Austan Goolsbee, the former Chairman of President Obama’s Council of Economic Advisers, had a column in the Wall Street Journal that argues government spending isn’t too high.

That’s obviously a silly assertion, as I explain here, here, and here, but I want to focus on what he wrote about tax revenues.

Here’s the relevant passage from his column.

The true fiscal challenge is 10, 20 and 30 years down the road. An aging population and rising health-care costs mean that spending will rise again and imply a larger size of government than we have ever had but with all the growth coming from entitlements—while projected federal revenues as a percentage of GDP after the rate cuts of the 2000s will likely remain below even historic levels of 18%.

He’s right that the main problem is in the future. As I’ve noted before, America is doomed to become Greece because of rising entitlement spending.

But he’s completely wrong when he implies that the problem is because taxes will stay below the long-run average of 18 percent of economic output. Here’s a chart I posted last year showing that tax receipts will soon rise above the long-tun average — even if the 2001 and 2003 tax cuts are made permanent. And these numbers are from the left-of-center Congressional Budget Office.

It’s rather shocking that a former Chairman of the Council of Economic Advisers isn’t aware of this CBO data. Or, if he is aware of the data, it’s unseemly that he would deliberately mislead readers.

But let’s set aside any discussion of why Goolsbee made such a fatuous claim about revenue. What really matters is that this is a debate about fiscal policy and the size of government.

The folks on the left want to convince us that inadequate revenue is causing deficits, both in the short run and long run.

We can see that they’re wrong in the short run.

But what’s especially remarkable is that they are wildly wrong about the future. The long-run data from the Congressional Budget Office shows that the federal tax burden over the next 70-plus years will jump to more than 30 percent of GDP.

This CBO baseline data assumes the 2001 and 2003 tax cuts expire, so it exaggerates the increase in the future tax burden compared to current policy. But even if you correct for this assumption and reduce tax receipts by about 2‑percentage points of GDP (and presumably even more than that in the long run), it’s clear that the tax burden will be far above the historical average of 18 percent of GDP.

It’s easy to understand why Goolsbee ignores this data. After all, why report on information that completely debunks the left-wing argument about the supposed need to increase the tax burden.

But this isn’t the first time Goolsbee’s been wrong about tax policy. Let’s dig into the 2010 archives and share this video, which takes apart his arguments for class-warfare tax policy.

So what’s the bottom line? Well, we know Goolsbee and other leftists are being deceptive about taxation.

But my main takeaway is that I wish the left would be honest and admit that taxes already are projected to increase. And I’d like them to level with the American people and admit that they want the tax burden to climb even faster because they want government to get even bigger.

Claim: “I am not a libertarian.” 

Conclusion: True.

I’ve been pretty critical of Rick Santorum lately, so it seems only fair to devote some attention to Mitt Romney. Take a look at this video Michael Cannon and I made last year:

And now for something not completely different, Tom Toles’s cartoon from Friday’s Washington Post:

Meanwhile, Dan Mitchell warns that Mitt Romney seems suspiciously liable to impose a value-added tax on the backs of American taxpayers.

There’s more to the Pentagon’s new strategy than the emperor’s new clothes, but barely. It’s hardly new and not particularly strategic.

The document justifies a minor defense budget cut. The Obama administration wants to grow military spending at a pace slightly less than projected inflation for a decade. If we assume that plan stays in place—and we shouldn’t given that plans change, and we may soon have a new president—that new spending trajectory will cut non-war Pentagon spending by about eight percent compared to 2011 spending. You can come up with bigger numbers for the cut by comparing the new plans with past Pentagon spending plans or by including declining war costs. But however you slice it, these are small cuts compared to past drawdowns.

Conventional wisdom is that the cuts ought to be made strategically—that it is bad policy to let deficit concerns drive the size of the defense budget, so revised numbers require revised strategy. This new strategy document is a response to that conventional wisdom. It lets the president and Pentagon say that they have a strategic rationale for their budget.

Meanwhile, the Pentagon is desperate to avoid the sequestration mechanism required by the Budget Control Act, which would roughly double the size of those cuts, and would start in January 2013. That would return military spending to where it was in 2006, more or less. Pentagon leaders complain about the suddenness and broadness of sequestration—the cuts are distributed across programs and departments, which prevents prioritization.

One function of this new strategy document is to help avoid additional cuts. By making minor changes seem like a big deal, the Pentagon is pushing back against real strategic change, which could save far bigger sums without sacrificing safety.

In an op-ed published Friday in World Politics Review, Veronique de Rugy and I argue that the size of the coming defense cuts has been grossly exaggerated. Here’s a chart from the op-ed showing military spending in current dollars with and without sequestration:

We note in the op-ed that under the Budget Control Act, the Pentagon can avoid sequestration without Congressional action by budgeting at the levels it would achieve. That would allow it to avoid the most onerous aspects of the sequester. The Pentagon has thus far refused to do that, probably figuring that offering sensible cuts would encourage Congress to allow them. But far larger cuts are possible with real strategic change. Big cuts would encourage that sort of change.

The current U.S. defense strategy is basically primacy or global military dominance. It requires policing the seas, maintaining or strengthening current alliances, and preparing for all manner of military contingencies. Both parties’ foreign policy elites basically embrace that strategy. The documents that purport to make strategy—Quadrennial Defense Reviews and so forth—are basically sales pitches for primacy. Their standard blueprint is to mix geopolitical gobbledygook about uncertainty with vague threat inflation, assert the importance of U.S. global leadership to U.S. security without any clear theory, then list things we want our military to do, without any attempt to separate big threats from small ones and large interests from hopes, or to translate their analysis into budgetary guidance. They have no obvious effect on budgets.

This strategy offers only minor change in form and content. It embraces the strategy we have with at best a few minor tweaks. Like those past strategy documents, this effort insists that the world is getting more complex but makes no effort to demonstrate that assertion. It lists ten objectives without prioritization, although it identifies certain goals as those that drive the size of the force. It suggests a few minor shifts but gives no budgetary guidance.

The document suggests that we might shift forces from Europe and perhaps add some in Asia. No details are given. It sensibly suggests we might get by with fewer nuclear weapons but again avoids details. The most relevant bit of the document is the argument that we are less likely to fight occupational wars and thus can cut the size of the ground forces. That is a sound idea, one that should be taken further, but a reflection of current policy rather than a change. If we are really to avoid such wars, far greater cuts in the ground forces are possible.

So what we have here is a largely inconsequential defense of the status quo. It offers incremental changes to stave off the real strategic change and savings that our geopolitical fortune allows.

I had an op-ed in the December 28th Wall Street Journal titled “The Federal Reserve’s Covert Bailout of Europe.” It generated a lot of discussion. Yesterday (January 5th), the Journal printed a letter from William C. Dudley, president of the New York Fed, responding to my piece.

In my op-ed, I focus on the currency swaps between the Fed and other central banks. The largest amount is with the European Central Bank (ECB). The Fed “swaps” dollars to the ECB and receives a like amount of euros in return as collateral. The ECB promises to return the dollars in the future at a fixed exchange rate. In the meantime, the ECB lends the dollars to European banks of its choosing. The Fed does not even know their identity.

Among other things, I point out that, thanks to prior Fed policy actions, there is no shortage of dollars in the world. The ECB could lend euros to their banks and the banks could then purchase however many dollars they needed on foreign-exchange markets.

I conclude that “the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments.” (The banks are major lenders to governments.)

President Dudley’s letter is non-responsive to the arguments of my op-ed. He never addresses my observation that there is no shortage of dollars in the world. He gives the game away in the following passage: “Banks with surplus dollars are more likely to lend to banks in need of dollars if they know that the borrowing bank will be able to obtain the dollars it needs to repay the loan, if necessary, from its central bank.”

Dudley is not describing a dollar shortage, but another reality. The reason one bank becomes reluctant to lend to another bank is that the potential lender has doubts about the solvency of the would-be borrower. The reality in Europe today is that banks have good reason to doubt the solvency of other banks because they know their own condition is none too strong.

By implication, Dudley’s letter acknowledges my main point: there is a Fed-financed bailout of European banks in progress. The Fed is implementing it through currency swaps because swaps obscure the nature of the transaction, which is in reality a loan. (The Greek government used currency swaps to hide the size of its fiscal deficits.)

It was widely reported that, in a December 14th meeting with Republican senators, Fed Chairman Ben Bernanke told them that he neither intended nor did he have the authority to bail out Europe. A reasonable person would see a conflict between the chairman’s words and those of the New York Fed president. Moreover, the swap arrangement is non-transparent and at odds with Bernanke’s promise of greater openness within the Fed. That is why I call for congressional hearings on it in my op-ed, and I repeat that call here.

I came across an interesting information policy scuffle yesterday. It’s worth knowing about in general, and I’ll share my liberconoclastic view of things below.

Congressman Darrell Issa (R‑CA) has introduced a bill called the Research Works Act. The consensus is that it’s meant to keep government-funded research from being published for free. This would keep the publication of that research going through scholarly and scientific journals, neatly maintaining profits for an industry that society might not need while restricting public access to research the U.S. taxpayer paid for. (I have my doubts that the language of the bill actually successfully does that, but that’s inconsequential.)

Here’s a good opponent-side article on the bill. The Association of American Publishers likes the bill.

On a discussion list, Jonathan Band articulated how the business of government-funded research works. It’s helpful to know if you haven’t focused on this area before:

1. Federal and state governments, directly or indirectly, pay salaries of researchers.
2. Federal government awards grants for specific research projects. Average NIH grant is around $500,000.
3. Researcher performs the research and writes a draft article about it.
4. Researcher submits the draft article to publisher.
5. Publisher requires the researcher to transfer the copyright in the draft article (for free) before it will touch the draft.
6. Publisher emails the draft article to other researchers in the field.
7. These “peers” review the article for free as part of their contribution to the field. (As noted in step 1, their salaries are paid by government.)
8. The researcher revises the draft in response to the peers’ comments.
9. Publisher does copy editing and publishes article. Publishers acknowledge that their costs per article are under $5,000.
10. Publisher sells subscriptions to research libraries, which ultimately are largely government funded.

“In other words,” Band concludes, “the public invests $500,000 in the creation of the article, and the publisher invests under $5,000. Yet, the publisher recoups all the profits from the sale of the article. Profit margins for STM publishers exceed 40%.”

I’m inclined to share these concerns. It appears to be a classic example of regulatory controls—in this case, on information—creating supra-normal rents for a particular business sector.

My conclusion is a little different, though. You see, to me, what Band describes is a situation where researchers—who nobody is paying their own money to hire—are doing research that nobody is paying their own money to produce, which results in journal articles that nobody is paying their own money to read. Privatized profit from government-funded research is as anathema to me as the next open government advocate, but I would solve the problem by letting private ordering decide where research dollars go.

Is this a retrograde argument against research? Who could possibly be against research? Publicly funded research is like nutritious vegetables for a healthy modern society!

Well, I’m against researchers, research, and research results that nobody pays their own money for because it’s demanded by political actors responding to political cues. I would rather have research dollars meted out through private ordering, because then research dollars would go to where they’re most likely to produce the scientific and intellectual gains society actually wants.

Tradeoffs are ineluctable: Money spent on government research takes away from private research, or from other priorities such as reducing debt, or reducing taxes so I can spend my money on things like donating to charity or to the impoverished individual of my choice.

You may have taken time off from work last month, but the federal Equal Employment Opportunity Commission (EEOC) was quite busy. As the Bureau of National Affairs and the Washington Times report, it posted to its website an informal advisory letter that has been getting a lot of businesspeople’s attention. To quote the BNA:

“[I]f an employer adopts a high school diploma requirement for a job, and that requirement ‘screens out’ an individual who is unable to graduate because of a learning disability that meets the ADA’s definition of ‘disability,’ the employer may not apply the standard unless it can demonstrate that the diploma requirement is job related and consistent with business necessity. The employer will not be able to make this showing, for example, if the functions in question can easily be performed by someone who does not have a diploma,” EEOC said.

Further, to satisfy the ADA, the employer must show that a job applicant with a disability cannot perform the job’s essential functions with or without a reasonable accommodation, even if he or she does not meet a standard that is job-related and consistent with business necessity, the commission added.

Employers require high school diplomas as prerequisites for many jobs. Yet if the matter gets to court, it can be quite expensive and cumbersome for them to establish that such a screen is “job related and consistent with business necessity” — necessity being of course a legal term of art.

Some suggest the policy is not all that new or special since the EEOC has long taken the position that diploma requirements must be “job related and consistent with business necessity” if they serve to screen out members of minority groups less likely to have graduated from high school. But diploma requirements aren’t actually challenged very often on racial-impact grounds, perhaps because correlations between ethnicity and high school graduation rates are shifting and contingent. The new wrinkle this time — that the protected group are the learning-disabled themselves — makes a big difference. The diploma’s very purpose, after all, is to signal that its holder has achieved a level of proficiency that some with severe learning disability will find forever out of their reach.

“If I were hiring a janitor,” notes columnist Amy Alkon, “I’d need that janitor to be able to read the back of bottles of chemicals.” But it’s growing ever clearer that the point of the game is to attack employers precisely for wanting to hire candidates of ability.