The Times Channels Engine Charlie

Over a half-century ago, General Motors CEO Charles Erwin Wilson was nominated by newly-elected President Eisenhower to be Secretary of Defense. During his confirmation hearings, there was a controversy whether he'd be able to deal impartially with his old company. Sure, said Wilson, …

… but added that he could not conceive of such a situation "because for years I thought what was good for the country was good for General Motors and vice versa." Later this statement was often garbled when quoted, suggesting that Wilson had said simply, "What's good for General Motors is good for the country."

Ironically, the misquote took off as an indicator of damnable corporate greed. Al Capp introduced a ruthless capitalist character named General Bullmoose into his "Li'l Abner" comic strip; the General's memorable motto was "What's good for General Bullmoose is good for the USA!" Johnny Mercer and Gene De Paul included the motto in a catchy tune for the 1956 Broadway musical based on the strip. Even today, "good for General Motors" gets 37900 hits at the Google.

So all that was brought back by a recent editorial in the New York Times bemoaning "A Dearth of Taxes" here in the USA.

President Bush considers himself a champion tax cutter, but all the leading Republican presidential candidates are eager to outdo him. Their zeal is misguided. This country's meager tax take puts its economic prospects at risk and leaves the government ill equipped to face the challenges from globalization.
Oh no! "Meager!" That's terrible!
According to a report from the Organization of Economic Cooperation and Development, a think tank run by the industrialized countries, the taxes collected last year by federal, state and local governments in the United States amounted to 28.2 percent of gross domestic product. That rate was one of the lowest among wealthy countries — about five percentage points of G.D.P. lower than Canada's, and more than eight points lower than New Zealand's. And Danes, Germans and Slovaks paid more in taxes, as a share of their economies.
The Times noted the OECD report in an article by (longtime high-tax cheerleader) David Cay Johnston here, and I'll steal their spiffy graphic:

[NYT Taxes]

The Times claims that our low position on this graphic totem pole shows that we're "ill equipped to face the challenges from globalization." But how many countries in positions 1 through 16 on that chart are in better economic shape that the US? It's arguable, of course, but by one measure, only two of them are just slightly better off: Norway and Ireland, both arguably very special cases. That's certainly no evidence for the Times' thesis that high tax takes are a general recipe for prosperity.

Also, of course, that 28.2% figure is a fraction of the biggest GDP in the world. Is that really the best measure? Could it be that government revenue need not rise in direct lockstep proportion to GDP? I'd bet that's true, but exploring such subtle nuance is apparently beyond the powers of the editorial writer.

Continuing with the editorial:

Politicians on the right have continuously paraded the specter of statism to rally voters' support for tax cuts, mainly for the rich. …
I think Times editorial writers have their word processors set to automatically append "mainly for the rich" every time they type the phrase "tax cut".

As for "the specter of statism", let's be clear: the above graph is all about the fraction of each country's economy under control of the state as opposed to under the control of individuals and private institutions. The Times is advocating that we move up on the chart: in other words, to take decision-making for a bigger share of the pie out of private hands and put it into the state's. And then all kinds of wonderful things will allegedly happen.

That's not "the specter of statism": that is statism. The Times should be honest enough to drop the rhetoric and admit it.

But the meager tax take leaves the United States ill prepared to compete. From universal health insurance to decent unemployment insurance, other rich nations provide their citizens benefits that the United States government simply cannot afford.
There's been more than enough discussion about the "universal health insurance" angle over the past few weeks and months, so we'll skip that. But what the Times calls "decent unemployment insurance" mainly buys more unemployment. For example, let's look at numero uno from the above chart, Sweden: this Financial Times article from last year pegs its unemployment at 15%, with a gloomy outlook for the future. Is that the kind of "competitiveness" the Times wants the US to emulate?

But now we come to the paragraph that triggered the Charlie Wilson memories:

The consequences include some 47 million Americans without health insurance and companies like General Motors being dragged to the brink by the cost of providing workers and pensioners with medical care.
I can't improve on Greg Mankiw's on-target comment:
Employer-provided health insurance is just a form of compensation that happens to be provided in kind rather than in cash. What the Times seems to be saying is that because companies like General Motors have promised levels of compensation too large to make them competitive in the international marketplace, we should shift the responsibility for some of that compensation from the companies to the taxpayer.
In other words, the Times is trying to say what Charlie Wilson actually didn't: what's good for General Motors is good for the USA. But, as Greg points out, there's no "free lunch": while a government takeover of GM's medical expenses might rescue the company from the consequences of its historical poor decisions, Joe Taxpayer would have less in pocket to (for example) buy that spiffy new Impala. There's no evidence that this would make GM more competitive on the world stage, either.

Back to the editorial:

President Bush and his tax-averse friends extol the fact that the tax haul has risen over the past two years as evidence of the wisdom of his tax cuts. But if anything, the numbers underscore the economy's weaknesses—mainly its growing inequality.
I'm compelled to point out that the writer skates dangerously close to supply-sidism here: the previously-derided tax cuts for the rich have allowed a bigger "tax haul" from the rich. (Of course they blame "inequality." Go figure.)

Indeed, the growth in tax revenue since 2004 is due mostly to the spectacular increase in corporate profits, which have grown at the expense of workers' wages. Moreover, it's proving ephemeral. As economic growth has decelerated, corporate profits are losing steam and the growth of tax revenue has begun to slow. This pretty much guarantees that the revenue will prove too low to face the challenges ahead.
… and the Times can't quite come to grasp its own logic here. Taxes raised via inequality-driven high incomes and corporate profits are "ephemeral" so … how are they going to accomplish their stated goal of moving the US up the tax-as-percent-of-GDP ladder?

Right. The Times would like to hide behind its eat-the-rich rhetoric, and crocodile tears about "workers' wages" but they're really talking about getting a bigger fraction of income from "workers": (probably) you and (certainly) me. Again, it would be nice if they just said that.

It's possible that the political winds will move in the Times' direction and we will move up the chart to some tax burden number enlightened thinkers deem more proper. In that case, I have a fearless prediction: not only will the fraction of the pie handled by politicians be bigger, the pie will actually be smaller than it would have been. That will make the Times feel better, but I hope it won't fool anyone else.

[Update: The Amazing Megan also comments.]

[Another update: Don Boudreaux shares with us his letter to the Times in response to the "jaw-droppingly dumb" editorial.]


Last Modified 2012-10-16 2:30 PM EST