Immigration and Pie

There’s a long-running argument between the left and right about whether economic policy should focus more on efficiency questions or distributional questions. At the risk of oversimplifying, progressives tend to focus on inequalities of income and wealth, and they worry that unfettered free markets will funnel too much money to the wealthy few and leave the rest of us behind. Conservatives counter that the economic pie is not fixed. Leaving people free to innovate will expand the pie and ultimately benefit everyone. And conversely, government interventions in the economy designed to to make peoples’ slices more equal in size will shrink the pie and leave everyone worse off.

And conservatives have another powerful argument against the government picking winners and losers. Like Jefferson, they believe that our rights come from God, and are only recognized, not granted, by governments. They reject progressive theorists like Cass Sunstein who argue to the contrary. This is why they’re so vehemently against progressive taxation; they believe that everyone is entitled to the fruits of their own labor, and that it’s unjust for the government to take from some to give to others in the name of fairness.

Now, consider the following passage from conservatism’s flagship magazine:

Punishing a minor by removing him from the culture he’s adopted as his own, for the crimes of his parents, does strike me as fundamentally unfair. But what liberals leave out of this story, time and again, is a competing — and in my view overriding — unfairness. Reihan has argued repeatedly, and effectively, that we should treat access to the U.S. economy, not to mention its extensive welfare state, as a scarce resource. We can debate and debate the best way of distributing this resource– from “not at all” to “come one, come all” and everywhere in between. But distributing it based on who manages most successfully to violate the law, at the expense of would-be immigrants who are honoring the process, is surely not a valid option.

Apparently, when the topic turns to people born outside the United States, all that stuff about expanding pies and inalienable rights goes out the windows. Now the pie is fixed—a “scarce resource”—and it’s up to the government to decide who is eligible for a slice. People are no longer endowed by their Creator with the right to keep the fruits of their labor. Rather, the freedom to earn a living must be carefully “distributed” by the government only to those it deems worthy.

Liberals like my friend Matt Yglesias like to argue that conservative rhetoric about freedom and individual rights is a cynical cover for policies that serve the interests of the rich and powerful. I think he’s wrong, but passages like this one do give his argument a certain plausibility.

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Immigration Links

Here are some immigration links:

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Immigration and the “Rule of Law”

Was my last post, despite its claims to the contrary, a brief for open-borders zealotry? That seems to have been the reaction of a number of commenters and folks on Twitter. Josh Barro, for example, tweeted “I’m not sure there’s a right to live in America.”

A lot of people seem to believe that raising moral objections to an immigration enforcement program like e-verify is tantamount to advocating the repeal of all immigration restrictions. The more I think about this proposition, the less sense it makes. To return to one of my favorite examples: speeding is illegal, but laws against speeding are routinely ignored. The government enforces those laws haphazardly; perhaps one in a thousand speeders on any given freeway are caught.

Now, if we really wanted to, we could get people to stop speeding. For example, we could install license-plate-reading cameras along the freeway at regular intervals, and automatically send tickets to anyone who moves from one camera to the next too quickly to have been following the speed limit.

Personally, I think this is a horrible idea. One reason is that this kind of massive surveillance infrastructure could be misused for other, more sinister purposes. Objecting to this particular enforcement mechanism on civil libertarian grounds isn’t the same as saying people have a “right to speed,” or that we should repeal all speeding laws. We have any number of laws, jaywalking, peer-to-peer file sharing, paying taxes on goods we buy online, and so forth, that for a variety of practical reasons are hard to enforce, and we just live with the fact that they’re routinely broken.

The same point applies to immigration. Entering the country without government permission is illegal, and probably should be so. The federal government has any number of powers to enforce the law, including refusing to let you cross the border (leave the airport, etc), investigating over-stayed visas, limiting access to driver’s licenses, auditing employers, deporting people, and so forth. Objecting to any particular immigration enforcement mechanism isn’t the same thing as objecting to immigration regulations altogether. It’s perfectly coherent to say that the government should make a reasonable effort to prevent people from moving here illegally, but that certain types of particularly invasive enforcement methods (like employer verification) should be off the table. This is just how our legal system works.

But I also think speeding cameras are a bad idea because I sometimes think the posted speed limit is too low and I like the fact that I can ignore it and (mostly) not get caught. Similarly, our copyright laws are too strict; it’s a good thing that people can sometimes share content in circumstances that a strict reading of the law wouldn’t allow. In other words, the fact that people can mostly get away with breaking certain laws is a feature, not a bug, of our legal system. It provides a “safety valve” that ensures that stupid legislation doesn’t do too much damage.

The same point applies to immigration law. Obviously, we ought to enact sane immigration laws that make it easy for people like Jose Vargas to get a green card. But given that we haven’t done that, it’s a good thing—both for him and for the rest of us—that our enforcement system wasn’t effective enough to prevent him from taking a job here.

Again, there’s a huge double standard here. We American citizens take a strictly moralistic tone toward laws that we don’t personally have to follow. But “the rule of law” goes out the window when it comes to that pot you smoked in college, or the use taxes you haven’t paid on your Amazon purchases, or those pirated MP3s on your hard drive. When we’re talking about laws that actually affect us, we’re glad there’s some breathing room between the law on the books and what people actually get punished for.

We should display the same kind of magnanimity toward people who have to deal with our immigration system, which is much, much more screwed up than our copyright and traffic laws. Jose Vargas didn’t hurt anyone when he illegally entered the country as a teenager, just as Barack Obama didn’t hurt anyone when he illegally smoked pot in college. Law enforcement has, correctly, turned a blind eye to Obama’s youthful lawbreaking. It should do the same for Vargas and thousands of others like him.

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Jose Antonio Vargas and the Politics of Compassion

Jose Antonio Vargas’s riveting story about life as an undocumented immigrant has been taking the Internet by storm. It powerfully illustrates the contrast between our nation’s professed ideals of equality and opportunity and the actual, shameful results of the laws we have allowed our government to enact.

As I’ve written before, I think the fundamental problem is that most American voters don’t understand our own immigration system. Though few undocumented immigrants succeed as spectacularly as Vargas has, there are millions of undocumented Americans who, like him, have been hampered in their pursuit of freedom and opportunity by our immigration laws. Many American voters angrily demand that immigrants “get in line” for their green cards, ignoring the fact that for many undocumented immigrants, there is no line they could wait in that will get them a green card in the foreseeable future.

It’s interesting that Vargas mentions coming out of the closet because I think many immigration advocates could learn from success of the gay rights movement. Ignorant anti-immigrant beliefs are driven by the same kind of intellectual laziness people always display when thinking about people different from themselves. Go back to the 1970s and you’ll find millions of people who didn’t consider themselves to be bigots but harbored fundamentally bigoted beliefs about gay people. Go a little further back and you’ll find millions of whites who didn’t consider themselves racists but who would readily repeat crude stereotypes about blacks and tacitly supported America’s system of racial apartheid.

The same basic dynamic is at work in modern immigration debate. Hardly anyone considers himself an anti-immigrant bigot, but a large majority of Americans tacitly endorse ridiculous, discriminatory immigration laws that make it virtually impossible for people like Jose Antonio Vargas to become full-fledged members of our society. They demand a level of law abidingness from undocumented immigrants (even those who have been here since childhood) that they would never tolerate if applied to themselves.

Eradicating racism from polite society wasn’t simply a matter of evidence and argument. Rather, it was accomplished through a consciously ideological project to stigmatize bigotry. Making prejudicial comments about black people doesn’t just get you a strong counter-argument, it can lose you friends and even your job. A similar ideological project, typified by Seinfeld‘s “not that there’s anything wrong with that,” is making rapid progress on the gay rights front.

People don’t really think about immigration debates in these terms. Even most liberals talk about immigration in terms of economic efficiency and citizen self-interest. During the 2007 immigration debate, my friend Ezra Klein actually complained that business interests were trying to weaken “employer verification” laws that would have made it even harder for people like Jose Antonio Vargas to find a job. Whatever else you might say about this position, it’s not one that treats undocumented immigrants as human beings deserving compassion and fair treatment.

More to the point, this kind of transactional politics—give us a guest worker program and we’ll support beefing up the surveillance state—isn’t going to work. Once established, an “employer verification” system will be with us forever, whereas the next Congress can easily scale back or cancel the guest worker program. At the same time, advocacy for such a bargain reinforces the basic restrictionist worldview that the interests of Americans and immigrants are fundamentally opposed.

What’s needed, instead, is a serious effort to get people to think of immigrants as human beings who deserve to be treated fairly. You don’t have to be an open-borders zealot to think that we’ve been terribly unfair to Vargas and Eric Balderas. We should change the law to allow people like them earn a living not because doing so would be good for the American economy (though it would) but because we’re a country founded on the proposition that all men are created equal.

Congress is poised to pass “e-verify” legislation that will make life much worse for people like Vargas, as well as seriously inconveniencing a bunch of citizens. Libertarians like my friend Jim Harper have been beating the drum about this issue for years, and the ACLU has also been active in opposing it. But it hasn’t gotten much focus on the left more generally. And the few critiques I’ve seen have focused either on the system’s poor accuracy or the losses it would inflict on the agriculture sector.

These are both valid arguments. But I’d like to see more people—and especially more liberals—questioning the whole concept of constructing a massive surveillance system so the government can more effectively prevent people like Jose Antonio Vargas from earning a living.

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Competition in the Banking Industry

As Erik Kain notes, the point I made yesterday isn’t limited to the telecommunications industry. It applies with equal force in banking.

A good example of this principle at work is Cato scholar Lawrence White’s 2004 call for greater regulation of Fannie Mae and Freddie Mac. White argued that full repeal of these companies’ various state-granted privileges would be the best way to deal with these entities. But given that that was unlikely to happen he advocated more aggressive regulation as a second-best alternative. In retrospect, it’s obvious that this was the right position to take.

The same point applies to the “too big to fail” banks. In an ideal world, the bailouts wouldn’t have happened and most of these firms would be emerging from bankruptcy around now. But we don’t live in that world, and we’re not likely to get there before the next financial crisis.

Probably the most important moment in last year’s fight over banking regulation was the failure of the Kaufman-Brown amendment, which would have established a maximum size for banks in an effort to forestall future “too big to fail” problems. It was supported by a handful of savvy conservatives like Tim Carney, but most free-market conservatives and libertarians ignored it. I’m not going to point any fingers, since I was barely paying attention to the financial reform debate myself. But I do wish more supporters of the free market had followed Carney’s lead.

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A Lost Consensus on Deregulation and Competition

Everyone knows that the contemporary telecom debate pits free-market opponents of regulation against progressives who want a more activist government. But if that’s what you’re expecting, then the 1970s and early 1980s look very puzzling. You had the Democratic Carter administration and left-wingers like Ted Kennedy pushing to deregulate major industries. And you had a government crusade to break up Ma Bell that was launched by the Republican Ford administration and completed by the conservative Reagan administration.

To understand what was going on, we have to look back even further in history. The transpartisan enthusiasm for these policies emerged as a reaction to an ideology that will seem alien to modern observers. For the majority of the 20th century, this reining orthodoxy held that central planning was efficient and too much competition was destructive. Tim Wu called it Vailism, after the AT&T president who convinced the federal government to make AT&T a regulated monopoly. And it’s closely connected to James Scott’s concept of high modernism.

This ideology shaped much of Franklin D. Roosevelt’s New Deal. His National Recovery Administration had as its explicit goal to help industries form cartels so they could raise prices. That sounds insane to modern ears, but it wasn’t an aberration; the same attitude underpinned much mid-century policymaking. The Roosevelt administration created or expanded a number of government agencies, including the Federal Communications Commission, the Interstate Commerce Commission, and the Civil Aeronautics Board, which openly discouraged new entrants into the industries they regulated in order to prop up the incumbents’ profits.

The high modernist consensus against competition only started to unravel in the 1960s when economists like George Stigler documented how economically damaging these anticompetitive policies were. In the 1970s, their arguments started to make an impression inside the beltway. When Stephen Breyer took a break from teaching law at Harvard to work on the Hill for Ted Kennedy, he brought the emerging academic consensus with him.

Libertarians (including this one) like to point this out to liberals as a kind of “gotcha” story: even Ted Kennedy supported deregulation. But it’s important to remember that this coin has two sides. It’s equally true that even the Reagan administration supported the breakup of AT&T. And that’s not all.

Consider the Computer Inquiries, a series of regulations designed to prevent AT&T from dominating the nascent market for online services. It will surprise no one that this activist, big-government regulatory project was inaugurated by the Johnson administration. But it didn’t end with Johnson. The process produced three major orders over almost two decades, and there was remarkable continuity among the Johnson, Nixon, Ford, Carter, and Reagan administrations.

This consensus—repeal anticompetitive laws while actively protecting new entrants from the incumbents—survived the AT&T breakup. Indeed, the 1996 Telecommunications Act, which was passed by the conservative Gingrich Congress, is based on the same basic intellectual framework. It relaxed various restrictions on telephone and cable companies entering new markets, while simultaneously instituting an “unbundling” regime that forced incumbent telephone carriers to lease parts of their networks to competitors at regulated rates.

This might look like a philosophically confused mixture of deregulation and re-regulation, but I don’t think that’s how the legislation’s authors saw it. Rather, the unifying theme of the act was competition. Both the regulatory and deregulatory provisions of the bill were designed to increase the number of firms in various telecommunications markets.

That consensus has evaporated over the last 15 years, replaced by the pro- and anti-regulatory camps that are so familiar today. My sympathies are generally with the anti-regulatory camp, but I’m starting to think we’ve lost some important insights from that earlier consensus.

Once a “private” company becomes deeply intertwined with the state, it can be difficult to ever fully separate them. Formally repealing state privileges may not fully undo the damage if the incumbent continues to enjoy the fruits of past favoritism. And incumbents can leverage their intimate knowledge of the regulatory process—and decades of political capital accumulated from past interaction with regulators—to twist facially neutral regulations into weapons against their competitors.

This means that deregulated incumbents like AT&T and Verizon may never become fully private entities. And so a truly free-market agenda requires more than just reflexively opposing all government interventions in the telecommunications market. The government is not monolithic. Sometimes (as with the AT&T breakup and the Computer Inquiries) one part of the government works to check the harmful policies of another.

This principle is complicated, and reasonable people are going to disagree about how best to apply it. But one of the most obvious ways to check the power of incumbents is by making sure they have plenty of competitors. Competitive markets make regulators’ jobs easier because they force companies to serve consumers well even when regulators aren’t watching. So if regulators see a nice, clean opportunity to preserve or expand competition, they should probably take advantage of it.

The market and the political system are not separate, hermetically sealed spheres. It’s obvious that regulatory decisions shape the evolution of the market, but the evolution of the market shapes the options available to regulators. Promoting competition today will strengthen the case for deregulation tomorrow. Policies that undermine competition today will strengthen political pressures for regulation tomorrow.

An earlier generation of free-market economists understood this. And one way or the other, it’s a lesson we’re going to learn again. I just hope we don’t have to learn it the hard way.

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The HuffPo Sweatshop and the Decline of Labor

There’s been an interesting back-and-forth in the left-of-center blogosphere over efforts to organize a boycott of the Huffington Post for its practice of allowing volunteer bloggers to contribute to the site. The case for the boycott seems so obviously wrong that it’s hard to muster the energy to write a rebuttal, so if you’re interested you can read Matt and Julian‘s responses.

But I think the dispute is an interesting window into the state of the contemporary labor movement. Private sector unionization has been dwindling for decades, and of course the labor movement isn’t happy about it. The HuffPo boycott gives us an interesting way of thinking about that decline and why it’s not likely to be reversed any time soon.

The high point of unionization occurred among factory workers in the early-to-mid 20th centuries. Unions thrived in highly concentrated industries like cars and steel where the lack of competition produced generous profit margins. In this top-down environment, ordinary workers had very little leverage because they had few alternative places of employment. Unions offered workers collective leverage over issues like safety and work hours. And they also helped workers seize a share of the monopoly profits their employers enjoyed.

In recent decades, many of these oligopolies have been disrupted by a combination of technological progress and world trade. The steel mills and car plants that were generating obscene profits a half-century ago are now struggling to stay in business. Workers have increasingly shifted to more competitive industries where profit margins are smaller and a real exit option gives employees more bargaining power.

The publishing industry is an extreme example of the trend. The classic daily newspaper was a large, hierarchical company that often enjoyed a monopoly (or at least an oligopoly) in its local market. It used to provide hundreds of blue-collar jobs for typesetters, electricians, truck drivers, and so forth. In many cities, newspaper typesetters wouldn’t have had a lot of alternative places to work, and so the protections of a union contract were extremely valuable.

The publishing industry is changing in two ways. First, most of those blue collar jobs are disappearing. A modern news organization is a team of reporters supported by editors, graphic designers, IT workers, ad salesmen, and other white-collar professionals. Second, very few news organizations are insulated from competition the way most newspapers were in 1980. This means that most news organizations couldn’t raise their workers’ wages very much even if they wanted to.

The Huffington Post is an extreme example of both trends. It’s an online-only publication consisting almost entirely of white-collar workers. And although AOL paid a lot of money for the company, this appears to have been more a reflection of its expected growth potential than actual profits. Given the intense competition in the online news business, those profits are far from guaranteed and may or may not last for very long.

The Newspapers Guild and the National Writers Union yearn for the return of the good old days where their members’ employers enjoyed monopoly profits that they could be induced to share with the employees. Apparently these organizations have convinced themselves that the AOL buyout of HuffPo is a sign that the glory days are coming back. But they’re just seeing what they want to see. The extremely low barriers to entry in Internet news means that the industry is unlikely to resemble the 20th century newspaper business any time soon.

And this means that unions don’t have much to offer 21st century writers. The problem we writers face isn’t that our employers are raking in obscene monopoly profits and not sharing them with us. The problem is that there are far more people who want to write than there are publications able to pay writers. If publishers do start to rake in obscene profits, it’s likely that they’ll plow some of those profits back into their business by hiring more writers. But forcing one particular publication to stop running volunteer content does nothing to change the dynamics of the writing market. The Newspapers Guild and the National Writers Union are basing their actions on an economic model that’s decades out of date.

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Bessen on Measuring Software-driven Growth

In the conclusion of my interview with James Bessen we talk about the difficulty of measuring software-driven economic growth, a topic I’ve written about before.

Timothy B. Lee: How should we think about the value that consumers get from the rapid technological changes you’ve described?

James Bessen: Cowen argues that innovation today isn’t the same quality as it was in his grandmother’s day. I think you have to be very careful about that because while it’s true that innovation today tends to be qualitatively different in a couple of ways, that doesn’t necessarily mean it’s any less significant.

The innovations of a hundred years ago were a lot about the mass production of standardized goods. You think about the automobile or electrical appliances, these were things that affected most people and so you can look at an invention from that time, like the automobile was something that most people eventually used. Electrification was also something most people used. It affected most lives. That was because these were standardized products produced for a mass market.

In contrast, information technology is about meeting custom needs. It allows things to be tailored.

What’s an example of that?

One of the things that the desktop publishing revolution did was that it allowed tailored advertising. Software allowed A&P to target advertisements very finely. They could work from a database, track the items, automatically modify the flyers that were going out to each neighborhood—geared to the demographics of those neighborhoods and the particular things they were selling in those stores. It all worked in a very efficient way. It would’ve been possible to do that before, but it would’ve been way too costly.

This is an example of flexible manufacturing, which is also useful in terms of producing goods that are tailored to peoples’ needs.

Today’s super markets carry 50 times as many items as the grocery store of 80 years ago. That’s made possible by flexible manufacturing, computerized logistics, inventory control. Supermarkets have computerized systems for keeping track of what’s being sold at the register, what’s being shipped from the warehouse, and so forth.

Last time I was in the supermarket, I counted and I think there were 12 kinds of apples, 10 different tomatoes, etc. Which I’m guessing would not have been true in the 1970s.

I remember when I was in college, I went to dinner at a friend’s house. They were Italian, and we had to go down to the North End in Boston to get Italian sausage with fennel seeds. Now you can find that all over the country in all sorts of neighborhoods.

Obviously somebody is buying these things. None of these things affect most people like the automobile did. But most people are benefitting from some of these things. So it’s a qualitatively different technology. It’s much harder to measure its impact, with all of these products. It’s very hard to judge what the different qualities of those 12 types of apples, or 20 types of olive oil, or whatever it is.

This must make it hard for the statisticians at the Beureau of Labor Statistics to compute inflation rates.

It’s an impossible problem to measure those things. Quality change is difficult enough to measure for something like an automobile or a computer. Here you’re talking about two orders of magnitude more products. So in a sense, innovation and technological change have a very different feel today than they did in Grandma’s day, but that doesn’t mean that they’re anything less.

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James Bessen on the Great Stagnation

One of my favorite scholars is James Bessen, a lecturer at Boston University and a fellow at Harvard’s Berkman Center. A Harvard graduate, he founded a company that created one of the first desktop publishing systems and helped revolutionize the publishing industry. He sold that company in 1993 and has since become a self-trained academic economist.

Some of his most important work has been on patents. He wrote an excellent paper on software patents with future Nobel laureate Eric Maskin. And with Michael Meurer, he wrote Patent Failure, a fantastic book I have promoted at every opportunity.

Patents are one aspect of Bessen’s larger research agenda, which is focused on understanding the process of innovation and the policies that encourage it. To that end, he has been doing some in-depth research into the history of innovation. In this interview, he talks about his findings on the history of weaving technology, his own experiences in the desktop publishing industry, and what those experiences tell us about the alleged “great stagnation” of our own era. My questions are in bold, and his responses are in ordinary type. I’ll post a bit more of the interview tomorrow.

Timothy B. Lee: I think a lot of people have a sense that the rise of the Internet and the software industry are pretty exceptional. On the other hand, Tyler Cowen has argued that the changes of the last 40 years are actually less dramatic than those of his grandmother’s lifetime. Where do you come down on this question?

James Bessen: Cowen argues that we’ve picked all the low-hanging ideas and that we’re running out of good ideas. Other people have a sense that we’re sort of in the midst of a technological revolution. The central paradox is that for the past 3 decades, during the rise of the personal computer, wages, at least, have stagnated. There’s this sense that we’re doing all this innovation, we’re coming up with new technology, but we’re not seeing the economic fruits of it like we did in the past.

So maybe this is just frivolous technology, not “real” innovation. Grandma got indoor plumbing and we’re getting social networking.

Cowen trots out things like patent statistics, but he unfortunately gets it wrong. For starters, patents are not measuring innovation, they’re measuring industrial strategies. In terms of the number of patents granted, even just to domestic innovators, it’s at an all-time high. If you weight it per capita, it’s a little bit less than it was in the late 19th century, but not very much. So patents are not a clear indication of a great stagnation.

But isn’t the relatively slow growth of wages and GDP evidence that we’re not producing as many good ideas as we used to?

People think these great inventors have these great ideas which then just go out and immediately revolutionize society and produce all of these benefits. So the fact that we’re seeing lots of technology, lots of innovation, and yet not seeing the economic benefit seems to say, “well, something’s wrong with those ideas.”

But if you look in the past, technology has never been about simple inventions revolutionizing society directly. It’s always been about them providing an opportunity, but that opportunity requires the development of all sorts of new knowledge by large numbers of people–people who are going to use it, people who are going to work with it, people who are going to build it, and that’s very often a process that takes decades.

You’ve studied 19th century weaving technology as an example of this process, right?
Continue reading

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Wilkinson on Spending and Limited Government

Will Wilkinson couldn’t be more right about this:

I would argue that at least half of America’s military spending provides no benefit whatsoever to Americans outside the military-industrial welfare racket. But the other half may be doing some pretty important work. Rather than arguing dogmatically for a higher or lower level of total spending, it would be nice if we could focus a little and argue for and against the value of different kinds of spending, and then to focus a little more on the value of different ways of spending within budget categories. Some government spending gives folks stuff they want. Some government spending is worse than stealing money, throwing it in a hole and burning it. This is obvious when you think about it for a second, but it sometimes seems that partisan political discourse is based on the refusal to think about it at all. Conservatives with a libertarian edge often proceed as if government spending as such is an evil to resist, except when they’re defending a free-lunch tax cut (we’ll have more money to wrongly spend!) or the ongoing development of experimental underwater battle helicopters. And liberals with a social-democratic streak often operate within a framework of crypto-Keynesian mysticism according to which handing a dollar to government is like handing a fish to Jesus Christ, the ultimate multiplier of free lunches. When debate takes place on these silly terms, it seems almost impossible to articulate a vision of lean and limited government with principled, rock-solid support for spending on social insurance, education, basic research, essential infrastructure, and necessary defence, despite the likelihood that something along these lines is what most Americans want.

I’ve made made a similar point in the past. And here’s more from Bruce Bartlett.

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