Friday, December 31, 2010

3 Environmentalist Thoughts

#1 ------Today as I was driving my daughter, her husband and our grand-daughter to the airport we talked about some environmental stuff.  When we picked them up at the airport their car seat had been wrapped in a big plastic bag.  My son in law's comment was they would just get a new wrapper.   (After all as he said, we never let our environmental principles get in the way of our lifestyle.)  Partially as a joke but also as a lesson, I brought the once used bag into their airline.  The first agent was about to throw the thing away but then a second agent picked it up and used it.  Thus, preserving the environment in a tiny way.

#2 ------ The Sacramento Airport authority in the last year or so changed their parking fees.  It once was that if you parked your car  and were there for less than 30 minutes you paid no fee.  The benefit of such a policy was to encourage people not to hover outside the terminals.  That reduced air pollution but it also made the terminals a lot safer.   But then they changed the policy so that now when you drop off people you pay $2 for the first 30 minutes of parking.   Don't get me started on city and county parking lots and their pricing structures.   But it seems to be a silly policy to raise money for the city and the county.

#3 ----- My daughter and I had a discussion about foods - she likes to buy organic produce.  She also talked about her like for Whole Foods.  I am impressed with Whole Foods, even though I remain skeptical about organic foods.   But I speculated that the gross profits for Whole Foods are higher than for other grocery chains (and indeed they are based on margins about a quarter higher than Safeway and almost twelve points better than Kroger).   My daughter thought even with those higher margins she liked shopping there.  I have no problem with John Mackey's marketing strategy  - he discovered a demand that was unfilled and built a series of virtuous circles between growers and buyers to produce something which costs the consumer a little more and earns him a higher margin of profit.   My daughter understood that and was willing to pay for something that did what it said it did.

Tuesday, December 28, 2010

Fantasy Economics by Paul Krugman

In a column in the Bee this morning Paul Krugman titled "Commodity prices are about finite resources, not US Policy"  Krugman argues that commodity prices have risen by a quarter in the last six months.  The chart to the left presents the data on corn.

I picked corn for a couple of reasons.  First, a good deal of the price is influenced by U.S. policy.  Consider what the price of corn would be if we did not offer the massive subsidies we do for corn ethanol.   Then consider what the price of corn would be if we did not have a Cuban sugar embargo.  Both US policies influence the price of corn in the US. (both would have a tendency to artificially inflate the price of corn relative to where it would be without those policies).

The smaller chart to the right shows corn prices for 2010.

What bothers me most about Krugman's conclusions is a second more fundamental point.  The prices of corn or copper or any other commodity is influenced by many factors including governmental policies.   At the same time, as was amply demonstrated by Julian Simon in the 1980s human beings have an infinite capacity to substitute, if given the opportunity.  Thus, if you don't like the price of corn to sweeten your Wheaties, you can use cane sugar for the same purpose.  Unless of course unless U.S. policy restricts the ability of Americans to buy cane sugar.

There is a third and final point about Krugman's rant here.  We've used the last couple of years to get into more debt, by tremendous amounts.  Most normal economists would argue that all those expansions of money will lead to inflation.   But remember Krugman argued that we were too penurious in our bailouts - he wanted us to print even more money.   That expansion of the money supply, which Krugman thought we did not do enough of, has helped to begin a trend of inflation which Krugman seemed to ignore when he was calling for double the dose of stimulus.

So I guess the conclusion is that ethanol subsidies, trade embargoes and monetary expansion are not U.S policy.

Monday, December 27, 2010

Tiebout Confirmed

A few days ago I did a post on the Census data arguing that the Tiebout hypothesis lives.  The New York Post, being a bit more graphic in their design than I, did a story covered in TaxProfBlog which illustrates the point.

People do vote with their feet when it comes to government services and taxes.  That was the central message of "A Pure Theory of Local Expenditure." (Tiebout's hypothesis - see the earlier post to read the article.)

Sunday, December 26, 2010

Freedom Denied

My oldest grandson got a new bike for Christmas.  My son and I picked it out.  When I was his age I got my first bike.  It was a Schwin and painted the same color as our 1955 Buick - green.   The bike gave me an incredible amount of freedom that I had never experienced before.  All of a sudden I could ride to the YMCA - which was a couple of miles away.   When our family moved to Bakersfield a couple of years later, I frequently would go off riding for almost the whole day.  At one point, a friend and I rode out about 20 miles and then turned round and went back.  That offered an accomplishment for me which was kept in my memory.

Our second grandson got his first hot wheels.  When our kids were young they both rode hot wheels all around the neighborhood.  I also built them a wagon - which had a fairly sophisticated steering system and also engraved their names on the side panels.  Some jerk stole the wagon one afternoon we were out.  That probably would not have happened when I was a kid.

Times have changed.  Now before a kid goes out on a bike - they need to get a helmet.  Indeed, we have probably reduced the number of serious injuries on bicycles.  (There were under 800 fatalities on bikes in 2005 which means that per passenger mile fatalities occur about 3-11 times that in cars - which means that even at the higher number bike fatalities are extremely rare.)  Even if you concede the benefits of helmets, it is still a lot less possible for a child to explore with a bike.  This afternoon we took our two grandsons to a park where they could ride around - off the streets.  For the younger one that is logical but when I was that age I might well have been able to ride from my house over to the park with out a worry and without worrying my parents.

So what do you do about those changes?  First, I am (unsurprisingly) resistant to calls for safety on things like bike helmets.  The imposition of state authority may have secondary effects that are greater than the benefits of safer kids.   Second, you end up living with many of those changes because the reality is the apparent safety of earlier times, is simply not present in today's world.   Even with that conclusion, I wonder a bit whether these minor limits on freedom have longer term implications for our future citizens.

Friday, December 24, 2010

The Governor Elect's Decision on the California DC office

California gets 78¢ for each dollar we send in taxes to DC.   According to the latest Tax Foundation computations we are 43rd among the states in receiving federal dough.   When the current governor raised the idea about return, I suggested in a post earlier this year that trying to get to the top of the list was not something most rational people would seek - states near the top are either very small or very poor.

We've got 55 members of congress from the state (including our two senators) plus there are tons of other Californians back there frequently. So Brown's decision to reduce the Washington presence from the current six people to two seems in the right direction.   Bravo.

Thursday, December 23, 2010

The President at 24 months

The President held a press conference on Wednesday where he explored a lot of issues.   Presented below are my thoughts on where this president almost two years into his term.

The Deficit -He made something like this point several times "how do we cut spending that we don’t need while making investments that we do need -- investments in education, research and development, innovation, and the things that are essential to grow our economy over the long run, create jobs, and compete with every other nation in the world."  As Ezra Klein said he did not address how to find financial regulation (which seems a bit of an over-reach) and his healthcare bill (which seems a lot of an over-reach).

"I’m also disappointed we weren’t able to come together around a budget to fund our government over the long term."   Part of that problem comes from the way the existing congress acted on issues like earmarks.   Obama has said he is against but used lots of lubricant to try to woo members into supporting his approaches.

The reality of the President's first two years has been a dramatic expansion of the deficit with a lot of silly ideas (from cash for clunkers to shovel ready projects to the extensions of unemployment to almost become a sinecure).

Gay Marriage - He lauded the passage of the elimination of "don't ask, don't tell" which is a good thing.   In one statement he raised a point of view which I think defines his presidency as a typical Chicago ward healer - Describing his continuing support of civil unions he left the door open to move further to the left in saying "But I recognize that from their (gays that he works with or knows) perspective it is not enough, and I think is something that we’re going to continue to debate and I personally am going to continue to wrestle with going forward."  There is more than a simple semantic issue here.   From my perspective the issue comes down to property issues and religious issues.  The property issues can be solved by changing the tax code (federal and state law) and inheritance laws (mostly state laws).  But the religious issue is one where, based on this Administration's intrusions into religious life, I am not at all confident that he would accept religious institutions being able to continue their traditions.   This is a fundamental issue about the appropriate reach of the state.

This is a social issue that affects a portion of the population but where that group has conscientiously attempted to modify common understandings of tradition and law.  Does anyone really care if gays live together - of course not.   Do most Americans support the extension of property rights that are common in marriage to gays - of course.   Can American churches perform religious rights which solemnize the committed relationships between to gay people - absolutely.   But should that be extended to require some groups to recognize relationships that are fundamentally in conflict with religious doctrine?  That is where I think the effort is a bit of an over-reach.

Bipartisanship - About the tax cut bill he said "In the last few weeks, we also came together across party lines to pass a package of tax cuts and unemployment insurance that will spur jobs, businesses, and growth."   The entire bill will not spur jobs.   Based on the record of his other stimulus packages the record on job growth is not good.  But those are philosophical differences.   

Earlier in the year, the President feigned bipartisanship and then forced through a dramatic increase in governmental authority on health issues.   I am hopeful that the bill will be reduced in scope both as a result of the constitutional challenge but also by pruning the monstrosity.   In the next congress he will have to be able to demonstrate that he understands something more about bipartisanship than using it when it is handy.

The Dream Act - The President expressed disappointment about the failure of the Dream Act to pass.  I agree with his position on this measure but as I said a couple of days ago, I think the issue could wait. From my perspective, if the GOP is smart they should allow this idea to become law.

Here is an area where he could work on a bipartisan approach.  But I suspect he will use this as a wedge issue rather than in trying to solve the legitimate problems raised by the Dream Act.

An implicit understanding of lame ducks - The President has a very different understanding of lame ducks than I do.  The 20th Amendment moved the convening of congress back to January to reduce the possibility that people who had been voted out of office would have the chance to make serious law.  And in this congress that principle was violated.  The food safety bill is a good example.   I would have preferred to have the Administration fight a bit harder to eliminate the earmarks and other gimmicks in the Continuing Resolution.

Finally, tax issues - The President continues to push the nonsense about millionaires escaping taxes.  If he is smart he will go back to 1986 and review how President Reagan was able to cobble together a bill which lowered rates for everyone and simplified the tax code.  Class bashing may rev up the base but it does little for improving policy and most voters understand that you do not improve the economy by taking more from a target group.

I was asked a few days ago whether I thought Obama would be re-elected.  I responded that depends on a lot of things we cannot see right now.  Does the GOP have a credible candidate? (at this point no)  Does unemployment fall dramatically? (at this point it does not look like that)  On the current course will the deficit problem begin to be solved?  (It does not look like it)   So the simple answer is - who knows?  But that kind of speculation is better when we know more about all three questions as well as whether the GOP leadership in the House is adroit in raising the issues that brought them their majority.

Wednesday, December 22, 2010

The Census numbers

So we are more then 308 million and our growth has been slower than in previous decennial reviews of population.  What is more interesting to me is the fact that most of the growth happened in places where there are low tax and less intrusive regulatory schemes.  Not surprisingly the least vigorous growth happened in places where taxes and regulations abound.  According to Michael Barone - "Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England.  Altogether, 35 percent of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade."

Charles Tiebout wrote a key paper called the "Pure Theory of Local Expenditure" which argued that people vote with their feet by choosing environments (including tax and regulatory regimes) that suit their needs.   California, which in the last couple of decades has grown from a relatively low tax and low regulatory environment to a very high one had some of the most sluggish growth in the country - although not as bad as places in the Rust Belt.   

Gee, Tiebout was right.  All those whiners that decried the extension of lower tax rates at the federal level may need to reconsider their positions.  Even better they might re-think whether all those new regulations are going to make our country more viable or less.  

Saturday, December 18, 2010

Yammering about the Higher Education Bubble

Forbes has an article by Jerry Bowyer, who was a founder of the Allegheny Institute on the supposed higher education bubble.  He parallels (and actually quotes) Carnegie Mellon economist Richard Vedder arguing that the return on a college education is not, at this point, positive.  In essence he creates a novel concept called the price earnings ratio for higher education.  The argument is novel, albeit flawed.  He suggests that the cost of attending an institution of higher education for six years (the average time to degree for many public institutions) never actually gets recouped for most students based on the higher projected income that one could expect from an average college degree.

For years the College Board has published data suggesting that the net return to an individual over a lifetime for a college degree is about a million dollars.  (Or in theory, based on a 40 year job expectancy about $25,000 per year.)  The College Board data is accurate but like Vedder and Bowyer's data is a gross miscalculation.  Vedder argues that many people who go to college end up being "under employed." Some indeed are under-employed.  But the average, even if it is beginning to shrink is still higher.  The bubble believers project incomes will grow in a linear fashion over a person's work life.  That is probably not correct - as people seem to go through phases where their initial incomes are not as high as they once were but their long term incomes may actually accelerate as the new college graduates gain experience.  Census data (as presented above) seems to confirm the College Board conclusions.

But the Bubble advocates have lots of flaws in their assumptions.  First, an average degree (either for the bubble theorists or for the College Board) may not exist.  A graduating nurse can expect a beginning salary that is considerably higher than the average wage in America. But one who graduates in ethnic studies may not receive a higher salary.   But even this data is flawed.  A philosophy major may not receive much with a BA but they are more likely to be successful in law school.   So what you take in college can have a huge influence on what you receive in salary.

Second, salary and lifetime earnings are not the same.  Most employment data suggests that a college graduate spends a lot less time in unemployment lines (although the current recession seems to have somewhat contradicted that data) than the average high school graduate.  

Third, A BA may be a gateway to higher earnings.  While there is some reason to suggest that the earnings differential is not as great as it once was for a BA - the differential for advanced degrees seems to be holding.  As they become more common that differential may lessen.  The reality of the last 20 years has been that the value of a high school diploma has diminished in both nominal and real terms.

Fourth, there may be very good non-economic reasons for pursuing a college degree.  

Finally, there are the issues of the appropriate price for higher education and the appropriate distribution of costs.  Paying for college requires a perspective on time (what proportion of funding for higher education should come from savings, current income or leveraging future income through loans) and and also on who should bear the cost.  If the individual is the main beneficiary then they might bear a larger share of the total cost than if the major beneficiary of an educated population is society.  Traditionally, public institutions have been financed by direct contributions from government offered regardless of financial need.  While there can be an argument for continuation of at least a part of that largesse - the low rates of decades ago seem increasingly untenable.   At the same time, when prices were low savings and current income were assumed to be enough to cover education costs.  As prices have risen more and more students are borrowing against expected future earnings.   That makes the purchase of higher education a lot more like buying a house or retirement (a long term capital expenditure) and that may involve some differing assumptions about the current pricing structure.

The Lame Duck Congress

Traditionally a lame duck session (defined by the US Senate as  a session where the Senate "reconvenes in an even-numbered year following the November general elections to consider various items of business") does dribs and drabs that were left over from the preceding two years.   This one is special for two reasons.  First, the configuration of the new congress will be considerably different.  Second, the former majority in the House and the remaining much smaller majority in the Senate was to get their imprint on a number of issues before they are forced out.   Here are a five thoughts on this one.

#1 -  The defeat of the Omnibus Spending Bill was wonderful!  There was so much pork in this measure that it was embarrassing.  Democrats loaded the thing up with earmarks (although some republicans did too) to the point that the dems put in about twice the value of earmarks as the GOP.  Some argue that earmarks are a) only a small part of the budget and b) necessary.   They need to be stopped.  The ability of members to aid their own districts and their buddies just adds to the imperial congress.

#2 - The tax bill, while expensive, was generally good.  As I argued in an earlier post, there are some things in the tax bill that I disagree with and it costs a lot of money but I think it was the right thing to do as an interim measure.  Let's hope both the GOP and the dems work hard to come up with revision of the code which broadens the base but lowers rates (similar to TRA in 1986).

#3 - Don't Ask Don't Tell can wait - The policy was an ill-conceived idea when it was first introduced and passed into law.  I do not have a military background but it seems to me that a person's sexuality should not be an issue in whether they become a soldier.  Overt activity with other soldiers should be limited simply for good management reasons.

#4 - So can the Dream Act and Start - The Dream Act vote was a political ploy.  In my mind illegal aliens who serve in the military or are brought here by their parents and attend high school should have a shot at college.   But that is an issue that needs to be explored.  The Start Treaty could certainly wait until the new congress.     I am not convinced by the opponents who say this is unilateral disarmament but I think the thing should be vetted a bit more.

#5 - The Ernest and Julio Rule - Gallo Wines used to have a slogan - we will sell no wine before its time.   One of my legislative rules is the Gallo rule - legislators will do nothing until they have to.  The record of this congress partially denies that rule.  A good part of the congress, which some have called very productive, was simply the exercise of raw political power.  Part of the reason the American people rose up in such numbers was they perceived that congress had over-reached.   But the rest of the congress was mired in partisan wrangling of huge proportions.  That should not argue that they should rush through a bunch of stuff at the end of the session.

Monday, December 13, 2010

Wolves in Sheep's Clothing

For more than a decade I have been a "decline to state" in terms of party registration.  Today, in New York, a new movement will be announced called No Labels which even includes its' own theme song sung by the R&B singer Akron.   Two Californians will be on the platform, our soon to be former Lieutenant Governor Abel Maldanado and the current Mayor of Los Angeles Antonio Villagarosa.

The ditty that Akron offers says in part "I wish they did not have no labels. There would be more change with no labels."  That is just flat out nonsense.  In the early part of the 20th Century California was designed so that a lot of the major positions in the state were with "no labels" - Mayors, County Supervisors even the Superintendent of Public Instruction all run without an apparent label.  But in reality, all of those people have a label.  Villagarosa, when he was Speaker of the Assembly, was a constant supporter of the public employee unions.  A good part of the deficit we face in the state comes from being entirely too generous to those unions.

Ultimately, politics is a game of ideas.  Who should get taxed?  Who should society choose to help?  How much should we limit the exuberance of the market?   There are fundamental differences in philosophy among all the competing ideas in politics.

What we have too much of in today's political system is not too many labels but too little willingness to consider the seriousness of alternative philosophies - we've lost an ability to listen.  So I won't be a supporter of the No Labels movement but I would join one that reminded politicians of their one mouth and two ears.

Sunday, December 12, 2010

More on the Tax Deal

Professor Paul Caron posted a wonderful compilation on the discussion about the tax bill including a meltdown by Keith Olberman of MSNBC.   The battle lines on this compromise are well established.  Ultimately while there are elements that I disagree with, I think this is a pretty good initial step.

There are certainly things to love in the proposal.  From my perspective, the continuation of the Bush tax cuts in their entirety (except for the Estate Tax which is set at a reasonable level with lower rates) is a positive development. There are also things to dislike - namely the increase in the deficit (which may actually be a bit lower than projected if indeed the reductions encourage some additional economic growth) and the extension of unemployment benefits.   The payroll tax holiday is a classic Keynesian stimulus - which I think will have little effect on growth.

I was also pleased to see that the President at least gave nodding support for the Bowles-Simpson approach which would simplify the code by lowering rates and broadening the base.  In the end the discussion we have had for the last couple of weeks on tax policy which looks a lot like Animal Farm (stylized arguments - four legs good, two legs bad) has not produced much sensible about long term tax policy.  But if this forces the political class to revisit this in two years and if it forces a more broad based discussion about how to raise revenues (not increase but how we should collect taxes), then the momentariness of the rate continuations and the increase in the deficit could be seen as a positive development.

Selling Berkshire

In 1987 I bought Berkshire Hathaway at $3785 per share.  This week I sold the position at $120K per share.   That amounts to a bit more than a 30 bagger.  But in the last couple of years I've gotten the distinct impression that the investment potential has declined significantly.

The story of BRK.A begins with the legendary business professor Benjamin Graham who spent his career inspiring students at Columbia.  In the 1920s Graham led a movement to improve the quality of accounting information released by corporations.  His basic insight (in Security Analysis) was that when you buy a stock you are buying a set of assets.  But later on he had a group of students, including Warren Buffett and the founder of the Sequoia Fund, who figured out how to beat the market by applying some basic principles to investing.

Had you bought into Berkshire when Buffett took over the company you would be very wealthy today.  But in the last five years the stock has been a lousy proxy for the S&P.  The CEO has been caught up in becoming a public figure rather than an investor.  So while I admire the past performance of the stock, it's inspiration has been caught up in the hype of being a media figure.

What annoys me the most about Buffett's recent performances has been the hypocrisy.   Buffett has been one of the major proponents of keeping estate taxes high.  Yet, a good deal of his success over his career has been based on finding family owned business and buying them in a way that delays or denies the impact of estate taxes.  Ultimately, sound tax policy should not allow those kinds of manipulations.   We should, as the President's tax deal does, set rates for inheritance in the low range and at a high enough cap so that most taxpayers should not get caught.  One could make a case for the complete elimination of estate taxes but if there is to be a tax it should be lower than it could be next year and at a fairly high exclusion.

In all of his public statements the Sage of Omaha has never acknowledged that part of his wealth has been based on a public policy which hurts people with fewer resources than he has.

Friday, December 10, 2010

The President and Tax Reform

I found the President's remarks on Tax Reform generally positive yesterday.  He commented that he was beginning to think about proposing to simplify the tax code next year in a dual strategy to improve the code and to raise revenue.   That is the approach followed by President Reagan in the 1986 tax act and it was a sound one then.  It would be a sound one now too.

But there are some caution lights on this approach.  The first, could be heard in both the NYT coverage and an NPR piece on it.   There is only one way to simplify the tax code - that is by cutting the thatch out of the code.  The Deficit Reduction Commission proposed to eliminate virtually all of the deductions in the code (save the Charitable Deduction and a Mortgage Interest Deduction for a Principal Residence) which is a good place to start.   But some in the equity crowd have argued a different approach, namely capping in some way the application of deductions for high income taxpayers.   That approach does nothing to reduce the burden of the tax code, indeed, it increases the complexity of the code.  Look at the machinations around the "marriage penalty" to understand the truth of the statement.

Broadening the base is never easy.  But the 1986 process proved it could be successful both politically and economically.  If the President wants to recoup at least some of his clout on economic issues he will need to avoid the people in his administration who see the tax code as an opportunity to foment class warfare.

Tuesday, December 07, 2010

Busman's Holiday

On Sunday and Monday I was in Austin for a set of meetings.  As I often do when I am in a state capitol I got a chance to tour the Texas Capitol.  The legislative process is a reflection of many things including the buildings we construct to carry out the process.  The Texas Capitol is among the most beautiful I have been in.  It is constructed of red granite but what impressed me more was the use of light in the interior sections of the building.  

The Texas house is huge compared to California and the Senate is smaller.  Texas has a shorter session than we do and it meets every other year.  But if you get to Austin, in addition to checking out the music and the food, schedule some time to tour the Capitol, it will be worth your time.

The Tax Deal

From all of the caterwauling on the left you would have assumed that the President has been pronounced a heretic.   I am not entirely a fan of this compromise.  There are some very good things in the proposal - from my perspective the creation of an estate tax solution which avoids both the confiscatory notions of the left and the fantasies of complete exemption on the right is close to being perfect.  They move to a $5 million limit on estates ($10 million for couples) based on a 35% rate.   While I can certainly make a case for ending the estate tax entirely -this seems like a reasonable place to have policy land.  

I also believe that the acceptance of the rates in the 2001 Tax Act for all taxpayers is an interim solution. Not perfect but about right.   In the long term we need to simplify the entire income tax system and lower rates.  That means broadening the base.  We got some good ideas from the Bowles Simpson proposal but if this gets us off the bash the rich rhetoric and toward a saner discussion of tax reform, then it is a good idea.

I am troubled by the temporary tax holiday on FICA, dropping by 2% the rates for one year.  It is a pretty good stimulus for wage earners but the condition of the Social Security "trust fund" is perilous.  And this simply adds to that problem.

But I am very troubled by the thirteen month extension of unemployment benefits.   I am not sure what an appropriate length for unemployment benefits should be.  But it should not be close to two years.  The tradeoff here is simple.  Make the benefits too generous and you dampen the incentives for seeking employment.  Make them too small and people in real transitions will be faced with calamity.  I do not think they hit the right balance here.

What gives me hope on this is two things.  First, if we can assume that Paul Krugman is wrong (and that is not a hard thing to assume) that there are "no deficit hawks in Congress" and that the new majority will take their role seriously when they convene the next congress, this interim deal is fine.  Second, if the deal causes the far left that has had far too much say in our national policies to go into frenzy, so much the better.  Their class bating rhetoric has worked for too long and finally their bluff was called.  I say let them whimper.

Sunday, December 05, 2010

Achieving a balanced budget

This is a follow up to the last post.  We now know that the Deficit Commission was unable to achieve 14 votes to get the Senate to consider its proposals.  On Facebook recently, I have engaged in a lot of banter about whether the Bush era tax cuts should be extended.  That is not the point.  A balanced budget is possible at many levels.  But based on the last election and also some enduring principles, most Americans have rejected in rather strong terms the huge increase in governmental activity - both in the Obama administration but also in more generalized polling.

For the past 30 years we've been able to raise about 18-20% of the GDP to fund the things we have wanted to do in the governmental sector at the federal level.   But a lot of the Washington elites think that percentage should be larger.  It is clear that many in the current administration think we should raise the amount of dough we spend through the feds to something approaching 30%.  

But an alternative way to look, which seems to coincide with the voters, is to decrease the role of government.  Not in the way that most bureaucrats would do it by huge and pro rata cuts in all spending but by making more reasoned choices about what we think we should do using tax dollars.   There are tiny examples - I think, for example, that public radio should not be burdened with governmental support.  Eliminating the CPB and NPR would make no dent in the budget but it would say something about our priorities.   I'd also work to eliminate a lot of the funding for the Smithsonian - a fine institution but prone to bouts of political correctness.  If we want a national museum then let those who want it to be there help fund it - partially with admission fees and partially through fund raising.   While we are at it - why should the Transportation Security Administration have government employees?  If airport security is important why not set the standards and then let the airlines and air travelers figure out how to meet the standards.   All of those potential cuts come from a philosophical approach which starts with a premise that government is not very good at doing things.   I am sure if we started with that debate (what should government do?) we could achieve a balanced budget because then the discussion would be about the appropriate balance not whether millionaires should pay more taxes or the unemployed should be covered with benefits for more than two years.

First Questions on the Deficit Commission and other issues

In the last few weeks we have watched democrats scramble to adjust their position on reauthorizing the Bush tax cuts.  Finally in the last couple of days at least two prominent democrats indicated an interest in raising their ante on tax cuts to exclude people who make less than a million bucks.  This is classic positional bargaining and I hope the GOP leadership says no.  There is a first question that any discussion about the deficit should begin with and it is not what percentage of the taxpayers should pay at the highest rate.  The most important question to answer on this fight is "What percentage of the GDP should be be dedicating to federal activities?"

In the last two years, tax revenues, as a percentage of GDP have dropped from their traditional levels of about 18-20% to below 15%.   At the same time because of all the bailouts our expenditures have risen to close to 25%.  The Deficit Commission has a start which needs to be followed up with vigor - regardless of tax rates.  But the political class, or at least large portions of it, do not seem to understand that truth.