Tuesday, February 15, 2011

Taxes and logic

About 10 days ago, House Majority Leader Eric Cantor was the featured speaker here at William & Mary's Charter Day ceremony. The text of his speech can be found here. One usually expects a visiting politician to stick to his standard talking points, and Cantor largely did so. Still, I found him oddly rude to his audience.

First, he did not address his remarks at students at all, except in the sense that one can assume they are friends of William & Mary, opening as follows: "President Reveley, the Board of Visitors, faculty, administration, alumni, friends of William & Mary, thank you."

Second, and more substantively, the core argument of his speech was that high tax rates in this country — especially high tax rates on top earners — are inhibiting the U.S. from maintaining its traditional leadership position in innovation and entrepreneurship. As most people know, Cantor included, tax rates on top earners used to be much higher during much of the post-World War II period, when the United States built its reputation for innovation and entrepreneurship. For example, the top marginal rate did not fall below 70% until 1981. Yet there was a lot of innovation and entrepreneurship in the U.S. before that time. Apple Computer, one of his examples, was founded in 1976.

Logically, then, Cantor was telling William & Mary students that they are either intellectually weaker than their parents, or extremely mercenary in their behavior, since he feels that they will not innovate or become entrepreneurs unless taxes are lowered still further (the top marginal rate is now 35%), even though their parents clearly had no trouble producing innovation and entrepreneurship for less extreme financial rewards. It may just be me, but I found that fairly insulting.

Cantor also seemed to suggest, in his speech, that taxes were independent of government spending. So he complained about both taxes and "runaway debt" (a result, in part, of reducing taxes without cutting spending), as though they were unrelated. And he implied he was offended by the notion that raising taxes might help us deal with the current economic crisis. Well, it is not raising taxes that might help — it is what we do with the resulting revenue. Again, this is basic logic, but Cantor apparently believed that William & Mary students cannot make the connection.

Cantor is obviously a smart guy; having spent several years at William & Mary's law school he should know that our undergraduates are smart too. It would have been nice if his speech had not both assumed and implied otherwise.

Monday, February 14, 2011

Michael Lewis on Greece & Ireland

Michael Lewis, in the current issue of Vanity Fair, investigates Ireland's debt crisis ("When Irish Eyes Are Crying"). Together with his earlier articles on Greece (October 2010, "Beware of Greeks Bearing Bonds") and Iceland (April 2009, "Wall Street on the Tundra"), Lewis has now completed a triptych on the human politics behind the national manifestations of the global economic crisis in the three hardest-hit European countries.

As always with Lewis, both the writing and the anecdotes are excellent. The Ireland story makes clear just how fateful — and how unnecessary — the government's decision to guarantee the banks really was. Investors who had been unable to dump their bonds in those banks at 50 cents on the dollar were suddenly told that the Irish government would pay them the full dollar!

Another key point Lewis makes is that those private creditors have been almost entirely repaid. What is owed now is money borrowed from the European Central Bank to make those repayments. The ECB is not in the business of debt forgiveness, but given how many of those — now happily repaid — private investors appear to have been German and French banks, it might be worthwhile spreading the pain a little.

In Iceland, voters overwhelmingly rejected a deal that would have forced them to shoulder the entire burden of guaranteeing the deposits made by foreigners in the failed Icesave bank. The more recent, renegotiated deal still insists on eventual repayment, but now under more generous terms and over a far longer period. It is not inconceivable that the Irish might be able to extract some similar lightening of their load, but first they would need to rise up to demand it.

As Lewis notes, however, the Irish appear oddly apathetic and compliant — "where's the rage?" asks the introduction to the article. Perhaps the Irish feel that their pain is more broadly self-inflicted than was the case in Iceland. After all, "Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another."

Sunday, February 13, 2011

Ending terrorism in Sri Lanka

The New Yorker had a fascinating and disquieting article by Jon Lee Anderson a few weeks ago about the brutal defeat of the Tamil Tigers by the Sri Lankan army: "Death of the Tiger" (partially gated).

The article makes clear that the army indiscriminately shelled LTTE strongholds, knowing full well that these also contained tens of thousands of unarmed civilians. Indeed, the army apparently designated "no-fire zones", told civilians to assemble there, and "then shelled those zones repeatedly, while issuing denials that it was doing so." This brutal strategy was, in the end, successful in conquering the LTTE, albeit at a very high humanitarian cost.

The LTTE was a pretty despicable group, with its frequent use of suicide bombing, among others. Its soldiers also shot civilians that were trying to escape their clutches towards the end of the war, thus behaving no better than the Sri Lankan army. And its leaders, in the end, attempted to get free passage for themselves and one thousand of their fighters, leaving the civilians on whose behalf they claimed to fight to their own devices. (True leaders would have offered to give themselves up in exchange for free passage for all the remaining civilians under their control.)

Still, that does not justify the Sri Lankan army sinking to their level. Anderson suggests, disconcertingly, that "the Sri Lanka option" for counter-insurgency is now discussed with admiration in military circles around the world. It is to be hoped that governments think twice about Sri Lanka's example. The country's government claims that it has "ended terrorism," but that is of course silly. The LTTE may be dead, but the way the government is treating Tamils in the North of the country has produced an excellent petri dish for growing new terrorist groups. Moreover, by the literal definition of terrorism, one might argue that the Sri Lankan army is doing a pretty good job of spreading terror among the Tamils.

Aid transparency

OK, time to crank up the blog again, after some time away focusing on other stuff. I've gathered up a bunch of stuff over the past month or so, so upcoming posts may occasionally not be à la minute.

First up, the promising new aid transparency blog Full Disclosure, run by Devex, "the largest provider of recruiting and business development services to the international development community," briefly commented on the new IATI global standard for publishing aid information, under the title "The Revolution Begins." Claudia Elliot notes that the new standard (finalized on Feb. 9th) makes it possible for donors to share information on the aid they provide, and recipients can get a better sense of the aid they are getting.

Increased aid transparency is an excellent idea, and is crucial for increasing accountability. But it is hardly the case that no aid information has been available until now. The OECD's Development Assistance Committee (DAC) has promulgated aggregate aid statistics for decades now, and its online statistics are invaluable. Superb project-level aid information is available at AidData, a more recent initiative of Development Gateway, the College of William & Mary, and Brigham Young University..

One hopes that this new IATI standard will make a real difference. But I'd hesitate to call it the beginning of a revolution. After all, for a new transparency standard to make a big difference, at least one of two things must be true:

1. Governments have wanted greater transparency than was available through DAC and/or AidData but have been unable to get it until now
2. Publics have wanted greater transparency in order to hold their governments accountable, but their governments have withheld that information from them until now.

It is not obvious that either or both of these conditions hold. Indeed, most historical evidence suggests that they do not. Governments have paid lip service to the importance of aid coordination for a long time, without ever doing much about it. And for decades, governments have gotten good PR out of promising to meet certain aid targets — as specified in the Millennium Development Goals, for example – without actually intending to do so. They may thus have an interest in less than full disclosure, and publics have not historically clamored for more specific information about aid programs.

For a revolution to begin, publics must become both more interested in and better informed about aid policy and projects. Until then, Elliot inadvertently points to one of the things governments may (ab-)use aid information for: "to compliment each others' efforts". I suspect she means "complement", but it is undeniably true that one reason for governments to supply aid is the reputational benefits this may provide Since such benefits won't follow until a government's generosity is widely known, governments will be happy to supply transparent information on the efforts they are most proud of.