Random Reflections: 1/5

• I was going to write a post about the "buy local" movement, but here is an article that makes the same points I would have made.
• The New York Times has a good comparison of Simon's and Malthus' thoughts on resource depletion.
• Greg Mankiw offers the President advice on how to work with Republicans.
• Professor Landsburg shares a libertarian economist's opinion of Dickens' Scrooge.
• The Economist has a comical projection of global politics in 2011.
• Here is a link I found on Greg Mankiw's blog that I find pretty amusing.

On "Compromise"

I'm a little late on this, but a week ago today President Obama signed into law a "compromise" on the Bush tax cuts. While both parties are playing at being righteously indignant, Republicans and Democrats will both reap political benefits without actually having to put in the work of finding a deal that is consistent with the policy goals of both parties.

Before I get into the details of what happened with this deal, I'll give a quick summary. Essentially, Obama got everything he wanted while sacrificing almost nothing, and Republicans got to win a completely meaningless symbolic victory before taking over the House, while they can still blame Democrats for the increasing spending.

Obama got the Bush tax cuts extended, making the tax system more progressive (no, that’s not a mistype; see here and here). He got the estate tax reinstated (a tax which is both unfair and inefficient, but more on that later). And he got a stimulus package passed that is even larger than the first one. I'll agree that unemployment benefits might be a good thing, but they also might not. And if we're not sure, I tend to think that we're morally obligated to err on the side of not taking money from some people and giving it to others.

The Republicans got to say that they "won" by getting the Bust Tax Cuts extended for the wealthiest Americans. This not only looks like a victory for them, but distracts everyone from noticing that they agreed to over $800 billion in increased government spending without any tax cuts, which is not exactly the platform they took the House with. This makes the whole Bush Tax Cut thing completely symbolic. Increased spending without increased taxes now means increased taxes later, no matter how you look at it. That's why this Republican "victory" is completely hollow.

The Democrats achieved a policy victory by getting a more progressive tax system and a lot of stimulus spending (in this case, I don't agree with either), and the Republicans won a meaningless symbolic victory. What did American citizens get? An increased deficit, a small loan from our future selves, and a government that has even more of other people's money to spend. Doesn't look like much of a compromise to me.

Much of this post was inspired by an excellent post by Professor Landsburg. I recommend that everyone reading this post read his comments here.

Spending Other People's Money

Now that I'm on my break, I hope to be posting more frequently in the next few weeks than I have recently. I want to start off by quickly sharing my thoughts on the morality of taxes and government spending.

Whenever policymakers create new laws that require funding, they must keep in mind that they are spending other people's money. Since taxation is not voluntary, people aren't paying the government for services, and taxes cannot simply be thought of as the "price" for a government provision of goods. Since government programs can only be funded through coercive measures, it is a moral imperative that governments demonstrate that they are justified in raising such taxes.

I don't think that anything I've said so far is controversial. The debate lies in what counts as "justified", and I will devote many posts in the future to examining that thought.

The Truth about "Sweat-Shops"

I have often suspected that there was something amiss about the argument in favor of imposing minimum wages and standards for working conditions on sweat-shops in poor countries. If people are willing to work in them, shouldn't they be allowed the opportunity? I'd love for everyone to make $100 an hour and work in comfort, but I suspect that the way to get there is through economic development and not through government regulation. Paul Krugman makes this argument more elaborately and intelligently than I can here and here. Let me know what you think.

Random Reflections: 11/15

Here are my thoughts on a few major recent events:

• I'm elated at the release of Aung San Suu Kyi, but as The Economist is wise to note, her release probably has strings attached.

• Obviously, I'm glad that the Republicans took control of the House, but I'm disappointed that it largely came at the expense of fiscally conservative Democrats. The Blue Dogs are probably my favorite main-stream coalition.
• In response to public obsession over the deficit, an obsession I find misplaced, the New York Times has published an interesting tool for examining how best to eliminate the deficit. Check out a blank one here and my version here (note that the only tax increases I support are a carbon tax and a measure that will close loopholes).

• The New York Times finds it unlikely that Don't Ask, Don't Tell will be repealed in light of the elections. I think that it would be a disappointment if we didn't get such an absurd policy removed. My hope is that the Democrats will trade spending cuts for the policy's repeal. I doubt it will happen, but I think it would appease both liberal Democrats and help new Republicans keep Tea Party favor.

• I think that the most important thing for the new Congress to remember is that cutting spending is far better fiscal policy than raising taxes, especially in an economy filled with wasteful and inefficient subsidies and earmarks.
• My prediction: There will be a lot of partisan grandstanding during the lame duck session, and then real compromise will happen.

A Defense of Fiscal Conservatism

Today's post is a response to what I think is a common misconception. I think people sometimes make the assumption that wanting to limit government involvement in the economy is equivalent to selfishly placing the interests of oneself (or business or unions or whatever) over the interests of others. While I am certain that this assumption is true in some cases, I know that it is not true all of the time and suspect that it is true very rarely.

There are certain goods that many people think should be available to everyone. A few commonly cited examples are a clean environment and healthcare. I agree that these are two things that society should provide for its members. However, that is not equivalent to saying that government should provide a clean environment and healthcare. Government is once mechanism for providing goods to society. Another is the free market. The fiscally conservatives view is not that these things should not be provided, but that they should be provided by market forces and not by government.

Arguing in favor of that point is one of the points of this blog, so I won't try to justify that position in one post (instead, I'll attempt to do it in many). I just want to make sure I'm being clear about what I believe, namely that in most circumstances the free market is a far more effective mechanism for increasing social welfare than government.

My Hope for the Future

The midterm elections are fast approaching, and in the time between now and November 2nd I will be doing a series of posts about which individual candidates I support. Most or all of these posts will be about New York elections in which I can vote. I wish to wait until the primaries are finished before I begin that series of posts, however, so today's entry will outline the direction in which I hope the midterms take our nation.

There are four issues which I think will be important after the midterms: the economy, climate control, immigration, and healthcare (if the Republics win one or both houses). While both parties will attempt to solve these problems, they will likely have very different approaches. I expect the Democrats to take fiscally liberal approaches to fixing the economy and climate control, with measures such as increasing unemployment benefits, tax cuts for the middle class, further stimulus measures (although I'm sure they won't call it that), and subsidies for green technology. I think the Democrats will attempt to solve immigration issues by making borders more open and by creating an easy path to citizenship for illegal immigrants already in America. I expect the Republics to take more fiscally conservative measures to fix the economy, such as more extensive tax and spending cuts and attempts to reduce the budget deficit. I expect them to resolve the immigration issue by increasing border security and attempting to root out illegal immigrants. I am uncertain of the path they will likely pursue on climate control.

While my opinions are scattered between the two parties, the majority of them align with the Republican position. I think the fiscally conservative approach to solving the economy is more responsible and will be more effective in the long run. I think spending needs to be cut and that the deficit needs to be reduced, and I simply don't trust Democrats to do that. As I have previously written, however, I support a very open immigration system. I think that with a Democratic president and a Republican congress (which certainly won't have a 2/3 majority), this is still achievable. I am wary of the Republican response to healthcare, however. I in no way support the current Democratic solution, but I feel that a Republican congress frantically removing whatever pieces of the legislation they can could complicate the system further. Fortunately, Obama won't allow that to happen. Instead, I think that a full overhaul of the healthcare system is needed. Unfortunately, Obama won't allow that to happen either.

I think that smart environmental reform comes in the form of correcting market failures, not through expensive subsidies. For example, a gas tax would go a long way towards reducing emissions and would make that market far more efficient. I don't believe that Democrats will follow that approach. However, I fear that Republicans will simply try to protect the interests of big business instead of finding smart market-based solutions (oil companies obviously won't want a gas tax, for instance). My hope is that a Republican congress bent on cutting spending and a Democratic president committed to improving the environment will construct a compromise that consists of market reforms.

Overall, I am hoping for Republicans to take control of both houses of congress, however unlikely that is. I am not universally endorsing the positions of the Republican party, but, lame duck issues aside, I think the combination of a Republican congress and a Democratic president is the most beneficial situation for our nation.