David Boaz

On this day in 1913, 96 years ago, the secretary of state notified Congress that the Sixteenth Amendment had been ratified and it was free to start taxing incomes directly. Some would say it’s all been downhill since then. Frank Chodorov called it “the root of all evil“:

The Sixteenth Amendment corroded the American concept of natural rights; ultimately reduced the American citizen to a status of subject, so much so that he is not aware of it; enhanced Executive power to the point of reducing Congress to innocuity; and enabled the central government to bribe the states, once independent units, into subservience.

Certainly the income tax makes possible the massive federal government that we have today. Without the ability to collect taxes directly from individuals — and through the veil of paycheck withholding — government could never hope to pay for troops in 135 countries, the retirement income of tens of millions of Americans, a vast army of federal employees, and all the other hallmarks of the modern state.

The very first issue of the Cato Journal looked at the income tax, including essays by Arthur Ekirch and John Buenker on its origins and by Ronald Hamowy on civil liberties and the IRS. In later issues Charlotte Twight looked at withholding, and Bruce Bartlett examined how the income tax helped to bring down the Roman republic.

President Obama made good on his reputation for giving excellent speeches. He seemed calm and confident. It’s no wonder that instant polls show that most viewers liked it.

That reaction is all part of the guiding strategy of this administration: using a crisis atmosphere to amass more money and power in Washington. There’s a long history of government growth in times of crisis such as wars, natural disasters, or economic shocks. Think of FDR’s revolutionary “first 100 days” or LBJ’s driving through his Great Society programs in the wake of John F. Kennedy’s assassination.

George W. Bush did it, too, with both the Patriot Act and the invasion of Iraq after the shock of 9/11. And in so doing, he left his successor both a presidency and a federal government with unprecedented powers, ready to be employed for a different agenda.

The difference between the Bush and Obama administration is that the latter openly proclaims its use of the “shock doctrine.” As Rahm Emanuel says, “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before.”

And that’s the strategy behind the sweeping agenda that President Obama laid out. The president called his budget “a blueprint for our future,” and as my colleague John Samples notes, “A blueprint is a plan for the society as a whole just as a real blueprint is a plan for a building…. [This is] a plan for the remaking of America. The metaphor reveals a habit of mind at odds with a free society.” Obama promised that the federal government would impose comprehensive redesigns on energy, health care, and education. But the success of America has always been rooted in individual enterprise and free markets. Obama blames free markets for our problems, when it was cheap money from the Fed and misguided federal incentives that caused the mortgage debacle.

Voters respond enthusiastically to determined leadership at the moment of crisis. But laws made in a crisis atmosphere, from the Gulf of Tonkin resolution to Nixon’s wage and price controls to the TARP legislation, usually turn out badly. Democrats want to use this crisis to ram through government takeovers that they couldn’t achieve in any other period. We should slow down, take a deep breath, and carefully consider whether we want a clumsy, always-behind-the-times bureaucracy to take charge of our health, our access to energy, and our educational future.

[ Cross-posted from The Hill’s Congress Blog ]

Washington Post sportswriter Sally Jenkins often has sensible things to say. And in today’s paper she makes some interesting points about hyper-competitiveness in sports and finance. But I think she was led astray by investor, college athlete, and Clinton Treasury appointee Roger Altman:

There is a strong natural connection between Wall Street and sports because “both are quite binary worlds, somebody wins and somebody loses,” according to Altman, who was a varsity lacrosse player at Georgetown.

That’s just wrong. In sports it’s true: somebody wins and somebody loses. If the Yankees beat the Red Sox, that’s a binary outcome with a winner and a loser. It’s what economists call a zero-sum game. If Michael Phelps wins the gold, then everybody else doesn’t.

But in the market both parties to a transaction expect to gain. I get a meal, the restaurant owner gets my money. I get a salary, Cato gets my production. As Murray Rothbard wrote in the Concise Encyclopedia of Economics:

The mercantilists argued that in any trade, one party can benefit only at the expense of the other—that in every transaction there is a winner and a loser, an “exploiter” and an “exploited.” We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a “positive-sum” rather than a “zero-sum” or “negative-sum” game.

No doubt businessmen do like to “win” — sometimes they say “money is a way of keeping score.” They like to make the deal and block their competitors. Sometimes their testosterone may even impel them to make deals that aren’t economically rational, and the market has a way of punishing such decisions. But the people who make the deals — both parties, all parties — all expect to benefit. And usually they’re right. We’ve all bought things that we wish we hadn’t, or made investments that didn’t pan out. Most of the time, though, both parties to a transaction are pleased to make it and remain pleased after the fact. And the process of repeated positive-sum transactions creates economic growth and development.

Sports is different. The game may be fun, for both competitors and spectators. But in the end, as Altman correctly says, in sports “somebody wins and somebody loses.”

President Obama’s proposal to tax the thrifty to bail out those who contracted for more house than they could afford — and hearing people on the radio say “I scrimped and saved to buy a house I could afford, and now I’m going to pay for people who overextended themselves?” — somehow got me to thinking of the old fable about the ant and the grasshopper:

In a field one summer’s day a Grasshopper was hopping about, chirping and singing to its heart’s content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest.

“Why not come and chat with me,” said the Grasshopper, “instead of toiling and moiling in that way?”

“I am helping to lay up food for the winter,” said the Ant, “and recommend you to do the same.”

“Why bother about winter?” said the Grasshopper; “we have got plenty of food at present.”

But the Ant went on its way and continued its toil. When the winter came the Grasshopper had no food, and found itself dying of hunger, while it saw the ants distributing every day corn and grain from the stores they had collected in the summer. Then the Grasshopper knew:

IT IS BEST TO PREPARE FOR THE DAYS OF NECESSITY.

Unless, of course, you can count on a government bailout.

While assaults on economic liberty from the Bush-Obama administration continue in Washington, the Institute for Justice is taking on another fight for the right to earn a living, this time in Boston. Erroll Tyler wants to use state-of-the-art amphibious vehicles to pick up and drop off passengers in Kendall Square in Cambridge and tour historical sites along a fixed route in Boston and Cambridge. But the city won’t issue him a sightseeing license, ostensibly because of a moratorium on such licenses instituted because of the disruptive Big Dig project — which finally ended six years ago. Ironically, one of the sights Tyler would like to show to visitors is the USS Constitution.

The Institute for Justice has come to his aid, with a lawsuit in federal court and this video, featuring Cato senior fellow Randy Barnett, author of Restoring the Lost Constitution:

The Boston Globe asks, “What does it say about the climate for small businesses in Boston and Cambridge that a guy with a promising business plan needs to turn to out-of-state libertarians to protect his interests in federal court?”

One might also ask what it says about the liberals and conservatives in Massachusetts. Don’t they want to help entrepreneurs?

Tim Carney has more details on some companies that hired lobbyists specifically to get a piece of the kitchen-sink spending bill:

For example, the National Association of Home Builders hired Baker & Hostetler a week after Barack Obama’s inauguration to lobby explicitly on the stimulus bill, which, in the end, included an $8,000 credit for home purchases.

Better Place Inc. is an electric car company that hired its first lobbyist — Steve McBee, a former staffer for House appropriator Norm Dicks, D-Wash. — to push for electric car incentives in the stimulus. The resulting cornucopia included an expanded tax credit for plug-in cars, $2 billion in funding for electric car batteries and $400 million to build an electric car infrastructure, complete with recharging stations.

Media giant Time Warner added to its lobbying army, hiring the firm Parven Pomper Strategies to lobby for broadband subsidies in the bill. These subsidies included $2.5 billion to underwrite loans to get broadband out to rural areas and an additional $4.7 billion in spending on other broadband projects. Similarly, network giant Cisco Systems lobbied for the broadband subsidies in H.R. 1.

Carney calls it “The Lobbyist Enrichment Act.” I wrote about “Obama’s K Street Recovery Plan” a couple of days ago.

Not that it needed it — lobbying was one industry that kept on growing during 2008 — the Washington influence business is getting a boost from the Obama-Pelosi-Reid massive spending bill. In a graphic on page A6 of the February 13 edition, not available online, the Washington Post reports that “A Washington Post analysis found that more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill.” The graphic shows that the number of newly registered lobbying clients peaked on the day after Obama’s inauguration and continued to grow as the bill worked its way through both houses of Congress.

In the accompanying article, the Post notes that — unsurprisingly — the $800 billion spending bill “is not free of spending that benefits specific communities, industries or groups, despite vows by President Obama that the legislation would be kept clear of pet projects.” My favorite, as I’ve noted before, is

a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas, a project favored by Senate Majority Leader Harry M. Reid (D-Nev.).

Here are some other recent headlines from the political class’s newspaper of record: “THE INFLUENCE GAME: Lobbyists work stimulus to end“; “A Lobbying Frenzy For Federal Funds“; “Ohioans Seek Slice of Stimulus Pie“; “Lobbyists Get Around Obama’s Earmark Ban“; “Certain Firms, Industries Got Last-Minute Gifts in Stimulus.”

More on the frenzied efforts to get a piece of the taxpayers’ money in the spending bill here and here.

If you want money flowing to the companies with good lobbyists and powerful congressmen, then the stimulus bill may accomplish something. But we should all recognize that we’re taking money out of the competitive, individually directed part of society and turning it over to the politically controlled sector. Politicians rather than consumers will pick winners and losers. That’s not a recipe for recovery.

George Will reminds us of the global disaster that faced us back in the 1970s:

In the 1970s, “a major cooling of the planet” was “widely considered inevitable” because it was “well established” that the Northern Hemisphere’s climate “has been getting cooler since about 1950” (New York Times, May 21, 1975). Although some disputed that the “cooling trend” could result in “a return to another ice age” (the Times, Sept. 14, 1975), others anticipated “a full-blown 10,000-year ice age” involving “extensive Northern Hemisphere glaciation” (Science News, March 1, 1975, and Science magazine, Dec. 10, 1976, respectively). The “continued rapid cooling of the Earth” (Global Ecology, 1971) meant that “a new ice age must now stand alongside nuclear war as a likely source of wholesale death and misery” (International Wildlife, July 1975). “The world’s climatologists are agreed” that we must “prepare for the next ice age” (Science Digest, February 1973). Because of “ominous signs” that “the Earth’s climate seems to be cooling down,” meteorologists were “almost unanimous” that “the trend will reduce agricultural productivity for the rest of the century,” perhaps triggering catastrophic famines (Newsweek cover story, “The Cooling World,” April 28, 1975). Armadillos were fleeing south from Nebraska, heat-seeking snails were retreating from Central European forests, the North Atlantic was “cooling down about as fast as an ocean can cool,” glaciers had “begun to advance” and “growing seasons in England and Scandinavia are getting shorter” (Christian Science Monitor, Aug. 27, 1974).

Will George Will or his successor do a similar column around 2039 about the hysteria over global warming?

Speaker Nancy Pelosi says that the massive spending bill Congress is about to pass is “historic and transformational.” She has a point. Here’s a visual of what it’s helping to do to the federal deficit:

(Source: Strategas Group via PowerlineBlog)

The federal budget is already plunging into deficit. It hardly seems the time to add another $800 billion of spending. Doing so may very well prove to be transformational, like pushing the economy over a cliff.

The Washington Post reports, “The Obama administration’s economic stimulus plan could end up wasting billions of dollars by attempting to spend money faster than an overburdened government acquisition system can manage and oversee it, according to documents and interviews with contracting specialists.”

And as noted here previously, lobbyists have loaded the bill down with special-interest provisions, such as “a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas,” a project favored by Harry Reid. A levitating train from Fantasyland to a city built on gambling. If that isn’t a metaphor for this bill, I don’t know what is.

But it’s not the only one. The Post also notes funding for lithium batteries, Filipino veteran payments, small shipyards, North Carolina-made TSA uniforms, and “clean coal.”

Given all that, it’s especially disappointing that President Obama and Congress continue to ignore his campaign promise to let all legislation be publicly available for five days before he signs it. In this case, even members of Congress had trouble getting their hands on the actual $790 billion bill they were expected to vote on. Congress should listen to Bill Niskanen:

This is the fifth time in my adult life that the president has asked for or asserted unprecedented authority on an expedited basis with little or no congressional review. Each of the prior occasions turned out to be a disaster.

At the Guardian, I argue that President Obama and Rahm Emanuel are carrying out just what Naomi Klein predicted in The Shock Doctrine. Except that, as usual, it’s not deregulation and budget cutting that governments turn to in times of crisis. It’s more money and more power:

Last year the US economy was hit with one shock after another: the Bear Stearns bail-out, the Indymac collapse, the implosion of Fannie Mae and Freddie Mac, the AIG nationalisation, the biggest stock market drop ever, the $700bn Wall Street bail-out and more — all accompanied by a steady drumbeat of apocalyptic language from political leaders.

And what happened? Did the Republican administration summon up the spirit of Milton Friedman and cut government spending? Did it deregulate and privatise?

No.

It did what governments actually do in a crisis — it seized new powers over the economy. It dramatically expanded the regulatory powers of the Federal Reserve and injected a trillion dollars of inflationary credit into the banking system. It partially nationalised the biggest banks. It appropriated $700bn with which to intervene in the economy. It made General Motors and Chrysler wards of the federal government. It wrote a bail-out bill giving the secretary of the treasury extraordinary powers that could not be reviewed by courts or other government agencies.

Now the Obama administration is continuing this drive toward centralisation and government domination of the economy. And its key players are explicitly referring to their own version of the shock doctrine. Rahm Emanuel, the White House chief of staff, said the economic crisis facing the country is “an opportunity for us”. After all, he said: “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before” such as taking control of the financial, energy, information and healthcare industries….

Occasionally, around the world, there have been instances where a crisis led to free-market reforms, such as the economic reforms in Britain and New Zealand in response to deteriorating economic conditions. Generally, though, governments seek to expand their power, and they take advantage of crises to do so. But they rarely spell their intentions out as clearly as Rahm Emanuel did.