Must-Reads

While I grade midterms:

• Bruce Bartlett says he'd do it again.

• Yves Smith decomposes Alan Blinder (and provides a much better-than-avaerage account of "nationalization" in the bargain).

Bartlett on What the Republicans Should Do Next

I never know quite what to do with Bruce Bartlett. As a former adviser to Jack Kemp, he has his thumbprints all over one of the silliest initiatives in modern public finance : the supply-side revolution which held (in its extremest form) that you can make big tax cuts without losing a penny--not a penny!--in public revenue. In fairness, I'd have to concede that Bartlett himself never ventured quite so far into moonbat land as some of his allies. He remains one of the most adventurous and (mostly) intellectually honest figures on the "conservative" (if you can call it that) side of public revenue discussions.

He's back this week (in Forbes), arguing that it's time for conservatives to put the past behind:

The original [supply-side] idea was to cut marginal tax rates--the tax on each additional dollar earned--in order to revive the supply side of the economy by stimulating work, saving, investment and entrepreneurship. Now that argument is generally accepted. I am not aware of any reputable economists on the left who want to raise the top rate back to 70%, or even 50%. The most that they talk about is going back to the 40% top rate that existed under Bill Clinton. Contrary to what some Republicans think, this will not destroy the economy; it did pretty well after Clinton raised the top rate in 1993, despite Republican claims of doom.

Republicans also have to accept that there is a limit to tax-rate reduction. Cutting the top rate from 70% to 50%, as Reagan did in 1981, provided a huge increase in the after-tax rate of return. Some taxpayers went from keeping 30 cents on a dollar of interest or dividend income to keeping 50 cents--a 66% increase. But dropping the top rate from 40% to 35%, as George W. Bush did, only increased the after-tax return by 8.3%.

That's not nothing. But one can hardly expect the same kind of economic gain from reducing the top rate a little from an already low level as one would get from reducing a very high rate a lot. Nor can we expect a small increase in the top rate from a historically low level to have disastrous effects. Yet some Republicans continually make extravagant claims for small tax cuts and predict disaster from small increases when there is no evidence to support either proposition.

Instead of defending the Bush tax cuts, most of which expire next year under laws that Republicans wrote, I think it would be better for them to abandon Bush's tax policies altogether. The evidence is pretty clear that they did little good for the economy. Therefore, getting rid of them will do little harm.

Going forward, I think Republicans should try to be the party of investment, because Democrats are basically the party of consumption. While there is certainly a case to be made for raising consumption in the short run, the fact is that many of the consumption-oriented policies being proposed by Democrats in Congress would be proposed even if the economy was booming. There is never a time when Democrats aren't in favor of more health and education spending, aid to state and local governments, and so on--just as there is never a time when Republicans aren't for tax cuts.

"Investment" for present purposes, apparently means support for privatization and revival of the Investment Tax Credit. Somewhat surprisingly, "education" in this model turns out to be "consumption" not investment (I assume this is a swipe at English majors?).

A side issue: supporting privatization, Bartlett says as if beyond controversy tdhat "Amtrak and the Post Office don't work very well." Really? I use the post office a lot these days: brisk, efficient, and the price is right. And Amtrak--back in 2006, I did a Wash/NYC commute for a few months on Acela, and I loved Amtrak. Thank you, taxpayers, for making my life so much easier, but at least you can take consolation from the fact that you have at least one happy camper.

In Which I Find I Have Positioned Myself To the Right of Bruce Bartlett

...which is not exactly where I want to be. I've been saying "bah, no auto bailout." But Mr. Free Market proves to have a more subtle mind (link):

I think it would be a terrible mistake to simply write a check to the auto industry without demanding major, major restructuring of its labor contracts. Without that the money will simply go down a rat hole and the automakers will just be back again in a year or two asking for more money.

Obama has a strong hand to play here and I hope he uses his leverage. With bankruptcy as the only alternative to federal aid, he can drive a very hard bargain with the auto workers. If he caves and just writes a blank check, everyone will know he can be rolled and he will pay a heavy political price for it. If Obama shows toughness on this issue, I think it will pay enormous dividends for him down the road.

[Italics mine-Buce]

Mark Perry, who is somewhere to the right of Ivanhoe Bruce Bartlett on this one, points out that the average per hour compensation at the big three is aobut $73; at the US operations of Japan-based companies, about $44 (link). Might be a good benchmark.

Update: And in case you need any reminders of why we should not mourn for Detroit, go here, and H/T Perry again.

Invite Ron Paul to the Next Dem Debate

Here’s the way Rep. Ron Paul describes himself at his Congressional website:

Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. Dr. Paul is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency (link).

In case you hadn’t noticed, he is also a Republican candidate for president. Without knowing a huge amount about him, I tend to think he is a bit of a nutter: whenever anybody uses the phrase “commodity-backed currency,” I tend to start asking myself when we will break for lunch. But even if it is over the top, Paul’s kind of libertarianism persists because it appeals to some widely-held basic instincts: free choice, individual responsibility, getting the government out of your hair.

If you know about Paul at all, the chances are it is because he got his 15 minutes of fame during the Republican codpiece festival in South Carolina debate. The Economist explains:

During the debate Ron Paul, a feisty libertarian from Texas who stands no chance at all, suggested that Middle Eastern terrorists attacked America “because we've been over there; we've been bombing Iraq for ten years.” Mr Giuliani fired back: “That's an extraordinary statement...that we invited the attack because we were attacking Iraq. I don't think I've heard that before, and I've heard some pretty absurd explanations for September 11th.” The conservative audience erupted in approval (link)

Now the Michigan Republican State Chairman wants to ban him from future Republican debates. He said:

[Paul’s] statement on why the terrorists attacked America is so out of the mainstream geo-political thought in the west and is increasingly becoming a distraction versus a supplement to the debate…(link)

Hm. If Paul is “out of the mainstream,” then so are Jerry Falwell, Pat Roberson or Dinesh D’Souza (link). So much for the big tent.

But let Republicans have that fight. I want to talk about the libertarian Paul. My point is that the snoopy big-spending authoritarian Republicans obviously have no use for this guy. So, invite him to the next Democratic debate. Of course he isn’t going to be their nominee any more than he is the Republicans'. But his ideas are far more likely to get a respectful hearing among Democrats than they are among the people who want to push him out. Indeed, as Bruce Bartlett (and others) have often pointed out, if you are looking for fealty to libertarian principles, you are more likely to find them in a Clinton (either one) Administration than with anything else on offer (link, link)

Welcome, Ron. We can install you in a safe house in Vermont, and we can probably even find a (private-sector) job for your wife, and good (private) schools for the kids.

The Bloginar

Earlier I linked to some fascinating posts about Supply Side Economics from people some of whom were present at the creation and others of whom simply knew what they were talking about. Bruce Bartlett, Mr. SSE himself, brings the matter full circle with a bit of metablogging here--linked, naturally enough, at Economist's View, the site that got the ball rolling and has pretty much established itself as the go-to source for up-market econ discussion (link).

Here's another example: Martin Wolfe presides over his own seminar at Economist's Forum here. As Mark Thoma points out, prominent economists often weigh in at Wolfe's site with comments of their own.

Of course, if you are a little shaky on the whole idea of supply side, you could pop on over and select any of half or dozen so relevant courses at MIT Open Courseware here.

[Aside: Wonder how that bit is going, anyway. I admit, I often go there browsing and say to myself, "hm, I ought to learn more about that..." Yeh, right. How many people, I wonder, actually work their way through an MIT course in any systematic way? And who are they?]

Supply Side Seminar

Earlier I gave a Google favorite link to Bruce Bartlett's valediction to supply-side economics (link). Brad DeLong points out that it has morphed into a first-rate on-line seminar (link).