Tag Archives: National Defense

Four More Years to MAGAA

28 Wednesday Oct 2020

Posted by in Big Government, Liberty, Politics

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As a “practical” libertarian, my primary test for any candidate for public office is whether he or she supports less government dominance over private decisions than the status quo. When it comes to Joe Biden and his pack of ventriloquists, the answer is a resounding NO! That should clinch it, right? Probably, but Donald Trump is more complicated….

I’ve always viewed Trump as a corporatist at heart, one who, as a private businessman, didn’t give a thought to free market integrity when he saw rent-seeking opportunities. Now, as a public servant, his laudable desire to “get things done” can also manifest to the advantage of cronyists, which he probably thinks is no big deal. Unfortunately, that is often the way of government, as the Biden family knows all too well. On balance, however, Trump generally stands against big government, as some of the points below will demonstrate.

Trump’s spoken “stream of consciousness” can be maddening. He tends to be inarticulate in discussing policy issues, but at times I enjoy hearing him wonder aloud about policy; at other times, it sounds like an exercise in self-rationalization. He seldom prevaricates when his mind is made up, however.

Not that Biden is such a great orator. He needs cheat sheets, and his cadence and pitch often sound like a weak, repeating loop. In fairness, however, he manages to break it up a bit with an occasional “C’mon, man!”, or “Here’s the deal.”

I have mixed feelings about Trump’s bumptiousness. For example, his verbal treatment of leftists is usually well-deserved and entertaining. Then there are his jokes and sarcasm, for which one apparently must have an ear. He can amuse me, but then he can grate on me. There are times when he’s far too defensive. He tweets just a bit too much. But he talks like a tough, New York working man, which is basically in his DNA. He keeps an insane schedule, and I believe this is true: nobody works harder.

With that mixed bag, I’ll now get on to policy:

Deregulation: Trump has sought to reduce federal regulation and has succeeded to an impressive extent, eliminating about five old regulations for every new federal rule-making. This ranges from rolling back the EPA’s authority to regulate certain “waters” under the Clean Water Act, to liberalized future mileage standards on car manufacturers, to ending destructive efforts to enforce so-called net neutrality. By minimizing opportunities for over-reach by federal regulators, resources can be conserved and managed more efficiently, paving the way for greater productivity and lower costs.

And now, look! Trump has signed a new executive order making federal workers employees-at-will! Yes, let’s “deconstruct the administrative state”. And another new executive order prohibits critical race theory training both in the federal bureaucracy and by federal contractors. End the ridiculous struggle sessions!

Judicial Appointments: Bravo! Neil Gorsuch, Brett Kavanaugh, Amy Coney Barrett, and over 200 federal judges have been placed on the bench by Trump in a single term. I like constitutional originalism and I believe a “living constitution” is a corrupt judicial philosophy. The founding document is as relevant today as it was at its original drafting and at the time of every amendment. I think Trump understands this.

Corporate Taxes: Trump’s reductions in corporate tax rates have promoted economic growth and higher labor income. In 2017, I noted that labor shares the burden of the corporate income tax, so a reversal of those cuts would be counterproductive for labor and capital.

At the same time, the 2017 tax package was a mixed blessing for many so-called “pass-through” businesses (proprietors, partnerships, and S corporations). It wasn’t exactly a simplification, nor was it uniformly a tax cut.

Individual Income Taxes: Rates were reduced for many taxpayers, but not for all, and taxes were certainly not simplified in a meaningful way. The link in the last paragraph provides a few more details.

I am not a big fan of Trump’s proposed payroll tax cut. Such a temporary move will not be of any direct help to those who are unemployed, and it’s unlikely to stimulate much spending from those who are employed. Moreover, without significant reform, payroll tax cuts will directly accelerate the coming insolvency of the Social Security and Medicare Trust Funds.

Nonetheless, I believe permanent tax cuts are stimulative to the economy in ways that increased government spending is not: they improve incentives for effort, capital investment, and innovation, thus increasing the nation’s productive capacity. Trump seems to agree.

Upward Mobility: Here’s Joel Kotkin on the gains enjoyed by minorities under the Trump Administration. The credit goes to strong private economic growth, pre-pandemic, as opposed to government aid programs.

Foreign Policy: Peace in the Middle East is shaping up as a real possibility under the Abraham Accords. While the issue of coexisting, sovereign Palestinian and Zionist homelands remains unsettled, it now seems achievable. Progress like this has eluded diplomatic efforts for well over five decades, and Trump deserves a peace prize for getting this far with it.

Iran is a thorn, and the regime is a terrorist actor. I support a tough approach with respect to the ayatollahs, which a Trump has delivered. He’s also pushed for troop withdrawals in various parts of the world. He has moved U.S. troops out of Germany and into Poland, where they represent a greater deterrent to Russian expansionism. Trump has pushed our NATO allies to take responsibility for more of their own defense needs, all to the better. Trump has successfully managed North Korean intransigence, though it is an ongoing problem. We are at odds with the leadership in mainland China, but the regime is adversarial, expansionist, and genocidal, so I believe it’s best to take a tough approach with them. At the UN, some of our international “partners” have successfully manipulated the organization in ways that make continued participation by the U.S. of questionable value. Like me, Trump is no fan of UN governance as it is currently practiced.

Gun Rights: Trump is far more likely to stand for Second Amendment rights than Joe Biden. Especially now, given the riots in many cities and calls to “defund police”, it is vitally important that people have a means of self-defense. See this excellent piece by David E. Bernstein on that point.

National Defense: a pure public good; I’m sympathetic to the argument that much of our “defense capital” has deteriorated. Therefore, Trump’s effort to rebuild was overdue. The improved deterrent value of these assets reduces the chance they will ever have to be used against adversaries. Of course, this investment makes budget balance a much more difficult proposition, but a strong national defense is a priority, as long as we avoid the role of the world’s policeman.

Energy Policy: The Trump Administration has made efforts to encourage U.S. energy independence with a series of deregulatory moves. This has succeeded to the extent the U.S. is now a net energy exporter. At the same time, Trump has sought to eliminate subsidies for wasteful renewable energy projects. Unfortunately, ethanol is still favored by energy policy, which might reflect Trump’s desire to assuage the farm lobby.

Climate Policy: Trump kept us out of the costly Paris Climate Accord, which would have cost the U.S. trillions of dollars in lost GDP and subsidies to other nations. Trump saw through the accord as a scam under which leading carbon-emitting nations (such as China) face few real obligations. Meanwhile, the U.S. has led the world in reductions in carbon emissions during Trump’s term, even pre-pandemic. That’s partly a consequence of increased reliance on natural gas relative to other fossil fuels. Trump has also supported efforts to develop more nuclear energy capacity, which is the ultimate green fuel.

COVID-19 Response: As I’ve written several times, in the midst of a distracting and fraudulent impeachment attempt, Trump took swift action to halt inbound flights from China. He marshaled resources to obtain PPE, equipment, and extra hospital space in hot spots, and he kick-started the rapid development of vaccines. He followed the advice of his sometimes fickle medical experts early in the pandemic, which was not always a good thing. In general, his policy stance honored federalist principles by allowing lower levels of government to address local pandemic conditions on appropriate terms. If the pandemic has you in economic straits, you probably have your governor or local officials to thank. As for the most recent efforts to pass federal COVID relief, Nancy Pelosi and House Democrats have insisted on loading up the legislation with non-COVID spending provisions. They have otherwise refused to negotiate pre-election, as if to blame the delay on Trump.

Immigration: My libertarian leanings often put me at odds with nationalists, but I do believe in national sovereignty and the obligation of the federal government to control our borders. Trump is obviously on board with that. My qualms with the border wall are its cost and the availability of cheaper alternatives leveraging technological surveillance. I might differ with Trump in my belief in liberalizing legal immigration. I more strongly differ with his opposition to granting permanent legal residency to so-called Dreamers, individuals who arrived in the U.S. as minors with parents who entered illegally. However, Trump did offer a legal path to citizenship for Dreamers in exchange for funding of the border wall, a deal refused by congressional Democrats.

Health Care: No more penalty (tax?) to enforce the individual mandate, and the mandate itself is likely to be struck down by the Supreme Court as beyond legislative intent. Trump also oversaw a liberalization of insurance offerings and competition by authorizing short-term coverage of up to a year and enabling small businesses to pool their employees with others in order to obtain better rates, among other reforms. Trump seems to have deferred work on a full-fledged plan to replace the Affordable Care Act because there’s been little chance of an acceptable deal with congressional Democrats. That’s unfortunate, but I count it as a concession to political reality.

Foreign Trade: I’m generally a free-trader, so I’m not wholeheartedly behind Trump’s approach to trade. However, our trade deals of the past have hardly constituted “free trade” in action, so tough negotiation has its place. It’s also true that foreign governments regularly apply tariffs and subsidize their home industries to place them at a competitive advantage vis-a-vis the U.S. As the COVID pandemic has shown, there are valid national security arguments to be made for protecting domestic industries. But make no mistake: ultimately consumers pay the price of tariffs and quotas on foreign goods. I cut Trump some slack here, but this is an area about which I have concerns.

Executive Action: Barack Obama boasted that he had a pen and a phone, his euphemism for exercising authority over the executive branch within the scope of existing law. Trump is taking full advantage of his authority when he deems it necessary. It’s unfortunate that legislation must be so general as to allow significant leeway for executive-branch interpretation and rule-making. But there are times when the proper boundaries for these executive actions are debatable.

Presidents have increasingly pressed their authority to extremes over the years, and sometimes Trump seems eager to push the limits. Part of this is born out of his frustration with the legislative process, but I’m uncomfortable with the notion of unchecked executive authority.

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Of course I’ll vote for Trump! I had greater misgivings about voting for him in 2016, when I couldn’t be sure what we’d get once he took office. After all, his politics had been all over the map over preceding decades. But in many ways I’ve been pleasantly surprised. I’m much more confident now that he is our best presidential bet for peace, prosperity, and liberty.

When Government Externalizes Internalities

02 Sunday Feb 2020

Posted by in Government Failure

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The headline describes a kind of government failure. In an ideal private transaction, costs and benefits are fully internalized by the buyer and seller. Both reap private gains, or surplus, from mutually beneficial transactions. On the other hand, there are cases in which external costs are inflicted on otherwise unrelated third parties, as when production emits pollutants. Or, there might be external benefits that inure to third parties, as when a homeowner pays to beautify their property and the whole neighborhood gains. These “externalities” are commonly citied as rationale for government interference in private markets. A good government, it is said, would seek to “internalize the externalities”, in one way or another, to prevent too much trade in a good imposing external costs, or too little trade where there are external benefits. Imposing taxes, granting subsidies, intervening with price controls, quotas, or various regulations are all ways in which corrective action might be attempted by public authorities.

The problem is that government often chooses badly, both misidentifying externalities, poorly estimating their magnitude, or in choosing how best to address them. When mistakes of this nature occur, the internal gains from trade are not just compromised or even destroyed. They are often externalized — revoked and redistributed to non-participants. The formerly private and internal gains may be extracted in the form of taxes, ultimately flowing to unconnected third parties. They are externalized internalizes, if I may coin a phrase. In other cases, in order to subsidize favored industries, individuals might be taxed on their income. Yet the favored industry is likely  unconnected or external to the taxed individual’s source of income. While the gains that might accrue in the favored industry are internalized there, their source is an externalized internality.

Putting the troubling issue of takings or confiscation aside, these mistaken interventions distort relative prices and production decisions, with false signals propagating into other markets — which again are external effects. This, in turn, distorts the allocation of resources across various uses. These cases are clear-cut examples of externalized internalities.

I will confine this discussion to economic matters. By “internalities“, I mean all things within the economic realm that are private and/or reserved to the individual by natural rights. That includes private property and the individual’s freedom to trade and contract with others.

Wrongly taxing presumed “bads” or wrongly subsidizing presumed “goods” are absolute cases of externalizing internalities. And taxing a “bad” excessively (at more than its true social cost) or subsidizing a “good” excessively (at more than its true social benefit) are cases of externalizing internalities. The political temptation to subsidize might be the greater danger, as it is all too easy for public officials and politicians to identify and sell “deserving” causes, especially if they intimate that others will pay.

For example, subsidized education, which primarily benefits private individuals, is billed to the taxpaying public. It over-allocates resources to education, including students with greater value as human resources in other pursuits. Subsidized energy pays the seller of a power source more than its value to buyers, courtesy of taxpayers, and over allocates resources to those energy sources relative to non-subsidized energy and other goods.

Even if an industry is taxed in exact accordance with its true social cost, there is still the question of how the proceeds of the tax are to be distributed. Ideally, unless the social costs are borne equally by all, the distribution should bear some proportionality to the damages borne by individuals, yet that is seldom considered outside of certain kinds of litigation. The true victims will almost certainly be shorted. Benefits will accrue to many who are free of any burden inflicted by the undesired activity. The corrective action thus fails to properly address the externality, and it bestows an incidental external benefit on wholly unconnected parties.

Likewise, subsidies paid to an industry in exact accordance with its true social benefits require taxes that may burden individuals who do not stand to benefit from the subsidized activity in any way. That is true unless the industry in question produces a pure public good. Indeed, if the taxed individuals had a choice in the matter, they would often use the funds for something they value more highly. Thus, suboptimal distribution of the tax proceeds for funding a less-than-pure “social good” involves the extraction of an internality.

Other forms of government action have similar externalization of internal costs or benefits. With the imposition of a wage floor, or minimum wage, the least-skilled workers are likely to lose their jobs. Consumers are likely to pay higher prices as well. The job losers become more dependent on public aid, which must be funded via taxes on others. The wage floor will also degrade working conditions for those lucky enough to keep their jobs. All of these effects of market intervention demonstrate the public piercing of internal gains from private, voluntary trade. Some of what is excised gets spilt, and some gets siphoned off to external parties. Thus internalities are externalized.

Regulation of private industry often results in regulatory capture, whereby regulators impose rules with compliance costs too high for small competitors and potential entrants to afford. This obviously strengthens the market power of larger incumbents, who may in turn increase prices or skimp on quality. Taxpayers pay the regulators, consumers pay the inflated prices, smaller firms shut down, and resources are under-allocated to the product or service in question. These distortions spill into other markets as well. All these effects are part of the despoilment of internal gains from trade. To the extent that trades are prevented at competitive prices, the external winners are those who capture trades at higher prices, along with the regulators themselves and anyone else standing to benefit from graft as part of the arrangement. And again, the wrongful gains to the winners can be described as externalized internalities.

There are many other examples of government failure that fit the description of externalized internalities. In fact, extracting internalities is the very essence of taxation, though we readily accept its use for expenditures on goods that are of a truly public nature, which by definition confer benefits that are non-exclusive. The classic case, of course, is national defense. The differences in the cases of government failure cited above, however, are that the internalities extracted via taxation or other forms of intervention are externalized for private gain by other parties, no matter how widely distributed and diffuse. This is an extremely pernicious kind of government failure, as it ultimately leads to a cannibalization of private activity via our role as public actors. Beware politicians bearing gifts, and beware them just as much when they demonize private trade.