Normative Narratives


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Military Spending and “Moral Hazard”

Image result for defense spending cartoon

The ONE thing I have always agreed with President Trump about is that our NATO allies need to spend more on defense. But while Trump has certainly talked this talk, his actions have actually had the opposite effect by reinforcing a “moral hazard”.

You may be thinking, what is a moral hazard? It is “a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost.”

In the case of the U.S. and our NATO allies, the “risky event” is NATO countries underinvesting in defense spending. Our allies are able to do this because they know they are protected by the U.S., who is the other party that will “incur the cost” through our massive defense budget.

I invoke this argument because the GOP often uses moral hazard as a justification when it proposes slashing spending on safety net programs (particularly healthcare programs). While I will not wade into that argument, hopefully framing my argument this way will resonate with some people who otherwise would not agree with my prescription for getting our allies to spend more on defense–by reducing (or at very least not increasing) our own defense spending. 

If anything, defense spending is better positioned for a moral hazard argument than safety net programs are. Moral hazard implies a choice is being made by a rational party based on cost, benefit, and risk. So what happens with the same choices when a person or country’s income rises? Wealthy people typically do not forgo health insurance, but wealthy nations sometimes do forgo adequate military spending, which is the crux of this whole issue. All this is not to say that a moral hazard does exist for military spending but not for safety net programs–I leave the reader to draw their own conclusions on that. The point of this little digression, rather, is to say that if you believe a moral hazard exists for safety net programs, it is hard to argue that one does not also exist for defense spending.

Regardless of your beliefs, this is not the first time that differentials in defense spending between the U.S. and our allies have been identified as a moral hazard. Former U.S. Defense Secretary Robert Gates made a similar claim, as highlighted in an Op-Ed written about his final speech to NATO in 2011:

“Gates’s frustration was no doubt sparked by the realization that his department has become the victim of moral hazard. The United States provides a free security guarantee to Europe. Europeans, meanwhile, have responded in an economically rational way by taking greater risk with their external defense. With the collapse of the Soviet Union removing the last plausible military threat, it was logical for European policymakers to avoid spending on expensive space, communications, and intelligence systems that the United States was largely providing for free. 

Gates concluded his speech by warning Europe’s leaders that the next generation of U.S. leaders lacks nostalgia for the Cold War struggle and could walk away from the NATO alliance. In the future, Europe will undoubtedly have to do more for its external defense. That doesn’t seem like a problem now [2011] since there is no apparent external threat. But should they have to more fully insure themselves, European defense planners should consider how they would rebuild their defenses. They should consider how much time it would take to mobilize political and budgetary authority to prepare for these threats and how long it would take to rebuild the required military forces.”

Since that speech [June 2011] many of the external threats to our NATO allies, which Gates noted were then not present, have since emerged. Absent adequate European military capabilities to deter and/or respond to a threat, the Syrian Civil War metastasized from a seemingly containable conflict to the worst humanitarian crisis since WWII. Refugees from the war and other regional conflicts have shaken the E.U. to its foundations, leading to Brexit and increasing Euroscepticism across the continent. More directly, a European (albeit non NATO) country, Ukraine, was invaded and had territory annexed by Russia.

It is, therefore, past time that European countries started taking greater ownership of their collective military capabilities. As Gates correctly noted, mobilizing sufficient public support–a necessary initial step for policy change in democracies–takes time and political ability. Recognizing this fact, it seems that European politicians are far behind where they should be in terms of reconciling their respective electorates with this reality.

Even that U.S. leader who “lacks nostalgia for the Cold War struggle and could walk away from the NATO alliance” is now in power in President Trump. While Presidents Obama and Bush also pressured NATO countries to spend more on defense, they did so more diplomatically. Perhaps surprisingly, I do not think that was necessarily the right approach when it comes to the issue at hand; sometimes difficult things just have to be said candidly, and proper incentives provided, to get a desired outcome (especially when large sums of money are involved, and speaking diplomatically has continuously failed to produce the desired outcome).

I’m sure Donny would tell you, in his usual egomaniacal hyperbole, that “no one has been tougher on NATO spending than me”. While Trump’s words have been the toughest, just like his predecessors his policies are reinforcing this longstanding moral hazard. To see how, just follow the money; the U.S. continues to increase its defense spending (over $100 billion increase since Trump took office, up to $716 billion dollars in fiscal year 2019), sending the message that we will keep making up for the rest of NATOs shortfall–after all, actions speak louder than words.

In order to end this moral hazard, Trump has to not put taxpayer money where his mouth is by not increasing defense spending. Of course the military-industrial complex (and his bases’ blind support for military spending) won’t allow him to do that, regardless of what moral hazard or–much more importantly–the other needs of our nation demand. 

If we continue on this course we will ultimately be left with more military spending both now and in the future, as we decrease pressure on our NATO allies to build up their military capabilities. 

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Labor, Education, and Apprenticeships

Image result for apprenticeship

Long time no see folks. It’s well past time to shed that post-policy depression (tax code) and get back to it. In doing so let’s consider a topic I have discussed often, one that should have bipartisan and Trump administration support, but has unfortunately yet to get its due–apprenticeships.

The Trump administration just concluded it’s “Task Force on Apprenticeship Expansion” in May. Here are some key recommendations from the final report:

  • “The Subcommittee on Attracting Business to Apprenticeship recommended that the Industry Recognized Apprenticeship program should streamline and simplify program funding through various methods, such as updating Federal funding criteria, streamlining State grant access, and exploring sector-led financial options.” (p 10)
  • “According to recent research by the U.S. Government Accountability Office (GAO), there are more than 40 workforce development programs across nine Federal agencies. Data shows that these programs were funded with more than $42 billion, although less than half that amount ($17 billion) went to employment and training activities. Based on this data, there is a clear need to streamline and simplify programs by developing an organized approach that recognizes and preferentially funds apprenticeship.” (p 27,28)

Who can argue against greater efficiency? Nobody. However these efficiency increasing measures were already implemented, according to the Government Accountability Office (the very entity the Task Force cited regarding inefficiency in the first place)–that low hanging fruit has already been picked.

The Trump administration wants the private sector to share in the cost of scaling-up apprenticeship programs–another sentiment that is difficult to argue with. The problem is that it has not offered any incentive for the private sector to do so. Private companies are currently bringing in record profits while under-investing in apprenticeships; why would these companies change their behavior now, when times are good, without a new incentive to do so? Instead of increasing spending or leveraging the recent corporate tax giveaway to provide such an incentive, the Task Force cites measures to increase efficiency that have already been implemented.

The private sector needs to play a role in developing the curricula for apprenticeship programs, but can we stop pretending it will provide meaningful financing for them? Maybe if we cut corporate taxes even further they would, right!? If only we could’ve done away with that pesky corporate income tax completely, surely they would have (well, there is no more corporate alternative minimum tax now)…OK, clearly I’m still salty about tax reform…

It is time to admit that private businesses have largely abandoned the apprenticeship model. Sure there will always be anecdotes about successful training programs, particularly from large corporations that can afford to attract top talent. Unfortunately nothing currently exists on the scale required to meet the needs of the average American worker or business.

The results are obvious: underemployment, stagnant wages (a modest uptick in wage growth recently does not make up for decades of stagnancy), and ballooning tuition rates / student loan debt as everyone feels they must go to college to make a decent living. If the Trump administration’s answers to these societal problems are reaching some unattainable level of efficiency and expecting the private sector to suddenly become more altruistic, nothing will change from today’s unacceptable status-quo. If, on the other hand, apprenticeships were adequately invested in, they could provide an affordable alternative to the four-year college path, and revive America’s dwindling middle class.

The Trump administration just proposed merging the Labor and Education Departments. In talking about it, a friend asked me if I thought the proposal was a good idea. My answer was that it could be a good idea, but under this administration it would not be. If, for example, the merger really reduced redundancies and opened up more resources for programs like apprenticeships, that would be a positive trade-off in my opinion (again, greater efficiency is hard to argue against, in theory).

But lets be realistic, that is not the point of the Trump proposal. Look at Trump’s big Apprenticeship Task Force, which would fall squarely within the proposed agency’s mandate. Where’s the beef? SHOW ME THE MONEY! It’s simply not there…

As a nation we invest in what is important to us. No amount of free-market rhetoric, appeals to “greater efficiency”, or other forms of lip-service are going to shrink Americans’ skills gap or “make America great again”. Only investing adequately in our greatest asset–the American people–can accomplish that feat.

(Note: When considering what we do spend tax dollars on, don’t forget that the recent spending bill appropriated $61 billion MORE for defense spending–$655 billion total, compared to $42 billion for workforce development programs. Also, don’t forget that the recently passed tax code will reduce tax revenue by over $1 trillion dollars over the next decade)

 


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Starved of New Ideas, the GOP Goes Back to “Starve The Beast”

“Starve the Beast”

The GOPs tax plan was the first part of a two-tiered approach to reduce the size of the government–it was never supposed to “pay for itself“. In order to keep the deficit from growing after cutting taxes, spending cuts–with “welfare” the common whipping boy–are necessary, or so the thinking goes. This method of governance, developed by the Republicans in the late 70s and 80s, is known as “starve the beast“.

History tells us that “starve the beast” does not work–it is a tried and failed policy. It turns out that when you get down to the actual programs involved, “welfare” is quite popular; it aligns with America’s collective moral compass, helps promote the “American Dream” (social mobility), and stimulates short-term economic growth. While there are reforms that could improve our welfare system, doing so responsibly requires complementary policies (more on this later).

There are again signs that the GOP will fail to fully implement its “starve the beast” agenda. The tax code is already the law of the land, yet the GOP does not seem to have the political will to tackle welfare reform. Far from starving the beast, Congress has just agreed on a budget deal that will increase spending by $300 billion dollars over the next two years.

I’m sure the GOP will come back to entitlement reform and overall government downsizing after the 2018 midterm elections. At this point the GOP will no longer have to worry about immediate electoral backslash from enacting unpopular welfare reforms, and probably believes the link between their tax cuts and the fiscal need to enact such reforms will have been severed in the average voters mind. But even when the political will to “starve the beast” resurfaces, I doubt the GOP will have sufficient Congressional support to actually implement the plan. Whether they have sufficient support will largely depend on the outcome of the 2018 elections–after all, “elections have consequences”.

Make no mistake, the likelihood that “starve the beast” will again fail is a good thing. The real crime is that the GOP passed a huge tax cut knowing it would not pay for itself, while also knowing that it would not be able to “starve the beast”. The results are ballooning deficits and insufficient resources to address America’s many needs. Sure, budgets may pass with small increases to existing programs, but new programs will not even be considered in this climate of huge (and increasing) national debt, rising interest rates on said debt, and much lower tax receipts.

Perhaps this is the true purpose of “starve the beast”–to restrict our country’s collective “policy imagination” (i.e. “fiscal space“). Instead of thinking about how to make America better, we will be stuck with the status-quo that people across the political spectrum are unhappy with (only now with even more inequality and debt).

Common Sense Welfare Reform

As mentioned before, there are some worthwhile welfare reforms to consider. Let’s look at a few of them, as well as the complementary policies needed to ensure they actually promote desirable results and don’t just place undue burden on America’s most vulnerable people.

SNAP

Let’s promote a healthy diet and save on our country’s medical spending! Why not go one step further and promote local produce wherever possible. Such a plan would benefit smaller farmers and local economies, promote greater public health, and reduce emissions from shipping food around the world.

Drug Testing for Welfare

I am not completely against drug testing people on welfare programs, or other oversight measures, but let’s be clear–such measures would require more spending to implement. It is entirely possible that the nation would spend more money on enforcement than it would save in rooting out welfare fraud–this has largely been the experience when states have experimented with such programs.

But money isn’t everything; in a democracy public support is the lifeblood of any policy, and clearly many people do not approve of our current welfare system. Surely even the most progressive person can see there is some benefit to addressing the concerns of a large portion of the electorate regarding our current welfare system. Addressing these concerns should ultimately increase public support for welfare programs.

The costs and benefits (monetary and otherwise) of various oversight measures are something we should study, so the American people can make an informed decision about whether such policies are truly worth pursuing.

Responsibly Reforming Welfare Programs

How else can we responsibly reform our welfare system, reduce disincentives to work, and promote gainful employment?

First of all, programs that benefit children, the non-wealthy elderly, persons with disabilities (including serious mental illnesses), and other vulnerable groups do not need more requirements–society’s most vulnerable do not need more hoops to jump through. Admittedly, just coming to an agreement on who should be considered ”able-bodied” is a difficult task itself.

But certain recipients, like healthy, prime working age people, can be reasonably expected to meet certain socially beneficial criteria in exchange for welfare benefits. One such example is a new “community engagement” requirement for Medicaid in Kentucky. Progressives may not like this plan, but as long as sufficient waivers exist for vulnerable groups, why should someone in the prime of their life not be working, looking for work, volunteering, and/or in a job training program for 80 hours a month? Such a change should lead to improved employability and mental health outcomes. This is a completely reasonable requirement, and the type of idea that responsible, bipartisan welfare reform can be built upon—leveraging welfare benefits to drive positive recipient behavior.

Aside from reforming welfare programs, other complementary programs targeting the labor market could help reduce reliance on government assistance. Higher minimum wages would reduce government spending on welfare programs, as we currently subsidize companies that do not pay a living wage. An expanded earned income tax credit (EITC) could help reduce disincentives to work by smoothing high marginal tax rates for people coming off welfare programs. We also need more job training and apprenticeship programs; we can’t just say there are job training requirements for welfare eligibility, but then not make these programs available! Just like with welfare oversight measures, expanding the EITC and sufficiently scaling up job training programs would both require significant government resources.

Simply put, there are upfront costs to responsibly reforming our welfare system. Unilaterally cutting welfare programs and hoping for the best will not work; any savings would ultimately be lost due to increased spending on the criminal justice system and decreased long term economic growth, as even more Americans would fail to reach their full economic potential.

Ideally, reducing the size of the “welfare state” would be an organic process by which we invest enough in our people, particularly early in life, to promote equality of opportunity. The complementary policies outlined above can help at the margins, but the real heavy lifting involves addressing the root developmental causes of poverty (early childhood development, housing, healthcare, education, etc.).

Progress Frozen in Time

This brings me to the main reason why the new tax plan is so regressive in the first place. It is not because it will be bad for the average American consumer or economic growth in the short-run; if anything, it should have positive short-term impacts in those regards. Those are, however, poor criteria for assessing the merits of a tax plan that will likely be in place for a long time and is directly related to our ability to fund programs that drive long term growth and social progress. In other words, what did we give up in exchange for these tax cuts?

Due to lower tax revenue, it will be very difficult to fund the aforementioned complementary programs needed to responsibly reform our welfare system, much less the more costly investments needed to promote equality of opportunity and drive long term economic growth (infrastructure, R&D, healthcare, education, job training and early childhood development).

On the topic of infrastructure, Trump’s “trillion dollar infrastructure plan” (now $1.7 trillion, if you still believe a word he says), will reportedly only use $200 billion in federal funds. The idea that $200 billion can leverage that much funding in mostly state and local tax money (as well as some private investment)–the crux of Trump’s plan–was a dubious claim when he made it while campaigning. With the caps on SALT deductions in the new tax code, and the resulting strain on state and local budgets, it can’t even be called wishful thinking–it is just a flat-out lie.

The results will be obvious in the type of infrastructure that ends up being built. Non-revenue producing infrastructure will fall almost completely to the wayside. There will not be enough funding for expanding broadband internet access and affordability in underserved areas, which would unlock better K-12 schooling and access to online job postings. In a sad irony, these underserved areas are mostly in “Trump country”.

EPA Chief Scott Pruitt has said combating lead poisoning is a top priority of his, but has offered no plan for how he will do it. Instead, he has undermined programs that protect children from lead based paint, and supported an overall downsizing of the EPA. In all likelihood there will not be enough funding for new water pipes to prevent people from getting lead poisoning, which stunts cognitive development in children. Stunted development compromises the future earning potential of those affected, increasing reliance on welfare programs–talk about being short-sighted.

Our country likely needed more tax revenue, not less, to promote equality of opportunity, meritocracy and social mobility–to make America fair again. People–albeit the minority of the electorate–elected Trump as a populist because they felt like they were being left behind. Trump has betrayed his base with his policies, whether they realize it yet or not.

The Same Old Blame Game

Absent the resources to actually address the needs of the average American, you will instead hear the GOP repeat its same old tired lines. Lets consider some of these talking points:

People are lazy

Well sure some are, but no more-so than they used to be…

It is true that labor force participation rates are down overall from highs in the 1990s, but this is less true among prime working-age people; the majority of labor force participation decline is due to an aging population.

Furthermore, many people collecting government assistance already work. As stated before, increasing the minimum wage and expanding the EITC would help promote gainful employment.

Traditional marriages / family structures / “values” are breaking down

This is really a societal shift, and in some ways is a natural consequence of a freer society. For example, a wife who is being beaten can more easily leave her husband now than she could decades ago.

This phenomenon is at the cross-section of many deeply personal, multifaceted, and interrelated choices people make (to get married or not, to have kids or not, to get divorced or not). As such, there is really very little the government can do to steer society back towards more traditional family structures. The common conservative call to block access to family planning services, contraception, and abortion, however, will only exacerbate these issues (and yes, likely lead to increased future welfare spending).

We Can Rely on the Private Sector to Fix Everything

Guess what, the private sector won’t just deliver on infrastructure, but job training too! Trickle-down economics! That sure sounds nice, too bad it has never actually worked out that way.

I listened to an event kicking off “National Apprenticeship Week” at the Department of Labor, and not once was government funding or a public-private partnership (PPP) mentioned. It was all about what the private sector can do; well guess what, the aren’t doing it! Absent some change in incentives, there is little reason to think that the private sector will all of a sudden start to prioritize job training programs. What America needs is drastically scaled-up apprenticeship programs developed and financed by community colleges, universities, and industry leaders.

Instead, “Jobs President” Trump has proposed cutting the DOL budget by 21% (from $12.1 billion to $9.6 billion), and the Department of Education budget by 13.5% (from $69.4 billion to $60 billion). Such a plan effectively rules out more funding for apprenticeships, as these would be the departments to administer such programs.

At the same time, the GOP will increase military spending by $82 billion, to $716 billion, by 2019. Imagine the impact that type of additional funding would have on our drastically underfunded job training programs and community colleges.

Hail the Almighty Job Creators! 

We need to stop treating companies as if they are doing some sort of public service by hiring people. Companies create jobs to maximize profits. Publicly traded companies operate to maximize stock prices. Private companies are not doing a public service by being in business.

A company’s social contributions are the taxes they pay. We should not be subsidizing jobs through direct subsidies to companies and unlivable minimum wages that drive people to welfare programs. We should not have reduced the tax burden of the wealthiest Americans in the hope that some scraps will trickle down to the average person. Absent such policies the American economy would still work, just with less extreme inequality.

Until there is a clear understanding on this across the political spectrum, the greedy will continue to use scare tactics to hold enough of the electorate hostage to perpetuate their position of power. We need politicians that will stand up to these people and call their bluffs, not politicians who will sell the American public out to the highest bidder.

Concluding Thoughts

Investing in human development takes time to manifest itself in positive outcomes, just as it takes time for a child to grow up. Therefore a responsible, holistic approach to welfare reform means there will be an overlap period where we will be paying more for both welfare reform and human development initiatives (which in some cases, like CHIP, are one in the same).

If, as a country, we are OK with $1 trillion more in debt (what Trump’s tax plan will cost us), this is the way to spend it—not another war or military buildup, not another trickle-down Hail Mary, but a real plan to promote economic opportunity and responsibly reform our welfare system. This new “Great Society”, with the benefit of 50+ years of lessons learned, could build upon the successes and avoid the shortcomings of the original, and ultimately make America greater than it ever has been.

Instead we are stuck with half a “starve the beast” strategy. This means more debt while cementing in place the status-quo that has failed too many Americans for too long. Thanks, GOP!


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With Tax Reform, America Must Go “Back to the Future”

Tax reform is not “sexy”, there is no getting around this fact. It is, however, a very important issue, as every government program is funded either by tax dollars or debt. While the specifics of tax policy may be difficult to comprehend, almost everyone has their own beliefs on taxation and the role of government.

Looking at these preferences, the majority of Americans believe the government does not do enough to help poor and middle class people. Relatedly, a full three quarters of Americans feel that the wealthy aren’t paying their fair share of taxes.

Against this backdrop, lets consider Trump’s tax proposal:

  • Fewer tax brackets at lower rates for the wealthiest. The plan sets three tax brackets for individuals — 12 percent, 25 percent and 35 percent — down from the existing seven rates (which top out at 39.6 percent).
  • Lowering the corporate tax rate from 35 to 20%. While our corporate tax rate is too high, due to loopholes the actual rate paid is much lower (particularly for large corporations who can afford the best lobbyists, lawyers, and accountants). Based on actual taxes paid, the U.S. ranks comparatively low among developed countries. The corporate tax rate should only be lowered if the revenue lost if offset by closing the right loopholes. Trump has not specified which loopholes, if any, he plans to close.
  • Cutting the “pass-through” tax rate, which is what individuals who file their corporate earnings as personal income pay, from the current highest income tax rate of 39.6% to 25%. This rate cut would almost exclusively benefit the wealthy, and is one to watch closely-in recent years more and more businesses have begun filing as “pass-throughs” in order to minimize their tax bill.
  • Repeal of the alternative minimum tax, which is essentially in place to ensure wealthy people pay a certain minimum amount as they use their accountants to game the tax code. But it will make the tax code fit on a post card! And thats what matters!
  • A lowering an eventual repeal of the inheritance tax, which is only paid on the largest estates. This is being billed as a move to help family farmers, which is an audacious spin of the issue to be sure.
  • Trump’s plan has been light on details about capital gains taxes. However, there is nothing to suggest his financier-stacked Cabinet (Mnuchin, Cohn) will want to do anything but lower these rates as well.

All these proposed ideas would reduce taxes paid by the wealthy, compromising the government’s ability to further help poor and middle class people. So the question is, if these ideas are so unpopular, how is Trump selling them to the American public?

For some, it is enough to say that lower taxes will promote growth, increase employment, and pay for themselves. People who drink this “supply-side” Cool-Aid are outliers, and notably the vast majority of economists disagree with these claims. But remember, we are talking about many of the same people who disagree with 97% of climate scientists on climate change, so this is actually a consistent (if not irrational) repudiation of “experts”.

Most reasonable people, however, believe what the overwhelming majority of experts in a field conclude. For these people, support for Trump’s plan likely comes from being told they will receive a “massive” tax cut. But when you look at it, the “massive” cuts in Trump’s plan are reserved for those with the highest incomes.

Consider the distribution of income tax cuts, as shown on the table below. 77% of the cuts go to people earning more than $143,100 a year. That is hardly the “middle class”.

It’s more of the same when it comes to corporate tax cuts. According to the nonpartisan Tax Policy Center, “middle-income taxpayers would receive less than 10 percent of the benefit of a corporate rate cut while the top 20 percent would receive about 70 percent. The top 1 percent would see about one-third of the benefits and the top 0.1 percent would get about one-fifth.

Trump’s plan would increase our national debt by well over a trillion dollars. The IMF has warned the plan will increase inequality and will not lead to higher growth. Wall Street is betting it will lead to greater investments in automation, not workers. The Fed has even waded into the debate to issue a rare warning, saying the proposed plan could lead to high inflation.

For all these negatives, middle class earners will only get a small tax cut, if that. Treasury Secretary Mnuchin admitted some middle class earners may not get any cut at all. This is coming from the man who also said it is “hard to create a system where you’re not going to also cut taxes on the top 10 percent“. Maybe if you are a derisive elitist with zero consideration for societal well-being, who has no business governing, it is difficult to imagine not cutting taxes for the wealthy. For most people, it is extremely easy to imagine.

So Trump’s plan is unpopular, and those who support it are either irrational, have been misled, or are wealthy and likely to benefit personally. Just like with healthcare, the GOP has no tax reform plan that works for the vast majority of Americans; hopefully its tax reform efforts will meet a similar defeat.

The Case for Higher Top Rates

Remember, Trump’s plan sets three tax brackets for individuals, down from the existing seven. While the U.S. tax code has become overly complicated due to deductions and loopholes, the complicating factor is not the number of income tax brackets. Like any misdiagnosis, reducing the number of tax brackets would not solve any problems, and would likely make the situation worse.

Republicans in Congress plan on including a fourth higher bracket in their proposal, but this is not enough. There should be even higher brackets and rates for people with 7 and 8 digit incomes.

After a certain point, the higher your income, the less it is connected to working harder, and the more it is related to the risks one takes and the carefully constructed, trade-based global economy in which we operate (infrastructure, government R&D, international peace and trade rules, strong judicial systems, educated workforces, relatively prosperous customer bases, etc.). Notably these characteristics are all, to varying degrees, financed by tax revenue. 

I can already hear people moaning at this point and calling me a socialist, so allow me to clarify with an example. Take someone who manufactures clothing. Decades ago, the owner of this company would more or less be constrained to selling his or her goods domestically. Despite working very hard, their overall earnings were capped (at least by today’s standards). Today, the same person, putting in the same amount of work, can sell their goods all over the world through the internet, earning a lot more money. The work these two owners from different eras put in is roughly equivalent, but the modern day entrepreneur can potentially earn a lot more. In fact, this is half of the story of increasing extreme global inequality.

What about my other point, about these systems being financed to varying degrees by tax revenue? Well this is certainly true of the internet (whose origins were in defense research). It is also true of all of the spending that promotes international peace and fair trade practices (defense spending, development aid, contributions to international organizations like the WTO, etc.).

While the risks people take should be rewarded, the context in which wealth is earned should not be ignored. This is not to say “you didn’t build it” or “you didn’t work hard”, it is simply acknowledging that outside factors play a role in how much wealth one can amass. Ignoring this reality does not make it go away, but it does risk underinvesting in making sure it continues into the future.

A Quick Lesson on Marginal Tax Rates

I think that much of the opposition to higher tax brackets comes from misunderstanding how marginal tax rates work. When you enter a higher bracket, only the amount you earn over the higher threshold gets taxed at the higher rate.

Lets take a look at a hypothetical numerical example. If the rate below $100,000 is 20%, and the rate above is 30%, when a person earns their 100,001st dollar, only the amount over the threshold–the one dollar–is taxed at the higher 30% rate. The rest, the first $100,000, is still taxed at the lower 20% rate. People do not become poorer by moving into a higher tax bracket.

In recent history, before the Reagan era tax cuts, top income tax rates were around 50%. This seems like a reasonable number if not for its roundness and inherent fairness, but the exact optimal number of brackets and rates is not what’s most important. More important is recognition by people across the political spectrum that the wealthy must pay their fare share of taxes. Based on the survey results cited earlier, most people already do share this belief–it is well past time their elected representatives acted on it.

The tax code should be used neither to venerate the wealthy as infallible job creators, nor to vilify wealth so much as to stifle innovation. Simply put, the tax code must allow us to adequately invest in the very systems which enabled America to become the wealthiest nation in the world in the first place. Anything else is a short-sighted failure of governance.

“Back to the Future” (With Some Help From Our Friends)

Trump’s base often talks about “Making America Great Again”. To a small minority, this is a thinly veiled embrace of our country’s racially charged past. To others, I’d like to think most people, making America “great” is about (re)creating an economy that rewards anyone who is willing to work hard.

So how can we make sure that, as a country, we can afford to make the investments needed to get back to this “Golden Age”? Not surprisingly, some of the answers lie in the past; America has historically had both more income tax brackets, and higher tax rates for top earners. These were the good old days many low-tax advocates are pining for!

There is nothing uniquely American about these higher historic rates either. According to the Organisation for Economic Co-operation and Development (OECD)top personal income tax rates in rich nations had fallen to 35 percent in 2015 from an average of 62 percent in 1981.To put a bow on an earlier point, this is the other half of the story of increasing extreme global inequality.

Now admittedly some things have changed in the past few decades. The rise of information technologies has led to irreversible changes in financial markets. When people can move their money around the world instantly with the click of a mouse, it is important to have some level tax coordination between countries in order to fight tax evasion (in its many forms). In today’s globalized world, countries and international institutions such as the OECD must work together to ensure the ultra-wealthy are not getting a free ride.

If America wants to be able to adequately invest in the very systems that made and continue to make it great, and if we want to be able to give working class people a tax cut without greatly increasing our national debt, we must hold the wealthiest Americans economically accountable.

Update (12/1/17):

Some elements of the tax bill have changed since I originally wrote this blog, but these were marginal changes. At it’s core, this bill is still the regressive piece of legislation it always was.

According to the non-partisan Congressional Joint Committee on Taxation, even accounting for supposed growth this bill will “unleash”, it will still increase the deficit by 1 trillion dollars over the next decade. That shortfall will ultimately be paid for by reducing spending on popular government programs, and forestall the conversation on any new government programs (think education, healthcare, infrastructure). The only hope is that the Senate and House are unable to reconcile their bills and pass a unified one, but this is unlikely–if there is one thing most conservatives Congressmen believe in, it is making the rich richer and the poor poorer.

For all the talk of how damaging Trump has been to this country, taking a longer view he will ultimately be a flash in the pan. This tax bill, should it pass, would have a much larger negative impact on our country, ultimately leading to lower social mobility for decades to come. The last major tax overhaul persisted for over 30 years–this country (literally and figuratively) cannot afford to have this bill become our new tax code.

Update (12/22):

The House and Senate reconciled their tax bills, with the final version being signed into law by President Trump. The only silver-lining is that this massively unpopular law may lead to a Democratic resurgence. However, Republicans will do their best, via repressive voting laws and gerrymandering, to stop this from happening.

The American people cannot afford this tax law on the books for a prolonged period of time.  It will leave us further in debt, while compromising our ability to further invest in our people and our infrastructure. We now turn to the 2018 and 2020 elections as a barometer for just how fed-up the American people are by the bait-and-switch “populism” of Trump and the GOP.

 


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Macron Impossible: French Labor Reform and the EU Budget

MI2

Emmanuel Macron won an important election in May, when the young Frenchman defeated right wing populist Marine Le Pen to win the Presidency. In June, Macron’s new En Marche! party claimed another major victory, taking firm control of the French parliament.

In the ensuing months, Macron’s popularity has dipped a bit. This is a non-issue, the regular ebbs and flows of politics; coming in riding so high, he was bound to come back down to earth. To his credit, Macron has not tried to restore his popularity with cheap or symbolic victories. Instead, he is going right for big ticket reforms–the French Labor Code (Code Du Travail) and instituting an EU budget. Should he succeed in these herculean tasks we can forget about his approval ratings, as he would cement himself as one of the great French politicians in modern history.

The French Labor Code, the Code Du Travail, is a 3,324 page document whose origins are over one hundred years old. While I am certainly no expert on this subject specifically, it is essentially the same economic argument often heard in different contexts–worker protections vs. flexibility and growth. (Note: Just because I am advocating for looser worker protections in this case does NOT mean this is the answer in all cases. Economics is always context-sensitive.)

Ultimately this is about risk and faith–the risk of the unknown and faith that private sector growth can unlock more employment and offer a better standard of living than the current system. People are inherently risk averse, and France has a history–even a national identity–tied to championing the proletariat, which is why the Labor code currently looks the way it does:

“That hyper-regulation of much of French life, including labor, was formed in the early 19th century as part of the country’s escape from the chaos of the French Revolution.

“The emerging law,” a prominent Socialist wrote triumphantly in 1903, seven years before the birth of the labor code, “is a Socialist law.”

Indeed, at the heart of the code’s language is the notion that the worker is inevitably an exploitable object needing blanket protection from rapacious capitalist predators.”

Clearly, reform will be an uphill battle. But where there’s a will, and a need, there may be a way. The political will clearly exists, in the form of a President with a parliamentary majority who is willing to take on powerful unions and other dissenters. There is certainly a need to reform; French unemployment is too high at 9.6%, and youth unemployment is significantly higher at a whopping 23.4%. This is France we are talking about here, one of the world’s most developed countries and a pillar of the EU. Such high levels of youth unemployment risk both France and the EU’s future if left unaddressed.

The make reform more palatable, Macron will rely heavily on the idea that market forces can improve people’s lives. Greater demand for French exports would help bolster this argument, which is where his championing of an EU Budget comes into play (at least partially, it is a good idea on its own merits as well).

An EU budget would help the block’s economic performance. Look at the U.S.; in an economic downturn, the Federal government transfers tax revenue from better performing areas to struggling areas via stimulus spending, helping to speed up recovery. The EU needs something analogous if it wants to gain parity with the U.S. in terms of economic clout:

“Elected in May, the French leader is trying to reshape and strengthen the euro currency bloc by creating a euro zone finance minister and parliament, as well as a stand-alone budget to cushion against economic shocks and head off future crises.

But he is running into German resistance despite conciliatory public signals from Chancellor Angela Merkel. Her finance minister has proposed transforming the euro zone’s rescue fund, the European Stability Mechanism (ESM), into a fully fledged EMF with more powers to support weaker members.

“We should head towards a European Monetary Fund but this should in no way be mixed up with a (euro zone) budget,” Macron told Greek President Prokopis Pavlopoulos.”

Make no mistake, an EU Monetary Fund is certainly a good idea as well. But a budget and a Monetary Fund would be complementary institutions–there is no reason the Euro Zone could not implement both.

On the surface Germany remains opposed to fiscally supporting poorer European countries with direct transfers (this has been its position for some time). However, Germany does seem to be on board with an EU budget in the context of an expanded Euro Zone:

“[German Finance Minister] Schaeuble said that Juncker had discussed with Chancellor Angela Merkel his annual State of the EU speech in which he spoke of a vision of a post-2019 EU where some 30 countries would be using the euro.

The plan also includes appointing an EU finance minister running key budgets to help states in trouble.

“It is good that he is putting pressure (to expand the euro zone) but the preconditions (for joining the euro zone) must be fulfilled,” Schaeuble told the ARD broadcaster in an interview.

“It is in fact so that EU countries who fulfill the preconditions become members of the euro under the Lisbon Treaty”.

He added that EU countries wishing to adopt the single currency should not do so before their public finances and economies are sound enough as they could face the fate of Greece, which had to be bailed out by the EU and IMF in 2010.”

Rigorous “ex-ante” preconditions are absolutely warranted in this situation. Failure to have such conditions for joining a currency union, and relying too much on wishful thinking, can have disastrous results (just ask the Greeks…).

It seems, however, that in the wake of Brexit and seeing what failures of economic governance can mean, that at last the EU’s power players share the same long term vision–now comes the hard work of how to get there. To me, Macron’s plan seems more logical than Juckner and Schaeuble’s for both political and economic reasons.

Politically, by establish a Euro Zone budget and Monetary Fund for the current group, the Euro Zone will be stronger economically, making membership more appealing to outside countries. This would give ammo to political leaders who may have to sell certain unpopular reforms to their citizenries in order to qualify. Economically, a stronger Euro Zone would result in stronger trading partners for non-Euro Zone countries, helping them reach the aforementioned preconditions needed to join.    

Maybe I am being overly optimistic, but perhaps neither of these “impossible” but very important reforms Macron is pursuing–to France’s Labor code and the EU’s economic institutions–are as impossible as they once seemed.

Update: The results of the German election are in. With the far-right Alternative for Germany (AfD) and anti-EU leftist Free Democrats (FDP) performing better than expected, the prospects of closer EU economic integration certainly took a hit (although, in a bit of positive news, the FDP has seemingly softened its anti-EU stance since the election).

It will take true leadership from German Chancellor Angela Merkel to sell these necessary reforms to her coalition members. She will have to become an unabashed champion of these ideas, positioning them as the only means to promote long term economic growth for both Germany and the EU as a whole. It is unclear whether she is willing to take this position, but perhaps in her now fourth term, she is willing to sacrifice her political future to help move Germany and the EU towards the future they need.

Macron’s, for his part, is continuing to drive his vision. One avenue he will propose is greater democratization of EU institutions, as a means to popularize his vision among voters who believe the EU is unaccountable to it’s people.

This uphill battle just got a whole lot steeper…

Update #2 (2/7/18):

Well, I guess it is always darkest before dawn! It seems that after four months, Germany has a working government coalition. This power sharing agreement between Merkel’s CDU and the more liberal SPD included major concessions to the SPD. One of the main concessions was over the finance ministry position and German support for an EU Budget!

“In a move likely to herald a shift in Germany’s euro zone policy, a source involved in the negotiations said the SPD would take the finance ministry, a post held until recently by conservative Wolfgang Schaeuble, widely despised in struggling euro zone states during his eight-year tenure for his rigid focus on fiscal discipline.

SPD leader Martin Schulz said earlier this week that his party had ensured an agreement with the conservatives would put an end to “forced austerity” and set up an investment budget for the euro zone.

In a 177-page coalition document, the parties laid out plans to develop the euro zone’s bailout fund into a full-blown European Monetary Fund and support budgetary means to shield the euro zone from crises.

“We want a (European Union) budget for future spending geared toward bringing more benefits for Europe,” they wrote, adding that they backed structural reforms championed by French President Emmanuel Macron.


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Could Venezuela Become “America’s Syria”?

Recently President Trump, seemingly out of nowhere, threatened Venezuela’s increasingly authoritarian President Nicolas Maduro with the possibility of military intervention. Where did this idea come from? How crazy is it? Lets dive in.

To answer the first question, I can just imagine at some point during a National Security Council meeting, someone mentioned the need for a military option should the situation in Venezuela continue to deteriorate. Trump, never missing an opportunity to put his foot in his mouth, turns that into his ad-libbed “military option” line.

It’s like a game of telephone that never should’ve happened between the National Security Council, Trump, and Maduro. What was supposed to be implicitly understood–that America will defend its interests and regional allies–was instead explicitly said in the worst way possible (much to the joy of Maduro, who is using Trump’s words as a rallying cry in hopes of gaining domestic and regional support).

But what about the second question, how crazy is the idea of a limited American military intervention in Venezuela? The answer: not as crazy at is sounds.

I have always said America would never let something like the Syrian Civil War happen in Latin America. For all the anti-interventionists out there, lets take stock of what European inaction in Syria has cost it–a refugee crisis and a crisis of identity: Brexit, a rise in right-wing populism, and the continued inability to address the large scale economic and social problems that have plagued the continent since the Great Recession and whose solutions require closer European integration. And that’s not even considering the suffering realized by the Syrian people.

So the next questions are obvious: is Venezuela “America’s Syria”? Could inaction in Venezuela lead to similar horrors in the United States?

Long answer short, no. There are some key differences between these two crises.

Most significantly, while there is certainly a humanitarian crisis in Venezuela, the government has not been particularly violent in its crackdown on dissent (at least compared to Assad’s response to protesters in Syria). The Venezuelan military, however, is loyal to Maduro, so it’s actions are certainly something to keep a close eye on as the situation unfolds.

Latin America as a region is more stable than the Middle East. It has experience with democratic governance and resolving disputes peacefully. At this point, it still seems unlikely that full scale civil war will break out in Venezuela.

The U.S., for its part, has vastly superior military and border control capabilities compared to the EU. Venezuela is also further from the Southern U.S. than Syria is from Southern Europe; greater physical distance will help insulate America from any negative spillover effects.

There is, however, one common thorn in the side of a reasonable solution–the spoiler you love to hate, Vladimir Putin. Putin has worked out a weapons and financing for oil deal with Maduro, giving Russia a strategic partnership in the region similar to what he had with Assad in Syria.

Putin’s Puppet?

As Maduro has been ostracized by the international community and seen the value of the Bolivar deflated away due to economic mismanagement, he has increasingly relied on Russian financing to keep his regime afloat. In exchange, Maduro has offered access to Venezuela’s lucrative oil reserves on very preferential terms.

In an attempt to stop this damaging, shortsighted behavior, the Venezuelan Congress took away Maduro’s authority to make oil deals without legislative approval. Maduro responded by using the courts to circumvent the rule:

“In March, the nation’s Supreme Court – whose members are loyal to Maduro – took over the powers of the opposition-controlled National Assembly. A majority of elected Assembly members opposed any new oil deals with Russia and insisted on retaining power to veto them.

Days later – after fierce national protests against the action – the court returned most powers to the national legislature at Maduro’s public urging. But the court allowed the president to keep the legal authority to cut fresh oil deals with Russia without legislative approval.

The episode was pivotal in escalating daily street protests and clashes with authorities that have since caused more than 120 deaths.”

Of course the Venezuelan Congress has since been dissolved and replaced with a rubber stamp assembly, so at this point it doesn’t matter what the Congress had ruled.

With this entanglement of Russian and Venezuelan money, arms, and oil, you can forget about any meaningful UN Security Council action against Maduro. Russia will shield him with its veto power under the guise of “national sovereignty”, because if Maduro falls, Russia’s influence and its oil deals would likely be in jeopardy:

“The Russian strategy has its risks. Many of the world’s top energy firms took a hit when Chavez nationalized their assets, and an opposition-led government could later reverse or revise any deals Maduro cuts without their blessing.”

Funny, I thought Maduro said America was trying to steal Venezuela’s oil? It seems like he’s doing a fine job of that himself, leveraging his country’s future in a desperate and costly attempt to remain in power.

Not Syria, But a Serious Situation

So if Venezuela is not “America’s Syria”, why did I say earlier that the idea of limited American military intervention is “not as crazy as it sounds”? This is because bad situations–and the Venezuelan crisis absolutely qualifies as one–usually fester and become worse if left unaddressed.

Anti-Maduro activists are becoming fed-up with the official opposition. If the people believe the organized opposition is ineffective, it could lead to more extreme measures like guerrilla warfare, which could ultimately lead to civil war. Venezuelan’s will not sit idly by as the collapsing economy and shrinking political space encroach upon their human dignity.

The fallout from a failed Venezuelan state would not be confined to the country’s borders. It could, for instance, trigger a refugees crisis. While Latin America is more stable than the Middle East, the region is not particularly wealthy or able to absorb large numbers of refugees. There could be cascading crises as other Latin American nations struggle with such an influx, ultimately threatening America’s national security and economic interests.

But most importantly, making sure Maduro does not turn Venezuela into a fully failed state (like Syria) is the right thing to do for the Venezuelan people. Sometimes the right thing to do aligns with short term national security and economic interests (they always align in the long run). When they do align, taking action suddenly seems less crazy, and inaction seems less defensible.

If the situation deteriorates further, America must be ready to commit resources to its Latin American and Venezuelan allies to remove Maduro. This would enable an interim government to restore Venezuelan democracy. Only then can the hard work of rebuilding Venezuela’s economy begin.

Trump wasn’t wrong that a military plan should be in place in case the situation in Venezuela further deteriorates–being prepared is a good thing. What he was wrong for doing, as usually, was not fully comprehending the situation and opening his big fat mouth. The “military option” should be a contingency plan, not a threat. Trump’s inability to say nothing, to not be the tough guy, has made a bad situation worse.


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How to Compromise and Fix the ACA

 

Time to Replace Those Repeal Attempts

The Senate’s latest attempts to repeal and replace the Affordable Care Act (ACA) have all failed to pass.

The most comprehensive attempt, the Better Care Reconciliation Act, was voted down 43-57. Defections came from both sides of the GOP–some thought the bill was too hard on low and middle income people, while others thought it left too much of the ACA in place.

With repeal and replace off the table, President Trump changed his tune from “repeal and replace” to “repeal, then [try to] replace”. The Congressional Budget Office (CBO) forecast that “a plan to repeal Obamacare without replacing it could cost 32 million Americans their health insurance by 2026…at the same time, premiums on individual insurance plans would rise 25 percent next year and double by 2026 if Obamacare is repealed.” This effort also failed to gain enough support in the Senate, as it was defeated 45-55.

These CBO projections and Senate votes reflect the fact that people do not want to go back to the pre-ACA days when they could be denied coverage due to pre-existing conditions. As the reality of the modern economy pushes back the typical age of financial independence, the ACA provision allowing young adults to stay on their parents health insurance until 26 has bipartisan support. Minimum standards ensure people who pay for coverage are actually covered when it is time to receive treatment. The individual mandate, while unpopular, ensures a reasonably healthy risk pool for insurers.

All this is to say that the ACA, while imperfect, was designed the way it was for a reason. “A la carte ACA” or the “skinny repeal” would not work, particularly without the individual mandate. Sicker risk pools would lead to a “death spiral“, driving up premiums for middle class customers and subsidy costs for the Government, all while increasing the number of uninsured. For those still keeping score at home, the CBO estimated the “skinny repeal” would result in 16 million Americans losing health insurance over a decade and raise insurance premiums by 20 percent in January. Thankfully, the “skinny repeal” also failed in the Senate, 49-51.

[In other news, the GOP wants to gut the CBO–talk about shooting the messenger]

With so many failed repeal efforts, it is clearly time to try to work towards improving the ACA. Many of the ACAs problems are the result of a lack of competition (see the map above)–private insurers are simply not participating in certain markets, particularly in rural areas (a problem that is expected to get worse in 2018).

The solution to this market failure is to create competition by allowing people to buy into the Medicaid “Public Option”.

I can already hear the outrage from Conservatives–“of course a liberal’s answer is more government”–but hear me out. The Public Option need not increase government spending drastically; people would receive healthcare at cost, but they would still pay–this is not a Medicaid for all as an entitlement proposal. Sure, administrative costs for the government would rise as the program absorbed more people, but the marginal cost of providing care for people who are currently ineligible for Medicaid should be close to zero (some scaling would be needed to smooth costs for people just above Medicaid thresholds).

Furthermore, with the Public Option in place, Medicaid would be in even better position to negotiate lower drug prices with pharmaceutical companies, a cost-saving idea championed by many, including President Trump.

Of course, in order to garner support for a Medicaid Public Option, concessions must be made to conservatives.

Removing the employer mandate:

With a reliable, affordable option that covered all essential health benefits, people would have a much clearer economic decision to make–accept a job that pays less but offers insurance, or take a job that pays more knowing they have to set aside a certain amount for insurance. The Public Option would make buying health insurance a predictable financial choice for the first time in American history.

This concession tackles a major criticism of the ACA–small businesses would no longer be required to factor in the cost of providing health insurance when deciding whether or not to hire more employees.

A higher employee threshold could also be kept in place to ensure larger corporations offer a health insurance option to their employees

Reviving Ted Cruz’s Essential Benefits Plan:

For those not familiar with it, Ted Cruz proposed a plan in which health insurers would be able to offer non-ACA complaint plans–ones that do not cover all essential health benefits–as long as they offer a plan that does cover them as well.

Clearly marking which plans do and do not cover all essential health benefits would be important, but it would also be easy enough. The real issue with Cruz’s plan was there was no way to ensure the ACA-compliant plan was being offered at a reasonable rate, and not just as a token to unlock the right to sell non-compliant plans. 

But with the Public Option, it wouldn’t really matter; if the ACA plan was offered at an unaffordable rate, people would have the choice to opt-in to the Public Option. 

This concession tackles another major criticism of the ACA–people would no longer have to buy insurance covering care they don’t feel they need.

President Trump said “Obamacare is Death”, while Senate majority leader McConnell called it a “nightmare”–empty hyperbole meant to scare people who do not know better. In the darkest of ironies, their very replacement ideas would have truly be a living nightmare for millions, and would have lead to many preventable deaths.

In defeat, President Trump tweeted (of course he did) to just let Obamacare fail. There is much his administration can still do to undermine the laws effectiveness if it truly prioritizes political vendettas over the well-being of American citizens. The GOP has (thankfully) proven it can still be the party of “No” when it comes to Healthcare, even when it is the majority party. Now is the time to see if it can be the party of “Yes” for a stronger, bipartisan plan, the American people want and deserve.

Update (8/24)

Every U.S. county is expected to have an insurer in the 2018 Obamacare marketplaces. However, having one insurer does not mean there is competition or choice. 1,478 counties could have only one insurer in 2018, potentially leaving customers without an affordable option.

Expect more updates as 2018 plans are finalized in the coming weeks.


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Criminal Justice Deformed

In past blogs I wrote about the “Prison Paradox“–the idea that incarceration in America has gotten so out of control that it may actually increase crime by creating a poverty trap and perpetuating prison culture.

I wrote about the topic from the vantage point of an enlightened society that was seemingly moving in the right direction on the issue. While this is still the case at the state level, a recent Justice Department directive by Attorney General Jeff Session threatens to undo recent progress:

In an eight-paragraph memo, Mr. Sessions returned to the guidance of President George W. Bush’s administration by calling for more uniform punishments — including mandatory minimum sentences — and instructing prosecutors to pursue the harshest possible charges. Mr. Sessions’s policy is broader than that of the Bush administration, however, and how it is carried out will depend more heavily on the judgments of United States attorneys and assistant attorneys general as they bring charges.

The policy signaled a return to “enforcing the laws that Congress has passed,” Mr. Sessions said Friday at the Justice Department, characterizing his memo as unique for the leeway it afforded prosecutors.

“They deserve to be un-handcuffed and not micromanaged from Washington,” he said. “It means we are going to meet our responsibility to enforce the law with judgment and fairness.”

Mr. Sessions’s memo replaced the orders of former Attorney General Eric H. Holder Jr., who in 2013 took aim at drug sentencing rules. He encouraged prosecutors to consider the individual circumstances of a case and to exercise discretion in charging drug crimes. In cases of nonviolent defendants with insignificant criminal histories and no connections to criminal organizations, Mr. Holder instructed prosecutors to omit details about drug quantities from charging documents so as not to trigger automatically harsh penalties.

People of all races use drugs at roughly same rate, but minorities are disproportionately imprisoned for drug related offenses. Meanwhile, “White America” is currently experiencing the well documented “opioid epidemic”. Drug abuse, treatment, and incarceration should be issues that transcend racial barriers.

On the micro level, drug related criminal justice reform that prioritizes treatment over prison can keep families together. It can keep people in the labor force and in productive society, instead of exposing them to hardened criminals in prison (potentially turning minor offenders into career criminals). Even when prison doesn’t “harden” someone, difficulties finding employment can lead to recidivism (re-incarceration) among ex-cons.

On the macro level it saves money on incarceration and welfare programs. As the “War on Drugs” is no longer achieving its goal–reducing crime–what these funds are spent on is largely irrelevant. Liberals would probably like to see more social programs and public goods. Conservatives would probably like to see more defense spending or a reduction in government debt. This debate can be had once the savings are realized and the socially damaging policies are reversed.

Attorney General Session’s directive claims to give judges more freedom, but it does the opposite. All Holder’s directive did was allow judges to consider the facts of the case before delivering a sentence. It did not prevent them from doling out severe sentences when the situation dictated it. Session’s directive takes this freedom away from judges.

There is no significant public support for this stricter rule. 14 States Attorneys General have written a letter asking Sessions to rescind the rule. Rand Paul has reintroduced bipartisan legislation to ease mandatory minimum sentences, which would override the Session ruling. Unfortunately, based on the current political climate, I wouldn’t count on such legislation getting passed anytime soon.


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Save the EU, (So it Can Help) Save the World

Two Birds, One Stone

The first round of the French Presidential Election saw anti-EU Marine Le Pen advance to the second round runoff. Her defeat there is not the foregone conclusion many think it is–we have all seen this movie before.

Regardless of the outcome of the election or any future “Frexit” vote, European geography won’t change; Russia will still be an aggressor, and the Middle East will remain a volatile neighboring region. Countries on the European continent need a viable joint security plan. For countries that remain in the EU, a new economic plan is needed to stop these exit movements from gaining popular support.

Three interconnected problems seriously undermine the future of the EU–economic, security, and cultural. Economic contraction from the Great Recession / European Debt Crisis, met with austerity policies, has led to high unemployment and stretched social services. A weak military (partially caused by austerity but primarily the result of historic over-reliance on the US) has left Europe unable to act decisively on regional security issues, resulting in an influx of refugees. The arrival of refugees coincided with an increase in terrorist attacks and exacerbated economic insecurity, fueling strong anti-refugee sentiments across the continent. Given the long-term inability of mainstream politicians to remedy these problems, it is not surprising that once fringe populists offering simple solutions have emerged as a real threat to the future of the EU.

One would think the success of anti-EU movements would prompt a strong response from the block. Unfortunately, it seems like business as usual in Brussels. EU negotiators just demanded a huge 3.5% primary surplus of Greece for an indefinite period of time in exchange for bailout funds, even as it grapples with 23.5% unemployment (almost 50% for young people).

The solution to these interconnected problems, although not pretty, is clear–exempt defense and security spending increases from Greece’s budget surplus target. In general, exempt defense and security spending increases from EU budget rules. These rules are often disregarded anyways, but bailout countries like Greece do not have this flexibility. The result is the poorest countries are forced to accept the most growth-constricting policies.

For Euro countries, make cheap ECB funds available to finance such spending. Security provides a common benefit, so its only fair that the costs be reduced by the common strength of the European economy.

The old saying “war is a rich man’s game but a poor mans fight” is an unfortunate economic reality. US servicemen and women come primarily from lower income families, and this plan would appeal most to the poorest Europeans. But there are, however, benefits to both society and individuals to having stronger armies in the EU. A stronger force can act as a deterrent, discouraging bad actors from, well, acting badly. When preventative peacebuilding, diplomacy, and deterrence fail, a strong army can act decisively in a “just war”. The economic benefits realized by military families are real, and can contribute to economic growth and opportunity.

It is not my intention to glorify war, there are many downsides to it; using force should always be the last option, but for global powers it must be an option. I also want to be very clear, this is not a call for conscription. Those who do not wish to serve in their country’s armed or homeland security forces will of course be free to pursue other options.

Not Ideal, But a Chance to be Real

Ideally, fiscally conservative EU countries would just allow poorer countries to engage in stimulus spending attuned to their specific needs. But almost 10 years after the Great Recession, there is little reason to believe this is the case. In fact, Greece’s recent bailout terms are evidence to the contrary.

Ideally, EU defense and security spending would align with the risks facing its members. But despite terrorist attacks at home, Russian aggression at it’s doorstep, and regional instability in the neighboring Middle East, only marginal steps have been taken on this front.

Eventually “ideally” no longer works. Within the complex bureaucratic framework of the EU, pursuing the ideal has resulted in inaction, which has proven to be the worst course of action of them all. Everything is pointing towards inadequate defense and security spending by EU countries. Europe’s security blanket (the U.S.) is now taking a harder line on defense contributions. It is past time for EU leaders to act decisively before the block becomes irreversibly damaged.

As with any major program there are many specifics to be worked out. For instance, how to maximize the resources that go to “labor” (troops, homeland security forces, intelligence officials) as opposed to large “capital” items (aerial bombers and drones for example), without compromising the objective of improved military and security capabilities.

The proposed solution is a just starting point. But it is the starting point for an idea that can solve multiple problems, and should have support from a wide range of politicians–anti-austerity liberals, populists, and neoconservatives. It is also a relatively simple solution itself, so it should play well with blue-collar voters who are fed up with ineffective technocratic solutions.

I am not calling for a global military buildup. Increased military spending by the EU should be met with decreasing military spending in the US. As I have consistently said, Trump’s pressure on EU countries to increase defense spending has been a rare positive for his administration, but would be a wasted opportunity if coupled with the huge increase in defense spending in his proposed budget.

 


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Understanding Conservative Ideology on Economic Opportunity–“I Didn’t Need It” & “I Didn’t Get It”

I was blessed with an incredibly supportive family, in both emotional and financial terms–I was and still am very lucky. Still I faced many obstacles growing up, so I can only imagine the difficulties faced by others. To err is human, particularly for young people without positive role models. Those less fortunate have much less margin for error, meaning one screw-up (of which I had many) can derail their lives.

Both political parties claim they want to promote economic opportunity. Where the parties diverge, and understandably so considering how open the concept is to interpretation, is how to achieve “equality of opportunity”.

To progressive liberals, there can never be enough investment in economic opportunity. The lifecycle approach to human development stipulates that for one to reach their full potential, investments need to be made at every stage of life: nutritional food early in life to support physical and cognitive development, universal pre-K and good public schooling through high school, affordable college options and job (re)training programs into adulthood. All the while, affordable healthcare is needed to guard against the unforeseen and get people back on their feet.

All else equal, I think most people would agree these things are important–they certainly were in my life. Look at any well-to-do family and regardless of their political leanings, you will see parents making these investments to ensure their kids have the best shot at succeeding in life (nepotism aside).

Where many conservatives claim they draw the line is how these programs will be paid for. But it is not only in the name of fiscal responsibility that conservatives balk at such programs. If that was the case, they would not have elected a President whose policies are expected to increase government debt by trillions of dollars over the next decade.

Some conservatives may actually fear more competition, and therefore actively resist policies that promote equality of opportunity. But such people, I think, represent a small minority of conservatives.

Many conservatives I know are good, hard working people. They believe they are promoting the best interests of the poor, and that liberal policies are creating a sort of poverty trap by encouraging laziness and discouraging hard work. All the aforementioned investments in young people are nice to have, so long as people have worked hard and are able to afford them. But how can we demand that something that is outside a child’s control–their parent’s economic situation–determine their access to the tools to success?

My understanding of conservative ideology on economic opportunity, beyond the veneer of fiscal responsibility, has been forming for some time. But it truly crystallized when I read about Dr. Ben Carson’s Secretary of HUD confirmation hearing:

…if confirmed by the Senate, he would enter public service with a background like few other cabinet officials in history, shaped profoundly by a childhood when public assistance meant survival and public housing was all around him.

Rather than embrace the programs that once sustained his family and the families around him, he has resolutely rejected them, adopting standard Republican beliefs that welfare fosters dependency.

The idea that social safety net programs foster dependency can be broken down into two arguments–“I didn’t need it” and “I didn’t get it”.

“I Didn’t Need It”

With a population well over 300 million people, America has people all along the “capacity to overcome hardship” spectrum.

At one extreme there are people who have resigned themselves to a life of antisocial behavior, and no amount of intervention can change that. Liberals have to come to terms with the fact that even well developed, well intended government programs have their limitations. It is also unreasonable to expect the taxpayer to pay for the raft of programs needed to replicate the safety net my family provided me.

At the other extreme there are people like Dr. Carson, who can overcome any obstacle and reach extraordinary heights (often conveniently forgetting the role government programs played in their success). It is, however, unrealistic to expect everyone to have Ben Carson’s intellectual capacity and resilience. Conservatives must place the bar at a realistic level, or else the “equality” in “equality of opportunity” will never become a reality.

The extremes at either end of the spectrum represent a small portion of the population–think normal distribution on a bell curve (see below). The policies that promote equality of opportunity should not be tailored to either of these extremes, but rather towards a hypothetical “reasonable” person–one who wants to succeed, is receptive to and grateful for help, and can progress through life with minimal setbacks (keeping in mind that no one is perfect).

normadist

It is also important to understand that inadequate investment is not necessarily money saved. There are costs associated with underinvestment, mainly:

  • Lower future earnings.According to one [UNICEF] study conducted over a 20-year period, disadvantaged children who participated in quality early development programmes as toddlers later went on to make up to 25 per cent more as adults than their peers who did not receive the same support.” This also means less tax revenue and higher spending on welfare programs in the future.
  • Higher future spending on our criminal justice system. In other words, higher crime and a less safe country for all Americans. While I am in no way condoning a life of crime in the face of poverty, that does not stop it from being the life some lead.

These negative consequences should factor into how much we, as a country, are willing to invest in promoting equality of opportunity. Isn’t a dollar spent enabling one to realize their potential better than a dollar spent dealing with the negative consequences of systematic underinvestment?

Social immobility in America shows that more work remains to be done. Recognizing that anecdotal stories of rags-to-riches does not mean that we have achieved “equality of opportunity” is a good starting point. After all, accepting there is a problem is the first step towards finding a solution.

“I Didn’t Get It”

This is, in my opinion, a less defensible position. At least those in the “I didn’t need it” camp can claim that further investment is not needed. The “I didn’t get it” camp is just bitter; instead of asking themselves “would this be a good program?”, they are just sour because it didn’t exist for them.

I would also say that many time, “I didn’t need it” is just “I didn’t get it” dressed up in a more socially acceptable way.

But shaming these people does no good, it only drives them further into their intransigence. Therefore, it is up to progressive politicians to sell programs that promote equality of opportunity as something that benefits everyone, not just direct recipients.

We all benefit from a safer society with less crime, poverty, and mental illness. We all benefit when everyone is given the opportunities needed to meet their full potential–a few will invent great things, while the majority of people will just end up being more successful, contributing more in taxes and costing less in welfare programs.

People must be made to understand that proposed policies will help people of all races who have fallen behind in the modern economy. To this end policies and programs that promote opportunity should be race-blind and socioeconomic based, to counter the “us versus them” mentality behind much conservative opposition.

Understanding as an Avenue Towards Progress

It is frustratingly difficult to prioritize between programs that promote opportunity at different stages of life. On one hand it is more politically viable and cost-effective to invest in programs that target young children. On the other hand it takes longer for these investments to pay off, and politics is inherently shortsighted. While investments should probably be skewed towards early-life interventions, they cannot fully substitute for programs targeting older groups (such as affordable college and job retraining).

There are elements of truth in both liberal and conservative ideologies. Hopefully through greater understanding we can stop talking past each other, and start talking to and working with one another. I know this may sound sound like hippy-dippy kumbaya bullshit, but it is really an appeal to pragmatism and foresight. Over the past 8 years hyperpartisanship has led to ineffective governance. As the government failed to respond to people’s needs, people lost faith in the government. This paved the way for a regressive and ineffectual demagogue to take power, which ultimately benefits no one.

I understand that one party–the G.O.P–was a much larger culprit in creating this hyperpartisan environment. As the new minority party the Democrats have to decide whether they will continue driving our government down this dangerous path, or try rise above it. The G.O.P. went low, will the Democrats go high? Do they even want to? I sure hope they do; politics should be a means to an end, not an end in itself.

I leave you with this Franklin Delano Roosevelt quote from a speech delivered in 1932, whose words still ring as true today as the day they were spoken:

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach.

This is not to say the Democratic party should be anti-intellectual, or willfully ignore historic experience and scientific consensus. It does not mean it should not stick to its principles and have red-lines. If Trump’s first week in office is any indication, there will be plenty to oppose without being blindly obstructionist. By carefully picking its battles, the Democratic party will have more political capital and public support when there is a core issue it really must fight for.