Preparing for the Counter-Attack

If you didn’t catch Glenn Hubbard’s New York Times op-ed, you might want to. It’s a critique of the president’s “bad economic ideas” and a few alternative proposals. I presume that Dr. Hubbard’s op-ed will elicit substantial counter-attacks.

The proposal that caught my attention was his first one:

The first is to move to a simple business tax system, with a lower marginal tax rate and no special industry preferences. There would be no separate corporate tax, only a single business income tax for all businesses. Ideally, investment would be expensed, and its cost deducted in the year it was made, rather than deducted gradually. Businesses would be able to bring back overseas profits free of additional United States taxes. A one-time modest tax on current overseas earning could be used to help finance reform. Such a business income tax would encourage both growth and investment opportunities in the United States, while offering more jobs and higher wages to American workers.

The emphasis is mine. I may be misreading that but it appears to me as though he were proposing that the income of partnerships, S corporations, and sole proprietorships as well as that of C corporations be subject to a business income tax analogous to the personal income tax. Leaving aside the constitutional questions in such a tax which, presumably, would be resolved in how income was calculated, it seems to me that the political backlash from such a proposal would be insurmountable. Every accounting firm, law firm, and medical practice would suddenly be subject taxes they don’t presently have. And it’s something the Congress can understand. Relatively few ever worked for a big company but lots of them are lawyers.

His proposal does have a sort of “if you can’t raise the bridge lower the river” sort of quality to it to the extent that eliminating the corporate income tax appears to be politically impossible however much economic and policy sense it might make. It will result in all income being taxed twice rather than just corporate income. I just don’t think it will fly.

Hat tip: memeorandum

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Signs of the Apocalypse

Tom Friedman endorses the position staked out by Rich Lowry:

Last week the conservative columnist Rich Lowry wrote an essay in Politico Magazine that contained quotes from White House spokesman Josh Earnest that I could not believe. I was sure they were made up. But I checked the transcript: 100 percent correct. I can’t say it better than Lowry did:

“The administration has lapsed into unselfconscious ridiculousness. Asked why the administration won’t say [after the Paris attacks] we are at war with radical Islam, Earnest on Tuesday explained the administration’s first concern ‘is accuracy. We want to describe exactly what happened. These are individuals who carried out an act of terrorism, and they later tried to justify that act of terrorism by invoking the religion of Islam and their own deviant view of it.’

This makes it sound as if the Charlie Hebdo terrorists set out to commit a random act of violent extremism and only subsequently, when they realized that they needed some justification, did they reach for Islam.

The day before, Earnest had conceded that there are lists of recent ‘examples of individuals who have cited Islam as they’ve carried out acts of violence.’ Cited Islam? According to the Earnest theory … purposeless violent extremists rummage through the scriptures of great faiths, looking for some verses to cite to support their mayhem and often happen to settle on the holy texts of Islam.”

President Obama knows better. I am all for restraint on the issue, and would never hold every Muslim accountable for the acts of a few. But it is not good for us or the Muslim world to pretend that this spreading jihadist violence isn’t coming out of their faith community. It is coming mostly, but not exclusively, from angry young men and preachers on the fringe of the Sunni Arab and Pakistani communities in the Middle East and Europe.

If you’ve got a plan for rooting out violent radical Islamists that doesn’t require the participation of Sunni Muslims more generally or mass extermination I’d certainly like to hear about it. If they bear no responsibility for what’s going on in their own faith community, how is that going to happen?

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Grasping the Implications

Garry Kasparov connects the dots among Islamist extremism, Putinism, and North Korean totalitarianism:

Globalization has effectively compressed the world in size, increasing the mobility of goods, capital and labor. Simultaneously this has led to globalization across time, as the 21st century collides with cultures and regimes intent on existing as in centuries past. It is less the famous clash of civilizations than an attempt by these “time travelers” to hold on to their waning authority by stopping the advance of the ideas essential to an open society.

Radical Islamists, from the Taliban and al Qaeda to Boko Haram and Islamic State, set the time machine to the Dark Ages and encourage the murder of all who oppose them, often supported by fatwas and funds from terror sponsors like Iran. The religious monarchies in the Middle East are guilty by association, creating favorable conditions for extremism by clamping down on any stirring of freedom.

Vladimir Putin wants Russia to exist in the Great Power era of czars and monarchs, dominating its neighbors by force and undisturbed by elections and rights complaints. The post-Communist autocracies, led by Mr. Putin’s closest dictator allies in Belarus and Kazakhstan, exploit ideology only as a means of hanging on to power at any cost.

In the East, Kim Jong Un’s North Korea attempts to freeze time in a Stalinist prison-camp bubble. In the West, Nicolás Maduro in Venezuela and the Castros in Cuba use anachronistic socialist propaganda to resist increasing pressure for human rights.

They’re not the only ones. The same dream applies to the Chinese leadership, abetted by the Googles and Ciscos of the world, and to the American businesses desperate to protect old business models that depend on controlling the access to information.

But information wants to be free and it wants to be shared. Al Qaeda, Putin, North Korea, and China understand the implications. We’re just late to grasping them.

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Declaring Victory

On reflection there was a central theme in President Obama’s 2015 State of the Union message. He was declaring victory. He declared victory in Afghanistan:

Tonight, for the first time since 9/11, our combat mission in Afghanistan is over. Six years ago, nearly 180,000 American troops served in Iraq and Afghanistan. Today, fewer than 15,000 remain. And we salute the courage and sacrifice of every man and woman in this 9/11 Generation who has served to keep us safe. We are humbled and grateful for your service.

This is a very narrow definition of victory and it’s one that could have been achieved seven years ago with little difference in effect other than the lives of those who’ve been killed in the interim. Even as we are drawing forces down in Afghanistan we are returning them to Iraq, without strategic objectives that can be effected by the tactics being used.

Similarly, on the domestic economy:

At this moment — with a growing economy, shrinking deficits, bustling industry, and booming energy production — we have risen from recession freer to write our own future than any other nation on Earth. It’s now up to us to choose who we want to be over the next fifteen years, and for decades to come.

Unfortunately, according to the National Association of Counties, only 65 of the 3,069 counties have recovered completely since the recession, most of those in Texas and North Dakota based on fossil fuel energy production. In other words, recovery has come to those counties despite the policies of the Obama Administration rather than because of them. We’re accustomed to the rooster taking credit for the sun’s rising.

This theme wasn’t lost on the editors of the Washington Post:

The emphasis on domestic issues was striking, given international developments in the past year. A year ago, Mr. Obama spoke of taking the country off its “war footing”; since then, he has sent thousands of troops to Iraq and launched airstrikes against the Islamic State.

This time Mr. Obama asked Congress for formal authority to continue the war, which he said would “take time” and “require focus.” But his ambivalence about the effort was evident in the relatively short shrift he gave to the fight against Islamic extremism. He underlined the end of the U.S. combat mission in Afghanistan, though the war rages on and the Afghan government is losing ground to the Taliban.

We’ve seen this movie before and we know how it ends. The Afghan government is completely dependent on foreign aid, mostly U. S. foreign aid. It cannot maintain its military, willing to fight or not, without it. That aid will be cut off sooner rather than later as we have done in the past without de facto permanent commitment of troops.

This post is not intended as an indictment of the Obama Administration rather my intention is that it be hortatory. There are three possibilities for these declarations of victory: the president is right, the president is wrong, or declaration of victory is premature. Put me down for the last.

We can do better. He can do better. Make economic growth a primary objective. Look to the infrastructure of the future, energy and connectivity, rather than that of the past—roads and bridges. Build the pipelines. They will bring some short term job and economic growth. Emphasize data infrastructure (including security) rather than bridges to nowhere and roads that should never have been built.

Stop thinking of the economy as zero sum, a situation which the only way that anyone wins is by making someone lose. More soft power, convincing people to want what you want, rather than hard power.

For more analysis of the State of the Union message see the roundup at memeorandum.

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SOTU Address, 2015

I watched the State of the Union address last night. Rhetorically, I thought it was better than most of President Obama’s SOTUs have been and I was glad he eschewed much of the laundry list we’ve come to expect.

He did touch on them briefly, however, and I’ll be very surprised if any of the proposals he’s touring the country with ever reach the point of regulation let alone legislation. I thought it was pretty short on structural change for this point in a phlegmatic recovery.

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The Search for the Middle

Well, one thing is clear to me. People do not know where “the middle” is. According to the Census Bureau median income is $51,900. I haven’t been able to dredge up a reliable standard deviation but I’m guessing around $15,000.

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The Recovery

I see that as of the end of 2014 no county in Illinois had returned to pre-recession levels of unemployment, economic output, and home prices:

The recovered counties are largely located in energy-rich areas and have small populations. Of the 65 recovered counties, 24 are in Texas and 16 are in North Dakota. The others are generally in the middle of the country, including nine in Minnesota and eight in Kansas.

None of the recovered counties has more than 500,000 residents.

I’m guessing that our total employment is still down, too.

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What Is Ukraine Worth?

The Economist asks a very interesting question. What is Ukraine worth to the United States and Europe?

The West’s reluctance to offer more money reflects mounting frustration over Ukraine’s haphazard reform efforts. After the election in October politicians took a month to form a coalition government, causing the IMF to put its programme on hold. Some progress has been made, including simplifying the tax code. But energy remains unreformed. The budget for 2015 was passed only at 4:30am on December 29th. The IMF is back in Kiev trying to revive its programme.

Default would sap domestic confidence in Ukraine’s leadership and roil the currency markets again. George Soros, a financier, is arguing for aid before reforms and promoting a $50 billion package. Such a sum has little chance of being found, but he raises a big question about Ukraine’s importance. A Ukrainian collapse would prove Mr Putin’s contention that Western promises mean little and that change in the post-Soviet world leads only to pain. The West may soon have to decide: what is Ukraine worth?

IMO the answer is pretty obvious. Ukraine is worth a lot to Russia and very little to Europe or the United States except as a means of poking Russia in the eye which by some unknowable alchemy has become an objective of U. S. foreign policy.

I also think that the U. S. and Europe are finally realizing that the present Ukrainian regime is not a whit better than its two predecessors and is almost as bad as Putin said it

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Well, Blow Me Down!

There’s an interesting at RealClearPolitics on what you can learn by “text mining” State of the Union speeches. We learn that George W. Bush varied from right to center-right, Bill Clinton varied from left to center-left, and Barack Obama has been consistently left of center. You could have struck me dead with a feather.

I would make the distinction between rhetorical positioning and actual political ideology. The distinction is between what they say and what they do. So, for example, I think that George W. Bush was actually center-right, Bill Clinton’s only ideology is power, and Barack Obama is center-left although he may prove me wrong by his actions after the 2014 midterms.

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Not That 1%

This morning Richard Cohen takes automation as his point of departure, moves from there to technological unemployment and income inequality, and lurches into the real point of his column, taxing “the rich” to give the proceed:

What will make up the difference? President Obama is giving it a shot by proposing to raise taxes on the very rich and relieve the tax burdens of the middle and lower classes. This makes so much sense that the Republican Party recently rose as one to oppose it, denouncing the proposal, as always, as a nonstarter. The GOP’s monomaniacal mantra is always to lower taxes because that supposedly produces jobs (Oh, yeah, where are they?), as well as billionaires. (No problem finding them.) Many of the jobs currently being produced are part-time and low-wage, but even when the pay is good, the jobs are often evanescent — gone in a year or so.

to whom? Consider this NYT article on an Oxfam study finding that “the Global 1%” wealthiest individuals control an increasing proportion of the world’s wealth. (Hat tip: memeorandum) Progressive blogs leapt onto this information with squeals of glee that I think were a bit premature. Although Josh Marshall’s TPM post was blazoned with pictures of Bill Gates and Warren Buffett, they’re more like “the Global .1%” or even .01%. Rather than being the ultra-wealthy the Global 1% is a lot closer to you and me. Let me put it this way: any Baby Boomer living in Nancy Pelosi’s Congressional district and owning his or her own home is probably among the wealthiest 1% of people in the world, at least as reckoned by the Oxfam study. Not the Kochs or George Soros or Bill Gates. Your doctor. Your accountant. Your dentist. Paul Krugman. And, at this point, probably Thomas Piketty.

What would be the practical results of Thomas Piketty’s global tax on wealth? Let me submit that the ultra-rich would escape the tax (as they do), it would fall on older upper middle class people here in the United States and throughout the developed world, and, rather than being redistributed to the poorest of the poor (a very large proportion of whom live in China and India) it would be redistributed to rich people in poor countries.

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