Pethokoukis

Dave Camp’s mortgage interest reform is maybe the best of his tax reform plan

Image Credit: Shutterstock

Image Credit: Shutterstock

Although some folks on the right are griping about it, House Ways and Means Chairman Dave Camp was right to include reform of the mortgage interest deduction in his big tax reform plan. From the Camp plan:

Under the provision, a taxpayer may continue to claim an itemized deduction for interest on acquisition indebtedness, but the $1 million limitation would be reduced to $500,000 in four annual increments, so that the limitation would be $875,000 for debt incurred in 2015, $750,000 for debt incurred in 2016, $625,000 for debt incurred in 2017, and $500,000 for debt incurred thereafter.

The MID is a $70-billion-a-year, market distorting subsidy for the purchase of expensive homes by high-income taxpayers. It does little to promote homeownership by Americans of more modest means. There is no sound economic reason to use the tax code to artificially advantage the higher-end real estate sector over other sectors of the economy.

What’s more, the MID is a key part of what Northwestern University’s Monica Prasad calls “mortgage Keynesiamism,” an initially Democratic, New Deal effort to funnel the welfare state through housing and consumer credit rather than more directly as in Europe. Except mortgage Keynesian really doesn’t really do much to help the poor and creates economic risk, as we saw during the Financial Crisis.

But won’t the Camp plan kill home prices? Unlikely. A 2008 study of the price reaction to eliminating completely the subsidy estimated only a 4.2% decline in home equity. Now this isn’t to say that Camp’s approach is ideal. AEI’s Alan Viard recommends — accepting the political reality of some housing tax preference — converting the MID into a 15% refundable tax credit available to all homeowners.This approach, Viard writes, “substantially limits the tax preference for expensive homes while increasing homeownership assistance for taxpayers who are less well off.”

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

Does the GOP have a diagnosis for what ails the US economy other than Obamanomics?

Kaufman Foundation

Kaufman Foundation

We know the left-liberal, progressive diagnosis for what ails the US economy, not just today’s woes but longer term: too much income inequality (we need to redistribute from the high-saving 1% to the high-consuming 99%), too little public “investment” (not enough spending on infrastructure.) So that’s Obamanomics, basically. It’s a Keynesian argument about demand.

But what is the GOP theory of the case? Some on the right would say, well, Obamanomics! But consider: from the end of World War Two through the 1980s, it took roughly six months for employment to recover to prerecession levels after each postwar recession. But it took 15 months after the 1990–91 recession and 39 months after the 2001 recession. The current recovery is 57 months old, and we are still some 4 million full-time jobs short of prerecession levels. Moreover, steep recession loses for mid-wage workers have not been matched by comparable gains during recovery. For the labor market overall, then, the Great Recession continues. But not for big business. Corporate profits returned to their prerecession peak in late 2009 and continue to make record highs. While Dodd-Frank, Obamacare, and investment tax hikes have not helped, the US economy’s problems seem to predate Obama.

So here is one possible explanation: these jobless recoveries are the result of an economy now better at generating process innovation (creating cheaper, more efficient ways to make existing consumer goods and services) than what business consultant Clayton Christensen has termed “empowering innovation” (creating new consumer goods and services). Efficiency innovation frees up capital that’s then reinvested in still more efficiency innovation — often machines rather than men — rather than in job-creating empowering innovation as in the past.

Why might this be? Years of government policy protecting incumbent firms from competition and failure present one possibility. As Ashwin Parameswaran has put it: “Incumbent firms rarely undertake disruptive innovation unless compelled to do so by the force of dynamic competition from new entrants. The critical factor in this competitive dynamic is not the temptation of higher profits but the fear of failure and obsolescence.”

Shorter: dynamic innovation is created by maximum competitive intensity. Here is the disturbing conclusion from a recent Kaufman Foundation report:

A number of signs point to a secular decline in U.S. business dynamism, which goes far  beyond the more recent effects of the Great Recession. For example, the rate of new  firm formation—a key element of business dynamism and new job creation—has been  declining steadily for at least the last three decades. Job reallocation—the process that  moves workers away from contracting or closing businesses and toward expanding or  new firms—also has been declining over the same period.

Even the tech industry is not immune. The study notes that the number of technology companies aged five years or younger —  the fast-growing “gazelles” of drivers of job creation — has fallen below 80,000 versus a high of 113,000 in 2001.

Some examples of how the US prevents both startup entry and incumbent exit: a “too big to fail” financial system (made worse by Dodd-Frank) that rewards gigantism and macroeconomic risk rather than lending to small business; occupational licensing and patent laws that reward cronyism rather than promoting the entry of new, entrepreneurial firms; a complex corporate tax code biased against investment and where big companies are able to lobby for favorable tax breaks and subsidies. Reform in all these areas is one way to, as Christensen argues, “to reset the balance between empowering and efficiency innovations.”

So, if you buy this theory: the US needs more creative destruction and more radical innovation, while also fashioning a strengthened safety net and an education system that teaches the technological and entrepreneurial skills that workers will need in the future.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis, Economics, Regulation

Is Dodd-Frank harming America’s startup culture?

Image Credit: shutterstock

Image Credit: shutterstock

Talk about a terrible two-fer. First, the Dodd-Frank financial reform law institutionalizes Washington’s “too big to fail” safety net for Wall Street. As AEI’s Charles Calomiris explains, the law explicitly permits bailouts — at government’s discretion — via the law’s resolution authority provision. The bailout would be financed by taxes on surviving banks and then potentially by taxpayers. TBTF is still here. Indeed, megabanks have responded to Dodd-Frank’s TBTF incentives by getting bigger, the industry more concentrated. Fortune points out, for instance, that the six largest banks in the nation now have 67% of all the assets in the US, up 37% from five years ago.

Second, by doubling down on TBTF, Dodd-Frank makes life harder for the rest of the banking industry. This is particularly the case for small banks. The Mercatus Center’s Hester Peirce and Robert Greene:

The Dodd-Frank Act … imposes a new set of regulations that are disproportionately burdensome to small banks. Moreover, by designating the largest financial institutions as “systemically important,” Dodd-Frank creates a market expectation that designated firms are too big to fail and generates funding and other competitive advantages for the largest US banks. Since the second quarter of 2010—immediately before the July passage of Dodd-Frank—to the third quarter of 2013, the United States lost 650, or 9.5%, of its small banks. Small banks’ share of US banking assets and domestic deposits has decreased 18.6% and 9.8%, respectively, and the five largest US banks appear to have absorbed much of this market share. Mounting regulatory costs threaten to accelerate the shift towards big banks and away from small banks that have long been important members of the financial industry and the local communities they serve.

Community banks are important particularly to small business. As an AEI paper last year noted, community banks provide nearly half of small-business loans issued by US banks. And small business and startups are the engine of US economic growth. Yet we have devised a capital allocation system that rewards banks for getting bigger and taking on the sort of risk – from, say, mortgage lending — that the Fed and regulators care most about. Starting with the Fed’s reaction to the 1987 stock market crash, says Ashwin Parameswaran:

 … the “Greenspan Put regime drove down the risk of being exposed to broad macroeconomic market risk. Market participants rationally took on more macroeconomic asset-price risk and substituted for the risk they had been relieved of by the Fed with more leverage. … Far from being a neutral channel of monetary policy from the Fed to the real economy, the deregulated yet too-big-to-fail financial sector that was also protected from new entrants realigned itself to take on macroeconomic risk by lending to housing and large established firms. The attractiveness of this strategy meant that banks shunned lending exposed to non-macroeconomic idiosyncratic risks such as lending to small businesses or new firms.

And so it continues. Beyond its glacial pace, this recovery is notable for its weakness in the small and young firms which typically have high job-creation rates. In addition to Dodd-Frank’s impact on lending, the Hudson Institute’s Tim Kane noted in a study last year that the rise of occupational licensing is destroying startup opportunities for poor and middle class Americans. Rather than creating barriers to entrepreneurship, government should empower today’s wage earners to become tomorrow capitalists.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

Here’s exactly how marriage penalties discourage marriage

Family's Economic Mobility in Doubt

Photo Credit: Eric Ward via Wikimedia Commons

How to encourage stable, two-parent families is one of the knottiest public policy problems, but also one of the important. As a recent blockbuster study on economic mobility concluded: “The fraction of children living in single parent households is the strongest correlate of upward income mobility among all the variables we explored.”

As government figures out how to help, it can at least stop harming. For starters, mitigate the marriage penalties embedded in the tax code. AEI’s Robert Doar:

Recognizing that married, two-parent families help poor children succeed, we must address policies that make marriage hard — especially among low-and middle- income Americans.

Marriage penalties can be especially discouraging for those individuals who have the least freedom to forego income. As Eugene Steuerle of the Tax Policy Center and colleagues have explored in det ail, policies aimed at assisting low – and moderate – income households with children often penalize marriage.

Take this example: “A single parent with two children who earns $15,000 enjoys an EITC benefit of about $4100. The credit decreases by 21.06 cents for every dollar a married couple earns above $15040….[I]f the single parent marries someone earning $10,000, for a combined income of $25,000, the EITC benefit will drop to about $2,200. The couple faces a marriage tax penalty of…$1,900.”

Similar penalties are embedded in Medicaid, Temporary Assistance for Needy Families (TANF), food stamps, housing assistance, and child care — all of which apply to low-and moderate-income Americans. Efforts to mitigate marriage penalties have largely taken the form of tax cuts directed toward married couples. But according to Carasso and Steuerle’s analysis, 81 percent of that relief flowed to couples earning above $75,000. A host of reforms could alleviate this burden.

As Carasso and Steuerle describe, implementing a maximum marginal tax rate for low-income families would tamp marriage-induced hikes in rates. Providing a subsidy on individual earnings — not combined earnings (like the EITC) — would enable a low-wage American to marry someone with a child, but do so without sacrificing significant income or transfer payments. And mandatory individual filing, as done in Canada, Australia, Italy and Japan, would either require or allow low-income individuals to avoid income tax penalties.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

Dave Camp’s tax reform plan shows how the US is sabotaging its own economy

By Tax Credits (CC BY 2.0)

By Tax Credits (CC BY 2.0)

Good for the House Ways and Means chairman. If nothing else, Dave Camp’s big tax reform plan will highlight the terrible, unforced error that is the US tax code. By lowering marginal tax rates, compressing tax brackets, and eliminating or trimming many economically inefficient tax breaks, the blueprint would — according to The Wall Street Journal’s review of Joint Committee on Taxation analysis — boost real economic growth by as much as 1.5% to 1.6% a year over the 2014-2023 period and create nearly 2 million more private sector jobs. Of course, your models may vary. But the JCT analysis is encouraging, and suggests tax reform is a key element in boosting America’s potential GDP growth.

Now we won’t know the details until tomorrow, but according to media reports (a) the top income tax rate would fall to 25% from 39.6%; (b) seven existing brackets would be collapsed into just two, 25% and 10%; (c) investment gains would be taxed like ordinary wage income, but 40% would be excluded from income for tax purposes; (d) a 10% surtax would apply to couples earning $450,000 or more and hit, says the WSJ, “a broad swath of their income, including some sources that aren’t currently taxed, such as employer provided health care and tax-exempt bonds.” Can’t wait to see that last point fleshed out.

It’s unclear right now what the budgetary effects would be. Perhaps revenue neutral, perhaps a sizable revenue gainer when higher economic growth is factored in. The reports I saw today didn’t indicate what the new, lower corporate would be. But my reading of the research gives me some confidence that a big rate cut, even without base broadening, would hardly some big money loser for Washington. In any event, lowering the combined corporate-investment tax rate is solidly pro growth.

Of course, no one thinks the Camp plan has any chance of passage this year. Republicans worry about the political impact in an election year that is looking pretty good for them: Discouraging analysis from Politico: “More than a dozen skeptical lawmakers and senior aides told POLITICO they thought it was a strategic blunder to unveil a plan outlining which loopholes to cut, whose rates will be slashed and which sector of the economy will see higher taxes when there’s little expectation the code will be reformed in 2014.” On the other side, many Democrats think lowering tax rates, particularly for the rich and business, would be moving the tax code in the wrong direction.

Sure makes for fascinating politics. Meanwhile, the Not-So-Great-Recovery schleps on …

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis, Economics, U.S. Economy

Why are minimum wage proponents dismissing automation risk?

Image Credit: Shutterstock

Image Credit: Shutterstock

Proponents of sharply raising the federal minimum wage are, unfortunately, making a static appraisal of the US economy. Potential job losses might be far higher than they think. They also might be far higher than the 500,000 estimated by the Congressional Budget Office.

Keep in mind what President Obama is proposing. First, he wants to raise the federal minimum wage by 40% to $10.10 an hour. Despite what Democrats are saying, that would be a record high. When you use the preferred inflation measure of the Bureau of Labor Statistics, CBO, and Federal Reserve, the minimum wage would have to rise only to $8.32 from $7.25 to match its inflation-adjusted 1968 level. What Obama is proposing is 20% above even that.

Second, Obama wants to index the minimum wage to inflation, so it rises as prices do. In other words, he wants to raise the cost of low-skill, human labor to a record high and then put it on a perpetual escalator at a time when (a) jobs are recovering glacially from the Great Recession, and (b) automation may be starting to affect labor markets as never before.

Let’s focus on that second point, since it came up today at an AEI event examining whether the minimum wage or Earned Income Tax Credit is the more effective anti-poverty tool. Economist Heidi Shierholz of the Economic Policy Institute was fully in favor of the president’s plan. She also declared herself “not so worried” about the possibility that dramatically raising the minimum might worsen the competitive position of low-skill humans versus machines. Shierholz said fears about net job losses from machines replacing man have been proven wrong in the past (which is correct), and “it is an unknown” whether that will change in the future (also correct). In addition, she seemed to accept — and maybe I am overreaching here — the techno-pessimist argument of economist Robert Gordon who says recent weak productivity numbers suggest little sign of  any next great wave of innovation.

But what if Shierholz has the story wrong? What if the combination of improved robotics, computer intelligence, and a global digit network means we’ve reached an inflection point where machines, broadly construed, will soon be able to do all sort of jobs unimagined just a few years ago.

As MIT’s Erik Brynjolfsson and Andrew McAfee, authors  of The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies told me recently: “There’s no economic law that says everyone’s going to benefit from technological progress, even as the pie gets bigger. It’s possible for some people, even a majority of people, to be made worse off.” While some low-skill jobs might be automation proof, what about retail and fast food? Indeed, Brynjolfsson and McAfee support helping workers via a greatly expanded EITC. Subsidize work, don’t raise the cost of hiring.

Pushing for an unprecedented boost in the minimum wage given both the weak economy and automation risk seems like foolhardy public policy.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

In praise of a ‘Downton Abbey economy’

(Flickr) (GriffinStar7) (CC-BY-2.0)

(Flickr) (GriffinStar7) (CC-BY-2.0)

Last night was the season finale, at least in the US, for “Downton Abbey.” While the “upstairs, downstairs” stories of the aristocratic Crawley family and their servant staff in 1920s Britain makes for great entertainment, some contend it also makes for scary economics. Here is Larry Summers in The Financial Times: “The share of income going to the top 1 per cent of earners has increased sharply. A rising share of output is going to profits. Real wages are stagnant. Family incomes have not risen as fast as productivity. The cumulative effect of all these developments is that the US may well be on the way to becoming a Downton Abbey economy.”

But a Downton Abbey economy doesn’t sound so bad to my old Reuters colleague Martin Hutchinson, who offers an Austrian perspective on the show:

First, total factor productivity growth was much greater. … Second, in Downton Abbey’s world, real estate costs were modest and new infrastructure projects were built on time, at a fraction of today’s real cost. … Third, the Downton Abbey world had positive real interest rates and no inflation psychology.t something that had to be monitored constantly for inflationary erosion. … Finally, both the economic system and the financial system were carried on with high standards of integrity, higher in Britain than in the United States, but higher in both countries than today. …

The Downton Abbey economy had its downsides. Exchange rates were already unstable because of World War I, and apparently solid economies like Germany could collapse into trillion-percent hyperinflation. The globalization of the pre-1914 world was already a memory, and would remain one until the 1980s as protectionism was rapidly increasing (and was already at damaging levels in the United States.) Still, there were further strengths – the 1920s’ rapid surge in well-paid manufacturing jobs in the automotive and other sectors, for example — while the world’s modest population of about 2 billion made environmental constraints irrelevant at a global level, albeit painfully relevant locally.

Summers’ demonization of the Downton Abbey economy today is as misguided as his cheerleading for wasteful trillion-dollar public spending bonanzas five years ago. On balance, provided we could keep today’s living standards and medical care, a return to the Downton Abbey economy would be an enormous improvement.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

What MinuteClinics and Google Fiber teach about crony capitalism

(Flickr) (UCFFool) (CC-BY-2.0)

(Flickr) (UCFFool) (CC-BY-2.0)

I once asked the head of the McKinsey Global Institute what was, in her opinion, the most important driver of innovation and economic growth. I received a three word answer: “maximum competitive intensity.”

Of course, we all know that competition lies at the heart of the free enterprise system. Businesses compete for market share and profit. A freely competitive economy should allow new, entrepreneurial companies — and the new services and products they generate — easy and permission-less entry into the marketplace. But there’s another side to competition. The “invisible foot” of competition prompts incumbent players to innovate or suffer the consequences. And a freely competitive economy doesn’t prop up failed incumbents. It allows them to fail. It allows creative destruction.

But no one much likes a competitive kick to the keister, as two examples in today’s Wall Street Journal demonstrate. First, the American Academy of Pediatrics is pushing back against retail health clinics in drugstores. As the WSJ’s Melinda Beck and Timothy Martin explain: “Set in drugstores, supermarkets and big-box stores, retail health clinics are playing a bigger role in the delivery of health care. Some have expanded beyond treating sore throats and giving flu shots to offer sports and school physicals and treat chronic diseases, setting up more direct competition with doctors.”

Economist Peter Orszag recently noted that the healthcare sector is “replete with labor-market inefficiencies.” Reforming scope-of-practice restrictions and allowing nurse practitioners and physician assistants, among others, to do more is a key way of creating a more efficient and productive US healthcare system.

Second, Andy Kessler explains how established Internet service providers are trying to block Google from deploying Google Fiber, its superfast, gigabit broadband service. His solution: “The FCC can change this overnight. Instead of allowing municipalities to dictate onerous terms and laws that lock in (slow) incumbents, the FCC can mandate right-of-way rules similar to those granted Google Fiber to all credible competitors. If only the federal regulator would promote progress and focus on what’s best for the U.S. economy rather than for those it regulates.” Regulation should promote innovation and competitive churn, not protect revenue streams of existing players.

There is a big difference between being pro-business and pro-market. One does the bidding of incumbents, with the result being a static economy. The other promotes competition. Safety nets are for people, not businesses. The result is innovation and dynamism. Right now, America has too much of the former, not enough of the latter.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

Forget leisure: Here is why work is and always will be important

Image Credit: shutterstock

Image Credit: shutterstock

I wanted to highlight a favorite bit from my recent long chat with the authors of The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant TechnologiesMIT’s Erik Brynjolfsson and Andrew McAfee:

When you look 10 years, 20 years down the line, do you anticipate a big class of people who are working a lot less or aren’t working and therefore we need to have some sort of universal basic income?

McAfee: I think if we can redefine what work is and move away from this idea that it’s a, you know, 40-ish hour week job with a single employer, who gives you all kinds of benefits and health care, and expects 40 hours a week from you in return, if we can move away from that to something a lot more fluid with a lot more optionality built in, then I’m pretty confident that a decade out, maybe even beyond that, we still have an economy full of work

Brynjolfsson: I think that that’s very important that we try to work towards an economy that still has ways to keep people working and engaged in – because one of the things we learned in doing research for this was that it’s – that work gives a lot of people a sense of meaning. And that although you can replace the income, simply giving the money doesn’t necessarily lead to greater happiness. And there are a lot of negative outcomes that happen when work leaves the community. Bob Putnam and others have pointed out you get family dissolution, increases in crime, teen pregnancy, drug use, all sorts of negative effects when work leaves the community.

So we’d like – most of our policies are aimed at keeping work as an important part of our economy, finding ways to get people engaged, whether it’s re-skilling them, or things like the expanded earned income tax credit to make it worthwhile to hire people. And it may be that people work fewer hours. That was what Keynes predicted in his classic essay “Economic Possibilities for our Grandchildren,” because they have a higher overall standard of living. And that would not necessarily be a bad thing, but we don’t think it’s probably a very good idea to have masses of people who can’t find any kind of work at all.

McAfee: I just want to underscore that. I think that’s absolutely right. As we were writing this book, I became a lot more obsessed with work than with money. We included the quote from Voltaire to open one of our chapters. “Work saves us from three great evils: boredom, vice, and need.” Need is going to be the easiest of the three to take care of.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis

The Fed really feared inflation in September 2008 as a deflationary depression loomed

Photo Credit: futureatlas.com/Flickr

Photo Credit: futureatlas.com/Flickr

It was the worst Fed decision since the Great Depression. On Sept. 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection. The stock market was already down some 15% since May. The National Bureau of Economic Research later declared a recession had started at the end of 2007, one that by late summer 2008 was intensifying. And as Scott Sumner has pointed out, the market forecast of inflation over the next five years had plunged to an annual rate of only 1.23%.

America needed aggressive monetary easing, ASAP. But at its Sept. 16 meeting, the Federal Open Market Committee stood pat, as it had since April of that year when it cut the federal funds rate by 25 basis points to 2.00%. The release of 2008 FOMC meeting transcripts shows what a disaster that meeting was. Here, for instance, is St. Louis Fed President James Bullard:

This is part of an ongoing shakeout among financial market firms, following some of the worst risk management in a  generation. I expect sluggish growth in the second half of 2008, in part due to labor markets that  are somewhat weaker than expected. Financial market turmoil is certainly a key concern, but the U.S. economy still outperformed expectations in the first half of 2008, despite the demise of Bear Stearns—an event not too different in some respects from the current episode. … Meanwhile, an inflation problem is brewing.

Sluggish growth? Brewing inflation problems? Not so much in reality. Boston Fed President Eric Rosengren, who voted to cut rates, was more on the mark:

This is already a historic week, and the week has just begun. The labor market is weak and getting weaker. The  unemployment rate has risen 1.1 percentage points since April and is likely to rise further. I am  not convinced that the unemployment rate will level off where the Greenbook is assuming  currently. The failure of a major investment bank, the forced merger of another, the largest thrift  and insurer teetering, and the failure of Freddie and Fannie are likely to have a significant impact on the real economy. Individuals and firms will become risk averse, with reluctance to consume or to invest. Even if firms were inclined to invest, credit spreads are rising, and the cost and availability of financing is becoming more difficult. Many securitization vehicles are frozen. The degree of financial distress has risen markedly. Deleveraging is likely to occur with a  vengeance as firms seek to survive this period of significant upheaval.

Instead of weighting heavily forward-looking market measures such as inflation-protected Treasuries, the FOMC got faked out by backward-looking government data. Imagine if the Fed in September 2008 had not only slashed rates but maybe also begun a QE bond-buying program to support a declared nominal spending target. We might not be marking the 5th anniversary of the Obama stimulus this week or lamenting the Not-So-Great Recovery.

And now history is rhyming. With inflation low and GDP growth sluggish, some are eager to end QE and hike interest rates. These folks fail to consider why US GDP growth accelerated last year despite considerable fiscal drag. They focus only excess bank reserves and not other channels such as higher asset prices and expectations. Failure to understand what went wrong in 2008 (and what’s gone right since) continues to foul the current Washington economic policy debate and makes another Great Recession/Depression more likely in the future.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.