Fuel Standards Are Killing GM

A higher gas tax is a better way to get green cars on the road.

ALAN REYNOLDS

General Motors can survive bankruptcy far more easily than it can survive President Barack Obama's ambitious fuel economy standards, which mandate that all new new vehicles average 35.5 miles per gallon by 2016.

The actual Corporate Average Fuel Economy (CAFE) results will depend on the mixture of fuel-thrifty and fuel-thirsty vehicles consumers choose to buy from each manufacturer -- not on what producers hope to sell. That means only those companies most successful in selling the smallest cars with the smallest engines will, in the future, be allowed to sell the more profitable larger pickups and SUVs and more powerful luxury and sports cars.

Sales of Toyota's Prius, Yaris, Corolla and Scion, for example, allow and encourage Toyota to market more Lexus 460s, Sequoia SUVs and Tundra pickups in the U.S. without incurring fines. Hyundai's success selling Accent and Elantra compacts allows it to sell 368-horsepower Genesis sedans.

Chad Crowe

Similarly, Ford has the Toyota-licensed hybrid Fusion and will soon produce the European Ford Fiesta in Mexico. Chrysler will soon have Fiats. But what does GM have?

No independent reviewer suggests that the Chevy Aveo and Cobalt are credible contenders in the small car field. Even the president's auto task force finds the electric Chevy Volt "unviable," since it will lose money unless priced above a Cadillac CTS. The Opel-engineered 2011 Chevy Cruze will face tough competition from Asian cars whose reliability is better established. Launching such new models will be even tougher in the future, now that GM has lost control of Opel.

GM accounted for about 19% of vehicle sales so far this year, but the company had a much smaller share of the market for small cars and SUVs (which accounted for 20% of total sales through May). To continue offering a Toyota-like array of larger cars and trucks under ever-tighter CAFE rules, GM would have to capture a much larger share of the market for small and/or diesel-powered vehicles. Unfortunately, European and Asian car makers have decades more experience building reliable subcompact cars and diesel engines for their local markets -- where consumers face steep taxes on gasoline and large engines.

General Motors does produce competitive cars and trucks, but not one of them is small. Consumer Reports recommends three GM cars and three GM trucks. The recommended cars are the Chevy Malibu (the unrecommended hybrid has been dropped), the large Buick Lucerne and the Cadillac DTS. Consumer Reports recommends the Chevy Avalanche and Silverado and the GMC Sierra trucks. Car enthusiast magazines insist on adding Camaro, Corvette and the 556-horsepower Cadillac CTS-V to that list.

Among those nine best GM vehicles, only the four-cylinder Malibu achieved as much as 25 mpg in Consumer Reports testing. The others get 12-17 mpg, yet they are no less fuel-efficient than comparable foreign brands. The Environmental Protection Agency rates the mileage of the Toyota Sienna van and Nissan Titan pickup as worst in their class, and comparable Chevys as best. Unlike GM, however, Japanese car companies sell enough small cars to offset the large and thus hold down the average figures.

General Motors is likely to become profitable only if it is allowed to specialize in what it does best -- namely, midsize and large sedans, sports cars, pickup trucks and SUVs. The company can't possibly afford to scrap billions of dollars of equipment used to produce its best vehicles simply to please politicians who would rather see GM start from scratch, wasting more taxpayer money on "retooling" to produce unwanted and unprofitable subcompacts and electric cars. The average mileage of GM's future cars won't matter if nobody buys them.

Politicians are addicted to CAFE standards because they create an illusion of doing something sometime in the future without voters experiencing the slightest inconvenience in the present. Tighter future CAFE rules will have no effect at all on the type of vehicles we choose to buy. Their only effect will be to compel us to buy larger and more powerful vehicles from foreign manufacturers. Americans will still buy Jaguars, but from an Indian firm, Tata, rather than Ford. They'll buy Hummers, but from a Chinese firm, Tengzhong, rather than GM. The whole game is a charade; symbolism without substance.

As a matter of practical politics, rescuing GM from strangulation by CAFE will require offering economically literate environmentalists a greener alternative, i.e., one that works. Luckily, the government has two policy tools that, with minor modifications, really could discourage people from buying the least fuel-efficient vehicles.

One is the federal excise tax on "gas guzzlers," which could take some fun out of the horsepower race except that it applies only to cars, not to SUVS, vans and trucks. Why not apply this tax to all types of gas guzzling vehicles? Owners of trucks used for business could deduct the tax in proportion to miles used for business, as they do with other vehicular expenses. Phase it in after 2011 to encourage buyers to snap up the unsold inventory of gas guzzling trucks quickly -- a timely "stimulus plan."

Second, the federal fuel tax is highest on the most efficient fuel (diesel) and below zero on the least efficient fuel (ethanol). Cars get about 30% better mileage on diesel than on gasoline, and cars running mainly on gasoline get about 30% better mileage than they would using 85% ethanol.

To stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel. This would add funds to the depleted federal highway trust. More importantly, it would remove an irrational tax penalty on buying diesel-powered cars -- arguably the most cost-effective way to improve mileage without reducing car size or performance.

These two proposals are a greener alternative to CAFE, because they'll work. But they'll only work if Congress totally and permanently abandons the charade of CAFE. It is arguably worthwhile to accept a modest tax increase in exchange for an end to harmful regulations, but that exchange is effective precisely because it is not painless.

Unifying fuel taxes and broadening the excise tax on gas guzzlers makes sense as an alternative to CAFE. Otherwise it's just more pain with no gain.

If politicians insist on tightening fleet average mileage standards for bankrupt auto companies, how could those rules be enforced? The only penalty for violating CAFE rules is a big fine. If consumers keep refusing to buy enough small cars from GM and Chrysler to allow them to meet the CAFE rules, how are those companies expected to pay the fines?

The government is already planning to spend about $50 billion bailing out General Motors plus $7 billion for Chrysler. Will President Barack Obama provide Detroit auto makers with even more subsidies to pay CAFE fines?

Maybe so. That would be only slightly more bizarre than current plans to bribe folks with $4,500 to sell their "clunkers," or to offer huge tax credits to those rich enough to buy a $73,000 hybrid Cadillac Escalade or an $88,000 Fisker Karma.

The bottom line is that CAFE standards are totally unenforceable and ineffective. Regardless of how much damage the rules do to GM and Chrysler, Americans can and will continue to buy big and fast vehicles from German, Japanese, Korean, Chinese and Indian car companies. CAFE standards might just be another foolhardy regulatory nuisance -- were it not for the fact that they could easily prove fatally dangerous for any auto maker overly dependent on the uniquely overregulated U.S. market.

Mr. Reynolds is a senior fellow at the Cato Institute, and the author of "Income and Wealth" (Greenwood Press, 2006).

Killing in War

Mises Daily by David Gordon

Jeff McMahan has written a genuinely revolutionary book. He has uncovered a flaw in standard just-war theory. The standard view sharply separates the morality of going to war, jus ad bellum, from the morality of warfare, jus in bello. Whether or not a war is just does not affect the morality of how war is to be conducted. Soldiers are forbidden to violate the laws of war; but no greater restrictions are imposed on those who fight in an unjust cause than on those whose cause meets the requirements of jus ad bellum. This is exactly what McMahan rejects. Soldiers in an unjust cause have, for the most part, no right at all to engage in violent action against soldiers in a just cause. Not only do they lack moral standing to engage in aggressive warfare; they cannot legitimately even engage in defensive war, in most circumstances.

McMahan states his basic thesis in this way:

The contention of this book is that common sense beliefs about the morality of killing in war are deeply mistaken. The prevailing view is that in a state of war, the practice of killing is governed by different moral principles from those that govern acts of killing in other contexts. This presupposes that it can make a difference to the moral permissibility of killing another person whether one's political leaders have declared a state of war with that person's country. According to the prevailing view, therefore, political leaders can sometimes cause other people's moral rights to disappear simply by commanding their armies to attack them. When stated in this way, the received view seems obviously absurd. (p. vii)

Once advanced, McMahan's thesis seems obvious, and it is his considerable philosophical merit to make us realize how obvious it is. Those who fight in an unjust war are, by hypothesis, directing force against people whom they have no right to attack. If, e.g., the United States had no right to invade Iraq in 2003, then American soldiers wrongly used force against Iraqi soldiers. If so, how can one contend that they are morally permitted to do so? Further, do not defenders against such aggression have the right to resist? If they do have this right, then the aggressors may not fight back, even in self-defense. If a policeman legitimately shoots at a suspect, the suspect cannot claim the right to shoot back in self-defense. McMahan holds that matters in this respect do not change in warfare.

McMahan contends further that his view is of more than merely theoretical importance. Because people accept the incorrect view that soldiers who fight in an unjust war do no wrong, so long as they obey the laws of war, they are more likely to participate in such wars. This makes wars more likely.

[Although] the idea that no one does wrong, or acts impermissibly, merely by fighting in a war that turns out to be unjust … is intended to have a restraining effect on the conduct of war, the widespread acceptance of this idea also makes it easier … to fight in war without qualms about whether the war is unjust. (p. 3)

As mentioned, it seems obvious, once stated, that those engaged in an unjust war have no right to attack others. But is it too severe a doctrine to claim that they have no right to defend themselves, if attacked by just combatants? Quite the contrary, McMahan notes that his view applies a standard position in interpersonal morality to the ethics of war:

For many centuries there has been general agreement that, as a matter of both morality and law, "where attack is justified there can be no lawful defence." These words were written by Pierino Belli in 1563 and were echoed a little over a century later by John Locke, who claimed that "Force is to be opposed to nothing, but to unjust and unlawful force." (p. 14)

McMahan is a very careful philosopher; as soon as he states a thesis, he thinks of qualifications, objections, and rebuttals. He notes an instance where unjust combatants can permissibly use force:

The exception to the claim that just combatants are illegitimate targets in war is when they pursue their just cause by impermissible means. If, for example, just combatants attempt to achieve their just cause by using terrorist tactics — that is, by intentionally killing and attacking innocent people, as the Allies did when they bombed German and Japanese cities in World War II — they make themselves morally liable to defensive attack and become legitimate targets even for unjust combatants. (p. 16)

If McMahan contends that unjust combatants are not morally permitted, in most cases, to use force, has he not placed unreasonable demands on them? They are in many cases conscripted into the armed forces and serve against their will: in fighting, they simply obey the orders of their government. If they refuse to serve, they may face severe criminal penalties. And once enemy troops fire on them, is it not unrealistic to demand that they not fire back?

But these considerations at best give unjust combatants an excuse for their conduct: they do not serve to show that what they do is morally right. Further, not all unjust combatants are conscripts; and, as to those who are, one sometimes has a moral duty to disobey unjust commands, even if doing so leads to harsh penalties.

"I was just following orders" is not always a convincing defense. And the situation for the soldiers who wish to act in accord with moral duty is not always so bleak. McMahan calls attention to the work of S.L.A. Marshall, who claimed that during World War II, "only about 15–20% of combatants had fired their weapons at all" (p. 133). Though not everyone accepts Marshall's figures, it is not in dispute that many soldiers in battle did not fight. But of course the majority of combatants were not jailed for resistance. Soldiers, then, who wish to disobey unjust orders may be able to escape penalties.

McMahan considers an objection to his thesis advanced by David Estlund. Do not soldiers in a democratic country act reasonably in relying on their government's claim that a war is just? After all, the government is likely to have much more relevant information than the soldiers and, Estlund contends, democratic decision-making has "epistemic value"; given the government's democratic bona fides, soldiers act reasonably in not attempting to assess for themselves the justice of a war.

Not so, McMahan responds.

Among democratic countries, the US stands out in two respects: it has carefully designed and robust democratic institutions and also goes to war more often than any other democratic country. What procedural guarantees are there that the wars it fights will be just? The answer is: none. The only constraint is a requirement of Congressional authorization — a requirement that can be fudged… (p. 69)[1]

McMahan is an appropriately severe critic of American foreign policy:

The Pentagon Papers revealed an assortment of lies told to rally support for the war in Vietnam; Reagan lied about the nature of the Contras and the sources of their funding in order to make war against Nicaragua; and members of the George W. Bush administration lied repeatedly about weapons of mass destruction in Iraq in order to justify the invasion and occupation of that country to the UN, the Congress, and the American public. (p. 152)[2]

Although he considers American participation in World War II justifiable, he nevertheless remarks:

It is revealing about our attitudes in general that we sometimes do take combatants who have committed war crimes to be fully excused, or even justified… Perhaps the most notorious case of this sort is that of General Paul Tibbets, who was the commander and pilot of the Enola Gay, the plane … from which the atomic bomb was dropped on the Japanese city of Hiroshima in August of 1945… This single act by Tibbets, with contributions by the other members of his small crew, had as an immediate physical effect the killing of more people, the vast majority of whom were civilians, than any other single act ever done … all plausible moral theories, including even the most radical forms of consequentialism, prohibit the killing of that many innocent people in virtually all practically possible circumstances. Tibbets's act is therefore the most egregious war crime, and the most destructive single terrorist act, ever committed, even though it was committed in the course of a just war. Yet he was congratulated for it by President Truman… (pp. 128–29)

McMahan's drastic revision of just-war theory, however cogent, appears to carry with it an unfortunate consequence. If unjust combatants use force illegitimately, are they not then subject to criminal penalties for their conduct? If we accept this consequence, the result will be large scale Nuremberg Trial proceedings: do we really want this? Further, as F.J.P. Veale long ago pointed out in Advance to Barbarism, the prospect of being tried for war crimes encourages leaders of governments to refuse to surrender.

Save 15% when you purchase all 17 of the books in this collection

Fortunately, McMahan's view does not have this consequence. What he is concerned to argue is that unjust combatants do not have the moral right to use force. It does not follow from this that they ought to be subject to criminal penalties for doing so. That is a prudential matter, and, as McMahan notes, strong considerations tell against resorting to criminal law. For one thing,

there is no impartial international court that could conduct trials of combatants who have fought in an unjust war. Because no government could try its own soldiers for fighting in a war in which it has commanded them to fight, the idea that unjust combatants are liable to punishment could lead to trials by victorious powers of individual soldiers of their defeated adversary … the victorious power that would prosecute allegedly unjust combatants would be more likely to be a vengeful aggressor prosecuting just combatants who had opposed it. (p. 190)

Further, McMahan grasps Veale's point:

Unjust combatants who feared punishment at the end of the war might be more reluctant to surrender, preferring to continue to fight with a low probability of victory than to surrender with a high probability of being punished. (pp. 190–91)

Readers unaccustomed to analytic moral philosophy may find McMahan's book hard going. He does not operate from a general theory but proceeds from case to case, weaving an intricate web of subtle distinctions.[3] The effort required to read the book, though, is well worth it: Killing in War is a distinguished contribution to moral theory.

Killing in War

Mises Daily by David Gordon

Jeff McMahan has written a genuinely revolutionary book. He has uncovered a flaw in standard just-war theory. The standard view sharply separates the morality of going to war, jus ad bellum, from the morality of warfare, jus in bello. Whether or not a war is just does not affect the morality of how war is to be conducted. Soldiers are forbidden to violate the laws of war; but no greater restrictions are imposed on those who fight in an unjust cause than on those whose cause meets the requirements of jus ad bellum. This is exactly what McMahan rejects. Soldiers in an unjust cause have, for the most part, no right at all to engage in violent action against soldiers in a just cause. Not only do they lack moral standing to engage in aggressive warfare; they cannot legitimately even engage in defensive war, in most circumstances.

McMahan states his basic thesis in this way:

The contention of this book is that common sense beliefs about the morality of killing in war are deeply mistaken. The prevailing view is that in a state of war, the practice of killing is governed by different moral principles from those that govern acts of killing in other contexts. This presupposes that it can make a difference to the moral permissibility of killing another person whether one's political leaders have declared a state of war with that person's country. According to the prevailing view, therefore, political leaders can sometimes cause other people's moral rights to disappear simply by commanding their armies to attack them. When stated in this way, the received view seems obviously absurd. (p. vii)

Once advanced, McMahan's thesis seems obvious, and it is his considerable philosophical merit to make us realize how obvious it is. Those who fight in an unjust war are, by hypothesis, directing force against people whom they have no right to attack. If, e.g., the United States had no right to invade Iraq in 2003, then American soldiers wrongly used force against Iraqi soldiers. If so, how can one contend that they are morally permitted to do so? Further, do not defenders against such aggression have the right to resist? If they do have this right, then the aggressors may not fight back, even in self-defense. If a policeman legitimately shoots at a suspect, the suspect cannot claim the right to shoot back in self-defense. McMahan holds that matters in this respect do not change in warfare.

McMahan contends further that his view is of more than merely theoretical importance. Because people accept the incorrect view that soldiers who fight in an unjust war do no wrong, so long as they obey the laws of war, they are more likely to participate in such wars. This makes wars more likely.

[Although] the idea that no one does wrong, or acts impermissibly, merely by fighting in a war that turns out to be unjust … is intended to have a restraining effect on the conduct of war, the widespread acceptance of this idea also makes it easier … to fight in war without qualms about whether the war is unjust. (p. 3)

As mentioned, it seems obvious, once stated, that those engaged in an unjust war have no right to attack others. But is it too severe a doctrine to claim that they have no right to defend themselves, if attacked by just combatants? Quite the contrary, McMahan notes that his view applies a standard position in interpersonal morality to the ethics of war:

For many centuries there has been general agreement that, as a matter of both morality and law, "where attack is justified there can be no lawful defence." These words were written by Pierino Belli in 1563 and were echoed a little over a century later by John Locke, who claimed that "Force is to be opposed to nothing, but to unjust and unlawful force." (p. 14)

McMahan is a very careful philosopher; as soon as he states a thesis, he thinks of qualifications, objections, and rebuttals. He notes an instance where unjust combatants can permissibly use force:

The exception to the claim that just combatants are illegitimate targets in war is when they pursue their just cause by impermissible means. If, for example, just combatants attempt to achieve their just cause by using terrorist tactics — that is, by intentionally killing and attacking innocent people, as the Allies did when they bombed German and Japanese cities in World War II — they make themselves morally liable to defensive attack and become legitimate targets even for unjust combatants. (p. 16)

If McMahan contends that unjust combatants are not morally permitted, in most cases, to use force, has he not placed unreasonable demands on them? They are in many cases conscripted into the armed forces and serve against their will: in fighting, they simply obey the orders of their government. If they refuse to serve, they may face severe criminal penalties. And once enemy troops fire on them, is it not unrealistic to demand that they not fire back?

But these considerations at best give unjust combatants an excuse for their conduct: they do not serve to show that what they do is morally right. Further, not all unjust combatants are conscripts; and, as to those who are, one sometimes has a moral duty to disobey unjust commands, even if doing so leads to harsh penalties.

"I was just following orders" is not always a convincing defense. And the situation for the soldiers who wish to act in accord with moral duty is not always so bleak. McMahan calls attention to the work of S.L.A. Marshall, who claimed that during World War II, "only about 15–20% of combatants had fired their weapons at all" (p. 133). Though not everyone accepts Marshall's figures, it is not in dispute that many soldiers in battle did not fight. But of course the majority of combatants were not jailed for resistance. Soldiers, then, who wish to disobey unjust orders may be able to escape penalties.

McMahan considers an objection to his thesis advanced by David Estlund. Do not soldiers in a democratic country act reasonably in relying on their government's claim that a war is just? After all, the government is likely to have much more relevant information than the soldiers and, Estlund contends, democratic decision-making has "epistemic value"; given the government's democratic bona fides, soldiers act reasonably in not attempting to assess for themselves the justice of a war.

Not so, McMahan responds.

Among democratic countries, the US stands out in two respects: it has carefully designed and robust democratic institutions and also goes to war more often than any other democratic country. What procedural guarantees are there that the wars it fights will be just? The answer is: none. The only constraint is a requirement of Congressional authorization — a requirement that can be fudged… (p. 69)[1]

McMahan is an appropriately severe critic of American foreign policy:

The Pentagon Papers revealed an assortment of lies told to rally support for the war in Vietnam; Reagan lied about the nature of the Contras and the sources of their funding in order to make war against Nicaragua; and members of the George W. Bush administration lied repeatedly about weapons of mass destruction in Iraq in order to justify the invasion and occupation of that country to the UN, the Congress, and the American public. (p. 152)[2]

Although he considers American participation in World War II justifiable, he nevertheless remarks:

It is revealing about our attitudes in general that we sometimes do take combatants who have committed war crimes to be fully excused, or even justified… Perhaps the most notorious case of this sort is that of General Paul Tibbets, who was the commander and pilot of the Enola Gay, the plane … from which the atomic bomb was dropped on the Japanese city of Hiroshima in August of 1945… This single act by Tibbets, with contributions by the other members of his small crew, had as an immediate physical effect the killing of more people, the vast majority of whom were civilians, than any other single act ever done … all plausible moral theories, including even the most radical forms of consequentialism, prohibit the killing of that many innocent people in virtually all practically possible circumstances. Tibbets's act is therefore the most egregious war crime, and the most destructive single terrorist act, ever committed, even though it was committed in the course of a just war. Yet he was congratulated for it by President Truman… (pp. 128–29)

McMahan's drastic revision of just-war theory, however cogent, appears to carry with it an unfortunate consequence. If unjust combatants use force illegitimately, are they not then subject to criminal penalties for their conduct? If we accept this consequence, the result will be large scale Nuremberg Trial proceedings: do we rally want this? Further, as F.J.P. Veale long ago pointed out in Advance to Barbarism, the prospect of being tried for war crimes encourages leaders of governments to refuse to surrender.

Save 15% when you purchase all 17 of the books in this collection

Fortunately, McMahan's view does not have this consequence. What he is concerned to argue is that unjust combatants do not have the moral right to use force. It does not follow from this that they ought to be subject to criminal penalties for doing so. That is a prudential matter, and, as McMahan notes, strong considerations tell against resorting to criminal law. For one thing,

there is no impartial international court that could conduct trials of combatants who have fought in an unjust war. Because no government could try its own soldiers for fighting in a war in which it has commanded them to fight, the idea that unjust combatants are liable to punishment could lead to trials by victorious powers of individual soldiers of their defeated adversary … the victorious power that would prosecute allegedly unjust combatants would be more likely to be a vengeful aggressor prosecuting just combatants who had opposed it. (p. 190)

Further, McMahan grasps Veale's point:

Unjust combatants who feared punishment at the end of the war might be more reluctant to surrender, preferring to continue to fight with a low probability of victory than to surrender with a high probability of being punished. (pp. 190–91)

Readers unaccustomed to analytic moral philosophy may find McMahan's book hard going. He does not operate from a general theory but proceeds from case to case, weaving an intricate web of subtle distinctions.[3] The effort required to read the book, though, is well worth it: Killing in War is a distinguished contribution to moral theory.

Obama's Radicalism Is Killing the Dow

A financial crisis is the worst time to change the foundations of American capitalism.

MICHAEL J. BOSKIN

It's hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.

Martin Kozlowski

The illusion that Barack Obama will lead from the economic center has quickly come to an end. Instead of combining the best policies of past Democratic presidents -- John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance -- President Obama is returning to Jimmy Carter's higher taxes and Mr. Clinton's draconian defense drawdown.

Mr. Obama's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents -- from George Washington to George W. Bush -- combined. It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP). And all of this before addressing the impending explosion in Social Security and Medicare costs.

To be fair, specific parts of the president's budget are admirable and deserve support: increased means-testing in agriculture and medical payments; permanent indexing of the alternative minimum tax and other tax reductions; recognizing the need for further financial rescue and likely losses thereon; and bringing spending into the budget that was previously in supplemental appropriations, such as funding for the wars in Iraq and Afghanistan.

The specific problems, however, far outweigh the positives. First are the quite optimistic forecasts, despite the higher taxes and government micromanagement that will harm the economy. The budget projects a much shallower recession and stronger recovery than private forecasters or the nonpartisan Congressional Budget Office are projecting. It implies a vast amount of additional spending and higher taxes, above and beyond even these record levels. For example, it calls for a down payment on universal health care, with the additional "resources" needed "TBD" (to be determined).

Mr. Obama has bravely said he will deal with the projected deficits in Medicare and Social Security. While reform of these programs is vital, the president has shown little interest in reining in the growth of real spending per beneficiary, and he has rejected increasing the retirement age. Instead, he's proposed additional taxes on earnings above the current payroll tax cap of $106,800 -- a bad policy that would raise marginal tax rates still further and barely dent the long-run deficit.

Increasing the top tax rates on earnings to 39.6% and on capital gains and dividends to 20% will reduce incentives for our most productive citizens and small businesses to work, save and invest -- with effective rates higher still because of restrictions on itemized deductions and raising the Social Security cap. As every economics student learns, high marginal rates distort economic decisions, the damage from which rises with the square of the rates (doubling the rates quadruples the harm). The president claims he is only hitting 2% of the population, but many more will at some point be in these brackets.

As for energy policy, the president's cap-and-trade plan for CO2 would ensnare a vast network of covered sources, opening up countless opportunities for political manipulation, bureaucracy, or worse. It would likely exacerbate volatility in energy prices, as permit prices soar in booms and collapse in busts. The European emissions trading system has been a dismal failure. A direct, transparent carbon tax would be far better.

Moreover, the president's energy proposals radically underestimate the time frame for bringing alternatives plausibly to scale. His own Energy Department estimates we will need a lot more oil and gas in the meantime, necessitating $11 trillion in capital investment to avoid permanently higher prices.

The president proposes a large defense drawdown to pay for exploding nondefense outlays -- similar to those of Presidents Carter and Clinton -- which were widely perceived by both Republicans and Democrats as having gone too far, leaving large holes in our military. We paid a high price for those mistakes and should not repeat them.

The president's proposed limitations on the value of itemized deductions for those in the top tax brackets would clobber itemized charitable contributions, half of which are by those at the top. This change effectively increases the cost to the donor by roughly 20% (to just over 72 cents from 60 cents per dollar donated). Estimates of the responsiveness of giving to after-tax prices range from a bit above to a little below proportionate, so reductions in giving will be large and permanent, even after the recession ends and the financial markets rebound.

A similar effect will exacerbate tax flight from states like California and New York, which rely on steeply progressive income taxes collecting a large fraction of revenue from a small fraction of their residents. This attack on decentralization permeates the budget -- e.g., killing the private fee-for-service Medicare option -- and will curtail the experimentation, innovation and competition that provide a road map to greater effectiveness.

The pervasive government subsidies and mandates -- in health, pharmaceuticals, energy and the like -- will do a poor job of picking winners and losers (ask the Japanese or Europeans) and will be difficult to unwind as recipients lobby for continuation and expansion. Expanding the scale and scope of government largess means that more and more of our best entrepreneurs, managers and workers will spend their time and talent chasing handouts subject to bureaucratic diktats, not the marketplace needs and wants of consumers.

Our competitors have lower corporate tax rates and tax only domestic earnings, yet the budget seeks to restrict deferral of taxes on overseas earnings, arguing it drives jobs overseas. But the academic research (most notably by Mihir Desai, C. Fritz Foley and James Hines Jr.) reveals the opposite: American firms' overseas investments strengthen their domestic operations and employee compensation.

New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president's budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government.

From the poorly designed stimulus bill and vague new financial rescue plan, to the enormous expansion of government spending, taxes and debt somehow permanently strengthening economic growth, the assumptions underlying the president's economic program seem bereft of rigorous analysis and a careful reading of history.

Unfortunately, our history suggests new government programs, however noble the intent, more often wind up delivering less, more slowly, at far higher cost than projected, with potentially damaging unintended consequences. The most recent case, of course, was the government's meddling in the housing market to bring home ownership to low-income families, which became a prime cause of the current economic and financial disaster.

On the growth effects of a large expansion of government, the European social welfare states present a window on our potential future: standards of living permanently 30% lower than ours. Rounding off perceived rough edges of our economic system may well be called for, but a major, perhaps irreversible, step toward a European-style social welfare state with its concomitant long-run economic stagnation is not.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

Obama, Stop Killing Job Creation

Obama, Stop Killing Job Creation

by Donald Lambro

WASHINGTON -- There are two fundamentally entrenched sides in the debate over the best way to get the American economy growing again.

One is to spend nearly $1 trillion (including interest on the debt) through hundreds of federal, state and local government programs and hope the increased spending will create enough new jobs in the public and private sectors to breathe new life into the economy.

The other is to let people and businesses keep more of the money they earn through lower income tax rates to further strengthen incentives to work, spend, invest and enter risk-taking capital ventures that will produce new wealth and prosperity.

President Obama is promoting the former in the belief that nothing else can work, though he cannot point to a single instance where government spending lifted an economy out of a recession.

Republicans, supply-side tax cutters and free-enterprise economists support the latter approach, and can point to examples where it has worked every time it has been tried.

The American people, God bless them, believe the tax-cutting approach would be far more successful in turning the economy around than giving government bureaucrats hundreds of billions of dollars to spend on the agencies they work for and thus swell the size and cost of government and feather their own nest.

That's what the Pew Research Center for the People & the Press found out in a recent poll of more than 1,300 Americans.

"In principle, more Americans say that tax cuts for individuals and businesses -- rather than spending on programs and infrastructure projects -- will do more right now to stimulate the economy and create jobs," according to Pew.

"Nearly half (48 percent) say tax cuts will do more for the economy, while 39 percent views government spending as more effective," the polling organization said. Notably, Democrats are narrowly split on the issue, with 41 percent for tax cuts and 47 percent for spending.

President Obama, take note.

As I have reported in previous columns, public support for the $800 billion stimulus-spending package has fallen. Despite the full-court press by the Obama administration, its powerful campaign apparatus and assorted special-interest groups, more Americans are now in the tax-cut camp even though the president maintains they do not work.

Here's what Obama said in last week's White House news conference:

"But as we've learned very clearly and conclusively over the last eight years, tax cuts alone can't solve all of our economic problems -- especially tax cuts that are targeted to the wealthiest few Americans. We have tried that strategy time and time again, and it's only helped lead us to the crisis we face right now," he said.

President Obama is wrong. In fact, there have been three times that sweeping income tax cuts have been enacted in the past 50 years to revive the economy in the face of economic slowdowns or recessions, and they have worked every time.

"We have indeed cut taxes 'time and time again,' and economic history proves that it works," says Republican economic strategist Cesar Conda in an analysis for Politico.com.

There were the tax-rate cuts under President Kennedy in 1963 and President Reagan in 1981. In "both cases, the economy boomed, private-sector jobs were created, and the so-called 'wealthy' ended up paying a higher share of the total tax burden," Conda said.

And let's not forget the incredibly well-timed across-the-board tax cuts and the reduced rates on capital gains and dividends under President Bush in 2001. They helped the economy come out of the dot-com decline and weather the economic storm that followed the Sept. 11 terrorist attacks. They resulted in six years of modest yet uninterrupted economic growth and the creation of 8 million new private-sector jobs before the subprime-mortgage calamity triggered the current recession.

Obama's claim on nationwide television that tax cuts -- "especially tax cuts that are targeted to the wealthiest few Americans" -- led us into "the crisis we face right now" is preposterous on its face.

It is interesting that he has postponed raising taxes on the wealthy until the economy is out of its recession because his advisers told him that "this is no time to be raising taxes on anyone." Even the rich contribute to the economy's health and well-being.

No one is saying that tax cuts alone can put a massive $14 trillion economy back on its feet. There is a need to help the unemployed and reinforce the social safety net and strengthen other vital arteries in the nation's financial system. But we also need to unleash the market forces that have made America the most prosperous nation on Earth.

This is no time to be sucking another $1 trillion out of the economy and drying up precious investment capital that is needed for credit expansion and business rehabilitation and revival. This is also no time to be imposing wage and price controls that have never worked and that have always led to unintended consequences.

At times, it seems the administration is doing everything it can right now to prevent jobs from being created. Last week's order to rescind plans to open up oil fields in the Gulf of Mexico for further exploration and drilling killed a lot of good-paying jobs. Is this the change they're talking about?