James Pethokoukis

Politics and policy from inside Washington

Free markets and mass transit

Oct 14, 2009 18:49 UTC
Matt Lewis favorably cites the book Moving Minds: Conservatives and Public Transport, as he makes the conservative case for mass transit:
For starters, their book seeks to shape conservatives’ views on mass transit by pointing out that our current system is anything but the product of free market forces. Since the invention of the Model T, the U.S. government has poured hundreds of billions of dollars into the highway system, while mass transit (which historically had been privately owned) received vastly smaller infrastructure benefits — while being taxed heavily to boot. What’s more, the government simultaneously prohibited these mass transit companies from raising fares.
Privately owned mass transit companies simply could not compete when they had to build and maintain infrastructure while their competition was funded by tax dollars. In addition, the authors note that post-World War II building codes in many areas created sprawl – a situation where homeowners cannot walk to work or to shop, and thus, must rely on an automobile. The authors present numerous and convincing arguments in favor of mass transit – especially street cars and electric-powered light rail trolleys – that are applicable to conservative thinking: Unlike automobiles, rail fosters a sense of community; increased use of electric rail would help accomplish national security goals by lessening our dependence on foreign oil; and mass transit policy is also pro-growth – something most conservatives favor.

If we could have just one example of a transit system that respects free-market principles, instead of mobbing up by adding dozens of city/county government officials to its board, then making unrealistic promises about service and unbelievable projections about traffic levels, and sticking the local government with the bond, all the while employing surly and underqualified people who cannot be made to operate their filthy vehicles safely, or to keep their stations crime-free, or to make their fares competitive with rider demand… then we might have the beginning of a conservative argument for mass transit.

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Good tax policy vs. bad policy

Oct 14, 2009 18:10 UTC

Don Marron explains thusly:

Taxes on income, for example, are usually worse for the economy than taxes on consumption. That’s why there’s a rising chorus of economists recommending the introduction of a value-added tax, rather than higher income taxes, if our nation decides it wants to support substantially higher government spending. High tax rates similarly tend to be worse for the economy than low rates. That’s why economists usually favor broad tax bases and low rates, rather than narrow tax bases and high rates. Finally, it’s preferable to levy taxes on bads rather than goods. Where appropriate, taxes on pollution (e.g., emissions of greenhouse gases) should thus be preferred over taxes on working, saving, or investing.

Venture capital firms are down. Hey, let’s raise their taxes

Oct 14, 2009 13:51 UTC

First this from Reuters:

In the first three quarters of this year, only 86 U.S. funds raised money, according to data compiled by the Venture Capital Journal and the National Venture Capital Association. It the trend is maintained, by year’s end there will be somewhere between 104 and 118 new funds. By comparison, even in the blackest days of the dot-com bust of 2001, investors averaged 234 funds a year.

And this from the NYTimes:

House Democrats are planning to renew their fight to raise interest on carried interest, the share of profits that buyout shops and venture capitalists receive after they successfully cash out of portfolio companies and return money to their investors.

Me: First, don’t expect the Senate to go along with this idea. Second, I don’t see how this helps America’s innovative capacity. Surely we don’t want Uncle Same to be the only source of venture capital. BTW, candidate Obama suggested creating something called a “Clean Technologies Venture Capital Fund” and investing $10 billion a year in emerging energy technologies.

Interestingly, a study by the University of British Columbia looked at the performance of the Canadian government’s venture capital efforts. It found that government venture capital isn’t nearly as successful as private venture capital.

VAT Attack! The perfect tax … or maybe perfectly awful

Oct 14, 2009 13:25 UTC

Greg Mankiw does a good explaining the value-added tax. But this is ominous:

From a strictly economic standpoint, a VAT is great. It is essentially a flat consumption tax, like the so-called FairTax, but implemented in a way to reduce compliance problems. Because it is collected in stages along the chain of production, rather than all at the retail level, tax evasion is more difficult. … My bottom line: If I could replace our current tax system (including the personal income tax, corporate income tax, payroll tax, and estate tax) with a VAT, I would gladly do it.

Why do some conservatives hate the VAT? For political reasons. They fear it would be a new tax, hidden from many voters, used to expand government. They fear that rather than replacing our existing tax system, a VAT would add to it.  … Which brings us to Europe. Many European countries have both a VAT and a large government. But here is the hard question: which is cause and which is effect? Did the VAT cause government to become large, as VAT-opponents fear? Or did Europeans adopt large governments and then, needing to finance it, look for a relatively efficient way to raise a lot of revenue? I am inclined toward the latter hypothesis, but I will be the first to admit that it is entirely clear which way causation runs here.

Me: Want a VAT? First, put into place hard spending limits and spending reduction pathways, such a limiting spending growth to population growth + inflation or some such. And also get rid of the income tax.


I think the US should just get on with it. Who else is left without VAT/GST?? Prepare yourself for lots of hikes. If you look at this site http://www.tmf-vat.com is shows how Europe is increasing VAT by the month to cope with the spiralling deficits.

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