Zimbabwe

I've chanced across a very interesting book, WHEN A CROCODILE EATS THE SUN which is written by Peter Godwin. The book is Mr. Godwin's memoir of Africa and specifically Zimbabwe. Here is an excerpt from Chapter 5 which is titled April 2000.

They are a good-looking middle-aged couple, tanned and fit from an outdoor life, surprisingly calm and considered, given their current situation. We sit down at the dining table for lunch, and Jenny reaches to tinkle the bell to summon the cook, and then remembers it is not there. She apologizes for the second-best cutlery we are using too.

Rob slices the rare roast beef. "This place was mostly unpopulated when we arrived," he says. "There were tsetse flies, so no cattle could survive. No cattle, so no people. Whites used to come here to hunt lion, that's all."

His grandfather came out to Africa as a veterinarian with the British cavalry fighting the Boer War. His father served in the police force of old colonial Bechuanaland (now Botswana). Rob's uncle wrote the Kenyan constitution.

[ . . . ]

But as we drive through it, most of the land -- once some of the most productive in the country -- stands empty of crops, choked with undergrowth. Farms lie abandoned, their buildings stripped of their tin roofs.

"Just look at it," says Webb in dismay. "It's such a terrific waste."

Webb shows me the Farm Development Trust, an old commercial farm converted into a tobacco training center by white farmers. More than a thousand black farmers pass through it every year taking courses to learn how to grow tobacco commercially. "Some of the farmers being trained there are those now invading us," he says. His wife choruses this hymn of despair. "This will never end. If they get more farms, in five years' time when our corn is ten feet tall and theirs is only two feet, they'll come again and say, 'We want your land.'"

Only now does Rob take me on a tour of his own farms -- he has three, combined into one unit. Here he grows coffee, paprika, wheat, sugarcane, soybeans, asparagus, tobacco. At his tall brick tobacco barns, workers are busy grading and packing leaves. "There's millions of dollars' worth of tobacco here," he says. "And they've warned me that they'll burn it all down if they lose the elections."

He employs 620 people, and, with their families, some two thousand live on the property. "We run an elementary school for the laborers' children and a fully staffed clinic."

Rob webb has tone to great lengths to stay on good terms with the ruling party as a political insurance policy for his business. . . .

But this was no use to him when a mob of a hundred people armed with pangas and rocks marched up the drive chanting hostile slogans and beating tom-toms and dancing the toyi-toyi, an African war dance.

"They demanded to speak to me, and when I came down, they shouted, 'We have come to take your land -- that is what we have been told to do.'"

They pegged land claims on his soybean fields, which were just about to be harvested, and demanded they be plowed immediately. When Rob insisted on reaping his crop first, they tried to set fire to it: only the greenness of the shoots prevented it from catching. Now Webb is combine-harvesting day and night to salvage as much of the crop as he can.

[ . . . ]

The farm, a big business built up over decades, in on the verge of collapse. Webb is unable to plant winter wheat, unable to water his soy crop, unable to enter or leave his property without permission. His workers are scared and worried about their future. The occupiers spend much of their time drunk or stoned. . . .They live parasitically, depending on the farm for their survival even as they destroy it. . . .

"As far as I can see, they're nothing but little warlords," says Rob.

There are a few other stories like this, at least one which was deadly in nature, in this chapter on April 2000. One aspect of the stories is that government seems unable or unwilling to protect and enforce the private property rights which seem to me to have been integral to the economic development that was part and parcel of the successful farms. Perhaps government is even doing the telling to the people who are trying to take over the farms. These sorts of stories seem to epitomize an economy of predation, not an economy that will experience much prosperity.

Is this a recession and do we care?

JAMES HAMILTON POSTS some charts that make him bearish on the recession question. Here is one of his charts. Note the periods of recession are shown by the grey bars. You may want to check out his entire post.

Windfall Profits Tax

The Senate is debating S. 3044 today. This bill is called the Consumer-First Energy Act of 2008. Among other things, this bill would impose a "windfall profits tax." You can read the text of the bill for yourself by going here. So what is in the bill, and specifically what is this "windfall profits tax?"

`(a) In General- In addition to any other tax imposed under this title, there is hereby imposed on any applicable taxpayer an excise tax in an amount equal to 25 percent of the excess of--

`(1) the windfall profit of such taxpayer, over

`(2) the excess of--

`(A) the amount of the qualified investments of such applicable taxpayer for such taxable year, over

`(B) the average of the qualified investment of such applicable taxpayer for taxable years beginning during the 2002-2006 taxable year period.

`(b) Applicable Taxpayer- For purposes of this chapter, the term `applicable taxpayer' means any major integrated oil company (as defined in section 167(h)(5)(B))."

The Associated Press article on this includes:

With gasoline prices topping $4 a gallon, Senate Democrats want the government to grab some of the billions of dollars in profits being taken in by the major oil companies.

Senators were to vote Tuesday on whether to consider a windfall profits tax against the five largest U.S. oil companies and rescind $17 billion in tax breaks the companies expect to enjoy over the next decade.

"The oil companies need to know that there is a limit on how much profit they can take in this economy," said Sen. Richard Durbin of Illinois, the Senate's No. 3 Democrat, warning that if energy prices are not reined in "we're going to find ourselves in a deep recession."

So this is a bill that is supposed to be a response to the high prices for petroleum and gasoline. There has recently been quite a bit of political rhetoric from the Democrat presidential primary candidates who both said they support the idea of a windfall profits tax. Reuters reports that Senator Obama said this yesterday:

"I'll make oil companies like Exxon pay a tax on their windfall profits, and we'll use the money to help families pay for their skyrocketing energy costs and other bills,"

Before discussing what we could expect to be the result of imposing a windfall profits tax, just a couple of thoughts. First, Senator Durbin's comment in the Reuter's article just doesn't sound like economic liberty to me. The Senator's threat to use government's force to take some of the profits of 5 of the country's corporations makes our Congress appear to be quite a predator rather than a protector of individual liberty and freedom.

Second, just a picky little point about the Constitution and Senator Obama's claim that he will make oil companies pay. Mr. Obama cannot, on his own, make oil companies do anything, either as a member of the Senate or as President. The Constitution gives the power to tax to Congress, not to the Senate, and most certainly not to the President.

Now, what should we expect to be the result of imposing a windfall profits tax? To put this question in context, we should also ask why the prices of oil and gasoline have been increasing recently. There are probably several factors involved in explaining the recent price increases, but basic economic ideas suggest just a couple of general possibilities. Basically for a price to increase, other things constant, either the demand is increasing or the supply is decreasing, or both. With respect to the price of a barrel of oil, it seems to me that price is increasing both because demand is increasing (a good part of this is increasing demand from people and businesses in China and India) and because supply is decreasing or at least not increasing. With respect to the price of a gallon of gasoline, oil is an input into the production of gasoline, and we can expect an increase in the price of an production input to result in an increase in the price of the output, or the price of gasoline in this case.

Ordinarily, economics suggests to us that when profits are above "normal" in an industry that this is a signal or an incentive for businesses to increase supply. And, ordinarily, we would expect that over time, sometimes over a very short period of time, that the above "normal" profits would be bid away by new businesses and by increased supplies by existing businesses. Of course, all of this means that the existence of above "normal" profits can be expected to lead, over time, to increased supply and to a LOWER PRICE. In this case, we could expect above "normal" profits for oil suppliers and for gasoline suppliers to lead over time to lower prices both for oil and for gasoline as supplies for both increase.

But, the Senate, and perhaps then the House and even the President, will decide to intervene in all of this by imposing a "windfall profits" tax on U.S. oil producers. Will a "windfall profits" tax result in increased supplies and lower prices for oil and gasoline? This is not what I would expect to happen. Such a tax should decrease the incentive to produce new oil supplies if for no other reason than that such a tax would be a signal that there was less money to be made in oil production and this would lead to less effort to find new sources of oil and also to less effort to increase production from existing sources.

In other words, we should expect that imposing a "windfall profits" tax will result in higher prices for oil and for gasoline than would otherwise be the case. Wouldn't you like to see lower prices for oil and gasoline? If so, then you might want to support policies that would free producers of these products to respond with increased supplies over time.

There is perhaps a bit of irony in this last point. Congress has for some time now imposed moratoria on both new off shore oil production as well as the production of oil shale. If Congress ended these moratoria we would expect increased production of oil and this should lead to a lower price per barrel of oil which would of course then be expected to lead to a lower price per gallon of gasoline. In political terms, it seems to me the very politicians who support a windfall profits tax because of the "excess" profits due to a high price per barrel of oil are also, mostly, the politicians who support these moratoria on production. Is it ironic that the profits these politicians want to take are, at least in part, due to their own choice to restrict U.S. oil production below what it could, and would, be? Or, are they crazy? Or, do these politicians have another agenda that is promoted by decreased supplies and higher prices for oil and gasoline?

Where's My Summer Job

Kristen Lopez Eastlick:

Finals week is over; summer is here. And thanks to misguided politicians, your teenager is more likely to be sitting in front of the television than waiting tables or scooping ice cream.

This year, it’s harder than ever for teens to find a summer job. Researchers at Northeastern University described summer 2007 as “the worst in post-World War II history” for teen summer employment, and those same researchers say that 2008 is poised to be “even worse.”

[. . . ]

One of the prime reasons for this drastic employment drought is the mandated wage hikes that policymakers have forced down the throats of local businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty.

According to economist David Neumark of the University of California-Irvine for every 10 percent increase in the minimum wage, employment for high school dropouts and young black adults and teenagers falls by 8.5 percent. In the past 11 months alone, the United States minimum wage has increased by more than twice that amount.

Sad, eh? Demand curves, even demand curves for young summer employees have negative slopes.

Our fearless leaders in Washington are talking recession, they are concerned for the unemployed, and yet, they have also chosen public policy that makes more unemployed workers than would otherwise be the case. Oh, well, don't worry, be happy for those fearless leaders. Perhaps they know what a great job they have. They get to make policy that creates results they don't want only to be able to make more policy to fix the bad policy results they created earlier. There just always seems to be something to do in Washington. Especially since too few voters seem to understand the economic world.

Change & Media Bias Go Together?

Rasmussen Reports™:

"Just 17% of voters nationwide believe that most reporters try to offer unbiased coverage of election campaigns. A Rasmussen Reports national telephone survey found that four times as many—68%--believe most reporters try to help the candidate that they want to win.

The perception that reporters are advocates rather than observers is held by 82% of Republicans, 56% of Democrats, and 69% of voters not affiliated with either major party. The skepticism about reporters cuts across income, racial, gender, and age barriers."

What is a voter to do when he or she can't trust the media to provide unbiased reports? Well the voter can choose rational ignorance. Or, the voter can choose rational irrationality and simply believe what feels good. Especially if voters choose rational irrationality, I'm thinking a campaign of hope and change just might feel good to a lot of voters.

Adam Smith

HAPPY BIRTHDAY!!

McCain-Obama Townhalls

DRUDGE REPORTS that Senator McCain has asked Senator Obama to participate in townhall meetings before the Democrat convention:

I propose these town hall meetings be as free from the regimented trappings, rules and spectacle of formal debates as possible, and that we pledge to the American people we will not allow the idea to die on the negotiation table as our campaigns work out the details. I suggest we agree to participate in at least ten town halls once a week with the first on June 11 or 12 in New York City at Federal Hall until the week before the Democratic Convention begins at locations to be determined by our campaigns. Federal Hall is particularly fitting as it was the place where George Washington took the oath of office as our first President and the birthplace of American government hosting the first Congress, Supreme Court and Executive Branch offices. These town halls should be attended by an audience of between two to four hundred selected by an independent polling agency, could be sixty to ninety minutes in length, have very limited moderation by an independent local moderator, take blind questions from the audience selected by the moderator and allow for equally proportional time for answers by each of us. All of these are suggestions that can be finalized by our campaigns. What is important is that we commit to participate in these history making meetings to join in the higher level of discourse that Americans clearly would prefer.

It seems to me that such meetings might well offer a "higher level of discourse," at least when compared with the nature of the sound bit debates we are likely to get otherwise. But, why have such townhall meetings before the party conventions?

I wonder if this has anything to do with Senator McCain assuming that voters are rationally ignorant? I believe Senator Obama has a voting record as a Senator which makes him the most liberal member of the Senate since he has been in the Senate, and perhaps this voting record means Senator Obama will be the most liberal politician ever nominated by one of the major parties as a presidential candidate. Generally, the candidate for each party has to run in the primary campaign some distance from the median voter in the national election, and then after the nomination is gained each candidate has to find a way to move toward the center in the general election. Because most voters choose to be rationally ignorant, I suspect this process of moving either from the left or the right toward the center is usually not too difficult because there has often been some time between gaining sufficient votes in the primary and the actual nomination which opens the general election campaign. When September to November rolls around the rationally ignorant voters will probably have forgotton the speechs and policy positions taken by each candidate in the primaries. So, Senator Obama would, normally, have the next 2 months to choose how to reposition and recast himself as a moderate for the general election. If the Senators were to start holding townhall meetings next week, wouldn't there be a lot less opportunity to choose how you want to be redefined for the general election?

Oil Supply

ANTHONY EFFINGER WRITES ABOUT OIL in North Dakota:

John Bartelson, who smokes Marlboro Lights through fingers blackened with tractor grease, may look like an average wheat farmer. He isn't. He's one of North Dakota's new oil barons.

Every month, he gets a check for tens of thousands of dollars from a company in Houston called EOG Resources Inc., which drilled two oil wells on his land last year. He says the day his first royalty check arrived was one to remember.

``I smiled to beat hell, and I went to town and had a beer,'' Bartelson, 65, says.

His new wealth springs from the Bakken formation, a sprawling deposit of high-quality crude beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the U.S. -- the world's biggest importer of oil -- a new domestic energy source at a time when demand from China and India is ratcheting up the global competition for supplies and propelling average U.S. gasoline prices to almost $4 a gallon.

And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.

Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.

So, this is a story of supply and demand. The high oil prices and the increased profits for oil production certainly offer incentives to find and produce more oil. I guess some have said that they believe annual production of oil worldwide has peaked, but stories like this seem to offer a much different picture.

This is a fun story to read, so read the whole piece, especially if you are unhappy about the prices you find at the pump these days. Here is the finish to the piece:

. . . with crude trading above $125 a barrel, it'll be a long time before the rigs leave again, and John Bartelson is likely to be a wealthy man before they do.

Earmarks: Corruption Continues

WALL STREET JOURNAL COMMENTARY:

"Remember those Congressional pledges of earmark reform? Democrats are hoping you don't, as they try to pull a fast one and evade President Bush's pledge to block these special-interest spending projects slipped into legislation without scrutiny.

The battle is over the $601 billion defense authorization bill, which the House passed last week, 384-23. Earmarks are supposed to be included in the text of legislation. Instead, the Members have 'airdropped,' in Beltway parlance, a huge number of them into the conference report that accompanies the bill. And, to ensure that the money is spent on these dark-of-night additions, the Members have included language insisting that federal agencies do so.

This is a blatant attempt to override Mr. Bush's executive order earlier this year on earmarks. That order took direct aim at 'airdropped' earmarks on grounds that they lack the force of law. If Members think their projects are defensible, then put them into actual legislation and vote on them. But because this can be politically embarrassing – think 'bridge to nowhere' – Members prefer to slip their pork into the conference reports that offer instructions on implementation. These reports are written by staff members, aren't debated or voted on by Members, and aren't signed by the President."

The corruption is clear, i.e., money is being spent by individual members of Congress and the entire Congress is participating in hiding these expenditures. Congress, not individual members of Congress, has the constitutional power to make appropriations. Whether the Democrat party or the Republican party controls Congress, and even after an election which emphasized the corruption of earmarks as well as promises to end the practice, the corruption continues. But, perhaps the continuing corruption is worse now, because this Congress seems to have made even greater efforts to hide the earmarks from public view.

Why make promises to reform but then make greater efforts to hide the practice of earmarks? Probably because members of Congress assume, as public choice theory tends to assume, that voters are rationally ignorant. It seems that members of Congress think they can spend tax money on friends, political benefactors, family, and even themselves because voters rationally choose to remain largely ignorant about the politicians they elect.

I'm afraid there is little that can be done unless there is a return to the conceptual understanding of government as a limited government that is constitutionally constrained by specifically enumerated powers.

Gasoline Demand

With the recent concerns about increased oil prices, I've had numerous conversations with students and others about the demand for gasoline. Many have asserted that people simply can't drive less even when the price at the pump increases. Of course, my response is that the demand for gasoline has a negative slope, just like every other demand curve. I also tend to add that the last time gasoline prices were as high in real economic terms as they are today, the decrease in quantity demand was an elastic reponse to higher prices over a relatively short period of time. These pictures, which are REPORTED IN THE NY TIMES, fit well with my expectations about the demand for gasoline.

Michigan's Tax Elasticity

WSJ COMMENTARY on Michigan state government:

Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be 'invested' in social spending and new businesses and lead to a Michigan renaissance.

Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales."

[ . . . ]

The tax hikes have done nothing but accelerate the departures of families and businesses. Michigan ranks fourth of the 50 states in declining home values, and these days about two families leave for every family that moves in. Making matters worse is that property taxes are continuing to rise by the rate of overall inflation, while home values fall. Michigan natives grumble that the only reason more people aren't blazing a path out of the state is they can't sell their homes. Research by former Comerica economist David Littmann finds that about the only industry still growing in Michigan is government. Ms. Granholm's $44.8 billion budget this year further fattened agency payrolls.

I don't like calling government an industry, but it is interesting to note that Michigan state government continues to grow even as people and businesses move from the state to greener pastures. Politicians and bureaucrats in state governments often seem to neglect the idea that people may well have a very elastic response to increases in the costs they face.

Maybe if government encroaches on liberty too much people will respond by taking their lives to other locales in which they can find just a bit more liberty.

Of Subsidies & Charity

ARNOLD KLING:

". . . I would argue that there is nothing morally wrong with receiving a subsidy, even from government. The moral corruption in government subsidies is not in the recipients, except insofar as they deliberately pressure legislators for money. The moral corruption is in the subsidizers, who are taking money involuntarily from A to give it to B."

I think this is an interesting point. There are people who are demanders of subsidies or gifts from others, and there are people who are suppliers of subsidies or gifts. When the suppliers respond by taking from their own pocketbooks, their charity is a good thing. But, when the suppliers respond by taking from the pocketbooks of others charity is not what is going on.

Drive Less

TIM HAAB writes about the high price of gas:

"The real question CNN should ask is: What can you do about $4 gas? There is only one answer. 'Drive Less'. You as a consumer have control over your own gas purchases and little over the market price. The choice to drive less may be uncomfortable, but all the whining, crying and shouting for the government to do something will only make the situation worse. Price controls, gas rationing, windfall profit taxes, gas tax holidays...are all bad policies that may make you (and politicians) happier in the short run but will make everyone miserable in the long run. Your solution to high gas prices is to adapt. Drive Less! If the market adjusts, all the better, you're saving even more money."

I guess he has heard of a demand curve. This is certainly the short run response because it is about the only way reduce consumption in the short run. Of course, in the long run, a person can respond to a higher gas price by purchasing a car that gets better gas mileage, or perhaps even by changing the location of his or her economic activities. There are already reports in the news of an increased demand for better gas mileage vehicles.

I'll Be Watching

This is well worth watching.

Obama's Capital Gains

A WALL STREET JOURNAL commentary notes Senator Obama has revised his views concerning increasing the capital gains tax rate:

After Senator Obama let it be known that he'd consider nearly doubling to 28% the current capital gains tax rate of 15%, he had to expect questions. In the Pennsylvania debate, the moderator pointedly asked Mr. Obama why he'd do this, since history has shown that higher rates bring less revenue. Mr. Obama's response was to take a shot at wealthy hedge fund managers.

Since then, he's done some homework on capital gains. In a weekend interview with Chris Wallace of Fox News Sunday, Mr. Obama was asked again about raising capital gains rates. Though still leaving open the chance of a higher rate, he suggested 'we might go back up to 20' (a number Hillary Clinton has proposed), because 'I'm mindful that we've got to keep our capital gains tax to a point where we can actually get more revenue.' Mark this down as economic progress.

Very interesting, eh? I suppose this isn't quite what we should call a "flip-flop." I do think it presents a curious change in his views over a relatively short period of time. I wonder which of the views he has publicly expressed about this tax rate he actually believes? Perhaps the Senator doesn't actually have a view about the capital gains tax rate? Perhaps he chooses his campaign rhetoric in light of his analysis that voters are rationally ignorant?

Senator McCain's Economy

Recently SENATOR MCCAIN gave a speech on the economy. Let's take a look at what he had to say.

I kind of like the way Senator McCain opens his discussion of the economy:

In our free society, it is left to each one of us to make our own way in the world -- and our jobs, businesses, savings, pensions, farms, and homes are the work of years . . . .

But, in almost no time, it seems to me he backs away:

Economic policy is not just some academic exercise, and we in Washington are not just passive spectators. We have a responsibility to act -- and if I am elected president I intend to act quickly and decisively. We need reforms that promote growth and opportunity. We need rules that assure fairness and punish wrongdoing in the market. We need tax policies that respect the wage-earners and job creators who make this economy run, and help them to succeed in a global economy. In all of this, it will not be enough to simply dust off the economic policies of four, eight, or twenty-eight years ago. We have our own work to do. We have our own challenges to meet.

He starts with freedom, and then turns to government acting to make reforms. I'm almost afraid to continue on because I suspect those reforms are not going to be for greater freedom.

Senator McCain seems to take a little time getting warmed up, but when he gets to the details about what he would like to do I think I can find quite a bit I can warm up to.

In so many ways, we need to make a clean break from the worst excesses of both political parties. For Republicans, it starts with reclaiming our good name as the party of spending restraint. Somewhere along the way, too many Republicans in Congress became indistinguishable from the big-spending Democrats they used to oppose. The only power of government that could stop them was the power of veto, and it was rarely used.

If that authority is entrusted to me, I will use the veto as needed, and as the Founders intended. I will veto every bill with earmarks, until the Congress stops sending bills with earmarks. I will seek a constitutionally valid line-item veto to end the practice once and for all. I will lead across-the-board reforms in the federal tax code, removing myriad corporate tax loopholes that are costly, unfair, and inconsistent with a free-market economy.

He then discusses a review of, and a different approach to, the government agencies and regulation that reminds me just a bit of the things President Reagan used to talk about. I'm not sure how much was changed in this regard by Reagan's presidency. I think there were some significant reductions in regulations and some improvements in bureaucratic operations, yet after time government in Washington has again become something for which Reagan's themes may now be reused in a McCain bid for the presidency.

Senator McCain has some interesting things to say specifically about tax reform:

The goal of reform, however, is not merely to check waste and keep a tidy budget process -- although these are important enough in themselves. The great goal is to get the American economy running at full strength again, creating the opportunities Americans expect and the jobs Americans need. And one very direct way to achieve that is by taking the savings from earmark, program review, and other budget reforms -- on the order of 100 billion dollars annually -- and use those savings to lower the business income tax for every employer that pays it.

So I will send to Congress a proposal to cut the taxes these employers pay, from a rate of 35 to 25 percent. As it is, we have the second-highest tax on business in the industrialized world. High tax rates are driving many businesses and jobs overseas -- and, of course, our foreign competitors wouldn't mind if we kept it that way. But if I am elected president, we're going to get rid of that drag on growth and job creation, and help American workers compete with any company in the world.

I will also send to the Congress a middle-class tax cut -- a complete phase-out of the Alternative Minimum Tax to save more than 25 million middle-class families more than 2,000 dollars every year.

[ . . . ]

The tax laws of America should also promote and reward innovation, because innovation creates jobs. Tax laws should not smother the ingenuity of our people with needless regulations and disincentives. So I will propose and sign into law a reform agenda to permit the first-year expensing of new equipment and technology... to ban Internet taxes, permanently... to ban new cell phone taxes... and to make the tax credit for R&D permanent, so that we never lose our competitive edge.

One of the more interesting tax proposals to ponder may be his suggestion with respect to a "flat" income tax:

. . . I will propose an alternative tax system. When this reform is enacted, all who wish to file under the current system could still do so. And everyone else could choose a vastly less complicated system with two tax rates and a generous standard deduction. Americans do not resent paying their rightful share of taxes -- what they do resent is being subjected to thousands of pages of needless and often irrational rules and demands from the IRS. We know from experience that no serious reform of the current tax code will come out of Congress, so now it is time to turn the decision over to the people. We are going to create a new and simpler tax system -- and give the American people a choice.

I wonder how taxpayers would respond if given this choice? If many choose the less complicated approach, perhaps this would be the opening of a door to a significant change in the way the federal government raises revenue. After all, the income tax code is so complex and so large essentially because our elected representatives find it impossible to resist supplying the rent seekers by writing special exemptions, exclusions, credits, etc., etc., etc., into the tax code. But, I suspect that even if many taxpayers chose the simple approach today that over time what would emerge is just a little new exemption or exclusion or credit to the simple approach one year, and then another a couple years later, and then several more later in order to fulfill some presidential campaign promise. Still, I wonder, if the Senator's specific suggestion here does catch voter attention, perhaps this would indicate an opening opportunity to significant tax reform that might tax consumption rather than income.

Here is some of what the Senator said specifically about free trade:

There's never been a problem Americans couldn't solve. We are the world's leaders, and leaders don't fear change, pine for the past and dread the future. We make the future better than the past. That is why I object when Senators Obama and Clinton and others preach the false virtues of economic isolationism. Senator Obama recently suggested that Americans are protectionist because they are bitter about being left behind in the global economy. Well, what's his excuse for embracing the false promises of protectionism? Opening new markets for American goods and services is indispensable to our future prosperity. We can compete with anyone. Senators Obama and Clinton think we should hide behind walls, bury our heads and industries in the sand, and hope we have enough left to live on while the world passes us by. But that is not good policy and it is not good leadershi p. And the short-sightedness of these policies can be seen today in Congress' refusal to vote on the Colombian Free Trade Agreement.

When new trading partners can sell in our market, and American companies can sell in theirs, the gains are great and they are lasting. The strength of the American economy offers a better life to every society we trade with, and the good comes back to us in many ways -- in better jobs, higher wages, and lower prices. Free trade can also give once troubled and impoverished nations a stake in the world economy, and in their relations with America. In the case of Colombia, a friend and crucial democratic ally, its stability and economic vitality are more critical now, as others in the region seek to turn Latin America away from democracy and away from our country. Trade serves all of these national interests, and the interests of the American economy as well -- and I call on the Congress once again to put this vital agreement to an up or down vote.

I know that open markets don't automatically translate into a higher quality of life for every single American. Change is hard, and while most of us gain, some industries, companies and workers are left to struggle with very difficult choices. And government should help workers get the education and training they need -- for the new jobs that will be created by new businesses in this new century.

Overall his views on trade seem good, although the last paragraph here suggests he may accept more government involvement than I would. He does promise to "give displaced workers of every age a fresh start with new skills and new opportunities," and with respect to the present mortgage crisis he says his approach would mean that "citizens will keep their homes, lenders will cut their losses, and everyone will move on."

He also proposes a "gas-tax holiday" between Memorial and Labor days this year. By suspending collection of federal excise taxes on gasoline the Senator says there would be an immediate economic stimulus. I'm sure I would welcome paying less in gasoline excise taxes, and I'll bet lots of other people would as well. Of course, this summer McCain cannot be President yet. Perhaps instead of proposing his tax holiday in a campaign speech the Senator could return to his work in the Senate and offer such a bill.

On the whole, the trepidation I expressed above was not well supported by McCain's view of the economy. I find much more in his view to like than I found in SENATOR OBAMA'S VIEW.

Climate Heretics

GLENN REYNOLDS:

THEY TOLD ME THAT IF GEORGE W. BUSH WERE RE-ELECTED, famous scientists would be punished for daring to dissent from politico-religious orthodoxy. And they were right!

Here is the article that motivates his comment:

By pioneering the science of seasonal hurricane forecasting and teaching 70 graduate students who now populate the National Hurricane Center and other research outposts, William Gray turned a city far from the stormy seas into a hurricane research mecca.

But now the institution in Fort Collins, Colo., where he has worked for nearly half a century, has told Gray it may end its support of his seasonal forecasting.

As he enters his 25th year of predicting hurricane season activity, Colorado State University officials say handling media inquiries related to Gray's forecasting requires too much time and detracts from efforts to promote other professors' work.

But Gray, a highly visible and sometimes acerbic skeptic of climate change, says that's a "flimsy excuse" for the real motivation — a desire to push him aside because of his global warming criticism.

Among other comments, Gray has said global warming scientists are "brainwashing our children."

Now an emeritus professor, Gray declined to comment on the university's possible termination of promotional support.

But a memo he wrote last year, after CSU officials informed him that media relations would no longer promote his forecasts after 2008, reveals his views:

"This is obviously a flimsy excuse and seems to me to be a cover for the Department's capitulation to the desires of some (in their own interest) who want to reign (sic) in my global warming and global warming-hurricane criticisms," Gray wrote to Dick Johnson, head of CSU's Department of Atmospheric Sciences, and others.

When science meets politics, it seems politics wins out. Bummer.

Global Warming

STOP GLOBAL WARMING NOW!

Capitalism Day

DON BOUDREAUX celebrated capitalism yesterday. Be sure to read his tribute:

"Peace and free trade."

Desperately Seeking Ludwig, F. A., and Milton

PETER BOETTKE:

"Right now the economics profession has not had a clear intellectual leader step forward to challenge the emerging statist hegemony in the wake of our current financial situation. We are in a state of desparately seeking the next Ludwig, F. A., and Milton. No disrespect to the great economists amongst us, e.g., Andrei Shleifer, or my colleagues at GMU, e.g., Tyler Cowen and Russ Roberts, but the arguments emerging from these talented men do not have the 'force' of those presented by Mises, Hayek and Friedman. And without that intellectual force, our future in the US is potentially very bleak as statism will crowd out market creativity, and wealth creation. Where is the next intellectual figure that will explain the impossibility of socialism, why the worst get on top, and why government policies are counter-productive?

How do we find these type of economists and how do we cultivate them? And without them can we survive the statist onslaught on our economic freedom?"