Conservative Logic

An economic guide to politics, designed for post-Baby Boomers

Lightning Round

Posted by A Hamilton on June 30, 2008

I’m way behind on posting, so here is the lightning round – articles and commentary that I’ve run across that raise interesting and relevant insight – moving past the sound bites and obfuscation, and directly addressing the realities of today’s economy, foreign policy, war, etc.

The Productivity Revolution

This excellent article from the Wall Street Journal shows why protecting manufacturing jobs is not good policy, and why the disruptions that losing these jobs cause is a natural consequence of increasing American productivity.

Manufacturing versus productivity

“Look at the chart nearby. America’s manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it’s likely that you don’t and won’t.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it’s accelerating.”

Death by Entitlement

“Last month, the Congressional Budget Office (CBO) analyzed the growth of government spending and deficits for Rep. Paul Ryan (R.-Wis.), ranking member of the Budget Committee. The report estimated that spending on Medicare, Medicaid and Social Security, which in 2007 represented about 8 percent of GDP, would balloon to 14.5 percent in 2030 and 25.7 percent in 2082.

There is no way that can fly.

If you add in all other spending, including interest on the debt, federal spending under the CBO’s scenario would eat up an astounding 75.4 percent of GDP in 2084.

If taxes don’t keep pace, the CBO says the “additional spending will eventually cause future budget deficits to become unsustainable …”

And if taxes were to keep pace? The CBO says, “[T]ax rates would have to more than double.”

Here’s the source.

So guess who gets to pay the taxes to pay for these burgeoning entitlements? Younger generations of Americans, of course. These programs will fund the retirement and healthcare of older Americans. The taxes to fund them represent such a significant increase that they will be lifestyle-altering for millions of Americans. And still, Washington is intent to maintain the status quo, or even expand, these programs.

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Prioritizing the World’s Problems

Posted by A Hamilton on May 24, 2008

Younger Americans tend to look at the problems of the world and demand solutions. This desire for change and progress is a significant contributor to their political philosophy and political choices.

But we only have limited resources to solve those problems. In a world where reality constrains our ability to drive change, how do we reconcile our policy initiatives with resource constraints?

This article suggests a way — simple cost / benefit analysis — with fascinating implications for real policy.

The pain caused by the global food crisis has led many people to belatedly realize that we have prioritized growing crops to feed cars instead of people. That is only a small part of the real problem.

This crisis demonstrates what happens when we focus doggedly on one specific – and inefficient – solution to one particular global challenge. A reduction in carbon emissions has become an end in itself. The fortune spent on this exercise could achieve an astounding amount of good in areas that we hear a lot less about.

Research for the Copenhagen Consensus, in which Nobel laureate economists analyze new research about the costs and benefits of different solutions to world problems, shows that just $60 million spent on providing Vitamin A capsules and therapeutic Zinc supplements for under-2-year-olds would reach 80% of the infants in Sub-Saharan Africa and South Asia, with annual economic benefits (from lower mortality and improved health) of more than $1 billion. That means doing $17 worth of good for each dollar spent. Spending $1 billion on tuberculosis would avert an astonishing one million deaths, with annual benefits adding up to $30 billion. This gives $30 back on the dollar.

Heart disease represents more than a quarter of the death toll in poor countries. Developed nations treat acute heart attacks with inexpensive drugs. Spending $200 million getting these cheap drugs to poor countries would avert 300,000 deaths in a year.

A dollar spent on heart disease in a developing nation will achieve $25 worth of good. Contrast that to Operation Enduring Freedom, which Copenhagen Consensus research found in the two years after 2001 returned 9 cents for each dollar spent. Or with the 90 cents Copenhagen Consensus research shows is returned for every $1 spent on carbon mitigation policies.

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The Bottom Line on Tax Policy

Posted by A Hamilton on May 24, 2008

As I’ve pointed out before on this blog, there’s a gap between economic interest and voting patterns of younger Americans. I believe that much of this gap is explained by the fact that many younger Americans haven’t been taught the basics of economics. Obviously, this comes into play as we consider tax policy.

This recent article in the Wall Street Journal presents some pretty revolutionary and indisputable facts about tax policy in this country:

The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.” What a pity that his discovery has not been more widely disseminated.

 

Hauser's Law

 

The chart nearby, updating the evidence to 2007, confirms Hauser’s Law. The federal tax “yield” (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an “independence theorem,” and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser’s Law says it will also lower tax revenue. That’s a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

An amazing truth has been revealed by a simple analysis of the data. Raising taxes on the rich will not reduce our deficit or fund more social programs, because it’s revenue impact is negligible.

The only tax poicy that makes sense is one that encourages economic growth.

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I Love Massachusetts

Posted by A Hamilton on May 11, 2008

Really, I do. It’s where I grew up. And Boston has got to be one of the best, if not THE best, city in the country.

But Massachusetts has a bad habit of electing corrupt, incompetent government. From $200 million high schools to release programs for felons who go on to rape children and kill cops, Massachusetts is all about governmental irresponsibility via well intentioned but misguided liberal policies.

I am in MA visiting right now. Last night I ran smack into a prime example of corruption and incompetence and I figured I would blog about it.

Last night I was driving north up I-93 into Boston. For those of you who don’t know Boston, I-93 is one of the two main highways into the city along with I-90. It’s a four lane highway both ways and feeds directly into the Big Dig. Anyway, the geniuses in our state government decided to block off two lanes north (into Boston) for “paving” for about (literally) 10 miles. This caused a massive traffic jam at 9 o’clock on a Saturday night, which I was privileged to sit in for 45 minutes.

(In green terms, that’s a lot of wasted gas and unnecessary emissions. For you economists out there, think of the opportunity cost to the economy (time wasted) of that traffic jam.)

The kicker with this particlar construction project was that, of course, there was no actual paving going on. Not one construction vehicle was even on site across the entire 10 miles, let alone actually paving anything.

That being said, every mile or so there was a state trooper parked with his lights flashing, on “detail” collecting overtime over whatever overtime they already collect on a Saturday night.

That’s corruption and incompetence for you.

This is what happens when you elect someone a candidate with no substance and clever rhetoric to chief executive office.

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The Economy, Stupid

Posted by A Hamilton on May 4, 2008

We’ve all heard how bad it is.

But is it really?

And on Friday, after the most recent jobs report — which produced a much-smaller-than-expected decline in corporate payrolls, a huge 362,000 increase in the more entrepreneurial household survey (the best gain in five months), and a historically low 5 percent unemployment rate (4.95 percent, to be precise) — the president told reporters: “This economy is going to come on. I’m confident it will.”

We’re in the midst of the most widely predicted and heralded recession in history. Problem is, so far it’s a non-recession recession. Score one for President Bush. In an election year, it could be a big one.

First-quarter GDP growth came in at 0.6 percent. It wasn’t the widely predicted decline, and economists expect that number to be revised up. GDP growth for the fourth quarter of 2007 was also up slightly, while the prior two quarters averaged over 4 percent growth….

Interesting — isn’t it? — just how durable and resilient our low-tax, free-market, capitalist economy truly is. Hit by soaring food and energy prices, a bad housing downturn, and a Wall Street credit crunch, the economy continues to expand, albeit slowly.

The media and the Democrats would like us to believe the economy is a disaster. But our economy is cyclical by nature, and this downturn may not even be as lasting as most.

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The Trouble with Obama

Posted by A Hamilton on May 4, 2008

Despite a rather profound dislike of Hillary Clinton’s character and public persona, American Gerontocracy endorses her for the Democratic Presidential nomination — with the firm expectation that Obama will, in fact, be the eventual nominee.

Obama is an emotionally compelling candidate because of his rhetorical gifts and his charismatic presense. But what does he really bring to the table? I think most votes would agree that it isn’t his experience, since he has very little. He has never worked in the priate sector. He has never served in the military. He has basically been involved in local politics for almost his entire life, with the exception of a few years of national service in the Senate. He has zero executive experience. By any objective standard, he isn’t ready to be Commander-in-Chief.

(It’s interesting because when you break it down, Obama has almostnothing in common with the average American — blue collar or white collar. His ethnic backgrund, his international upbringing, his Ivy League education, his lack of true real work experience or military service…. All reflect a life history profoundly different from that of 99.9999% of Americans.)

But, his proponents argue, Obama has better judgement than the alternatives. On that basis, he should earn our votes. But does Obama really have good judgement? And how are we to know if he does, since Obama lacks any track record?

This is why Obama’s relationship with Rev. Wright is relevant. As the Wright issue reemerged front and center over the last week, we’ve been given new insight into Obama’s character and his response to pressure:

But we did gain a new perspective on Wright’s former parishioner, Senator Barack Obama. And it’s not flattering. It took the Democratic frontrunner 20 years–and 50 days since videos surfaced of Wright’s incendiary sermons–to discover that the man who helped him become a Christian, officiated at his marriage, and baptized his two daughters is a conspiracy theory-loving self-publicizer. What does that say about Obama’s “judgment,” on which he largely bases his claim to the presidency?

Worse, one of the main reasons for Obama’s unequivocal split from Wright had nothing to do with the reverend’s hateful ideology. You see, Wright had the temerity to suggest that Barack Obama is just another pol. “What I think particularly angered me was his suggestion somehow that my previous denunciations of his remarks were somehow political posturing,” Obama said. This only confirms Obama’s reputation for being thin-skinned and self-absorbed. 

Months ago, when Wright first became an issue in the campaign, many chose to believe the explanations of the Obama campaign that Wright’s words were taken out of context. That they did not adequately represent the compass of Wright, the man. Even Obama excused him as the product of his times, when he said: “”I could no more disown him than I can disown my white grandmother.” And yet, in the last week, Wright’s words — and actions — have shown him to be an irresponsible radical and a racist. Yes, a racist — per Wright:

On Sunday in Detroit, he explained to 10,000 people at the Fight for Freedom Fund dinner of the NAACP — an organization adept at taking offense at far less racist comments from nonblacks — that whites have an inherent “left-brain cognitive, object-oriented learning style. Logical and analytical,” while blacks “learn not from an object but from a subject. They are right-brain, subject-oriented in their learning style. That means creative and intuitive. The two worlds have different ways of learning.”

Blacks even have better rhythm, Wright explained.

And, in fact, for political expediency, if nothing more, Obama has now contradicted his own words and finally disowned Wright.

Amazing. So where is the spectacular judgement that Obama’s backers tout? I don’t see it. And yet the media continues to go easy on Obama, even as he begins to show more and more of his true character as the pressures of the campaign ratchet up.

It’s tempting for younger voters to fall for the Obama mystique…. But politicians have been fooled before — George W. Bush being the perfect example.

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Thoughts on the War in Iraq

Posted by A Hamilton on April 19, 2008

For many younger voters, the war in Iraq fuels a deep hatred of the Bush administration and, by extension, a general dislike of the Republican party. The problems here are manifest. Young voters believe the Bush administration was dishonest in the initiation of the war. They believe the war has been poorly managed. They believe things aren’t getting better in Iraq, and there is no reasonable chance of success. They don’t have a good grasp on the costs and failures of our previous nation-building efforts (e.g. how many younger voters know that in 1947, years after the end of World War II, over 10,000 Germans starved to death as a result of failed Allied occupation policies?). And maybe most importantly, they don’t have a realistic understanding of the chaos and death that would result if the US were to change course and abruptly withdraw from the conflict.

Here’s an excellent paper on the roots of the war and how realistic it is to solely associate it with the Bush administration and “neo-con” policy:

This [dogmatic liberal] version of events [in Iraq] implicitly rejects another and arguably simpler interpretation: that after September 11, 2001, American fears were elevated, America’s tolerance for potential threats lowered, and Saddam Hussein naturally became a potential target, based on a long history of armed aggression, the production and use of chemical weapons, proven efforts to produce nuclear and biological weapons, and a murky relationship with terrorists. The United States had gone to war with him twice before, in 1991 and then again at the end of 1998, and the fate of Saddam Hussein had remained an unresolved question at the end of the Clinton administration. It was not so unusual for the United States to go to war a third time, therefore, and the Bush administration’s decision can be understood without reference to a neoconservative doctrine. After September 11, the Bush administration weighed the risks of leaving Saddam Hussein in power against the risks of fighting a war to remove him and chose the latter, its calculus shaped by the terrorist attacks and by widely shared suppositions about Iraq’s weapons programs that ultimately proved mistaken.

If one chose to believe this simpler version, then the decision to invade Iraq might have been correct or mistaken, but the lessons to be learned from the war would concern matters of judgment, tactics, and execution—don’t go to war based on faulty intelligence; don’t topple a foreign government without a plan to bring order and peace to the country afterwards; don’t be so quick on the trigger; exhaust all possibilities before going to war; be more prudent. But they would not raise broader issues of foreign policy doctrine and grand strategy. After all, prudence is not a foreign policy. It is possible to be prudent or imprudent, capable or clumsy, wise or foolish, hurried or cautious in pursuit of any doctrine. The intervention in Vietnam was the direct product of the Cold War strategy of containment, but many people who think the Vietnam War was a mistake nevertheless do not condemn containment. They believe the war was the misapplication and poor execution of an otherwise sound strategy. One could argue the same was true of Iraq.

Regardless of how we go into Iraq, we are now there. And there are signs of progress. Younger voters would be wise to reject the tendency of Democrats and media to — in the words of Joseph Lieberman — “Hear no progress in Iraq, see no progress in Iraq, but most of all speak of no progress in Iraq.”  Proper consideration should be given to the facts. The situation in Iraq is far from ideal, or even good. But it does appear to be stabilizing, and the ultimate costs of withdrawal at this stage could be far higher than the costs of maintaining a continued, stabilizing presence.

 

Status of Iraq 1

Status of Iraq 2

Status of Iraq 3

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Why Vote Against Your Wallet?

Posted by A Hamilton on April 19, 2008

We’ve looked at the demographics of American gerontocracy. Of course, the demographics are complicated by voting pattern among younger voters – particularly their tendency to vote Democratic.

Why are these voters so willing to overlook their economic interests when voting?

Clearly, in the specific case of Barack Obama a lot has to do with his charisma and the personality cult that has developed around him. But even beyond the rather scary and disconcerting “Obamaton” phenomenon, younger voters still tend to vote disproportionately for Democrats.

The obvious conclusion is that other, non-economic issues are of greater importance to younger voters, and the Democratic party reflects these interests more effectively than the Republican party. Here’s an excellent article on the issues that are driving the young away from the Republican party.

In 1984 and 1988, first Ronald Reagan and then George H.W. Bush won first-time voters and under-29 voters by big margins: 20 points in 1984. The twentysomethings of the 1980s remain the most Republican cohort in the electorate to this day.

But since 1990, the GOP has lost its connection to the young, and the problem gets worse with every passing election. Today’s twentysomethings are the most anti-Republican age group in the electorate.

Ultimately, I think you can boil the GOP’s failure with younger voters down to a few key elements:

Life experience. Here’s a good article on how younger American experience has been shaped by issues where outcomes have favored Democrats.

One reason is generational change. Almost all voters in 1992 and a large majority in 2000 had vivid memories of the 1970s, when we had both economic stagnation and double-digit inflation — stagflation — and thanks to government price controls, motorists had to wait an hour in line to fill up their gas tanks. Those experiences put the advocates of bigger government on the defensive.

This year, half the voters are too young to have been behind the wheel in a gas line or to have been paying rapidly rising monthly bills with a paycheck eroded by inflation. They have lived all their adult lives — all their lives, in the case of the millennial generation, born since 1980 — in an era when we have had low-inflation economic growth 95 percent of the time.

Social values and the association of the Republican party with evangelical, “fly-over country” Christianity. Public education has convinced many young voters that organized religion is the opiate of the masses. The GOP has complicated its position in this area by taking on untenable policy positions on issues like stem cell research and has branded itself as the party of intolerance by virtue of its positions on homosexuality and abortion.

The war in Iraq. I’ll dig into this more later.

A misunderstanding of economics and history. This isn’t limited to younger voters, of course. But younger voters have been disproportionately shaped by increasingly liberal agenda-driven public education as well as disinformation from liberal media outlets like MTV.

The cool factor. Republicans have failed to develop credibly cool candidates that share common values, perspectives, and experience with younger voters, but present a Republican viewpoint on the issues.

The Republican part needs to do a better job of broadening its appeal and reaching out to younger voters. If it doesn’t, it is jeopardizing its own existence. Ultimately, it comes down to doing a better job at communication and education — coupled with a willingness to demonstrate a greater inclusiveness on important social issues.

With respect to this last point, the Republican party has an ace in the hole — its position on federalism and proper balance between the federal government and state power. Republicans should be arguing that social issues are state issues — what is good for social policy New York isn’t necessarily good for Wyoming. There is an appeal here that can be made to the democratic instincts of younger voters. Rather than tell these voters that say, stem cell research is morally repugnant and demanding federal action on the matter, why not argue that issues like this are only appropriately addressed at the state level, where American diversity is better able to express itself democratically?

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Our Tax Laws are Unfair to the Young

Posted by A Hamilton on April 16, 2008

It’s April 15th. For 2007, I ended up paying 24% of my adjusted gross income to the federal government. As near as I can figure, based on extrapolation from IRS data, the average taxpayer at my same general income level paid an effective rate of only about 15%.

24% versus 15% for the same income level? That doesn’t sound fair. Why the difference?

It’s simple. I’m young. I don’t have children, so I can’t take advantage of deductions for dependents. I’m in good physical shape, so I’m less likely than older people to have significant medical expenses to deduct. And I haven’t purchased a house, so I don’t have mortgage interest — the granddaddy of all deductions — to deduct either. The list goes on.

The problem here is that the tax code is written to benefit older people. You’ll never see the numbers from the IRS, but I guarantee you that at the same income level, the effective tax burden for younger taxpayers is invariably higher than for older taxpayers.

The mortgage interest deduction is particularly galling. Here is a deduction that younger people without homes can’t take advantage of. There is no parallel deduction for rent payments. And the market impact of the mortgage interest deduction is to actually inflate housing prices — thereby making it more difficult for younger people to buy homes in the first place.

Are there any deductions out there designed with young people in mind? The ony one I can think of is the student loan interest deduction. But if your income is above a certain level (which mine happens to be), you’re not eligible for this deduction. I have a friend who could have taken this deduction — but he found it was better to just take the standard deduction rather than itemize. Conclusion: the student loan interest deduction is useless for large numbers of recent graduates who either earn too much or don’t have enough other deductions to make it worthwhile!

As it stands, our tax system is biased and unfair. Once again, America’s younger generations are carrying a disproportionate load. It’s time to close the loopholes that are the source of this unfairness across the board. Implementing a flat tax (above a certain threshold income) that eliminates deductions and other loopholes would create fairness and equality in our tax system that is sorely lacking.

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The Demographics of American Gerontocracy

Posted by A Hamilton on April 13, 2008

The political strength of older voters is fairly well understood in this country. That being said, I thought I would present the actual figures just for the sake of complete clarity. This information is based on data available from the US Census Bureau and covers the 2004 election time frame.

US by Age and Voting Pattern

As you can see from these two pie charts, 60% of the voting population is 40 or older. So purely from a demographic perspective, younger voters are simply outnumbered. Beyond this, people who are 40 or older actually represent a disproportionate percentage of actual voting –67% to be exact. Basically, what this boils down to is that the average voter who is 40 or older is 40.6% more likely on average to vote than a voter under 40.

Here’s how the voting breaks down specifically by major age category:

Voting by Age

Older voters possess overwhelming demographic strength, and they are also more likely to vote than younger voters. The net result is a government which represents their interests at the expense of younger voters. Again, I don’t ascribe any specific malicious intent by older voters to take from younger voters — I think that is just the unfortunate natural outcome given our system of democracy and the way it reflects voting and special interests.

This problem is exacerbated by the simple fact that younger voters generally don’t vote their own economic interests. My next blog post will address this peculiar, self-destructive behavior — its sources, its impact, and how Republicans need to make their message more appealing so that this group understands where its best interests are properly aligned.

 

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