Matthew Yglesias's Blog, page 2433

The Corporate Income Tax

David Leonhardt has a piece explaining the horrors of the American corporate income tax code, which manages to have both higher rates than almost any other developed country and also raises less revenue. Why? So many loopholes. Doing it that way, meanwhile, harms economic growth:

The problem with the current system is that it distorts incentives. Decisions that would otherwise be inefficient for a company — and that are indeed inefficient for the larger economy — can make sense when they bring a big tax break. "Companies should be making investments based on their commercial potential," as Aswath Damodaran, a finance professor at New York University, says, "not for tax reasons."

Instead, airlines sometimes buy more planes than they really need. Energy companies drill more holes. Drug companies conduct research with only marginal prospects of success.

So even though powerful vested interests will want to hold on to their breaks, there's at least a strong lobby out there pressing for pro-growth reform, right? Well no:

The official position of the Business Roundtable, one of the most important corporate lobbying groups, is telling. The Roundtable says it supports corporate tax reform. But it actually favors only a reduction in the tax rate. The group refuses to say whether it also favors a reduction of loopholes. In effect, the Roundtable wants a tax cut for its members regardless of how much the tax code is simplified — or whether the budget deficit grows.

Now in principle there's no particularly special reason that corporate income tax reform needs to be revenue neutral. You could make up the lost revenue with higher income taxes, or higher estate taxes, or higher gasoline taxes, or what have you. But of course business lobbies don't support any of those options either. And yet revenue is currently near its lowest point in decades, even as the elderly share of the population is set to grow increasing demands for health care and pension services. We need more tax money, not less, and ideally we need to raise it in an economically efficient way. Instead the political system only seems to be be able to push rates down and expand loopholes.

Politics and Identity

Sarah Goodyear chats with Ed Glaeser, urbanist and right-of-center economist, about why America needs to show cities some love. Here's his idea for relating to the populist nationalist authoritarians who are the core of the conservative movement in America:

You talk about all the factors, like the mortgage tax deduction, that are not just facilitating sprawl, but really, pushing people into living in sprawl. Yet now, there's this perception that when the Obama administration is doing anything to create better conditions in cities, that that is coercion. There's a lot of talk on the very far right that we're being pushed to live in cities. Where is that perception coming from?

A. It gets back to your first question, why have cities fared so poorly in the political discourse over the past 200 year? The truth of the matter is that I think that the Obama administration is simply trying to give us a level playing field. It needs to be presented as that. To those Republicans, to those Tea Party activists who believe in the home mortgage interest deduction: Shouldn't the U.S. government stop engaging in social engineering? Shouldn't the U.S. government stop engaging in those policies that artificially push people out of the homes that they would have? Haven't we had enough of activist government trying to shoehorn us into low-density living?

That's how I try to present it, and I actually believe that. I have some libertarian bent. I think that things are problematic in part because they impinge on basic human freedom, the ability to choose cities if you want to choose cities. Given how anti-urban the broad spectrum of public policy is, if anyone attempts to depict the tiny things that are slightly pro-urban as being an attempt to socially engineer Americans into cities, I find that quite odd.

As you know, I agree with these sentiments. But I think there's no reason to believe this kind of argument will be remotely persuasive. It's certainly an interesting fact about conservative identity politics in the United States that it's associated with talking about "freedom" and "free markets" but as Glaeser well knows actual public policy in the United States has basically nothing to do with this. If conservatives read Glaeser's book (and they should—review forthcoming!) they'll like his swipes at historic preservationists, at the environmental review process, and his skepticism about high speed rail. But they're no more going to turn against pro-suburbanization or rural subsidization policies than Tim Pawlenty is going to cut an add about how about the gay wedding of two immigrants from Mexico exemplifies the true spirit of American liberty.

Anyone actually interested in the subject will swiftly see that (a) American public policy is strongly biased against high density living and (b) that this outcome is predictable from the structure of American political institutions. That people don't realize this is largely a matter of willful ignorance.

When Ronald Reagan Built The Pyramids, He Beat Up Kublai Khan

Not satire:

VAN SUSTEREN: How is President Obama doing on Egypt?

NEWT GINGRICH: I don't think they have a clue. I think it is very frightening to watch this administration.

VAN SUSTEREN: Would anybody?

NEWT GINGRICH: Reagan would have. Reagan would have had — Reagan would have thought about and studied radical Islam and Reagan would have had a strategy and would have pursued it. He didn't do that in the 80s some are going to want to complain for a practical reason. Reagan had one foreign policy goal in the 1980s, defeat the Soviet Union. He didn't divert himself because he wanted to defeat the Soviet Union.

Indeed, the only figure I can think of who's in any way comparable is Brian Boitano:

The scary thing is that while Gingrich may not understand much, I think he does have a good grasp on the mentality of the modern American conservative.

Pepperoni Pizza Is Delicious

Apparently the food authenticity police are coming for our pepperoni on the grounds that there's "one thing it is not: Italian." John Mariani is quoted as saying it's "Purely an Italian-American creation, like chicken Parmesan." And like chicken parm, it's delicious!

The re-discovery of authentic Italian cooking was an excellent corrective to a somewhat bastardized cuisine that had become compromised by weak access to ingredients and an ill-informed customer base. But the idea that the upshot of that rediscovery should be to throw out decades worth of Italian-American innovation is ridiculous. At the end of the day, tomatoes are from the Western Hemisphere and thus not "really" part of Italian cooking, but that would be a nutty way of looking at the situation.

On a related note, if WalMart manages to "drive mom and pop stores out of business" by selling affordable groceries to under-served urban neighborhoods, that's what I would call a triumph for human progress.

Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System

As a book, Barry Eichengreen's Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System perhaps suffers from an excess of sober-minded sensibility. He argues that the dollar almost certainly will lose its status as the global currency, but that it probably won't happen too quickly, and it won't necessarily be that big of a deal.

The key point here is that you need to get cause and effect straight. Growth in China, India, and Brazil are bad for the dollar's unique status, but not in a way that's bad for America. Similarly with Europe working its issues out. Alternatively, the dollar could use its unique status as the consequence of a catastrophic economic or budgetary collapse. That would be bad. And it would be bad for the dollar. But it's the catastrophic collapse here that's bad, not the dollar stuff, the dollar stuff is an effect. The basic thesis is well summed-up by this history lesson on the pound: "Sterling lost its position as an international currency because Britain lost its great-power status, not the other way around. And Britain lost its great-power status as a result of homegrown economic problems."

Egypt Is A Very Large Proportion of the Arab World

I knew Egypt was the largest population of the Arab countries, but until I looked up the numbers I didn't realize how dramatically the demographics of the Arab world are weighted toward Egypt:

What's more, a healthy share of Iraqis are Kurds rather than Arabs so in some ways this understates it. The point is that a more open Egypt would have a huge cultural impact simply because such a large share of the Arab audience is an Egyptian audience. It's also worth noting that the last time Egypt had a promising new post-revolutionary regime (i.e., in the 1950s), it swiftly used the combination of ideological vigor and demographic weight to identify the overall Arab cause with the Egyptian state. As detailed in Adeed Dawisha's excellent Arab Nationalism in the Twentieth Century: From Triumph to Despair this didn't exactly work out. But the basic logic of the situation is a reminder of why many regimes in the region were very happy with the moribund Mubarak regime.

Biblical Israel

Via Jon Chait, leading Christian Zionist leader Mike Huckabee explains his vision for Middle East peace—no peace:

Potential 2012 U.S. presidential candidate Mike Huckabee said Tuesday that if Palestinians want an independent state, they should seek it from Arabs — not Israel.

The evangelical minister and Fox News host said Jews should be allowed to settle anywhere throughout the biblical Land of Israel — an area that includes the West Bank and east Jerusalem.

He called the demand on Israel to give up land for peace an "unrealistic, unworkable and unreachable goal."

A couple of points. One is that while Chait is right that "not even the Likud government opposes a Palestinian state in principle" I think it's pretty clear that Netanyahu/Lieberman coalition does in fact oppose the creation of such a state. Its statements to the contrary are largely a matter of diplomacy based on what it thinks is a sustainable posture in an international context. But as we move more and more toward post-Jewish Zionism in the United States (and, its natural counterpart, post-Zionism among mainstream American Jews), I think the Israeli right will find that its ideas have a welcome home on the American right.

The other point I would make is about the actual boundaries of biblical Israel:

Here's a slightly different stab at the question, again locating substantial swathes of present-day Jordan and Lebanon within the boundaries of Biblical Israel. You'd have to be a crazy person to try to base a 21st century state on these 3,000 year-old maps. But that, it seems, is exactly what Huckabee thinks should happen.

Selfishness and the Liberal Order

I'm with Mark Kleiman on this:

The essay by Edward Glaeser to which Matt Kahn points is, in my view, astoundingly wrong-headed. And, as Glaeser notes but doesn't reflect on, the Adam Smith of The Theory of Moral Sentiments would have agreed with me, and not with Glaeser. The fact that selfishness constrained by law and the market can generate socially useful outcomes doesn't make selfishness, or the freedom to pursue selfish ends, good things in themselves.

But I would go quite a bit stronger than this. If you think about a well-functioning liberal society with a (constrained) market economy and political liberty, you're relying on an awful lot of non-selfish behavior by people to make it work. One key issue here is corruption and the efficacy of the public sector. A wise republic needs to think about the incentives facing public officials and design structures accordingly. But at the end of the day, well-functioning public institutions all involve a certain esprit de corps and sense of obligation. It's not a coincidence that the most market-oriented societies (the Anglophone and Nordic countries) are also the ones with the best-functioning public sectors. Another issue has to do with parenting and family more generally. For a liberal society to function over time parents need to adopt an attitude toward their children that I don't think is well-captured by the idea of selfishness. But then again, you can't have everything collapse into nepotism either.

The point is that a society actually governed by the dual pillars of self-interest and obedience to the law is very unlikely to come out as a liberal market economy. What you'd get is a cesspool of rent-seeking and shakedowns. And I think that to the extent that the USA has become a society willing to accept an ethic of "greed is good" this is the direction we've headed in.

Nutrition Guidelines and the Limits of the State

Marion Nestle thinks the new food advice guidelines from the government are a step forward, but she's still got some quibbles:

They still talk about foods (fruits, vegetables, seafood, beans, nuts) when they say "eat more." But they switch to nutrient euphemisms (sodium, solid fats and added sugars) when they mean "eat less."

They say, for example: "limit the consumption of foods that contain refined grains, especially refined grain foods that contain solid fats, added sugars, and sodium."

This requires translation: eat less meat, cake, cookies, sodas, juice drinks, and salty snacks.

That's politics, for you.

These are good points, especially the last one. And while I of course think Americans should push our government to release the best possible nutrion guidelines, the fact of the matter is that one ought to temper one's expectations about the ability of a government of a major agricultural producer to get this right on a consistent basis. The good news is that this really isn't a task that requires the full weight of the federal government to be done well. The costs involved in putting together a pamphlet of nutritional advice and distributing it over the Internet are pretty small and I think maintaining up-to-date and visually appealing advice along these lines is an excellent mission for a non-profit to undertake. I think the Mayo Clinic's website is leading the way in useful application of information technology to public health.

Alternatively, we have a lot of sub-national governments here in the United States. And some of them are jurisdictions with little or no agricultural production. If the governments of the country's fifty largest cities pooled their resources to produce a National Dietary Guidelines document, they'd be well-positioned to give relatively unbiased advice. But just like Saudi Arabia's not going to tell you to use less oil and Denmark's not going to tell you to stop playing with legos, the US government is poorly-positioned to say people should eat less meat and grain.

Heading Home

After a lovely vacation here in the Turks & Caicos Islands, I'm flying home today and full-time blogging will recommence tomorrow. TCI has actually been the locus of a fairly fascinating economic and political collapse that's involved the UK government suspending self-rule and essentially returning the islands to colonial status. Or maybe we should think of TCI as a kind of Charter City experiment.

At any rate, I'm expecting a magazine article from another writer to appear on this subject shortly and I'm looking forward to reading it.