Thursday, January 28, 2016

Presidential Optimistic/Pessimistic Outlooks

We are on the cusp of phase two of the great American game: Who Wants To Spend A Million Million Dollars?

Phase one, you might remember, is when every third American denies he or she is running for office and then promptly announces they'll give it a go.

Phase two is the more sensible phase where a small collection of obscure states get to pick who will make it to the more substantially populated states who will then determine who makes it to the finals.

Phase three is the finals where two nearly identical twins argue about trivia while basically agreeing they like good things, are against bad things, and have a vision of how to either "keep us on course for greatness" or "turn it all around to restore greatness" depending on if people are happy or upset in general.

Let's run down the current leading contenders to see what the optimistic case and the pessimistic case is for each (from my point of view, of course). Keep in mind these are scenarios where optimistic and pessimistic are generally but not necessarily mutually exclusive (we could get some of both).

Trump:
Optimistic - Shows why we should lose (and should have lost a long time ago) our reverent awe for the U.S. Presidency; prevents major government action/intervention/meddling on any number of issues by being a circus act writ large (his administration's priorities will be prestige and showmanship rather than policy accomplishment); forces a meaningful debate and action on limiting executive power (a little bit in tension with the previous prediction as this one mitigates a Trump administration that is actually trying to do something).
Pessimistic - Engages in major international war actions (beyond the high amount the each of his opponents would do anyway); sets back trade freedom and immigration substantially; creates strong racial, ethnic, nationalistic, and gender divides.
Overall - I estimate the optimistic possibilities are more likely than the pessimistic possibilities. 
Cruz:
Optimistic - Is a strong ally of free trade in goods and services with a relatively good view on immigration; offers a serious challenge to some aspects of cronyism like ethanol subsidies, the Ex-Im Bank, and Net Neutrality; promotes a less interventionist military policy on balance; gets meaningful progress on tax reform. 
Pessimistic - Fails to get past a vision of a secured border leaving immigration policy languishing; allows military spending and engagements to grow substantially; uses executive power to similar ends as Obama and Bush. 
Overall -  Pessimistic are slightly more likely than optimistic.
 Rubio:
Optimistic - Advances immigration freedom substantially (this would be a major political advance for the GOP helping its demographic problem); promotes free trade well; gets meaningful progress on tax reform.
Pessimistic - Engages in major international war actions while strengthening government surveillance; extends the actions of executive power in defiance and weakening of the Constitution; proves that just as a he could be bought as a Florida politician (e.g., Big Sugar) he can be bought in the White House (i.e, cronyism). 
Overall - Optimistic are slightly more likely than pessimistic. 
Clinton:
Optimistic - Creates an era of gridlock not seen since the first Clinton administration keeping government at bay; allows for meaningful immigration progress; allows the drug war to recede while not actively doing much to bring about its demise.
Pessimistic - Engages in major international war actions while strengthening government surveillance; dreadfully extends the actions of executive power in defiance and weakening of the Constitution; makes good on her technocratic promise to bring government involvement to new realms while deepening it in familiar places.
Overall - Pessimistic are more likely than optimistic.
Sanders
Optimistic - Allows meaningful retreat in the drug war; sets back the cause of socialism by giving it power and identity; greatly reduces military involvement and spending while curtailing government surveillance; produces government sclerosis by getting lost in the wilderness of the endless desire to "do something" about each and every apparent malady.
Pessimistic - Gives power and identity to socialism in policy; accelerates greatly the growth of government spending; sets back free trade and immigration; creates new social divides and fosters greater identity politics.
Overall - Optimistic are slightly more likely than pessimistic.
What does it all mean at this point? Not much. Remember phase three... But for what it's worth, I would like to see a Cruz vs. Sanders finals. However, if we extend the field some (but unfortunately not enough to include Rand Paul), my preference among the awful alternatives is Bush vs. Sanders (this is definitely a minimax analysis).

Make no mistake about it. Each of these people would be horrible presidents when judged against the standards of liberty and the Constitution. But what else is new?

P.S., Sorry for all the parentheses.

Monday, January 25, 2016

The Devil is in the Details

I have been thinking about taxes recently and actually had a couple of potential posts noodling around in my mind and my notes for the past few months. Good thing I waited. No, you didn't miss news of hell freezing over and a sensible tax code being adopted in the U.S. But you did miss me stumbling through what John Cochrane very simply Nadia Comaneci'd.

My notes on the potential posts began with: "I propose a major tax compromise: slightly higher taxes now in exchange for dramatic tax simplification. We take the existing tax code today and replace it wholesale with a consumption tax. We'll have the debate/fight at a later time about how big the tax burden should be, which is really a debate about how big the government should be. For now let's just remove the deadweight loss that comes from the complexity and the cronyism of the tax code."

Here is the full post from The Grumpy One's webpage. Allow me to extract a few key sentences:
Left and right agree that the U.S. tax code is a mess.
The first goal of taxation is to raise needed government revenue with minimum economic damage. That means lower marginal rates—the additional tax people pay for each extra dollar earned—and a broader base of income subject to tax. It also means a massively simpler tax code.  
... A simple code would allow people and businesses to spend more time and resources on productive activities and less on attorneys and accountants, or on lobbyists seeking special deals and subsidies. And a simple code is much more clearly fair. Americans now suspect that people with clever lawyers are avoiding much taxation, which is corrosive to compliance and driving populist outrage across the political spectrum.
... the government should tax consumption, not wages, income or wealth.
Wise politicians often bundle dissimilar goals to attract a majority. But when bundling leads to paralysis, progress comes by separating the issues. Thus, we should agree to first reform the structure of the tax code, leaving the rates blank. We will then separately debate rates, and the consequent overall revenue and progressivity.
Scott Sumner heaped rightful praise on the piece while noting a few considerations. I had similar thoughts. Again from my notes: "The many complications of any tax scheme: defining consumption goods versus investment assets, not penalizing transactions (you want to tax activity as it is more traceable and definable, but you don't want to do so in a way that stifles or distorts gains from trade), not inadvertently taxing capital (capital is ideas; when you tax textbooks, you are effectively taxing capital; when you tax computer sales you are taxing both Minecraft users and the 'next Minecraft' creator), etc."

Some additional thoughts: It is important to understand that ultimately ALL taxes are consumption taxes. The only difference is how efficient they are. When you tax savings, you are taxing future consumption (encouraging current consumption, which is shameful). And this taxation is usually on income that has already been taxed, but that isn't the central reason it is despicable. To savings taxes (including investment and corporate and capital gains, etc.) I say, "You're Despicable!" because that taxation compounds making the tax disincentive for savings worse the longer it is deferred (i.e., saved).

If structured properly, the disruptive effects of taxes on consumption can be minimized. If not, they can be quite dramatic and quite limiting. Of course, the current incumbent is not a high hurdle to surpass on this last point. Consider this very conservative estimate of the gains from simplification:

Let's assume the estimates of man-hours devoted to tax preparation and compliance of 3.2 billion (many estimate it is closer to 6 billion) are way off. Let's assume it is only 1 billion man-hours. Let's further assume away any other costs (capital investment distortions, rent seeking, labor tied up in compliance/avoidance work (lawyers, accountants, internal corporate departments, etc.), enforcement, etc.). Let's finally assume we can only reduce the man-hours by half (500 million). The average U.S. wage is about $25 per hour. Just this conservative estimate yields a wealth gain of about $12.5 billion dollars every year.

PS. Will tax cheating (intentionally under-reporting tax liability) or perhaps more likely tax fraud (filling fraudulent returns to garner other taxpayers' refunds) force us to simplify the tax code? Will they force us to remove Milton Friedman's unfortunate innovation (no refunds, no fraud)? Will they force a rethinking about identity verification at least in regards to the government (even less anonymity)?

Thursday, January 7, 2016

Perfectly Unperfect

A new year begins, another challenge arises to fulfill my perpetual annual resolution. Here is how I achieved it (changing my mind on a strongly-held belief).

I have always had perfectionist tendencies. For a while when I was younger, they were quite strong. I beat them back. But the tendency remained. And I reconciled that with the belief that it was a positive quality. That striving for perfection, in good measure, was an enhancement to achieving my goals. 

The better I've come to understand failure, the more I have doubted perfectionism. I now no longer belief it is a positive quality. My aha moment came last year while reading Megan McArdle's book, The Up Side of Down: Why Failing Well Is the Key to Success. (Imperfection confession: I haven't finished the book yet. My reading discipline is far from perfect.)

The better you are at something the naturally higher-quality your work will be. Trying to make it perfect is a waste of time. Striving to be perfect is a fool's errand. Generally if editing requires more resources than the original creation, then the endeavor was a failure to begin with.

Effective is underrated. "Easy to Fix" is generally far better in all respects than "Hard to Break". 

Don't get me wrong; working hard is a virtue. Striving for improvement even after much has already been achieved is a desirable quality--when well balanced against the cost. Perfectionism is a different animal. In fact it is an alien to both this world and this universe. It is simply the drive to get more than can be expected. It is alchemy masquerading as practice. 

PS. As a corollary I have also always had completionist tendencies. However, in that case I've known for quite a while that it is a negative quality, but I've struggled to have the resolve to fight it. Tyler Cowen is a role model to follow in this regard (check out the transcript (or listen) at 19:01). It was listening to Penn Jillette's podcast Penn's Sunday School last year that got me thinking a lot about completionism. Penn is a classic example as he will readily admit. He says visiting a museum with him is torture because he insists on reading each and every display fully.