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Are Taxes in the U.S. High or Low?

From Bruce Bartlett in the NYTimes.com.

Federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget. …

The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.

Bartlett goes on to point out that our tax rates are not necessarily lower than those of other countries. It's just that the various allowances and deductions yield the lowest tax receipts than all other OECD countries.

More on the debt ceiling

In a previous post (and on Jared Bernstein's blog) I suggested that the Fed fund the Federal government if the Republicans block an increase in the debt ceiling. Here are a few more thoughts.

The Fed has a balance sheet of $2.76 trillion. If it prints that much money (as the government needs it) while simultaneously selling items from its balance sheet that would keep the government in business without affecting the money supply for quite a long time. In addition, even in the unlikely chance that the Fed exhausts it balance sheet before the debt ceiling issue is settled, the President could assure the world that once the debt ceiling is raised, the Treasury would borrow back the excess money and return it to the Fed. I think such a promise could be made believable. Then the Republicans would be in a position of either forcing the Fed to continue printing money—exactly what they complain about now with respect to "debasing the currency"—or finally realize that the debt ceiling is the wrong way to deal with spending issues.

I’m not clear whether it can be said that the government “owns” the Fed’s balance sheet. If so, or if a reasonably good case could be made along those lines, then selling items on the balance sheet would be comparable to selling any other Federal property. That’s exactly what the Republicans are suggesting. So let’s do it!

The Fed regularly returns to the Treasury most of the interest payments it receives on US Govt bonds that it owns. Thus there is a real precedent for having the Fed give money to the Treasury. It can refer to that precedent when it sells assets and gives that money to the Treasury.

An easy petition to sign.

From CREDO Action.

Earlier this month, 44 Republican Senators pledged to filibuster the nomination of anyone to head the Consumer Financial Protection Bureau unless the agency itself is significantly weakened.

This threat makes it much more likely that President Obama will have to use his constitutional authority to make a recess appointment to fill the top slot at the agency.

A number of great progressive groups and leading academics have signed a letter to President Obama supporting a recess appointment. And now I've signed it too.

I hope you join me in co-signing the letter. You can read it and add your name to it here.

Encourage the Republican crazies

Perhaps if enough Republicans go over the edge, the entire party will disappear. One way to encourage them is to support their petition drives. Here's one. They ask for money, but you can decline and still sign the petition. That's what I did.

"Where Have All The Mensches Gone?"

More from Krugman.

Newt Gingrich declared that anyone who quoted him accurately was lying; and now Tim Pawlenty, who, aside from saying a whole lot of false things while declaring himself a truthteller, pulled a Gingrich when Rush Limabaugh correctly pointed out that he wasn’t a true Tea Partier a few years ago.

It’s possible to believe that someone is completely wrong on policy while respecting his or her character. But policy aside, these are just contemptible people.

Republican in Wonderland

From a blog post by Paul Krugman.

We’re in a strange state now where people who actually take textbook economics and simple arithmetic seriously are seen as dangerously radical and irresponsible, while people who believe in invisible bond vigilantes and confidence fairies, who claim to know what the market will want even though there’s no sign of that desire in current asset prices, are viewed as Very Serious.

Why do libertarians support school vouchers?

Gary Johnson is running for the Republican nomination for president. Johnson was the governor of New Mexico for 8 years around the turn of the century. He is considered one of the purest libertarian politicians. He favor the legalization of drugs, for example. One of his "signature" issues is school vouchers. He worked hard for them in New Mexico when he was governor. The way school vouchers work is that the government gives kids (or their families) vouchers with which to pay tuition at the private school of their choice. It's understandable that a libertarian would favor private schools over public schools. What I don't understand is how libertarians justify having the government pay for those private schools. Why isn't the libertarian position that if someone wants education—for himself or his children—it is up to that person to find a way to get it. That seems more consistent with libertarian principles.

I left a note on Johnson's web site asking that question. So far, no reply.

The larger question is what libertarians think the role of government should be. Should the government run a fire department? If not, must we have private fire departments that protect us. What if a house whose owner does not buy protection from a private fire department catches fire—and endangers the houses near it. Do the neighbors have the right to ask their private fire departments to spray water on the burning house? Doesn't that violate the property rights of the person who owns the burning house? What if he wants it to burn? Presumably he would be liable for damage the fire caused to the neighbors' houses. But what if he doesn't have the money to pay for those damages? Must we then buy insurance to protect ourselves from "uninsured homeowners?" I can just imagine the legal battles that will generate. We will need 10 times as many lawyers as we have now. And we will all be far worse off.

So what should the role of the government be according to libertarians?

More about microbes

From J. Craig Venter on Edge.

We live on a microbial planet. There are one million microbial cells per cubic centimeter of water in our oceans, lakes and rivers; deep within the Earth's crust and throughout our atmosphere. We have more than 100 trillion microbes on and in each of us. The Earth's diversity of life would have seemed like science fiction to our ancestors. We have microbes that can withstand millions of Rads of ionizing radiation; such strong acid or base that it would dissolve our skin; microbes that grow in ice and microbes that grow and thrive at temperatures exceeding 100 degrees C. We have life that lives on carbon dioxide, on methane, on sulfur, or on sugar. We have sent trillions of bacteria into space over the last few billion years and we have exchanged material with Mars on a constant basis, so it would be very surprising if we do not find evidence of microbial life in our solar system, particularly on Mars.

Life’s deliberate typos

From Not Exactly Rocket Science | Discover Magazine. Transcription from DNA to RNA is not only not precise, the errors—or at least some of them—are consistent and frequently not consistently edited out. Presumably these produce protein results that we depend on for our survival. Life is even more complex than the complexity we imagined. No matter where one looks, more is going on that we imagine.

This reminds me of Carl Zimmer's disappointingly short (less than 100 pages) new book on viruses, which says that there are trillions of viruses in the ocean and that they kill (cause to decompose) half of the billions of bacteria every day. But of course the bacteria reproduce so fast that they replenish the supply.

There used to be a time when people thought the oceans are pretty much virus-free. But now we realize that there might be, say, maybe a billion viruses in every teaspoon of water. And they're attacking the bacteria. There's lots of bacteria in the ocean. And so they will just do a slaughter of these bacteria every day. Of course, the bacteria grow back pretty fast, but still it's a tremendous thing because all those bacteria contain carbon and lots of nutrients. And so they're constantly cycling all this to the ocean and into the atmosphere.

Think about how much is going on that we hadn't even imagined—and how dependent we are on it happening!

HuffPost now has gold stars!

See HuffPost badges. Very clever. Will probably motivate people to be more involved.

No debt ceiling increase? Print the money.

I just left this comment on a post by Jared Bernstein.

Let's assume Congress doesn't raise the debt ceiling. As you said, the Fed could just print the money. What would be the consequenc­es of that? It seems to me there would be no negative consequenc­es and a number of positive consequenc­es.

The most significan­t potential negative consequenc­e is that the world would lose faith in the Dollar as a stable currency and would treat it as one likely to face run-away inflation. But the administra­tion could combat that threat by stating that once the debt limit is raised, we would sop up the extra money by borrowing it back. I think the administra­tion and the Fed (although not the Congress) have the credibilit­y to make a promise of that sort.

The positive consequenc­e would be additional stimulus. We would be injecting lots of money into the economy without having to borrow it. That would increase the supply of money,whic­h would lead to increased demand, increased asset values, and even lower (long term) interest rates.

So why shouldn't Obama say that if Congress doesn't raise the debt ceiling, the administra­tion will simply print the necessary money until Congress acts?

Of course this whole issue is silly. As you said, there is probably no other country in the world with a debt ceiling. But as long as we're being silly, why not go all the way!

Here's a follow-up I posted.

In effect, the government would be (implicitly) borrowing money from the Fed, which it would pay back when the debt ceiling is raised. To reduce the inflationary effect, the Fed could, in turn, sell items on its balance sheet into the market. By selling the same amount that it "lent" to the government, it would, in effect, be providing a way for the government to borrow without actually issuing new debt, i.e., it would be providing a debt laundering service for the government. This could go on until the Fed ran down its balance sheet—which would take quite a while.

Hayek on Regulation

Ezra Klein quotes Friedrich Hayek on regulation. That led me to this Wikipedia section on Hayek.

''The Road To Serfdom'' is often cited today for the proposition that government should not intervene at all in free markets. …

Although Hayek believed that government intervention in markets would lead to a loss of freedom, he recognized a limited role for government to perform tasks of which free markets were not capable:

The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life, but it admits of others which sometimes may very considerably assist its work and even requires certain kinds of government action.

While Hayek is opposed to regulations which restrict the freedom to enter a trade, or to buy and sell at any price, or to control quantities, he acknowledges the utility of regulations which restrict allowed methods of production, so long as these are applied equally to everyone and not used as an indirect way of controlling prices or quantities:

To prohibit the use of certain poisonous substances, or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements, is fully compatible with the preservation of competition.

He notes that there are certain areas, such as the environment, which cannot effectively be regulated solely by the marketplace:

Nor can certain harmful effects of deforestation, of some methods of farming, or of the smoke and noise of factories, be confined to the owner of the property in question, or to those who are willing to submit to the damage for an agreed compensation.

The government also has a role in preventing fraud:

Even the most essential prerequisite of its the market's proper functioning, the prevention of fraud and deception (including exploitation of ignorance), provides a great and by no means fully accomplished object of legislative activity.

He concludes:

In no system that could be rationally defended would the state just do nothing.

The extracts are all from

Hayek, Friedrich August (1994). The road to serfdom. University of Chicago Press. ISBN 9780226320618.

Private property

In a recent post Brad DeLong discussed Ron Paul's position on private property, namely that we don't need the government; everything will come out fine if we just let private property have its way.

I commented that without a state there would be no such legally defined thing as private property—since there would be no laws. So the notion of private property depends crucially on the existence of a state and of laws that define what private property means and what legal rights and obligations go along with it.

I went on to look up the issue in the Stanford Encyclopedia of Philosophy. David Hume, as usual, got to the heart of it.

There is nothing natural about private property, wrote Hume. The ‘contrariety’ of our passions and the ‘looseness and easy transition [of material objects] from one person to another’ mean that any situation in which I hold or use a resource is always vulnerable to disruption (Hume 1978 [1739], p. 488). Until possession is stabilized by social rules, there is no secure relation between person and thing. We may think that there ought to be: we may think, for example, that a person has a moral right to something that he has made and that society has an obligation to give legal backing to this moral right. But according to Hume, we have to ask what it is in general for society to set up and enforce rules of this kind, before we can reach any conclusions about the normative significance of the relation between any particular person and any particular thing.

Our property is nothing but those goods, whose constant possession is established by the laws of society; that is, by the laws of justice. Those, therefore, who make use of the words property, or right, or obligation, before they have explained the origin of justice, or even make use of them in that explication, are guilty of a very gross fallacy, and can never reason upon any solid foundation. A man's property is some object related to him. This relation is not natural, but moral, and founded on justice. It is very preposterous, therefore, to imagine, that we can have any idea of property, without fully comprehending the nature of justice, and shewing its origin in the artifice and contrivance of man. The origin of justice explains that of property. The same artifice gives rise to both.

Do the rich pay more than their fair share of taxes?

From Paul Krugman

As the CBO has documented, what we’ve seen over the past 30 years is a dramatic shift of income toward the top, with the richest Americans sharply increasing their share of pre-tax income. It’s highly likely that government policies, from financial deregulation to union-busting, have played an important role in that growing income concentration.

At the same time, tax rates on top income have fallen, and by more than tax rates on lower incomes. But the rise in the top share has been so great that high-income Americans pay a larger share of total taxes than they used to despite tax policy that favors their interests.

And the new cry from the hired hands of the rich is that it’s unfair that the wealthy should pay such a large share of taxes.

In other words, think of it this way. If the top 1% of earners earned 99% of all the money people earned, they would be paying at least 99% of all the taxes people pay. Does that mean they are paying too much and the rest of us are paying too little? That's what the Republicans claim. But then as Brad DeLong always says, Republicans lie—all the time—about everything.

Fear or politics?

From Paul Krugman.

What does Washington currently fear? Topping the list is fear that budget deficits will cause a fiscal crisis any day now. In fact, a number of people — like Erskine Bowles and Alan Simpson, the co-chairmen of President Obama’s debt commission — have settled on a specific time frame: terrible things will happen within two years unless we make drastic spending cuts.

I have no idea where that two-year deadline comes from. After all, what we do in the next couple of years hardly matters at all for U.S. solvency, which mainly depends on what we’ll do in the long run about Medicare and taxes. And, for what it’s worth, actual investors — people putting real money on the line — are notably unworried about any near-term fiscal crisis: the Treasury Department continues to have no trouble selling debt and remains able to borrow very cheaply, indicating high confidence on the part of investors that debts will be repaid in full.

Do the scare-mongers even believe their own stories? Maybe not. As Jonathan Chait of The New Republic notes, the politicians most given to apocalyptic rhetoric about the deficit are also utterly opposed to any tax increase; they argue that debt is destroying America, but they’d rather let that happen than accept even a dime of higher taxes. Yet the inconsistency and probable insincerity of their fear-mongering hasn’t stopped it from having a huge effect on policy debate.

Build while it's cheap

Andrew Samwick, Dartmouth economist, writes:

with aggregate demand lower by hundreds of billions of dollars a year, there are unemployed and underemployed workers and underutilized capital whose services could be purchased on the cheap. If we have projects that add long-term value, this is the right time to be undertaking them. Plenty of those projects are to repair and maintain our seriously degraded infrastructure. Others are to make the upgrades necessary to plan for a future with different forms of energy transmission and communication. Instead of fighting about which multiplier is the biggest and clingng to the misguided notion that all measures be "timely, targeted, and temporary," we should be building while it's cheap.

We should have started this years ago. Given the continued worry about the fragile state of the recovery, we should start it now.

Why are humans so amazingly bad at reasoning in some contexts, and so amazingly good in others?

From the introduction to an Edge 342 discussion with Hugo Mercier, one opf the authors of the "argumentative theory" of reasoning.

'Reasoning was not designed to pursue the truth. Reasoning was designed by evolution to help us win arguments. That's why they call it The Argumentative Theory of Reasoning.' So, as they put it, 'The evidence reviewed here shows not only that reasoning falls quite short of reliably delivering rational beliefs and rational decisions. It may even be, in a variety of cases, detrimental to rationality. Reasoning can lead to poor outcomes, not because humans are bad at it, but because they systematically strive for arguments that justify their beliefs or their actions. This explains the confirmation bias, motivated reasoning, and reason-based choice, among other things.'