Relevant and even prescient commentary on news, politics and the economy.

CATO Institute and Ayn Rand

Via alternet comes this bit of news:

…John Allison, a former bank CEO and a leader of the Rand movement, has just become president of the Cato Institute, the oldest and most influential libertarian think tank. This received only a modest amount of attention when it surfaced late last month, and you had to be a real political junkie to even be aware of it. But it is a seminal event in recent political history—a dramatic indication of the mainstreaming of the radical right.

What it means is that the Rand movement, which was little more than a cult when the Atlas Shrugged author died thirty years ago, has effectively merged with the vastly larger libertarian movement. While many differences are likely to remain—particularly as far as Ron Paul’s fading candidacy is concerned, given the Randers’ support for abortion and opposition to his foreign policy views —this means that Objectivism, Rand’s quasi-religious philosophy, is going to permeate the political process more than ever before.

Allison, former CEO of North Carolina’s BB&T Bank, is not just going to be the Cato Institute’s sugar daddy. He replaces Ed Crane as president, meaning that he will have day-to-day control over the most significant libertarian organization in the country. Allison is a board member of the Ayn Rand Institute, the orthodox, no-compromise Randian organization, and is best known for his foundation donating free Rand books to thousands of schoolchildren across the nation—a crass exploitation of the fiscal troubles besetting primary schools.

Random Thoughts on the Cato Dispute

by Mike Kimel

Random Thoughts on the Cato Dispute

Recently there’s a bit of a to-do about the battle for the soul of Cato, one of the big Washington policy think-tanks. I’m at best a disinterested observer – unlike most people weighing in, I have no conceivable stake in the outcome. I can’t see any away in which I or any members of my family or friends are or have been in any way compensated by any of the parties involved, nor can I envision any way in which anyone I personally know would gain or lose from whatever happens.* From that perspective, a few random thoughts….

1. Both sides in the dispute have a philosophy that the best measure of an idea is the free market. But it doesn’t seem like Cato, as an organization, is operating as if that is true. They are in the business of giving away philosophical policy points, and providing analytic support (much of which is not in accordance with the data if you ask me) for free. All of that is paid for as a charity, but the philosophy they are promoting is that the market knows best. And yet, the market doesn’t seem willing to pay for that philosophy. Note that the market is quite willing to pay for philosophy, including some similar philosophy: whatever one thinks of Ayn Rand, people still buy Atlas Shrugs and the Fountainhead. Ditto much of Heinlein’s oeuvre. But how many of the Cato people would have kept body and soul together this far counting on the free market alone? It seems odd that people would spend their careers to advance an idea when they have taken such extraordinary steps to minimize the effect of that idea on the way they earn their livelihood.
2. Cato-leaning types of all stripes tend to be against government social programs. They typically advance a number of arguments against such programs, but one that frequently comes up is dependence: the existence of these programs teach their recipients to be dependent on the government rather than going out and making a living on the free market, and this process is self-perpetuating. And yet, this seems to be exactly what the donors to Cato are doing. They are encouraging those who work at Cato to continue engaging in behavior that is not self-supporting. If they didn’t, the folks at Cato might hone their craft sufficiently to produce something which the market would actually buy, which their philosophy says would make everyone better off.

  3. Whatever happens, I suspect just about everyone involved in any way with Cato, whether as a donor, employee, or reader of their material, will continue try their best to avoid anything that can remotely be construed as a free market outcome.

* After writing this, I took a quick inventory around the house and realized that the toilet paper (“Quilted Northern” brand) we recently purchased was made by Georgia Pacific which is owned by Koch Industries. Nevertheless, I still believe my association with any of the parties in the Cato flap is de minimus.

Beale debates Cato’s Edwards on the right’s "flat tax"–New Hampshire Public Radio

by Linda Beale

Beale debates Cato’s Edwards on the right’s “flat tax”–New Hampshire Public Radio

Last Wednesday (Oct. 26, 2011), I debated the Cato Institute’s tax policy guru Chris Edwards about the right’s various “flat tax” (FairTax, 9-9-9, USA Tax, consumption tax) proposals, on New Hampshire’s public radio station’s hour long program “The Exchange”, hosted by Laura Knoy. You can catch the program on the NHPR site, at “The Flat Tax is Back” (Oct. 26, 2011). (The live format is an initial discussion in response to the host’s directed questions, followed by call-ins from the public.)

I argued, as you might expect from my previous postings on this matter, that the various proposals for some form of VAT/consumption/wage-based/flat tax do not make sense at a time of inordinate income and wealth inequality in the United States. Consumption taxes are regressive, and most proposals from the right–including Herman Cain’s three step progress, with 9-9-9 as the midpoint, towards a national retail sales tax, and Rick Perry’s proposal for an ‘option’ of a 20% national sales tax–simply will make the rich richer and the poor poorer. They are terrible ideas at any time as a substitute for both the somewhat progressive income tax and the somewhat equalizing estate tax. They are especially terrible ideas in a period when inequality has returned roughly to the same level as it was in the Gilded Age and when plutarchy threatens to devour our democracy.

Edwards made some rather inconsistent statements–including acknowledging that all of these proposals call for elimination of tax on all income from capital and from all estates, and then a later statement that the flat tax would be fair because it would tax people alike on their total income! He also relied on straw man arguments–another favorite of the Cato Institute representatives that I have seen before, used to divert attention from the fact that they cannot really answer the real question at issues. Chris relied on the laughable Laffer-curve based argument of which Cato is inordinately fond and which has been adopted and repeated ad nauseum by the right, that tax cuts result in greater revenues to the rich that result in enhanced job growth. I reminded him and listeners that our greatest growth was from WWII to 1981 when we had very high tax rates, demonstrating clearly that high tax rates do not cause weak growth. (Of course, 1981 is the critical time, because the Reagan cuts ushered in the right’s reaganomics dominance with tax cuts, deregulation, militarization and privatization that led us to the current Great Recession–aided in part by the weak-kneed Democrats who went along rather than standing up for worker rights.) Chris’s response to the empirical evidence that tax cuts do not lead to broad-based growth or job creation was “we can’t ever go back to the high rates of the 1970s again.” Of course, that was a straw man argument. Nobody is arguing for 90% rates. I am arguing, however, that the flat tax–with its zero percent rate on most of the income of the uberrich and its very low rates on the rest of their income–will hurt the poor because it is distributionally unfair, and hurt the economy generally because it will lead to revenue shortfalls that will force spending cuts to programs that matter to the wellbeing of society.

Anyway, listen to the program. Your thoughts welcome in comments to the blog. (And sorry for miffing my chance at the “last word” at the end of the program. It was an instance of getting tangled up in what I wanted to say and ultimately failing to make the point with any power at all. What I was aiming for was something along the lines of the following:

Reagan passed the 1981 tax cuts, and then Congress realized what a problem the resulting deficits would be so was energized to pass increases in taxes. Problem was, most of the cuts favored the rich (were cuts in income taxes and in depreciation expenses providing cuts in income taxes, etc. ) and most of the increases disfavored the poor (i.e., were regressive payroll taxes). IN 1986, however, there was a broad process of Congressional review, resulting in the 1986 tax reform act that eliminated (for a very short time, as it turned out) the category distinction between capital gains and labor income. That was a major, good innovation that grew out of a sustained, measured, thoughtful though imperfect process. There is no indication that election of more hard right candidates will lead to any such similar reform process today. If elected, the hard right candidates are likely to push for, and may get, tax changes that continue to enrich the rich, like the flat tax or 9-9-9 tax plans being put forward by Perry and Cain.

originally published at ataxingmatter

At CATO, knowing how to diagram–or read–a sentence is an impediment

Via djw at LG&M and Echidne, the original sentence:

Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of ‘capitalist democracy’ into an oxymoron.

The it’s-not-the-stupidity-it’s-the-coverup “explanation” from the editor:

[Thiel] writes only that women have tended to favor policies and candidates he opposes, and which he thinks are bad for the country. This seems — to my mind at least — regrettable, but also generally true.

We can leave the question of whether Jason Kuznicki actually uses his mind as an open one. For now, I just plan to assume he never wants any woman with half a brain to work at CATO. He continues:

Thiel might have chosen his words more carefully, but it’s still quite a logical leap from what he actually wrote to demanding the end of women’s suffrage. Of course women should be able to vote. It’s ridiculous to suggest otherwise. We libertarians just need to do a better job of convincing them that voting in favor of individual liberty and free markets are the best choices they can make. [emphasis mine]

All right, let’s assume—contra the evidence—that Thiel is not demanding an end to women’s suffrage. Since he has equated giving women the vote with the death of the “notion of ‘capitalist democracy,'” we are left with three choices

  1. Take Thiel at his word that giving women the vote destroyed the glorious CATOist “capitalist democracy,”
  2. Take Kuznicki at his word that women are just too dumb to understand the glories of “individual liberty” and “free markets,” but that Institutes like CATO are around to help them overcome their inferiority in that respect, or
  3. Conclude that Kuznicki believes that people who read CATO Unbound are illiterate, or at least stupid enough to believe that Thiel’s decision to make an attack on women’s suffrage part of the subject of his sentence referred to a subordinate clause, not the predicate.

I used to expect better from CATO. It’s sad to see them resort to “Who are you going to believe, me or the text I published?”

"Half of workers would opt out of Social Security if they could"

by Bruce Webb

In a post at his site Andrew Biggs points us to a piece by him Survey: Half of workers would opt out of Social Security if they could which in turn points to a survey sponsored by Sun Life Financial Results show that almost half (48%) would prefer to stop paying into the Social Security

The results broke down by ages as follows:
30-39: 59%
40-49: 52% (Men 57%, Women 44%)
50-59: 44%
60+: 34%
All: 48% as being willing to drop out of Social Security even if they had to forfeit benefits earned to date.

Which lead Biggs to ask in comments: What does it say when even people who benefit from Social Security have so little faith in it, particularly when the main purpose of the program is to make people feel secure? to which my reply was

Well some people really do believe “Things go better with Coke”. Because Coke paid good money to market that message.

The results of the survey tell me something I have known for a long time, the efforts outlined in Butler and Germanis (Cato J. 1983) worked brilliantly. The plan as outlined had three parts which I would summarize as follows:
1. Reassure those in or approaching retirement
2. Convince younger workers that Social Security just won’t be there for them
3. Present them with a plausible alternative based on the argument ‘something is better than nothing’

This plan was perhaps one of the best marketing campaigns in history with the results seen in the survey. Those who have been exposed to the message promulgated by what is now known as the “Cato Project (on) Social Security Choice” aided and abetted by various enterprises sponsored by Pete G. Peterson such as Concord and the movie I.O.U.S.A combined with an active outreach to younger workers via such things as the Fiscal Responsibility Wakeup Tour over the 25 years (since the publication of Butler and Germanis) have largely succumbed to the message strategy. Naturally people will want to opt out if they don’t believe they will get anything out or can get better returns on their own.

So congratulations are due to all concerned. But all that polling really shows is the success of the marketing campaign. In my experience extraordinarily few of the doubters really have any conception of the actual numbers in play. Mainly because they never seem to be part of the message being delivered. Except of course when they see numbers aggregated over the Infinite Future Horizon for both Social Security and Medicare.

“What does it say when even people who benefit from Social Security have so little faith in it?”

Well it suggests to me that Cato got its money worth in some of its past hires.

I’ll explain that last piece of snark and discuss some implications of this below the fold.

In the Summer of 1983, smarting under what they called the “fiasco of the last 18 months”, i.e. the Greenspan Commission and subsequent 1983 Reform, the Cato Institute convened a conference in Washington DC and subsequently published the papers in their Fall 1983 Cato Journal under the title Social Security: Continuing Crisis or Real Reform. One of those articles had the intriguing title of Social Security Reform: Achieving a ‘Leninist’ Strategy. In that article was laid out the long term plan alluded to in my comment quoted above, which plan focused in large part on convincing younger workers that Social Security just wouldn’t be there for them. Cato not only accepted that plan it institutionalized it in what was then known as the Project on Social Security Privatization but now known as the Project on Social Security Choice. (Note the domain name: – they have staked a claim to Social Security itself)
One thing to note is that ‘privatization’ has essentially been scrubbed out of the ‘About’ page and in fact it now states

On August 14, 1995, the Cato Institute launched its Project on Social Security Choice, the largest undertaking in the organization’s history. The objective of the project is to formulate a viable blueprint allowing individuals the opportunity of owning their own retirement account. The project publishes books, studies, and articles and holds conferences. The Cato Institute’s experts examine the problems facing the current system, the methods that can be used to move towards a system of personal retirement accounts, and the effects that a new system would have on workers.

Subsequently it was shown that ‘privatization’ and ‘privatizing’ didn’t poll well and so were dropped. As in “We have always been at war with Oceanea”. They were a little more open on the actual launch Project on Social Security Privatization

On August 14, 1995, the 60th anniversary of Social Security, Cato held a press conference to inaugurate its Project on Social Security Privatization. That event was televised by C-SPAN and covered by ABC’s Good Morning America. The objective of Cato’s Project on Social Security Privatization is to formulate and recommend a viable ‘blueprint’ for privatizing the U.S. Social Security system. The Project is directed by Cato’s director of health and welfare studies, Michael Tanner, and is co-chaired by José Piñera, Chile’s former labor minister and architect of that country’s private pension system, and William Shipman, principal at State Street Global Advisors.

How successful was the Project? Well in the early days pretty good. In fact by 1996 they were able to put up this result Public Opinion and Social Security Privatization (by Michael Tanner, Project Director) (bolding mine)

Although Social Security remains one of the most popular government programs, most Americans understand that the system faces serious future financial problems and would support privatization of the retirement system, according to the results of a poll conducted by Public Opinion Strategies on behalf of the Cato Project on Social Security Privatization.

Among the poll’s findings:
More than 88 percent of Americans believe that Social Security either is in trouble today or will be in trouble within the next 20 years. Fully 60 percent of all Americans under age 65 believe Social Security will not be there for them when they retire.
As a result, more than two-thirds (69 percent) believe that Social Security will require “major” or “radical” change within the next 20 years. Among younger voters, approximately half believe that major or radical change is needed today. The support for change cuts across ideological and party lines.
Voters reject most traditional Social Security reforms such as raising the retirement age, raising payroll taxes, or reducing benefits.
Approximately two-thirds of voters would support privatization of Social Security, transforming the program into a privatized mandatory savings program. More than three-quarters of younger voters support privatization.

Which explains my snark about Cato’s “past hires”. Starting with Butler and Germanis in 1983 and institutionalizing with the Project in 1995 the Cato Institute set out on a long range plan to undermine traditional Social Security by convincing younger workers that it just wouldn’t exist AT ALL. This was and is fundamentally dishonest, as long as FICA exists Social Security can pay out some level of benefits. An honest discussion would focus on the exact amount of the shortfall and the full range of possible solutions in that context. That discussion didn’t happen because the paid professionals at Cato deliberately set out to prevent it. A hint as to the next step comes in the sidebar of the Project’s ‘About’ page. (bolding mine)

“The largely Cato Institute-staffed presidential commission owes its existence to the Cato Institute itself. For the last quarter of a century, the Washington, D.C.-based libertarian think tank has been campaigning for the privatization of Social Security.”
– William O’Rourke, Chicago Sun Times, August 28, 2001

Per O’Rourke it would seem that the original Butler and Germanis plan was first institutionalized under Cato with the Project and then elevated to official status with the 2001 Commission, itself staffed by those hired professionals from Cato. And who beside Director Tanner would those people be. Well those who follow this series will be familiar with at least one name. From the Cato people page.

Andrew Biggs is a former Social Security analyst and Assistant Director of the Cato Institute’s Project on Social Security Choice. Prior to joining Cato he was Director of Research at the Congressional Institute in Washington, D.C. (where he remains a Fellow), and a staff member for the House Banking and Financial Services Committee. He holds a Bachelor’s degree from the Queen’s University of Belfast, Master’s from Cambridge University and Ph.D. from the London School of Economics and Political Science.
In 2001 Biggs served as a staff member for the President’s Commission to Strengthen Social Security, and in 2002 he was appointed by the Bush administration as a delegate to the National Summit on Retirement Savings and addressed the United Nations International Conference on Financing for Development.

So when Biggs asked “”What does it say when even people who benefit from Social Security have so little faith in it?”

and I replied: “Well it suggests to me that Cato got its money worth in some of its past hires.” I really meant “Heckuva job, Andy!”

People who make the argument that Social Security should be privatized because so many people under 50 are skeptical that it will even be there have the cart ahead of the horse. The real question is why those people are so skeptical to begin with? And to me the answer is pretty clear, Cato set out in 1983 to sell privatization via what I can only describe as a systematic propaganda plan aptly described by Butler and Germanis as a ” ‘Leninist’ Strategy”. It worked. Because I have a 1996 poll and a 2009 survey to prove it. A final note from Butler and Germanis

There are two main elements to this strategy.
The first element consists of a campaign to achieve small legislative changes that embellish the present IRA system, making it in practice a small-scale private Social Security system that can supplement the federal system. As part of this campaign, the natural constituency for an enlarged IRA system must be identified and welded into a coalition for political change. If these objectives are achieved, we will meet the next financial crisis in Social Security with a private alternative ready in the wings—an alternative with which the public is familiar and comfortable, and one that has the backing of a powerful political force.

The second main element in our reform strategy involves what one might crudely call guerrilla warthre against both the current Social Security system and the coalition that supports it. An economic education campaign, assisted by modest changes in the law, must be undertaken to demonstrate the weaknesses of the existing system and to allow it to be compared accurately (and therefore unfavorably) with the private alternative. In addition, methods of neutralizing, buying out, or winning over key segments of the Social Security coalition must be explored and formulated into legislative initiatives,
The objective of this element of the strategy complements the first. The aim is to weaken political support for the present system when the next financial crisis appears. This two-pronged strategy will now be considered in more detail.

Hmm, “an economic education campaign”. Gosh there is another word for what is being proposed here, one on the tip of my tongue, I think it starts with a ‘p’ and is associated with a certain Herr G. Even paranoids have real enemies. Mine are at the Cato Institute and strolling around the offices of the PGP Foundation.