You can't afford to ignore arithmetic

An earlier version of this post contained a rant by me based likely on my confusion between per paycheck versus per week. I have since edited that part out and updated the post in light of the fact that a deal was passed.

The regular so-called "payroll tax" for individuals used to be 6.2%. It was temporarily reduced by two points to 4.2%. The question facing the congress and the President was whether to extend the lower tax rate for two more months (as the President and the Democrats wanted) or one more year (as the Republicans wanted).

I was and still am against both, but more on that later.

If the 6.2% tax rate is applied to an annual amount of $50,000, your tax is $3,100. If the 4.2% tax rate is applied to $50,000, your tax is $2,100. The difference is $1,000 which amounts to about nineteen dollars and twenty-three cents per week.

However, Mr. President and the Democrats wanted this reduced tax rate to be extended only for two more months. There are eight weeks in two months. Now that the Republicans agreed to this means that Mr. President and his Democrats reduced your payroll tax by a measly one hundred and fifty-three dollars and 85 cents. If the Republican plan had been accepted, the reduced rate would have been in effect for not just 8 weeks but for 52 weeks. You'd indeed have paid $1,000 less in payroll taxes in 2012.

A one year extension is less bad also because it means smaller adjustment cost than a two year one.

Why am I against these so-called "tax-cuts"?

Imagine you need to make a $1,200 purchase at the end of the year. To that end, you decide you're going to put aside $100 every month, starting in January. You buy an extra hardcover book to read on the beach every month for the summer, so you save only $80/month in June, July and August. If you don't change anything else, you'll end up with $1,140 at the end of the year, and will be short of the $1,200 you needed to make the purchase. You can make up for the shortfall by saving $115 in September through December. You consume more today, you consume less tomorrow.

Social Security is similar to that. The government has made promises to many people that they will get a certain amount every month for the rest of their lives. This promise is funded by taking the money from today's workers and giving it to today's old. That's the payroll tax. That's what pays Social Security benefits. Those benefits have already been promised to today's old and we know roughly what amount is needed to cover those promises. If today's workers pay less in payroll tax than today's old get in Social Security, the government must either make that up with increased taxation tomorrow or by printing money tomorrow.

Besides, the requisite change to make the extension effective for an extra period would be just one line. The actual bill that was passed took 14 pages and it contains such gems as:

(g) RECAPTURE OF EXCESS BENEFIT.—
(1) IN GENERAL.—There is hereby imposed on the income
of every individual a tax equal to 2 percent of the sum of
wages (within the meaning of section 3121(a)(1) of the Internal
Revenue Code of 1986) and compensation (to which section
3201(a) of such Code applies) received during the period beginning
January 1, 2012, and ending February 29, 2012, to the
extent the amount of such sum exceeds $18,350.

I have no idea what that really means but I think it means anyone who makes over $18,350 during January and February will have to pay an additional 2% in tax (clarifications and explanations welcome). If so, there is no reason to expect this extension to have any stimulating effect at all, even in the form of moving future consumption to the present, because anyone who has the ability to change the timing of their income to avoid the extra two percentage points of tax will do so.

Social security has been in need of real reform for at least two decades. Let's not allow politicians to defund it. Let's not allow politicians to create extra borrowing requirements for the near future.

Let's have a real conversation about how to reform Social Security instead.

Would you consider smuggling bubble gum?

I recently was asked to comment about the situation in Turkey. While thinking about that, I could not help but remember my childhood in Turkey in the 70s.

In the late 70s, the centrally planned Turkish economy resembled a Trabant. Bombs were exploding left and right daily, cities were divided into influence zones of various groups engaging regularly in gunfights, carrying out political assassinations, and my family was receiving death threats daily from the Grey Wolves. Later a member of that organization rose to fame by attempting to take the life of Pope John Paul II. He had first made a name for himself by killing the Turkish journalist Abdi İpekçi and walking out of prison.

I still remember the day I found out why there was a policeman posted outside our door. I used to like to rifle through my father's stuffed briefcases which used as an unfiling system. There were so many interesting things in those cases. The checkbooks from his time in the U.S. in the early seventies when he worked for the Voice of America for a couple of years, mementos from the 1968 Mexico City Olympics, photos from various Apollo launches, worn out Pan Am playing cards … The works!

One day, I found a bundle of irregularly shaped papers. Some were about letter sized, some were obviously torn from notepads. I read them. They described in detail how we and my father were going to be tortured and killed for some perceived transgressions of my father, mostly because he was a fan of Ecevit.

The messages contained various details of our daily lives and told my father in no uncertain terms that his family was a target. I was scared. But, then I knew why there was a policeman posted at our door. My father had asked for protection, and the state had sent a cop who carried a gun with no clip in it, who liked to play soccer with the neighborhood kids, and who referred to a couple of armed Grey Wolves who showed up at our door to deliver four white orchids for our future funerals as ağabey.

Those were the heady(!) days of my childhood.

It was during this period that I had my first personal encounter with communism and learned that some people had it even worse than the Turks.

A couple of family friends, Tekin Özertem and Canan Arısoy (née Meray), were organizing the first ever children's festival in Turkey which involved children from various countries staying in Ankara with host families for two weeks in April, as part of the April 23rd Children's Day activities. My family took in a girl from Romania.

We had a fun couple of weeks, going from activity to activity. Towards the end, it was time to buy some gifts for her family. There was a serious language barrier. No matter which store we took her to, she kept trying to tell us she wanted something else. She did not want her group leader to translate (years later, it dawned on me that she was probably scared of being discovered).

I don't know how, but eventually, through trial and error, we discovered that she wanted bubble gum.

Not just one piece. Not just one pack. But loads and loads of bubble gum.

Her suitcases had secret compartments. We bought as many packs of bubble gum of as many varieties as we could find and stuffed those compartments full.

Apparently, under Ceaușescu, bubble gum had become a hot commodity. Her family could sell or trade the bubble gum for other things on the black market. We understood, because, in centrally planned Turkey at the time, you could trade coffee or Corn Flakes for sugar and butter.

We still had it better. At least, bubble gum was plentiful in Turkey.

That is where restrictions on free trade lead. Eventually, they make smugglers out of 10 year old kids.

You don't have to live under full-blown communism to have central planning play cruel games on you.

Markets solve an incredible problem: What is needed where and when?

To allocate the right amount and variety of bubble gum across time and space, a central planner needs to know not just everyone's taste for bubble gum and how much they are willing to spend. The planners also need to know everyone's tastes for everything, every manufacturer's technology and costs, and every single person's income.

Individuals operating in a free market need to know only whether they are willing to pay the price the seller is asking for a pack of gum of a given variety. The sellers only need to know if they are selling the amount of bubble gum they'd like at the prevailing price. They have no trouble dealing with new varieties of bubble gum.

Central planners cannot. If someone tries to sell a new variety of bubble gum, central planners would have to change all their calculations, because every small change ripples through the entire system.

Central planners deal with this by artificially limiting variety, choice and initiative. And, they cannot even solve that problem because neither tastes nor technologies remain the same.

If you have not had a personal encounter with the evils of communism and central planning, you owe it to yourself to watch Moscow on the Hudson. The first 30 minutes of that movie are better than any documentary.

Have you ever said to yourself things would be just fine if some authority told everyone how much of everything they could have? If that thought ever crossed your mind, now ask Am I willing to make my child smuggle bubble gum so I can put food on the table?

Are we better off with Iraq in turmoil?

With the U.S. troops gone, the power struggle in Iraq is reaching new levels. Various sources are reporting that The Shi'ite-led government in Iraq has issued an arrest warrant for the Sunni vice president, Tariq al-Hashemi.

If you need a reminder, the Shia are aligned with Iran.

For the record, the Iraq war was the right war at the right time. I know, these days it's fashionable to think of it as a waste, so let's briefly review why it was imperative that Saddam Hussein was removed from power in the aftermath of 9/11.

9/11 was the final attack in a series of escalating attacks on U.S. interests around the world by al-Qaeda. It put an end to the illusion that the U.S. homeland was safe from major destructive attacks. It had the potential of creating a world wide economic and security crisis. Great leadership in New York City by Giuliani prevented the city from falling apart at the seams (compare that to what happened last year with when a blizzard hit New York City with Bloomberg at the helm). And, swift reaction by President Bush in Afghanistan was the first step in showing the world that people who intend to do the U.S. harm and who harbor them had no safe haven.

A lot of people, mostly Democrat politicians and members of the liberal media wanted to turn the reaction in to a simple police investigation to track down Osama bin Laden. That would have been a risky enterprise, fraught with the danger of making the U.S. look impotent. The longer it took for the U.S. to capture bin Laden, the stronger would be his reputation. If I close my eyes, I can almost hear people say Osama is a great leader. Look, the U.S. with all its might cannot capture him. He would have attained the status of legend. Instead, he had to run and hide. His eventual capture revealed how much he had been marginalized in the intervening years.

After the victory in Afghanistan, it was important to send a credible message to various tyrannical regimes in the world that they were personally in danger if they gave safe haven to, organized or sponsored any organizations that intended the U.S. harm. Surely, there was no shortage of people who'd been oppressing and torturing their people while thumbing their noses at the U.S. for decades. There was, however, one dictator, who had credibly built a reputation for having weapons of mass destruction, who had been flaunting U.N. resolution after U.N. resolution that he had to allow inspectors free access to suspected sites.

Once the vulnerability of the U.S. homeland was exposed, it would have been suicidal to allow Saddam to keep his status as a tyrant who had access to corrupt financial networks and diplomatic channels which could have been used to organize further attacks. Regime change in Iraq, which had been the stated goal of U.S. policy during the Clinton Administration had to be realized. Eliminating Saddam would have sent (and did send) a clear signal to all other tyrannical regimes that they were going to be personally targeted if they threatened the U.S.

Such tyrants do not waste a second thinking about the well being of anyone but themselves. Years of suffering of Iraqi people could not convince Saddam Hussein to comply with U.N. sanctions. In fact, the sanctions themselves had provided further avenues for his personal enrichment. Changing the regime in Iraq was essential to removing a major threat against the U.S. and stability in the Middle East.

Operation Iraqi Freedom was successful in achieving this goal.

Major errors, stemming sometimes from good intentions, were made in handling the aftermath. Anyone familiar with the Middle East would have appreciated the value of the immediate establishment of martial law across the country and strict enforcement of curfews. Instead, a period of confusion reigned for a while following the fall of Baghdad.

Things got worse when the U.S. media and Democrat politicians started undermining the administration. By declaring the war lost, they signaled to Iran and Syria and anyone else who cared to listen that the U.S. could not handle a tough struggle and that they would back away from a fight. To his credit, President Bush refused to cut and run, and went ahead with the surge. Tellingly, the current president was one of the people who stood firmly against the surge. Liberal organizations published ads and stories intended to undermine the administration's war effort.

Finally, at a time the U.S. needed to signal continued resolve, a chicken was elected president.

People will point out that Osama bin Laden was killed under President Obama and that proves that he is strong. But the real and present danger of the day is not posed by Osama bin Laden. It is posed by Iran, whose rulers, just like Saddam Hussein did, seek to possess weapons of mass destruction to project power well beyond the actual strength of their regime. They needed to see a United States of America with resolve, the kind of resolve that kept Western Europe safe from the Soviet Union since 1946—make no mistake, the spirit of the USSR is still alive and well even if the name is not.

What they have seen is a President who prefers to lead from behind. What they have seen is a president who's willing to abandon Iraq and cede it to Iran.

That's why the Shia in Iraq are now going after the Sunni vice president.

Granted, I do not think the Sunni vice president, Tariq al-Hashemi, is a nice guy. But, it is unlikely that there are any nice guys in power in Iraq. However, Shia domination in Iraq by way of elimination of opponents by force is not an outcome that is good for the people of Iraq, the people of Iran, the people of the Middle East, the people of Europe, and America.

U.S. interests lie in free and open trade in oil which is a precious commodity not just for Americans but for everyone in the world. The Iranian strategy is to threaten crucial sources not just in Iran and Iraq but also in Saudi Arabia and elsewhere in the region. So far, the mullahs are succeeding in placing their pieces in key locations on the board.

The day they credibly demonstrate a nuclear capability will be the beginning of the end.

Is this open season on bloggers?

As more and more details of fishy goings on in the Climate business via a series of ClimateGate releases, it seems the bloggers who publicized the information are being subjected to intimidation tactics.

For more, see also UK police seize computers of skeptic blogger in England.

Just today, we learn through Maxim Lott's reporting on the emails released by an unknown person that the U.S. government may have helped researchers avoid making data public.

These are important issues. We are bombarded every day with claims that making everything we use more expensive is somehow going to save the world, but somehow the people who benefit from the climate business are exempt from basic requirements of openness.

After the first ClimateGate release, the Guardian wrote:

The university called in police last November, insisting they were victims of a criminal "theft" of data. Under Superintendent Julian Gregory, a group was pulled together from the counter-terrorism squad and Scotland Yard's electronic crimes unit, which also included two officers from the national domestic extremism team who have expertise in pursuing "climate extremists".

So far, the police investigation has got nowhere. It is not even clear whether the crime of computer data interception has actually occurred. What if the hacker was given a legitimate password? What if the data was accidentally open to public access?

Why exactly are bloggers being targeted by law enforcement?

Herman Cain was a disappointment

Plain and simple: Herman Cain was a disappointment.

Not because of the allegations against him. Not (solely) because he was seemingly having an ongoing relationship with a woman who regularly received financial support from men.

Countless politicians, including Kennedy and Clinton have done worse by actually carrying those "relationships" into office.

But because, by the very act of quitting the race, he signaled that there was likely much more to come.

He left the race in a way that precluded from being considered as a running-mate. He left the race in a way that might discredit the good ideas he proposed and defended.

It was sad to see so much promise evaporate so quickly.

Piling on Cain

I like Herman Cain and I think he has good instincts.

I once had a chance to tell one of John McCain's security advisers that the two smartest things his candidate had said during the 2008 presidential election campaign were Bomb, bomb, bomb Iran and We can stay in Iraq for 100 years.

All I got back was a blank stare.

John McCain had good instincts in those instances. He grasped the importance of dealing with Iran before the Mullahs had a couple of nuclear weapons with which to threaten not only Israel but also the global oil trade routes, and the importance of conveying the signal that the U.S. was not going to cut and run from Iraq.

After all, the U.S. has had a significant military presence in Germany for the last 66 years. Of course, they have not been fighting for that time: They have been serving a deterrent role. And, guess what, if the U.S. had brought to bear on Iraq the kind of force it applied to Nazi Germany, fighting would probably have been limited to all of two hours or so.

Where am I going with this? Oh, yes, Cain has good instincts.

He does not have good encyclopaedic knowledge the way the teacher's pet security advisers and snotty media personalities may want, but he has good instincts. I would feel safer with him at the helm than with any other Republican candidate right now. Of course, I would feel safer with John Bolton at the helm, but he is not running.

At the same time I like Herman Cain, I am worried that I am going to be disappointed.

Even though his sexual harassment accusers (where are they now?) and this new person claiming she has been having an affair for more than a dozen years have serious credibility issues, I am afraid they may turn out to be the tip of the iceberg and there might be something really wrong with his character.

My current pet theory is that the Democrats and their friends in the media are trying to create an atmosphere where not only does Herman Cain have no chance of becoming the Republican candidate for president but also there is no chance of him being on the ticket at all due to the aura of suspicion surrounding him.

I hope he does not quit right now, without having participated in any primaries.

If he did send text messages to Ginger White, he should make their contents public (as Ms. White gingerly only showed a phone bill as she did her media tour). If there is anything there, and if his wife allows him, I wish he would just let the public decide whether it matters.