Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Government Incentives

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When I review tax programs, whether they are for local, state, or federal governments, there are two critical criteria:

– Effectiveness – does the tax program raise the revenue in a manner that is cost-effective and have the lowest level of harm and distortion to the overall economy?
– Incentives – if the tax program is designed to promote a certain type of activity or “deter” a different type of activity, do the incentives actually drive the behavior that the law is intended to achieve?

I thought about the “incentives” element of the program as my parents rushed out to take advantage of the “cash for clunkers” program which provides a credit (on the spot, to the dealer) for turning in cars that basically get less than 18 mpg and purchasing a new car off the dealer lot. This program has their own website (where they unhelpfully refer to the program as “Cars” or “Car Allowance Rebate System” rather than the far more effective “cash for clunkers”). My father’s car barely made the cut because it was right around 18 mpg and they have been clarifying the program and making him sign form after form (to prove that he has owned it for several years, that he had it scrapped, etc…) but generally this program was a “shining star” of an incentive because 1) the government wanted him to go out and buy a new car off a dealer’s lot right now 2) they wanted to make sure that his old 18 mpg car was taken off the road 3) they wanted to make sure that he actually owned the car and didn’t just swap it with someone else to get the $4500 in trade in when the car was only worth maybe $1000. All of these criteria were met, in this case.

While the FDIC isn’t a tax program, the agency that guarantees deposits at insured banks (with your tax dollars) also provides incentives. I was involved in the early 1990’s when the Resolution Trust Corporation was created by our Federal government in order to take control of insolvent banks (basically banks that made dud loans, generally for property) and pay back depositors. I was on one of the teams that would go into banks right at the time they were being shut down and secure the cash and assets as a lowly auditor. We weren’t exactly the CIA – we sat in cars outside the bank and everyone knew it was coming and the staff were generally very polite – but that was where I frequently heard the phrase

Heads – I win, Tails – the FDIC loses

By this phrase they exactly summed up the banking game at the time – make a lot of big and risky loans with “guaranteed” customer deposits, and if it goes well and the loans are repaid, you make a bunch of money. If the loans go sour, oh well, you just walk away and leave the FDIC holding the bag.

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Weird Colorado

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Here are some other oddball sights… in the upper left – EVERYTHING apparently costs more in Aspen – even their water (poor Boulder, CO). In the upper right – aliens have commandeered the house out in the sticks outside Crested Butte – although I’ll bet that alien is disguised as a dirty hippie in there if you look really close. In the middle left – the “Love Shack” is right in down town Crested Butte and it even has a web site right here; might be fun some time (and well located). I don’t know exactly what the “pig truck” is trying to accomplish in Leadville, but am mildly amused by the handicapped sticker on this monster(ish) truck. On the lower left – they are very particular about their altitude in Leadville, noting that it is TWO miles high as far as liquor goes (the mile high baseball field in Denver has a line in the upper deck indicating their mere one mile status). And finally, in the lower left, that species known as the coug*r (don’t want the traffic) await Kevin Costner’s band in Aspen… I didn’t even know he played (hasn’t had a movie hit in a long time).

Cross posted in LITGM

Texas and London

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I am a subscriber and a regular reader of the Economist despite their maddening tendency to recommend US presidential candidates that are left-leaning. The Economist is very useful on business and international issues and their US focused articles sometimes have a candor and simplicity that is lacking elsewhere.

A recent cover story titled “America’s Future – California v. Texas” described the falling fortunes of virtually bankrupt and high-tax California against the high flying economy of Texas. In typical Economist style, there is a one-page editorial type summary of the article in the front of the magazine and then two special sections on California and Texas, respectively.

One critical element of the story, however, is mentioned nowhere in The Economist’s article – that is of personal freedom vs. state control.

London, as anyone who has visited recently will tell you, is completely blanketed with security cameras. Virtually the entire city is under surveillance. At the same time, London has completely disarmed its residents of any firearms. Even the police, for the most part, are unarmed (although they do have heavily armed police at the airport and on call for other types of engagements). And building anything in London is difficult and slow, with myriad restrictions; notably they limit the heights of buildings and also require extensive open spaces outside the cities. London also has a famous congestion tax, which hits all drivers who enter the city limits and is managed through a vast system of security cameras, as well.

It isn’t fair to say that everyone in London is behind all of this; but these facts are generally accepted by the populace and aren’t likely to be changed any time soon.

The Economist basically reflects many of these views; they support free markets but with a huge dosage of state control. They have limited use for other types of freedom, such as the right to bear arms, or to live your life in private, or to drive where you please without paying inordinate taxes.

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Camp Hale, Colorado

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Recently I was in Colorado and drove past what was “Camp Hale”, which is where the US 10th Mountain division trained during WW2. There are a few nice historical signs on the site for those that don’t know the history of this division, which fought in Alaska (when it landed on an island recently evacuated by the Japanese) and Italy during WW2. Here is an excellent chronology of the division in WW2. On page 30 of that PDF, you can see the casualty figures for the 10th Mountain Division – over 25% of the division’s men (including replacements) became casualties during the late 1944-early 1945 battles in Italy.

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Where are the Protesters?

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The photos from Iran are genuinely heartbreaking. You have unarmed men, women and students, out peacefully protesting that an election has been obviously stolen, and illiterate thugs, many whom are not even Iranian citizens, come out and attack them with truncheons and batons and take them away in the dead of night. THEIR RIGHTS TO FREE ELECTIONS HAVE BEEN STOLEN.

Where are the protests in the USA and London? I am talking about the local art schools, the ones that couldn’t get enough of protesting the Iraq war and similar types of incidents, that close so that all the students can flood the streets? The anarchists all in black smashing store windows? Where are they?

And now in China, after the government cracked down on Tibet (thanks, Beastie Boys, for all their support, it helped a lot) they are now going after other indigenous groups with mobs of bat wielding Han Chinese citizens specifically imported in to take over the local province. They are threatening executions, too. THEIR RIGHTS TO INDIGENOUS CUSTOMS AND SELF DETERMINATION ARE BEING STOLEN.

And what about protesting the wars in Iraq and Afghanistan? I guess since they are now Obama’s wars, not such a big deal anymore.

The odd thing is that our “protest class” has been specifically groomed since childhood to view one thing and one thing only as “evil” and protest worthy – basically white Republicans (it isn’t a male thing – look at Palin). This is what gets their ire and gets them to the street, not the actual level of injustice.

And if you met these protesters in person – their arrogance is breathtaking. Their most immediate attack on Republicans is that they are all “hypocrites”. Since most of you don’t live in a major city that is all-Obama you probably don’t run into them as often as I do. But what type of hypocrisy ignores these obvious types of injustices and focuses only on a certain subset?

This isn’t a “generational” thing – look at who is fighting in Iraq and Afghanistan – an all volunteer force that is the best and most professional military that ever walked the planet – and they are young people of roughly the same age as the “protest class”.

Protesting against Republicans is all that they have been taught, and all that they know.