From the desk of Jane Galt:

Repeal the estate tax?

Matthew Yglesias has gotten a fair amount of linkage for his claim that "talking to a room full of Dalton alumni is pretty much the best case that can be made for the estate tax".

I attended a demographically similar institution somewhat to the north, and while my girlhood memories include recollections of some really repulsive conspicuous consumption, I'm afraid that my classmates offer one of the best cases I've seen for repealing the estate tax. To wit: none of their families seem to have paid any. Since the parents of children in New York City private schools are, without a doubt, the group upon which such a tax should fall, if it falls on anyone, this rather begs the question of which less tax-worthy groups are actually shouldering the burden.

There's also the fact that the estate tax may actually cost the treasury money, by giving parents such a strong incentive to transfer assets to children (who often get taxed at lower rates); and quite certainly costs the economy a great deal of money by a) spawning an entire tax-planning industry, full of people who would otherwise be productively employed b) causing people to shift resources to less valuable (but tax-preferred) uses and c) reducing the incentive of older, experienced workers to work beyond the point where they have accumulated enough assets to live out the remainder of their lives comfortably. (No, I'm sure Warren Buffet wouldn't stop working even if they took it all away. But what about the guy who owns your local convenience store?)

But really, the best argument is the rich, because they don't pay the damn thing. Only half the estate tax revenues come from that 1/10th of 1% who are really fabulously wealthy. The rest comes from schmoes who were careful--and too stupid to pay a planner, or keep their wealth in liquid assets. Is that really the sort of thing we want to tax at 55%?

From the desk of Jane Galt:

Rational terror

Mark Kleiman has a good post on torture in which he asks "Would you choose to be a citizen of a country that practices torture to avoid one chance in a million of dying suddenly? I wouldn't."

It's a very important point for those defending the Bush administration to consider.

But the way he gets there displays, I think, flawed reasoning about how people react to terrorist events. He uses a pretty standard public policy technique for assessing risk and response:

Taylor and others interpret Justice Jackson's dictum to mean that whenever there is an active threat that many people will die unless torture is used, the clear bars to using it created by the Constitution and international law must magically disappear. All Taylor asks to suspend the rules is "a reasonable chance of eliciting information that might help foil future attacks." He rather callously adds, "It's a good bet that Khalid Shaikh Mohammed has felt some pain. And if that's the best chance of making him talk, it's OK by me."

No doubt it is. The human capacity for courage in the face of pain felt by strangers is always pretty impressive, and fear and hatred can make that capacity virtually boundless. Taylor disapproves of "actual torture," for example breaking bones or tearing out fingernails, but even then makes a reservation for what he calls "extreme circumstances."

We faced truly extreme circumstances in 1861, and again in 1941, and again until 1989. We do not face them now. The threat of terrorism is a real threat, but it is not a threat of such gravity that it forces us to chip away at the Constitution to preserve the Constitution itself. The terrorists can't conquer us or overthrow our government. The worst they can do is kill some of us, and we're all going to die some day anyhow.

Lest someone attribute to me the same sort of callousness of which I accuse Taylor, let me bring this down to a personal level. About 3000 people died on 9-11, out of 300 million Americans. If the next attack were as successful, and its risks were spread evenly over the population, each of us would face a risk of 1 in 100,000 of dying in that attack. (If the risks of ordinary homicide and of automobile accidents were evenly spread, each of us would have about 1 chance in 15,000 of being murdered this year and about 1 chance in 7500 of being killed by a car.)

This seems reasonable--as someone who learned her economics at the Chicago school, I should endorse it--but I just don't think that it works in a world of human beings who are not perfectly rational value maximisers.

The fact is that our emotional response to a terrorist attack and the dangers of an auto accident are not the same. Of course, one could argue that auto accidents are distributed, and terrorist attacks are concentrated, which lessens their impact. But our emotional response to a natural disaster that killed 3,000 people in New York City would not be the same as our response to 9/11 would be. Even if one imagines a world in which the future danger from natural disasters is roughly equal to the future danger from terrorist attacks, we would not feel the same about the deaths.

Possibly this is because we can do something about the one, and not the other. But I don't think so--or at least, I don't think we make any sort of calculation about this on a conscious level. Rather, I think that our differing reactions to scenarios which present the same amount of danger but different kinds is something that is hardwired into the deepest, most primitive parts of our consciousness.

That shows in our reactions. I'd be willing to bet that in our two scenarios, Americans would be willing to spend a lot more to prevent another terrorist attack than they would to prevent a natural disaster from wreaking an equal amount of damage. What's more, they'd spend a lot of extra money to bring the perpetrators to justice--or revenge--even if they were no longer a significant threat.

This is why, although I've seen these sorts of cost-benefit calculations on lots of liberal sites (and have urged them myself for other issues, like pollution), I just don't think they're very effective when the question is homicide. People's minds simply don't work that way.

Now, if the subject is how much people should worry about terrorism, I agree that it is a very, very small threat to most Americans (although somewhat larger for people like me, who live in major metropolitan areas). Absent acquiring a nuclear weapon and a container ship, no terrorist group is going to be able to make itself competitive with, say, "non-steroidal anti-inflammatory drugs such as aspirin". But expecting us to react to the threat from aspirin and the threat from terrorism in the same way is expecting too much from human reason.

From the desk of Jane Galt:

Who guards the stakeholders?

A couple of interesting comments on my recent post on stakeholder capitalism.

From our beloved Contributor A:

Euro-weenie-lover that I am, allow me to note that Germany's "Mitbestimmung" system, in which labor holds seats on executive boards and helps make decisions, was the envy of the world for decades before Germany went into the toilet in recent years. Not only was labor unrest minimal, but (West) Germany's economy enjoyed fantastic growth rates.

Now it turns out Germany needs, more than anything, massive labor-market reform to make it easier to fire people. But still and all, it's worth remembering that stakeholder systems have shown promise in the past, not just in theory but in many years of practice.

I think this is an excellent point, to the extent that the German economy, and Japan's to a lesser extent, does indeed look a lot like "stakeholder" firms writ large. I would question, though, how much the "stakeholder" model was the cause of Germany and Japan's growth, rather than merely enabled by it.

I'm not saying definitively that it wasn't a driver of growth; I can certainly tell a story where cooperative workers help drive new processes and profits, to the greater good of all. But I can also tell a perhaps more plausible story where the workers rent seek to the detriment of everyone else, aided, as they are in Germany, by the fact that workers have more votes than any other groups, and thus are likely to have the government weighing in on their side.

Scott says "so what if they do?":

. . . extrapolating from Europe in general, the companies which do have a high labor ownership contingent probably do innovate somewhat less, produce fewer new jobs, and bring less sharholder returns. Like Europe, the worker-owners of these companies may value job security and other benefits over high growth. Job security, if you are an employee/owner, may pay enough dividends to make up for the lower overall return on your stock in the company.

. . .

So what? (Not that Jane particularly makes a value judgment for or against stakeholder capitalism).

If the pareto efficient frontier for a company to indeed maximize all stakeholder value (employee, customer, sharholder) includes, say, less growth but more job security than one maximizing sharholder value alone, that would not intrinsically be a bad thing (unless you are short term sharholder with immediate growth needs).

The question though, is whether the stakeholder system does actually maximise wealth for the group as a whole. Labour's share of management could be small, and still have a disproportionate effect, because shareholders are a fragmented group, and big money managers would often rather sell than interfere with internal politics. One can easily envision scenarios in which labour manages to destroy a fair amount of overall wealth in the process of rent-seeking.

Meanwhile, Jonathan points out that such studies often suffer from sample bias, since the companies that have a substantial labour presence on the board often had big problems to start with:

such studies usually have an overriding flaw. Companies which cede a lot of control to labor are generally firms which are in some sort of difficulty, so it isn't surprising to see them do less well on average. Statistically, it's damn hard to find a data set which controls for this sort of backward causality. And, to respond to the point above, it really isn't clear why firms in which labor has a strong ownership stake should do worse. Holding constant mangement skill (another almost impossible statistical task) it's hard to argue that making the shareholders more informed about their company (which they are if they work there)makes the company perform worse. indeed, if you believed that, why would you encourage (force) management to hold shares? We generally think people perform better if they have more of a stake in the outcome. Labor already has a large stake irrespective of share ownership, but it is an empirical question whether or not they would do better with a shareholding interest as well.

We should separate out ownership from control. Southwest airlines, which has profit sharing but not (as I understand it) labour board members, does better than either airlines which have no profit sharing, or airlines in which labour has half the board seats (as several tried in the 1990's. And still went bankrupt). Firms in which employees have a stake in the profits probably do perform better than others. But firms in which employees get to vote on the board, especially when you have one or more unions directing those votes, might well underperform other firms, as the employees use this power to funnel assets away from the company and shareholders, and into the pockets of the union, or the employee themselves. (One should always remember that, just as corporate executives do not always place their shareholders' needs in front of their owns, so union leaders often operate things to the benefit of the union and its executives, rather than the union members.)

From the desk of Jane Galt:

Euphemisms of the day

From this piece on a Grand Canyon suicide:

A helicopter tour company said a man took off his seat belt, opened a door and intentionally fell to his death during a sightseeing flight over the Grand Canyon National Park Thursday.

Authorities say the investigation of the man's death continues. They've offered few details on what led up to his exit from the helicopter about 90 miles northwest of Flagstaff, Ariz.

The man fell about 4,000 feet.

Officials don't know if the man had any connection to the others on board the helicopter. The pilot and four other passengers were shaken by what happened but weren't hurt.

Authorities say the cause of death won't be determined until the body is recovered from White's Butte.

The search in the rugged terrain will resume Friday.

Wow. Even my Victorian grandmother can say the word suicide, albeit in a very, very low whisper.

From the desk of Jane Galt:

Stakeholder capitalism

Many readers may remember the movement for "stakeholder" capitalism, in which firms were supposed to maximise value not merely for shareholders, but for all the "stakeholders" -- vendors, employees, neighbours, and so forth -- and thus unleash a kinder, brighter economic future for all.

Professor Bainbridge has an interesting post on labour-controlled firms that seems to shed some light on what that might look like. The answer: less like utopia than like old-fashioned rent-seeking:

Relative to otherwise similar firms, labor-controlled publicly traded firms invest less, take fewer risks, grow more slowly, create fewer new jobs, have worse free cash flow problems, and exhibit lower labor and total factor productivity. We therefore propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than towards, shareholder value maximization.

From the desk of Mindles H. Dreck:

Pitt the Pollyanna

We'd be in Utopia if it weren't for Ronnie. Or so claims an hysterical Reagan dyslogy from Truthout's William Rivers Pitt.

The truth is straightforward: Virtually every significant problem facing the American people today can be traced back to the policies and people that came from the Reagan administration. It is a laundry list of ills, woes and disasters that has all of us, once again, staring apocalypse in the eye.

I'd comment further, but I have to join three colleagues and ride into New York on horseback. Work, you know.

Of course, the blogosphere was way ahead on this 'apocalypse' theme.

From the desk of Jane Galt:

More modern than next week

The Wall Street Journal reports:

It's not what it used to be, judging from a new translation of the beloved 23rd psalm that will be published by the Church of England in a new prayer book due out in October. The publisher says it's not meant as the new official version of the psalm but merely part of a larger work designed to focus "on issues such as debt, the developing world and fair trade." Which may help explain how "Yea, though I walk through the valley of the shadow of death, I will fear no evil" has been replaced by "Even if a full-scale violent confrontation breaks out I will not be afraid, Lord."

But really, as a co-worker points out, this "Lord" business is really hopelessly out of date. It needs to be replaced by something more modern, such as "boss", "jefe", or perhaps "daddy-o"

From the desk of Jane Galt:

Cease fire collapses

The political attack ads are already running again, thanks to a Democratic 527 group.

Understandably, the Bush campaign is crying foul. But I suspect it will be the Kerry campaign that will suffer. Remember Paul Wellstone? Public opinion has some very definite ideas about what is, and is not, appropriate behaviour surrounding state funerals. Far be it from me to offer advice to seasoned political professionals, but as the Wellstone debacle illustrates, Democratic campaign strategists don't always seem to have their fingers on the pulse of the nation.

From the desk of Jane Galt:

Positive versus negative liberty

Eugene Volokh has swept into the positive/negative liberty debate, and with his characteristic carefulness of argument, advanced the notion that some negative liberties, notably property rights, actually entail positive liberties.

I think, though, that this simple negative/positive rights distinction doesn't really do the work that most conservatives or even moderate libertarians would want it to do — because private property and freedom of contract (as generally understood) themselves involve positive rights.

When we say that "protection of private property and freedom of contract" should be "legitimate social goals," we're saying that the government should take steps to protect our property (for instance, by arresting trespassers) and enforce our contracts (for instance, by seizing the property of people who breached contracts and were held liable for damages). We're also saying that the government generally shouldn't itself take our property — there is indeed a negative rights component to property — but we're also saying that each of us is entitled to demand a certain benefit (property protection and contract enforcement) from the government.

What's more, this benefit is generally seen as the entitlement of all people, even those too poor to pay for it. Some (though probably not most) conservatives and moderate libertarians might insist that rich plaintiffs personally pay their full share of litigation and enforced (including the prorated salaries of police officers and judges, capital expenses, and other costs). But few would demand such payments as a condition of poor people's filing suit or calling the police: A poor person should be able to get the police to arrest someone who has taken his property, even without paying for the police officers' time and risk. (Anarchists may disagree with this, but most mainstream conservatives like Steve, or moderate libertarians like me, would, I think, take the view I describe.)

And this government benefit is itself given at the cost of the other party's negative rights. My right to my private property in my land and my fruit trees means that I can demand that the government keep people from walking on the land or picking my fruit. This is a restraint on those people's negative liberty to go where they please and do what they please with their bodies. It's a perfectly legitimate restraint — but it is a restraint, in that it does enforce my (morally proper) positive rights by limiting their (morally untenable) negative liberty.

Steven Bainbridge has responded. His answer, I think, boils down to the notion that we are abridging some private negative liberties in order to optimise total liberty, because there are high transaction costs to doing so privately. I think this is a very good point, though I think it implicitly concedes that some negative liberties conflict.

But does this, as Henry Farrell and Matthew Yglesias crow, demolish the notion of a distinction between positive and negative liberty?

I hardly think so. The difference between positive and negative liberty is that negative liberty requires only that one refrain from acting: punching someone in the nose, walking on their property, and so on. What's more, it is, or should be, perfectly reciprocal: if I have a right not to be punched in the nose by you, you have as perfect a right not to be punched in the nose by me. Of course, this will enshrine some natural inequities -- this right is more "costly" to Arnold Schwarzenegger, and more valuable to me, because my punches don't hurt as much. But generally, it is fairly reciprocal, and thus self-limiting and stable in scope.

Positive rights require me not merely to refrain from acting, but to affirmatively act. My understanding is that legally and philosophically, we distinguish between the two in labour markets: one can fire someone, and require them to leave one's workplace, but one cannot compel him to work there, even if he has signed a contract promising to do so. (Other forms of relief are, as I understand it, available, but not the option of chaining someone to their desk.) Intuitively, I think pretty much everyone can distinguish between not stealing $500,000, and being required to give someone else $500,000 you have earned, even though economically the end states are equivalent.

Positive rights are by their nature unreciprocal; there is no point in having the government require me to provide you food, shelter and an education if you are simultaneously required to provide me food, shelter and an education, as it would be more efficient to have each of us provide these things for ourselves.

Negative rights are bounded; positive rights theoretically unlimited.

Now, I agree that conservatives and libertarians have a much less coherent definition of "liberty" than one would think, to hear them talk. For one thing, among the rights we embrace as "negative", they clearly can conflict with each other: my freedom of speech is indeed less if I may not speak on your property; your freedom of property clearly less if you are free to come and speak on it whether I will or no. But I think the distinctions of reciprocity and inaction do hold, and that we have a pretty good social and legal framework tha can mediate these conflicts such that there is a stable social equilibrium.

I think that Mr Volokh is making another point, which he doesn't clearly distinguish from the point about conflicting negative rights, but which he should: that the enforcement of negative rights inevitably entails the abrogation of those rights to some degree, in the form of taxation to pay for the enforcement.

I believe that this is true. But this does not seem to me to render the notion of negative liberty "incoherent", as Mr Farrell claims. It means only that in this vale of tears, negative liberty cannot be fully maximised. I think this is true, and that is one reason why I am not an anarcho-capitalist. But that doesn't mean that negative liberty is therefore ridiculous, or non-existant. It just means that, like every other good thing we value that I can think of, it is not a fully realisable goal as long as we are working with human beings, rather than angels or robots.

Would Mr Farrell argue that, because equality of opportunity is inherently unmaximisable in a human society (given genetic variance), it is therefore a ludicrous concept? Or that, because it can't be maximised without some attention to equality of outcome, we shouldn't bother to try? Or would he try to say that there is no reasonable distinction between equality of opportunity and equality of outcomes? And if he would, then how, having erased these distinctions, can he be sure that it will be his vision of equality, rather than, say, a libertarian's, that carries the day?

After all, I could start defining my own, special version of what we typically think of as positive rights, with just as much validity. You're not really "secure" if the government can just pass a law and take your money whenever it wants, so why can't I say that I'm for a special negative kind of "negative income security", in which we amend the constitution so as to abolish the personal income tax and all the entitlement programmes it funds? Since you can't have positive income security unless you can keep hold of the money, really, the whole distinction between the two is completely incoherent.

I think, though, that it is possible to recognize that positive and negative rights are in some cases complementary, without claiming that they are therefore the same thing. I can't have night without day, but that doesn't mean the sun is shining at midnight.

From the desk of Jane Galt:

The day after tomorrow: a primer

No, this isn't a post on a very silly movie that I haven't seen, though I'd like to because I hear it's got great CGI. It's an omnibus post on global warming.

Is global warming a problem? Probably. Is it a big problem, like global poverty, or a little problem, like Geraldo Rivera? I don't know the answer to that one. Neither, as far as I can tell, does anyone else.

But while libertarians are often accused of having their head in the sand on global warming, people who want us to "DO SOMETHING!!!!!!" about global warming most certainly have their heads in the sand about what "doing something" would involve.

I've written quite a bit about the potential economic costs:

On the costs of the Kyoto Treaty

A very, very long piece on what it would really cost us to get our emissions down to non-greenhouse-causing levels

Why the hydrogen economy is not going to save our bacon

Why increasing CAFE standards increases the number of cars on the road

On the poor media coverage of global warming issues

On why Russia might want to scuttle Kyoto

On why we're all at each other's throats about global warming

And Daniel Drezner has a magnificent piece on how the IPCC (author of the report on global warming that the media keeps telling you shows we're going to hell in a handbasket) made a jaw-dropper of an error that caused them to wildly overstate their predictions. You should definitely read that.

Now Steven Den Beste has a series that you absolutely must read, if you are at all interested in global warming, on why there are no cheap or easy solutions to our energy consumption. (And also must-read follow-ups here and here). It's a definitive rebuttal to the apparently overwhelming majority of people who believe that if we can just increase CAFE standards, turn off lights when we're not using them, buy energy-star air conditioners, install a couple of wind farms, adn put some solar panels on our roofs, why, we'll practically have the problem licked!

Now, maybe we need to drastically reduce our energy consumption -- if the planet's going to be destroyed by a runaway greenhouse effect, I'd say that almost any alternative is better. But we must accept that to do so, we're talking about a drastic decrease in lifestyle for everyone in the country. Not as in "a couple hundred more dollars a year"; picture giving 1/2 to 2/3 of your pretax income to charity every year and you're closer to the mark, if we really want to abate greenhouse gases.

From the desk of Jane Galt:

Howell, we hardly knew ye

Just got the new issue of the Atlantic. Howell Raines' attempt at autohagiography in the April issue seems to have triggered some really bizarrely fawning letters:

Congratulations for having the courage to publish Howell Raines's account of his history at the Times. His story had the feeling of a Greek tragedy to me. Like Icarus, he seems to have flown too close to the sun. Much of Raines's story invlved neither money nor violence, but rather, creative passion and ambition. I'm not sure how much the passion for excellence in journalism is valued these days. We have been "spun" so often by public figures, with the willing assent of the commercial media, that it is hard to believe anybody really cares about truth or quality. I'm glad that The Atlantic does, and that Howell Raines does.

I t is left as an excercise for the reader to deduce which tragedy.

Howell Raines's essay was awfully long and densely detailed for breakfast-table reading, but I found it strangely uplifting. I couldn't put it down.

I begin to suspect that Howell Raines's family was involved in this letter-writing campaign.

Howell Raines gives us a rare look into the workings of one of democracy's most important institutions. [The press? Or the New York Times--ed]. He underscores the universal need to change while holding on to fundamentals--clearly not an easy task. I, for one, would hate to lose the New York Times, which serves as a baseline for those purporting to reveal the facts and truths in our volatile world. I was left with a sense of the importance of that paper, of the difficulty of the work in progress at the Times, and of the need for courageous journalists like Raines.

O Raines! O humanity!

From the desk of Jane Galt:

More on Reagan

There's this puzzling contribution from William Saletan, titled What Reagan Got Wrong. What he got wrong, apparently, is the meaning of liberty:

"There's a clear cause and effect here that is as neat and predictable as a law of physics: As government expands, liberty contracts."

That was the money quote in Ronald Reagan's farewell address nine days before he left the White House in January 1989. It crystallized his philosophy. I call it Reagan's Law.

This is what Reagan did best: He clarified the clash of ideas. He forced people to take sides. If you agreed with him, you were conservative. If you didn't, you weren't.

Do you buy Reagan's Law? That depends on two related questions. First, do you define liberty as the right to do things, or the ability to take advantage of that right? If liberty is the right to make a decent living or attend a good school, then getting government out of the way will suffice. But if liberty is the ability to make a decent living or attend a good school, then getting government out of the way isn't enough. In fact, government expansion, in the form of student loans or job training, may be necessary.

But it is Saletan who appears confused, not Reagan. What he is describing is not liberty; it is security. Security is also valuable and good, but it is not the same thing as liberty.

This promiscuous appropriating of words and redefining them is rather Orwellian. Saletan seems unwilling to admit he prefers one to the other; nor has he taken the many risk of fighting, as the libertarians and socialists are, to declare that one or the other has the sacred status of a right. Instead, he redefines them so as to obviate the need for argument: security and liberty are not two competing goods that we have to trade off against each other; security is liberty, doncha see. Indeed, this makes argument about the relative merits of security and liberty impossible; we are reduced to quibbling about dictionary definitions.

These are the tactics of Newspeak: make revolution unthinkable by making it impossible to communicate contrary thoughts. And the tactics of an oily politician: you can claim to be for anything, as long as you get to write your own definition of the things you claim to stand for. ("When I said I was for increasing defense spending, I meant on domestic gun control programmes") It's good debating tactics, but bad public discourse.

Update Some readers and commenters have chastised me, some gently, others rudely, for not realizing that positive liberty has a rich intellectual history extending all the way back to . . . the 1960's. But I do know this. I first came across the concept in an old issue of the Critical Review, and in my travels towards libertarians, debated it often, even with myself. But always I ended up concluding, as I do now, that it is ultimately unworkable.

This is the response I wrote to one of my interlocutors in the comments:

I am well aware that there is a rich volume of literature attempting to redefine liberty so as to encompass security, opportunity, and so forth. The fact that someone said it before Mr Saletan does not make it any more true, merely for having been written down elsewhere.

The problem with the "two liberties" (or three, or eight, ad infinitum) theory is that it makes it impossible to pursue liberty as a goal -- or rather, it makes liberty a synonym of "good stuff" and allows everyone to claim that their pet scheme advances it. If we want to pursue liberty then, we must choose which of the two liberties we are to pursue, as, as Saletan and his co-ideologists implicitly admit, we cannot maximise both types of liberty at once. Then we are left with the original problem which I stated: there are two different things, which are to some degree incompatible, and which must be traded off against each other. Calling them both "liberty" makes for fine rhetoric, but most often serves to obscure the need for tradeoffs. Since we already had perfectly good words for the concepts defined as "positive liberty" -- opportunity, security, and so forth -- I see no benefit to be gained from rolling them into another, incompatible word, and much to be lost.

I should have made it clear that I did not credit Mr Saletan with authorship of the idea. Error hopefully fixed.

Update II: Contributor A, of the dormant (and much mourned) Mistakes Were Made writes the following:

One might say that Saletan's kind of arguing that his definition of liberty encompasses the usual, "negative" version and merely adds some good things to boot (you're probably closest with "opportunity".) In other words, Saletan makes his version of liberty a sort of "liberty plus!", all that old liberty stuff and more. The key, as you've diagnosed, is that there's very often a trade-off between the two, not just a choice between liberty and liberty+.

Exactly.

From the desk of Jane Galt:

Question of the day

And now for the pedestrian political implications:

Does it help or hurt Kerry that Reagan died the day before the 60th anniversary of D-Day?

Help, in the sense that it rolled two events which sucked oxygen from the Kerry campaign into one . . .

. . . or hurt, in the sense that it rolled D-Day, Bush, and Ronald Reagan into one metaphorical package for media consumption?

Discuss.

From the desk of Jane Galt:

What, exactly, was Reagan's legacy?

I saw some Republican on television yesterday -- I think it was Grover Norquist, saying that Reagan was great because when he took office, unemployment was 10% and interest rates were sky-high, and when he left office everything was boom-a-riffic. This is every bit as fine a bit of data mining as Democrats who make similar claims for Clinton -- the economy sucked when he took office, and was booming when he left. When Clinton took office, the economy was already recovering from a recession; when he left, it was sliding into another one. That's luck, not talent. (Rubinomics buffs, peace out. I'll deal with you later.) Similarly, high unemployment and interest rates under Reagan were not because Democrats Had Been Driving the Economy Into the Ground Until the Grownups Took Over. High inflation was the result of a dozen years of bad fiscal and monetary policy under two Republicans -- Nixon and Ford -- and two Democrats -- Johnson and Carter -- that was brought under control only when Paul Volcker, the Carter-appointed head of the Federal Reserve, jammed interest rates up to national-heart-attack levels and left them there until inflationary expectations were well and truly tamed. Reagan had nothing to do with unemployment and interest rates falling; that was the invevitable result of a drastic monetary tightening finally working its way through the economy.

While we're here, can we put to bed the oft-quoted supply side factoid that you can tell budget deficits have no effect on interest rates because interest rates fell under Reagan, even though the budget deficit expanded? Interest rates fell because once inflationary expectations were overcome, the natural interest rate for the US was well below the 20% it reached at the start of Reagan's presidency. But they might have fallen even farther without the budget deficits.

(Then again, they might not. As far as I can tell, there's no evidence that budget deficits have a significant effect on interest rates. One can theorise that it should, and indeed the theories make a great deal of sense. It's just that you can't find any actual good data to support them in the Real World. This is one of the major sources of my scepticism about Rubinomics.)

So Reagan didn't fix the economy singlehanded by employing the magic of the Marginal Income Tax Rate Reduction. And he did leave us with some whopping big deficits. So what good did he do?

To my mind, the single greatest achievement of Reagan's presidency was tax reform--not marginal rate reduction, but the simplification of the tax code. (For more on my quixotic crusade for tax simplification, please click here and here.)

When Reagan came into office, top marginal tax rates were, IIRC, around 70%. Only no one actually paid 70%, except for poor people unfortunate enough to win cars on The Price is Right, because the tax code had more loopholes than a sneaker factory. The Effective Tax Rate, otherwise known as What People Actually Pay, wasn't really much different from what it is now.

This was an enormous waste, for every time you add another loophole, you add another host of people spending time and money chasing that loophole.

Let's say that there's a tax loophole that's worth $1,000 to you, and you have an hourly pay rate of $20 an hour. How much time and/or money will you spend chasing that loophole? Rationally, up to $999, or 50 hours of your time, or some combination thereof that sums to a combined value of $999. That's time and money that could have been spent inventing a cure for cancer, or a really good low-calorie ice cream, or just kicking back somewhere you enjoy a lot more than the accountant's office.

Now multiply this by thousands of loopholes and millions of citizens, and you get some idea of how much valuable time and money we threw away trying to provide a tax break for every man, woman and housepet in the nation.

And actually, the problem was even worse than that, because there's an entire large, expensive lobbying industry devoted to generating more loopholes. And the more there are, the easier it is for lobbyists to get a few more passed . . . they just fade into the vast thicket of rules that's already there.

These loopholes reduced the transparency of the tax code, induced huge amounts of wasteful tax-avoiding activity, and increased risk, because it was harder and harder to know what was legal and what wasn't. And in 1986, the Reagan administration waded into that thicket of red tape with a pair of turbo-charged pruning shears. We ended up with a tax code where the ostensible marginal tax rate was much closer to the effective tax rate of most people, and people were able, nay required, to spend more time earning money and less time trying to keep a hold of it once they had. This was an Unqualified Good Thing.

(Not for everyone. No tax change is good for everyone. A lot of people, for example, who had bought valuable money-losing real estate for the shelter, suddenly found themselves with a lot of worthless, money-losing real estate when their tax write-off went away. Hello, S&L; crisis. Nonetheless, for the economy, it was an Unqualified Good Thing)

Oh, it was not a perfect legacy. It wasn't as sweeping as some people, like, say, me, would have liked; there were a lot of silly deductions left in, like the home mortgage interest deduction. And the Clinton administration and their accomplices in congress did their best to undo his good work, by introducing thousands of new loopholes. Though, recognizing that loopholes are damaging to the economy and the cohesion of civil society, they did at least try to mitigate the damage: they stopped calling them "loopholes" and instead referred to them as "targeted tax cuts".

By forcing a showdown with the air traffic controllers union, Reagan helped forestall the sorts of public employee quiet riots common in Europe whenever the government suggests that maybe eight weeks vacation and retirement at 55 are quite generous enough already.

He advanced the deregulation begun under Carter, which wasn't always good for the regulated companies, but was great for those of us who remember the rotary telephones and extortionate long distance rates of Ma Bell.

He helped bring down the Soviet Union. Oh, I agree with liberals that he didn't do it singlehandedly, but hey, Communism and Soviet imperialism really sucked, so isn't advancing its demise by fifteen years a pretty damn worthy accomplishment? Plus he had the guts to tell Gorbachev to tear down the Berlin wall, which was more than any of his predecessors had done.

And he pulled us out of the doldrums of the 1970's. He got the country to stop taking Europe's word for it that we were a bunch of rubes and know-nothings, fit for nothing except Continental security guard.

Plus, he made a bunch of movies. All in all, I think it likely that he'll be remembered alongside Roosevelt as one of the two greatest president's in the twentieth century. And they'll be remembered that way not because of the events they presided over, but because they recognized an evil empire when they saw it, and they led the country into battle against it.

We should all be able to claim so much.

Update James B in the comments, and the incomparable Arnold Kling, on his very fine weblog>/a>, both nominate decontrolling oil and gas prices for star achievement of the Reagan presidency, which I'd forgotten about. That's a very good point, and all those worried about "our dependance on foreign oil" should remember that it was Reagan who first broke the power of OPEC.

From the desk of Jane Galt:

Welcome to the family

My cousin's gorgeous new son, Griffin Arthur Kelleher, now has his very own blog. Cutest baby ever? We report, you decide.