Tag Archives: david boaz.

Open letter to President Obama (Part 249)

Is Washington Bankrupting America?

Uploaded by on Apr 20, 2010

Be first to receive our videos and other timely info about economic policy. Subscribe at http://www.bankruptingamerica.org
————————-
According to a recent poll, 74 percent of likely voters are extremely or very concerned about the current level of government spending. And 58 percent think the level of spending is unsustainable.

Is the public right? Is Washington bankrupting America? Some facts from the video:

Spending per household has risen over 40 percent in the last 10 years and is set to do so again in the next 10 pushing debt (and interest on the debt) to unprecedented levels. But that’s just a result of PAST spending…

Our government owes $106 trillion in FUTURE spending commitments – that cannot be paid for.

We can solve it, but politicians will have to make tough choices. Increasing taxes can’t do the trick ($106 trillion is equivalent to taking all of the taxable income from every American nine times over), nor is it fair to saddle taxpayers with a problem created by government irresponsibility.

We need real spending reform. Merely returning to the spending per household levels of the 1990s would balance the budget in three years.

____________

 

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

David Boaz has rightly noted:

The fact that “the price of hospital care and higher education” has risen much faster than the cost of other goods is not an exogenous variable. Why do those costs rise so much faster? Because the government purchases them, reducing or eliminating the normal effects of supply, demand, and competition.

The Cost of Government

Posted by David Boaz

In today’s Washington Post Lawrence Summers demonstrates with mathematics that you can’t shrink the federal government — as long as (he doesn’t say) you don’t change the tasks you assign to it. True enough, if the government is still going to engage in “sustained deployments” of our military across the globe, and provide retirement income and health care to tens of millions of people, then the size of government isn’t going to shrink. But surely those are the issues we should be debating.

Michael Cannon below notes another key point in Summers’s argument:

[I]ncreases in the price of what the federal government buys relative to what the private sector buys will inevitably raise the cost of state involvement in the economy. Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing, and more than a hundredfold relative to the price of televisions.

I would elaborate on Michael’s response. The fact that “the price of hospital care and higher education” has risen much faster than the cost of other goods is not an exogenous variable. Why do those costs rise so much faster? Because the government purchases them, reducing or eliminating the normal effects of supply, demand, and competition. I wrote about this in a 1994 article reprinted in my book The Politics of Freedom responding to an argument made by the economist William Baumol and the scholar-statesman Daniel Patrick Moynihan:

Moynihan identifies a number of services afflicted with Baumol’s disease: “The services in question, which I call The Stagnant Services, included, most notably, health care, education, legal services, welfare programs for the poor, postal service, police protection, sanitation services, repair services . . . and others.” He points out that many of those are provided by government and posits that “activities with cost disease migrate to the public sector.”

But maybe he has it backwards. Maybe activities that migrate to the public sector become afflicted with cost disease. The conservative magazine National Review, which, surprisingly, seems to accept Moynihan’s thesis, has inadvertently supplied us with some evidence on this point.

Ed Rubinstein, National Review‘s economic analyst, writes, “For more than three decades health-care spending has grown faster than national income. . . . The trend in health-care costs is no different from that of other services.” He cites education and auto repair as examples. However, the numbers Rubinstein provides don’t support his–or Moynihan’s–point. Look at the accompanying figure.

The cost of auto repair, a service provided almost entirely in the private sector, has barely outpaced inflation. The cost of medical care increased twice as fast as inflation. Government’s share of medical spending increased from 33 percent in 1960, when the chart begins, to 53 percent in 1990. Meanwhile, the cost of education, almost entirely provided by government, increased three times as fast as inflation–despite the constant complaints about underfunded schools.

The lesson is clear: Services provided by government are afflicted with Baumol’s disease in spades. Services provided in the private sector, where people spend their own money, are much less likely to soar in cost.

Medical care is a good area in which to test this theory because over the past 30 years it has been paid for in three different ways: out-of-pocket spending by consumers; insurance payments, mostly provided by employers; and government payments. As out-of-pocket spending declines in importance, medical inflation heats up. And private-sector spending on medical care rose only 1.3 percent a year between 1960 and 1990, while government spending rose more than three times as fast–4.3 percent a year.

When services are provided privately, and consumers can decide whether to purchase them, or choose another provider, or do without, there’s a powerful incentive to improve productivity and keep costs down. Stagnant productivity in government-run services reflects not so much Baumol’s disease as what we might call Clinton’s disease, the notion—even now, in 1994—that government can provide services more efficiently and cost-effectively than can the marketplace.

Now, I think Larry Summers knows this. He knows that when consumers don’t face full costs for services, they tend to consume more of them without worrying about the cost. So he knows that these costs could come down, if only we moved these services into the market, or at least found ways to get consumers directly concerned with costs. He should rethink his claims about the inevitability of more expensive government. These realities are in fact choices, decisions that voters and taxpayers can change.

_______________
 

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

The primary cause of higher hospital care and education costs in the USA is?

Is Washington Bankrupting America?

Uploaded by on Apr 20, 2010

Be first to receive our videos and other timely info about economic policy. Subscribe at http://www.bankruptingamerica.org
————————-
According to a recent poll, 74 percent of likely voters are extremely or very concerned about the current level of government spending. And 58 percent think the level of spending is unsustainable.

Is the public right? Is Washington bankrupting America? Some facts from the video:

Spending per household has risen over 40 percent in the last 10 years and is set to do so again in the next 10 pushing debt (and interest on the debt) to unprecedented levels. But that’s just a result of PAST spending…

Our government owes $106 trillion in FUTURE spending commitments – that cannot be paid for.

We can solve it, but politicians will have to make tough choices. Increasing taxes can’t do the trick ($106 trillion is equivalent to taking all of the taxable income from every American nine times over), nor is it fair to saddle taxpayers with a problem created by government irresponsibility.

We need real spending reform. Merely returning to the spending per household levels of the 1990s would balance the budget in three years.

____________

David Boaz has rightly noted:

The fact that “the price of hospital care and higher education” has risen much faster than the cost of other goods is not an exogenous variable. Why do those costs rise so much faster? Because the government purchases them, reducing or eliminating the normal effects of supply, demand, and competition.

The Cost of Government

Posted by David Boaz

In today’s Washington Post Lawrence Summers demonstrates with mathematics that you can’t shrink the federal government — as long as (he doesn’t say) you don’t change the tasks you assign to it. True enough, if the government is still going to engage in “sustained deployments” of our military across the globe, and provide retirement income and health care to tens of millions of people, then the size of government isn’t going to shrink. But surely those are the issues we should be debating.

Michael Cannon below notes another key point in Summers’s argument:

[I]ncreases in the price of what the federal government buys relative to what the private sector buys will inevitably raise the cost of state involvement in the economy. Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing, and more than a hundredfold relative to the price of televisions.

I would elaborate on Michael’s response. The fact that “the price of hospital care and higher education” has risen much faster than the cost of other goods is not an exogenous variable. Why do those costs rise so much faster? Because the government purchases them, reducing or eliminating the normal effects of supply, demand, and competition. I wrote about this in a 1994 article reprinted in my book The Politics of Freedom responding to an argument made by the economist William Baumol and the scholar-statesman Daniel Patrick Moynihan:

Moynihan identifies a number of services afflicted with Baumol’s disease: “The services in question, which I call The Stagnant Services, included, most notably, health care, education, legal services, welfare programs for the poor, postal service, police protection, sanitation services, repair services . . . and others.” He points out that many of those are provided by government and posits that “activities with cost disease migrate to the public sector.”

But maybe he has it backwards. Maybe activities that migrate to the public sector become afflicted with cost disease. The conservative magazine National Review, which, surprisingly, seems to accept Moynihan’s thesis, has inadvertently supplied us with some evidence on this point.

Ed Rubinstein, National Review‘s economic analyst, writes, “For more than three decades health-care spending has grown faster than national income. . . . The trend in health-care costs is no different from that of other services.” He cites education and auto repair as examples. However, the numbers Rubinstein provides don’t support his–or Moynihan’s–point. Look at the accompanying figure.

The cost of auto repair, a service provided almost entirely in the private sector, has barely outpaced inflation. The cost of medical care increased twice as fast as inflation. Government’s share of medical spending increased from 33 percent in 1960, when the chart begins, to 53 percent in 1990. Meanwhile, the cost of education, almost entirely provided by government, increased three times as fast as inflation–despite the constant complaints about underfunded schools.

The lesson is clear: Services provided by government are afflicted with Baumol’s disease in spades. Services provided in the private sector, where people spend their own money, are much less likely to soar in cost.

Medical care is a good area in which to test this theory because over the past 30 years it has been paid for in three different ways: out-of-pocket spending by consumers; insurance payments, mostly provided by employers; and government payments. As out-of-pocket spending declines in importance, medical inflation heats up. And private-sector spending on medical care rose only 1.3 percent a year between 1960 and 1990, while government spending rose more than three times as fast–4.3 percent a year.

When services are provided privately, and consumers can decide whether to purchase them, or choose another provider, or do without, there’s a powerful incentive to improve productivity and keep costs down. Stagnant productivity in government-run services reflects not so much Baumol’s disease as what we might call Clinton’s disease, the notion—even now, in 1994—that government can provide services more efficiently and cost-effectively than can the marketplace.

Now, I think Larry Summers knows this. He knows that when consumers don’t face full costs for services, they tend to consume more of them without worrying about the cost. So he knows that these costs could come down, if only we moved these services into the market, or at least found ways to get consumers directly concerned with costs. He should rethink his claims about the inevitability of more expensive government. These realities are in fact choices, decisions that voters and taxpayers can change.

Projected Federal spending caused U.S. credit downgrade

Everyone wants to blame the Tea Party for the downgrade, but a Tea party approach is needed to get on the right tract.

 

The Debt Ceiling and the Balanced Budget Amendment

Posted by David Boaz

The Washington Post editorializes:

A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies.

A fair point. Statesmen should have the ability to “address national security and economic emergencies.” But the same day’s paper included this graphic on the growth of the national debt:

National Debt

Does this look like the record of policymakers making sensible decisions, running surpluses in good year and deficits when they have to “address national security and economic emergencies”? Of course not. Once Keynesianism gave policymakers permission to run deficits, they spent with abandon year after year. And that’s why it makes sense to impose rules on them, even rules that leave less flexibility than would be ideal if you had ideal statesmen. Indeed, the debt ceiling itself should be that kind of rule, one that limits the amount of debt policymakers can run up. But it has obviously failed.

We’ve become so used to these stunning, incomprehensible, unfathomable levels of deficits and debt — and to the once-rare concept of trillions of dollars — that we forget how new all this debt is. In 1980, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s sailing past $14 trillion.

Historian John Steele Gordon points out how unnecessary our situation is:

There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.

It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) — no deficit hawk when his party is in the majority — called it “porky.”

Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They could find some of them here in this report by Chris Edwards.

In the Kentucky Resolutions, Thomas Jefferson wrote, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Just so. When it becomes clear that Congress as a body cannot be trusted with the management of the public fisc, then bind them down with the chains of the Constitution, even — or especially — chains that deny them the flexibility they have heretofore abused.

President Obama’s Statement on Credit Downgrade

Uploaded by on Aug 8, 2011

The President assures Americans that, “we will always be a triple-A country.” August 8, 2011.

______________________________________

Dear Senator Pryor, why not pass the Balanced Budget Amendment? (Part 13 Thirsty Thursday, Open letter to Senator Pryor)

Dear Senator Pryor, why not pass the Balanced Budget Amendment? (Part 13 Thirsty Thursday, Open letter to Senator Pryor)

Office of the Majority Whip | Balanced Budget Amendment Video

In 1995, Congress nearly passed a constitutional amendment mandating a balanced budget. The Balanced Budget Amendment would have forced the federal government to live within its means. This Balanced Budget Amendment failed by one vote. 16 years later, Congress has the chance to get it right. Our time is now.

______________________

Dear Senator Pryor,

Why not pass the Balanced  Budget Amendment? As you know that federal deficit is at all time high (1.6 trillion deficit with revenues of 2.2 trillion and spending at 3.8 trillion).

On my blog www.HaltingArkansasLiberalswithTruth.com I took you at your word and sent you over 100 emails with specific spending cut ideas. However, I did not see any of them in the recent debt deal that Congress adopted. Now I am trying another approach. Every week from now on I will send you an email explaining different reasons why we need the Balanced Budget Amendment. It will appear on my blog on “Thirsty Thursday” because the government is always thirsty for more money to spend.

The Debt Ceiling and the Balanced Budget Amendment

Posted by David Boaz

The Washington Post editorializes:

A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies.

A fair point. Statesmen should have the ability to “address national security and economic emergencies.” But the same day’s paper included this graphic on the growth of the national debt:

National Debt

Does this look like the record of policymakers making sensible decisions, running surpluses in good year and deficits when they have to “address national security and economic emergencies”? Of course not. Once Keynesianism gave policymakers permission to run deficits, they spent with abandon year after year. And that’s why it makes sense to impose rules on them, even rules that leave less flexibility than would be ideal if you had ideal statesmen. Indeed, the debt ceiling itself should be that kind of rule, one that limits the amount of debt policymakers can run up. But it has obviously failed.

We’ve become so used to these stunning, incomprehensible, unfathomable levels of deficits and debt — and to the once-rare concept of trillions of dollars — that we forget how new all this debt is. In 1980, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s sailing past $14 trillion.

Historian John Steele Gordon points out how unnecessary our situation is:

There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.

It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) — no deficit hawk when his party is in the majority — called it “porky.”

Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They could find some of them here in this report by Chris Edwards.

In the Kentucky Resolutions, Thomas Jefferson wrote, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Just so. When it becomes clear that Congress as a body cannot be trusted with the management of the public fisc, then bind them down with the chains of the Constitution, even — or especially — chains that deny them the flexibility they have heretofore abused.

Steve Jobs versus President Obama: Who created more jobs?

I loved reading this article below. (Take a look at the link to other posts I have done on Steve Jobs.) David Boaz makes some great observations:

How much value is the Post Office creating this year? Or Amtrak? Or Solyndra? And if you point out that the Post Office does create value for its customers even though it loses money every year, I would ask, how much more value might its competitors create, if it allowed competition?

Steve Jobs created a lot of new jobs, but President Obama’s stimulus did not stimulus much of anything but waste in government. Take a look at the final paragraph:

Instead of another bag of taxpayers’ money for state and local governments and politically favored businesses, a real jobs program would encourage the next Steve Jobs to create value. What would that involve? Keep taxes on investment and creativity low. Reduce the national debt and its threat of huge tax hikes to come. Ease the burdens of regulation, especially regulations that make it difficult to open a business, hire and keep the best employees, and develop new ideas. Open the huge, stagnant postal and schooling businesses to competition, innovation, and entrepreneurship. Repeal some of the licensing laws that now afflict 1,100 occupations. Renew progress toward free trade. Make it smart for businesses to invest their time, money, and brainpower in productive activity, not lobbying.

Steve Jobs, Prosperity Creator

Posted by David Boaz

The all-too-early death of Steve Jobs was reported on the day that President Obama made another defense of his so-called jobs bill. Which one actually benefited (or would benefit) Americans and the American economy? Lots of people have talked about the way Steve Jobs changed technology, changed business, changed the world. And I trust there’ll be no more churlish complaints about his alleged lack of philanthropy. As Dan Pallotta definitively pointed out,

What a loss to humanity it would have been if Jobs had dedicated the last 25 years of his life to figuring out how to give his billions away, instead of doing what he does best…. [T]he world has no greater philanthropist than Steve Jobs. If ever a man contributed to humanity, here he is.

Two years ago Portfolio magazine did a great graphic on “The Steve Jobs Economy,” trying to assess just how much value he himself had created for the economy. The conclusion: Jobs’s personal wealth at the time was estimated at $5.7 billion. But he was generating $30 billion a year in revenue for Apple, its partners, and its competitors (who were spurred to get better). Here’s the analysis (sorry for the imperfect tear sheet):

Click image to enlarge. And for text but not graphics at Portfolio, click here.

According to Portfolio and the experts it consulted, Jobs was producing $30 billion a year in value for various companies. And of course that means that consumers believed they were getting at least that much value themselves, or they wouldn’t buy the products. That’s a wealth creator. And that number pales in comparison to this one: After returning to Apple in 1997, Jobs took the total value of the company from about $2 billion to $350 billion.

How much value is the Post Office creating this year? Or Amtrak? Or Solyndra? And if you point out that the Post Office does create value for its customers even though it loses money every year, I would ask, how much more value might its competitors create, if it allowed competition?

Instead of another bag of taxpayers’ money for state and local governments and politically favored businesses, a real jobs program would encourage the next Steve Jobs to create value. What would that involve? Keep taxes on investment and creativity low. Reduce the national debt and its threat of huge tax hikes to come. Ease the burdens of regulation, especially regulations that make it difficult to open a business, hire and keep the best employees, and develop new ideas. Open the huge, stagnant postal and schooling businesses to competition, innovation, and entrepreneurship. Repeal some of the licensing laws that now afflict 1,100 occupations. Renew progress toward free trade. Make it smart for businesses to invest their time, money, and brainpower in productive activity, not lobbying.

Related posts:
 

Steve Jobs versus President Obama: Who created more jobs?

I loved reading this article below. (Take a look at the link to other posts I have done on Steve Jobs.) David Boaz makes some great observations: How much value is the Post Office creating this year? Or Amtrak? Or Solyndra? And if you point out that the Post Office does create value for its [...]

 

Steve Jobs’ view of death and what the Bible has to say about it

Steve Jobs’ 2005 Stanford Commencement Address Uploaded by StanfordUniversity on Mar 7, 2008 Drawing from some of the most pivotal points in his life, Steve Jobs, chief executive officer and co-founder of Apple Computer and of Pixar Animation Studios, urged graduates to pursue their dreams and see the opportunities in life’s setbacks — including death [...]

 

8 things you might not know about Steve Jobs

Things you may not know about Steve Jobs: Steve Jobs leans against his wife, Laurene Powell Jobs (Lea Suzuki/San Francisco Chronicle/Corbis) For all of his years in the spotlight at the helm of Apple, Steve Jobs in many ways remains an inscrutable figure — even in his death. Fiercely private, Jobs concealed most specifics about [...]

 

Steve Jobs was a Buddhist: What is Buddhism?

Steve Jobs passed away on October 5, 2011. I personally am very grateful to him for helping the world so much with his ideas and I have written about tha before. Dan Mitchell of the Cato Institute noted: He’s built a $360 billion company. That presumably means at least $352 billion of wealth in the [...]

 

 

Did Steve Jobs help people even though he did not give away a lot of money?

  Did Steve Jobs help people even though he did not give away a lot of money? (I just finished a post concerning Steve’s religious beliefs and a post about 8 things you may not know about Steve Jobs) Uploaded by UM0kusha0kusha on Sep 16, 2010 clip from The First Round Up *1934* ~~enjoy!! ______________________________________________ In the short film [...]

 

 

Projected Federal spending caused U.S. credit downgrade

Everyone wants to blame the Tea Party for the downgrade, but a Tea party approach is needed to get on the right tract.

 

The Debt Ceiling and the Balanced Budget Amendment

Posted by David Boaz

The Washington Post editorializes:

A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies.

A fair point. Statesmen should have the ability to “address national security and economic emergencies.” But the same day’s paper included this graphic on the growth of the national debt:

National Debt

Does this look like the record of policymakers making sensible decisions, running surpluses in good year and deficits when they have to “address national security and economic emergencies”? Of course not. Once Keynesianism gave policymakers permission to run deficits, they spent with abandon year after year. And that’s why it makes sense to impose rules on them, even rules that leave less flexibility than would be ideal if you had ideal statesmen. Indeed, the debt ceiling itself should be that kind of rule, one that limits the amount of debt policymakers can run up. But it has obviously failed.

We’ve become so used to these stunning, incomprehensible, unfathomable levels of deficits and debt — and to the once-rare concept of trillions of dollars — that we forget how new all this debt is. In 1980, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s sailing past $14 trillion.

Historian John Steele Gordon points out how unnecessary our situation is:

There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.

It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) — no deficit hawk when his party is in the majority — called it “porky.”

Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They could find some of them here in this report by Chris Edwards.

In the Kentucky Resolutions, Thomas Jefferson wrote, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Just so. When it becomes clear that Congress as a body cannot be trusted with the management of the public fisc, then bind them down with the chains of the Constitution, even — or especially — chains that deny them the flexibility they have heretofore abused.

President Obama’s Statement on Credit Downgrade

Uploaded by on Aug 8, 2011

The President assures Americans that, “we will always be a triple-A country.” August 8, 2011.

______________________________________

Do the rich avoid the taxes that we all pay?

Do the rich avoid the taxes that we all pay?

Do the Rich Avoid Taxes?

Posted by David Boaz

President Obama says the rich should pay higher tax rates, citing billionaire Warren Buffett, who says he pays a lower tax rate than his secretary. Various analysts have pointed out that Buffett takes very little salary and gets most of his income in the form of dividends and capital gains, which reflect income that was already taxed once at the corporate level. But what about the broader argument, that the rich don’t pay enough in taxes, that maybe they even pay less than the middle class?

In May, the Wall Street Journal ran an article headlined, “High-Earning Households Pay Growing Share of Taxes.” John D. McKinnon reported:

Upper-income taxpayers have paid a growing share of the federal tax burden over the last 25 years.

A 2008 study by the Organization for Economic Cooperation and Development, for example, found that the highest-earning 10% of the U.S. population paid the largest share among 24 countries examined, even after adjusting for their relatively higher incomes. “Taxation is most progressively distributed in the United States,” the OECD study concluded.

Meanwhile, the percentage of U.S. households paying no federal income tax has been climbing, and reached 51% for 2009, according to a new analysis by the Joint Committee on Taxation.

An accompanying graphic shows the growing share of income taxes paid by the wealthy (in green) and how the U.S. ratio of taxes on the wealthy in relation to their income compares to that in other rich countries:

Stimulus plans do not work but liberals like Brummett and Obama do not get it


John Brummett in his article, “Will we stimulate with schools, not roads?,” Arkansas News Bureau, September 5, 2011, suggested that the Republicans have several reasons for opposing President Obama’s latest idea to stimulate the economy. However, the real reason is that none of these stimulus programs has ever worked in the past.  Many years ago Frederic Bastiat explained the “broken window fallacy,” but people still go believing they can ignore this fallacy

Hurricane Irene as Economic Stimulus

Posted by David Boaz

Oh, dear. Oh, dear. No matter how many times economists debunk the broken window fallacy, not a natural disaster goes by that journalists don’t try to cheer us up by saying “at least it will stimulate economic growth.” This time it’s Josh Boak (no relation!), the economics reporter (!) at Politico, who was “educated at Princeton and Columbia.” And Sunday afternoon he posted this story:

Irene: An economic blow or boost?

The power outages and shuttered airports may stop the engines of commerce for several days, but Hurricane Irene might have provided some short-term economic stimulus asbillions of dollars will likely be spent to repair the damage to the East Coast over the weekend.

Cumberland Advisors Chairman David Kotok saw the storm as likely jolting employment in construction, an industry paralyzed by the bursting of the real estate bubble in 2008.

“We are now upping our estimate of fourth-quarter GDP in the U.S. economy,” he said in an email Sunday. “Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily.”

Kotok expects GDP growth — which limped along at less than a percentage point for the first half of the year — to exceed 2 percent in the last three months of the year and potentially reach 3 percent.

Mark Merritt, president of crisis-management consulting firm Witt Associates, said the hurricane should provide a bump in economic activity over the next few months.

“After a disaster, there’s always a definite short-term increase,” Merritt said. “There will be furniture bought, homes repaired, new carpet, new flooring, all the things affected by flooding.”

The story quotes no economist, who might have pointed out that the destruction of homes, businesses, and other property cannot actually be good for the economy. As economist Sandy Ikeda summed it up last year, the argument is that “paying $100 to replace a broken window somehow creates more prosperity than having an intact window and spending that $100 on something else.” He goes on to ask, as many economists have: If destruction is so good for an economy, why wait for a hurricane or a bombing raid? Why not just bomb your own cities?

As Frederic Bastiat explained the “broken window fallacy,” a boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!”

But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.”

In the comic strip “Pearls Before Swine,” the nefarious Rat used the destruction-as-stimulus argument to defend his client’s blowing up downtown:

But that’s a comic strip. Journalists should do better. Please, call one of these economists. They can tell you that destruction is destructive. When property is destroyed, people have less wealth. The money they had been saving for a new business or a new computer or a college education, now they have to spend it on rebuilding what they had. That is not “a bump in economic activity.”

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