Growthology

President Obama Promotes Entrepreneurship

In case you missed it, here is President Obama in the State of the Union speech last night, underscoring the important role of entrepreneurs:

It means we should support everyone who’s willing to work, and every risk-taker and entrepreneur who aspires to become the next Steve Jobs. After all, innovation is what America has always been about. Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.

This may have been a reference to the Startup Act, versions of which have been introduced in both the House and Senate. Even so, any mention by the president of the vital role that new companies play in economic growth is noteworthy, especially because, as many claim, public celebration of entrepreneurs is an important cultural attribute.

Wadhwa: Promises, Promises on the Startup Visa

Vivek Wadhwa provides some troubling news about the fate of the startup visa being DOA.

... Chopra dropped a bombshell at the Economist event. He said that the President would only support the Startup Visa in the context of “comprehensive immigration reform”. What this means is that the legislation will be lumped in with toxic debates about illegal immigration and will be held hostage to other interests.

... I received confirmation from a staffer in the office of Senator Lugar (one of the two sponsors of the Startup Visa Act) that without the support of the White House, the legislation has almost no chance of passage. The

If immigration reform is the Rubik's cube of domestic policy, why are politicians saying they will solve it with just one move?  A few years of Washington experience have taught me that some issues are never meant to be solved ... they're just too valuable politically if they stay unsolved.

Growing Pains

My inaugural column for Forbes.com, "Avoiding the Coming Growth Slowdown," is now up.  Here's a teaser:

Consider this puzzle. Compare economic performance in two periods: 1973-1990 versus 1990-2007. Both periods are 17 years in length; both begin and end with the last year of an economic expansion. In the earlier period, the U.S. economy weathered oil shocks, stagflation, and a punishing recession in the early ’80s, and growth in labor productivity in the nonfarm business sector limped along at a dismal 1.33 percent a year. In the latter period, prosperity was interrupted only by a pair of brief, mild recessions, and the IT revolution led a dazzling rebound in productivity growth up to 2.33 percent a year. Yet in 1973-1990, real gross domestic product per capita rose at an average annual rate of 1.93 percent – better than the 1.85 percent average annual growth rate during 1990-2007. How could that have happened?

Check out the whole thing.

Raising Productivity Growth

Courtesy of the McKinsey Global Institute, here is an interesting new contribution to the debate kicked off by Tyler Cowen's The Great Stagnation. This new MGI report -- entitled "Growth and renewal in the United States: Retooling America's economic engine" -- doesn't mention Tyler's book, but it offers evidence that supports his argument -- as well as that of his critics. On the one hand, MGI makes a strong case that we are facing strong headwinds when it comes to prospects for future growth. On the other hand, contrary to Tyler, the report points out that there's plenty we can do about it.

The MGI report singles out demographics as the main obstacle to future growth, and it makes a strong case. Think about per-capita GDP growth as a function of two variables: growth in output per worker-hour (i.e., productivity growth) and growth in total worker-hours per capita. If the latter slows down, the former has to speed up for growth to stay on trend. According to MGI:

Today, however, the contribution from labor is slowing down as baby boomers retire and the female participation rate has plateaued. In the next ten years, the proportion of working-age Americans will decline from 67 percent to 64 percent. By the 2020s, the contribution of labor to US GDP growth rates is expected to decline to just 0.5 percent from a peak of 2.0 percent in the 1970s.

Accordingly, to avoid a dropoff in the long-term growth rate, labor productivity growth needs to compensate for the unfavorable demographic situation. Specifically, the MGI report says that output per worker-hour would need to increase by nearly a quarter to maintain the historical average of 1.7 percent annual growth in real GDP per capita.

Unlike Tyler, though, the folks at MGI don't think the orchard of "low-hanging fruit" is bare.  They see plenty of opportunities to boost productivity: diffusion of existing best practices, implementation of the next wave of emerging business innovations, and restructuring of low-productivity and highly regulated sectors (namely, education and health care) all offer promising gains. 

In addition, the report helpfully points out that our demographic situation is not unalterable. If the United States could achieve the same labor force participation rates for women and workers 55-64 as Sweden, the same youth unemployment rate as the Netherlands, and the same immigration rate as Australia, it could expect to add a full percentage point to its real GDP growth rate over the next 10 years. 

On a critical note, the MGI report is sometimes frustratingly short on specifics. In particular, it's much too vague in addressing what needs to be done to boost the abysmal productivity record of the health and education sectors. Nonetheless, it does frame the issue well -- and points the discussion in a more constructive direction than Tyler's fatalism.

Argument and Hypocrisy

A word of unsolicited caution to ideological partisans: when arguing a point, do not base your case on a point of principle or theory that you outright reject in other circumstances. This is known as hypocrisy.

For two or three decades, many connected to the world of philanthropy and private foundations have been arguing that the tax exemption enjoyed by private foundations (and the charitable deduction granted to individual citizens) is a government subsidy. This argument is made principally, but not exclusively, by those on the liberal end of the spectrum and has even gone as far as one Congressman declaring that tax exemption is a federal "earmark" to foundations. The exemption/deduction = subsidy argument is made to justify expansive government intrusion into the working of private foundations: mandating types of spending, staff composition, etc. That is, there are two claims at work. The first is that foundations are subsidized through the tax code; the second is that this subsidy makes private philanthropy "public" and therefore subject to public (government) ownership and control.

In other areas of public policy this line of argument is known as "tax expenditure theory"--tax credits and deductions and exemptions are government "expenditures," whether in fact or in financial equivalence. (The Joint Committee on Taxation prepares an expenditure report in which it calculates the "cost" of deductions and exemptions and credits.) It is a long-running debate and many, including myself, have argued against the use of the theory to justify far-reaching public ownership or control of philanthropy. Perhaps not suprisingly, this argument has been made mostly, but again not exclusively, by those on the right.

Now, in the resurrected debate over federal funding of abortion, the ideological markers are reversed: conservatives argue that tax credits and exemptions for certain types of abortion services are really government subsidies and therefore need to be eliminated--or that this justifies expansive government restriction on those services. Those on the left, meanwhile, now say that such elements of the tax code are not subsidies and therefore cannot be made the crutch of this line of argument.

The tax expenditure/subsidy argument will likely never be resolved, but it doesn't necessarily have to be. Both sides (of course, it is really all sides or everyone because I can't even tell where the "sides" are anymore in the above arguments) can accept, I think, that an exemption acts as a subsidy, both in financial equivalence (though not perfecty given the frictions and costs of collecting taxes and then redistributing as a subsidy) and in terms of an affirmative government decision to encourage (or discourage) some activity through the tax code. (The tax code has long been a major vehicle for policymaking.) What I disagree with, and what both the left and the right are now doing, is taking this one step further and arguing that this equivalence or this government "decision" justifies further restrictions because that "subsidized" activity is now "public." This is not a permissible line of logic: the right cannot defend philanthropic independence by cabining the tax exemption/subsidy argument and then turn around and use that exact same argument on the abortion issue; the left cannot color all private philanthropy as "public" and then turn around and say tax exemptions are actually not subsidies in the case of abortion. Everyone needs to be more honest about the assumptions underlying their arguments. Like that will ever happen.

State of the Union Word Cloud

 

And, according to the New York Times, President Obama used "innovation" 9 times (compared to two in 2009), and "government" 18 times (compared to seven in 2009).

1099 Hell

There was a showdown over the 1099 issue in the Senate yesterday.  The health care legislation, as you may recall, has an insane requirement that every business must report every vendor relationships exceeding $600, which is arguably the nastiest nugget buried in the legislation.  Imagine an eBay entrepreneur who uses Kinko's, FedEx, Staples ... and has to fill out paperwork on each one (as if the IRS didn't know those firms).  Now multiply that by 40 million firms. 

Because everyone in Washington knows this part of the bill is a disaster, everyone wants to fix it. 

Not so fast.  Rather than just repeal the provision, some Senators simply want to "fix" it. RCP reports:

The White House is backing a proposal by Sen. Bill Nelson, D-Fla., to exempt firms with 25 or fewer workers and raise the reporting threshold to $5,000 for the rest.

But Nelson's amendment failed a 60-vote procedural test 56-42. That vote came shortly after the Senate also sidelined, by 46-52, an amendment by Sen. Mike Johanns, R-Neb., that would have repealed the reporting requirement.

Economist dog whistle: what's the marginal tax rate on that 25th employee?

To make this even more fun, I wanted to remind myself what the 1099 looks like.  Take a moment to savor the IRS form itself in all its PDF glory, or this wikipedia entry.  Before that, take a quiz I cobbled together to test your 1099 awareness (answers below):

Which of the following text is on the IRS Form 1009-MISC or in its instructions?

1. The official printed version of this IRS form is scannable, but the online version of it, printed from this website, is not. A penalty of $50 per information return may be imposed for filing forms that cannot be scanned.
2. Box 2. Payments to Independent Contractor
3. Box 5. Fishing Boat Proceeds
4. Box 13. Excess Golden Parachute Payments
5. Box 15a. May show current year deferrals as a nonemployee under a nonqualified deferred compensation (NQDC) plan that is subject to the requirements of section 409A, plus any earnings on current and prior year deferrals.
6. General and specific form instructions are provided as separate products. The products you should use to complete Form 1099-MISC are the 2010 General Instructions for Certain Information Returns and the 2010 Instructions for Form 1099-MISC. A chart in the general instructions gives a quick guide to which form must be filed to report a particular payment.
7. For Privacy Act and Paperwork Reduction Act Notice, see the 2010 General Instructions for Certain Information Returns.

Answer (scroll down)

 

 

 

 

 

 

 

 

 

ALL OF THE TEXT APPEARS ON THE FORM 1099 AND ACCOMPANYING INSTRUCTIONS, EXCEPT OF COURSE, "Box 2. Payments to Independent Contractor."  THAT MUCH SHOULD BE OBVIOUS SINCE THIS IS THE FORM FOR INDEPENDENT CONTRACTORS.

 

 

 

Where does the Laffer curve peak?*

Ezra Klein asks "Where does the Laffer Curve bend?" but he's really asking where it peaks.  It bends at the origin, of course, a tax rate of 0.1  percent. 

Many experts think the Laffer Curve peaks around 60-70 percent, but I'm confident none of them would recommend this as the target rate.  Maximizing government revenue is a hideous goal, fit for the likes of Kim Il Sung.  The goal, one would hope, is to maximize human welfare.  This starts with considerations of private wealth generation, should include deference to liberty and personal property, and end with careful appreciation of long-term growth.  All of those point to an optimal lower rate which would be lower relative to the preferences of the respondents.  My guess is that even the most ardent social planners would opt for a rate no higher than 50 percent. But it would be pretty easy to argue for a top rate of 15 percent.

It's a shame that very little empirical evidence is known on this question.  I've been working on some experiments, but need to finish up those working papers with the results.  At minimum, this seems like ripe material for the next blogger's survey, no?

My Failed Jobs Program ... from the archives of?

Guess who wrote the following article (quoted in part)?

(a) Brad DeLong
(b) George Will
(c) Michael Kinsley
(d) Amity Shlaes

The government makes it comically difficult for the honest citizen to hire a single employee -- and makes it virtually impossible to do it correctly. I'm fairly bright. My assistant is very bright. Between us we have spent many, many hours struggling over the forms. Yet it is inconceivable that we can have got it all right. Now, as a result of my rash attempt to create a job, neither one of us can ever become Attorney General.

Obeying the rules for a part-time household employee is fairly simple, once you get the hang of it. The government sends you a form every three months. You return it with an easy-to-compute check. Once a year, the government sends you a W-2 form, which you fill out in something like octuplicate.

But hiring a full-time business employee plunges you into an entirely new dimension of complexity. By my count (which undoubtedly is wrong), it takes a minimum of 37 different forms and 50 separate checks to hire a single employee for a year, even if she graciously agrees to be paid only once a month.

Forms. At the federal level, there is the employer-registration form, which gets you your employer number; the W-4, which counts the employee's deductions; the annual W-2, listing all income earned and taxes withheld; the W-3, summarizing all the W-2s (required, even when there is only one W-2); Form 941, "Employer's Quarterly Federal Tax Return"; plus forms with each check you write. The District of Columbia requires its own employer- registration form (with, of course, a different employer number); its own D-4 model of the federal W-4; and the ever-popular FR-900BO, "Annual Reconciliation and Report," plus forms with each check.

Checks. Once a month, one check goes to the employee, and another goes to pay for health insurance. One monthly check goes to the feds and another goes to the District of Columbia, reflecting federal income-tax withholding, federal Social Security and Medicare (employee's and employer's shares), and local income-tax withholding. Separate checks go to the feds and the District of Columbia -- only one a year each! -- for unemployment insurance. (The District of Columbia form is called "Quarterly" but needs to be filed annually. Or so I think.) The chance that all these checks are for the right amounts is slim.

***

Hiring an assistant is a wonderful way to keep an assistant busy -- and to keep busy yourself. It wasn't long after we started sending paperwork to the government before the government started firing paperwork back at us. The IRS wanted to know: Where was my Form 941 for the quarter before my employee was hired? We confidently batted that one right back again -- no Form 941 was due for that quarter, you idiots! -- and got the undaunted response, "We are taking no further action at this time, but we may need to contact you again if other tax issues arise." And indeed they have arisen.

You can find out the answer here, where the essay was originally published in 1994.  Or you can find the author's archives here. This is one of my favorite pundits, fyi, and the archives are a treasure.

Who Declared War on Entrepreneurs?

Nick Schulz over at the Enterprise Blog draws our attention to an apparent crackdown by the IRS on the flexible employment arrangements used by many independent contractors and small businesses. It's not clear what impact this will have but, anecdotally at least, there have been reports that many new and young businesses in this recession have been turning more and more to freelancers and contractors. And we've seen the average size of new companies shrink over the past few years by about two employees--as noted in the story above, this likely indicates increasing use of such flexible arrangements.

Put this together with the anti-angel provisions in the Dodd bill (which I think may have been slightly diluted recently), and it seems as if someone has declared a war on startups. Which is, in other words, a war on job creation and economic growth.

Who's scared of a Value Added Tax?

There's a lot of chatter about the U.S. adding a Value Added Tax (VAT) to solve its looming fiscal crisis.  The Feds need to tax more and spend less to bridge the trillion dollar annual deficits, right?  Here's Bob Carroll and Alan Viard in TaxNotes:

Recommendations that a VAT be considered have been more common than outright endorsements of the tax. The idea surfaced briefly as a possible source of revenue for healthcare reform.6 House Speaker Nancy Pelosi, D-Calif., recently commented that ‘‘it’s fair to look at’’ a VAT, and Senate taxwriter and Budget Committee Chair Kent Conrad, D-N.D., has said that a VAT should be on the table in future tax policy discussions.7 Two former Federal Reserve chairs have made similar statements: Paul Volcker has referred to a VAT as a ‘‘possible approach,’’ and Alan Greenspan has said that it must be considered as a possible way to reduce the deficit.8

The fact is the U.S. is the only advanced economy that doesn't have a VAT. Americans have no appetite for adding another tax.  But they might just be willing to trade for one. So which tax would the pro-VAT crowd be willing to give up?  Corporate is probably the leading candidate, because it raises far less revenue than other major taxes, it is sensitive to recessions (generating half as much during busts as booms), and because it is really bad for growth.

CBO lists these major revenue sources for the federal government in FY 2009:

• $915 billion ... Individual Income Taxes
• $891 billion ... Social Insurance Taxes
• $138 billion ... Corporate Income Taxes
•  $62 billion ... Excise
•  $23 billion ... Estate and Gift

Based on this paper (HT Marginalrevolution.com), a VAT raises revenue at under half its rate in GDP terms, meaning that a 10 percent VAT historically brings in around 4 percent of GDP in revenue.  Since corporate income taxes raise 1-2 percent of GDP in the U.S., then a revenue neutral VAT replacement would, I think, be roughly a 4 percent tax on consumption. 

But why stop there?  Conservatives (and some liberals) hate the estate tax.  Offer to eliminate it along with the corporate income tax in exchange for a VAT of 5 percent, and everybody's happy.  Right?

But why stop there?  If a grand tax bargain is in the works, why not put a serious gas tax on the table?  Jim Hamilton tells us that the U.S. consumes 12 billion gallons of gasoline in a typical month.  That's a Gross Billion a year (144 for math geeks). A one dollar gas tax would (ceteris paribus) yield $144 billion a year.  Make it six bucks a gallon, and you could kill the form 1040 forever.  I like it.  In fact, I like this little fantasy a lot better than doing my taxes tonight ...

Let us tax work

It's unbelievable, but higher taxes on work are coming to most states in the Union.

The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold.

If anyone wants an easy bipartisan job-creating legislative idea, top of the list is to give states the flexibility to modify the Unemployment Insurance (UI)I system. A smart policy would let states opt out entirely, given that UI is proven to prolong joblessness. There are alternative approaches, but they will be left untested so long as one-size-fits central planning from Washington continues (as it has for decades). Or did I hear that everything is on the table?

Why the Media Doesn't Understand the Tea Party

If you added up all the words in the MSM about the Tea Party phenomenon, the snark would outweigh the insights by a 2-1 or maybe 3-1 ratio.  The Tea Party is not some right wing extreme within the Republican party, rather it is an intelligent, if populist, and almost predictable reaction to the failure of the 2-party duopoly to restrain both the growth of big government and the yawning deficit. Unfortunately, the media paradigm is stuck with a binary view of politics in America: Democrat/humanitarian/labor/biggovernment versus Republican/militant/corporate/antitax. It's a false frame, and the Republican party has been especially hypocritical in the last half century.

Look, this quasi-movement could easily start morphing into a third party... "The notion that the Tea Party movement is a vocal minority in the Republican Party may have been put to rest today. A new three-way generic ballot from Rasmussen Reports finds that a Tea Party candidate would fare better than a Republican candidate, 23% to 18%, with the Democratic candidate coming out on top at 36%. The poll also found 22% remained undecided." Wow.

As Rick Santelli, who may have inspired the tea partiers with a famous March 2009 rant said to Chris Matthews, "This isn't a left and right issue." (Seen here in this link to a good Megan McCarlde blog post).

I just wonder why it's so easy for my highly educated friends to dismiss the tea partiers, as if they were rabid. The Rasmussen survey confirms the hunger for a huge swath of Americans - the same kind of folks who backed Ross Perot in 1992 - to return to the limited federal role enshrined in the Constitution. They have been bubbling under the surface because the political system has effectively kept them locked out.

"Debt is the salve on the wound of rancorous politics. It fixes everything! Until the bill comes due" says WaPo's Joel Achenbach in another mini-masterpiece.  Well, not quite. Debt is the result of a broken political process, not a salve or side-effect of a functional process. And deficits will not be fixed without a better politics -- less gerrymandering, fewer election laws that favor incumbents and incumbent parties, and zero restrictions on free speech. Bets on that kind of reform happening?

Every two years we get candidates who promise to change the ways of Washington, to forge a bipartisan consensus. The result? Highly evolved creatures that speak glowing centrist rhetoric and produce hyper-partisan legislation the spends more and taxes less. And it is getting worse.

If you want to understand the anger about "re-using TARP money" to pay for a new job stimulus, just remember this: Americans were promised the $700 billion in TARP funds would be repaid in full. This was investment, not spending. And now? 

Would a Jobs Credit Work? A Response to Pozen

(Bob Litan)

Main Street is impatient with the pace of the recovery. Yes, the stock market has rebounded smartly from its March lows; and yes, government statisticians tell us that total output of goods and services actually increased at an annual rate of 3.5% in the third quarter, most likely marking an official end to the Great Recession. But on Main Street, unemployment has now passed 10%, and many more Americans are discouraged from looking for work, or engaged in part-time jobs unable to upgrade into full-time work.

No wonder then that policy makers in both political parties are frantically searching for ways to reverse the monthly job losses and start putting more Americans back to work. One idea that has attracted a lot of attention is a temporary tax credit or a partial or total suspension of the payroll tax to encourage employers to begin hiring again.

Robert Pozen, a thoughtful and experienced financial expert, recently provided some useful analysis of this idea, and came up with a highly targeted job creation proposal designed to provide the largest bang for the policy bucks (to minimize the impact on the uncomfortably large federal deficit). The notion is to provide a 15% tax credit, up to $100,000 per employee, for employers making net additions to their payrolls, but require that half of the new workers come from the ranks of the previously unemployed.

However, this proposal would limit the credit only for already established employers – those in business prior to some cutoff date (Pozen suggests September 30th of this year). The rationale for excluding all new firms from eligibility is to prevent existing firms from breaking themselves up or forming new subsidiaries or affiliates simply in order to qualify for the credit.

What sounds like a minor detail – the eligibility cutoff – would actually be a big mistake--for it reflects a fundamental misreading of which firms are most likely to hire new workers and sustain the recovery after the stimulus measures wind down and are eventually withdrawn.

A new Kauffman Foundation study documents that over the past three decades, until this recession, new firms (those one to five years old) have been responsible for much or all of the net new jobs created in our economy. Remarkably, even in the teeth of the recession, through 2008, the number of new business starts, as measured by another Kauffman study, has actually increased modestly. What we don’t know is whether the constraints on business credit or other impediments will deter these new firms, as well as those recently created, from continuing the historical pattern by being the prime source of net job creation now and in the years ahead. What do know, though, is that excluding new firms from receiving any job tax credit will certainly break that historical pattern – hardly the outcome anyone wants.

Fortunately, there is much more straightforward way to prevent the kind of gaming that Pozen worries about: in calculating the employment benchmark for determining whether a firm has added to its payrolls, the tax authorities should include all subsidiaries and affiliates in which a firm has an equity interest above a certain threshold (such as 10% of  an entity’s equity).

Meanwhile, policy makers should continue to look for other ways to boost the formation and growth of new companies, which are not only likely to be source of new jobs but of the next wave of new products and services that will restore optimism about our economic future.

Some examples: Establish a “job creator’s” visa for immigrants who launch new companies and hire workers; fix bank capital requirements so that they are less likely to discourage business lending in economic downturns (by making the requirements less pro-cyclical); allow shareholders to determine whether their companies should adhere to all or a portion of the requirements of the Sarbanes Oxley Act that make it more expensive for high growth companies to go public and thus expand on their rather than to sell out; and encouraging the development of a truly free market in the licensing of technologies developed by our universities using federal research funds, which would accelerate the commercialization of innovations that will reshape our future. (The House Financial Services Committee recently voted to extend the exemption of small companies from Sarbanes-Oxley's section 404(b). The measure still needs to pass the full House and Senate and does not affect the requirement that these companies comply with section 404(a).)

Agree or disagree, as you may, with some of these specifics. But the source of America’s remarkable job growth, our new firms, is not in dispute. As we all seek to dig our way out of our current economic hole, we cannot leave our entrepreneurs out of the solution, because they are the solution.

--Bob Litan

Where Have All the Loans Gone?

Last week the Obama Administration announced the expansion of a few Small Business Administration (SBA) loan programs, raising the cap on 7(a) loans, increasing the size of "microloans," and offering more aid, via TARP, to community banks. Questions will persist about the efficacy of SBA loan programs for new and small companies, as well as the effect of TARP restrictions on community banks, but two things are immediately clear. 

First, business loans have plummeted during this recession (via Econompic):

Worse, they show absolutely no upward trend in recent months:

(Source: John Mauldin.)

Any expansion of capital for businesses, even from the SBA, should theoretically help in some way. Credit is the oxygen line of new firms and they have been courting asphyxiation in this recession. 

Second, new and young businesses are the primary source of net job creation in the United States, yet this fact of economic life has for the most part been lost on policymakers (and media) obsessed with restarting the hiring process at large, established companies. Any recognition, therefore, of the importance of new firms and their access to capital can only be a good thing.

These steps aren't a silver bullet, mind you, and officials in Washington and every state capital continue to cast around for anything that will address (or appear to address) the dire employment situation this country faces. Nonetheless, President Obama's announcement is a step in the right direction and it comes on the heels of the creation within the Department of Commerce of a new Office of Innovation and Entrepreneurship. New firms are the drivers of job creation, and now Washington is finally turning to them.

Cato's Downsizinggovernment.org

DC is filled with hot air about controlling spending, but the think tank CATO takes that mission seriously. Here is the main text from the page of the Dept. of Agriculture:

All agricultural and rural subsidies in the Department of Agriculture’s budget should be abolished to save taxpayers $25 billion annually. In addition, agricultural trade barriers should be repealed. Current agricultural and rural policies are economically and environmentally damaging, and they create unfair transfers of wealth.

The department's food subsidy activities—food stamps, school lunches, and WIC—are properly local and private functions. They should be devolved to the states, with each state determining appropriate policies for its own residents. Such reforms would save federal taxpayers $79 billion annually. Some states may decide to fund food subsidies on their own, but competition between the states would likely result in smaller, more innovative programs.

Forest Service subsidies to state governments and private businesses should be ended. Congress should also explore options to transfer the national forests to the states or to new independent trusts that would be self-funded from forest-related receipts.

The table shows that these reforms would eliminate more than 90 percent of the USDA’s budget, saving federal taxpayers $108 billion annually, or about $923 per U.S. household. Under the proposal, the USDA would retain responsibility for animal and plant health inspections, food safety, grain and packing inspections, and conservation activities.

Check out downsizinggovernment.org.

The site is an impressive piece of work, on substance and style. Makes me wonder what other government related websites have you seen with such an efficient, informative, and clean design?

Strong Words from Jim Hamilton

Jim Hamilton, founder of the blog econbrowser and one of my dissertation advisers, writes in reaction to some University of California professors who suggesting a strike on the first day of class as a protest against the system-wide salary cut:

There are any number of things that happen in life that may not be as I would have wished. But one of my core principles is never to take that out on the students I am asked to teach.

If some of my colleagues perceive that they now have better opportunities than teaching at the University of California, I'd encourage them to resign so that they can take advantage of those opportunities.

If not, they need to stop whining and do their jobs.

And perhaps even be thankful that, unlike many other Americans, they still have one.

Impressive statement.  And yes, a sad situation for the great state of California.  While I strongly oppose bailouts for individual states, I would have preferred a stimulus bill that gave block grants to all 50 states (population weighted, of course).  Alas.

California remains an important story for its lesson in political failure, cousin of the term market failure. Its ambitions overstretched its capacities, and now the government is struggling to find balance with a handful of dysfunctional political institutions in the way. We can only hope they get a constitutional convention in place that establishes a workable government -- and not one that just jacks up tax revenue potential. That way spells brian drain.

Time will tell. But we should be thankful for the government employees who remain committed to service even while paying for the sins of their leaders.

Entrepreneurs (And Everyone Else Who Has Flown Since 1978) Owe a Debt to Ted Kennedy

Guest post by Charles C. Johnson

At the risk of wading into the political weeds, allow me to suggest that entrepreneurs owe Ted Kennedy a debt of gratitude for his work regarding airline and trucking deregulation. (h/t: Nick Gillespie of Reason Magazine.)

And the benefits of airline deregulation? The US Department of Transportation estimates that passengers save $19.4 billion dollars per year, thanks to lower fares due to deregulation. Today, airline ticket prices are almost 40% today than they were in 1978. 

 

Boycotters Call for Whole Foods Founder to Be Removed as CEO

Guest post by Charles Johnson 

The ire over Whole Foods CEO, John Mackey's WSJ op-ed on health care has entered a new phase, with union boycotters calling for him to be removed as CEO and chairman by the Whole Foods board. I quote, 

"Mr. Mackey attempted to capitalize on the brand reputation of Whole Foods to champion his personal political views, but has instead deeply offended a key segment of Whole Foods consumer base," CtW Investment Group's Executive Director Bill Patterson said in a statement. 

Meanwhile, the United Food and Commercial Workers Union, which is part of Change to Win, said it will be giving out information to Whole Foods shoppers about health care reform. The group said Mackey's op-ed was an "attempt to undermine Obama's health-care reform."

First of all, the boycott is clearly failing. Whole Foods's stock hasn't fallen a bit since the boycott began. If anything, it's increased! (Which, incidentally, is welcome news to this Whole Foods admittedly extremely small scale stock owner.)

Second of all, why don't we want entrepreneurs injecting their politics into the national debate? If it is acceptable for entrepreneurs to inject their politics into the debate in favor of increasing marginal tax rate, increasing the gax tax, and removing subsidies on fossil fuels? Why isn’t it okay for one entrepreneur, who by all accounts has helped his employees get some of the best coverage available, to weigh in on the health care debate? 

We should be thanking Mr. Mackey for bringing his expertise to bear on a problem of national import, particularly given his experience insuring his own work force!  

(For those interested in greater detail, be sure to check out Megan McArdle's excellent post explaining why the Whole Foods boycott is really a non-starter.)

Bernanke the Great

Federal Reserve Chairman Ben Bernanke has been asked by President Obama to serve a second term in the current post, which is deeply good news for America. (I do worry if this is good news for the Professor;  can you imagine how many sleepless nights the man endures?)

Changing horses mid-stream is always a foolish risk, but especially now when the horse is doing just fine.

Bernanke will and has endured severe criticism, most of it ignorant. History will reflect that the Fed was the hero in the crisis, in sharp contrast with the Treasury and the frivolous American legislature. Nobody will be surprised if the bulk of the "stimulus" bill is revealed as impotent in future studies, whereas the monetary policies of Bernanke's Fed will almost certainly be shown to be the key to arresting the panic.

Creative, decisive, expert, even agreeable. Calm. Independent. These are his traits. And I honestly believe only Bernanke can know the intricate details of the current crisis, the policies in place, and the fragility of the world economy. Obama was very wise to renominate Ben Bernanke, and not to put up a new person who would, however intelligent, face a daunting learning curve.

Next up: higher rates!  (Let's see how many friends of Ben there are in 2012. I'll be there.)