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.

Religious Tolerance Improves Our Nation

I have been slow to blog on this subject because I hoped that it would fall to the background quickly enough so that there would be no need. Unfortunately, it appears that I overestimated the advancement of religious tolerance and the quality of American political discourse. I find it absolutely appalling that anyone could oppose the construction of the Cordoba House Mosque on Park Place in NYC. Opposition to its construction is an insult to all decent Americans. Not only does the opposition movement act with a mean-spirited sense of bigotry, they are opposing a project which is good for America. Here are 5 reasons that the country will be better off with the Cordoba House's Mosque:

1. The Cordoba House Mosque will increase America's national security

Allowing moderate Muslims to build a mosque near Ground Zero shows the world, especially Muslim extremists, that the American public understands who its enemy is. It will erode the extremist argument that America is intolerant of the Islamic faith. Building the Cordoba House Mosque will also allow domestic Muslims to assimilate more completely into American society, reducing the chances that they will be driven to extremism.

2. It will show the dedication of American citizens to the opposition of terrorism

It is crucial that the Islamic world understands that we are at war with terrorists, not Muslims. Al Qaeda and other extremists hate moderate Muslims as much as they hate Americans. It is therefore strategically necessary that we take every opportunity to unite with moderate Muslims to fight extremism. As they say, the enemy of my enemy is my friend. Supporting the Cordoba House Mosque will remind moderate Muslims that we are on the same side.

3. Tolerance of the project shows a respect of religious freedom

This point needs little elaboration. The freedom of religion is a basic constitutional right. I find it ironic that those who oppose the building of the Cordoba House the most fervently are often the most outspoken supporters of the Constitution. To me, the freedom of religion is the freedom to practice your religion without any form of persecution. Opposing the building of a mosque is clearly an act that violates the religious freedom of American Muslims.

4. It also shows a respect for the rights of private property

Respecting the rights of private property is another constitutionally guaranteed right. This is not only the freedom to have personal property protected from the government, but also the right to do what you wish with your own property, free of ridicule. These are two of the most fundamental democratic rights, and those who oppose them are damaging our democracy.

5. The Cordoba Project will help Americans understand the teachings of Islam and the motivations of the Muslim world more completely

This is part of the official mission of the Cordoba Project. It is a noble goal that would improve our nation culturally, as well as improving our relations with the Islamic world. The fact that 60% of Americans oppose the building of the Cordoba House Mosque shows that this message is sorely needed.

I have found some small measure of support among America's citizens who support this project. Featured on the Cordoba Initiative's homepage is a letter from Rabbi Burt Visotzky thanking President Obama for his support of the "Ground Zero Mosque". I find the letter to be an inspiring reminder that interfaith understanding is not gone from this country.

Nearly Open Borders

Immigration is the issue that won't go away, and I'd like to weigh in. I think that the current immigration system is fundamentally flawed, and that smart immigration reform will make life better for Americans as a whole.

Our current immigration system spends vast resources protecting the border against the entry of undocumented workers, detaining illegal immigrants, and auditing businesses so that the government can force them to fire illegals. This policy is bad for the country because, simply put, immigration is a good thing for America. Immigrants increase domestic demand (which is the goal of unemployment benefits and other stimulus spending), and they reduce the prices we pay for goods by increasing the labor supply. This also lowers the wages that are paid to workers in the short run, but in the longer run lower wages cause companies to expand, hire more workers, and bid wages at least partly back up. As with many economic policies, there are individuals who are made worse off by immigration (though not as worse off as it may seem, because even workers who get paid less enjoy the benefit of lower prices). Basic economic theory tells us, however, that in this case the gains to the rest of the country outweigh the costs to those individuals (see here and here for more complete arguments). Under current immigration policy, we are spending vast sums of taxpayer money to make ourselves worse off. Obviously, that's not good.

Good immigration reform therefore makes it as easy as possible for immigrants to enter the country. We should be careful to keep out those that pose a threat to national security, but otherwise immigrants should be allowed to enter unhindered. In addition to the gains outlined above, a more open immigration policy makes the country better off by reducing the amount of resources we spend combating illegal immigration. A policy of (nearly) open borders therefore causes us to spend less money and allows immigrants to improve our country. Instead of spending lots of money making ourselves worse off, we'd be spending less money making our country richer and more secure.

I also think that there should be a way for current illegals to become citizens (or at least legal immigrants). They should have to pay a fee that will cover the costs of naturalization and should have to settle unpaid taxes, but otherwise should be unpunished. They have already been here improving our country, and shouldn't be asked to cover the costs of past, flawed policies.

Party Time?

In this entry I wish to write about the Tea Party movement. Its grassroots nature makes it difficult to identify, so I am eager for reactions which might highlight any misinterpretations I may have.

The Tea Party is a movement that has formed in opposition to many recent government initiatives, especially the bailout of the financial system, the stimulus bill, and health care reform. A common Tea Party refrain is to "take back government", which I take to mean that the movement's members want to enforce strict constitutionality and reduce taxes as much as possible.

After some quick research, I came across a document called the "Contract for America". It is a list of ideals written and voted on by some members of the Tea Party. At risk of generalizing the whole movement, here are some of the document's points I'd like to comment on:

Identify constitutionality of every new law: Require each bill to identify the specific provision of the Constitution that gives Congress the power to do what the bill does.

Demand a balanced federal budget: Begin the Constitutional amendment process to require a balanced budget with a two-thirds majority needed for any tax modification.

Audit federal government agencies for constitutionality: Create a Blue Ribbon taskforce that engages in an audit of federal agencies and programs, assessing their Constitutionality, and identifying duplication, waste, ineffectiveness, and agencies and programs better left for the states or local authorities.

Limit annual growth in federal spending: Impose a statutory cap limiting the annual growth in total federal spending to the sum of the inflation rate plus the percentage of population growth.

Reduce Taxes: Permanently repeal all recent tax increases, and extend permanently the George W. Bush temporary reductions in income tax, capital gains tax and estate tax, currently scheduled to end in 2011.

Identify constitutionality of every new law

I think that strict constitutionality for the sake of strict constitutionality is pointless. The Constitution was remarkable for its time, but it also allowed slavery, declared African Americans 3/5ths of a white person, and banned the income tax. We now know that all of those are bad policies. I certainly wouldn't support any law that is constitutionally indefensible, but I think that we should be striving for good policy and not strict constitutionality.

Audit federal government agencies for constitutionality

What I said above, but add in my distaste for bureaucracy. However, I am a fan of the idea of eliminating "duplication, waste, ineffectiveness, and agencies and programs better left for the states or local authorities". Take out the part about strict constitutionality and I can get behind this. I think that such a "task force" could even be effective if its members are appointed by the President without Congressional approval. It can help make the President look good if it succeeds in reducing waste, so he'll be motivated to appoint members that will actually do something, and leaving Congress out of it removes a potential conflict of interest when it recommends removing Congressional programs.

Demand a balanced federal budget

I like to compare the federal budget to a personal budget. Having a balanced budget is generally responsible. But having some debt is not irresponsible. Most Americans have or have had a mortgage. That doesn't necessarily make them irresponsible. Just like individuals, governments need to have the flexibility to run a deficit. Large deficits are irresponsible (just as excessive personal debt is irresponsible), but small deficits help growth under the right circumstances.

Limit annual growth in federal spending

This is similar to my previous argument. While I think excessive federal spending hurts the economic prosperity of the country, I think that legally limiting the government's ability to spend money is foolish. Instead of this, we should strive to elect representatives who are fiscally responsible and will raise federal spending as little as possible.

Reduce Taxes

Do I think taxes are too high? Absolutely. However, tax cuts are tricky than I think Tea Partiers want to admit. Distinct types of taxes have distinct economic implications that are not always obvious. Perhaps the writers of the "Contract for America" did more research than I have, but I am certainly not prepared to say that income taxes, capital gains taxes, and estate taxes should be the first to be reduced. Further, I think that there should be certain strategic tax increases, such as a gasoline tax. There are externality problems which can be solved or eased by an increase in certain kinds of taxes. Identifying these areas would allow us to lower taxes in other areas without spending cuts (I think spending cuts should also occur, but that is besides the point). For example, I've read that every gallon of gasoline purchased does approximately 50 cents worth of environmental damage. Given this, a 50 cent gasoline tax would cause gas consumption to occur at the socially optimal level, while allowing the government to increase overall wealth by reducing taxes elsewhere. Therefore, I think that saying that the government should reduce taxes, while true, is an oversimplification of the course of action that needs to be taken. (It should be noted that taxes are not always the optimal solution to externality problems.)

Overall, I like the idea of a political movement that seeks to enact greater fiscal responsibility and smaller government. However, I think the Tea Party misses the mark. It spends too much energy trying to enforce strict constitutionality when their efforts would be better spent developing good policy. I also think that the Tea Party oversimplifies the issues that government faces when trying to cut spending and reduce taxes. The movement may end up pulling the nation in a direction I find favorable, but I disagree with many of the movement's objectives.

Here is an excellent article about the Tea Party and its effect on American politics.

On Obama

Today I want to share a few articles that highlight my bipolar opinions of our president. The first is a piece by "The Economist" outlining Obama's strategy in dealing with Iran:

http://www.economist.com/blogs/lexington/2010/08/america_and_iran

I think this article supports my belief that Obama's foreign policy skills have been spectacular. Warming relations with Russia and successfully navigating difficulties with North Korea and China are all significant accomplishments, as are the UN sanctions that Obama helped get through the Security Council. I still haven't decided how I feel about war in Afghanistan, but other than that I am very comfortable with Obama's ability to represent our country to the world.

The second article is from the "New York Times" and discusses the bailouts of the auto industry:

http://www.nytimes.com/2010/08/06/us/politics/06obama.html?_r=1&ref=politics

While I'll leave formal evaluations of this policy to more skilled macroeconomists, I believe that it is generally bad policy to use taxpayer money to prop up a failing industry. If the demand for American-made cars isn't great enough to ensure the survival of these companies on their own, then the government has no place trying to keep them in business. While I think that the best government policy is generally to avoid any intervention in the private sector, I would at least have more support for spending this money on job retraining or some other venture help former autoworkers. In the end, however, Obama is doing nothing other than spending our money to delay the inevitable.

Cares Cafe

Today's post is inspired by an article in this week's Time Magazine. It discusses Cares Café, a non-profit branch of Panera Bread located in Clayton, Missouri. Cares Café serves the same food as all other Panera restaurants, but allows you to pay your own price. The idea is that affluent customers will pay at or above the "requested amount" (the price charged at other Panera restaurants), allowing those facing tough financial times to pay less. Customers can also volunteer at the café to cover the cost of their food. If Cares Café makes enough money to cover its costs, then I think that it is one of the best non-profits I've ever heard of. It has the potential to be a self-sustaining organization that provides a basic service to those in need.

If everyone were to pay the "requested amount", either in cash or in volunteer time, then it would require absolutely no charity on the part of anyone, including Panera. It would simply allow those in need to pay for their food by volunteering. This is effectively employing people who need extra money and paying them in food, increasing their incomes. Unlike traditional forms of charity, this model doesn't just help those poor enough to go to a soup kitchen. It also benefits those who are better off, but in need of some extra cash to make ends meet.

Even if everyone doesn't, or can't, pay the costs of the food they eat, this model still has great promise. Panera is a hugely successful restaurant, so we already know that people will choose to eat there. If some of the affluent customers pay above the "requested amount", then someone who cannot pay the requested amount is able to buy food at a discounted price without requiring charity from Panera.

I am eager to see the model succeed without needing charity on the part of Panera (admittedly an unlikely occurrence). This would mark the birth of an organization which is both profitable and charitable. I don't see any applications of this model outside of fast-food style restaurants (where volunteering would be effective because, I assume, minimal training is needed for most positions). However, if other establishments in this niche adopt this model, then food will be more affordable to those experiencing hard times without requiring corporate benevolence.