Tax Big Spenders

The US federal tax system is terrible. It is inefficient, complicated and unfair.

How about we replace it all with something simple and fair, like this:

Impose a national luxury tax on all goods and services that cost more than $100. Define "luxury" as "costs more than the median sales price of similar goods or services," and calculate the tax based on the difference in the sales price and that median price.

For example, according to Google the median new car price in the US is $37,876. Let say the national luxury tax was 20% and you buy a new car that cost $35,000. You'd owe nothing.

Your rich cousin Betty buys a loaded Range Rover for $137,876? she'd owe $20,000 in luxury taxes (twenty percent of $100,000).

Want to avoid paying taxes? Easy, don't spend your money on expensive stuff. Drive a reliable car, don't spend money on fancy jewelry or 80-year-old scotch or extravagant vacations.

Taxing higher-than-normal spending seems to me to be the least offensive form of taxation. We would be encouraging people to live more frugally, and discouraging them from playing expensive, wasteful status-seeking games. I'm not naive-- rich people would still buy vacation houses and million-dollar supercars to show off their wealth, and plenty of middle-class people would occasionally buy their spouses a fancy diamond necklace for Christmas. They'd just have to pay extra.

Businesses would have to calculate and collect the tax, but that shouldn't be terribly difficult. State sales taxes already require that businesses figure out if what they are selling is taxable or not; asking them to report on what they're selling, for how much (to establish the list of median prices and make sure they're collecting the right amount of tax) isn't much of a stretch. And we already have extensive lists of product categories that are used to assess tariffs when products are imported.

It seems to me both people on the left and people on the right might go for this kind of tax. Lefties should like that it is progressive-- poor people don't buy fancy stuff, so they should end up paying no taxes. Righties should like that it is simple and transparent; the amount you pay will be right there in plain sight when you buy something. No sneaky payroll tax deductions, filling out forms on April 15th or huge IRS bureaucracy interpreting thousands of pages of tax law.

Maybe handle death taxes the same way; if you leave more than the median inheritance to your children, tax the amount over the median. Yes, I know that could be double taxation (the kids might pay again if they spend the money on expensive crap), but it seems fair to me. I'm not a fan of spoiled rich kids who never have to work because their great-grandfather was a brilliant businessman.

The People, United, Will Never...

This year's slam-dunk, gonna-pass-with-an-overwhelming-voice-vote article on the Town Meeting warrant is Article 28: "Reversing Citizen's United v. Federal Election Commission."

I'm trying to decide whether or not it is worth my time or the risk of being a pariah to speak against it at Town Meeting. I don't like Town Meeting taking up national issues in the first place; I understand it is a grand tradition, but it seems to me if the people of Amherst feel strongly about a National issue then they should contact their congresscritters about it.

Or maybe if they don't agree with their congresscritter they should form an organization to pool their efforts and try to amplify their voice... like the Citizen's United organization.

I don't like Article 28 from it's very first sentence, which says:

Whereas: the First Amendment to the United States Constitution was designed to protect the free speech rights of people, not Corporations;

Since corporations didn't exist in the US as legal entities until 1811 that's true. Although I'm not sure that is relevant; the First Amendment doesn't give a lot of wiggle-room when it comes to free speech rights:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech...

Seems pretty clear to me; there's no exception for "... except if the speech happens to be a TV commercial about a political candidate, paid for by an organization instead of an individual, aired just before an election." There's no way to be sure, but I imagine if TVs had existed back in the 1700's our Founding Fathers would have been producing and distributing revolutionary videos in addition to pamphlets and broadsides. They might have even funded that activity using money from their businesses.

If you read the actual text of the Supreme Court decision (available online), they cite an interesting precedent for "Corporations do have a right to free speech" that I haven't seen mentioned at all-- NAACP v. Button, a 1961 civil rights case where the state of Virginia had passed laws making it hard for the NAACP to find disaffected people and file civil rights suits on their behalf. The NAACP is a corporation, not a person, so I suppose you could argue that the Supreme Court was wrong back then, too-- that the Virginia legislature aught to be able to do whatever it likes to the NAACP because corporations have no rights. Newspapers are corporations these days, too; maybe that means that other pesky part of the First Amendment about freedom of the press doesn't apply, either. Right?

I do agree with parts of Article 28; I think there is too much money in politics. But I don't think passing a constitutional amendment and then making it illegal for corporations and unions to make TV commercials or movies for or against candidates or issues that they care about would change that at all; they would just Find Another Way. If they can't fund a TV commercial, maybe they'll find a celebrity sympathetic to their cause and get that celebrity to promote the cause (and maybe the corporation will make an extra generous donation to that celebrity's favorite charity...).

I'd like to shrink government to lower the stakes; if there weren't millions of dollars in subsidies at stake I'm pretty sure the American Beet Grower's association wouldn't spend hundreds of thousands of dollars every year on lobbying. And if the Federal Government wasn't spending billions of dollars on education I'm pretty sure the teacher's union wouldn't spend tens of millions of dollars a year lobbying the Federal Government.  They'd spend all that money lobbying at the state and local level instead, which seems like the Left aught to support as a political version of "Buy Local."

---

Update: passed after zero discussion and a unanimous voice vote.  I abstained.

Are Red-Staters Stupid?

Imagine there's a Federal Government program that is designed to help people... oh, I don't know, let's say help people lose weight.

The Program chugs along for years, and then an economist notices a funny thing: the states that get the most money for The Program are full of people who hate The Program. And those same states have the highest rates of obesity!

I see two likely explanations:

1) The Program is doing what it is supposed to do, and putting more resources in the states with the biggest problem. It's not the government's fault that the ingrates in those states don't know what's good for them.

2) The Program is having an unintended negative effect and is somehow making people fatter. The people know this, and that's why they don't like The Program.

Personally, I'd lean towards explanation number 2, but that's because I'm biased towards bottom-up rather than top-down solutions. To actually figure out which explanation was more correct would take some careful analysis.

The above thought experiment was inspired by Paul Krugman's column last week "Moochers for Self-Reliance," where he talks about the fact that Red States get more money per-capita from the Federal Government than Blue States. Because they're fatter poorer.

The possibility that more government spending could make everybody poorer doesn't seem to ever enter Professor Krugman's mind. Which is odd, because he's written quite eloquently about how the Soviets managed to bankrupt their economy by spending lots of money.

Do Nothing

The popular perception is that our do-nothing Congress is going to drive our country into a financial ditch.

Tyler Cowen (one of my favorite economists, even though he's a Bitcoin skeptic) points out that's not actually true.

If Congress does nothing, then a bunch of things will happen which should balance the budget in ten or so years:

The Bush tax cuts will expire. Income tax rates go up for everybody (rich, poor and middle class) and the Federal Government will get a lot more revenue. If you're a Democrat who thought the Bush tax cuts were a really bad idea in the first place then that shouldn't bother you.

The SuperCommittee SuperFailure budget cuts will happen. Military and Domestic spending will be cut. I'd be pretty happy with that, I think we're spending way too much money on our military and don't think we get our money's worth from most Federal government spending.

Medicare spending will be cut, because there will be no "doc fix" to override a law that was passed several years ago that was supposed to limit doctor reimbursement of Medicare expenses. If that happens (I don't think it will), then it'll suddenly become very difficult to find a doctor willing to accept people on Medicare. It would, however, save a ton of money. It would also be a fascinating natural experiment in health-care economics-- given that there's a surprisingly weak correlation between health care spending and longevity or other measures of health maybe we'd all be better off if we collectively spent less money on doctors.

From my perspective, do-nothing looks like a pretty good second-best solution. I'd rather we cut military spending more, kept the tax cuts for people making under $50,000 per year, and implemented Megan McArdle's plan for national catastrophic health insurance. But Congress has shown that it is really good at doing nothing, and I don't expect that to change.

Zoning. Lots of Zoning.

Tomorrow night Amherst Town Meeting takes up Article 17, which rezones a couple of "Village Centers" to encourage more mixed-use, walkable, environmentally-friendly development.

The Sustainable Amherst website has a great summary of the reasons it is a good idea.

There are a couple of different things going on in the Article-- first is the proposal to change the zoning. That will bring out the NIMBYs who are afraid of change (which, as I've said before, is completely rational). I hope they can overcome their fear and think about all the nice things that might get built. I really enjoy being able to walk to coffee shops and restaurants and Captain Candy and the Farmer's Market, and I would think people living in North Amherst would enjoy more places to hang out and shop, too.

The second thing going on in Article 17 I'm not so enthusiastic about-- "Form-based zoning." The idea is to write zoning rules to encourage the creation of neighborhoods that 'feel' a desired way.

I'm not enthusiastic just because I would rather take a 'creative destruction' approach-- I believe that if you make it easier to redevelop, then neighborhoods will evolve over time towards whatever their residents most desire. I worry that adding Even More Pages to our Zoning Bylaw will just make redevelopment more difficult and expensive, and will give Nimby neighbors more opportunities to nit-pick a project to death.

But maybe I'm wrong about that. Maybe Form-Based Zoning is a really good idea and will speed the process of redevelopment along, so you get fewer strip malls along the way towards tomorrow's quaint, historic village centers that everybody adores. I'm willing to give it a try, and plan on voting for Article 17 tomorrow night.

Drug-testing before welfare

Is it OK to require people to pass a drug test before getting welfare benefits?

If you're a conservative, you probably think: "Sure! It is against the law to take drugs, and giving welfare to drug addicts just encourages their illegal, self-destructive behavior."

If you're a liberal, you probably think: "No! Drug users are some of the most disadvantaged members of our society, denying them benefits is just heartless and will make their problems worse, and testing innocent people is demeaning and violates their human rights."

Who is right? What should the government do?

I wish people would spend less time arguing about questions like this and realize that the real problem is we've got a winner-take-all system where "There Shall Be One Correct Answer."

It doesn't have to be that way.

Defense is a Public Good. So spend less on it.

When economists talk about something being a "public good" they don't mean "nice stuff that the government does."

The definition of a public good is something that is non-rivalrous and non-excludable. Or in non-econogeek-speak, stuff that doesn't run out no matter how many people use it, and stuff that benefits everybody whether they pay for it or not.

National defense is a public good. I'm not saying all national militaries are "good" -- I think lots of militaries around the world are evil and the world would be a better place without them. But the idea of national defense is a public good-- assuming you're pretty happy with your government and don't want Foreign Invaders to take over your country, everybody benefits from a national military standing guard and keeping you safe. And assuming the Foreign Invader Threat doesn't grow as your population grows, the same military can protect 100 thousand people as easily as it can protect 100 million.

National defense is non-excludable and non-rivalrous.

One funny thing about public goods is since they're non-rivalrous, you can serve more and more people while spending the same amount of money. But we don't do that; we spend more and more money on the military. In all the debates about "cutting" military spending the most radical proposals still keep spending at some constant percentage of GDP.

Why?

We should be able to get the same level of safety from Foreign Invaders with a constant level of military spending, no matter how large our population or economy grows. We'd all be much better off, and much safer, if we cut military spending by 90% and spent the money on just about anything else.

Budget Battle Brainstorm

The big battle over raising the debt ceiling makes me wonder if there might be a better way of handling our national budget.

What would happen if Congress and the President agreed to a top-line number: We Shall Spend XYZ Trillion Dollars This Year.

But left the details of exactly what to spend it on to individual congressional representatives.

Just divide the budget by 435, and let each representative decide what to spend their portion on (maybe after paying out interest on the debt, and putting Social Security revenues/expenses into its own account).

Representatives from far-left-wing districts could decide to spend nothing on Defense, and lots on Medicaid and Food Stamps. Representatives from Florida could decide to spend lots on Medicare. Tea-Party representatives could decide to refund part (or all!) of their share back to the taxpayers in their district.

What would happen?

Would spending rise because voters knew their representatives would spend the money on stuff that they like, or would it fall because representatives would compete to give more and more tax dollars back to voters?

Would special interests gain more or less power?

Has anything like this ever been tried-- are there other countries or states or towns that simply elect a bunch of representatives and then divvy up a budget for them to spend however they wish?

But you can use it to buy DRUGS!

Senators Schumer and Manchin are upset about Silk Road, a hidden website that is an "Ebay for illegal narcotics." They accept only bitcoin as payment, because bitcoin is the closest thing to cash on the Internet. Watching the press conference, I get the impression they're also upset at bitcoin; Sen. Schumer says bitcoin is "an online form of money laundering."

First, that's just not true! The biggest bitcoin exchanger (Mt Gox) is careful to comply with all anti-money-laundering laws and regulations. If the operators of Silk Road make lots of bitcoins then if or when they try to exchange them for dollars or euros they're going to have to tell Mt Gox who they are, Mt Gox will be required to report the transaction to the government, and the Silk Road folks might find themselves explaining to an IRS agent how they managed to earn so many bitcoins. It is no different from any other financial institution.

Second, nobody can control what is purchased with bitcoins, just like my local bank cannot control what I do with the cash I withdraw from their ATM machine. I wonder if Senators Schumer and Manchin would like to replace all cash with a government-issued smart card; after all, that would make it much harder for criminals to get away with buying illegal goods anonymously, and if we are all law-abiding citizens then we shouldn't worry about the government knowing about all of our purchases... right?

Finally, I hope that the Senators realize that trying to ban an innovative new technology like bitcoin will put the United States at a competitive disadvantage versus the rest of the world. The US government tried to control strong encryption in the 90's, and only succeeded in driving a lot of cryptographic product development overseas. This is supposed to be the Land of the Free; I think we should learn the lessons of the past and be brave about taking advantage of new technologies like bitcoin, instead of fearing them.

Why do we pay teachers for advanced degrees?

First, to all of my liberal, union-friendly (and union-employed) friends and acquaintances-- please don't hate me. I'm an equal-opportunity skeptic; I'm skeptical of everything from homeopathy and astrology to fair-trade coffee and the power of unions to improve society.

So, Max in the comments to my previous post says:

1. Public employees in Massachusetts make LESS (total pay and benefits) than private employees with comparable education. The same is true is Wisconsin. You can look it up.

2. No "public good" for higher than average wages? Huh? Isn't that PRECISELY the way you attract good people to do important jobs...like teach your children? Back to Finland: one crucial way they took an average educational system (as it was in the 1960s and 1970s) and made it the best (as it is now) was to dramatically raise the pay of teachers. That attracted lots of the best graduates....like the ones who in the United States go right to law school or business school so they can become investment bankers.

Why the heck wouldn't you want to pay people who perform absolutely essential jobs a top wage?

Is there any research showing that teachers with more education (beyond a basic teaching degree) are better at educating students? All the research I've run across says that advanced degrees don't matter.

As for paying people who perform absolutely essential jobs more: I completely agree, as long as they actually do a good job. We have been paying teachers more and more and yet we're not seeing better results. We have run the experiment of throwing money at underperforming schools, but money doesn't work. Listening to a recent podcast from the Center for American Progress (CAP is a progressive think-tank) drove that point home for me (podcast here).

By the way: I can think of a lot of things that are MORE essential than learning where the private sector seems to do a good job with non-unionized workers. Starting with the food and shelter industries.

One of the things that drove me nuts working at UMass in a unionized position was that my job performance didn't affect how much I was paid, or what benefits I got, one iota. Salary was based on years of service, and the union, while I was there, was actively trying to DEFEAT a pay-for-performance proposal.

Maybe I'm weird expecting that if I do a good job I'll be paid more. Wouldn't we get better teachers if we paid them more when they did a great job?

I think employees should have the right to organize themselves to demand better wages and working conditions. But I don't think it is right that most public employees in Massachusetts must, by law, be unionized.

When doing nothing is illegal

My last post got me thinking about how to rejigger things to encourage more donations to private charities.

Maybe we should mandate donations to private charities. Instead of raising taxes on the rich, require that they give X% of their income to the 501(c)3 charities of their choice.

I think that would definitely be better than sending the money through the Washington DC (or Beacon Hill) tax-money-sausage-factory... but would it be constitutional?

Libertarians and conservatives are arguing that the Individual Mandate in Obamacare is unconstitutional. That you can't claim that doing nothing (not buying health insurance) is illegal.

There is at least one thing you're legally required to do in the United States, even if you do absolutely nothing besides being an 18-year-old male. I was legally required to register for the draft; the Supreme Court decided that the constitutional power to "raise and support armies" makes that OK.

I can't think of any other laws that apply if you do absolutely nothing-- are there any? You have to pay income tax, but only if you earn income (which is doing something-- and besides, imposing a national income tax required a constitutional amendment). Requiring that rich people donate to charity is logically just another form of income tax... but legally? I dunno.

To keep the lawyers happy we'd probably have to jack up the tax rates on the rich and then give a tax credit for charitable donations. Which would make the whole scheme complicated enough you'd get the right complaining about high tax rates and the left complaining about rich people using tax deductions to get out of paying their fair share.

Charity and diversity

Sam Harris over at the Huffington Post has a "New Year's Resolution for the Rich."

Re-reading it, I'm a little confused as to what he's proposing-- he wants rich people to create "a mechanism that bypassed the current dysfunction of government, earmarking the money for unambiguously worthy projects..."

I'm confused because I thought that is exactly what private charities do-- you give money to charities that you think are worthy. He seems to want a charity that everybody agrees is worthy, but I don't think such a thing exists. He might think more education for already-wealthy Americans and alternative energy research are unambiguously worthy, and I agree that those are worthy charities.

But I'm more sympathetic to the priorities of the Gates Foundation-- I think saving children overseas from dying of malaria is a better use of charity dollars than making college free to all the kids who are lucky enough to be born in the U.S.A.

Why are people on the left generally so fond of one-size-fits-all solutions? Why do they talk so much about celebrating diversity, but are so anti-diversity when somebody suggests decentralized solutions to problems like saving for retirement (private accounts for Social Security) or public education (vouchers)?

The Pension Problem

So we've promised our public employees pension packages that were supposed to be funded with profits from AAA-rated, regulator-approved investments.

Oops.

The Town of Amherst (and Hampshire County and just about every other public pension system around the country and the world) has a big, looming pension problem. Last week at Town Meeting we were urged by the chair of the Select Board to support a bill that gives towns ten more years to fully fund their pension plans (from 2030 to 2040).

I'm a "pull the band-aid off fast" kind of guy, so my first reaction is that's a bad idea. If we've promised benefits that we can't afford, well, tough cookies! A promise is a promise, and we should cut spending now to ensure we can fulfill our long-term obligations.

But the very fact that this is a widespread problem makes me wonder what is really going to happen. It is great to be fiscally responsible, until you're forced to take your hard-earned savings and give it to your irresponsible neighbors.

So I wonder: maybe Massachusetts should push off the day of reckoning until 2040. If I had to bet, I'd wager that the next major financial crisis and Federal bailout will involve public employee pensions, and I'd wager that the more irresponsible states (California, I'm looking at you) will benefit more.

The Weather Makers

A couple of years ago Richard Morse suggested I read The Weather Makers to get a convincing argument for why global warming is a Really Big Deal and why we Must Do Something Now.

I read it on my Kindle, and used the Kindle's "add note" feature to jot down my thoughts as I read. Definitely klunky, but better than sticking post-it notes in a paper book or writing in the margins-- the Kindle lets me see all my notes at once and it's way more environmentally friendly to use electrons to read rather than pen and paper.

Which brings me to my first criticism of the book. Flannery repeatedly makes the mistake of believing that we're all competing with each other for a share of a fixed resource pie. For example, talking about grain yields he says "although substantial wheat surpluses were recorded in 1999 and 2004, overall the trend in world food security has been a downward one."

Ummm... no. My favorite usually-unbiased quick source of information (Wikipedia) has a helpful graph of global food production per capita; "food per person increased during the 1961-2005 period."

Flannery's warnings about Peak Oil fall into the same trap. Another "oops" I noted: he predicts "the world may experience the end of cheap oil sometime between now and 2010." Well... no, not yet.

Yes, oil will become more expensive than it is now. No, that won't matter, any more than the fact that whale oil is impossible to buy today but used to be cheap and economically important.

I recently read From Poverity to Prosperity (also on my Kindle), which is all about why thinking about the modern economy in terms of physical stuff is all wrong. In today's world using human ingenuity to rearrange atoms or bits in new and interesting ways is the key to prosperity.

And that brings me to the other major issue I have with this book. Flannery isn't an economist, so why does he dismiss their expert opinion? He admits that "economists who participated in the IPCC discussions stated that doing anything serious about climate change was too expensive to be worthwhile," and then instead of examining their arguments he simply states that "... adaptation of this sort is genocide, and attempted Gaia-cide, as well."

No mention of discount rates or cost/benefit calculations or any serious discussion of how to balance our competing desires for material wealth and a pristine environment, just over-the-top rhetoric and fear-mongering. NO serious scientist thinks that global warming will kill all life on Earth, and as a paleontologist Flannery should know that. Carbon dioxide concentrations in paleolithic times were much, much higher than even the highest of the IPCC projections, and life flourished.

And that brings me to my last criticism. For somebody who has studied the stunning variety of life nature produces (Flannery is an expert in kangaroo evolution, among other things-- didja know that there used to be 10-foot-tall kangaroos hopping around?) he seems amazingly pessimistic about nature's ability to respond to change. Biologists have discovered that new species can evolve in as little as 20 years.

So I remain unconvinced that global warming is a Really Big Deal and that we Must Act Now. As I've said before, I think we should focus on more immediate issues like habitat destruction, pollution from coal-burning power plants, stupid, expensive, environmentally-destructive ethanol subsidies, and environmentally unfriendly zoning laws that encourage cars and energy-inefficient single-family houses.

Innovate Holyoke

I'm trying hard to think positive thoughts about the Innovate Holyoke project that just got $25M in state funding to help create a high-performance computing and data center.

Maybe it will be the best investment the State ever makes, and will help make Holyoke a hotbed of high-tech activity. That would be great!

But I think they'll end up creating an obsolete product that nobody will really want. Amazon and Google (and IBM and probably some startup that we haven't heard of yet) have tremendous expertise and experience running high-performance, high-availability data centers. And competition will drive them to provide an ever-better, ever-cheaper product.

I like the idea of putting a computing center next to a green source of energy ("The project is designed to draw hydroelectric power from the river while serving as an example of a green, environmentally friendly data center"), but that's not a new idea-- Google, Microsoft and Yahoo have been doing it for at least 5 years.

I also like the idea of recycling old factories, but that's an old idea, too-- here I am with the rest of the Resounding Technology team at our MASS MoCA offices in 1999:

I believe the master plan was to make North Adams a hotbed of high-tech activity, building on the success of Tripod.com. That... hasn't really happened.

Most startups fail (Resounding was a moderate success-- it was sold to a Silicon Valley company about a year before the .com implosion; the company to which it was sold imploded). And most government projects designed to revitalize a city or region fail; that's par for the course. Writing this blog entry, I did some research on perhaps the most shining example of a project that has done really well-- North Carolina's Research Triangle Park.

It might just be my anti-government bias shining through making my cherry-pick factoids that support my ideology, but I couldn't help noticing one factor that I think might have helped it succeed:

"The park is 7,000 acres (2,833 ha) situated in a pine forest with approximately 630 acres (255 ha) for development. The park is an unincorporated area, and state law prohibits municipalities from annexing areas within the park." (from wikipedia)

I wonder if any economists have tried to study whether projects in unincorporated areas do better overall...

AGW versus GW: why does it matter?

Imagine for a minute that global warming isn't anthropogenic-- that it is happening, but it is happening because of... oh, I dunno, sunspots or an overabundance of squirrels or some other natural cause.

Would we just resign ourselves to dealing with the consequences, or would we try to do something about it?

Would environmentalists be lobbying for geoengineering solutions to save polar bear habitat or would they be protesting proposed geoengineering, waving signs saying "Don't Fool With Mother Nature!"

I bet they'd be waving signs.

If the consequences are the same, why does the cause matter? Would the argument be "we didn't cause the problem, so we don't have to fix it?" Or would it be the Appeal to Nature fallacy ("if it is natural, it must be good; if unnatural, bad")?

There are lots of problems we don't cause that we try hard to fix or prevent (diseases, natural disasters), so I don't think that would be the argument. I think instead there would be a double Appeal to Nature-- if global warming was natural, then it must be good. And geoengineering is unnatural, so it must be bad. So, the argument would go, we should do nothing.

I don't believe in the Appeal to Nature, and I don't think it matters whether or not global warming is "natural" or man-made. I think we should weigh the costs and benefits of global warming and compare them to the costs and benefits of possible solutions to figure out what, if anything, we should do.

And I expect that'll happen when Whole Foods decides to get rid of its Natural and Homeopathic Remedies aisle. I predict we'll have genetically engineered flying pigs before then (on second thought, that's dumb; they'll create chickens that taste like bacon).

Why not a billion dollar override?

In 1980 Proposition 2½ was passed by Massachusetts voters.

But Amherst voters were against it by a 3 to 1 margin.

I wonder what would have happened if the 1981 Select Board had asked those same voters to approve a billion dollar override. That would have been an effective way of vetoing Prop 2½. A billion dollar override would mean the Select Board and Town Meeting would have to come up with budgets the way they did before-- decide how much money is needed, how much people were willing to pay, and then convincing a majority of Town Meeting that the budgets are justified.

For true public goods, that's actually a reasonably good process. But Prop 2½ screwed it up.

I wrote about one study that showed some unintended consequences a couple of years ago:

"It takes time for various levels of government to institute and implement changes, but following a brief lag, California and Massachusetts began to make up those lost revenues, largely through rapidly growing non-tax fees and charges. During a period of "tax revolt," these revenue sources were both less constrained and less visible to voters than taxes."
From: A tale of two tax jurisdictions: the surprising effects of California's Proposition 13 and Massachusetts' Proposition 2 ½ - property tax

I think another unintended consequence was the centralization of funding at the State level. Our schools and Towns are increasingly reliant on money from the State instead of local property taxes, and I think Amherst is worse off because of it.

Maybe that's OK-- maybe Holyoke is much better off because more education funding is funneling through the State education bureaucracy and being spread around from rich places like Amherst to poorer places in the state. Ummm, no, after 30 years: Holyoke, Springfield, ranked as 2 lowest performing school districts in Mass. (September 14, 2009)

So: why not a billion dollar override? I'm only half serious, although the more I think about it the more the idea appeals to me. Either we trust the Select Board, School Committee, and Town Meeting to be fiscally responsible... or we're screwed, because even with Prop 2½ they could decide to take all our property taxes and build a monorail to Belchertown.

What part of "shall make no law" don't you understand?

I don't understand the liberal angst over the recent Supreme Court decision that allows corporations to spend money on political campaigns.

I thought it particularly ironic when my local newspaper ran an editorial saying that allowing corporations to endorse or malign political candidates will skew the democratic process.

From the Massachusetts Corporations Division database:

The exact name of the Domestic Profit Corporation: DAILY HAMPSHIRE GAZETTE, INC.
Entity Type: Domestic Profit Corporation

The Gazette routinely endorses candidates and takes political positions. I guess it is OK if you're the right KIND of corporation?

Maybe we could all vote to decide what KIND of corporation should be allowed to spend money to promote their views. I can see it now: Amherst Overwhelmingly Votes to Ban Fox News from Local Cable.

The Supreme Court made the right decision. If you don't like the way a corporation is behaving, then take your business elsewhere. Don't try to pass laws that limit how or when groups of people can get together, pool their money and try to get a message out.

The health insurance deal

So the deal is roughly -- the government will guarantee that I can buy catastrophic coverage for my family for 2% of income with a annual deductible of 8% of income? I don't think that is anything close to what Democrats intended, but maybe that's not so bad. How far would that be, really, from the libertarian preference for catastrophic insurance combined without out-of-pocket payments for normal medical expenses? -- Slocum in the comments at Marginal Revolution

The press has been focusing on the details of the health care bill, and the political deal-making and drama. The emotional, moral side of me is angry that Nebraska gets a special sweetheart deal because one of it's senators was a key vote. The rational part of me knows that in the long run that type of thing doesn't really matter, and also knows that the only way to prevent that type of thing from happening is to change the incentives, which means changing the system.

If the health care bill makes it through the House/Senate reconciliation process and becomes law, what incentives will change?

Here's a thought experiment: imagine you're a self-employed person making $60,000 per year. Under the new health plan, if you don't buy health insurance you're fined 2% of your income-- $1,200 per year.

Since you can't buy health insurance for $1,200 per year, you don't -- instead you just pay the fine and pay for any minor health expenses as the come up.

If you get something serious, you sign up for health insurance and let your insurance company pay. They have to take you because they're not allowed to exclude people with pre-existing conditions.

So: what does that do to the overall cost of health care? I think it will actually push costs down. Lots of young, healthy people will all be paying for everything but catastrophic health care costs out-of-pocket. They'll be cost-conscious.

What will that do to the health insurance companies? It will drive up their costs; we'll end up with a weird system where healthy people pay 2% of their income plus actual medical costs. And sick people pay 8% of their income in health insurance premiums, with the government subsidizes costs above that. There will be an incentive for sick people to make as little income as possible ("do I want to pay 8% of $50,000 or 8% of nothing?"). And there will be some unintended consequences; I predict you'll see a lot more sick people getting divorced (or not getting married), so their spouse's income isn't counted.

Will it be better than the system we have now? I don't know. I think it depends on what happens to the majority of people who get their health insurance through their employer. I'd like to see more details on what the employer mandate looks like; if employers have to pay up to 8% of income for a young, healthy employee, but that same young, healthy employee would only have to pay 2% of income if they were on their own, then that's an incentive for young, healthy people to work for themselves.

Maybe we'll accidentally create a whole generation of entrepreneurs...

Kookaburra Copyright

Kookaburra sits in the Old Gum Tree...

I'm playing with fire here; the Kookaburra song is still copyrighted. I'm pretty sure quoting the first line for non-commercial purposes would qualify as "Fair Use", but I woulda thunk that using it in a pop song was Fair Use, too.

Apparently, no. "Men At Work" are being sued, 28 years after putting half the Kookaburra song (just the tune, not the words) in the "Down Under" song. You know, the one with the line "She just smiled and gave me a vegemite sandwich."

Mmmmmm...... vegemite......

(Vegemite^® is a registered trademark of the Kraft Foods Corporation. All Rights Reserved.)

Anyway, the idea behind copyright is to encourage people to create stuff by giving them a monopoly on the right to that stuff. Copyright used to last 14 years, plus another 14 years if the creator was still alive and bothered to register an extension.

I think we'd be better off with that old law. Men At Work wouldn't be sued for using the Kookaburra song (which was written in 1934, so the copyright would've been long expired). In fact, the Down Under song would be in the public domain and a whole new generation of pop stars would be free to rework it to create something new.

I suppose the danger is that if everything created before 1981 was in the public domain we'd buy less new stuff and get more old music (or movies or books...) for free. But I don't think that would happen. I think we would get more old stuff, but we'd also spend exactly as much money as we do now on new stuff. And pop stars would end up a little bit richer, because they wouldn't have to quite as much money defending themselves from ridiculous copyright lawsuits.