Campaign Finance Sanity

One of the key improvements of the new SCOTUS dynamic is campaign finance reform, revisited. In a pivital ruling yesterday, the court decided to err on the side of free speech, and allow the public to voice their views (views that aren't even endorsing a candidate) on air.

The decision was split 5-4, with Roberts, Alito, Thomas, Scalia, and Kennedy in the majority, Alito and Roberts alined together with Roberts' majority decision; and Scalia, Thomas, and Kennedy writing an additional majority decision, objecting to the fact that Roberts and Alito didn't explicitly overrule the court's 2003 McConnell decision.

While largely viewed as a victory for "corporations," the true winner is the people--and the rule of law. Free speech may not be entirely supressed by McCain-Feingold, yet.

An entirely un-academic post, if I may

After the national debate tournament and several research papers, I'm afraid I'm in the mood for levity.

"Here’s the latest in the John Edwards campaign. It turns out, yes, there are two Americas and neither one of them is voting for him." - Jay Leno

Letter to Congressmen & Letter to Editor: Tax Cuts

Dear Senator/Representative,

The profound consequence of the 2001 and 2003 tax rate cuts has been felt by Arkansans, and is consistent with historical precedent dating back to Reagan and Kennedy. Over-taxation reduces economic stimulus and the elasticity of taxable income. As a fifteen-year-old policy enthusiast, I'm deeply interested in seeing our local economy continue to benefit from economic stimulus provided by these reforms. Yet, we're faced the the likelihood of their expiration, along with the tax hike associated with that and the expansion of the Alternative Minimum Tax (AMT). I would urge you to provide support to make the tax reform permanent. We all feel the positive effects of pro-growth, pro-family tax rate cuts. Low unemployment, historically high sustained GDP growth rates, as well as increasing productivity and compensation.

Reductions in the capital gains tax and income tax stimulate economic growth, alleviate unemployment, bolster incentive for capital investment, and improve the elasticity of taxable income. This was historically demonstrated in the Kennedy and Reagan administrations, where we saw economic growth without substantial reductions in revenue. We see that freeing up the economy and allowing for the added stimulus of lower marginal rates and capital gains tax, we improve output, lower unemployment, and create a more friendly environment toward enterprise. The distortion effect of taxes is large, in fact, there is some empirical literature (e.g. Romer, Berkley 2007) to suggest that each one percent increase in exogenous tax rates reduced output by three percent.

While we bemoan the increasing federal debt, which is a policy concern, we need to remember that 87% of the accrued deficit increase since 2000 has been caused by heightened spending, with only 13% viably held accountable to tax rate cuts. Additionally, if we examine the federal debt pro rata, it is consistent with historical average federal debt held by the public as a percent of the GDP (for the past forty years that figure has been around 35%).

As we attempt to maximize revenue while providing the lowest possible marginal rates across the board, and imperative economic parameter deals with the elasticity of taxable income. A recent empirical work by Gruber and Saez in The Journal of Public Economics elucidated that the elasticity of taxable income is substantially effected by marginal tax rates of higher income brackets. What this means is that the arithmetic reduction in revenue caused by lower tax rates is offset by the alleviation of the dead-weight loss the taxes had in the first place. This economic effect allows us to cut taxes more easily, and in the long run, lose little revenue. Some estimates of skyrocketing budget deficits if we make the Bush tax cuts permanent fail to account for this offset, which the economic community acknowledges. Low-end estimates come from sources such as Mankiw and Weinzierl (Journal of Public Economics 2006) which estimated a parameter of 0.5, and higher estimates by Kimball and Shapiro (Yale 2004) have been even more favorable toward tax cuts.

The final objection to making President Bush's tax cuts permanent comes in the form of objecting to "tax cuts for the rich." This uses a grossly disproportionate methodology that overlooks a couple of things. First, while the higher-income earners were quantitatively affected more by the cuts, this is in part because we're dealing with larger sums of money, and also because the necessary capital gains tax reduction disproportionately affected them. That reduction, however, proved vital in providing for job growth and economic stimulus. More importantly, the tax cuts shifted the tax burden more to the wealthy. The rich pay a larger portion of income taxes today than they did before the cuts, and the poor pay less. Everyone's taxes were cut, and everyone benefited.

I would urge you to support these pro-growth policies, and support making the bush tax cuts permanent.

Best regards,

Will Simpson

The following letter was published in the Stone County Leader.

To the editor,

If you and your spouse are an elderly couple earning $40,000 a year, your taxes will go up from $583 to $1,489 in 2011. If you’re a woman, you could be one of the 83 million American women who could see their taxes rise by an average of $2,068. The tax cuts proposed by the Bush administration drew on a long and rich history of policy precedent, empirical literature, and proven success. They bolstered a sluggish economic prognosis into a stalwart economy with stable GDP growth, historically low unemployment, and climbing productivity and compensation. Yet, today, the democratic congressional majority’s legislative agenda explicitly declares a desire to raise American’s tax burden by allowing this reform to expire.

Two common myths exist regarding this tax reform. The first is that it exacerbates budget deficits. At least in the short term, we do see a slight loss in revenue, but the arithmetic loss from the reduced rate is offset because tax cuts alleviate some deadweight loss the taxes had in the first place. In common man terms, you won’t necessarily lose significant amounts of revenue. As a matter of fact, the Congressional Budget Office (CBO) has stated revenues for FY 2007 are exceeding last year’s by nearly $250 billion, That increase represents the second-highest growth rate (13%) in the past twenty-five years; four to five times the inflation rate. April saw one of the largest surpluses in recent decades. This is called the economic effect. Estimates for a parameter of offset by Kimball and Shapiro (Yale 2004) were favorable to tax cuts, coming close to 0.7 (meaning we recover seven tenths of the loss). In the long run, some marginal rate and capital gains reductions can even increase revenue. Many models that forecast huge revenue drops if we don’t raise taxes discount not only the basic distortion effect of taxes, but also the elasticity of taxable income (how we can enlarge the economic pie so to speak). An empirical work by Gruber and Saez (Journal of Public Economics 2002) showed that marginal tax rate cuts and capital gains reform drastically improved this elasticity. In short, the current budget deficit cannot be attributed to tax cuts, but to spending.

The second popular myth is that tax cuts are only for the rich. On the contrary, the Bush tax cuts actually shifted the tax burden more toward the wealthy! CBO numbers show that pre-tax cut, the highest 20% of income earners' tax dollars accounted for 81.2% of total federal revenues collected. Post reform, the highest 20% of income earners paid 85.3% of taxes collected. The middle twenty percent dropped from contributing 5.7% to 4.7% of revenue. The numbers are antithetical to the rhetoric of the left.

The historical precedent for tax reform is undeniable. If you look at Department of Commerce statistics before and after the Reagan Administration tax cuts, in the four years prior to the cuts real annual income tax revenue growth was at -2.8%. After the cuts it was at +2.7%. Do the same thing comparing real GDP growth and you get 0.9% compared to 4.8%. We’re seeing the same scenario unfolding today. The Bush tax reform has incubated an environment for growth. Please assure our Senators and Representative that the people of Arkansas are firmly supportive of successful tax reform, and Congress cannot allow these measures to expire.

Will Simpson
Mountain View, AR

The Morality of Free Markets : Individuals vs. Collectivism

Dr. Walter E. Williams, econ professor at George Mason University, had a worthy read yesterday morning. It is one of the most comprehendable and concise explanations of the moral logic behind free and private enterprise I've seen in a while:

Dr. Thomas Sowell, a distinguished economist and longtime friend and colleague, recently wrote a series of columns under the title "A War of Words." He pointed out that liberals succeed in duping the public because they are so clever with words that they give the appearance of compassion. Liberals talk about the need for "affordable" housing and health care. They tarnish their enemies with terms such as "price-gouging" and "corporate greed." Uninformed and unthinking Americans fall easy prey to this demagoguery.

Politicians exploit public demands that government ought to do something about this or that problem by taking measures giving them greater control over our lives. For the most part, whatever politicians do, whether it's rent controls to produce "affordable" housing, or price controls to eliminate "price-gouging," the result is a calamity worse than the original problem. For example, two of the most costly housing markets are the rent-controlled cities of San Francisco and New York. If you're over 40, you'll remember the chaos produced by the gasoline price controls of the 1970s. Socialist agendas have considerable appeal, but they produce disaster, and the more socialist they are, the greater the disaster.

Liberals often denounce free markets as immoral. The reality is exactly the opposite. Free markets, characterized by peaceable, voluntary exchange, with respect for property rights and the rule of law, are more moral than any other system of resource allocation. Let's examine just one reason for the superior morality of free markets.

Say that I mow your lawn and you pay me $30, which we might think of as certificates of performance. Having mowed your lawn, I visit my grocer and demand that my fellow men serve me by giving me 3 pounds of steak and a six-pack of beer. In effect, the grocer asks, "Williams, you're demanding that your fellow man, as ranchers and brewers, serve you; what did you do to serve your fellow man?" I say, "I mowed his lawn." The grocer says, "Prove it!" That's when I hand over my certificates of performance -- the $30.

Look at the morality of a resource allocation method that requires that I serve my fellow man in order to have a claim on what he produces and contrast it with government resource allocation. The government can say, "Williams, you don't have to serve your fellow man; through our tax code, we'll take what he produces and give it to you." Of course, if I were to privately take what my fellow man produced, we'd call it theft. The only difference is when the government does it, that theft is legal but nonetheless theft -- the taking of one person's rightful property to give to another.

Liberals love to talk about this or that human right, such as a right to health care, food or housing. That's a perverse usage of the term "right." A right, such as a right to free speech, imposes no obligation on another, except that of non-interference. The so-called right to health care, food or housing, whether a person can afford it or not, is something entirely different; it does impose an obligation on another. If one person has a right to something he didn't produce, simultaneously and of necessity it means that some other person does not have right to something he did produce. That's because, since there's no Santa Claus or Tooth Fairy, in order for government to give one American a dollar, it must, through intimidation, threats and coercion, confiscate that dollar from some other American. I'd like to hear the moral argument for taking what belongs to one person to give to another person.

There are people in need of help. Charity is one of the nobler human motivations. The act of reaching into one's own pockets to help a fellow man in need is praiseworthy and laudable. Reaching into someone else's pocket is despicable and worthy of condemnation.

May Jobs: 44nd Consecutive Month of Growth

The economy added 157,000 jobs in May, making it the 44th consecutive month of job growth.

“We had a very weak performance in the first three months of the year,” observes Richard Yamarone of Argus Research, “but now we’re in the middle of the year and economic conditions are extremely bright.”

Jared Bernstein, senior economist with the Economic Policy Institute, notes that “[t]hough job growth of this magnitude is moderate, if it persists, it is likely fast enough to provide consumers with the needed income growth to propel the economy forward in coming months.”

But we still need to raise taxes?

2008 Update: 3rd GOP Debate - Thompson's Shadow and Romney's Performance

Wolfy Blitzer looks appeared as an annoying little boy with the men on stage.

First question:

"Knowing what you know now, would you have voted differently on the Iraq war resolution?"

Come on. Of all the repetitive questions posed today, this is as inherently beta sigma as any. Romney, who's winning the debate, essentially told Blitzer, well, that he was retarded.

(Paraphrased): "I believe that, given what we knew at the time, the bi-partisan support for the war was reasonable, and we had a successful campaign to overthrow the Hussein regime. We had poor strategy after that, we weren't realistic enough, and we've struggled. Today, we need to look forward with hope and strategy to win. We do that by asserting Iraqi control over-"

Blitzer: (paraphrased) "Mr. Governor, you refuse to answer my question, which was given what you know now, would you support the war?"

Romney: (paraphrased, but not much) ":shakes head: I did answer that question as rationally as a sane person would expect. That's a non sequitor-- a null sac, we look forward today."

Same with all the other candidates.

It's preposterous that there was another evolution question, but Gov. Huckabee gave an incredibly eloquent response to it.

Other asinine questions, or poorly worded ones:

"Is science wrong on global warming?" Um. No one says "science is wrong." It's about the interpretation and scientific belief.
"Would you pardon Scooter Libby."
"Did you read the IAGS Briefing #something before the Iraq war?" Oooh, yes, I remember that! It was paper number 234235 on my desk! I read it thoroughly. Kudos to secondary assistant director to legislative coordinator at CIA, very good.

So, at halftime: Less than 15% of the questions were remotely pertinent. The Town Hall portion was better.

Romney winning.
McCain up. his defense of McCain/Kennedy immigration was excellent, drawing on the patriotism of Hispanic soldiers. I like him more, I'd campaign for him now.
Gilmore (oddly) up.
Paul probably up (simply because so many dumb questions were just for him)
Huckabee steady. He should be killing it in the debates, but he seemed flustered a couple of times, with technical difficulties and such.
Tancredo steady.
Giuliani down.
Thompson (T.) down.
Brownback down.
Wolfy Blitzer looks like an annoying little boy with the men on stage.

First question:

"Knowing what you know now, would you have voted differently on the Iraq war resolution?"

Come on. Of all the repetitive questions posed today, this is as inherently beta sigma as any. Romney, who's winning the debate, essentially told Blitzer, well, that he was retarded.

(Paraphrased): "I believe that, given what we knew at the time, the bi-partisan support for the war was reasonable, and we had a successful campaign to overthrow the Hussein regime. We had poor strategy after that, we weren't realistic enough, and we've struggled. Today, we need to look forward with hope and strategy to win. We do that by asserting Iraqi control over-"

Blitzer: (paraphrased) "Mr. Governor, you refuse to answer my question, which was given what you know now, would you support the war?"

Romney: (paraphrased, but not much) ":shakes head: I did answer that question as rationally as a sane person would expect. That's a non sequitor-- a null sac, we look forward today."

Same with all the other candidates.

It's preposterous that there was another evolution question, but Gov. Huckabee gave an incredibly eloquent response to it.

Other asinine questions, or poorly worded ones:

"Is science wrong on global warming?" Um. No one says "science is wrong." It's about the interpretation and scientific belief.
"Would you pardon Scooter Libby."
"Did you read the IAGS Briefing #something before the Iraq war?" Oooh, yes, I remember that! It was paper number 234235 on my desk! I read it thoroughly. Kudos to secondary assistant director to legislative coordinator at CIA, very good.

So, at halftime: Less than 15% of the questions are remotely pertinent. Absolutely horrible.

Romney won.
McCain up. his defense of McCain/Kennedy immigration was excellent. I like him more, I'd campaign for him now.
Gilmore (oddly) up.

Huckabee steady. He should be killing it in the debates, but he seemed flustered a couple of times, with technical difficulties and such.
Paul probably steady (simply because so many dumb questions were just for him).
Giuliani steady. The lightening strike was incredibly good Providence for him.
Tancredo down.
Thompson (T.) down. What an irritating name confusion
Brownback down. You're rather inclined to forget about him. That's very Presidential.
Finally, Hunter down. I don't know why Mike Reagan and Ann Coulter are saying he's the conservative candidate. He's anti-free trade, has poor rhetorical engagement, and no fund raising. Anyhow, as The Politico's Roger Simon points out, he was quite rude in assaulting the front-runners at the very end of the debate.


Huckabee's answer to what the greatest moral threat today is was excellent. Paul's ranting against any form of pre-emptive strikes was depressing.

Fred Thompson won the debate. He wasn't there. But immediately after the debate he had an exclusive twenty minute interview with Sean Hannity on Hannity & Colmes. No tough questions, no competition, just a softie conversation with Hannity about the debate, politics, conservatism, life, love, and other mysteries.

Accordingly, some polls now have Thompson narrowly in second place. So much for a candidate who isn't running. He's assembled an excellent team of advisers, including (to my delight) a fabulous economist to be his economic adviser, Lawrence B. Lindsey. Lindsey understands economics, he once worked for the Council of Economic Advisers under Reagan then served on the Council for Bush 41, he's a former assistant professor at Harvard, and current Fellow at the American Enterprise Institute.

One potential high note to the candidates is the reversal in Gingrich's tone. He now says odds are 4-to-1 that he will not run. This is a complete reversal of his previous indications that he likely would. It also bolsters the prospects of other "conservative alternative" candidates, most significantly Fred Thompson, Mike Huckabee, and Mitt Romney. To digress, I am indeed a Thompson supporter, but I fear too much stock is placed in one aspect of his candidacy. He's not an amazing orator. He will perform Giuliani-caliber in the debates when it comes to delivery and engagement, expect him to come in third behind Romney and Huckabee.

I could be surprised, though.

I hope I am.

I'm now a Frederalist. If you think that has anything to do with James Madison or John Jay, go read that statement again.

Income Inequality

I stand surprised.

The two major economic reports of the past few weeks are the exact opposite of what I expected. My anticipation was for strong general economic growth and a poor report on income equality, albeit I still oppose government action to rectify the latter. GDP growth was existent, but lower than expected, with a strong unemployment report. Most economists forecast a stronger second quarter.

The most startling report over the past few weeks comes from the CBO regarding income inequality. We previously discussed the CBO's conclusions regarding income volatility, but an even more impressive aspect of the report involves the Krugman Democratic "income inequality" slogan. The left of center Brookings Institution concedes the following:

“According to a Congressional Budget Office (CBO) study released this month, the bottom fifth of families with children, whose average income in 2005 was $16,800, enjoyed a larger percentage increase in income from 1991 to 2005 than all other groups except the top fifth... Even more impressive, the CBO found that households in the bottom fifth increased their incomes so much because they worked longer and earned more money in 2005 than in 1991—not because they received higher welfare payments... Low-income families with children increased their work effort, many of them in response to the 1996 welfare reform law that was designed to produce exactly this effect. These families not only increased their earnings but also slashed their dependency on cash welfare. Earnings up, welfare down—that’s the definition of reducing welfare dependency in America.” —Brookings Institution Senior Fellow Ron Haskins

Rocket Scientist Shuns Doomesday Global Warming Alarmists

No, seriously. NASA has engaged a PR blitz since Thursday afternoon to explain its Administrator's comment that, well, Al Gore-style hypothetical scenarios and causations are absurd.

"I have no doubt that global — that a trend of global warming exists, I am not sure that it is fair to say that it is a problem we must wrestle with... First of all, I don't think it's within the power of human beings to assure that the climate does not change, as millions of years of history have shown. And second of all, I guess I would ask which human beings — where and when — are to be accorded the privilege of deciding that this particular climate that we have right here today, right now is the best climate for all other human beings. I think that's a rather arrogant position for people to take...Nowhere in NASA's authorization, which of course governs what we do, is there anything at all telling us that we should take actions to affect climate change in either one way or another. We study global climate change — that is in our authorization. We think we do it rather well. I'm proud of that, but NASA is not an agency chartered to, quote, battle climate change." - NASA Administrator Michael D. Griffin, in an interview with NPR, hence striking a firestorm of controversy.