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November 2005

Robert Samuelson Is an Unhappy Camper

Robert Samuelson has been driven mad by all the budget phonies he sees in government:

Fiscal Phonies: The scramble by congressional Republicans and White House officials to show they're serious about dealing with the budget... most Republicans are phonies. So are most Democrats. The resulting "debates" are less about controlling the budget than about trying to embarrass the other side....

What have Republicans actually done? Last week the Senate Budget Committee endorsed spending "cuts" of $39 billion. That covers five years when total federal spending is projected at $13.8 trillion. So the "cuts" amount to a mere 0.3 percent -- one-third of one percent -- of projected spending.... Republicans also pledge to cut taxes by $70 billion from 2006 to 2010. The overall effect would be a slight rise in deficits....

There's a basic mismatch between the existing taxes and existing spending commitments. Neither party yet faces this candidly, because the only way to solve it is either to raise taxes or cut benefits.... Practical politicians like to confer benefits and tax cuts, not withdraw them. They don't like the discipline of inflicting pain (taxes) to distribute gain (benefits).

As Samuelson says, people are mad when you raise their taxes and mad when you cut (or slow the growth of) their benefits. So what's the plus side of fiscal responsibility? The plus side is:

  1. The happiness that comes from knowing that you have done the right thing.
  2. The applause of sophisticated members of the press who laud you for doing the right thing.
  3. The votes of those in the electorate who value good public service, as they learn from the press about how you have done the right thing.

And here Samuelson is part of the problem, for Samuelson tries to weaken the plus side to budget virtue. He's anxious to minimize the fiscal accomplishment of Bill Clinton and his team:

Democrats embrace class rhetoric and a self-serving mythology -- only they are "responsible"... Bill Clinton... those surpluses resulted largely from events beyond his control: the huge tax windfall of the tech and stock market booms, and the end of the Cold War, prompting much lower defense spending...

Clinton was lucky, yes. But Clinton was also good. The federal budget in 1992 had a deficit of 4.7% of GDP, projected to grow to a deficit of 5.2% of GDP by 2000. In actual fact we had a surplus of 2.4% in 2000--a swing of 7.6 percentage points roughly relative to expectations. Of this swing, approximately 2.0% was due to a booming economy, perhaps an additional 1.0% to the high value of capital gains taxes paid in 2000 because of the high value of the stock market, about 3.5% to the effects of the Clinton 1993 deficit-reduction package, and 1.0% to the additional post-1992 effects of the 1990 Bush-Mitchell-Foley deficit reduction package that had not yet been enacted as of the end of 1992.

Until Samuelson can screw his courage to the sticking point and praise--yes, praise--politicians who do take effective steps to balance the budget (even if they also have good luck), he has no standing to lament that his calls for budget balance are so pathetically ineffective. Journalists who don't praise good policies are part of the problem, not part of the solution.

Were There Really That Many Vases?

Wonkette reminds us of the sacking of the Iraqi museums, and of the days when Donald Rumsfeld was busily turning the astounding operational victory of the 3rd Infantry Division into America's biggest strategic defeat since the days of General McClellan:

Iraq Finally Conquers Vase Overcrowding Crisis - Wonkette: The Washington Post today reports that Iraq's cultural treasures looted after the fall of Baghdad are unlikely to resurface. Of 14,000 lost items, 5,500 have been recovered. Antiquarians and other fusty, book-learning types despair at the loss of these objects, but we just recall the jocularity with which Donald Rumsfeld met the looting: "My goodness," he asked, "were there that many vases?" Well, not so much any more.

DoD News: DoD News Briefing - Secretary Rumsfeld and Gen. Myers:

Q: Mr. Secretary, you spoke of the television pictures that went around the world earlier of Iraqis welcoming U.S. forces with open arms. But now television pictures are showing looting and other signs of lawlessness. Are you, sir, concerned that what's being reported from the region as anarchy in Baghdad and other cities might wash away the goodwill the United States has built? And, are U.S. troops capable of or inclined to be police forces in Iraq?

Rumsfeld: Well, I think the way to think about that is that if you go from a repressive regime that has -- it's a police state, where people are murdered and imprisoned by the tens of thousands -- and then you go to something other than that -- a liberated Iraq -- that you go through a transition period. And in every country, in my adult lifetime, that's had the wonderful opportunity to do that, to move from a repressed dictatorial regime to something that's freer, we've seen in that transition period there is untidiness, and there's no question but that that's not anyone's choice.

On the other hand, if you think of those pictures, very often the pictures are pictures of people going into the symbols of the regime -- into the palaces, into the boats, and into the Ba'ath Party headquarters, and into the places that have been part of that repression. And, while no one condones looting, on the other hand, one can understand the pent-up feelings that may result from decades of repression and people who have had members of their family killed by that regime, for them to be taking their feelings out on that regime.

With respect to the second part of your question, we do feel an obligation to assist in providing security, and the coalition forces are doing that. They're patrolling in various cities. Where they see looting, they're stopping it, and they will be doing so. The second step, of course, is to not do that on a permanent basis but, rather, to find Iraqis who can assist in providing police support in those cities and various types of stabilizing and security assistance, and we're in the process of doing that.

Q: How quickly do you hope to do that? Isn't that a pressing problem?

Rumsfeld: Wait. Wait. But in answer to your -- direct answer to your question are we concerned that this would offset it, the feeling of liberation -- suggests that, "Gee, maybe they were better off repressed." And I don't think there's anyone in any of those pictures, or any human being who's not free, who wouldn't prefer to be free, and recognize that you pass through a transition period like this and accept it as part of the price of getting from a repressed regime to freedom.

Myers: Charlie, another point, I think, to make is that it's uneven throughout the country. In the south, where we've been for some time, where the clerics have been speaking out against looting and for civil order, where some of the Iraqis citizens themselves are saying let's don't loot, and that sort of thing, that actually the situation is pretty good. In Umm Qasr it's in good shape. In Basra, looting has been going down over time as we track it. So as we go up from the south, it's getting better and better for obvious reasons. So --

Rumsfeld: Let me say one other thing. The images you are seeing on television you are seeing over, and over, and over, and it's the same picture of some person walking out of some building with a vase, and you see it 20 times, and you think, "My goodness, were there that many vases?" (Laughter.) "Is it possible that there were that many vases in the whole country?"

The New York Times Shies at the Jump

The New York Times editorial board is finally shrill--albeit five years too late. But they shy at the jump. If they believe what the body of their editorial says, the last line should call for Bush's resignation or impeachment:

President Bush's Walkabout - New York Times: After President Bush's disastrous visit to Latin America, it's unnerving to realize that his presidency still has more than three years to run. An administration with no agenda and no competence would be hard enough to live with on the domestic front. But the rest of the world simply can't afford an American government this bad for that long.

Bush... could barely summon the energy to chat with the 33 other leaders there, almost all of whom would be considered friendly... under normal circumstances. He and his delegation failed to get even a minimally face-saving outcome at the collapsed trade talks.... [W]hen... Bush first ran for president, he bragged about his understanding of Latin America, his ability to speak Spanish and his friendship with Mexico. But he also made fun of Al Gore for believing that nation-building was a job for the United States military....

Bush could certainly afford to replace some of his top advisers. But the central problem is not Karl Rove or Treasury Secretary John Snow or even Donald Rumsfeld, the defense secretary. It is President Bush himself....

Bush has never demonstrated the capacity for... a comeback. Nevertheless, every American has a stake in hoping that he can surprise us.

The place to begin is with Dick Cheney.... This is truly a remarkable set of priorities: his former chief aide was indicted, Mr. Cheney's back is against the wall, and he's declared war on the Geneva Conventions....

Bush... could do what other presidents have done to vice presidents: keep him too busy attending funerals and acting as the chairman of studies to do more harm. Mr. Bush would still have to turn his administration around, but it would at least send a signal to the nation and the world that he was in charge, and the next three years might not be as dreadful as they threaten to be right now.

Impeach George W. Bush. Impeach Richard Cheney. Do it now.

Gary Wills's Nixon Agonistes

This past weekend I read Garry Wills's Nixon Agonistes for... the third... or is it the fourth... time in my life. Each time I read it I feel that I have learned--and been reminded of--an enormous amount. But I also have a very hard time putting what I have learned into words: this is not a "one big thing" kind of book, for Garry Wills knows many, many things.

So let me just do two things below the fold. First, let me give you John Leonard's original review of Nixon Agonistes. Second, let me give you extensive quotes from one of Wills's many magnificent set-pieces: in this case, the long twilight struggle between Richard M. Nixon and Dwight D. Eisenhower.

Continue reading "Gary Wills's Nixon Agonistes" »

California Election Proposition

Ezra KIein votes against all California ballot propositions except 79 and 80. I disagree with him on 80: I vote against it.

Ezra Klein: Endorsements Squared: For all you Californians (and particularly Angelenos) bewildered by next week's ballot measures and elections, The LA Weekly is swooping in with a cape and a pen (a pen of TRUTH) to give you a hand.... [I] couldn't find a single recommendation to disagree with...

LA Weekly: News: We Endorse: State ballot measures.

Proposition 73: Abortion notification. NO: If your teenage daughter gets pregnant and is about to have an abortion, don’t you want her to tell you? Don’t you want the physician who is going to perform the procedure to tell you, at least 48 hours before it takes place? Of course you do. But let’s take it further. You don’t want her to get pregnant in the first place. You don’t want her having sex. You and she talk about this kind of thing, and that’s great. So shouldn’t you vote for the “Parent’s Right to Know and Child Protection Initiative”? No, because you and your daughter don’t need it. But girls who can’t talk to their parents, for whatever reason, still need to be able to talk to their doctors about their bodies without worrying that their family will find out and pressure them into bearing a child against their will. Good parent-child communication is essential, but it can’t be legislated.

Proposition 74: Teacher probationary period, also known as tenure. NO: A probationary period for a new hire might not be a bad idea, just to make sure the employee didn’t forget to include something important on the résumé, like “raving lunatic.” Thirty days sounds about right. Unless you’re a teacher, in which case we’ll make it — whoa! Two years! Okay, they’re with kids every day, so let’s play it safe. But to encourage more good people to become teachers, maybe we should change it to — yikes! Five years of job insecurity? That’s what Proposition 74 would do, because Governor Schwarzenegger knows that when schools are underfunded and overcrowded, it’s got to be because we just make it too easy for people to become underpaid teachers. He’s wrong on this one, just like he is with the other ballot initiatives he’s pushing.

Proposition 75: Public worker union dues restrictions. NO: In 1998 Californians rejected a ballot measure that would have blocked unions from spending an employee’s dues money to campaign for candidates or lobby for legislation that labor leaders believe is important. Now we have this one, which is pretty much the same except that it applies only to public employees. These workers currently can opt out of paying their union to do political lobbying and campaigning. Under Proposition 75, they would have to opt in — giving the edge to corporations that do not, after all, give their shareholders the power to opt out of having their investment used for anti-labor lobbying.

Proposition 76: State budget reform. NO: The state budget is a mess. Proposition 76 would make it messier, by giving the governor extraordinary executive powers to cut spending, even under a budget that is already approved and signed into law. And the Legislature would be unable to stop him. It would also permit the governor to roll back Proposition 98, a 1988 voter-approved constitutional amendment that guarantees a spending floor for public schools. This isn’t the way to go.

Proposition 77: Redistricting. NO: The Democrats and the Republicans divvy legislative and congressional seats between them to guarantee each other safe territory at election time. Only a handful of districts are ever really up for grabs, meaning the real decisions are made not by the full electorate in the general election, but by primary voters when they choose their nominee. Or even earlier, when party bosses anoint their candidates. In addition to the lack of choice, voters get districts drawn in the shapes of various circus animals. So why not break up this insiders’ game by giving line-drawing duties to a panel of nonpartisan, pure-as-the-driven-snow superheroes, also known as retired judges? Several reasons. Under this plan, the district boundaries would be set only after national parties spend millions, perhaps billions, to persuade voters to adopt (or reject) a proposal for district lines. Then the court hearings. Then back to the judges to try again, even though they already submitted their best effort. Some repair work is needed on districting, but this isn’t it. Back to the drawing board.

Proposition 78: Prescription drug discounts, pharmaceutical industry version. NO: Hey! This would allow drug companies to give some people discounts on costly prescription drugs, if they felt like it! That would be so very nice of them! The only purpose of this proposition is to cancel more generous Proposition 79.

Proposition 79: Prescription drug discounts, consumer version. YES: Like 78, this one gives California the clout to negotiate deep drug discounts with the big pharmaceutical companies. The difference is that this one reaches far more low-income people who need prescription drugs. It also carries an enforcement stick that in effect locks drug companies out of the discount program if they don’t come through with the best prices.

Proposition 80: Electricity re-regulation. YES: This would finally throw in the towel on the disaster that was the state Legislature’s 1996 energy deregulation program. You know — rolling blackouts, a sudden scarcity of power. There would be some negative consequences, like limiting the options that many institutional electricity purchasers still have when deciding when to buy and how much to pay. But consumers would once again be protected from wild market fluctuations. The measure also requires major steps forward on renewable energy programs.

I disagree with Ezra on Prop. 80: Severin Borenstein is against Prop. 80, and I listen to him:

Borenstein says though the structure of the energy market could use some improvements, Proposition 80 is not the way to make them.... "I would analogize it to the Food and Drug Administration putting on the ballot whether they should okay a certain drug as safe and effective, putting out all the studies and saying 'you decide,' to the voters." Borenstein says 80 includes three largely disconnected ideas.

  1. End consumer choice of power provider.
  2. Curtail the practice of charging different rates for energy at different times of day during different weather conditions.
  3. Require the state to get 20% of its energy from renewable sources by 2010.

(2) is definitely pernicious. (1) and (3) I don't know enough of to have an informed opinion about--so I'll borrow Severin's.

Gordon's Notes: Going down, coming up: The Economist and Newsweek

Gordon's Notes wonders whether the Economist is still worth reading:

Gordon's Notes: Going down, coming up: The Economist and Newsweek: The Economist describes Libby's perjury as a "technicality". That regurgitation of Bush propaganda wouldn't mean much if it was an isolated incident, but it's part of a four year pattern.... They are in decline now. On the other hand, I happened to read Newsweek's Libby/Cheney coverage on an airplane. I've not read Newsweek since I was a child.... This article... put Libby's behavior into a convincingly romantic context of the 'honorable soldier against the apocalypse, making a kind of sense of a claustrophobic world of fear, loyalty and self-delusion. The Atlantic is another magazine that's come up in the world. It may well be time for me to swap the Economist for Newsweek and the Atlantic...

John Dean on Scooter Libby as Perjury Firewall

John Dean on Scooter Libby as Cheney's perjury firewall:

FindLaw's Writ - Dean: A Cheney-Libby Conspiracy, Or Worse? Reading Between the Lines of the Libby Indictment: Having read the indictment against Libby, I am inclined to believe more will be issued. In fact, I will be stunned if no one else is indicted.... Libby's saga may be only Act Two in a three-act play. And in my view, the person who should be tossing and turning at night, in anticipation of the last act, is the Vice President of the United States, Richard B. Cheney.... Typically, federal criminal indictments are absolutely bare bones. Just enough to inform a defendant of the charges against him. For example, the United States Attorney's Manual, which Fitzgerald said he was following, notes that under the Sixth Amendment an accused must "be informed of the nature and cause of the accusation." And Rule 7(c)(1) of the Federal Rules of Criminal Procedure requires that, "The indictment . . . be a plain, concise and definite written statement of the essential facts constituting the offense charged." That is all.

Federal prosecutors excel at these "plain, concise and definite" statement indictments - drawing on form books and institutional experience in drafting them. Thus, the typical federal indictment is the quintessence of pith: as short and to the point as the circumstances will permit. Again, Libby is charged with having perjured himself, made false statements, and obstructed justice by lying to FBI agents and the grand jury. A bare-bones indictment would address only these alleged crimes. But this indictment went much further - delving into a statute under which Libby is not charged.

Count One, paragraph 1(b) is particularly revealing. Its first sentence establishes that Libby had security clearances giving him access to classified information. Then 1(b) goes on to state: "As a person with such clearances, LIBBY was obligated by applicable laws and regulations, including Title 18, United States Code, Section 793, and Executive Order 12958 (as modified by Executive Order13292), not to disclose classified information to persons not authorized to receive such information, and otherwise to exercise proper care to safeguard classified information against unauthorized disclosure." (The section also goes on to stress that Libby executed, on January 23, 2001, an agreement indicating understanding that he was receiving classified information, the disclosure of which could bring penalties.) What is Title 18, United States Code, Section 793? It's the Espionage Act -- a broad, longstanding part of the criminal code. The Espionage Act criminalizes, among other things, the willful - or grossly negligent -- communication of national-defense related information that "the possessor has reason to believe could be used to the injury of the United States or to the advantage of any foreign nation." It also criminalizes conspiring to violate this anti-disclosure provision

But Libby isn't charged with espionage. He's charged with lying to our government and thereby obstructing justice. So what's going on? Why is Fitzgerald referencing the Espionage Act? The press conference added some clarity on this point. The Special Counsel was asked, "If Mr. Libby had testified truthfully, would he be being charged in this crime today?" His response was more oblique than most. In answering, he pointed out that "if national defense information which is involved because [of Plame's] affiliation with the CIA, whether or not she was covert, was classified, if that was intentionally transmitted, that would violate the statute known as Section 793, which is the Espionage Act."... But, as Fitzgerald also noted at his press conference, great care needs to be taken in applying the Espionage Act....

Finally, he added. "We have not charged him with [that] crime. I'm not making an allegation that he violated [the Espionage Act]. What I'm simply saying is one of the harms in obstruction is that you don't have a clear view of what should be done. And that's why people ought to walk in, go into the grand jury, you're going to take an oath, tell us the who, what, when, where and why -- straight." In short, because Libby has lied, and apparently stuck to his lie, Fitzgerald is unable to build a case against him or anyone else under Section 793, a provision which he is willing to invoke, albeit with care. And who is most vulnerable under the Espionage Act? Dick Cheney - as I will explain.

The Libby indictment asserts that "[o]n or about June 12, 2003 Libby was advised by the Vice President of the United States that Wilson's wife worked at the Central Intelligence Agency in the Counterproliferation Division. Libby understood that the Vice President had learned this information from the CIA." In short, Cheney provided the classified information to Libby - who then told the press. Anyone who works in national security matters knows that the Counterproliferation Division is part of the Directorate of Operations -- the covert side of the CIA, where most everything and everyone are classified.

According to Fitzgerald, Libby admits he learned the information from Cheney at the time specified in the indictment. But, according to Fitzgerald, Libby also maintained - in speaking to both FBI agents and the grand jury - that Cheney's disclosure played no role whatsoever in Libby's disclosure to the media. Or as Fitzgerald noted at his press conference, Libby said, "he had learned from the vice president earlier in June 2003 information about Wilson's wife, but he had forgotten it, and that when he learned the information from [the reporter] Mr. [Tim] Russert during this phone call he learned it as if it were new." So, in Fitzgerald's words, Libby's story was that when Libby "passed the information on to reporters Cooper and Miller late in the week, he passed it on thinking it was just information he received from reporters; that he told reporters that, in fact, he didn't even know if it were true. He was just passing gossip from one reporter to another at the long end of a chain of phone calls."

This story is, of course, a lie, but it was a clever one on Libby's part. It protects Cheney because it suggests that Cheney's disclosure to Libby was causally separate from Libby's later, potentially Espionage-Act-violating disclosure to the press. Thus, it also denies any possible conspiracy between Cheney and Libby. And it protects Libby himself - by suggesting that since he believed he was getting information from reporters, not indirectly from the CIA, he may not have had have the state of mind necessary to violate the Espionage Act. Thus, from the outset of the investigation, Libby has been Dick Cheney's firewall. And it appears that Fitzgerald is actively trying to penetrate that firewall.

It has been reported that Libby's attorney tried to work out a plea deal. But Fitzgerald insisted on jail time, so Libby refused to make a deal. It appears that only Libby, in addition to Cheney, knows what Cheney knew, and when he knew, and why he knew, and what he did with his knowledge. Fitzgerald has clearly thrown a stacked indictment at Libby, laying it on him as heavy as the law and propriety permits. He has taken one continuous false statement, out of several hours of interrogation, and made it into a five-count indictment. It appears he is trying to flip Libby - that is, to get him to testify against Cheney -- and not without good reason. Cheney is the big fish in this case.

Will Libby flip? Unlikely. Neither Cheney nor Libby (I believe) will be so foolish as to crack a deal. And Libby probably (and no doubt correctly) assumes that Cheney - a former boss with whom he has a close relationship -- will (at the right time and place) help Libby out, either with a pardon or financially, if necessary. Libby's goal, meanwhile, will be to stall going to trial as long as possible, so as not to hurt Republicans' showing in the 2006 elections. So if Libby can take the heat for a time, he and his former boss (and friend) may get through this. But should Republicans lose control of the Senate (where they are blocking all oversight of this administration), I predict Cheney will resign "for health reasons."

Choosing a Graduate School in Economics

A correspondent writes I should recommend Mike Moffatt to people interested in graduate school in economics. It's good advice:

Choosing a Graduate School in Economics: From my own experience and the experience of my friends who also study economics in the United States, I can give the following advice:

  1. Ask the professors who are writing you recommendation letters where they'd apply if they were in your position. They usually have a good idea of what schools you'll do well at and which ones you won't. You'll also have a better chance of getting into a school if the selection committee at that school knows and respects the person writing the letter. It helps immensely if your reference writer has friends on the selection committee at that school.
  2. Don't apply to just the highest ranked schools. This is one of the biggest mistakes you can make. If you're interested in studying time-series econometrics, apply to schools which have active researchers in that area. What's the point of going to a great theory school if you're not a theorist? Apply to as many schools as possible. I'd recommend applying to about 10. I've seen a lot of terrific students only apply to Chicago, Harvard, and Stanford then not get into any of them. Make sure you have some back up plans, or else you might lose a year of study.
  3. Talk to the graduate students at the school you're thinking about attending. They'll usually tell you how things really work in a department. Talking to professors isn't as useful, because they usually have a vested interest in you coming to their school, so they've been known to bend the truth a little on occasion. Whatever you do, don't contact any of the faculty unsolicited. They'll think you're annoying and they'll blacklist you immediately.
  4. If at all possible, I'd recommend going to a larger school. Smaller schools are good, but if one or two key professors leave they can be decimated. It helps if the school you are applying to has 3 or more active researchers in the area you are interested in, that way if one or two leave, you'll still have an advisor you can work with.

Why Oh Why Can't We Have a Better Press Corps? (Jonathan Weisman, Please Stop Writing Edition)

The Washington Post's Jonathan Weisman takes another dive for his Republican masters.

Paul McLeary writes:

CJR Daily: Archives: [B]ack to the Post, where Weisman isn't done distorting by omission. Down toward the middle of the piece, the Post buries a major part of the story -- "a $70 billion tax cut that could come to a vote soon after the budget bill, more than wiping out the first bill's deficit reduction." (Emphasis ours.) With that, Weisman qualifies for the Buried Lede of the Week Award.

As Sam Rosenfeld noted on the American Prospect's "Tapped" blog this morning, "could it have hurt Jonathan Weisman to mention somewhere before the tenth paragraph of the piece (and less obliquely than in the passing reference he makes there) that there's a second component to the reconciliation package that's been artificially severed from the spending one, which will cut taxes for the wealthy by $70 billion? As Harry Reid and virtually every other Democrat has been saying ad infinitum during this debate: 'While the majority has divided its budget in a way that obscures its overall effect, nobody should be fooled. Viewed as a whole, budget reconciliation would increase the deficit by more than $30 billion.'"

Given that, the Post's headline for the piece, "Senate Passes Plan to Cut $35 Billion From Deficit"... gives the reader precisely the wrong impression. Someone forgot to warn the Post's copyeditors that the news -- and the headline -- were actually tucked into that tenth paragraph.

And Daniel Gross is equally annoyed:

Daniel Gross: October 30, 2005 - November 05, 2005 Archives: Writing in the Washington Post, Jonathan Weisman today gives Republicans in Congress way too much credit for finally addressing the issue of deficit spending.

The Senate approved sweeping deficit-reduction legislation last night that would save about $35 billion over the next five years by cutting federal spending on prescription drugs, agriculture supports and student loans, while clamping down on fraud in the Medicaid program. The measure would also open Alaska's Arctic National Wildlife Refuge to oil drilling, a long-sought goal of the oil industry that took a major step forward after years of political struggle. A bipartisan effort to strip the drilling provision narrowly failed. The Senate bill, which passed 52 to 47, is the first in nearly a decade to tackle the growth of entitlement spending, the part of the federal budget that rises automatically based on set formulas and population changes.

Sweeping? Tackling the growth of entitlement spending? Let's be clear what is being talked about here. Bear with me for a little elementary math. $35 billion in cuts over 5 years comes out to $7 billion per year. Here's the most recent take from the Office of Management and Budget on the budget for the currrent fiscal year and the outlook for the next several years. Scroll down to Table 5 on Page 19. There it is revealed that spending for Fiscal 2006 is estimated to be $2.613 trillion. For fiscal 2006 and the next four fiscal years, spending is set to total $13.975 trillion.

In this package of sweeping deficit reduction that tackles entitlement spending, Congress proposes to cut $35 billion out of some $13.975 trillion in spending over five years. Divide $13.975 trillion into $35 billion and you get: .0025447. In other words, Congress is proposing to cut spending over the next five years by one quarter of one percent.

Sweeping, baby.

Why Weisman's editors haven't fired him by this point is incomprehensible. It's in Weisman's short-run interest to shill for the Republican leadership--he would have a hard time getting his quotes for his stories if he didn't. It's not in his editors' interest--either short or long run--to employ him.

Thuds and Screams from Inside the Topkapi Palace

Capitol Blue is not always accurate, but always entertaining. A Tiny Revolution writes:

A Tiny Revolution: Let The Thinly-Sourced Rumor-Mongering Begin!: Would it be irresponsible to link to a Capitol Blue story simply because it bolsters my belief system, even though Capitol Blue has been egregiously wrong in the past?

It would be irresponsible not to:

An uncivil war rages inside the walls of the West Wing of the White House, a bitter, acrimonious war driven by a failed agenda, destroyed credibility, dwindling public support and a President who lapses into Alzheimer-like periods of incoherent babbling...

The war erupted into full-blown shout fests at Camp David this past weekend where decorum broke down in staff meetings and longtime aides threatened to quit unless Rove goes...

White House staff members say the White House is "like a wartime bunker" where shell-shocked aides hide from those who disagree with their actions and office pools speculate on how long certain senior aides will last.

Bush, whose obscenity-laced temper tantrums increase with each new setback and scandal, abruptly ended one Camp David meeting by telling everyone in the room to "go f--- yourselves" before he stalked out of the room.

Senior aides describe Bush as increasingly "edgy" or "nervous" or "unfocused." They say the President goes from apparent coherent thought one moment to aimless rambles about political enemies and those who are "out to get me."

"It's worse than the days when Ronald Reagan's Alzheimer's began setting in," one longtime GOP operative told me privately this week. "You don't know if he's going to be coherent from one moment to the next. What scares me is if he lapses into one of those fogs during a public appearance."

Today did see Scott McClellan direct press-delivered tacnukes against Karl Rove. Rove burned McClellan by sending him out to tell the press that Rove had nothing to do with the leaking of Valerie Plame Wilson's covert CIA identity--and now that this is well-known McClellan's credibility with journalists and his career are both over unless he can get Rove fired. No press secretary can survive if people think the rest of the White House regards him as a patsy to be fed lies.

Republican Radicalism

Henry Farrell at Crooked Timber writes about Jacob Hacker and Paul Pierson's Off Center:

Review of Off Center: The Republican Revolution and the Erosion of American Democracy. Jacob S. Hacker and Paul Pierson, Yale University Press 2005: Jacob Hacker and Paul Pierson have written a distinctly unusual book. Political scientists don't often write books that take sides in political arguments, and when they do, they usually don't do any better at it than common or garden pundits.... Off Center... is very clearly the work of people who have thought carefully and hard about how politics works.... They start by examining the conventional wisdom that American politics has strong centripetal forces, so that political parties have strong incentives towards moderation.... This political commonplace doesn't appear to be true any more, to the extent that it ever was. The Republicans have been transformed over the last twenty years from a loosely organized coalition in which moderates appeared to have the upper hand, to a party that is astonishingly well disciplined (by the standards of American political history) and dominated by right-wing radicals....

[W]hy hasn't the Republican party been punished by voters for its radicalism?... Hacker and Pierson's explanation has three main components. First, information: Voters are... vulnerable to "tailored disinformation."... Second, institutions: The Republican Party has been able to use its dominance of Senate, House and Presidency to set the agenda and to sideline opposition. Finally, networks: "New Power Brokers" like Tom DeLay have been able to assemble networks... rewarding and protecting loyalists while brutally punishing those who go off-message....

Hacker and Pierson can explain how the Republican party has succeeded in bringing through radical policy shifts that go against public preferences. Their analysis of the 2001 tax cuts, the Bush energy plan, and the Medicare drugs bill shows how highly objectionable policies can be crafted to fleece the public without raising much in the way of public opposition.... [A]ssiduous propaganda disguised the fiscal impact of the [tax] cuts.... Republican leaders made sure that they were sent to the floor for voting without opportunity for proper debate or for consideration of alternatives. "Sunsets," "phase-ins" and "time-bombs" were deployed to make the measures temporarily more palatable and to disguise their true costs and long term consequences. "Backlash insurance" provided protection to Republicans who signed onto the agenda...

Public Intellectuals

Tim Burke on Juan Cole:

Knowing: Juan Cole spoke here last night, courtesy of War News Radio, and I was fortunate enough to have dinner with him as well. I thought his talk was terrifically clear, informative and useful.... [T]he useful ordinariness of what Cole is doing: he’s providing a model of how scholars could and should engage the world.... What he does isn’t a substitute for his scholarship, but it makes his scholarly knowledge useful, even if you disagree with it. I get tired of the churlish spirit that seems to demand that the only experts worth having are the ones who happen to accord with one’s own views. I’d rather see most academics rise to the standard of public accessibility that Cole charts out as a basic attribute of their professionalism, and then worry about whose knowledge is most authoritative after we get to that point....

He’s a guy who knows a great many useful things about the modern political history of Iran and Iraq and has the scholarly discipline to organize what he knows in various ways, coupled with an ability and will to clearly communicate what he knows.... Cole knows less about subjects outside his specialized knowledge.... [E]ven within his specialization, of course, he has his pet readings and theories about what has happened and what will happen that collide squarely with the understandings of other specialists with equal experience in the region. What of it? That’s the challenge to any educated, critical-thinking person.... Gain information, gain perspective, use the tools you’ve got and if you need other tools, go get them....

One thing that Cole does contend, and I think he’s right to contend, is that many of the people who shaped the early American occupation of Iraq knew almost nothing about the political or social history of the place they were occupying, and more importantly, didn’t care to know.... A position that says there’s nothing to be gained by knowing the history that Cole knows, that it would have made no difference for American planners to understand the history of Shi’a Islam, or the political history of the Dawa Party, or the internal architecture of Hussein’s Ba’athist state, or any number of other topics, strikes me as an acutely self-defeating position, a cutting off of the nose to spite one’s face....

The curious thing about Cole’s account... is that it’s potentially very positive about the occupation.... [T]he United States actually did liberate some Iraqi communities, did make it possible for them to achieve democratic self-determination. It’s just that... the end result of democratic self-determination, at least in southern Iraq, may be a state that looks less like Morocco and more like Iran...

Health Care Reform Options

David Wessel on health care:

Capital: Angst about health-care costs drove the attempt by former President Clinton and Hillary Clinton to restructure the system.... Employers grew weary of picking up the tab not only for their own workers but for those without insurance or those covered by Medicaid and Medicare, which pay less than full cost. As they squeezed out inefficiencies, they cut their share of the cost of covering the uninsured. That forced up premiums for smaller employers. The number of uninsured grew and free care became harder to find. The government's costs, from the Medicaid program for the poor to emergency rooms at municipal hospitals, soared.

[A]ngst about health-care costs is back and could be a potent issue in the 2006 or 2008 elections. Now all we need is a workable solution. Two approaches are on the ascendant.

One is to prod Americans to be better health-care shoppers by making them spend more of their own money.... The notion is that people consume more health care than they need because it feels free, and there's something to that... discouraging Americans from unneeded trips to the emergency room is smart; discouraging them from teeth-cleaning, check-ups and blood-pressure monitoring isn't.... The other approach is to prod health-care providers to provide higher-quality care by paying them more for delivering it. Insurers, government and big health-care institutions are trying to devise quality measures -- from monitoring care of diabetics to evaluating surgical success -- as a step toward "paying for performance." Medicare's administrator, physician-economist Mark McClellan, is tweaking incentives in the giant government health-care-insurance program to the same end. This could give Americans more value for their health-care dollars, an unquestionably worthy goal, but whether it saves money is far from clear.... Incremental change appears to be the only practical option, but more than minor tweaks are needed. The cracks in the foundation are widening.

Alan Greenspan Warns to Congress

The report is:

Greenspan Warns Congress on Threat From Deficit: [Greenspan] issued some of his sternest warnings to Congress about the budget deficit, particularly as it relates to Social Security and rising health care costs. It is a subject he has highlighted in the past, but not as bluntly. "So long as health care costs continue to grow faster than the economy as a whole, as seems likely, federal spending on health and retirement programs would rise at a rate that risks placing the budget on an unsustainable trajectory," he said. "Specifically, large deficits will result in rising interest rates and an ever-growing ratio of debt service to G.D.P. Unless the situation is reversed, at some point these budget trends will cause serious economic disruptions."...

Translation: Health care costs are going to rise as a share of GDP. That means federal spending is going to rise as a share of GDP. Failing to bring the budget into effective balance over the long run will cause economic chaos. The conclusion is left as an exercise to the Congress: if you need to balance the budget and if spending is going to increase that means ______.

Gary Farber Is Shrill

He reads:

Amygdala: BACK TO THE FUTURE. "Iraqi Government Asks Hussein's Officers to Return to Military."

Comment? Who needs to comment?

Impeach George W. Bush. Impeach him now. Richard Cheney too.

The Decline of the American Union Movement

Tim Burke argues that strikes like that of Philadelphia's mass-transit workers are much more costly for the union movement as a whole than strikers realize:

The Union Label: [T]he proposition that Wal-Mart employees need collective representation that aggressively stands up for their interests strikes me as unquestionable. The only solution for predatory employment practices in cases where workers have few if any alternative sources of employment and woefully unfair terms of labor is unionization. You have to have a legally protected right to unionize or to bargain collectively in a free society, and some strikes or labor actions deserve the general endorsement of a public, even when those strikes inconvenience us....

Some strikes I simply can’t work up any support for. It’s hard for me, like almost everyone else in the Philadelphia area, to feel any real support or warmth for the striking mass transit workers who have crippled transportation this week. It doesn’t affect me personally [but]... this is a very public event... poorer Philadelphians who are dependent on bus transport and schoolchildren in the city who use vouchers to travel on public transportation to get to school.... A strike against a private business is one thing: in a way, you can usually just avoid engaging it altogether, work with some other business for the time being. This is different.

The union involved doesn’t seem to recognize the difference, and in failing to do so, neatly explains the eclipse of the modern labor movement in America. They’ve made no meaningful effort to speak to the public in advance of the strike, to prepare the ground, no attempt to explain or frame their actions in that arena. They’ve acted in a way that has huge public consequences with almost no sense of engagement.... Labor’s decline began in the United States... precisely because of a consistent inability to articulate its actions through an alliance with some larger general interest. That accelerated in the late 1970s and early 1980s; now many unions don’t even bother to try to pretend that the public consequences of their labor actions are worth more than a cursory address....

As long as unions seem as obsessed with bureaucratic over-regulation of workplace obligations as any middle-manager straight out of “The Office”, as eager to return all their members to some mediocre mean of on-the-job effort, or as uninterested in the long-term viability of the institutions for which they labor as stock-price obsessed CEOs, they’re going to turn off many potential members. Yes, these are all caricatures, exaggerated by the news media, but I suspect many people in their working lives have encountered a few vividly personal examples as well as telling public anecdotes...

In Today's Inbox (November 2, 2005)

In today's inbox--November 2, 2005--we have:


  • Si-Yeon Lee (2005), "Post-Crisis Restructuring and Corporate Governance in Korea" (Berkeley: Draft Orals Prospectus).
  • Konstantin Magin (2005), "Nanotechnology or Nanobubble?" (Berkeley: Draft).
  • Matthew Bernard (2005), "The Topic of Volatility: a Review of Shiller's Irrational Exuberance" (Berkeley: Draft).

Giovanni Federico goes straight to the top of the pile...

The buzz on Gene's book--at least the buzz that I've heard so far--is quite good...

Harold Davis has the very interesting idea of teaching introductory programming using Javascript as the sample programming language...

Lorentzen, McMilland Wacziarg (2005) say this:

Abstract: Analyzing a variety of cross-national and sub-national data, we argue that high adult mortality reduces economic growth by shortening time horizons. Higher adult mortality is associated with increased levels of risky behavior, higher fertility, and lower investment in physical and human capital. Furthermore, the feedback effect from economic prosperity to better health care implies that mortality could be the source of a poverty trap. In our regressions, adult mortality explains almost all of Africa's growth tragedy. Our analysis also underscores grim forecasts of the long-run economic impact of teh AIDS epidemic.

Eddie Lazear as CEA Chair?

Eddie Lazear would in all probability do a very good job as Chair of the President's Council of Economic Advisers: / World / US - Economist leads the field to replace Bernanke at CEA: By Andrew Balls and Caroline Daniel: Edward Lazear, a member of President George W. Bush's advisory panel on federal tax reform, is a leading candidate to replace Ben Bernanke as chairman of the White House Council of Economic Advisers (CEA), current and former administration officials said yesterday. Mr Lazear, a Stanford University economist, would bring to the White House expertise on tax policy and in-depth knowledge of the panel's deliberations and proposals -- some of which will be highly controversial in Congress....

Mr Bernanke, who was last week nominated to replace Alan Greenspan as chairman of the Federal Reserve, is helping with the search for his successor, and Mr Lazear is a leading candidate among a small number of names. Mr Lazear, a professor of economics and human resources management at Stanford business school, is primarily known as a labour economist, but his long research record spreads over a range of microeconomic topics. He has strong conservative credentials as a fellow of the Hoover Institution, Stanford's right-leaning research institution. He earned his PhD in economics from Harvard University in 1974.

Last year the White House asked James Poterba, the other economist on the tax panel, if he was interested in the CEA job before Mr Bernanke was nominated. At the time Mr Poterba, a professor at the Massachusetts Institute of Technology, made it clear he was not interested in the position.

An Insult to Count Potemkin

To say that whatever is good about the Bush administration's public image is the result of the tireless construction of Potemkin villages by the press corps would be an insult to Count Potemkin.

Paul Krugman writes:

Ending the Fraudulence: Let me be frank: it has been a long political nightmare.... [W]e realized early on that this administration was cynical, dishonest and incompetent, but spent a long time unable to get others to see the obvious. For others - above all, of course, those Americans risking their lives in a war whose real rationale has never been explained - the nightmare has been all too concrete.... What do I mean by essential fraudulence? Basically, I mean the way an administration with an almost unbroken record of policy failure has nonetheless achieved political dominance through a carefully cultivated set of myths.

The record of policy failure is truly remarkable. It sometimes seems as if President Bush and Mr. Cheney are Midases in reverse: everything they touch - from Iraq reconstruction to hurricane relief, from prescription drug coverage to the pursuit of Osama - turns to crud. Even the few apparent successes turn out to contain failures at their core: for example, real G.D.P. may be up, but real wages are down.... [T]his administration's political triumphs have never been based on its real-world achievements... [but] on myths: the myth of presidential leadership, the ugly myth that the administration is patriotic while its critics are not. Take away those myths, and the administration has nothing left....

[T]he Bush administration has lost the myths that sustained its mojo, and with them much of its power to do harm. But the nightmare won't be fully over until... politicians... admit that they were misled... news media... face up to their role in allowing incompetents to pose as leaders and political apparatchiks to pose as patriots.... [T]he long nightmare won't really be over until journalists ask themselves: what did we know, when did we know it, and why didn't we tell the public?

Noah Schachtman Reports from Iraq

Noah Schachtman of the always-excellent DefenseTech is back from Iraq:

Defense Tech: Iraq Diary Archives: [T]hat day-and-a-smidge shift with "Team Mayhem," a U.S. Army bomb squad, winds up being pretty damn action-packed. Booby traps, smoking mortars, rooftop gunfire, suspected truck bombs, roadside explosives, and an idiosyncratic little robot named "Rainman" all figure prominently in the story, which appears in this month's Wired magazine. Mostly, though, the article is about the battle of wits that's being fought between high-tech U.S. military squads and low-tech insurgent bombers. Improvised explosives have become the deadliest threat to soldiers and civilians alike in Iraq. So the winner of this fight largely determines the fate of the counterinsurgency.

But getting a clear picture of this tangle has been tough; military bomb squads, or "explosive ordnance disposal" units, are ordinarily shrouded in secrecy, operating in shadows. This is one of the first times they've allowed a reporter in for an extended stay....

Noah goes on to say that morale among our soldiers is high:

[M]orale among these infantrymen and engineers and bomb-disposers was high. Shockingly high, given the fact that they didn’t buy the Bush administration’s rationales for the war. “Democracy? Here? Are you f---ing kidding me?” one sergeant laughed, as we drove near the Abu Ghraib prison.... He figures the place will collapse into civil war as soon as U.S. troops leave. But he’s glad he’s in Iraq, regardless. Mostly, because of the insurgents.

The guerrillas in Iraq have been brutal, killing way more innocent bystanders than American occupiers or Iraqi collaborators.... “It boggles my mind, how someone can go into a crowd of kids, and kill them all. I’ll never understand it. But that’s why I’m here,” said Staff Sgt. Mark Palmer, with the 717th Ordnance Disposal Company, an Army bomb squad.... U.S. troops are highly trained. So they’ll do what they’re ordered. But in order to feel good about their mission, they need a cause.... The insurgents have been only too happy to step collectively into the role of Dr. Doom.... Most of these GIs were ready to whoop ass, when they first get to Iraq. They’re part of America’s professional, increasingly-permanent military class. Which means they’ve been training for years to go to war – with precious few full-out battles to fight.... I’d say three in four of the GIs I spoke with were planning to reenlist. The new, fat bonuses are one reason, of course. But another is the sense that there are real-life psychopaths out there that need to be stopped. It may sound corny. It may sound dumb. But that’s what I saw.

No, it doesn't sound dumb. It sounds brave.

The Constitution-in-Exile Orders a Mojito

Bush Supreme Court nominee Sam Alioto on the right to possess machine guns:

Whiskey Bar: Casey as the Bat: Just call him "Machine Gun" Scalito:

What should be far more troubling to Senate Democrats, however, is Alito's 1996 dissent from a decision upholding the constitutionality of a federal law prohibiting the possession of machine guns. Applying the logic of the Constitution in Exile for all it's worth, Alito insisted that the private possession of machine guns was not an economic activity, and there was no empirical evidence that private gun possession increased violent crime in a way that substantially affected commerce -- therefore, Congress has no right to regulate it.

I genuinely don't understand how machine guns are not part of "economic activity." Wouldn't most people who use or threaten to use machine guns use them to get money--often through transactions that cross state lines?

I hope that wherever the Constitution-in-Exile is in exile, it is a warm, happy, peaceful friendly place. Because I want it to stay there for a long time.

Why Oh Why Can't We Have a Better Press Corps? (Budget Edition)

Sam Collender scolds the members of the press who want to please the Republican leadership by painting them as genuine deficit hawks. He writes:

BUDGET BATTLES: Apples And Oranges. By Stan Collender, © National Journal Group Inc. Tuesday, Nov. 1, 2005: A little plain talk and a few numbers are needed to correct the confusion congressional leaders are creating by comparing fiscal apples with budget oranges.... [T]he $35 billion in cuts have absolutely nothing to do with offsetting the substantial additional costs of Katrina.... [A]ny attempt to re-characterize reconciliation as being wholly related to Katrina is budget spin at its worst.

The additional $15 billion in mandatory spending changes the House is considering as part of reconciliation and the approximately $8 billion in across-the-board domestic appropriations cuts are the only additional reductions that can conceivably be considered to be Katrina offsets.... The $15 billion... would occur over five years. By contrast, about $50 billion of the Katrina spending is expected to happen in fiscal 2006 alone.... These figures contradict the impression congressional leaders have been trying to create over the past few weeks that they are moving mountains to make sure that Katrina does not add to the deficit and the federal debt....

The Go-To Guy on Tax Reform Is...

Bill Gale:


of the Brookings Institution is the go-to guy on tax reform.


UPDATE: John Irons says:

In case you can't get Bill on the phone, he was on a panel at the Center for American Progress last friday talking about tax reform. apps/nl/content3.asp?c=biJRJ8OVF&b=593305&ct=1524525 or go to and click on the events page and find the tax panel...

The End of (Firm-Sponsored Defined-Benefit) Pensions

Andrew Samwick views the private-firm defined-benefit pension-fund death spiral as both a Capitol Hill and a union bargaining failure:

Vox Baby: The End of Pensions: There is... no need for formal pension insurance.... Every defined benefit pension plan has the opportunity to invest in Treasuries... [can] match the duration of its fund to those of its obligations... [F]unding a pension plan... [needs only] the required annual contribution under the assumption that the pension plan sponsor were following the duration-matched Treasury investment strategy. The federal government shares the cost of this investment by allowing the pension fund to accumulate at the pre-tax rather than the post-tax return. (It also defers the employee's tax liability on compensation taken through a pension plan.)...

Any deviation from this funding strategy should be examined with suspicion. The biggest deviation is to invest... in equities.... This strategy is okay, as long as the pension fund is small relative to the firm's assets, so that the firm can make up the shortfall....

[W]e are learning that this isn't necessarily the case with a lot of the airline, steel, and auto companies. Almost by definition, it is not the case when a company approaches bankruptcy.The problem is nicely illustrated by this passage from Lowenstein's article:

G.M. and other industrial companies, along with their unions, have harshly attacked the Bush pension proposal, which would force many old-economy-type corporations to put more money into their pension funds just when their basic businesses are hurting.

Well, no kidding. The industrial companies and their unions that encouraged them have no one to blame but themselves for their current troubles. They used their pension funds as speculative investment vehicles, and the combination of low interest rates, sagging stock market values, and optimistic funding assumptions put them in this position. Who but their shareholders and workers should be asked to make those additional contributions?

The government has decided through ERISA that it will permit the investment of pension funds in equities and subject plan sponsors to a set of minimum funding rules and require them to purchase (vastly underpriced) PBGC insurance. This is a bad strategy, in my view, because of the numerous ways to game it, which Lowenstein's article discusses in good detail. It creates the appearance that someone else is responsible for these companies, and that may ultimately prove to be the reality, with the taxpayers being asked to step in to make up the shortfall.

I think Andrew misses an additional important aspect of the situation. When pension funds (and health benefit programs) become large relative to the size of the firm, the retired and the sick join the bondholders and the stockholders as claimants on the firm's cash flow, but the retired and the sick don't have any place in the firm's corporate governance structure, and claimants on a firm's cash flow should have a place somewhere.

UPDATE: Andrew Samwick politely reminds me that he talked about this last April at

"Covert" Operative

Mark Kleiman relays Matt Cooper:

Mark A. R. Kleiman: Rove told Cooper; Libby knew VWP was covert: Matt Cooper says that:

  1. He first learned about Valerie Plame Wilson from Karl Rove.
  2. Scooter Libby confirmed, not only that she worked at the CIA, but that she was covert.

Time Reporter Says He Learned Agent's Identity From Rove: Oct. 31 2005 — - One of the reporters at the center of the investigation into the leak of the identity of an undercover CIA officer says he first learned the agent's name from President Bush's top political advisor, Karl Rove. Time magazine reporter Matt Cooper also said today in an interview with "Good Morning America," that the vice president's chief of staff, I. Lewis "Scooter" Libby, confirmed to him that Ambassador Joseph Wilson's wife, Valerie Plame, was a covert CIA operative.

A grand jury charged Libby on Friday with five felonies alleging obstruction of justice, perjury to a grand jury and making false statements to FBI agents. If convicted, he could face a maximum of 30 years in prison and $1.25 million in fines.... Wilson has argued that the Bush administration revealed his wife's identity in order to silence his opposition to the war. "There is no question. I first learned about Valerie Plame working at the CIA from Karl Rove," Cooper said.

Libby has since claimed that he heard the Plame rumors from other reporters. Cooper disputed that version of events. "I don't remember it happening that way," he said. "I was taking notes at the time and I feel confident." If a trial goes ahead, Cooper said he would name Rove as his source of the information. "Before I spoke to Karl Rove I didn't know Mr. Wilson had a wife and that she had been involved in sending him to Africa."

Hat tip: Crooks and Liars. (John credits Susan at Booman Tribune, but I can't find the item there.)

I must say I do wonder why Scott McClellan is still around. Shouldn't Cooper--or one of the other journalists who knew--have found a way to signal McClellan in the fall of 2003 that he should not assert that Rove and Libby were uninvolved? Shouldn't Cheney--who knew everything worth knowing--have told Scott this isn't a place he wants to be? The fact that everybody has been viewing McClellan not as a member of the team but as a patsy to be hoodwinked must be unbearably humiliating.

Talking About Tax Reform: A Missed Opportunity

Eddie Lazear and Jim Poterba have an interesting opening to their "pro tax reform" piece this morning:

A Golden Opportunity: By EDWARD P. LAZEAR and JAMES M. POTERBA: A tax system should generate the government's required revenue with as little economic distortion as possible, while distributing tax burdens fairly. It should not discourage work, saving or entrepreneurship more than is necessary, and it should not discourage individuals from acquiring the skills and education that will increase their productivity. It should not discourage investment, or favor investments in one asset over those in another. In short, an efficient tax system alters economic decision-making as little as possible.

If you poll economists and budget people about what is most wrong with our tax system, they will tell you that the thing that is most wrong is that it does not do the very first thing that Eddie and Jim mention: our tax system will not generate the government's required revenue. As America ages and as health care costs rise, the government is going to be spending a larger and larger share of GDP. The Republican leadership has no plans to close this funding gap, either by reducing planned spending or increasing taxes. That's the big thing wrong with America's tax system today. And that's the one thing Eddie and Jim don't talk about. This is too bad: it's a very big missed opportunity, a place where they could have educated the public, but did not.

However, they do say a great many smart things:

The more than 15,000 changes to the tax code in the last 19 years have undermined many achievements of the 1986 tax reform... targeted incentives, phase-out rules, phantom tax rates, and complex and sometimes inconsistent provisions... unable to understand the rules... five different definitions of "child"... 401(k)s, 403(b)s, 457 plans, 529s, IRAs, Roth IRAs, Coverdell saving accounts and Health Saving Accounts...

The Alternative Minimum Tax... a parallel tax structure.... The AMT is most likely to affect taxpayers with large families in states with high state and local tax burdens... many Americans in these states face impending and surreptitious tax hikes...

A substantial body of economic research suggests that tax wedges between the before-tax and the after-tax return on saving and investment are particularly detrimental to long-term economic growth. The current tax system taxes corporate income once at the corporate level and again at the investor level. The Treasury Department estimates that, on average, the total tax burden on a new corporate investment project is 24%. By comparison, investments in the non-corporate sector, which are taxed only once, face a 17% tax burden. Investments in owner-occupied housing, which yield untaxed returns in the form of implicit rental income, are untaxed....

The Tax Panel endorses two reform proposals.... The first is the Simplified Income Tax. It preserves the income tax framework but cuts marginal rates to 15%, 25% and 33%. It provides for a large amount of tax-free saving, consolidates credits, and rationalizes the system of business taxation. The second reform proposal, the Growth and Investment Tax, builds on the Simplified Income Tax system, and by allowing full expensing of capital, shifts the tax system toward a consumption tax base.... Treasury estimates that moving from the current structure to the Growth and Investment Tax would lower the average tax burden on all investment from 17% to 6%. This would encourage new investment and significantly increase productivity and wage growth...

Both proposals trim many of the deductions... [keeping] a deduction for charitable contributions in excess of 1% of taxable income... a 15% tax credit on interest for loans up to 125% of an area's median home price, computed using the FHA's loan limits.... tax[ing] employer-provided health insurance, but only on the amount of insurance valued at more than $11,500 for a married couple and $5,000 for a single individual....

Both plans eliminate the federal tax deduction for payments of state and local income and property taxes.... [But] these... deductions [would] be eroded [anyway] as the AMT expands its reach under the current tax system....

If reform proposals are dissected by politicians in an attempt to promote provisions that reduce their constituents' tax liabilities while excising those that increase constituents' tax liabilities, reform will inevitably fail. But if reform proposals are viewed instead as a collection of provisions that leave most families in a position not very different from their current one, while also shifting the tax system toward a structure that will promote long-term economic growth and reduce the burden of tax compliance, then these proposals can command broad popular support and even enthusiasm...

The tax reform proposals seem, at first glance, to (a) broaden the base by whomping the big deductions that are primarily used by the upper middle class to reduce their tax burdens; (b) lower tax rates, especially on savings; (c) simplify; and (d) shift the tax base from income to wage and salary income--i.e., moving toward a system in which taxation falls on labor and not on capital.

Parts (a), (b), and (c) are very good, but it's never been clear to me that (d) is fully thought out. Taxing capital income does two things: (i) it taxes thrift--moving wealth and purchasing power forward in time--and thus causes us collectively to miss opportunities for productive investment; and (ii) it taxes luck--those who happened to be in the right place at the right time, and wound up with large piles of money. Looking forward in time at my great-great-great grandchildren, I don't want their thrift taxed: I do want them to take advantage of all the opportunities for productive investment there are. But I do want their luck taxed: some of them will be lucky and some will not, and I will be happier if some of the fruits of the good luck of the some are redistributed to ther others via the tax system. It's not at all clear that Eddie and Jim have included this factor in their thinking.