Your Korner Pundit

WSJ M.D.'s OP-ED for Single Payer Health Care

2006-04-18T14:04:00.000-04:00

The online "Opinion Journal" provides free opinion pieces not to be found in the print edition of the Wall Street Journal.

Today's OJ features a piece by a M.D. defending Single Payer Health Care.

It's quite persuasive. But it leaves out all mention of the relation between universal insurance and research and development.

What does that mean? People who don't like health care reforms that uncouple access from ability to pay tend to argue that such reforms would spell the end of America's leadership in producing new technologies. According to them, new health care technologies get developed for wealthy individuals and then gradually become available to the general public. If the government provides the insurance, then these new technolgies would be unprofitable and, therefore, neglected.

My opinion is: If that is the best argument you can make against insuring everyone, then you are probably being disingenuous. Surely we could find some other way to support appropriate R&D. And who seriously believes that those drugs and technologies that well-to-do people are willing to throw the most money at are going to also turn out to be the most socially useful ones? Viagra anyone?

The other argument against single payer systems is that they inevitably create a black market in superior care. Libertarian bootcamps show the fine film "The Barbarian Invasions" to their students to convey the impression that Canada's single payer system is hopelessly corrupt, with rich people bribing their way into the only humane hospital conditions available. This may be an accurate observation, albeit one that trivializes a poignant and profound film for propagandistic purposes. Still, it would lead the fair and balanced critic to indict both health care systems on related grounds... rather than view one as unambiguously better than the other. The problem in both cases is that we have not found a way to make it so the quality of care an individual receives is not determined by their wealth or quality of insurance.

I'm not myself a defender of single payer systems. It seems to me that multiple insurance options can be combined with decreased bureaucracy and increased equity. But this is a very interesting and persuasive op-ed.

Spirit of 76'

2006-04-11T16:52:00.000-04:00

What is up with this drive to save Unocal's "76 Ball"??

http://www.savethe76ball.com/

Monday's WSJ

2006-04-11T14:10:00.000-04:00

If you have not read yesterday's Wall Street Journal, dig it out of the dumpster at 7-11 and check it out. Good stuff:

Frontpage:

(1) Terrorist gangs in Nigeria are communicating with major medial outlets such as the WSJ about future attacks on oil infrastructure. They make demands that the government turn oil resources over to the people, but the Journal suggests connections with illegal oil smugglers who benefit from higher prices when Wall Street reacts to the media's hyping their future attacks . The medial relations guy is called Mr. Gbomo. He apparently sends these threatening messages through computers in South Africa, but they originate in internet cafes in the West Delta region of Nigeria.

So, the $20 U.S. million that our government spends on protecting oil supplies may go up with the price of oil futures and the profits of oil stock.

(2) Computer engineers are taking hammers to their new debit cards out of fear that the new transmitter technology in them (for pay-at-the-pump etc.) will be used to commit identity theft or result in accidentally paying for someone elses gas. The companies say that you would have to get the card within 2 inches of the gas pump for such accidents to occur.

Editorial Page:

(1) Paul Newman defends corporate philanthropy.

(2) Arnold Schwartzenegger lauds hard working immigrants and calls for increased federal emphasis on actual border security issues.

Health Care in Taxachusetts

2006-04-10T00:08:00.000-04:00

In last Friday's Journal, CATO Institute adjunct scholar Arnold Kling criticized Massachusetts' new law that seeks to guarantee and require health insurance for all residents of means. Kling insinuates that the Massachusetts legislature is naive enough to think that it will raise sufficient revenue by fining delinquent employers ($295/year for each uninsured employee) to subsidize the insurance of those who remain uncovered. But, he sagely hypothesizes, in a state where $6000 is the average annual health care expenditure per individual, no insurer will provide coverage that cheap. Consequently, employers will blithely pay the fines while the Massachusetts treasury is be emptied -- Bay State workers magnanimously dumping their tax dollars into insurance company subsidies.

"The only way to make zero-deductible health insurance available at low cost is with a large subsidy; how much will depend on negotiations with insurance companies." Here the CATO scholar shows admirable candor. For it sounds as if he is admitting that there is room for negotiating how much profit insurance companies will make. How will the "gains from trade" be split between the Massachusetts taxpayer and the insurance company shareholder? Will the later have to show a little magnanimity themselves, as they are asked to split the difference with the former?

The point of Kling's editorial, of course, is to suggest that $0 deductible policies make people consume more health care than they would or should. But, to his credit, even here he magnanimously acknowldges that patients are deterred, at least to some extent, by "the time and discomfort involved in getting medical care." It is refreshing to hear someone from these quarters admit that well people are not lining up to get into emergency rooms for the fun of it. I think we all know people who have avoided seeking "free" medical care even when they really needed it because of the unpleasantness, stigma, and lost wages of taking the day off to go to the doctors.

This is a fine editorial. I wish more free market pundits were as magnanimous as Kling.

Author' Note: The word "magnanimous" is used three times in this entry (only once correctly) because of a joking bet on that score into which the author entered.

Civilian Control of the Military/Military Indictment of Civilian Leadrship

2006-04-06T10:42:00.000-04:00

Retired generals Anthony Zinni and Paul Eaton say that Secretary of Defense Donald Rumsfeld should resign. Today’s On Point, a public radio program that airs on Boston’s WBUR and other stations (http://www.onpointradio.org), features an hour-long conversation with Gen. Eaton in which he assesses Rumsfeld’s performance as a dismal failure. A main complaint seems to be that Rumsfeld micromanages tactical issues in the Iraq war that would previously have been left to the discretion of military command. When military brass criticize Pentagon policy, the result is public humiliation and professional retribution. (“In the five years he has presided over the Pentagon, I have seen group-think become dominant.”)

I have no doubt that this Administration is too ignorant and ideologically blinkered to have executed a successful liberation of Iraq. I also have no doubt that the divisions and internal conflicts within the Administration contribute to its practical failures. A need to downplay these failings leads the civilian Administration to unite in blaming the media, which in turn leads military leaders to defend the media against an Administration that has so slighted them.

But we have to be a little wary, do we not, of liberal media programs trumpeting military indictments of our civilian leadership? How do we react, after all, to hawkish military criticisms of Democratic administrations' policy? Normally, liberals’ greater fear is undue military influence on civilian policy. And this is a reasonable fear. I feel that we have to ask ourselves: Are Zinni and Eaton critical of the role of our military industrial complex and its influence on American politics? Or are the On Point crew giving a quick microphone to enemies of the Administration without really thinking about the deeper issues.

The History of Shaming Tax Evaders

2006-04-04T14:05:00.000-04:00

Yesterday's Wall Street Journal tells the story of how the incomes and tax payments of all American individuals became a matter of public record... and then became private information once again.

In 1934, in the turmoil of the Great Depression, Wisconsin Senator Robert LaFollette reasoned that Congress could encourage wealthy tax evaders to fork over their cash by publishing the incomes of all taxpayers and the amount of taxes they paid. Back then, apparently, the media was ready and willing to raise public ire over the tax inequity that is now explored only in law schools and occasional works of investigative journalism such as David Cay Johnston's Perfectly Legal.

Of course, at this time only 7% of Americans paid even filed a tax return. Nonetheless, the economic duress that the population faced was great enough that tax evasion on the part of the rich provoked widespread outrage. Business Week stoked white collar resentment against the shananigans of the depression-era super rich. Robert LaFollette's ammendment to our tax legislation, thus, allowed the wag-of-the-finger to succeed in extracting tax revenues where the men-with-guns (the tax enforcers libertarians love to hate) dared not tread.

But, then as now, the progressive tax policy was undone only with the help of the working class who were its principal beneficiaries. A public relations campaign was organized to convince the populus that their kids could someday be kidnapped (Charles Lindbergh Jr. style) if they risked letting their future tax information be published. It worked, Congress was apparently convinced that, in the words of an Arkansas House member, "the small taxpayer, even more than the large, strenuously protests having his earning paraded before the busybodies in his neighborhood."

Now that most people pay income taxes, I guess the fear that our neighbors will find out our incomes is less irrational. But just because its worth fearing does not mean that we should not care to know, and be able to know, who among us are evading taxes. Admittedly, the Journal article doesn't present any evidence as to just how much more revenue was collected as a result of the law (such evidence would be hard to come by). And it seems entirely possible that people would take more interest in the their neighbors modestly higher incomes, rather than in the tax mechanations of distant elites whose wealth is too mammoth to even be comprehended. Oh, how curious the contours of envy!

Partisanism Muddles the Health Care Debate

2006-04-03T18:00:00.000-04:00

Republicans and Democrats fight over the goals of health care policy, when both parties have legitimate goals that the other should acknowledge. Republicans want to encourage individual control over their health care. Democrats want to make sure that everyone is covered. Why do we have to choose between these two goals, especially when both sides agree that costs are out of control?

True, the two parties generally disagree on certain matters of fact and have somewhat different priorities. Republicans blame regulation for high costs, while at least some Democrats blame high costs on unnecessarily high profits. Democrats are often willing to sacrifice supposed innovation in order to lower costs and equalize access to care, while Republicans tend to justify high costs (those not attributable to regulation) as necessary to insure the optimal development of new technologies that keep American health care moving forward.

There are some factual issues that separate the parties, albeit factual issues that contain major evaluative components. Nonetheless, there is no good reason why we cannot acknowledge that (a) greater individual responsibility and a better informed medical consumer can lower costs, while also acknowledging that (b) drug companies and insurers can afford to take less profits, and (c) that covering everyone even the chronically ill should be a priority for which everyone, especially the most well off, should be ready to pay.

The discussion in today's Journal illustrates the sad state of partisan debate on health care. The Bush administration and its National Economic Counselor Allan Hubbard are pushing hospitals to be more forthcoming to patients about the prices of treatment. They repeat the standard Republican line: Consumers aren't taking responsiblity for their care and you can see this in the fact that they don't put any pressure on hospitals (and insureres) to disclose what patients (and insurers) are paying for care. We think of health care as free, therefore we take no responsiblity... blah, blah, blah.

Against all of which Ira Magaziner says that health care will never be like other markets: "the younger and healthy are the ones who benefit. That's not the way to run a society."

So Mr. Magaziner knows what age group votes. Good for him. But what would be wrong with the Democrats saying: "Sure, we want more informed consumers who can choose covererage wisely and to some extent evaluate what degree of treatment is necessary. BUT, we also want those who could not afford insurance to get coverage and that is going to have to come from the profits of drug companies and the taxes of the well-to-do."

And what can't the Republicans say: "Yeah, we were right when we said that the government should not control what kinds of health insurance you can have. But we admit that the insurance market on its own could never provide cheap and good enough covereage to everyone... even if it would provide a more attractive and efficient menu of plans in the absence of regulation. After all, some employees' services simply are worth much more money than others and, therefore, their employers are willing to pay more for their care."

That would be nice!

Instead our President is limiting his advisors to considering what changes can be accomplished "without legislation." According to his advisor Allan Hubbard, Bush said that he'd "rather not use the crude tool of federal law" to make hospitals and insureres disclose pricing information. But even if federal law is a "crude tool", the Administration's response does not address the question of question of how far making price information available would go toward using health care resources more efficiently.

The Journal does, however, quote an executive from (insurer) Aetna saying that price disclosures would not do much to reduce costs accross the board. But that very executive suggests that some insurers are paying health care providers widely varying amounts for the same services. The industry itself is acknowledging that there is considerable price discrimination in the current market.

It seems that industry is willing to acknowledge market failures and our executive is willing to cast aspersions upon Congressional legislative competence. Perhaps its time to rethink the roles of government and industry in the provision of health care

Blogging the Business Press Pay Sites

2006-03-31T09:41:00.000-05:00

Your Korner Pundit thinks that business media are undercovered in the blogospere. The political side of business news is covered very well in The Wall Street Journal and other media. But these sources are often unavailable online to those without paid subscriptions.
(The Wall Street Journal has started to make more content available for free online. See: http://online.wsj.com/public/page/other_wsj_sites.html AND
http://news.com.com/Extra+Wall+Street+Journal+gives+away+Web+content/2100-1025_3-5423054.html (reporting on this change in WSJ policy).

In our continued attempt to get the business politics blogosphere out of the red, we will resume our opinionated commentary on important developments in business news that are not available for free elsewhere.

Does that depend on what your definition of "raise" is?

2005-02-18T09:34:00.000-05:00

Remember when W.J. Clinton was accused of semantical dodging during the Lewinsky affair? Today the shoe is on the Republican foot once again, as Bush's promise not to raise payroll taxes comes up for redefinition. "Raise", we now learn, only means raising the 12.4% tax rate. Bush never meant to promise, we now learn, not to raise the cap on how much income is subject to the tax. Currently that's at around $90,000, but the White House is set to consider bumping that up to $150,000.

All of which "raises" the interesting question: How should a tax progressive feel about an additional 12.4% effective tax on (individual or family) income from $90,000 - $150,000? To my mind at least, it depends a lot on the particular taxpayer we're talking about. There are probably very few single childless adults in America who cannot afford to pay out that additional money. (Not to say that they are the absolute best people to tap for extra revenue.) But when you start thinking about families, especially ones in urban centers where prices are higher, you really have to be concerned that the increase will sting.

Say we can't tailor the law to exempt more vulnerable taxpayers from the additional hit. Then I think we have to ask ourselves why we cannot find another group of taxpayers more able to cough up the cash to keep social security solvent (taking for granted that goal).

Aside from a powerful norm against debating about who can best afford to pay more taxes, there are two reasons why we're NOT asking ourselves that question:

(1) In its original Democratic incarnation social security was meant to be a forced retirement savings plan for individuals, not a progressively redistributive program. That's right everybody, FDR was a liberal individualist NOT a social democrat! And Democrats today certainly don't have the gumption to demand saving social security in a way that would turn it into a social welfare enhancing program rather than just an inefficient social insurance scheme.

(2)Bush's plan is not about "saving" social security; its about getting funds out of government bonds and into investments with higher returns. As everybody knows, the federal government is up to its eyeballs in debt already. And we could always just borrow more money to pay for our retirees in 2042 or whenever social security goes "bankrupt". Unless our creditors for some reason are only willing to lend us money to by weapons systems, saving social security does not REQUIRE any more budgetary discipline than does "saving" the defense expenditures that currently make up half the budget.

Personally, I can accept point (2). I'm all in favor of getting social security money into more lucrative investments! Doing so, however, will necessarily require that the government be prepared to bail out those with low incomes who's investments happen to go south (as statistically unlikely as that is with a sufficiently long investment horizon). That means point (1) has to go.

And this is merely one consideration that shows why point (1) -- the idea that social security is an individualistic savings program -- has to be given up! That vision never made sense in the first place, since it requires perpetuating the noble lies (a) that benefits are equal to individual contributions and their return and (b) that social security revenues are being held in trust rather than spent by Congress. These lies are more harmful to democracy than Democrats are willing to admit.

Social security can and should be a means of salvaging and expanding asset ownership for the middle and lower classes, of reversing the current trend toward the polarization of haves and have nots. But some redistribution will necessarily be required as a means to that social good. Time for Democrats (or just maybe Republicans) to get the message right.

How do taxpayers like me subsidize Wal-Mart? Let me count the ways.

2004-12-16T11:59:00.000-05:00

Or rather let the New York Times Review of Books count them, as it did in the December 16th issue (page 80-something):

For each 200 employee store, the government (yearly) pays out $108,000 in child health care costs, $125,000 in tax credits and deductions for low income families, and $42,000 in housing assistance. The total (including other things) comes to an average of $420,000/year. This is $2,103 per Wal-Mart employee... a total of $2.5 billion for 1.2 million employees.

So, what do various ideologies make of this?

Right-libertarian: It's not my fault that the government isn't willing to let these people go without housing or health insurance for their kids.

Left-libertarian: If the government didn't provide these benefits, then the labor market would surely make up for it delivering higher wages.

"Liberal": We could just pay these people more, but then they'd spend it on booze or fancy hub caps and their kids would starve anyway.

Conservative: We've got to encourage thrift and promote American business. Hard working Wal-Marters will pull themselves up by their bootstraps and rise to management positions. (Unless they're women, in which case they should be at home with their kids. What, they can't make enough on one income? Must be the fancy hub caps... or maybe booze.)

Socialist: If the government ran Wal-Mart, then it'd really work great. Prices would stay low. Employees would be treated well. Women would be promoted to management positions. Swing, swing, swing!

Investigating Public Companies

2004-12-15T11:29:00.000-05:00

A little over a month ago the Wall Street Journal reported on a Chinese official who's kickbacks under the U.N. oil-for-food program in Iraq may have involved illicit contacts with the Chinese weapons industry. Today we can read (A3) about the SEC's investigation of U.S. companies (Tyco International, Wyeth, and El Paso among others) who also participated in the program. Under the Foreign Corrupt Practices Act, the U.S. government can request information from publicly traded companies, without specifically targeting that company for investigation or alleging wrongdoing.

Issues broadly to do with (a) freedom of information from large for-profit bureaucracies and (b) the proper relationship between government and large public corporations and so complicated and multifarious that it is little wonder that they get little attention and are not at all understood by the public. Should I be surprised that the U.S. government has to request information from these companies about what they traded with Iraq and how? Would I have been naive to have assumed that there would be automatic public oversight and corresponding info gathering, in a trade program that was specifically engineered by the U.S. (with the U.N.)? Does the Chinese government know considerably more about what business Chinese companies do with non-nationals? Should I be more worried about my government's knowing or not knowing?

The Journal tells us little about what info the U.N. collected and what provisions existed for Security Council members to access the records. What it does point out, however, is how small U.S. trade with Iraq ($240 million in goods supplied) under the program was compared to trade between Iraq and Russia ($3.32 billion) and France ($2.91 billion).

Lord of the Rings abuse

2004-12-14T11:38:00.000-05:00

This guy from the National Review should be ashamed of himself for using Tolkein to excoriate Europe for not sounding the alarm against growing Jihadism. Quite apart from the validity of the point he's trying to make, this sort of thing makes it perfectly clear why Tolkein inveighed against the suggestion that his work was any kind of historical allegory.

This comes from someone who's always been suspicious of the claim that Lord of the Rings takes up no historical themes. I do think that it is broadly about modernity and the human condition in it. But parallels on the level Hanson makes are highly distasteful.

Judicial Quote of the Week

2004-12-13T10:39:00.000-05:00

By Vice Chancellor Leo Strine Jr. of the Delaware Court of Chancery, regarding the poison pill that prevents Oracle Corp. from taking over PeopleSoft Inc.:

"I'm going to pull the pill, so long as their is effective participation by the Sunni community in the upcoming Iraqi elections. That's my ruling."

That Judge Strine is one HI-larious man! Seriously, I do think that's pretty funny.

Here's some background, not that you need it to appreciate the joke:

Oracle is trying to takeover PeopleSoft. In the old days before the 1980s a company would do that by getting a majority of the shares (a "takeover"). But then some lawyers invented this thing called the poison pill to protect "incumbent" management from hostile takeovers, even if some other company does get a majority of shares. I.e. PeopleSoft's management makes a poison pill, so that Oracle can't get 51% of shares and elect their own board of directors who would, in turn, put in Oracle's preferred management. The way the poison pill works is by issuing additional shares to all of the minority shareholders whenever someone or some corporation (in this case Oracle) gets a certain percentage of the total shares. For example, say that there were 1 million shares of PeopleSoft Stock. The poison pill is a clause in the shareholders' contract that says, roughly, "if anyone buys up, 51% of the shares of PeopleSoft, then any other stockholder who's not party to that block will automatically be issued an additional 1/3 share for each share they own." So when Oracle gets 51%, or 510,000 shares, suddenly the total number of shares becomes not 1 million but rather 1,166,666 and they're still a minority shareholder. This way no one can get a majority of shares.

The poison pill was so effective, that in the 1990s people who wanted to do hostile takeovers had to find a new strategy. So what they did was start what's called a "proxy fight" at the same time that they are making a so-called tender offer to accumulate a controlling stake. A proxy fight is when certain shareholders try to convince their fellow shareholders to vote for a board of directors other than the one management wants. Usually shareholders pay no attention to the elections that choose boards of directors for the companies in which they hold shares. The management sends them a little card that says: "Please let us cast your votes at the shareholders meeting, since we know you wont' be attending." Hence the term proxy voting. Thus, a proxy fight is when someone other than management sends out their own card saying: "Management sucks. Our directors would hire management that would make your shares much more valuable. So let us do your voting for you. "

The idea of doing a proxy fight together with a tender offer is that the new board can be elected even without someone actually owning a majority of the shares. Then once the new board is elected, it can remove the poison pill provisions in the stockholders contracts and, then, allow the takeover to proceed.

The thing is that, ever resourceful, management lawyers came up with a way to prevent this too. They wrote poison pill language in shareholder contracts that said "only this particular board of directors can 'pull the pill'". This innovation was called the "dead-hand pill". It was deemed illegal (at least sort of) by the Delaware Chancery Court.

The Delaware Chancery is the court that makes virtually all of the important corporate law decisions in the U.S., reason being that most major corporations are incorporated in Delaware. The reasons for that are disputed and historically intricate. But some people think that the SEC might eventually pre-empt Delaware's role here or that the Chancery is already taking cues from the federal government about what to do in these cases. Anyway, for now the Delaware Chancery is head honcho on mergers and acquisitions law and they have been trying to decide what to do about poison pills for years.

So this dude Strine is trying to make up his mind about whether to let PeopleSoft's management keep their poison pill in place, thus averting a takeover by Oracle. The decision, when it comes down, is going to be the next big thing in M&A law, the kind of stuff that law students will be studying for the next ten years. At least maybe.

You consume like a European, wussie!

2004-12-13T09:45:00.000-05:00

Front page news in last Friday’s Journal:

"Behind Slow Growth in Europe: Citizens’ Tight Grip on Wallets"

Hence, the hottest new insult of the U.S. holiday season:

“Ho ho ho! Economic girlie man, you consume like a European.” This refrain must, of course, be quipped in a virtually incomprehensible Arnold Austrian Accent.

The Journal blames (1) labor-friendly laws mandating early closing times,
(2) regulations to make the value-added tax administrable, (3) a living-within-our-means ethic, and (4) fears about the future insolvency of public pension funds for the positively unmanly state of Europe’s consumer outlays.

The E.U. would like to help Europeans consume more. The European Commission "has pushed unsuccessfully since 2001 for a liberalization of laws on sales promotion, to cut through national rules than inhibit cross-border competition." But national governments have not allowed any proposal to become pan-European law. Jean-Claude Trichet, head of the European Central Bank, said to the workers of Europe in a recent press conference:

"It is time for you to consume." But yet the stubborn Europeans refuse to put down the ciZash!

Some statistics: Europeans are spending more money all of the time, 1.2% more this year than last according to the OECD. But American consumers laid out 3.6% more this year than last. Americans save 0.8% of their disposable income, while Europeans save 10.5%. The "average American" spends $5500 a year with a credit card, while the average German spends $64. Europeans have only .27 credit cards per person, while Americans have 2.23 per person. (Personally, I have .75 credit cards, placing me considerably closer to the Europeans in this regard.)

By far the most interesting part of the article concerns the European laws that supposedly prevent the development of healthy shopping habits. "Europeans...elect governments that protect them from long, irregular work hours. Regulators have limited price competition between stores to stop out-of-town malls from wiping out the small shops that enrich the character of Europeans cities." Unions threatened to strike over extended work days and the self-employed supported them since, as a small-business minister put it, "there is no more social life for the self-employed if they have to open 24 hours a day to compete."

More subtly, VAT administration prevents retailers from drawing in customers with deep discounts on slow-moving items. All sales are taxed as if they were marked-up 50% above the retailer's purchase price.

It is an interesting question how much of the difference between the E.U. and U.S. can be explained in terms of tax policy and other regulations. (The Euro-phobic Bush administration is, after all, contemplating a massive consumption tax.) On the other hand, how much of it reflects thrift, fear of debt, or other cultural factors? The Journal would like to suggest that cultural and policy considerations link up, in that Europeans save because they do not trust the solvency of their pension systems and fear than they will have to provide for themselves in their old age. Is this fear more realistic in Europe than in the U.S.?

The Power of Retail

2004-12-09T15:48:00.000-05:00

Which of these articles from todays Wall Street Journal, page B-2, is more significant?

(1) Remember when CIA operative Valerie Plame's identity got leaked to the press via Bob Novak, creating a small scandal for the Administration and throwing dirt in the eyes of the CIA? Two other reporters are in a lawsuit against a federal special prosecutor over the question of whether the press has the right to keep confidential the "two administration officials" who leaked the information (i.e. by not testifying before a grand jury). At stake is press confidentiality and the public access to information it purportedly supplies.

or...

(2) British retailer Tesco, following in the footsteps of Wal-Mart is seeking to clean-up "Lad Mags" like Maxim, Nuts, Loaded, and Zoo. Whereas Wal-Mart just stopped selling the offending mags, Tesco is pressuring them to modify covers, making them less racy so as not to offend customers. Publishers have changed the wording of headlines and removed photos to appease the retailers. For their part, Tesco claims that it is attempting to "balance the interests of our customers and suppliers." Customers at Wal-Mart and Tesco, reportedly, complain that the racy magazines are offensive. Wal-Mart restricts its policy to U.S. not U.K. stores, while Tesco takes issue primarily with U.K. publishers, whose revenues -- incidentally -- come mostly from sales rather than advertisements.

If (2) were only about mens magazines, I would say that (1) is a bigger deal. While there are definitely disadvantages to source confidentiality and journalistic norms may encourage over-reliance on it, it does seem to be essential and legitimate for many occassions. Therefore, threats to it deserve to be taken very seriously.

But I think that what's at stake in story (2) is really considerably broader than racy photos on mens magazines. I have often been struck by the limited range of media available at Wal-Mart. If the existence of such chains is reducing people's exposure to bookstores, where wider ranges of materials are marketed, I think that we need be concerned about this limited range.

This point assumes, of course, that consumers choice of print media is effected by where and how it is marketed (and not only the reverse). Many, under the influence of free-market ideology, would deny this with knees-jerking. But the question should be readily answerable through experimentation and it seems quite important.

What evidence there is suggests that marketing influences choice. Publishers know that getting a book marketed at Wal-Mart will increase sales almost exponentially. Anecdotal evidence suggests that publishers classify books in two categories: (a) Wal-Mart material and (b) everything else. The expected profitability of class (a) books is... in a class by itself.

What gets marketed at Wal-Mart? In a Columbus Wal-Mart, I recently found no Time Magazine, no Atlantic Monthly, and no heady bestsellers. What they did have was an issue of U.S. News and World Report devoted entirely to The Divinci Code and some novels based on Revelation eschatology about which I had read a Nick Kristoff column in the Dispatch.

Is the kind of customer who buys magazines at Wal-Mart really such a clear type, a one-sided reader of home furnishing magaizines and low-brow Christian fare? I doubt it. However, I guess it could be that Wal-Mart's media marketing department is hiring the customers who complain about cleavage.

Tax blogging

2004-11-18T15:02:00.000-05:00

It's good to see Kevin and Matt blogging about tax policy. When I read Lean Left calling for a reduction in FICA taxes I said to myself: Allright, I'm not the only one! Of course, I've called for getting rid of payroll taxes (read FICA taxes) altogether -- which may be a frivolous suggestion. But luckily there are cooler heads out there.

The question with reducing FICA taxes is how to explain to the public that Social Security can be funded partly out of income tax revenue (I know Kevin does not call for that). That would necessarily involve an apology by the government for the inexcusable fact that the "surplus" is currently funding programs other than Social Security and Medicare.

For a rebuttal of more common arguments against ridding ourselves of payroll taxes, please have a look at my "Defenses of the payroll tax rejected".

Also check out my judicious critique of the s0-called "Fair Tax Act" and consumption tax proposals.

Kmart and Sears sitting in a tree...

2004-11-18T13:50:00.000-05:00

So, yes. Kmart is buying Sears. Or, rather, one investment manager (Mr. Edward Lampert), whose hedge fund bought Kmart out of bankrupcy and who owns the largest share in Sears, is merging the two companies. The big plan is to start moving Sears out of the so-20th Century mall setting and into big-boxes. I'm inspired!

You might think that this merger would create some kind of anti-trust issues. Nope. The FTC is looking into it but probably won't do anything. Why? One word: Wal-Mart. If there is a big enough competitor, in market-share terms, then it seems that mergers of competitors are not so suspect. I guess this is on the theory that oligopoly is better than monopoly.

And, of course, the idea that our anti-trust law requires breaking up Wal-mart... "in-con-ceiv-able" in the Princess Bride sense of the word. Totally impossible?

In corporations class in law school, we were all told that ownership of American companies is very diffuse. Bill Gates, who owns some tiny fraction of Microsoft, is supposed to be a notable exception. That's the line.

Of course, our professors were aware of pension fund holdings and the like. But they still downplay the increasing move toward financial blockholding. These days, it seems like hedge funds and similar investment vehicles are becoming increasingly popular ways of holding controlling stakes that can result in major realignments like this. Could this merger have taken place, we have to wonder, if both companies had not been strategically purchased with investment funds ahead of time?

My buddy Micah was blogging today about how the Montana governer's winning rhetoric about "small businesses" and "independence" could be the buzzwords for rejuvenating the Democrats. To me that would be heading in the wrong direction. We have to confront the truth about how our economy is composed and in what direction its moving.

Why blog about the Wall Street Journal everyday?

2004-11-16T16:40:00.000-05:00

Some people ask me why I blog about the WSJ everyday. So, here's the answer:

I think that the WSJ is way underread and underblogged. My pal Chris suggested that this is because it cannot be read for free online. That's obviously a big part of it.

But I also think that news about businesses and the economy (generally) is not as widely discussed in the blogosphere as it should be. Lots of the financial press is pay-only on the web, but plenty of sources are available. Maybe this is just a function of the recent election, but it seems to me that politics and Iraq are vastly overdiscussed compared to economic issues. So I want to remedy that with my blog.

Also, these are my interests: corporate goverance, pension reform, etc.

Who's guaranteeing private pension benefits? You and me brother!

2004-11-16T09:48:00.000-05:00

Last week (11/9) I referrenced an article from The Economist describing the shocking state of private pension funds in the U.S. As if to confirm this judgement, the Pension Benefit Guarantee Corp released figures yesterday showing that estimates of its long-term deficit morye than doubled from 2003 to 2004. U.S. companies have saved over $23 billion less for their employees than they are obligated to by contract and/or federal statute. (I don't know how much exactly. The PBGC projected deficit is $23 billion, so it has to be more than that. Probably lots more.)

So, what's our solution to this going to be? Are these companies going to have to pony up cash or assets in the value of $23 billion to pay for their employees' retirements? Hardly.

House and Senate Republicans issued statements calling for legislation focused on pushing companies with weak plans to beef them up. The PBGC could also make it more difficult for companies to shed their obligations in bankrupcy. But Rep. George Miller (D., CA) said the PBGC could eventually require "an S&L-style taxpayer bailout of the agency." (WSJ 11/16 A2)

The Journal says that such a bailout would be politically difficult because "only about one-fifth of U.S. workers are currently covered by defined-benefit plans" such as those at issue here are. But something tells me that this "political difficulty" will prove much less imposing than the "political difficulty" of getting American companies to come forward and meet their obligations. As always, ruinous competition (foreign and domestic) will be cited as an excuse (a hollow one by the standards of most economists) for industry "protection".

Today's Journal also covers the bankrupcy of United Airlines, in which employees are expected to have to give up more health and pension benefits.

Balancing this out, the "Money and Investing Section" discusses General Motors' revaluations of its profits-per-share in the face of evidence about what its pension will demand in the future. The need to keep on-the-book profits high is, of course, part of what pressures management and its consultants to constantly underestimate pension obligations, GM stepping forward to lower profit expectations is thus an exemplery exception to this general trend. This shows that it is possible, at least for an established company, to be relatively honest about its earnings and still remain competitive!

I'm perhaps not saavy enough to understand all that is at issue here. But it seems to me management has more discretion about and bears more responsibility for these shortfalls than is acknowledged. The standard line is that there is a pure conflict of interest between employees and shareholders with respect to how pensions are provided for. That realy holds, however, only if we assume that share value perfectly reflects the amount of profit that shareholders can cash out. But, as I understand it, hardly any major companies regularly distributed all of their profit in the form of dividends. So if share values reflect anything real that something must be very long-term expectations as to distributions or else be some real value measure divorced entirely from expectations about dividend payouts.

But if pension payouts are not money that is going to be going to shareholders anytime in the foreseeable future, then how can management justify its claims that it needs to keep pension obligations off the books? The mere fact that pension obligations are balance sheet outflows that make the company seem less profitable is, frankly, a pathetic excuse for screwing one's employees!

It would seem to matter whether these retained earnings are actually invested in the company or in outside capital assets, e.g. stocks and bonds, that could just as well be part of the employee pension funds. It would seem to matter what the norms about providing dividends to shareholders are. Lots of things would seem to be relevant. But none of these things are addressed by corporate management in justifying their choices regarding pension accounting. Seemingly management does not feel that it has to provide much of a justification. Harsh competition in this capitalist economy seems to provide them with as much of an excuse as they need.

But, I for one think that we should not let them off so easily. After all, we're all going to be paying out big money in taxes to ease the supposed consequences of this competition for our beloved corporations.

Two Quick Notes

2004-11-12T13:55:00.000-05:00

There are two WSJ articles to which everyone's attention should be called, one from yesterday (11/11) and one from today (11/12).

(1) Yesterday's is about European defense contractors breaking into the U.S. military contracts market. Apparently civilian and military aerospace are growing ever closer in the sense that the same companies increasingly cater to both. This has been the leading edge for European firms, mostly British but increasingly other countries' as well, to get a piece of our military-industrial complex.

Consider: Would a Euro-U.S. military industrial complex make our country look more like (a hypothetical) one in which Europeans were allowed to vote in our elections (in addition to involving themselves in the campaign, which many Europeans already did, to dubious effect, in 2004)? I suspect that the answer is, quite tellingly, that "No it would not."

(2) Today's article is on the divisions among members of the SEC. Bill Donaldson, whose appointment followed a somewhat disgraced resignation in the wake of Enron, has upped SEC fines in 2004 by a not staggering 17%. He is considering stepping down in the wake of criticisms that he's trashing companies balance sheets. (The WSJ, of course, says that SEC fines this year "soared" by 17%. But that is merely a function the well-known fact that on Wall Street everything either soars or plungest, nothing less!)

You might think that Donaldson's critics on the Commission would mostly be conservative business types, but this is not entirely so. At least one of those who is arguing for lower fines against companies supports the fairly radical measure of imposing fines on individual members of management. This would provide more deterrence because it would prevent the company from spreading the fine among shareholders. It also responds to the sound criticisms that company-fines do not even hit the same group of shareholders that owned at the time of the malfeasance and hurt balance sheets to everyone's detriment.

Unfortunately (or maybe not), imposing liability on individual members of management would require substantial increases in court/agency scrutiny of the inner workings of companies. Also, we might ask, if we are going that far, then why not impose jail sentences, which the conventional wisdom deems much more threatening to white-collar miscreants.

Does the War On Terror Help Arab Gulf Stock Markets?

2004-11-11T08:33:00.001-05:00

To explain why Arab magnates are currently investing in national stock markets rather than Europe or the U.S. today's Journal (C17) hypothesizes that:

"Recent economic overhauls by governments in the Gulf make it somewhat easier for companies to tap stock markets and private investors for capital, offering local investment opportunities.

There is also a helpful confluence of events in a region with a growing appetite for Islam-compliant investments and concerns in the post-Sept. 11 world that Arab money invested in the U.S. could be frozen and confiscated."

It is uncertain whether stronger equity markets will prove integrel to fostering economic growth in the Gulf States. But petrochemical companies, cell phone makers, and banks are all among the firms enjoying stock investment of roughly 2.5 times what it was in 2003.

Why Lawyers Suck (pour le trente-deuxiemme fois)!

2004-11-10T11:29:00.001-05:00

Imagine that you had retired some years ago and were sitting around your house minding your own business, maybe going to the doctor's every once in a while. One day comes knocking at your door a sherriff with a subpoena, saying you've been sued by the company that you worked for for 32 years. It's a class action against you and some of your old co-workers who just so happened all to have belonged to the union while you were working there.

--"Why are they suing us?" you ask incredulously.

--"Well," says sherriff, "Looks to me like they think that they don't have to pay for your health care anymore, or at least not so much as they had been."

--"Bastardos!" you reply indignantly. "They have been cutting my coverage incrementally for fifteen years now. Copper prices aren't what they used to be. Health care costs are rising. Blah. Blah. Blah..."

"Hey, wait a minute officer! Did you say that they are suing me? Wha-tha-fa!!"

--"That's right Mr. Codger. You and your wife Crone are going to have to hire yourselves a lawyer and get your old asses out to Minnisota (that's in the 8th Circuit, I read) to defend yourself in District Court."

"Why's that, you ask. Well, I read in the Wall Street Journal that courts in some parts of the country are more likely to side with the employers in these kinds of health care cases. So , your company wanted to make sure that it chose what forum the case would be heard in. They couldn't very well just stop paying for your heart medicine and then wait for you to sue them. Oh no, cause then you'd get to go to the court in your own town and the judge would not be bound by precedent to hold in their favor. Clever buggers, eh?"

--"Oh, so you're planning to move to Canada too I see sherriff. Can't say I blame you at the moment. When you were reading the Journal did you happen to catch what kind of rationale they were using to justify why they don't have to pay for our health care anymore?"

--"Oh yeah. And its a humdinger of a legal argument too. I bet they got a whole pack of Harvard Law grads working 120 hour weeks dreaming this up! You know how your contract said that the company would pay for all your healthcare during the "lifetime". Well, turns out they could have stopped paying for it the moment you walked out the door. Cause, according to their lawyers, "lifetime" refers NOT to your lifetime Mr. Codger. Oh no, it refers to the "lifetime" of your contract."

"If that ain't the greatest piece of legal handiwork since the "poison pill", then -- Codger -- I'd have to say I don't know what is!"

-- "F*** them! I'm calling up my union lawyer right now. I'll get it thrown out of court before you can say 'Obama Edwards 2008.'

-- "Hate to dissappoint you. (My job's to arrest you.) But the unions seem to be saying that they no longer represent you now that you're retired. Lord knows what "lifetime" means to them."

--"Well bless my civil action. Looks I'm up the proverbial crick."

--"Yup. "

Public Pension Funds Demand Outside Auditing of Oil Reserves / Private Pension Funds Need Audited (full-stop).

2004-11-09T11:23:00.000-05:00

Two of the biggest policy topics in corporate law scholarship right now are (1) should the SEC play more of a role in creating corporate law (pre-empting Delaware mostly) and (2) can pension funds like Calpers play an oversight role in corporate governance? These two issues flow together in one of the most significant corporate governance controversies in the last three years (three years that have been positively full of corporate governance controversies!).

The WSJ reports today, November 9, that Calpers responded to dubious oil company estimates of reserves by demanding that they hire outside auditors to get more accurate numbers. Royal Dutch Shell and El Paso Corp both published reserves-accounting statements this year that were so incredible that the SEC is considering (so he Journal) “whether auditors should be required to provide more oversight of reserves estimates.”

Today Calpers and Knight Vinke Asset Management are issuing a statement praising the governance changes that Shell made in response to the scandal. But they still call on Shell to submit to external audits to set an example for the industry. BP and Exxon also oppose outside audits.

Maybe it is time for the SEC to act. (But don't hold your breath.)

With regard to private pension fund accounting, it is definitely time for someone to act! Last week’s Economist, in an article entitled “Time to end a scandal”, asserts that “literally billions of dollars have been conjured onto firms’ balance sheets and profit and loss accounts in recent years.” Managers of defined-benefit funds (or, rather, their toady accountants and lawyers) are making outrageous assessments of by how much those funds revenues will grow in the future, simultaneously covering-up deficits in their pension funds and exaggerating the firms profitability.

The SEC is poised to (maybe, possibly) look into how big firms are accounting for their pension funds. I am not holding my breath. The U.S. Government, after all, already created a whole agency, The Pension Benefit Guarantee Corporation, to bail out companies who fail to retain sufficient revenues to pay their workers’ pensions.

Incidentally, this is not an American problem only. Firms in virtually all major countries draw the Economists’ suspicion. Britain, for example, is planning an equivalent of the Pension Benefit Guarantee Corporation.

Bad Consumers, No Returning Your Computer!

2004-11-08T11:19:00.000-05:00

Monday’s lead story in the WSJ has Brad Anderson, CEO of Best Buy, discussing his plan to discourage certain unprofitable customers from coming to his stores. The article cites a long lists of grievances against these "devil" shoppers: They return their purchases after already having received a cash rebate. They return purchases and then buy them back at returned-merchandise discounts. They demand that Best Buy meet rock-bottom prices from the web, then resell their purchases on eBay.

Of course, Anderson does not have in mind to bar the store doors to these troublemakers. But he does plan to turn them back more tactfully. Best Buy stores will stop offering deep discounts and to charge a 15% restocking fee for returned merchandise. It is also terminating business relations with websites like FatWallet.com which, in addition to referring customers, provided forums where customers discussed how to get the best deal.

Meanwhile, Best Buy will keep shoveling funds into expensive displays that flatter and delight high-end purchasers of cutting-edge items. From now on the "angelic" 20% of customers who account for the bulk of the firm’s profits will be the focus. Sounds like it’s time for Best Buy to change its name!

Apparently, business schools teach students to look for the up to 20% of customers that are not profitable and to find ways to dump them. Readers may have one of two reactions to this info: Either they’ll think that it shows the folly of B-school book learning and predict that Best Buy will suffer the fate that awaits all in the marketplace who fail to serve their customers needs. Or else they’ll say "More power to Best Buy! Their job is to make a profit, not to get consumer electronics in as many hands as possible providing as much satisfaction as possible."

Making profit is a fine thing. But we praise the profit motive as a benign systemic feature just because it supposedly promotes the well-being of the broadest swath of individuals. Being able to purchase discount electronics undoubtedly contributes to many, many peoples well-being, criticisms of "consumerism" notwithstanding. Best Buy seems, on the face of it, to be letting us down. If they are, it would be right to count that as evidence against the profit-motive, rather than simply dismissing the evidence as not fitting out "profit makes the world go round" theory.

But the market apologists’ response may be convincing, if their knees don’t jerk to hard. It may be, as the article suggests, there is now little money to be made in retail’s "unprofitable middle" – the market segment that used to be served by now-foundering firms like Toys R’ Us. This could simply result from Internet auctions and other devices that are catering to cheap customers more efficiently than Best Buy could. If so, then fine right? Is there any reason why we need to get our cheap electronics from a superstore when we can buy them on line just as well? Not in my opinion.

So, it seems to boil down to whether there is going to be a low-end segment of consumers that are going to get cut out of the electronics market entirely. (And of course, whether possible gains to shareholders would outweigh that cost.)

Will Hollywood Eliminate File Sharing Where the Record Industry Failed?

2004-11-07T11:17:00.000-05:00

The Wall Street Journal thinks so, according to the lead article in Friday’s “Marketplace” section. If you’d believe the Journal, music file sharers had a tangible grievance, high CD prices and unavailable CD-singles, against the record industry. But they have none against the film industry. Moreover, the Journal’s source (BigChampagne LLC) proposes some people may not have known that music file sharing was illegal. But they certainly do now. These two reasons serve to justify what will purportedly be a successful crack down on movie pirates.

Why successful? New technologies are making it easier to pirate movies, but movie pirating can still be nipped in the bud, says the WSJ. Movie pirating suits will be more successful because they are cropping up before movie file sharing becomes totally convenient. In spite of new technologies, including those that facilitate direct computer-to-TV playback, movie downloading “still represents less than 2% of all online file sharing.”

The suggestion that the campaign to stifle movie sharing will succeed prompts the question: Did music file-sharing lawsuits fail, the conversion of Napster to a for-profit company notwithstanding? 6% growth in CD sales this year would seem to suggest not. But the Journal claims that “falling CD prices and more appealing offerings from the labels were big drivers too.” The subtext: the outcome of the music-sharing clash was a functional compromise, in which music fans got easier access to single and lower LP prices while leaving the record industry in business.

I do not know how much music file sharing has been reduced. The Journal does not say. But I do question whether the outcome was really the product of a functional compromise, like WSJ suggests. Of course, what that even means is controversial and the concept of functionality may not even be applicable in any given case.

More important, as with the musical case, is the question of whether it would be a good thing for major-label recording to become less profitable. Here the two cases are a striking contrast. According to my personal taste and estimation, most of the artists who felt seriously dicked-over by file sharing were mediocre and would not have survived without record industry hype. Secondly, an artists’ complaint seems better lodged with the record companies themselves, who profit disproportionately (and, thus presumably, with less social benefit) from whatever creativity said artist may bestow on the listening public.

File sharers may have more cash than people who have to buy CDs because they can’t avoid computers. (This distributive issue is rarely raised, perhaps because it is not implicated in the policy disputes.) But they certainly have a lot less resources than the parasitic record company management/shareholders/lawyers/accountants etc. that extracts huge profits/salaries from the mass sale of a low-cost medium such as the CD -- while passing precious little on the artists. So like I said: Metallica, go after your label and their shareholders!

Now, let’s take the case of movies. The production costs of big-budget pictures are ipso facto I happen to like a lot of big-budget movies and would not want to see them be reduced to non-profitability because they are being pirated. On the other hand, the movie theatre experience is not likely one for which people are going to substitute pirated-copy home viewing. In other words, people like going to the cinema and will (I believe) continue to do so even if pirating movies becomes very easy. So we should still have big-budget Hollywood pictures, even if pirating were to persist, so long as we can enforce a ban on displaying pirated copies at Loews, Odeon, and the like. Surely, that will not be a problem.

Where to go from here? What's next for YKP.

2004-11-07T11:15:00.000-05:00

After what was to me a disappointing election, I felt unsure about how to continue my blog.

Yet, dispite my deep exasperation with where we seem to be headed, I'm not ready to give up yet. And, like many bloggers, I want to raise the standard of political discourse. So, to illustrate my notion of the ideal blog, I intend to make a daily entry about what I think is most important in a single newspaper for that day, with the aim of drawing any attention I can to the value of perusing a single, high-quality news source.

Because I think that the Wall Street Journal is the paper most under-read by would-be pundits, I will blog about what I find most worthwhile in each day’s Journal. The financial press generally includes issues that are overlooked by too many pundits. I think the reason is, basically, that business news is taken by many to be non-political. This is a grave mistake because business is perhaps of the most important parts of politics, as we see once we give up the private/public dichotomy that has ransacked our liberal discourse.

So today, Sunday, November 07, 2004, I will discuss the lead headline in Friday’s “Marketplace” section, entitled “Film Industry Vows Crackdown on Online Movie Thieves”.

A Fair Tax?

2004-10-15T11:12:00.000-04:00

The proposed Fair Tax Act is of interest as the only proposal on the table that would eliminate the hugely regressive and duplicitous payroll tax system. I have argued against the payroll tax in several posts (1, 2, 3). The main reason is not that I'm worried about my own disposible income. Rather, it is because I believe that the abominable payroll tax is the "Gordian Knot" in the problem of how to extend the rational public discourse of elites to a hornswaggled electorate!

But a consumption tax like the Fair Tax Act proposes may turn out to be at least as cruelly regressive as the payroll tax, even though it exempts spending up to the poverty level and does not tax at all the purchase of used items. Why? Aside from the obvious reason -- that much higher proportions of lower incomes are spent on consumption goods -- we should note that our government's definition of poverty is a harsh one indeed. And lots of consumer goods cannot or will not be traded in used form.

Another bitter pill for critics of increasing income/asset inequality (whether they come from progressive or conservative quarters) is that the Fair Tax Act is a step toward giving up on taxing capital assets and accumulated wealth. Should we do that? Its advocates make a powerful argument when they point to (1) the wasteful legal wrangling that goes into attempts to tax capital, as well as when they reference (2) academics who argue that taxing liquid capital assets is well-nigh impossible. But one could also interpret such arguments (and the whole Fair Tax effort) as motivated by a fear that our income tax system could in fact be the tool to turn back the growing inequality of income and assets that threatens to pull America apart.

Where do I come down? It is a truly daunting cost/benefit analysis. The Fair Tax Act would encourage the purchase of used items/discourage the purchase of new ones. Is that a cost or a benefit? To critics of "productivism" its surely a benefit. But to someone who might lose their job its a clear cost. But eliminating the payroll tax would make it easier for employers (some more than others) to afford to hire new workers. So how do the effects net out? Who knows.

The other main issue is whether we can realistically expect to make the income tax more progressive. I have suggested that tax analysts should consider what would happen to revenue if we took the tax brackets back to what they were before the Reagan era. (Republican critics of FDR's extension of the "rich man's tax" to the middle class sound disingenuous when they fail to take the Reagan restructuring to task.) But such a proposal would have to confront the reality that the lowest brackets have been substantially lowered since the Reagan era, including the Bush administration's reinstitution of a 10% bracket. We also have the Earned Income Tax Credit now, which is probably a good idea if your priority is to get so-called "low skill" workers working.

All in all, these issues deserve much fuller consideration. Criticisms of the FairTax proposal, such as those from the Citizens for Tax Justice, often miss the mark. The reasons are complex, but have to do with the fact that a consumption tax (like the income tax) could be collected on an annual basis rather than at time-of-purchase. This is accomplished by taxing on the difference between annual income and approved forms of saving. Of course this method would not get at consumption out of retained earnings. But with suitable modifications, it might. Also, our policies on what sort of savings count as non-consumption might allow for the taxation of certain forms of investment if we so chose.

A consumption tax is an option worth considering even though (like "tort reform") it is a ill-defined notion that is usually pushed by the Right. The fact that it is pushed by the Right keeps the Left from considering how it (in some form) might be exactly what we need. Such is too often the frustration of political discourse.

Laura and Teresa

2004-10-14T11:11:00.000-04:00

Alina Stefanescu thinks that John Kerry's answer to the debate's last question made him look insensitive and unrespectful compared to Bush. I don't agree. But when she told me that answer would cost Kerry votes I couldn't be sure she was wrong. I certainly hope so.

Bush's answer was a good one. He learned that he had to take the counsel of his wife and daughter seriously. She's more articulate than him and he respects that. He's grateful for their support on the campaign trail and knows it is a sacrifice. As a friend of his predicted, the day he met his wife at that barbeque years ago brought love at first sight. The message: There's a man who loves, respects, and treasures his wife.

But should we feel sorry for Teresa Heinz Kerry? I don't think so. I can easily imagine that she herself counseled John to talk about his dying mother's advice on his candidacy. Granted, Kerry started off his answer by almost boastfully referencing the wealth to which he "married up". This kind of comment sounds like it is directed more to the men in the audience than (as Bush's more clearly was) to women. If Ms. Kerry feels that she were the object of such a boast, would that necessarily offend?

But what do the answers say to women voters? Really, they shouldn't matter that much. One could not hope to predict the effects of a presidency on women (or people generally) by analyzing the candidate's relationship with his wife. Nor, for that matter, can one make much of the fact that Kerry was presumptuous in suggesting that Cheney's daughter's sexual orientation reflects how she was born.

I can imagine that women and men assess the choices involved in voting differently from men, but I want to believe that women do not make more of the spousal relationship than men in deciding. Women are obviously a large part of the electorate and they have a lot more at stake (as do men) than simply a feeling that their candidate treats his wife right.

But what if Alina is right that this question is going to weigh heavily in many women's evaluation of the candidates? The effect might be negative. Bush seems to me to come of as a want-to-be charmer. I'm told that many women find his smirk and dimply slanting grin very cute. (Can that really be true?!) More plausibly, if we believe Leonard Shlain's The Alphabet Versus The Goddess , then verbal articulatness is the means by which masculinity has culturally dominated female sensuality. Along these lines, Bush is less threatening and more sympatico than the "verbal girlie men" who don't know how to relate to women on their own terms. Many women also feel more comfortable with improving the respect afforded to wives than with a deeper revision of the norms involved in partnerships between men and women. And Bush may come across as a "marital progressive" whereas Kerry is more of a revolutionary who would overturn the husband/wife relationship as we know it.

In sum, I know that Alina's hypothesis has some merit and I think the Kerry campaign should consider these issues. But she would also argue that the Clintons' relationship (including his infidelity) cost Bill Clinton substantial amounts of female support. I really think that a very small minority of women evaluated the Clinton presidency in these terms.

On Bush Hatred

2004-10-12T11:10:00.000-04:00

Bush is the archetypal frat boy. Some analyse Bush-hatred as resentiment against frat boys. But, as often with allegations of resentiment, the aspects of the resented that are causing the problem are not the ones that are being resented. I.e., maybe the typical Bush-hater does wish that he could be jovial, popular gaffawer alcoholic-turned-president rather than an impotent know-it-all. But it is not Bush's personality (even his much resented anti-intellectualism) that is causing his bad policies. It's the cavalier way in which he pushes through the agendas of interests he represents and his failure to, as the leader of a democracy should, bring all the relevant interests to the table and arbitrate effectively between them. The problem with Bush is that he is not enough of a politician in the dignified sense of that term, in which it does mean a "uniter not a divider" and the unity spoken of is one in which everyone benefits from the leader's representation.

The Yin and Yang of Ethics and Public Policy

2004-09-30T11:08:00.000-04:00

One of America's most influential feminist researchers and two of our prominent legal economists have more in common (at least superficially) than might be expected!

Carol Gilligan theorized that young girls related to one another with an ethic of care while young boys employed an ethic of rights. The gist is that young girls think and talk ethics in terms of meeting the needs of others and insisting that their needs be met. Young boys are more concerned with each others' rights and obligations, muem and tuem.

Louis Kaplow and Steven Shavell recently argued that all policy debates should be carried on in the terminology of individual (and, by extension, social) well-being. They decried "fairness theories" that refer vague and frustratingly contentious notions of fairness.

Many interesting comparisons could, no doubt, be drawn between these two works. But, on the surface, it is obvious that policy welfarism has more in common with the ethic of care and that so-called "fairness theories" have more in common with the ethic of rights.

Interesting.

Public or Private? Indeed a Red-Herring in Education Reform

2004-09-29T11:07:00.000-04:00

The authors of Can Public Schools Learn From Private Schools? are right that social/economic inequality has more to do with inequality in capabilities than does the private/public nature of schools. But reforming school funding and administration may be the most promising way of addressing that problem.

The purpose of Can Public Schools Learn From Private Schools (1999)(from the Economic Policy Institute) is to evaluate the common supposition that increasing the availability of private as opposed to public schools will improve American education. Specifically, it evaluates the claims that private schools ipso facto select and retain teachers more efficiently, are more accountable to parents, evaluate students' progress more objectively, and state academic and behavioral goals more clearly than public schools ... and that this is the reason for their superior outcomes.

The main argument is: The public/private distinction is much less important than the economic/social background of the students. "Suburban public schools had more in common with suburban private schools than they had with urban public schools" (1). The same was true of inner-city private schools; they had more in common with inner-city public schools than suburban private ones. Therefore, increasing the prevalence of private schools without modifying these social/economic factors is unlikely to produce improvement.

What's really at stake here is where changing the financing and administration of schools should fit into a policy agenda, a set of priorities. If the authors' point is that mitigating extreme poverty and furnishing parents with jobs that leave them the time and energy to support their kids is more likely to further the goal of equalizing the capabilities that individuals have than is increasing the proportion of nominally private schools, then I am sure that they are right. But if their claim is that the former should be prioritized over the goal of restructuring school finance and administration, then I think that they may well be wrong. Mitigating the unequal funding of schools that results from the property-tax funding of public school systems may be far more achievable than altering the contours of urban housing and labor markets that determine where people live and work. If the beneficial effects of changing school finance would be great enough, then these changes should receive higher priority than changes in housing and welfare policy that (it seems presumable) are not politically and economically achievable on a level that would make much difference.

The next question to ask is: "How are we going to be able to get rid of property tax-determined funding?" Several state courts have found the system unconstitutional, but legislatures in Ohio and elsewhere have not responded with the sweeping reform that courts demanded. Whether the issue is approached at the state or federal level, property-rich constituents are unlikely to accept radical funding equalization as the end-all-be-all of a reform program. This is where the public/private(charter/magent) issue might come in to save the day. If legislators can come up with a program that promises to broaden the range of education options available to families (i.e. school choice) then maybe a larger part of the propety-rich can be brought on board. The private/public distinction does not matter with respect to charter and magent schools, which can already get public funding (though, again, constrained by the property base in their areas). It only matters with respect to religious schools. And some, though by no means all, of the constituents that have to be brought on board this project are concerned to enhance the prominance of religious schools. So the public/private distinction matters a little, but not all that much.

The authors are right that the key to financial and administrative restructuring does not lie in the private/public distinction. But they contribute to making that distinction the red-herring that it is. Socio-economic status is indeed the greater part of the explanation for differences in capabilities, but the educational system may be the readiest means available of addressing that problem.

MeritoCRACY?

2004-09-26T11:06:00.000-04:00

This is a contribution to the discussion Will Wilkinson started last month on Tech Central Station.

Americans don't object so much to wealth in its public sphere of display or its private one of self-multiplication, as to the grab for power it so often underwrites--the alchemy of cash into influence and rule.

Jack Beatty in Collosus:
How the Corporation Changed America

One of the more confusing things about this very confusing word is the '-cracy' part. Is it 'rule of the meritorious' or 'rule of merit itself'?

If the former than is it 'rule of those who have the merit to rule'? Or is it rule of those who have some amorphous general 'merit'? If that last is the case, then what in the world is that stuff and what does it have to do with ruling?! And how is this different from 'aristocracy'?

But I'm obviously barking up the wrong tree. (Hint: It's for rhetorical purposes.) 'Meritocracy' does not mean rule of the meritorious. Rather, the word's function is to subvert the meaning of 'rule', as commonly understood. So it DOES mean something like 'the rule of merit itself'.

And what is merit? It's whatever any given person thinks it is. So meritocracy turns out to be something like Nozick's anti-Marxist slogan:

'to-each-according-to-how-much-he-benefits-those-who-are-in-
a-position-to-benefit-those-who-benefit-them'

On this understanding of meritocracy, it is quite easy to see why it appeals to libertarians. It does away with the idea of rule entirely and replaces it with an institutional process (referred to, in all its complexity, as "the market") for determining what merit is and who has it.

Of course there are other readings of meritocracy in which the meaning of merit is given actual content (rather than just being a place holder for values fixed by a market process). This explains why there are some apologists for meritocracy who think that "the market", if one such thing there be, fails to reward merit.

If I were forced to choose between one camp or the other, I personally would go with the market-skeptic meritocrats. But I choose rather to reject the concept of "meritocracy" entirely--except insofar as it refers to people getting positions because of their merit rather than connections, etc. Merit is always for a more or less specific end and it is always an open question whether that thing is valuable. Merits are thus plural and to be conceived on the model of virtues, albeit virtues of a more techne-like kind.

The overall point that I want to make with this message, however, is summed up as follows:

The concept of meritocracy, especially if it is to be contrasted with aristocracy, is of a piece with the broadly 'market liberal' ideology of the social order. So I can understand why Will and other libertarians are gung-ho about it. But the problems with 'meritocracy' are as numerous and (to my mind) as decisive as the closely related critiques of Nozick and, for example, Richard Posner.

If I were to recommend one article it would be Ronald Dworkin's 'Is Wealth a Value?' in the Journal of Legal Studies. Every thinking person should read that.

Defenses of the Payroll Tax Rejected

2004-09-24T11:05:00.000-04:00

When I suggest that we should get rid of the payroll tax and fund our pension system out of general tax revenues I hear several common objections (O:); here are the supposed reasons why we should keep it and my responses (R:).

O: How much you get out of Social Security should be proportional to how much you put in?

R: We could keep as much proportionality as we want even if we fund our government managed pension system out of income tax revenues. Just make benefits proportional to income taxes paid. Of course there are reasons not to do this and we don't do this now as strictly as many think. If you made $40K each year for your 45 year career, you do get less social security than if you made $80K. But the amount you get, especially factoring in Medicare, has to do with plenty of other factors than your contribution. And shouldn't it? Do you want someone who made $20K a year during their working life and has an expensive medical condition to have to choose between meds and housing?

O: The payroll tax gives us a sense that we're providing for ourselves, whereas the alternative would make us feel like we're on the dole when we're old?

R: There are a number of issues here. First, that sense you're talking about... its a false sense! Libertarians who want everyone to be on their own to save for their retirement can claim such a sense for their proposed plan. That's one nice thing about their plan, though it has obvious drawbacks. But if you feel like you're funding you're own retirement with your payroll tax contributions you're deluded. As a matter of fact those contributions are going right now to pay for our current retirees, who are getting a lot more as a group than they put in. But our current contributions are paying for tons of stuff besides a dignified retirement for our senior citizens. They're also paying for other general government expenditures!

Remember the "social security surplus", "lock boxes", "trust funds" etc.? Well, all that malarchy was referring to the fact that the highly regressive payroll tax is, right now, being used to fund other things than what it was originally intended for, our retirement pensions. That should make you angry at Congress, even the most middle-class-taxpayer-friendly members of which cannot countenance doing without all that extra revenue! (There are rare and admirable exceptions like former Sens. Moynihan, Bob Kerrey, and to some extent Al Gore.)

And if you like the stuff Congress spends money on (and I like plenty of it myself) then you should ask your Congressperson, "Hey, why can't you get some more tax revenue from accumulated capital and the income of rich people " instead of withholding it from my paycheck and telling me its for my retirement?!

So, all in all, the "sense that we're providing for our own retirement" should be replaced by a "sense that we're being f***ed by the rich taxpayers that Congress is letting off the fiscal hook with which we're being gouged!"

As for feeling like you're on the dole, I try to keep in mind that aging is something that happens to everyone and which naturally takes away our capacity to provide for ourselves. Maybe our employers should pay us enough that we can all afford to save for our retirement. Maybe our schools should teach us how to save for our retirement. But, at the end of the day, we are all dependant on others (our kids, friends, families) in our dotage. It's not degrading to think that one's children will help support you. Why should it be degrading to think that the country to whom one has been loyal all one's life will help support you?

O: Your plan is devisive and not public spirited. We need to make changes that will improve the well-being of everyone, not encourage a certain group of people (even if that group is the squeezed middle-class subject to a regressive tax) to seek their own betterment at the expense of other Americans.

R: Encouraging some social class to pursue their own self-interests through political action is indeed bad politics! I agree completely. The fallacious part of this objection's reasoning is the notion that the middle -class beneficiaries of this change will be using the money in a self-interested way, that wanting to have more of their income free of taxes is necessarily a less public sprited desire than a desire to leave it in the government's coffers. Individual spending, even consumer spending, is not to be equated with private self interest and government spending dichotomized as automatically public sprited.

Every day Americans spend money on their friends and families. They donate it to charaties that help strangers. And every day the government doles out money to special interest or gives tax breaks to shareholders of companies who donated to election campaigns. Yes, we do need to free what has traditionally been thought of as the public sphere from the domination of private interests. Facing the "legitimation crisis" of our democratic government is a practical problem of the highest order. But on a more theoretical level, we need to acknoweldge that people strive to realize their vision of our common American dream when they shop, invest, and donate. Sharing more equally in the means to do this really is a part of autonomy, in the sense of that term that implies contributing to the formation of our "general will". At least it can be.

O: As Cotton Mather said of the protestant work ethic, "religion begot prosperity, and the daughter devoured the mother... Religion must necessarily produce both industry and frugality, and these cannot but produce riches. But as riches increase, so will pride, anger, and the love of the world in all its branches." So, the lesson is this. If we let hard working people keep more of their income they will just get more proud and envious. Plus they'll spend their money on enjoying themselves and lose their work ethic. To keep this economy going we've got to keep everybody, if not on the edge of poverty, then at least not earning enough money to let loose too much. Therefore the regressive payroll tax is actually good for our economy and our morals.

R: I find this objection to be the most exasperating. Most people who argue it do not talk about Cotton Mather or the protestent work ethic (Samuel P. Huntington is a notable exception). But the view that working class consumption is valueless, while the savings and investment of rich people is the motor of progress postively dominates many people's thinking on these matters. Consider my tax professor at Harvard, Alvin Warren, who when quizing us on the code always mockingly said, "... so how much will Taxpayer 'x' have to squander in riotous living". This attitude, dismissive of the choices made by working class taxpayers, is no small part of what turns the broad swath of the American public against the left. It's disasterous, patronizing, and must stop!

On Yassar Hamdi's release

2004-09-23T11:04:00.000-04:00

Yesterday the Justice Department decided to release Yassar Hamdi, the U.S./Saudi citizen detained as an enemy combatant since his capture in Afghanistan. After over three years in solitary confinement, he "revealed a preference" to take his chances at the hands of the Saudi government and renounce his U.S. citizenship in exchange for being let out. These were the conditions offered by the Justice Department, which apparently conceded that it had no criminal case against Hamdi. Some months ago the Supreme Court rejected the Administration's argument that it could hold Hamdi indefinitely without trial because of his enemy combatant status.

Understatement of the year: the "justice" done in this case was less than comprehensive. First of all, Hamdi may or may not have been involved in combat. U.S. forces apparently got him from the Northern Alliance. They may have even paid for him, as the policy at the time was to pay up to $5000 for prisoners. Secondly, the sine qua non for the Supreme Court's decision that Hamdi deserved a hearing against his captors was his status as a U.S. citizen. But, as part of the Justice Department's terms, he is required to give up his citizenship. All of this with no evidence to rebutt his claims that he had been attempting to return to the U.S. since September 11, 2001.

And what, if any, point of law does the Supreme Court's decision clarify? Because of Hamdi's dual citizenship (the only reason he can be shipped off to Saudi Arabia) the result of this case tells us nothing about what would happen if the Government had to actually make a case for detention of U.S. citizens under the present circumstances. (The companion case to Hamdi, that of Jose Padilla, not decided by the Supreme Court because they said that it had been decided by the wrong lower court.) And, of course, the vast majority of detainees (whose detentions are every bit as dubious as those of Hamdi and Padilla) will not be heard at all because they lack U.S. citizenship.

All in all, it does not seem to me that our system has handled the troubling issues raised by these cases in the way commensurate with the esteem in which we, as a society, hold it. When there was a presidential election at stake the Court cast its vote with alacrity, but when it comes to clarifying our country's position on such a crucial issue it proves reticent (pages and pages of opinions notwithstanding) in practice.

Could we do without the payroll tax?

2004-09-21T10:01:00.000-04:00

How much could we reduce the payroll tax if we were to return the marginal income tax rates to what they were in 1978 (keeping total revenue constant). I have begun to research this question, prompted by my conviction that the well-being of Americans of modest means suffers unnecessarily from this increasingly burdensome tax.

Two weeks ago, when blogging about this topic, I was too hasty to say that we could "probably" eliminate the payroll tax entirely if we were to raise the highest income tax rates moderately. But I expect my research on the above question to show that payroll taxes could be VERY substantially reduced (on workers and employers) if we returned to our pre-Reagan income tax structure.

The following pages are quite relevant to the issue. Feel free to make your own calculations.

(Nov 18, 2002) - T02-0008
2004 Income Tax Rate Cuts - Marginal Tax Rates - Distribution Tables by Dollar Income Class - 2003

(Nov 26, 2003) - T03-0172
Current-Law Distribution of Income and Payroll Tax Burden - Payroll - Distribution Tables by Dollar Income Class - 2010

Notice, for example, that there are around 102,800,000 "tax units" in the 0-$50,000 range. Together these people pay 14.7% of the combined income/payroll taxes. But they pay a whopping 28.9 percent of payroll taxes, illustrating just how regressive that tax is.

In contrast, consider the approximately 4,380,000 "tax units" who make over $200,000/year. They pay a total of 32.2 % of the combined income/payroll tax. So it seems that increasing the marginal taxes on this group would produce a lot of revenue. This does assume that we could collect it, that these people would not move it (or themselves) overseas for example. Some economists, Martin Feldstein at Harvard for instance, think that it is very hard to collect taxes from the highest income earners. But this is a controversial position. Also, we need to consider how many earners in the $200,000+ crowd are such "flight risks". Probably not all of them are.

Now have a look at the following:

Individual Income Brackets 1971-1978

The following are the 1971-1978 brackets in 2004 dollars
(converted with the July, 1978 consumer price index):

$0 - 1527 14%
1527 - 3053 15%
3053 - 4580 16%
4580 - 6107 17%
6107 - 12214 19%
12214 - 18321 22%
18321 - 24428 25%
24428 - 30534 28%
30534 - 36641 32%

You may have noticed that, under current tax law, people with incomes up to a certain minimum do not actually end up paying any INCOME taxes at all. We also have an earned income credit now. It's not clear from my sources what people in 1978 paid in taxes when there incomes were so low, so that needs further research. Clearly, the combined INCOME and PAYROLL taxes for extremely low earners SHOULD NOT GO UP under my plan! But note that, according to the above table, even people who now make too little money to pay any income tax--indeed people who receive income tax credits--are paying considerable proportions of the payroll tax burden.

36641 - 42748 36%
42748 - 48855 39%
48855 - 54962 42%
54962 - 61069 45%
61069 - 67176 48%
67176 - 79389 50%
79389 - 97710 53%
97710 - 116030 55%
116030 - 134351 58%
134351 - 152672 60%
152672 - 183206 62%
183206 - 213740 64%
213740 - 244275 66%
244275 - 274809 68%
274809 - 305343 69%
305343 + 70%

Remember that these are marginal tax rates, so you'd pay your highest rate only on the income in that bracket and so on down. This may seem to add substantially to administrative complexity. But, as someone who took two tax law classes, I can assure you that making those little tables in the 1040 form that tell you how much to pay is NOTHING in the grand scheme of tax complexities!

Questions About Imposing A Military Draft

2004-09-20T13:25:00.000-04:00

There are multiple bills in early stages that would re-impose the draft to make up for an overextended U.S. military. The consensus seems to be that none of these stand a great chance of passing now, but that the chances may go up considerably after November (whatever the result of the election). The current Administration is on record opposing a new draft, but murmerings abound that it is secretly pushing for one or another of the incipient proposals, perhaps to whipsaw the Democrats in the event of a John Kerry victory.

All this is very alarming to me. To provide a context on why, I will digress briefly on my general position: I count myself among those who would like to distinguish the "war on terror" clearly from our ambitions in Iraq. With no exageration, I say that I am deeply distraught over the potential for the "war on terror" to become perpetual, even worsening during a Democratic administration. I wish ardently that John Kerry would stop using that term and instead seek to coordinate a multilateral (not to say supernational) effort against the international crime that terrorism, in its myriad forms, is. This is a chance for the U.S. to take part in recreating international criminal law. The basic reason, I believe, that we are not doing this is that the Department of Defense has come to dominate a whole panopoly of policy areas that are outside its purview. This development is traceable to the Reagan era.

So, clearly I do not want to increase the U.S. military presence abroad and would prioritize diffusing the institutional prejudices in our system that favor such hawkishness.

But this still leaves some important issues as far as the draft is concerned. First, what effects would re-instituting the draft have on public support for military adventures? Unclear. My answer: While there are some good reasons to think that a peacetime draft or a citizen army in America might, in the long-term, constrain military-industrial mechanations, the present situation is almost certainly not the right one in which to back such an idea. No Congressperson could coherently argue that the military is heinously overextended in an inappropriate response to the terrorist threat, but that we should reinstitute the draft in order to put the question of appropriate U.S. foreign policy to the people as a whole. This is not at all the line that Chuck Hagel et al are taking.

But even if I'm right about this, that does not mean that we should not impose a draft. We know, after all, that the military is largely composed of Americans who do not feel that they have great chances to advance in civilian life, e.g. through the channels of higher education. Just because they felt like their best option was to sign up for service does not mean that they alone should have to fight and die for a cause that is not in the public interest. Crucial point: the argument that a draft would create beneficial middle-class opposition to war is entirely distinct from the argument that it is disgraceful (or unfair) for us as a society to let our underprivilaged fight these wars.

Congress seems to fear public opposition to a draft, so much so that some of the more hawkish among them feel too constrained to show their support. This fact makes it all the more shameful that we are abusing our "volunteer" soldiers. But the expansion of the military that a new draft would allow is simply too great a price to pay for the alternative. The thought that a new draft would provide a rallying point for what's left of the middle-class to stand up to our new military adventures is, admittedly, a very appealing thought indeed. I must confess that it does not seem entirely implausible to me. Even at this juncture, I do not think that changing to a civilian army would cause the American public to flock toward militarist ideologies. But the chance is perhaps greater now than it will be in a future to be hoped for.

Centralizing American Intelligence Will Take More Than an Executive Order

2004-09-10T14:27:00.000-04:00

President Bush's recent executive order strengthening the powers of the Director of Central Intelligence cannot accomplish true centralization of budgetary and "hiring and firing" authority. Perhaps that's for the best. See my discussion on my website. (It's #6 at the bottom of the page.)

School Choice in an Education Reform Program

2004-09-09T11:43:00.000-04:00

School choice is no longer about the equal treatment of religious education or the subjecting of failing schools to competition, if indeed it ever was about these things. The best school choice proposal would equalize the funding of schools (removing it from the province of state property taxation) by giving every student an equal, publicly funded voucher that can be used for public or private schooling-- but which cannot be supplemented by parental funds. This last condition is necessary to create a truly equal funding system.

This proposal, which was put forth a few years ago by Michael Lind of the New America Foundation, should (in theory) unite voucher proponents with those who decry the radically unequal property tax-based funding system. It should unite them. If such a proposal were made, this would probably at most serve to reveal the hypocricy of many proponets of school choice and equal funding -- who would quickly unite to defend the status quo.

Nonetheless, such a bold proposal should be investigated as part of a new administration's education program. It is a little known fact that school choice programs have been widely, and enthusiastically, researched by policy analysts far removed from the religious or market-oriented right. Consider, for example, the important work of Bowles and Gintis at the University of Massachusetts. Hopefully, they'll exert some much needed influence on a future Kerry administration.

Looking for a tax to nix? Consider eliminating the payroll tax!

2004-09-08T19:42:00.000-04:00

The president advocated sweeping tax reform in his speech at the Republican National Convention. In fact, sweeping tax reform has been underway for some time, the underlying vison of which is that the income tax will only tax wage/salary income. Some complain that the right wants to eliminate the income tax and that may be true. But in the meantime, loopholes and capital gains reductions are shifting the burden to those whose incomes take the form of wages and salaries. Generally these are the people who work hardest and longest for their income.

The increasing prominence of the payroll tax as a proportion of all tax revenues is symptomatic of this trend.

"More than 70 percent of all taxpayers now pay more in payroll taxes -- mostly for Social Security and Medicare -- than they do in income taxes. The total collected is projected to reach $747 billion in the current fiscal year, just short of the $762 billion collected in income tax revenue. Both taxes collect about 41 percent of federal revenue -- but just four years ago, payroll taxes accounted for only 32 percent of federal revenue." [Seattle Post, see link below]

The payroll tax is paid, for the most part, only on income up to a relatively modest amount (now $87,900). Income above that level is mostly earned free of the payroll tax. As the payroll tax grows as a proportion of federal revenues, this means that families all or most of of whose income is subject to the tax (because they earn $87,900 or less) are taking up more and more of the total load, for fighting the war in Iraq and everything else provided for in the federal budget.

If we want to cut taxes so as to improve the well-being of as many people as possible, shouldn't we consider eliminating this highly regressive tax? Are we headed for a crisis in the Social Security system? Maybe part of the solution is funding the system with the general income tax instead of a with a tax that hit people who need their money the most. (The fact that an individual's payroll tax contribution is used to fund current social security expenditures is still not well enough known.) We've had a more progressive tax structure in the past. In 1954, the highest marginal tax rate was 94%. In 1979, before Ronald Reagan took office, it was 70%. People on the right talk about "class warfare" but the truly radical change was President Reagan's dismantling of the highly progressive income tax structure upon which the post-war American middle class was built.

Suppose we moved the highest marginal income tax rate from roughly 40% back up to 60% and eliminated the payroll tax entirely? Where would this put us in terms of total revenue. According to Reaganomics, raising average tax rates actually lowers revenue. But this theory, depicted in the famous Laffer curve, has been largely discredited, at least with respect to the particular effect of the Reagan tax cuts. Probably such a move would increase tax revenues substantially beyond what is needed to keep social security solvent. In any case, it would be nice to see some discussion of that proposition in a place more prominent than the Seattle Post.