Tuesday's interesting reads

"The Coming Tax Bomb" WSJ op-ed by John Cogan and Glenn Hubard:

"As has so often been true in the past, the economic damage caused by the tax increases and tax avoidance behavior will prevent the promised revenues from being realized. At the same time, the promise of higher revenues will encourage Congress to continue its profligate spending. As a result, a tax increase won't lower the budget deficit."

People often assume that simply raising the tax rate will automatically 1) increase revenues and 2) lower a budget deficit, but it doesn't happen that way. Higher taxes do much to distort investment in the private sector (either to work harder or to earn more). If they do increase revenues, they have a tendency to create a vacuum that congress can't wait to fill.

"The proper way to prepare to meet the entitlement challenge consists of three essential elements: Change entitlements to slow their cost growth; eliminate all nonessential spending in the remainder of the budget; and, most important but often overlooked, adopt policies that promote economic growth. The greater the economic growth, the larger the economic pie, and the greater the public and private resources available to finance entitlement obligations and other national priorities."

"Climate Change Opportunity" WSJ op-ed by Fred Krupp:

"Under a cap-and-trade regime, Congress will set limits on greenhouse gas pollution, and ratchet down those limits over time. Congress won't dictate to business which technologies to use – the marketplace will determine the ones that work best at the lowest cost. Cap-and-trade is a proven approach. When applied to acid rain pollution in the 1980s, it solved the problem faster and cheaper than anyone thought possible.

Global warming skeptics notwithstanding, fixing global warming won't be a drain on the economy. On the contrary, it will unleash one of the greatest floods of new wealth in history. When Congress finally acts, America's entrepreneurs and inventors will find the capital they need to solve global warming – and a lot of people will make a killing."

I don't understand all the arguments for and against cap and trade. What I do know is that you can bet who some of the biggest lobbyists for cap and trade represent -- these "entrepreneurs and inventors" set to "make a killing" when Congress passes something.

"Daniel Klein on Libertarianism" by Arnold Kling at Econlog:

"Everyone else sees the government, at least implicitly, as having some higher moral status. No one would grant that I, as an individual, have the right to walk up to you and demanded a percentage of your income. Or to threatened you with fines and imprisonment for giving a professional haircut without a license. But if I were a politician, most people would grant me the right to do these sorts of things because government has a higher moral status."

"Fixing Finance" The Economist:

"This puts finance in a dilemma. A sophisticated and innovative financial system is susceptible to destructive booms; but a simple, tightly regulated one will condemn an economy to grow slowly.

The tempting answer is to try to wriggle free from the dilemma with a compromise that would permit innovation but exert just enough control to squeeze out financial failure. It is a nice idea; but it is a fantasy. The experience of the past year is an object lesson in the limited power of regulators...

It would be convenient to blame the regulators for all that, but the system is stacked against them. They are paid less than those they oversee. They know less, they may be less able, they think like the financial herd, and they are shackled by politics. In an open economy, business can escape a regulatory squeeze in one country by skipping offshore. Once a bubble is inflating many factors conspire to discourage a regulator from pricking it."

Regulators are very rarely the answer to anything. They have much fewer compelling reasons to get it right and they often know much less about whatever it is they are regulating. Throw that in with that fact they are often politicized and you have the makings of a big problem.