Answering the mailbag

A blog reader emailed me a response to my post "Questions for progressives." While none of my questions were answered and the response consists entirely of counter-questions, I will nonetheless indulge them in order to help light the libertarian path:

Original Question: It is frequently said that the rich must pay their fair share in taxes. What income level constitutes "rich" and what percentage of taxation should be regarded as "fair"? Explain your answer.

My Question: What are your own proposed tax rates for different income levels? Explain your answer.

I reject the premise: why have different tax rates for different income levels? Superior policy is the implementation of a flat tax in which the same rate would apply to all income levels. This is the very definition of fair, as it treats all people equally (well, not perfectly, as truly equal treatment would be everyone paying the same amount of tax regardless of income). Someone that makes 10 times more money would pay 10 times more in tax.

Original Question: Why is government spending preferable to tax cuts in providing economic stimulus? Why is money allocated by politicians more effective than that spent by individuals who earned the money in the first place? In giving your answer, please keep in mind that money saved or invested provides a pool of capital for businesses to draw from.

My Question: What proportion of the money from tax cuts is saved by taxpayers, rather than invested to generate economic growth? How much of the money that is saved and contributes to the pool of available capital is then actually lent out to businesses? What happens if businesses don't want to borrow because they're worried about declining economic growth? Are there times when individual self-interest and resulting spending decisions are not the best thing for the larger economy?

The question of what proportion of money from tax cuts is saved rather than invested makes little sense to me. Unless the saved money is stuffed under a mattress or buried in the backyard in a coffee can, it will be invested. Any money placed in a bank will serve as a pool of capital for businesses to draw from. As for what proportion of money saved in banks is then lent out, I have no idea. That is a decision for the banks to make.

If a business doesn't want to borrow then that's its decision. However, economies tend to rebound following recessions, and even during slowdowns businesses keep an eye on the next period of growth. If this were not the case, every slowdown would produce an endless downward spiral. With regard to the last question I believe the answer is yes. Foolish decisions are made all the time. Fortunately the market tends to punish such poor decision making and steer capital away from such people/entities (unless of course the government gives them a bailout).

Original Question: What would have to occur for last year's stimulus package to be declared a failure? What metrics should be considered?

My Question: Do you think that it's possible to make a black/white distinction between success/failure of a stimulus program? What metrics would you consider? Should current economic metrics be compared to those that would have resulted if there had been no stimulus? If it's not possible to know those, should we use history as a guide- those situations in which the government failed to provide sufficient stimulus, like the Great Depression?

Yes, I think it is possible to distinguish whether a policy has succeeded or not. While shades of gray exist, we can certainly state whether a policy has been a net positive or net negative. If we can't make such evaluations, and are just engaging in policy blindly without knowing its consequences, we have arrived at a truly awful place.

I think the best metric for evaluating stimulus success is job creation, as jobs were the chief justification for implementation of the stimulus. I definitely favor looking back at history to look at comparable situations. The story of the Great Depression, however, is more one of runaway regulation along with high taxes and spending which retarded growth. Speaking of using history as a guide, it is notable that Australia, which did not rely on grand New Deal-style government initiatives recovered more quickly than the U.S. from the depression.

Original Question: Do you believe that school vouchers which enable poor children to escape failed government-run schools and attend the same schools as children of the wealthy are good public policy? If not, why not? Can one truly claim to be an advocate for the poor while restricting their educational choices?

My Question: Do school vouchers cover the full cost of realistic alternative schools, including transportation costs if those schools aren't located in the same area? Is it unreasonable for an advocate of the poor to advocate fixing under performing public schools, rather than simply avoiding the issue? Is it in the interest of the economy to ensure that all students are educated and provide affordable means for them to become so?

The first question is irrelevant, as if a voucher is insufficient to attend a competing school then the worst case scenario is merely reverting back to the status quo. There is no situation in which a student would be worse off. Yes, talk of fixing public schools is unreasonable at this point, at least as a talking point in opposition to vouchers. Such talk has occurred literally for decades, during which time untold numbers of students were forced to attend failing schools while failed attempt to fix these schools continued.

Furthermore, there is no reason why vouchers and fixing public schools have to be presented as somehow in conflict with one another. Here in DC we have (soon to be past tense thanks to the Obama Administration) a voucher program while at the same time the Fenty administration has launched an aggressive effort to reform public schools.

I would add that marriage to government-run schooling is an exercise in ideology. The only thing which should matter is what reform methods are effective, be they vouchers, charter schools or even the outright abolishment of government-run schools. Instead we have far too many people who loudly proclaim that they are for education reform -- with the massive caveat that it is centered on government-run schools. We should instead be for effective reform, whatever form it takes.

Original Question: Do you regard health care reform efforts in Massachusetts as a success or failure?

My Question: Is it productive to classify the results of MA health care reform efforts in black/white success/failure terms? If a potential solution to a problem fails in the first attempt, should you abandon all efforts to solve the problem? Or should you take what you've learned from your first attempt and keep working toward a solution?

Yes, it is productive to evaluate whether a policy has succeeded or failed, or been a net positive or net negative. The second two questions are a distraction, as literally no one has ever said that efforts to reform health care should be abandoned. But it is well within reason to think that if a solution premised on expanded government intervention has failed that a change in policy direction might be in order which involves expanded reliance on the free market. If you find yourself in a hole, sometimes the best move is to stop digging.

Original Question: Welfare reform in the mid-1990s, which introduced concepts such as time limits to government aid and work requirements, has been almost universally acknowledged as a public policy success. What are the appropriate lessons from this experience?

My Question: What are the appropriate lessons from this experience? Is it that striking a balance between too much and too little social support is important?

I think there are any number of lessons which could be gleaned from this experience. One is that many on the left can be relied upon to equate any move to limit government entitlement programs with hysterical doom-mongering, claims of "war on the poor" and so forth. Another is that it is plainly nonsensical to automatically equate government assistance with compassion, as it is now plain such programs, whatever their intentions, often have hugely deleterious effects. It is further cause for suspicion of the welfare state.

Original Question: Deregulation of the airline and trucking industries are widely credited with producing lower costs and improved service. What are the lessons should be taken from this experience?

My Question: Indeed, what are the lessons? Are they that because deregulation in one industry/area of the economy is beneficial, then that much necessarily mean that deregulation in all industries should be pursued? Compare and contrast the relative level of importance to fundamental economic activity of the airline industry vs the banking sector? Can an economy function without a banking sector of some kind? When was the last time the concept of banking did not exist. Can an economy function without an airline industry? When was the last time that an economy did not have an airline industry? When was the last time a major airline was created? When was the last time a major bank was created?

At the very least it is evidence that the hyperventilating among politicians, including President Obama, about the supposed evils of deregulation should be taken with several large grains of salt. Another key lesson is that capitalism and a free market works better than leaving economic decisions up to bureaucrats.

The questioning about airlines vs. banking, meanwhile, is strange. Plainly a banking sector is more important than an airline sector to an economy's health, yet I fail to see how that at all matters. Let's further note that while banks have been around for centuries, extensive banking regulation has not.

Original Question: Presidents Clinton and Obama, while both Democrats who campaigned for office in the midst of recessions, opted for very different approaches towards the economy. Clinton, while raising income taxes, also approved a free trade deal with Mexico, deregulation in the financial and telecom sectors, deficit reduction, scaling back of entitlement spending and cuts in the capital gains tax. Obama has opted for higher government spending, more entitlements and greater regulation. Which approach do you agree with and why?

My Question: Haven't the results of those Clinton administration policies listed been a disaster? How has the banking system fared with less regulation? What has your experience with Comcast been like? What has been the trend in income equality? Do you view Bill Clinton as a progressive when it comes to economic policies?

Have they? My impression was that President Clinton has consistently bragged about the performance of the economy under his watch and his stewardship of the economy was a highlight of his presidency.

As for the banking system, it has performed rather poorly -- but then again, it remains one of the most regulated sectors in the economy. Further, it seems the limited deregulation which occurred under Clinton played either a neutral or even positive role in the recent financial crisis according to factcheck.org:

The truth is, however, the Gramm-Leach-Bliley Act had little if anything to do with the current crisis. In fact, economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been.

...Actually, deregulated banks were not the major culprits in the current debacle. Bank of America, Citigroup, Wells Fargo and J.P. Morgan Chase have weathered the financial crisis in reasonably good shape, while Bear Stearns collapsed and Lehman Brothers has entered bankruptcy, to name but two of the investment banks which had remained independent despite the repeal of Glass-Steagall.

Let's further recall that the Bush Administration era was hardly one of deregulation. Indeed, the opposite has taken place with 30,000 new rules passed and huge increases in the staff and budget of the Securities and Exchange Commission.

My experience with Comcast has been so-so, but then again I shouldn't expect much as they are a regulated utility and there isn't much of a free market here in DC as I have previously noted. Income inequality, meanwhile, isn't much of a concern to me. Far more pressing is how people doing on an absolute level rather than a relative one. I'd much rather get a $20K raise while my boss receives a $50K boost then receive a $5K raise while my boss only gets the same.

I don't think Clinton qualifies as a progressive on economic policy, particularly given this enthusiasm for free trade, which is increasingly rare in progressive ranks.

Original Question: Which government programs would you regard as successful? What public policy initiatives over the last 30 years do you view as successes? Failures?

My Question: What public policy initiatives over the last 30 years do you view as successes? Failures? If any are failures, why do you think so? What would things look like without them, and why would that situation be better or worse than the current one?

A few successes I can think of are NAFTA, welfare reform and the 1986 tax reform act. If we go back 32 years I would add trucking and airline deregulation. As for failures, I would list No Child Left Behind, the establishment of the Department of Homeland Security, establishment of the Transportation Security Administration, RomneyCare in Massachusetts, TennCare in Tennessee, and every farm bill and energy bill ever passed. The reasons for failure are unique to each one, but the common thread is that almost all of them have failed in their stated goals (although as best I can tell, mindless giveaways of taxpayer money is pretty much the goal of the farm and energy bills). As for what things would look like and otherwise be the case, again, that is unique to each one.