Thursday, February 06, 2003

Statement by Jule R. Herbert Jr., President of the National Taxpayers Legal Fund (in 1984, that is)

Found on the internet: 1984 testimony of yours truly before a Senate Finance subcommittee on a "taxpayer bill of rights" proposal -- which passed in some form, as I recall. But the important point was concerning the tax system itself:

"Of course, changing a few procedural rules about the tax collection process is just a beginning. For example, it is no longer possible to deny that the problems of the U.S. economy over the last several decades were caused in substantial part by the tax system. The fact that this system has a pervasive institutional bias against saving, capital formation, work incentives, and relative price coordination seems to be generally recognized. Certainly the positive reforms which were passed in 1981 (especially tax rate indexing and the reduction of the marginal rates) could not have passed in the intellectual climate of just a few years earlier. That more was not done in 1981 was not because the advantages of easing the constraints imposed by the tax system on the market economy were not seen by many, but because there has been little progress in linking tax reform to necessary reforms of government spending.

I would argue that the cost of runaway government spending is much greater than the amount of resources which are thus taxed, borrowed, or taken from the American people through the insidious process of inflation. Its growing drain on the ability of government to conduct itself in a rational manner not only presents an almost insurmountable obstacle to needed tax reform, but in addition entails negative "nonfiscal" effects on the social structure, damaging thereby the market economy and, indeed, the very prospects for a stable political order.

The whole ethos which provides the justification for work, saving, voluntary exchange, and property rights is undermined as government spending expands without apparent constraint. If groups can simply "vote" themselves increasingly larger shares of the community's wealth, then the effectiveness of free-market institutions for the production of wealth becomes problematical."

This is great stuff, back when I was profound and very nuanced.

The Trouble with Deficit Finance

Roger Garrison, Professor of Economics at Auburn, takes a look at the run-away deficit:

Mitchell E. Daniels Jr., the White House budget director, is reported as claiming that the current deficit, "representing 2.7 percent of the nation's gross domestic product, was not large enough in percentage terms to cause trouble or to raise interest rates...."

Didn't Everett Dirksen used to say that the main purpose of GDP (GNP in his day) was to make everything else look small by comparison?

Even at that, Mr. Daniels made the deficit look a little smaller than it actually is. His 2.7 percent suggests a GDP of about $11,300 billion. The readily available Federal Reserve Economic Data (FRED) provided by the St. Louis Fed shows that current GDP is closer to $10,300 billion, making the $304 billion deficit equal to 2.95 percent.

More to the point, GDP makes for a politically attractive but economically irrelevant denominator. How much is government borrowing relative to the funds available for borrowing? The relevant denominator is total saving and not total output. FRED shows the current annual rate of gross saving to be $1,574 billion. And the government is borrowing just under 20 percent of it. Does Mr. Daniels believe that this percentage is not large enough to cause trouble or to raise interest rates? And if so, just what percentage would be large enough?

Tuesday, February 04, 2003

Jurors in pot case decry their own verdict

Federal prosecutors and court keep evidence away from the jury in a medical marijuana prosecution in California. Defendant was actually working for the City of Oakland. Malum prohibitum prosecutions enforcing sumptuary laws should not have the same standing to bar the truth from the jury as a malum in se prosecution. And the appeal courts know that.