Weekend Music Chill

Super Tuesday is coming up with a lot of heartland and southern primaries. Here is some music to get us warmed up.

Little Feat with Bonnie Rait and EmmyLou Harris performing Dixie Chicken.



Little Feat is not really southern, but they sure sound like they should be.

And from Austin, TX here are The Fabulous Thunderbirds with Powerful Stuff.

Teacher's Unions Act Like Thugs in Adelanto

The WSJ has an article today on how parents in Adelanto, CA near Victorville, were harassed over their desire to get a decent education for their kids at Desert Trails Elementary. Further, after they successfully petitioned under California's "Parent Trigger Law" for changes to the governance of their school; at least two parents had their names forged or altered on a rescission document. With teachers unions acting like such thugs, why do we let these people educate our children? Because the thugs are mostly from the unions; the teachers themselves aren't so bad. But teachers should reconsider the support they give to their union, it is giving teachers a bad name.

Few dispute that Desert Trails Elementary fails its students, yet last week the Adelanto school district ruled that the trigger drive lacks majority support because 97 parents rescinded their original petitions.

But based on interviews we've conducted and sworn affidavits we've reviewed, it's clear that many parents were harassed into rescinding.

In the Desert Trails parking lot and at front doors across Adelanto, strangers confronted parents and spread untruths about the trigger drive: that it would force the immediate closure of Desert Trails, for example, or result in the firing of all teachers, or cause certain children to be expelled. Some parents heard the trigger drive was an embezzlement scheme. Others had their immigration status questioned.

. . .

At least three Adelanto parents have also signed affidavits swearing that the rescission documents bearing their signatures were doctored before being delivered (in photocopied form) to the district.

And from the LA Times:

Those involved in the rescission effort, including the California Teachers Assn., the Adelanto District Teachers' Assn. and Chrissy Alvarado, a parent leader opposed to the parent trigger petition, denied any wrongdoing.

And One More Thing About Romney's Victory

Hot Air is reporting that exit polling is showing that Romney won among Republican voters 47% to 37% among Republicans. Since the exit polling was within a point or two of the actual results, we can assume that Santorum seriously underperformed among Republicans. Not sure how this can be spun as Romney being a weak Republican candidate.

Romney's Big Night

Whether or not Mitt Romney wins Michigan tonight, this is a good night for him. Romney started the night with a 99 delegates to Santorum's 47, a lead of 52. When the night is over his lead will grow to approximately 143 to 62, a lead of 81. Further, he will have amassed 55% of the delegates available to date. Romney is competing in every state, but no one else is. He will get the nomination because he is better organized. On Super Tuesday, his advantages will become clear, and he will build an even bigger lead. He starts that day with about a 49 delegate lead, as neither Santorum nor Gingrich will be on the ballot in Virginia. It's hard to see why their is so much breathless drama on the TV about all this.

Delegate information from RealClearPolitics.

Yes, I am supporting Mitt Romney. I might have preferred other candidates, but they didn't run. Running for President isn't for the faint of heart. We shouldn't count it against Romeny that he is making a serious run for a second time.

America's Vital National Interests

I am taking a class on strategic planning that includes discussions of America's national interests. I was pleasantly surprised at the constitutional view of the national interest implied in the course's definition. From Graham Allison's document America's National Interest.

. . . we subscribe to the sturdy one-line summary of American vital interests, first
formulated in the late 1940s: to “preserve the United States as a free nation with our
fundamental institutions and values intact.” According to this summary America’s vital interests include (1) survival as a free nation with our fundamental institutions and values; and (2) the international conditions required therefor—in current vernacular, to safeguard and enhance the well-being of Americans in a free and secure nation.

However, this definition of vital national interest got me thinking about the words "free nation" and "fundamental institutions." Both concepts require a little more elucidation to be applied meaningfully to future planning. They are also a little slippery when we grapple with them. For example, what it means to be a "free nation" has undergone revision over time. Today, we might not call a nation free that allowed slavery, and only allowed male land owners to vote. By that standard, today's Saudi Arabia, would be considered more of a free nation than post-revolutionary America. Yet, we consider our nation the enduring continuity of that grew from that original revolution and we consider ourselves exemplars of what it means to be free. The same might be said of the concept of fundamental institutions, which has the misfortune of using part of the euphemism once used to describe slavery, "peculiar institution." Just what institutions are considered fundamental in a republic such as ours? Are only the institutions of government fundamental? I feel confident that de Tocqueville would think otherwise. So how does one determine which institutions are fundamental and what freedom means?

I don't have a full answer to the questions of institutions, but the concept of maintaining our status as a free nation seems clear. The freedoms enshrined in the Constitution of the United States form the basis of deciding whether or not we remain a "free nation." The interpretation of these freedoms does change over time, but they are enduring enough to form a stable basis for making a judgement about what is vital to the national interest. This means that the rights enshrined in the Bill of Rights and the limits placed on the federal government in the constitution must be observed. This also has the benefit of restricting the grandiosity of our planning inside the federal government. Regardless of the threat we might face, we must respond within that framework or we are not truly acting in the national interest. This is a deeply political understanding for those of us in the federal government, enshrined in our oath of office.*

With regards to the concept of our fundamental institutions, those can only be inferred by observation. Unfortunately, it seems that the concept as discussed in "America's National Interest" only applies to the institutions of government. Other institutions such as the integrity of the family unit or the web of volunteer organizations that alleviate so many ills of our society, are worthy of protection under the meaning of fundamental institutions. However, it is not up to the government, federal or otherwise, to prop any of them up in any particular form, merely the government should do no harm. It is my belief that the constitution, as originally intended, limits the power of the federal government to do so; but the meaning of those limits have been so stretched that government is intruding into areas where American's voluntary groups have traditionally held sway. Recognizing the practical as well as constitutional limits of government might be a start.


*Full text of federal employee oath of office:

I, [name], do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.

The federal Office of Personnel Management helpfully adds this explanation:

As Federal civil servants, we take an oath of office by which we swear to support and defend the Constitution of the United States of America. The Constitution not only establishes our system of government, it actually defines the work role for Federal employees - "to establish Justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty."

Bombing Iran

Calvin Coolidge is famously said to have described a Sunday sermon as being about "sin." When asked what the preacher had said about it, he said "He was agin it." Similarly, I feel the same way about the topic of bombing Iran, "I'm agin it." The Economist has both a leader and extensive analysis on the subject, and draws the same conclusion. In summary, the attacks are unlikely to be successful in halting Iran's ambitions and will invite retaliation at great cost. Some may wish to believe that an attack would destabilize the regime; but if so, why have dictatorships throughout the ages manufactured external threats to consolidate their grip on power. I have some expertise in this area, my professional opinion is that neither the U.S. nor Israel have the means to indefinitely derail Iran's nuclear ambitions.

However, a nuclear armed Iran; given the current leadership, would be a disaster for the world. It would certainly embolden Iran to continue to meddle in the affairs of its neighbors. Further, one should consider that the Iranians would actually launch nukes at Israel. So doing nothing is also unacceptable as well. The element of time is essential, and the best published Israeli estimate is that the Iranians are two to three years away from possessing four nuclear warheads that could be mounted on ballistic missiles. (As an aside, those who ridiculed Reagan's ideas that we should invest in anti-ballistic missile technology are owed a big fat slap down. While ABM technology can't stop thousands of Russian nukes, the argument used against the project, a mere four nukes is a much simpler, although still complex problem.)

The threat of Israeli bombing has had the salutary effect of convincing the world to take tougher sanctions. Inflation and unemployment are ratcheting up. The Iranian currency has lost half its value. The latest sanction is to shut out Iran from the world's electronic banking system, which is basically the same thing. But we need to keep thinking asymmetrically, that is rather than directly attacking the offending program, attack where Iran is weak. Going after the gasoline imports that Iran needs, despite all its oil, should be the next move. Despite reducing its dependency on gasoline imports, they are still running at 50,000 barrels per month. The regime's weakness accrues to its mismanagement of the economy; it practices a sort of theocratic socialism. Its support comes from outside of the cities, where the socialistic largess is directed.

Finally, the shock of seeing nuclear weapons actually launched 65 years since the only two that were ever released in war will shock the world. We might consider that Iran itself would be profoundly changed if it did so. We have seen Pakistan possess nuclear weapons for some number of years, and it is far less stable, and no nukes have been used. While I don't want to count on the Iranians not using their nukes, we have to remember that their use brings a huge downside to their government as well.

Stuff That's Not News

Dog bites man isn't really news, as the old saw goes, but "Man Bites Dog," will sell newspapers. Modern news organizations seem to have forgotten that. Here's some headlines of late that I choose to mostly ignore because they are in the "dog bites man" category.

Afghans riots and kill people over Koran burning/Mohammed insult.
Greeks riot over government cuts.
Raising taxes results in unexpected revenue shortfall. (BTW this could be on zillionaires or cigarettes.)
Islamists pass sharia laws.
Obama continues or increases some Bush era policy.
Lady Gaga does [fill in the blank with anything outrageous].
High flying Patriot team loses in the Super Bowl. (OK, that last one was just schadenfreude.)

Feel free to provide your own in the comments.

Weekend Music Chill

I have given up alcohol for Lent, so the best I can do to satisfy that yen is play a little George Thorogood.



While we're on this theme, here are the Blues Brothers with "Hey Bartender."

City Emails On Snapdragon Name Change

I have blogged my outrage a couple of times over local crony capitalism of Jerry Sanders giving away city naming rights to Qualcomm by allowing the temporary name change to Snapdragon. The U-T posted a treasure trove of emails that paint an unflattering picture. I have excerpted two of them here. Here is the city's CFO wondering why the city isn't getting a cut of the value of the advertising, hooray for Mary Lewis.



Here is Jay Goldstone, the Mayor's Chief Operating Officer, deciding that he has a license to practice law and that this whole signage thing is really all about how fast he can please his corporate buddies at Qualcomm.


Mr. Chris Larson is a senior planner for the city, also presumably, not a lawyer.

Two things are very awry here. First, the city appeared to violate the law both on signage and the terms of the Qualcomm naming deal. Second, the city lost out on a money making opportunity that might have helped the taxpayers. But the deeper malaise that infects city hall defies logic; why did the city staff trip all over themselves to help out a local corporation? I am not anti-business, I am just against business advancing their interests at the expense of the taxpayers. This is a long term trend in San Diego that needs to end.

Bad Day to Miss the News

I missed the news yesterday and missed some good news stories, which are infrequent enough. (Work and class pressures were too much.)

Pension Reform Measure Stays on on the Ballot, Survives Two Lawsuits

In the first lawsuit, the California Public Employment Relations Board tried to take the almost unprecedented step of preventing a citizen initiative on pension reform to reach the ballot on the thin legal argument that it was actually a city government sponsored initiative, which violates good faith bargaining principles.

In his ruling, Judge William Dato said case law is clear that the court should block a measure only when it is clear beyond a doubt that it is invalid. He said he found no compelling reason to keep the initiative from the ballot when its legality can be still be challenged later.

Exactly. Further, even if city officials were involved in the initiative process, which is what the PERB alleges, they are citizens, too, and have the right to launch an initiative process.

The second lawsuit

. . . filed by mayoral candidate and attorney Hud Collins, claims the measure is a major revision to the City Charter, and can't be put on the June ballot by way of petition signatures.

But Judge Steven Denton ruled that the initiative won't affect the "structure" of city government, so it's a valid amendment to the charter.

So much for pre-election legal challenges. This initiative will clearly pass in June. I think the unions know it, hence the legal wrangling. Get ready for post-election lawsuits to prevent the law from taking effect. If any city employee is reading this blog, could you please explain how this hurts you; I understand how the union bosses get hurt, but how does the union member get hurt.

Comprehensive Smackdown of Warmist Scaremongering

The WSJ published a second smackdown of the theory that man made CO2 is causing catastrophic global warming. Of course increased CO2 has some impact, the questions about how much and whether this is even a problem are not clear. Further, the supposed climate experts have no clue as to whether the vast economic tradeoffs necessary to shift from a carbon based energy economy are worth it. They rail against supposed non-experts who question their findings, and yet launch themselves into economic discussions in which they are clearly uneducated and untrained. The pseudo-scientific cult of warmism has all the hallmarks of religion. A few choice quotes from the scientists who have gone public with debunking the theory that we are all doomed.

When predictions fail, we say the theory is "falsified" and we should look for the reasons for the failure.
. . .
From the graph it appears that the projections exaggerate, substantially, the response of the earth's temperature to CO2 which increased by about 11% from 1989 through 2011. Furthermore, when one examines the historical temperature record throughout the 20th century and into the 21st, the data strongly suggest a much lower CO2 effect than almost all models calculate.
. . .
Given this dubious track record of prediction, it is entirely reasonable to ask for a second opinion.
. . .
The Trenberth letter tells us that decarbonization of the world's economy would "drive decades of economic growth." This is not a scientific statement nor is there evidence it is true. A premature global-scale transition from hydrocarbon fuels would require massive government intervention to support the deployment of more expensive energy technology. If there were economic advantages to investing in technology that depends on taxpayer support, companies like Beacon Power, Evergreen Solar, Solar Millenium, SpectraWatt, Solyndra, Ener1 and the Renewable Energy Development Corporation would be prospering instead of filing for bankruptcy in only the past few months.

Thanks for that.

As I continue to point out, if the warmists were serious they would have called for a carbon tax with an income tax offset as the economically most efficient means of delivering CO2 reduction. That they do not is proof of their statist aims.

Santorum's Odds on In-Trade Drop

Ok, I admit this is today's news, but Santorum has too much big government baggage and emphasis on social issues when the nation has to face down the debt-star. I would hope that social conservatives see that government that is limited in all areas is to their advantage. Notice how every expansion of government eventually intrudes on religious beliefs, usually in a negative way, e.g. Obamacare vs the Catholic Church. Santorum can make a big show of defending Catholicism against Obamacare, but he has some history in causing the problem in the first place.

DeMaio Event

Temple of Mut has done a great job of keeping up with state and local issues on her blog. Case in point is today's post regarding Democrats for DeMaio, in which she gets out to meet Carl DeMaio in person at the local Albertson's. DeMaio's reasoned and reasonable approach to union pushback on the pension reform plan is highlighted. Good for Carl for his willingness to engage the public, including his opponents.

To be clear, I have endorsed Carl DeMaio for Mayor, but I have seen nothing to dissuade me from that position. Thanks to Temple of Mut for some intrepid citizen reporting. (Disclaimer: The Southern California Tax Revolt Coalition does not endorse candidates for office, this is a personal endorsement.)

Concerns Over China

While others have been worried about China's supposed strengths, I am actually worried about its weaknesses and potential impact on world politics. I have already discussed that their industrial pollution and lack of affordable housing are unsustainable. The housing issue arises from two policies that work to prevent a healthy real estate market. First, Chinese workers are forced to save with state sponsored banks at low interest rates. Lacking healthy returns, they cannot effectively save to purchase real estate. Second, the banks, while flush with cash, have been directed to loan to "strategic" businesses. Until lately, that has not included businesses building apartments or homes.

A new trend is appearing that also bodes ill. China's economic expansion to date has been largely dependent upon export driven growth, but limits on its ability to export might drive its foreign policy in a more belligerent direction, since the benefits of free trade that accompany peaceful accommodation are lowered. We are now seeing wage inflation in China continuing unabated. Over at Carpe Diem, Professor Perry has posited that the rise in Chinese wages has contributed to significant reshoring of American manufacturing capacity. This has the same net effect as trade restrictions on Chinese exports. I believe that China's military bellicosity has been held in check because their economic dependence on exports gave them an interest in preventing overt actions that would disrupt world trade. As a result, they have confined their military efforts to a build up of capability and to cyber attacks and espionage because these would not harm exports.

If export driven growth dries up, causing a recession, I believe the incentives regarding threatening a Taiwan invasion will change. Chinese annexation of Taiwan, against the wishes of those people would be a disaster for the world order. One of the bedrock principles of American foreign policy has been that borders of nation-states may not be changed by force. It is in our interest to keep this concept sacrosanct, in order to prevent a tipping point of global land grabbing that we lack the military might to stop on more than one front at a time. If Taiwan resisted by force of arms, with U.S. aid, it would be bloody and highly disruptive to the world economy.

I don't think the trend line is so drastic that China's exports will dry up overnight, but it is a long term strategic trend that requires watching.

More Evidence the Greeks Will Default

As Dean is fond of saying constitutional republics, are like, hard. In the case of Greece, no matter what the government does, the people aren't going to accept the necessary measures to pay back their debt, and for good reason, they probably can't. However, in a parliamentary system, such a question should have been put to the people in the form of new elections before the negotiations continue. But the current "unity" government has plunged ahead with voting on austerity measures that seem uncertain to actually solve the debt problem, and definitely won't if too many more buildings are burnt and all the tourists leave. A vote would have the salutary effect of denying legitimacy to the protesters, because they would either have to live with the measures or take responsibility for the consequences of default. Either way, they might receive a dose of reality.

But this all might be mooted because even the Germans don't think the Greeks are going to pay much back, which has been my opinion all along.

The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets.
. . .
Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole,"

The only remaining question is what happens after a de facto default? I think that the Greek economy is going to go through a long depression. The only way they will be able to receive new lending to finance a recovery, will be to pledge physical assets, like their islands and the Parthenon perhaps. Even then, lenders would be reluctant to accept the collateral without constitutional protections to prevent nationalization.

Pretty nice collateral?

But let's also be clear about the game being played by the rest of the EU. An anonymous commenter previously posted that it is not really that big a deal if the Greeks default, the worry is the example set and the impact to banks. Much of the worry has been about the spread of bank failure if Greek default causes Italian and Spanish bond yields to rise. Once again, too big to fail leads to irrational economic policy. No one wants to learn this lesson, not the U.S. and not the Europeans. Heck even the Chinese prop up their banks with enforced savings and below market interest rates for the working stiff. So instead of too big to fail, why don't we require ever increasing capital reserve requirements as banks become larger? That would make it harder for big banks to leverage access to cheap capital from the Fed to make easy money, but that should be their problem.

Paul Ryan Smackdown of Geithner

Paul Ryan asks Timmy the Tax Cheat about the long term trajectory of the Obama budget. Timmy's response, "We don't have a definitive solution... We just don't like yours." Now there's some leadership.



A graphic from Geithner's own budget report:


A full discussion is available at the American Enterprise Institute blog.

Being Like Europe?

The lines of difference between social-democratic Europe and the capitalist America were never as strong as our caricatures made them seem. But watching the direction that Germany is driving Europe, I wonder how soon conservatives will be wishing we were more like Europe. I was a bit surprised to read of an Italian politician saying this about the Euro, in the context of a country's inability to devalue to gain competitiveness.

The common currency prevents politicians from fantasizing that they can devalue—and inflate—their way to prosperity. Instead, as Italy's new prime minister, Mario Monti, put it, growth "will have to come from structural reforms or supply-side measures."

Structural reforms that took place in Germany after the unification with the East have put on a path to long term health and low unemployment. Despite suffering an economic downturn in 2008, like the rest of the world, Germany's unemployment rate stands today at 5.5%. From Der Spiegel:

One of the triggers was the reform that combined unemployment assistance and welfare payments into a new entity known as Unemployment Benefits II. "The incentives to work have increased, especially for the qualified unemployed," says Dennis Snower, president of the Kiel Institute for the World Economy (IFO).

As described in ThinkProgress:

Specifically, the government took a fresh look at people who had not worked in years to determine who could and couldn’t work. The able and healthy were matched with potential employers. If they took a low-paying job, which was often the case, they would still receive a small portion of their benefits for a time. If they refused to work, their benefits were reduced anyway.

“The incentives to take up work were strengthened,” says Felix Hüfner of the Organization for Economic Co-operation and Development, “and also the sanctions were strengthened.” Sure enough, the reforms have nudged more people back into the labor force — and work tends to beget more work, as people develop skills and have more money to spend.

Also, as part of Germany's "Agenda 2010" program, passed in 2003, strict protection for workers long serving in jobs was also removed.

I am not saying that Germany is now less protective in terms of preventing workers from being fired than the U.S., but the reforms show that increased labor market flexibility and limiting unemployment compensation pays off. That 5.5% unemployment rate is looking good to me.

Picture is of the city of Dortmund, North Rhine-Westphalia.

Weekend Music Chill

Been listening to instrumental surf music of late. Here are two favorites.

Here are The Torquays with Bumble Bee Twist.




And Los Straitjackets with The Lonely Apache




I posted another favorite last May, The Eliminators Surf Band from the OC performing El Barracho.

October Surprise?

Well not a surprise, maybe, but certainly this could impact the election. According to Senator Rob Portman (R-OH), pictured, the current debt ceiling may be breached right before the election.

According to Table 6-2 in the President’s Budget’s “Analytical Perspectives” volume, the President estimates the total debt subject to the statutory limit – growing by $132 billion per month – will reach $16.334 trillion at the end of FY 2012 (September 30, 2012). This is just $60 billion below the current debt limit. Thus, without a change in the debt trajectory, the debt ceiling will be eclipsed by October 15, 2012 unless the Department of Treasury again uses emergency protocols to shift that date past Election Day 2012.

You can bet big bucks that Timmy the Tax Cheat will be pulling out ALL the stops to make sure that the debt crisis rolls past election day.

Portman makes another good point.

. . .his [Obama's] new budget increases spending and projects that Washington will be hitting the debt ceiling again in mid-October – burning through a $2.1 trillion debt limit increase in just over 14 months. This is an unfortunate but clear signal to the American people that Washington is spending too much, borrowing too much, and putting our nation’s fiscal stability at risk.
. . . President Obama’s budget increases the debt by $11 trillion over ten years, falling woefully short of addressing this pending fiscal crisis. Chock-full of gimmicks and stimulus spending, this is a political document . . .

Well said.

By the way, I told you so.

Payroll Tax Fiasco - Again

Not content to aid Obama' s re-election, Republicans are jeopardizing their chances of retaining the House of Representatives by showing no principle in the fight over the payroll tax temporary reduction. It seemed like a weak sequel to their December foolishness. Since it was clear that they were always going to cave on a deal to continue to blow a hole in Social Security's finances, what principles were they standing for that got in the way of a deal.

Not that the Democrats acted much better, but they seem to have won the media battle. Democrats were talking up a surtax on those earning over $1 million as a way to offset the lost revenue.

Of course, none of this is sensible policy. But neither party operates by any fixed set of principles, so how can we expect any sensible outcome.

A Real Tax Fairness Plan

Obama's proposals to tax the rich more are red herrings; they may appeal to the class warfare instincts of his base, but have little to do with raising the revenue necessary to fund the federal government. Our tax policy is a mess, there are huge loopholes, gifts to special interests with marginal rates left too high to make up the shortfalls. His proposals do nothing to alleviate these problems. The result is that corporate and personal tax lawyers can offer their clients positive return on investment by gaming the system to avoid taxes, all in a legal manner. The complexity of the tax system matters, because inefficiencies in tax collection and complexities in compliance are a drag on the economy People want the rich to pay their "fair share," but the left seems intent on making a show of punishing the rich for their success. That is not the same as actually punishing the rich, which might dry up donations, as their is no taste for closing off exemptions.

Given the income tax structure and the desire for fairness, a flat tax with no deductions and credits seems the fairest system. But what forms of income should be taxed? My initial instincts would be to only tax ordinary income, and leave investment alone. But that results in some truly unfair situations. Billionaires whose income derives from their investments would not be taxed at all; which situation would be politically unpalatable, even if you thought it was appropriate. The problem with taxing the rich is that they can shift their income among three sources, corporate profits, dividends, and capital gains; effectively arbitraging income sources to reduce their tax rate. However, taxing all of these sources of income at the same rate has the effect of double taxation on ordinary investors who lack the ability of the super-rich to reallocate sources of income.

Consider two examples. Joe Sixpack puts away a little money that he invests in Microsoft to get a better rate of return than the bank. Microsoft's profits are taxed, and then they can pay a dividend. In turn, Joe pays taxes on the dividends as income, resulting in a double taxation rate. If there was a flat tax of 20% on all income, the effective tax rate for Joe's investment income is 40%. From a policy perspective we need Joe to save, so the double taxation is a disincentive. But what about Jane Billionaire? She may own her own company, so she can retain the profits in the firm, not pay a dividend, too avoid a double taxation; its her company. If we made dividends tax free, then she could declare big dividends and reap the tax free income. Her wealth gives her options that Joe lacks. We want to tax Jane fairly, but don't want her to have an effective rate less than Joe's.

I haven't even argued about the need to eliminate all the loopholes in the system. The loopholes are the scraps that attract the vermin of lawyers and lobbyists to keep invading the House (and Senate). Given that a single flat tax without loopholes is preferable; we need to solve the Joe vs. Jane issue. My proposal would be to eliminate all capital gains and dividend taxation for individuals earning less than $500,000 and couples earning less than $1,000,000 per year. This would have the added advantage of encouraging savings, which the country desperately needs to counteract the effects of the recession. It is standard economic theory that a country's GDP growth can't outstrip its savings rate. Setting these limits would also prevent the wealthy from using tax policy arbitrage to avoid taxes, making this the fairest system imaginable.

We would also want a reasonably high standard deduction to prevent the working poor from experiencing the highest marginal tax rates. Coming off tax free welfare and into a paying job shouldn't result in a reduced standard of living due to income taxes. (This is the theory behind the earned income credit.) We could probably set a flat tax rate at about around 16%-18% and still bring in enough income to fund the federal government at its historic percentage of GDP. Further, even the if the wealthy were getting double taxation on dividends or gains, it would only be at the 32%-36% range, hardly a historically unprecedented level.

If the President really cared about the tax fairness he would propose something like this, and the "rich" would definitely pay their fair share; certainly a higher rate than the rest of us. But I don't think they would mind, because they could fire their tax lawyers and stop worrying so much about taxes.

(I ran the numbers on my own situation using a $20,000 standard deduction plus $5,000 for each dependent and continued destructibility of my 401(k) at the 17% flat rate. I found that my taxes would increase by about 15% over what I am paying now. It would be worth it to get my savings into tax free status and to not worry so much about taxes.)

Peak Workers, Not Peak Oil is the Real Problem of the Future

Demography is the most precise of the social sciences. It deals in high statistical accuracy and predicted trends play out over decades. To some extent the problems of debt and future liabilities for the United States are wholly predictable from demographic trends. Unfortunately, these problems are global, not limited to the United States. The percentage of the population that is able or willing to participate in the labor force is going to undergo huge shifts over the next two decades, with predictable consequences. (To get ahead of myself, this is why I believe we need to solve the illegal immigration problem quickly, so that we can establish the conditions to allow massive legal migration, while we still have that option.)

Doug Saunders, a reporter for Canada's Globe and Mail, highlights some interesting issues. He calls the problem, peak people, but I think the term peak workers is more accurate.

About 11 per cent of the world’s people are over 60 at the moment. In the next 25 years that will double, to almost a fifth, and one in six of those people will be over 80, according to a forthcoming book, Global Aging in the 21st Century, by sociologists Susan McDaniel of the University of Lethbridge and Zachary Zimmer of the University of California.
. . .
The cheapest labour will vanish. We’re already seeing this: Because China is aging very fast, its dwindling working-age population is turning down the lowest-paid jobs and pushing up the minimum wage sharply, as well as the once-minimal costs of social services: Stuff from China will stop being cheap, because the Chinese aren’t young.
. . .
Peak people will also be an age when countries will be competing for immigrants rather than trying to limit them. Immigration has spared Canada from the worst of aging, but immigrants adopt host-country family sizes very quickly, so they’re a temporary fix. And if their home countries are competing to keep them, then we'll have a harder time finding young people who want to come.

Saunders doesn't address the public pensions issue much in the article, but that will be a key area of dispute. As we have seen in Greece, people don't much like having their wages or entitlements cut. But Social Security has always been run on an implicit assumption that there would be sufficient workers replacing the one's leaving and receiving benefits. What if that is no longer true? Look at this population pyramid:


We can see the bulge in the 45-54 year old age category which will spell trouble since there are fewer workers behind that group. But look here is the Chinese problem.


Source of graphs is NationMaster.com, which aggregates publicly available facts in an easy to use fashion.

We can see that their pension problem is farther in the future, but is much more significant. Further, as their population bulge enters its peak earnings years, it will drive up average wages.

The United States has had a higher fertility rate than other first world nations. I am not sure that will continue to hold up. We have always been a nation of immigrants, attracting the best and brightest from all over the world. We need to be thinking about this problem now, and attracting young skilled immigrants before the competition heats up. All that is really required is for government to get out of the way, by ending unnecessary limits on H-1B visas, and letting those with such visas have a path to citizenship.