President Bush and the vast majority of legislators who have acquiesced to a patently unsustainable fiscal policy.
Thinking out of the box is the preferred order of the day, because inside the box, budget policy is out of this world.
Link. (free subscription required)
RODNEY DANGERFIELD AND THE PUBLIC DEBT. [Revised from original to correct stupid mistake.] How big is it? Lemmee tell you, it's so big that if it was my brother, he could sit on the George Washington Bridge and dangle his toes in the water . . .
But seriously folks. I've gotten a few queries on this. First a simple point. The deficit is the annual change in the debt. If you think of water running into a sink, the level of the water is the debt. The water coming out of the faucet is out-go, and the water running down the drain is in-go. (This isn't the greatest analogy because 'in-go' in this sense is spending, and 'out-go' is receipts.) The difference between in-go and out-go is analogous to the deficit for any given time period. More out-go (liquidation of liabilities) than in-go is a surplus, and conversely more in-go than out-go is the policy of the Bush Administration. In other words, debt is a stock and deficits (or surpluses) are a flow.
Typically the deficit is cast in annual terms. Debt is like your net worth, wherein the difference between your income and spending over the course of a year is saving, and saving increases net worth. Negative saving, or dissaving, decreases net worth. Net worth below zero makes you a net debtor, just like the U.S. Gov and our 51st state -- Iraq.
That was the easy part. The most common confusion about the Federal debt is between gross and net. Gross debt includes holdings of the government's trust funds, particularly for Social Security and Medicare. It is money the government owes to itself. Right now the trust funds are bulging, so gross is higher than net. Those who want to get folks riled up about debt use the bigger number. For Fiscal Year 2003, which ended in September, the gross debt was $6,838 billion, and net debt was $3,986 billion. The best source for this sort of thing is here.
Net debt is the number that matters most. It reflects the extent to which the Gov is in hoc to outsiders. When the Gov borrows from others, there are potential economic effects (typically exaggerated, but that's another story). The Gov borrowing from itself is of no current economic consequence.
Presently the debt/GDP ratio is under 40 percent. In principle, it could stay there indefinitely. The Gov could borrow more every year, forever. Just not too much too fast. At a given interest rate, interest on a fixed 40 percent of GDP would also be a fixed share of GDP. Imagine your rent is 25 percent of your income, and then both double. If you could afford 25 percent at a lower income, you could as well at a higher income. Debt and interest can grow as fast as GDP forever.
Under Bushist fiscal policy (assuming the tax cuts are made permanent and defense spending continues to rise), the debt/GDP ratio is projected to rise from 40 to 50 percent over the next ten years. That's what we call an unhealthy trend. If it stopped at 50 and stayed there, it would not be a huge problem. But if tomorrow financial markets think otherwise, their reaction will be a problem for the economy as a whole.
If the Gov owes the trust funds a lot, isn't that a problem? No. The real issue is the projected pace of debt service and debt liquidation. In 2018 or so, the Social Security trust fund is projected to cease to run a cash surplus. At that point, some of the interest it collects from the Gov on its bonds must be paid in cash so that all of the program's benefits can be paid out. At that point, thanks to G. Bush, there may be no extra cash outside of the program. If so, tax increases or spending cuts will be required to finance benefit payments. The question is how much, how soon, and how fast. In and of itself, the level of gross debt is irrelevant. The Gov is not like a family.
By contrast, under conservative fiscal policy, you would balance the budget over the business cycle. In this scenario, debt would decrease in absolute terms on average, and thus decline relative to GDP. A variation on this theme would be for the Gov to institute a capital budget, wherein it could borrow for capital expenditures but otherwise balance the operating budget. Although advanced by liberals, this is not what I would call a progressive option. It still caters to a balancing principle. The only difference is that the capital component is balanced over a longer time period -- the useful life of the asset. In capital budgeting, your interest on debt used to finance investment is charged to the operating budget, along with intangible depreciation of the investment asset.
The rule of maintaining a fixed debt/GDP ratio allows for a more expansive welfare state. It is fiscally responsible, but short of constipated. I predict that President Howard Dean will come to see the wisdom of this notion, once he confronts the mess he has to clean up.
Wednesday, December 17, 2003
ON THE FRUITS OF HUMANITARIAN INTERNATIONALISM: THE CASE OF PANAMA. I've been challenged on the benefits of the invasion of Panama in 1989. In my post, the careful reader would have noted that I made no claims as to benefits or lack thereof. My claim was that ex post, the U.S. didn't much care whether there were any benefits. My admittedly weak evidence was a personal failure to recollect any post-invasion interest. This was all tertiary to the main points in the post, but some folks are easily distracted.
Anyway, back to the conquest. It goes to the value of U.S. government claims to being a force for liberation. Has Panama improved since the invasion?
We might note first that the demon targeted in this effort -- Manuel Noriega -- had been a U.S. client. So the pre-invasion evils were partly an artifact of U.S. policy. Cleaning up your own mess is not an unblemished accomplishment, since you made it in the first place. Letting bygones be bygones, here's an excerpt of a report from Human Rights Watch:
The ouster of General Manuel Noriega in December 1989 and the installation of the democratically-elected coalition government of President Guillermo Endara brought high hopes in Panama that a long period of disrespect for law and the civil rights of the Panamanian people had come to an end. Today, more than a year later, those hopes have been displaced by widespread belief that the government has performed miserably in addressing the country's most pressing human rights problems, and is incapable of administering its judicial system either fairly or efficiently. Indeed, despite continuing material hardship and the absence of any significant improvement in the economic fortunes of most Panamanians, opinion polls attribute the government's precipitous fall in popularity over the past year most of all to the public's perception that its government has failed to provide one commodity as essential as any other: justice. . . .
There are other assessments, such as from Freedom House. But a quick look at the big-shots behind FH reveals a bipartisan cast of highly-placed U.S. foreign policy operatives. I would not expect such an organization to provide unvarnished assessments of the fruits of their policies. I happen to know a fellow who works there. He was at school with me 30-something years ago. He used to come to our meetings and take notes, follow us around. But that's just a personal thing. I knew of and discounted FH long before I knew one of our campus snoops had taken up residence there.
As frequent visitors to this site are aware, I have not been a purist on U.S. interventions. I've supported them in the past on a case-by-case basis. The Panama conquest did not past muster.
UPDATE: A commenter notes the report linked to is old. Here is a statement from the Committee to Protect Journalists and another from Reporters Without Borders. There's a piece from the Fellowship of Reconciliation on Panamanian politics. Here's an online chapter from Deterring Democracy by some guy named Noam Chomsky. Here's some critical stuff from Amnesty International, admittedly on a secondary issue (unless you're someone directly affected). More on Panama's judicial system. Political scandals.
I don't think there is anything special about Panama, as Latin and South American countries go. I wouldn't dispute that the elimination of Noriega in and of itself was a good thing, but these deeds are never in and of themselves. The outcome ought to be weighed against the loss of innocent lives from U.S. bombing, and the potential of alternative means, but in debates with jingoists it never is. We are still left with the fundamental problem of whether wars of choice, even in a defensible cause, are appropriate undertakings. Nor can we escape the issue of motive. Bad motives are likely to produce bad policy and bad outcomes. Why did we really invade Panama? Here's one explanation from the Chomsky link:
A similar conclusion was reached, more broadly, by Col. (Ret.) David Hackworth, a former combat commander who is one of the nation's most decorated soldiers. He described the Panama operation as technically efficient, though in his judgment "100 Special Forces guys" would have sufficed to capture Noriega, and "this big operation was a Pentagon attempt to impress Congress just when they're starting to cut back on the military." The National Security Strategy report of March 1990 lends credibility to these suggestions.*
*John Morrocco, ibid.; Hackworth, interview with Bill Baskervill, AP, Feb. 25, 1990. March 1990 report, see chapter 1, section 2.
Tuesday, December 16, 2003
And don't forget Jewish Voice for Peace.
A HELPFUL GUIDE TO WHAT'S LEFT: ECONOMIC POLICY.A HELPFUL GUIDE TO WHAT'S LEFT: ECONOMIC POLICY. There is a merry little thread over at Matt Yglesias on the leftness of blogs in general and left bloggers in particular.
We should dispense with a straw man -- the idea that sharpness of partisan rhetoric has something to do with how left someone is. The implication here is that if you call G. Bush a bad president, you're a moderate, whereas if you call him an S.O.B., you're radical. No no no. Political classification ought to go to substance and policy, not rhetoric. A better example is that if you criticize Bush for unbalancing the budget, you're moderate (in either conservative or liberal terms). If you attack him for failing to double non-defense spending for human needs, then you're more to the left. Democratic centrists can be pretty ferocious when it comes to partisanship, especially with an election at stake. In principle, from a moderate standpoint you could reject every policy undertaken by the Administration.
In general what should be called left v. liberal in economics comes down to market intervention. Liberals support tax and transfer policies and public spending but (relatively speaking) shy away from market regulation, especially in the realm of trade. Liberals think you should balance the budget over the business cycle, uphold a minimum wage, expand environmental protection, and absolutely leave trade alone. They also think you should let the Federal Reserve do whatever it likes, to preserve its "independence" (sic) from politics. For liberals, labor is just another "interest group" -- something to superintend and care for, given the limits implied by fiscal moderation, free trade, and Fed supremacy.
The constructive leftist is amenable to deficit finance, as long as debt does not grow too fast. She is more amenable to regulation and a European-style public sector (i.e., 40 percent of GDP, rather than less than 30% as in the US). She would like to incorporate social clauses on human and labor rights and environmental standards into trade agreements. She would like to restructure the Fed towards democratic norms. She looks to labor for industrial action in defense of economic justice, not obedience to Democratic Party orthodoxy.
The liberal is able to reconcile notions like labor, women, and race under a general rubric of benign indifference. All must be treated fairly, where fair is defined as adherence to anti-discrimination laws. Such laws tend to be limited to the overt and superficial. You have a right to stay in any hotel you like, but you have no right to an ability to afford to stay in any hotel.
By contrast, the leftist elevates labor to a central place in social transformation and wrestles with fundamental sources of inequality rooted in race and gender. Obviously, important problems remain to be solved. The left chooses to be preoccupied with such problems. The liberal is more resigned to the status quo, mostly I would say out of a sense of pragmatism and pessimism, not bad faith.
Liberalism was corrupted by the Clintons. Under Clinton, deficit reduction and so-called free trade were transformed into the be-all and end-all of economic policy. This was extreme, though at least it was heartfelt. But there was also the advancement of policies for narrow political ends. Welfare reform is the best example. There was also demagogy about shrinking government; in reality, civil service positions were cut while contracting grew apace.
By this standard, I would classify almost all of the big left-of-center blogs as liberal, not left. "And there's nothing wrong with that . . . " I am not trying to expel anyone from "the movement" or call anyone fake. The movement is mostly liberal to begin with (including most of the kids who go to anti-globalization and anti-war rallies). I would like people to see the difference, the better to comprehend what is truly left, as opposed to what sounds left.
UPDATE: Another thought I should have included. When it comes to inequality, liberals tend to oversell equality of opportunity, in two respects. First, they tend to overestimate the extent to which better education actually expands opportunity. This question lends itself to empirical study. There is no question that anyone is better off with more rather than less education, and nobody left of center would be against more resources for education. But there is at least some evidence that more education does not close gaps by race or gender. The second respect is that money that improves schools is inadequate, in light of disadvantages outside of school that widen inequality of opportunity. There is evidence for this as well.
By contrast, the left views poverty and inequality as more a question of power. One person's want is another's advantage. There was a great program along these lines on public TV some years ago. Unionization is not seen as social policy by liberals, but as the study linked to earlier today shows, market wages for full-time work leaves many poor. Unionization is an anti-poverty program.
The left is criticized for favoring "equality of result" rather than opportunity. The implication is that those so favored are undeserving, unqualified. This assumption is used to prove itself, in rebuttal to actual demographic data on qualifications. A fair selection process for jobs or other opportunities would roughly conform to demographics (including factors going to qualifications, such as education). When results are observed that diverge radically from what we could expect, there is a case for government intervention. Fairness or its lack derives from where the power to control selection is.
Monday, December 15, 2003
YES BUT. So far I've seen "yes, but" statements from Max Boot in the LA Times, Eliot Cohen in the WSJ, and Lawrence Kaplan in The New Republic. Also that Bush person. We confidently await their denunciation by the usual jingoist hacks and clowns.
OPEN LETTER TO "AMERICANS FOR JOBS. HEALTH CARE, AND PROGRESSIVE VALUES":
To Whom It May Concern:
As a lifetime progressive liberal, I'd like to say you suck, big time. Say hi to Zell Miller for me.
Max B. Sawicky
TRIUMPHALISM. Once again, the Morale Police are braying. If you don't display unalloyed euphoria at the capture of Saddam, there is something wrong with you. If you do but are anti-war, there is still something wrong with you. Unless you're President Bush. He is allowed to say "Yes, but . . " and point out that violence and U.S. fatalities will continue, notwithstanding today's good news.
To reinforce the notion that anti-war means pro-Saddam, we get anonymous quotes dredged up from Democratic Underground, or otherwise out-of-context phrases lifted from a smattering of liberal blogs. Lies and the lying bloggers who tell them. This is what used to be called scoundrel time.
The purpose is obvious: to win an argument about the wisdom of the war without recourse to the merits of the case. The main theme is the demonization of those who disagree. The secondary line is deference to the implied march of history. It must have been a good idea because we have won. But Saddam's capture does not create weapons of mass destruction that didn't exist. It does not generate some collaboration with Al Queda that has yet to be demonstrated. Most important, it does not support the claim that Iraq was a threat to the U.S. The inescapable fact remains that the war was prosecuted under false and hypocritical pretenses.
Saddam is a brute without whom the Iraqis are better off, but his brutality was supported by the U.S. government. Why does that matter now? Because as we speak, brutality in other countries is being enabled by the U.S. government, in our names. Accountability for brutality here is incomplete. Most important, the U.S. commitment to set things right in Iraq is problematic. All you have to do is look at Afghanistan.
There are respectable arguments for the war, and reasonable people advancing them. That's not what this post is about. After all, the capture has no bearing on the merits of the whole enterprise, one way or the other. U.S. military victory was never in doubt.
Jingoist chicken-hawks are having their day. But it is a certainty that this week, another American will die in this war of choice. Some may see that as an acceptable price for Saddam's date with the executioner. I don't. You see, when you buy the capture, you buy the whole package. You buy the ongoing toll in American lives. You buy the kids in Walter Reed missing assorted limbs. You buy the war profiteering. You buy the Federal budget mess. It's not like a cafeteria where you can skip the broccoli and head straight to the dessert tray. It all goes with the territory.
Now more than ever: Bring the troops home.
Sunday, December 14, 2003
MAXSPEAK PERPLEXED. Why, in the wake of an event that could be interpreted, albeit by stupid people, as an ideological victory, does the Right get even more vicious towards those who reject their point of view?