Category Archives: Politics

Raise rates or cut loopholes?

Tyler Cowen on Kevin Drum:

Is it better to raise rates or cut loopholes? Maybe conservatives should be preferring the boost in rates. From Kevin Drum:

…which is simpler and easier, raising rates or closing loopholes? I’d say raising rates is easier, and if it’s done now it will make it harder to raise them again in the future. This means that if Democrats want to soak the rich again, they’ll have to do it via closing loopholes, which is a harder lift.

Second, there’s Coburn’s point. If you want to have any chance at all of broadening the base and lowering rates in the future, you can’t close loopholes now. You need to leave them there as bargaining chips. Tax reform will be more likely if rates are higher (making them easier to lower) and loopholes are all still intact (giving you plenty of stuff to close in return for lowering rates).


DC Taxi Commission Still Gunning for Uber

I’m a fan of the Uber startup. For a running expose of the corrupt Washington DC politics, there is no better source than Megan McArdle:

As I chronicled in the Atlantic six months ago, upstart limo dispatch service Uber is embroiled in a long-running war with the DC taxi commission. Uber allows you to order a sedan service from your smartphone, and is much beloved by affluent DC DINKs. It is also a favorite of the limo drivers, who like being able to get rides at good pay rates, and without paying kickbacks to the dispatchers. A couple of nights ago, I took an Uber to a work event (you still can’t reliably get a cab in my neighborhood), and the driver told me that he’d just bought the shiny new Lincoln he was driving to strike out on his own. Uber is what made that happen, according to him; under the old system, it was hard for drivers to go solo, because there are network effects in black car services-; large services tend to get most of the clients. He was beaming as I inspected his brand new wheels, as proud of that car as if he’d baked it himself.

However, Uber is not beloved of DC taxi drivers. As Bob McNamara of the Institute for Justice told me, “Like any other business, taxi drivers think it would be great if no one could compete with them.” Taxi drivers and owners provided a lot of support for our current Mayor, Vincent Gray, in his hotly contested primary race with former Mayor Adrian Fenty. (They also seem to have offered some illegal support to the city council staff; one member’s former aide got jail time for accepting bribes.) The commission has become quite cosy with the industry incumbents in recent years, to the point of issuing a de-facto moratorium on new taxi and limo licenses. The election did nothing to reverse that relationship.

The taxi commission has been gunning for Uber since last year, when they launched a “sting” featuring Commission head Ron Linton, which ended in the unlucky driver having his car impounded. Originally they said the service was illegal because you couldn’t use a black car to charge for time and distance; when Uber’s supporters pointed out that the taxi code contained a “sedan” designation that seemed to allow black cars to do just that, they suddenly came up with a new rationale: Uber was illegal because it didn’t offer you a paper receipt. I was unable to find an Uber customer who expressed any desire to have a paper receipt, but perhaps they are out there, frantically lobbying the taxi commission.


Obsolete Law—The Solutions, part of “America the Fixable”

Our founders didn’t anticipate that it would be much harder to repeal a law than pass it in the first place. Here’s how we can revise the status quo and build a more efficient democracy.

I just received an email from Common Good alerting me to a special report at The Atlantic “America the Fixable“. I’ve only had time to read Philip K. Howard’s introductory article – I hope all are this good. Philip begins with this: 

The regulatory state exists because of the practical necessity for a traffic cop to oversee common resources and enforce minimum norms of safety and fairness. This is a dynamic role, requiring government to be an active umpire in a crowded world, adapting to new challenges while keeping its own house in order.

But America’s massive, convoluted, rigid legal structure makes it almost impossible for government to do this job sensibly and within budget. Laws are piled upon laws, making adaptation essentially illegal. Congress doesn’t clean out the stables in part because of a constitutional flaw — our founders didn’t anticipate that it would be much harder to repeal a law than passing it in the first place. Bureaucracies don’t clean out regulations for the additional reason that the agencies become inbred, and are run by people who do things this way because that’s how it’s always been done.

The regulatory state has taken a life of its own, insulated from democratic accountability by thick walls of law. The status quo is defended by legions of lobbyists on K Street and by a million or so lifetime bureaucrats who can’t imagine any other way of doing things. Want to do something different, like, say, balance the budget? Sorry, old laws and mandates stand in the way.


Six policies economists love (and politicians hate)

John Cochrane found this gem: Six policies from NPR: “‘Six policies economists love (and politicians hate)’ From NPRs Planet Money:

The Planet Money team got together a group of economists from widely differing political backgrounds, and came up with this very nice list of policies the economists all agreed on–which are all regarded as hopeless in the standard political debate.

  1. Eliminate the mortgage tax deduction.
  2. End the tax deduction companies get for providing health-care to employees.
  3. Eliminate the corporate income tax. Completely.
  4. Eliminate all income and payroll taxes. … Instead, impose a consumption tax.
  5. Tax carbon emissions. 
  6. Legalize marijuana.


For more details on each proposal, see the NPR blog post.

Truth will out. Won’t it?

“Area Man Passionate Defender Of What He Imagines Constitution To Be,” read a recent Onion headline. Like the best satire, this nasty little gem elicits a laugh, which is then promptly muffled by the queasy feeling of recognition. The last five decades of political science have definitively established that most modern-day Americans lack even a basic understanding of how their country works. In 1996, Princeton University’s Larry M. Bartels argued, “the political ignorance of the American voter is one of the best documented data in political science.”

This brief essay on the disconnect between voting and critical thinking was written by Joe Keohane for the Boston Globe. I found Joe’s piece thanks to a tweet from physicist Jeff Terry. The Keohane piece does a nice job of summarizing for the general audience what is well-known to public policy researchers.

On its own, this might not be a problem: People ignorant of the facts could simply choose not to vote. But instead, it appears that misinformed people often have some of the strongest political opinions. A striking recent example was a study done in the year 2000, led by James Kuklinski of the University of Illinois at Urbana-Champaign. He led an influential experiment in which more than 1,000 Illinois residents were asked questions about welfare — the percentage of the federal budget spent on welfare, the number of people enrolled in the program, the percentage of enrollees who are black, and the average payout. More than half indicated that they were confident that their answers were correct — but in fact only 3 percent of the people got more than half of the questions right. Perhaps more disturbingly, the ones who were the most confident they were right were by and large the ones who knew the least about the topic. (Most of these participants expressed views that suggested a strong antiwelfare bias.)

Studies by other researchers have observed similar phenomena when addressing education, health care reform, immigration, affirmative action, gun control, and other issues that tend to attract strong partisan opinion. Kuklinski calls this sort of response the “I know I’m right” syndrome, and considers it a “potentially formidable problem” in a democratic system. “It implies not only that most people will resist correcting their factual beliefs,” he wrote, “but also that the very people who most need to correct them will be least likely to do so.”

And if you harbor the notion — popular on both sides of the aisle — that the solution is more education and a higher level of political sophistication in voters overall, well, that’s a start, but not the solution. A 2006 study by Charles Taber and Milton Lodge at Stony Brook University showed that politically sophisticated thinkers were even less open to new information than less sophisticated types. These people may be factually right about 90 percent of things, but their confidence makes it nearly impossible to correct the 10 percent on which they’re totally wrong. Taber and Lodge found this alarming, because engaged, sophisticated thinkers are “the very folks on whom democratic theory relies most heavily.”

Joe’s essay is a bit misleading – he implies that ignorant voters are peculiar to the USA, but doesn’t offer any evidence. Our travels do not support the thesis us that Yanks have a lead in the competition for least-informed voter. Regardless of domocile, most people seem to have their priorities centered around making enough income to get their children the best education they can. As true of a Kenyan as a Kiwi farmer. Becoming seriously well-informed carries a real opportunity cost. Which is an inherent weakness of the imperfect scheme of democracy. Better offers?

Italy: Monti stands up to unions

The Italian PM is showing real leadership, such a rare quality in politics:

Italian Prime Minister Mario Monti walked away last week from negotiations with Italy’s labor unions and announced that he was going to move ahead with reforming the country’s notorious employment laws—with or without union consent. If Rome is spared the fate that recently befell Athens, mark this as the week the turnaround began.

Italy’s labor laws are some of the most restrictive in the Western world. The totemic Article 18 all but bans companies with more than 15 employees from involuntarily dismissing workers, regardless of the severance offered. Mr. Monti has proposed replacing this job-for-life scheme with a generous system of guaranteed severance when employees are dismissed for “economic reasons.”

In most of the free world, this would count as a useful, albeit mild, reform. Among other weaknesses, the new law would not affect a worker’s right to challenge his dismissal in court when fired for disciplinary reasons—an unreciprocated gift to the unions.

But standing up to Italy’s labor unions takes courage, and not only of the political sort. Ten years ago this month economist Marco Biagi was gunned down by left-wing terrorists for his role in designing a previous attempt at labor-market reform. Today, Mr. Monti’s move has prompted calls for a general strike from CGIL, Italy’s largest union confederation.

(…) Postwar Italian politics has chewed up more than a few would-be reformers while career politicians and union leaders enjoy the spoils of power. The difference with Mr. Monti is that he didn’t take this job to be a caretaker PM. If he means to make his current reform the first, not last, step in a more ambitious agenda for reviving Italian growth, he could make his one term in office a great one.

A general strike… what a surprise. Read the whole thing »

Where your money goes

John Cochrane wins the February chart-of-the-month prize with this chart and discussion:

Two nice graphs from the New York Times

Comment: Now, could we please stop talking about how we need more taxes to pay for roads and bridges or to help the poor? The main function of our government is to write checks to middle-class and wealthy voters. And that’s the reason its finances are in the toilet.

This means Elizabeth Warren, for example, who said a factory owner needs to pay more taxes because “you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for.” Answer: you paid for that long ago. That’s not where the money is going.

This means Robert Frank, whose NYT “Economics view” argued for “higher taxes needed for improved infrastructure” and claimed “when the anti-tax wealthy make campaign contributions, they are buying only the deeper potholes and dirtier air that inevitably result when tax revenue is low.” No, that’s not where the money is going either.

Read the whole thing »

Very good sentences

Pres. Obama should read Tim Harford via Tyler Cowen:

From Tim Harford, about the UK:

…as Mr Summers pointed out, even China seems to have been shedding manufacturing jobs over the last couple of decades. Perhaps the data deceive here, but the Chinese manufacturing boom seems to be more about increasing output per worker than employing more workers. If the Chinese can’t generate jobs through manufacturing I am not sure we should be expecting too much from that strategy.

Nosedive in Budapest: The Political Origins of Hungary’s Economic Crisis

(…) “Anyone who has cash at the moment can buy a lot of things for very little money in Hungary.” Signs that read “eladó” (For Sale) hang on houses, ruined buildings and cars all over the country. But there are no buyers.

This is a followup to my last post on Hungary based on the essays by Jakab Andor. Today Spiegel Online posted an informative analysis by Clemens Höges, who describes the process by which Hungarians lost their democracy. Lesson don’t elect a 2/3 majority who can rewrite the constitution to keep power. Excerpts:

Not Abiding by Deficit Rules

Hungary is running out of money — and the economy is faltering badly. Rating agencies have downgraded the country’s sovereign bonds to junk status, and creditors are now charging the government about 10 percent in interest on new loans. Last week, the European Commission even threatened to withhold funds in 2013, arguing that Budapest is not abiding by the deficit rules.

But the country’s real problem is Viktor Orbán. The German newspaper Die Welt has called the right-wing nationalist prime minister of European Union member state Hungary, whose Fidesz Party holds a two-thirds majority in parliament, a “Puszta Putin,” a reference to the plains of Hungary. A new constitution, which guarantees him a frightening amount of power, has been in effect since Jan. 1. Orbán has removed the word “Republic” from the country’s official name, which is now simply “Hungary.” His supporters are staunchly behind his “national revolution.”

A new media law intimidates critical journalists, and some have already been fired. Orbán has also enacted new laws that have forced the courts to bend to his will. He has reduced the powers of the country’s Constitutional Court, and judges are now appointed by an agency headed by the wife of a fellow party member. Orbán now wants to force older judges — in other words, those who were not appointed by his party — into early retirement.

The calamity began in May 2006. Gyurcsány, still a Socialist at the time, had just won the parliamentary elections in another coalition with the liberals. His government ran the country for four years “using the social democratic method,” he says, “raising taxes and spending money.” For example, civil servants received a 50-percent pay raise, and Hungarians were led to believe that this was how things would continue. It was also what Gyurcsány had promised during his election campaign. But he knew that, in fact, this was not a sustainable situation.

To address his concerns, he invited members of his parliamentary group and a few experts to a government retreat on Lake Balaton. He told them how things stood with the country’s finances. “But they didn’t understand me. They kept insisting and after three hours, I couldn’t take it anymore.” Then, he erupted. With the doors closed and no journalists in the room, Gyurcsány said that he and the party had lied to the people. “We lied in the morning, in the evening and at night.”

In the ensuing weeks, he forgot exactly what he had said at the retreat, but someone had brought along a recording device, and it all came out in September. It was a massive scandal, bringing protesters into the streets and giving Orbán numerous opportunities to humiliate the prime minister. But Gyurcsány had been elected, and he followed through with his austerity program. Then came the economic crisis, and Gyurcsány had to save even more money.

(…) If Gyurcsány had called for new elections earlier, at least Orbán would not have achieved the two-thirds majority that has allowed him to rewrite the constitution as if it were a piece of scrap paper, says András Vértes. “As a result, we now have more of a political than an economic problem.” Vértes, who is not aligned with any party, was considered as a transitional premier after Gyurcsány’s resignation. But he told the members of parliament that if he were appointed to the position, he would only bring experts into his government, not politicians. He also insisted that every member of his parliamentary group sign a pledge stating that they would not vote against these experts for an entire year.

It killed his prospects. Vértes laughs, as he sits between palm trees in the offices of GKI, the economic research institute he heads. The country’s largest, it works primarily for the European Union, with Vértes and his team keeping Brussels informed about what is happening in Hungary.

‘We’re at an Impasse’

Orbán is unpredictable, his policies are arbitrary, and he is playing around with the economy, of which he has little understanding, says Vértes. For example, Orbán imposed a special tax on banks that “practically eliminates their profitability.” The tax appeals to many Orbán supporters, because they already see bankers as gangsters. The premier is forcing a crisis tax on major companies mostly in the telecommunications and energy sector — also a popular idea, because it mainly affects foreign companies. Orbán has introduced a 16 percent flat income tax which, says Vértes, benefits high income earners and is disadvantageous to ordinary citizens.

The consequences, says economist Vértes, are that the banks no longer lend money, the telecommunications companies are hardly investing anymore, and consumer spending is taking a hit. “Now we’re at an impasse.”

Read the whole thing »