Steven Pearlstein on inequality

Capitalism is such a smashing success that it has become increasingly difficult for its critics on the left to argue with a straight face that it impoverishes the poor or fails to generate growth among all segments of society. Rather, one of the criticisms most commonly leveled now is that it promotes income inequality. In reality, this is a non-problem. If I get a $10,000 raise and my boss gets a $30,000 raise, our inequality has increased even though we are both unquestionably better off. Thus, watching leftist critics attempt to explain why income inequality is a problem is high entertainment, as it inevitably produces strange twists of logic and various mental gymnastics.

The latest example of this comes courtesy of Steven Pearlstein, the Washington Post's business columnist whose musings on politics and economics have made him a frequent target of this blog:

Too much inequality can lead to financial bubbles.

The liberal version of this argument comes from former Labor secretary Robert Reich in his new book, "Aftershock." Because so much of the nation's income is siphoned off to the super-rich, Reich says, a struggling middle class trying to maintain its standard of living had no choice but to take on more and more debt. I have some problem with the argument that the middle class had no choice, but it's certainly true that the middle class and the economy as a whole would be in better shape today if households weren't burdened with so much debt.

The more conservative version of this argument comes from University of Chicago economist Raghuram Rajan. In his new book, "Fault Lines," Rajan argues that in order to respond to the stagnant incomes of their constituents, politicians took a number of steps to keep the "American Dream" within reach, including subsidization of home mortgages and college loans. He might have added that politicians also were quick to cut taxes for the middle class even when it meant running up the national debt to pay for popular entitlement programs and government services.

This is so tenuous and thinly argued one hardly knows how to respond. As for Reich's argument, the middle class hasn't had their income siphoned off to the rich. Indeed, total compensation has been increasing. Any struggles on their part have nothing to do with the fact that Bill Gates, Warren Buffet or any other wealthy individual has gotten rich. Although there is some evidence that wages have stagnated among some workers, this is typically due to increasing amounts of compensation going to health care costs, not some fat cat's wallet. If money is being taken to line someone else's pocket, it is that of the government, not the guy who employs you.

As for his use of Rajan's book, the increase in housing and higher education have nothing to do with income inequality. The cost of admission didn't suddenly jump because the upper 1% are bidding up prices for their kids to attend college or because they started buying up every property up and down the East and West Coasts. Indeed, the cost increase of both is best explained by poor public policy. The last sentence, meanwhile, is a non-sequitur.

Concentrating so much income in a relatively small number of households has also led to trillions of dollars being spent and invested in ways that were spectacularly unproductive. In recent decades, the rich have used their winnings to bid up the prices of artwork and fancy cars, the tuition at prestigious private schools and universities, the services of celebrity hairdressers and interior decorators, and real estate in fashionable enclaves from Park City to Park Avenue. And what wasn't misspent was largely misinvested in hedge funds and private equity vehicles that played a pivotal role in inflating a series of speculative financial bubbles, from the junk bond bubble of the '80s to the tech and telecom bubble of the '90s to the credit bubble of the past decade.

Let me get this straight: money was wasted because it was concentrated in the hands of the people who made it in the first place, who then turned into mindless dolts, blowing their wealth on art, fancy cars and celebrity hairdressers? That a significant factor behind the creation of financial bubbles is simply rich people who are too stupid to find productive ends for their wealth? Let's assume this is true: what on earth does this have to do with income inequality?

If someone is a fool with their money then they are a fool with their money. They don't spend their money foolishly simply because they have a lot more money than someone in the middle class. Furthermore, let's say that income inequality was much less pronounced and more of the nation's wealth found its way to those further down the ladder -- then what? Would the middle and lower classes have allocated the money to more productive ends? If he believes that, then he must be unaware of the millions upon millions of middle class people who engaged in real estate speculation over the last decade.

The biggest problem with runaway inequality, however, is that it undermines the unity of purpose necessary for any firm, or any nation, to thrive. People don't work hard, take risks and make sacrifices if they think the rewards will all flow to others. Conservative Republicans use this argument all the time in trying to justify lower tax rates for wealthy earners and investors, but they chose to ignore it when it comes to the incomes of everyone else.

I don't even know what the first sentence means. What is our unity of purpose? Why must we have one? Why can't we each do what makes us happy? His second sentence is correct -- people won't take risks when they think the rewards will flow to others, namely the IRS. I fail to see, however, how this applies to the private sector. Are productive people being robbed by the rich? Is Bill Gates a stick-up artist? If someone is productive and not being compensated they can simply move to another company. McKinsey didn't write a study on the "war for talent" for nothing. Honestly, what on earth is Pearlstein talking about?

It's no coincidence that polarization of income distribution in the United States coincides with a polarization of the political process. Just as income inequality has eroded any sense that we are all in this together, it has also eroded the political consensus necessary for effective government. There can be no better proof of that proposition than the current election cycle, in which the last of the moderates are being driven from the political process and the most likely prospect is for years of ideological warfare and political gridlock.

That's true, we aren't all in this together, with 47 percent of all households failing to pay any federal income tax due in large part to various loopholes and deductions dispensed by politicians. A small minority is funding the welfare state that redistributes this wealth. Linking political polarization to income inequality, meanwhile, is nonsensical. The dividing lines aren't found over income inequality, it's about a debate over the role of government. Indeed, many of those on the lower end of the income spectrum are firmly opposed to the policies being proffered by those such as Pearlstein to address this alleged problem.

Political candidates may not be talking about income inequality during this election, but it is the unspoken issue that underlies all the others. Without a sense of shared prosperity, there can be no prosperity. And given the realities of global capitalism, with its booms and busts and winner-take-all dynamic, that will require more government involvement in the economy, not less.

Winner take all? Really? I guess that is why there is only one TV manufacturer, one car manufacturer, one plumbing company per town, one restaurant, etc. etc. Perhaps this can be excused as a rhetorical flourish. Even so, the only thing correct here is that general prosperity is good. But general prosperity and income inequality are not incompatible, as we can all simply prosper at different rates. If history is any guide, meanwhile, prosperity is to be found in limited government, not its expansion.

Related: See this Mark Perry post which wonders whether income inequality has been exaggerated in the first place, and this one on income inequality in the NFL.

Update: Diana Furchtgott-Roth has some thoughts on inequality.

Can the country afford Steven Pearlstein?

Steven Pearlstein, the Washington Post's business columnist (whose only business he ever ran, a journal of liberal opinion, went under) has written an exceptionally poor column that merits the attention of this blog. Rather than spend too much time on it, I'll just dissect it piece by piece:

For all you in the business community who are rooting for a Republican victory in the November elections, a bit of unsolicited advice: Be careful what you wish for.

You're probably thinking that with Republicans in control of one or both houses of Congress, business will be back on top again, setting the agenda, rolling back the socialist tide and forcing an anti-business administration into a humiliating retreat.

I think that's the idea.

In reality, what you'll get is political paralysis for the next two years, and quite possibly longer than that.

You mean we won't get more of the same legislative dreck that has come out of Congress the last two years? Horrors.

Just ask Sen. Jim DeMint of South Carolina, the new Republican kingpin and enforcer on Capitol Hill. DeMint told Bloomberg Businessweek last week that his goal for the next Senate is "complete gridlock." As far as DeMint is concerned, there's no place for bipartisan compromise or consensus or some "watered-down Republican philosophy," as he put it. For DeMint, this is war. The only acceptable outcome is total victory, and any Republican who dares to disagree will be treated as a traitor during the next election cycle.

I am intrigued by this DeMint fellow's theories, and would like to subscribe to his newsletter.

The good news, of course, is that you won't have to spend a minute over the next two years worrying about tax increases or climate-change legislation or that odious card check idea that would open the doors again to union organizing.

Well, yes.

The bad news is that you can kiss goodbye tax reform, education reform, infrastructure investment or any new trade treaties. With DeMint cracking the ideological whip in the Senate, and a new crop of young and hungry conservatives beginning to take charge of the Republican caucus in the House, Democrats will be in no mood to strike any deals on these business priorities. Ditto for a Democratic president readily wielding his veto.

Oh wait, you mean we'll have to give up on those trade treaties that President Obama made absolutely no attempt to advance the past two years and that are generally endorsed by Republicans? And we'll have to give up Democratic "tax reform" which will almost assuredly be simply a tax increase? And give up education reform from the same guy who shut down the DC school voucher program? And does anyone really think that, what, infrastructure spending is going to come to a sudden halt, or that money will stop flowing out of DC? Puh-leeze.

Also, you're basically speculating that Obama is going to be so petty after the November hiding that he will veto GOP-backed bills simply out of spite.

And then there's that matter of regulatory uncertainty you've been complaining about. If you think it's bad now, just wait until next year when the Obama administration tries to do through regulation what it will no longer be able to achieve through legislation. Republican committee chairman will respond with hearings and investigations and appropriations riders in an attempt to block the new regulations. In the end, nothing will be resolved until the issues are subject to years of federal court litigation.

I'm not sure it's the regulatory uncertainty bothering businesses as much as the certainly that everything President Obama and the Democratic Congress has passed is awful. Further, should people avoid voting for the GOP simply because President Obama is going to be a jerk after the election and try to abuse his executive authority to pass rules without a congressional stamp of approval?

I know what you're thinking. You're thinking that, once the heat of the election season has passed, cooler heads will prevail and DeMint and the other anti-government zealots will return to their rightful place on the fringes of the political system, leaving it to the grown-ups to get things done. Don't kid yourselves. You're about to create a political monster that you can't control, one bent not on reforming but on destroying the institutional framework that allows an advanced industrial economy to grow and thrive.

These "grown-ups" -- are these the same folks that have run-up trillions in new debt, left the economy sputtering and passed ill-conceived legislation such as ObamaCare? Maybe we should give the zealots a try. And I have to differ that our prosperity is derived from a massive, sprawling government which has grown far beyond that which is provided for by the Constitution.

Here is the hard political reality: You can't expect to support and finance political candidates who preach that government is menacing and wasteful, that public employees are incompetent and corrupt, that taxes are always too high and destroy jobs, and then turn around and expect that the government will respond to your demands to hold down the cost of health care, or fund basic research, or provide good schools, efficient courts and reliable transportation systems.

This is so typical. Accusations that the government has gone far beyond its intended scope are met with talk about roads and courts, as if that even remotely represents the margin at which the battle over the size of government is being fought. Also, frankly, I think the government has made a hash of our public education system and is almost entirely responsible for the galloping costs found in health care, one of the most regulated sectors of the economy.

This doesn't mean the business community should run out and support liberal or Democratic candidates, or abandon the party that favors smaller government, low tax rates and light-touch regulation. What it does mean, however, is that you shouldn't encourage a political dynamic in which the goal is total victory, compromise is considered defeat and moderates are driven out.

This is the only halfway sensible part of the column. Half a loaf is better than none at all, and a certain level of pragmatism is fine. But compromise should also not involve selling out one's principles.

It's convenient to blame the media, or cable news or the blogosphere for this state of political polarization. To that list of culprits I'd add you - business leaders who, in order to score modest wins in legislative or regulatory battles, make common cause with those who trample on the truth, poison the political conversation, demonize opponents and undermine respect and support for government.

Poisoning the political conversation? This is absolutely rich coming from a guy who just last year called Republican leaders "political terrorists."

Criticize President Obama - that's easy, guys. But is there anyone there at the Business Roundtable with the courage to criticize Jim DeMint?

What's there to criticize? He wants to restore fiscal sanity and restore the scope of government to its constitutional limits. If that's insanity then by all means let's pry open the asylum doors.

Email to Steven Pearlstein

Email sent in response to this column in today's Washington Post:

Mr. Pearlstein,

In today's column you call for increased taxes on the rich, stating that their money is needed to bankroll infrastructure investments. However, non-security discretionary spending in FY 2010 was $553 billion. The idea that the federal government can't get by on over a half-trillion dollars in spending and needs to tax its citizens even more is outrageous. The logic at work on tax increases simply seems to be, "They've got it and we want it."

Furthermore, why should any money be spent on high-speed rail, clean energy or air traffic control? Air traffic control should simply be privatized, as has been done to good effect in Canada. High-speed rail makes little sense in a country with low population density and vast distances such as ours, and there is no obvious reason why this is a government function anyhow. The government doesn't operate airlines or car manufacturers (well, until recently at least) -- why does passenger rail operation make sense?

As for clean energy, how would government allocate money to this hobby horse more effectively than markets? If these investments make sense, shouldn't the private sector be rushing to fund it with their own money? The fact that they aren't perhaps suggests this isn't worth doing.

Lastly, I have no idea no idea how the federal government promoting various types of energy use comports at all with our constitution, which seems to be an increasingly overlooked document.

Regards,

Colin

I forgot to also take issue with his statement that, "Over the years, this idea [of a National Infrastructure Bank] has won bipartisan support from business groups, labor unions, governors and big-city mayors." Why Pearlstein thinks it is noteworthy that corporate interest groups, labor unions and politicians (governors and big-city mayors, gotta love that) all want funds from the public trough is beyond me.

Reading the column and Pearlstein's recommendations for how hundreds of billions of dollars of taxpayer money should be spent reminded me of this interview with Nick Gillespie:

[Los Angeles and DC] have nothing in common, other than they are packed with conniving bastards who are convinced of their own genius and want to finance everything with other people's money.

Spot on.

Pearlstein's lame defense

In his latest online chat someone asked Steven Pearlstein, the Washington Post's business columnist, a great question:

NOVA: First, I am not a crowd disrupter at the health care town halls. I think those people really stage their protests because Limbaugh or Beck told them too. However, I have some questions about what is being proposed in Congress. Few people would feel the Post Office, the IRS, the Pentagon, Medicare, etc. are well run government organizations. How can we feel secure in the government running health care?

The question make eminent sense. Given that government really doesn't do too many things very well, what reason is there to think it can do something like health care, which has traditionally not been run by the government in this country.

His response:

Okay, I tried to answer this once already. let me try again.

Your smear on government is unfounded, as is your fear that the government is going to run health care. [...]

Moreover, who says government can't run anything? Those town meetings were full of old people who had been scared by right wing goons into believing that somebody was going to take away their Medicare. Obviously, they think its a pretty good program if they were demanding that nobody touch it. And I think if you ran on the platform that our boys and girls in Afghanistan were doing a lousy job, you probably wouldn't get many votes. As for the Post Office, if you think everyone hates it and nobody values its services, then why is there a public hue and cry whenever it is proposed to close one office or do away with Saturday delivery? Maybe you ought to rethink this knee-jerk, ideological view that government is always bad.

What a poor answer. Medicare is broke, while few people question our members of the armed services in Afghanistan skepticism is growing over the mission, and the fact people think a poor service -- the USPS -- is better than no service at all proves nothing.

That Pearlstein is reduced to offering such a terrible defense of his beliefs makes it rather apparent who in this debate is engaged in knee-jerk ideology.

Tax fantasies of the right and left

Credit where credit is due -- Steven Pearlstein writes a decent column. Smartest bit:

The old Republican fantasy was that tax cuts were the magic elixir that would solve every problem. Now that the public has finally rejected it, it's disappointing to see Democrats offering up the equally fantastic notion that Americans can have all the government they want while getting someone else to pay for it.

Maybe there is hope other Democrats will start to realize this.

Money and politics

The golden rule: He who has the gold makes the rules. -- popular saying

You hear politicians such as Sen. John McCain speak from time to time about the need to get money out of politics. All that money sloshing around serves as a corrupting influence and stands in the way of honest government, they argue. They are correct in that money corrupts our politics. Where they err, however, is believing that that the two can be separated, for as long as government makes decisions that impact our everyday lives we will attempt to influence it. They are inextricably linked. As evidence I would cite all of recorded history. The monied elites and political leadership are rarely strangers.

It's with this in mind that I read Steven Pearlstein's column today. Pearlstein -- the subject of frequent criticism by this blog -- calls for regulators to save Wall Street from itself and rescue the financial industry from a narcissistic culture that breeds outsized egos and idiocy:

The answer to that problem isn't for Congress to use the tax code to effectively legislate pay caps for Wall Street. In the current climate, however, the only way to beat back such bad ideas is to find some other ways of stopping and reversing the Wall Street arms race on pay.

Of course, an industry that earns so much profit that it can afford to pay multimillion-dollar bonuses to 26-year-old traders also has too much money to lavish on the political process in ways that undermine those who would regulate it. I wouldn't go as far as MIT economist Simon Johnson, who argues in the May Atlantic magazine that the United States has effectively become a banana republic with the Wall Street oligarchy running the show. What is undeniable, however, is that there are regulators here in Washington who have been reluctant to rein in the industry out of fear that they would be thwarted by the White House, the Treasury and key members of Congress acting under pressure from the industry.

It's all well and good for the Goldman Sachs chairman to call for better regulation of the financial industry. But regulators are unlikely to do much better during the next bubble unless we can find better ways to insulate them from Wall Street's outsize political influence.

This is a rather breathtaking amount of naiveté. Pearlstein really thinks that it is somehow possible to separate bureaucrats from the political leadership that watches over them. Regulators, unless they have no interest in their career prospects, take their cues from the top. Woe be to the bureaucrat that defies his political masters. Yet this is Pearlstein's proposed solution to what ails Wall Street.

I suppose the possibilities are infinite once you let slip the bonds of reality.

Update: I emailed Pearlstein to say how naive I thought his column was. He writes back:

There are regulators who, by law or tradition, are more removed from political influence than others.

Not a lot to respond to. However, if there are already removed from political influence then why were so many scared of the White House, Congress, Treasury, etc.? In addition, I would submit that it is not at all obvious if removal of political influence is entirely desirable as it provides a check on bureaucrats run amok.

California's economy

Steven Pearlstein, the Washington Post's left wing business columnist, is in California this week and wrote a dispatch about the state's crumbling economy. He then took part in a Q&A this morning in which he was asked some of the same questions that have been on my mind:

Virginia: Thanks for taking our questions, I have found your work to be helpful and informative. I can't help but make this observation: If California is a real mess, then can't the comparison be made to the Obama/Democrat plan that makes the U.S.A one big California? Under Obama's budget/stimulus/bailout, we will certainly have higher taxes and more "things" we cannot afford that will only get more expensive in the future. Is this a fair comparison?

Steven Pearlstein: No, it is not a good analogy because government in California is really, really disfunctional (sic). That said, the big fiscal elephant in our room nationally is health care costs under Medicare and Medicaid, which is why it is important that we move ahead on comprehensive health care reform. That is for us what public employee pensions and retiree health benefits are to people in California.

What, and the federal government isn't? Where do I begin? Congress has already missed a couple of deadlines in the 2010 budget process, there's a witch hunt taking place on Capitol Hill against AIG employees and then there's the odd spectacle of Maxine Waters who uses her perch on the House Financial Services Committee to wax conspiratorial about Goldman Sachs. You think we're not held hostage by special interests? We have a budget well over $3 trillion and still can't find anything to cut because of all the kicking and screaming from various groups. We have Congress trying to kill school vouchers and end the secret ballot in union elections because of pressure from special interests.

Aldie, Va.: Isn't the story you tell of California a harbinger for the United States' future if the Democrat party is able to implement their platform of higher taxes, huge budget deficits, excessive regulation, burdensome mandates on private industry, growth of government at the expense of the private sector, refusal to force the unions to allow meaningful school reform, and policies that encourage uncontrolled illegal immigration that swamp public services?

Steven Pearlstein: Obviously lots of people thinking along the same lines.

California is the Democrat/Obama agenda writ large. Given the policies that have been enacted no one should be surprised by what has transpired there -- or what will happen here if such policies go national.

Venting

Don Boudreaux read Steven Pearlstein's column this week and got pretty angry over his pro-government bootlicking. Apparently I am not alone in my distaste for the Washington Post writer.

Business columnists

Two of my least favorite business/economics columnists are Daniel Gross and Steven Pearlstein, with Gross especially egregious of late in his silliness. To that list I can now add Michael Hiltzik, who pens a piece in today's Los Angeles Times that basically amounts to telling critics of President Obama's stimulus and housing plans to sit down and shut up. The column really is devoid of any insightful thinking, with Hiltzik instead simply calling Obama's critics a bunch of whiners and reverting to a few talking points.

The fact that these guys so often get it wrong made me start to wonder about their credentials to be writing such columns. Basically, do they even know what they are talking about? Well, here are their biographies:

Steven Pearlstein, Washington Post:

Pearlstein was raised in Brookline, Massachusetts, and graduated from Trinity College in 1973. He started out in journalism at the Concord Monitor and the Foster's Daily Democrat, in New Hampshire. He was the founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion, and was a senior editor at Inc. magazine for two years. Pearlstein then joined The Washington Post, where he has served as deputy business editor. Pearlstein has also worked as a television news reporter at Boston’s public television station, WGBH-TV. During the late 1970s, he served as administrative assistant to U.S. Senator John A. Durkin and U.S. Representative Michael J. Harrington and was elected to the position of town moderator in West Newbury, Massachusetts. As of 2008 he lives in Washington, D.C., with his wife, Wendy Gray, and two children.

Daniel Gross, Newsweek/Slate:

Before joining Newsweek in the spring of 2007, Mr. Gross wrote the "Economic View" column in the New York Times, was a contributing writer to New York, and contributed regularly to magazines such as Fortune and Wired. From 1998-2007, Gross served as the editor of STERNBusiness, a semi-annual academic magazine on economics and management published by the New York University Stern School of Business.

A native of East Lansing, Michigan, Mr. Gross graduated from Cornell University in 1989, with degrees in government and history, and holds an A.M. in American history from Harvard University (1991). He worked as a reporter at The New Republic and Bloomberg News, and has contributed hundreds of features, news articles, book reviews and opinion pieces to over 60 magazines and newspapers. Areas of expertise include: economic and tax policy, the links between business and politics, the rise of the investor class, the culture of Wall Street, and business history.

Michael Hiltzik, LA Times:

Mr. Hiltzik joined The Times in 1981 after working at the Providence (R.I.) Journal-Bulletin and the Buffalo (N.Y.) Courier Express. He has won numerous awards for excellence in reporting, including a Silver Gavel from the American Bar Association and a citation from the Overseas Press Club for coverage of East Africa. In 1996 he was a finalist for two Pulitzer Prizes: in explanatory journalism for his coverage of the managed care revolution in California, and in deadline reporting for his coverage of the merger of ABC/Capital Cities and The Walt Disney Co.

The author also of the nonfiction book “A Death in Kenya,” published in 1991 by Delacorte Press, Mr. Hiltzik graduated from Colgate University in 1973 with a degree in English and received a master of science degree in journalism from the Graduate School of Journalism at Columbia University in 1974. He lives in Southern California with his wife and two children.

So between Hiltzik and Gross we have undergraduate degrees in English, history and government along with graduate degrees in American history and journalism. We don't know what Pearlstein studied but given his entire background in journalism I would be surprised if he was an economics major. Indeed, among the three of them the only experience outside of being a scribe is Pearlstein's stint working for two Democratic members of Congress. Not one has actually worked in business or has any formal education in economics.

It's all starting to make sense.

Update: One columnist I have a lot of respect for is Martin Wolf of the Financial Times. Indeed, he might be the most respected economics columnist in the world. Here is his background:

He left Nuffield College, Oxford University with a master of philosophy degree in economics in 1971 to join the World Bank's young professionals programme, becoming a senior economist in 1974. He left the World Bank in 1981, to become Director of Studies at the Trade Policy Research Centre, in London. He joined the Financial Times in 1987; he has been associate editor since 1990 and chief economics commentator since 1996.

Certainly a sharp contrast with those that I have mentioned above.

Email sent to Steven Pearlstein

Mr. Pearlstein,

Thoroughly agree with you here:

And if we're going to spend billions to upgrades roads, bridges and public transit and create jobs for unemployed construction workers, what would be so terrible about temporarily suspending the rule requiring that union wages be paid? That way, more jobs would be created and taxpayers would get a better return on their infrastructure investment.

But why temporarily? Seems to me that creating more jobs and saving taxpayer money are things we should desire in perpetuity.

Regards,

Colin

Letter to Steven Pearlstein

Mr. Pearlstein,

I have to say that I found your column on the energy bill pretty disappointing. You wrote:

There was plenty in that version of the energy bill that had strong support from most Americans and, I suspect, most business executives. Higher fuel economy standards for cars. More ethanol in gasoline. Tougher efficiency standards for appliances. Modest subsidies for conservation and alternative fuels.

Perhaps that is true although I haven't seen a poll on the subject. In any case I think it is your responsibility as a columnist not to write about whether Americans do support something, but whether they should.

Would you not agree that taxing bad behavior is preferable to the government subsidizing perceived good behavior and picking winners? Rather than demand higher efficiency in cars and appliances, shouldn't we just tax the energy source to the point that captures the externalities that its consumption imposes on society? After all, is not an efficient appliance powered by a utility that uses coal is arguably less preferable than a less efficient appliance that uses solar cell power? Tax the coal for the pollution it imposes, set prices, and let consumers choose accordingly.

Also, I was greatly surprised to see the manner in which you glossed over the call for more ethanol. Surely you agree that ethanol is terribly damaging, a political payoff to the Midwest that contributes to higher food prices and is tremendously wasteful of water resources (requiring about 3 gallons to produce 1 gallon of ethanol). When the government sets about picking winners it is more apt to attempt to score political points -- such as gaining traction in Iowa -- than actually doing what is the best for the country, if indeed it had the power to accurately prognosticate what source of energy is best.

I have little sympathy for the oil companies losing a tax deduction (yet another reason we should use a flat tax to eliminate all such loopholes and distortions) but I also refuse to grieve for the Senate's inability to pass the energy bill. Seems to me this is an example of doing the right thing for the wrong reasons.

Regards,

Colin

Update: Steve responds: "Thanks for your note. Sorry we don't seem to see eye to eye on this one."