The Cold Equations

In an op-ed in the Wall Street Journal Glenn Hubbard questions the Biden Administration’s arithmetic:

Recall the maxim: “When you find yourself in a hole, stop digging.” The Biden administration needs to put the shovels down. Permanent new social spending should be financed by incremental tax revenue so it doesn’t add to already elevated deficit and debt levels. Borrowing would be permitted for one-time expenditures that add to productivity and future wealth (and taxpaying ability)—for example, true infrastructure such as roads and bridges.

But the Biden budget doesn’t follow this advice. It spends more money on social causes and makes government larger without coming up with enough new revenue to pay for it. The budget proposes to spend 24.5% of gross domestic product on average over the next 10 years. The post-World War II record before the pandemic was 24.4% in 2009, and the 50-year average is closer to 20%. Meantime, revenues are projected to rise only to 19.7% of GDP by the end of the 10-year budget period, just below the record share of 20% in 2000 during the dot-com boom. The gap reflects additional pressure on deficits and debt even as rising deficits from the Social Security and Medicare programs pose a significant challenge.

What Mr. Biden is trying to achieve with his budget can’t be accomplished simply by “taxing the rich.” Proposed increases in corporate taxes already hit earners with annual incomes less than $400,000, because part of the corporate tax is paid by workers, not capital owners. And higher capital gains taxes also burden middle-income stockholders since upper-income individuals are the marginal investors in the stock market, with their higher tax burdens decreasing stock prices.

The much larger problem is arithmetic. Such tax increases can’t come close to funding the additional social spending the president’s budget proposes. Closing the gap would require a general tax increase. European governments that offer such social-welfare spending rely not on high corporate or capital taxes, but on consumption taxes, a k a value-added taxes. Ordinary taxpayers pick up the tab.

The trust funds for Social Security and Medicare are heading toward exhaustion in the coming decades unless the Biden administration can find a way to slow the growth of spending on entitlement programs. The trick is to do it while bolstering benefits for those with low and modest incomes. The right approach is to establish a strong minimum benefit, with little or no increase for higher-income recipients.

The problem is actually even simpler than Dr. Hubbard suggests. Presently, the top 1% of income earners capture about 20% of gross national income. That amounts to between $4 trillion and $5 trillion per year. That means that the absolute maximum amount that can be realized by taxing the top 1% if you tax at 100% of taxable income and are able to collect it is around $5 trillion. That is a ceiling. Total federal government spending in 2020 was around $6.5 trillion and this year it’s anticipated to be around $7 trillion.

And that ignores the ever-flexible definition of “fair share”. Can we all agree that 100% of income exceeds that fair share. How about 50%? That would put the maximum amount that might be derived solely by taxing the top 1% of income earners at around $2.5 trillion. That’s far below the amount the administration wants to spend.

As I’ve been saying consumption taxes prebated at a varying rate depending on income to ensure progressivity are the way to go. Hard to cheat and much easier to administer. But a lot of that won’t fall on the top 1% at people earning much more modest sums.

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Why the Difference Between Liberals and Progressives Makes a Difference

In her latest Wall Street Journal column Peggy Noonan sounds impressed by Bill Maher’s criticism of progressives:

“If you think that America is more racist now than ever, more sexist than before women could vote, you have progressophobia,” Mr. Maher said. Look at the changes America has made on disputed issues like gay marriage and marijuana legislation. “Even something like bullying. It still happens, but being outwardly cruel to people who are different is no longer acceptable. That’s progress. Acknowledging progress isn’t saying, ‘We’re done,’ or, ‘We don’t need more.’ And being gloomier doesn’t mean you’re a better person.”

He was asking for perspective, a hard thing to do when you’re a comic because a comic’s tools are exaggeration, satire and sarcasm. But Mr. Maher maintained earnestness.

“In 1958,” he said, “only 4% of Americans approved of interracial marriage. Now Gallup doesn’t even bother asking. But the last time they did, in 2013, 87% approved. An overwhelming majority of Americans now say they want to live in a multiracial neighborhood. That is a sea change from when I was a kid.” Mr. Maher was born in 1956.

He barreled on: “In a country that’s 14% black, 18% of the incoming class at Harvard is black. And since 2017, white students are not even a majority in our public colleges. Employees of color make up 47% of Microsoft, 50% of Target, 55% of the Gap, as companies become desperate to look like their TV commercials.”

She concludes:

Having a sense of perspective about what America is and the progress it has made encourages not only self-respect—maybe you yourself tried to help in some of the social-justice movements of the past 75 years—but respect for this great project we’re all involved in, which is America itself. It’s hard to continue an arduous journey toward something like equality when you’re demoralized, and you become demoralized when you can see no distance from point to point, and are given no credit for pushing on.

America is a funny place, more like a great continuing drama than a country. We’re always sinning, sometimes wildly, and always looking to reform ourselves, redeem ourselves. All our civil-rights movements attest to this. We’re an agitated people constantly looking for betterment. We’re always tearing open our shirt, baring our chest and saying, “There’s something wrong with us!” And there is, a lot! It is revealing that while other countries did quiet conversions, we did great awakenings, that in the 20th century, when other Western countries might experience quiet revivals, we in America flocked to huge rallies for a great man like Billy Graham, who in his way was saying there’s a way to quiet the American heart, any heart, you have got a home, you are not alone, you can become a better person.

I don’t believe it’s “progressophobia” as claimed by Mr. Maher. I think it’s more basic than that. Progressives are not striving for any fixed outcome but for some poorly-defined “progress” which is always just beyond reach. They are vanguardists. They believe their role is to guide the masses to enlightenment.

But that enlightenment is always, as noted, just beyond reach which keeps them relevant, maintains their power. That’s the key difference between liberals and progressives. You can actually measure how liberal a society is; you can’t measure progress because it is not compared to a fixed objective. The net effect is that it’s a form of autocracy. Power becomes its own objective.

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Sauce for the Goose

In a piece at The Hill Jonathan Turley observes that the Biden Administration is faring even worse in the courts if anything than the Trump Administration did at this point in its term:

Across the country, trial courts have been finding constitutional violations by the Biden administration in areas ranging from immigration to the environment to pandemic relief. The administration actually began with the same court record as the Trump administration, which lost an early challenge to its travel ban. (The Supreme Court later upheld the core elements of the travel ban and rejected the general claims raised against it.) Biden also lost a critical immigration fight when a federal court enjoined his 100-day moratorium on deportations. In a 105-page opinion, the court found that the administration omitted “any rational explanation grounded in the facts reviewed and the factors considered” and left only “an arbitrary and capricious choice” of the president in this early immigration order. Sound familiar? It should: That was the same argument used against Trump.

Being president is a lot harder when you actually have to obey the law and stuff. The losses can’t reasonably be attributed to partisan judges, either:

One of the most remarkable court losses was delivered at the hands of the Supreme Court in the case of Terry v. United States. It involved a criminal defendant in a crack case who argued for a sentence reduction under the First Step Act. The Trump administration argued against the defendant’s claim — but this was one of many positions that the Biden administration changed before the court. The Biden administration informed the court that it not only would refuse to defend the judgment below — and defend the federal statute — but was “confessing error” in the case.

The move by the Biden Administration was astonishing on a number of levels. Acting Solicitor General Elizabeth Prelogar informed the Supreme Court in March, on the actual due date for the government’s brief. Oral argument was scheduled for April; the court was forced to reschedule the oral argument for a special sitting in May, a completely avoidable conflict the administration created by waiting a ridiculous two months to inform the court. The Biden Justice Department simply suggested in a letter that the Supreme Court find someone else to defend a federal law. Moreover, the Biden administration was confessing error in a case where the government was likely to win. In other words, it was refusing to make an argument with which many if not most of the justices would agree.

Instead, the Biden administration advanced an argument that was so weak that the justices referred to its arguments as a meritless “sleight of hand” to evade the clear, obvious meaning of the statute. They ruled unanimously against the administration and the defendant. Eight justices signed on to the opinion of Justice Clarence Thomas entirely, and Justice Sonia Sotomayor concurred with his interpretation of the First Step Act. So, the Biden Justice Department confessed error and abandoned an argument that, ultimately, garnered a unanimous vote of the Supreme Court.

While continually claiming to be a champion of “the rule of law” in public, the Biden administration has been found to be a transgressor in these cases. These losses constitute an inauspicious start for any administration.

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Going to the Scorecard

On the occasion of the Supreme Court’s decision in California v. Texas in her latest Washington Post column Megan McArdle assesses the Affordable Care Act’s success:

Obamacare’s supporters talked a lot about illnesses contributing to more than half of all bankruptcies, which implied there should have been a sharp decrease in 2014, when Obamacare’s major coverage provisions took effect. There wasn’t.

Obamacare’s supporters frequently cited America’s abysmal infant mortality rate, which implied that once Obamacare was in full swing, infant mortality should decrease sharply. It didn’t.

Obamacare’s supporters claimed that tens of thousands of people were dying every year because they didn’t have health insurance, which implied that by 2019, our overall mortality rate should be substantially lower than it had been in 2009, with a noticeable kink around 2014. Instead, mortality rates, which had been trending downward, leveled off around that time.

Obamacare’s supporters talked a lot about reducing health-care costs, or at least the rate at which they were growing. Sadly, no.

Partly that’s because those claims were always oversold; research performed in the years since suggests that offering people health insurance has more measurable impact on their financial health than their physical health, and that medical bankruptcies may be driven less by medical bills than by income loss, a problem Obamacare doesn’t address. But there’s another reason neither those optimistic promises nor my pessimistic prophesies bore fruit: We were all wrong about an even bigger question.

In 2011, Doug Elmendorf, head of the Congressional Budget Office, testified that by 2021, 24 million people would be buying their insurance on the Obamacare exchanges. It’s fair to say that both Obamacare’s friends and foes assumed the number would be at least that high, if not higher. In reality, the most recent data suggest it’s half that.

The Medicaid expansion has been more in line with projections, but it, too, is smaller than expected, in part because the first time the Roberts court rescued Obamacare, it ruled that the federal government had to let states opt out of expanding their programs. And that, in turn, has lessened the pressure for the government to exert more stringent pressure over health-care delivery or prices. Most of Obamacare’s gestures in that direction were less effective than hoped, or died on the vine.

That’s not to say Obamacare did nothing; the percentage of Americans who are uninsured has fallen from 16.7 percent in 2009 to 9.2 percent in 2019. That’s a substantial achievement, which even the program’s harshest critics should acknowledge. But even its most zealous boosters should be willing to admit that the program the Supreme Court saved this week is far from the revolutionary transformation its architects envisioned.

Her bottom line is that it wasn’t as bad as its critics thought nor as good as its advocates claimed. I think that from a process standpoint is has turned out pretty much as I predicted—in essence it was “Medicaid for all” and rather than reforming the existing system it cemented it in place.

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Rosy Scenario, Brooks Style

David Brooks has painted an enormously optimistic picture of the U. S. economy in his most recent New York Times column:

Millions of Americans endured grievous loss and anxiety during this pandemic, but many also used this time as a preparation period, so they could burst out of the gate when things opened up. After decades of slowing entrepreneurial dynamism, 4.4 million new businesses were started in 2020, by far a modern record. A report from Udemy, an online course provider, says that 38 percent of workers took some additional training during 2020, up from only 14 percent in 2019.

After decades in which consumption took preference over savings, Americans socked away trillions of dollars in 2020, reducing their debt burdens to lows not seen since 1980 and putting themselves in a position to spend lavishly as things open up.

The biggest shifts, though, may be mental. People have been reminded that life is short. For over a year, many experienced daily routines that were slower paced, more rooted, more domestic. Millions of Americans seem ready to change their lives to be more in touch with their values.

The economy has already taken off. Global economic growth is expected to be north of 6 percent this year, and strong growth is expected to last at least through 2022. In late April, Tom Gimbel, who runs the recruiting and staffing firm LaSalle Network, told The Times: “It’s the best job market I’ve seen in 25 years. We have 50 percent more openings now than we did pre-Covid.” Investors are pouring money into new ventures. During the first quarter of this year U.S. start-ups raised $69 billion, 41 percent more than the previous record, set in 2018.

Let’s hope he’s right. I have my doubts. What I think has happened is that the consolidation that was already underway accelerated and millions of small businesses have closed up shop for good. What is the net change in the number of businesses? I don’t know. My concern is that through a combination of circumstances and bad policy we’ll have a smaller number of more powerful companies, highly motivated to keep their payrolls down and able to lobby the Congress to maintain their advantages.

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Political Reform at the District Level

I found these two passages in John Curiel’s RealClearPolitics post on gerrymandering particularly interesting:

Organizations such as Common Cause argue that the move to independent commissions would remove individuals with the most vested interests from the process, preventing them from putting their own personal and partisan goals ahead of community interests.

Research suggests that these independent commissions draw more competitive districts than those drawn by state legislatures. Leading constitutional law expert Richard Pildes makes a strong case that more competitive districts can, in turn, provide the incentives for representatives to take more moderate positions, thereby lessening polarization within Congress. Redistricting definitely has a role to play in potentially depolarizing the House, but the nationalization of American politics, the power of primaries, and single-member districts might lead to self-reinforcing of political polarization. Solving redistricting at this point might not be sufficient.

and

A possible national-level solution more amenable to Republicans might be to increase the size of the House, which has been capped at 435 members since 1913. Political scientists Francis Lee and Bruce Oppenheimer suggest that increasing the House at a ratio followed by other Western democracies – the cube-root rule – would lessen state legislatures’ ability to manipulate district boundaries. Such a change would increase the size of the House to over 544 members and would need only legislation, as opposed to a constitutional amendment, to implement. Republicans would presumably have no reason to go along with such legislation, however, if they did not see it as advantageous to them; and Democratic representatives might likewise not enjoy the loss of their individual power. With more representatives, the power of any single representative diminishes. Additionally, increased chamber size would increase the power of party leaders, which could further nationalize politics.

The two major political parties have done everything in their power to rig the system to benefit themselves. Both Democrats and Republicans have created grotesquely gerrymandered districts that serve to protect incumbents and concentrate support for the other party in particular districts. If you don’t believe that Democrats do that, may I introduce you to the Illinois 4th Congressional District?

IMO gerrymandering has in general been employed most effectively by Republicans. The other strategy that has been employed, particularly effectively by Democrats in 2020, has been to nationalize every election to the greatest degree possible.

While I definitely believe that increasing the size of the House is a necessity, I remain unconvinced that the “cube root rule” is as relevant for the U. S. as it is for Germany, France, and the UK. I think it’s backing a solution out of circumstances rather than tailoring a solution to fit circumstances. The UK’s population has increased hardly at all since 1960; France’s has increased about 20%; Germany’s 30%. The U. S. in contrast is almost twice as large as it was in 1960.

Whatever strategy is employed I believe that democracy in America today is a cruel hoax and enabling the political parties to keep doing what they’ve been doing more effectively will not change that. We need major reform and right now the most likely source for such reform is at the state level.

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The Dog Days of Summer Spring

Every August the pundits and opinion writers take a break and things get very, very slow. The same thing is happening this year except that it isn’t even summer yet. Has not having Trump to kick around any more really taken that much of the wind from their sails? Or have they forgotten how to write about anything else?

It’s not as though there’s nothing to write about. The Trib has bought out a number of its columnists including John Kass. I take that as a sign of decreasing revenues. President Biden actually did go to Europe. I’ve seen a few half-hearted op-eds about it. We’ve apparently identified another job that Americans won’t do, American journalists anyway: criticize Joe Biden. It might come as a surprise that English, Canadian, Australian, French, German, and Russian journalists, whom I wouldn’t even vaguely characterize as “rightwingers” think he’s too old to be president and have said so in no uncertain terms.

Chicago looks to be well on its way to beating the record for homicides per 100K population it set back in 2016. Chicago’s mayor wants to declare racism a health crisis. I’d like to know the parameters of that. Does she mean racism on the part of physicians? I don’t believe it. Does she mean the stress that violence in their neighborhoods, almost entirely on the part of other black people, has an adverse effect on health? I think she’s trying to distract attention from her lousy handling of the office of mayor. 73% of Chicagoans think the city is on the right track and only 16% think that Mayor Lightfoot is doing a good or excellent job. I’m surprised it’s that high.

There’s either dissension in the ranks among Fed governors about interest rates or some of them are starting to worry that inflation might not be as transient as they had thought.

I don’t have much to say about the Juneteenth national holiday. It’s been a state holiday in Texas for a while now which makes sense. IMO it makes less sense as a national holiday. There are all sorts of local holidays around the country celebrated primarily among blacks. We could make all of them national holidays and I don’t believe it would do much either to improve black self-esteem or improve the lots of most black people in American cities.

Besides working which takes up a lot of my time I stay busy taking care of dogs, blogging, and trying to get a little sleep every now and again. I’ve been playing Baldur’s Gate 3 for a while now. It’s in pre-release.

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What Should the U. S. Naval Strategy Be?

I won’t bother to critique or even excerpt this article at RealClearDefense by James Holmes advising the Biden Administration not to skimp on the U. S. Navy’s budget. All I will say is that our strategic position is that we’re the only country in the world with Atlantic and Pacific ports it can use year-round. We would be very, very foolish not to capitalize on that competitive advantage. Not only does it enable the U. S. to apply force anywhere in the world, it allows us to deploy manpower and materiel anywhere in the world. We underresource the Navy at our peril.

There are lots of other places to reduce military spending. Reducing the size of the flag and general officer corps would be a good place to start.

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When Will It Be Over?

And speaking of spoiler alerts, here’s another one. If you ask when will COVID-19 be over, the short answer is never. It has already become endemic. There will be outbreaks forever. Not only that but we will be dealing with the health consequences of COVID-19 forever as this New York Times article by Pam Belluck documents:

Hundreds of thousands of Americans have sought medical care for post-Covid health problems that they had not been diagnosed with before becoming infected with the coronavirus, according to the largest study to date of long-term symptoms in Covid-19 patients.

The study, tracking the health insurance records of nearly two million people in the United States who contracted the coronavirus last year, found that one month or more after their infection, almost one-quarter — 23 percent — of them sought medical treatment for new conditions.

Those affected were all ages, including children. Their most common new health problems were pain, including in nerves and muscles; breathing difficulties; high cholesterol; malaise and fatigue; and high blood pressure. Other issues included intestinal symptoms; migraines; skin problems; heart abnormalities; sleep disorders; and mental health conditions like anxiety and depression.

Post-Covid health problems were common even among people who had not gotten sick from the virus at all, the study found. While nearly half of patients who were hospitalized for Covid-19 experienced subsequent medical issues, so did 27 percent of people who had mild or moderate symptoms and 19 percent of people who said they were asymptomatic.

to which I would add that the notion that only 10% of Americans have had COVID-19 is absurd on its face. I don’t know whether 20% of Americans, 30%, or 50% have had it. I don’t believe for a second that only 10% have had it. As the article observes just because you didn’t experience symptoms of COVID-19 does not mean that you won’t experience side effects. And we probably won’t know for decades what the long term health implications of COVID-19 are. We can safely assume that COVID-19 is going to increase health care spending in the U. S. forever.

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What’s the Purpose of Federal Funding of Scientific Research?

While I’m asking questions, here’s another one: what’s the purpose of federal funding of scientific research? Is it to

  • Advance scientific knowledge
  • Signal the Congress’s and White House’s recognition that scientific knowledge is good
  • Provide a conduit for channeling money to scientists and organization of whom the Congress and White House approves
  • Find a way of spending money in the belief that any time the federal government spends money it stimulates the economy

If you believe it’s the first, you might find this article at Reason.com by Terence Kealey interesting. The TL;DR version is that federal funding is not an effective way of accomplishing that goal. Here’s its opening which pretty much says it all:

A bipartisan group led by Senate Majority Leader Chuck Schumer (D-N.Y.) wants to counter China with legislation to dramatically increase government funding of pure science (science that is mainly concerned with theory rather than practical applications). They call their bill the U.S. Innovation and Competition Act. But if they really want to spur innovation and competition, they should be trying to slash science subsidies, not increase them.

The most potent criticisms of the government funding of science have come from government agencies themselves. The first came in 1969 when the Office of the Director of Defense Research and Engineering analyzed 700 research “events” that had led to the development of 20 weapons systems—finding that only two of those events were in pure science.

Then the Congressional Budget Office (in both 1991 and 1998) and the Bureau of Labor Statistics (2007) reviewed the entire academic literature, finding that study after study showed that the research projects that governments funded had failed, on average, to generate profits: in contrast, the research projects that the private sector funded were, overall, highly profitable.

There is an example of funding scientific research that was “highly profitable” in the sense that it produced enormous, beneficial results as a byproduct: the Mercury-Apollo programs. It isn’t too much of an exaggeration to say that the modern world would have been impossible without the innovations it funded.

That’s the sort of thing I mean when I say that what I support is “mass engineering programs”, i.e. large scale programs with specific, achievable objectives and firm dates. Spoiler alert: you get a lot more results from such programs than from open-ended, possibly unachievable goals.

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