Archive for the 'Politics' Category

Why The Debt Ceiling Matters

A number of commenters (at least one here and several elsewhere) have asked why we need a debt ceiling. If the Congress wants to spend less, why don’t they just go ahead and spend less?

The answer is that different spending programs command different majorities. Snip and Snap vote to fund rabbit hospitals; Snap and Snurr vote to fund trapeze subsidies; Snurr and Snip vote to fund lava lamp research. Plausibly, they’d all prefer to eliminate all these programs. Even if Snap thinks rabbit hospitals and trapeze subsidies are both great bargains, he might not be so happy about getting two for the price of three.

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How High Should Taxes Be?

How high should taxes be? High enough to cover expected outlays going forward — but no higher.

That’s because any additional revenue would be used to pay down the federal debt, which is a bad idea. It was almost surely a mistake to run up this much debt in the first place, but now that we’ve got it, the best thing to do is to keep it forever.

Here’s why:

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Your President Hopes You’re Stupid

Joe Biden says that Mitt Romney has lied about Jeep and outsourcing; Romney intimates that President Obama has lied about Libya. I presume there’s been substantial truth-stretching on both sides and about many issues. Truth-stretching (or lying) relies on the ignorance of voters. There’s plenty of ignorance to go around, which is why truth-stretching works.

Treating voters as ignorant is one thing; treating them as stupid is quite another. You rely on ignorance when you cite “facts” that are hard for people to check — as, for example, when the President presents himself as sympathetic to immigrants and hopes you don’t know about the record number of deportations on his watch. You rely on stupidity when you blithely contradict yourself, hoping nobody will notice. The latter seems far more cynical.

I’m sure both candidates have been guilty of treating voters as both ignorant and stupid, and I called attention to several instances (on both sides) in my commentary on Debates One, Two and Three. But it does seem to me that it’s the President who is banking most heavily on voter stupidity.

A few examples:

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The Mourdock Platform

Richard Mourdock, Indiana Senate candidate, has announced his opposition to interference with God’s revealed intent. I presume, then, that he’ll be taking a principled stand against firefighting, medical intervention, federal debt reduction, and unseating incumbent Presidents.

Update: Mourdock now clarifies his position by saying that “God does not want rape”. I’d thought he was saying that if a pregnancy occurs, God must have wanted it, which would seem to be an instance of the general principle that if anything occurs, God must have wanted it. Now we’re told that there is no such general principle — from which I am left to conclude that the only way to tell what God wants is to ask Richard Mourdock. This is a logically consistent criterion, but what if, for example, Mourdock happens to be indisposed at the moment when, say, terrorists attack the White House? How will we know whether it’s okay to resist?

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Debate Number Three

Limited commentary this time, partly because I am no expert on foreign policy so there’s no reason you should care about most of my opinions. On the other hand, the candidates had an exceptionally broad definition of foreign policy, which included trade, deficits, unemployment, education, etc. Commentary also limited by the fact that my attention wandered from time to time.

That said, here are my comments, typed in real time, unedited, not carefully thought through, perhaps in some cases ill-advised:

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Second Debate

My wife, who really ought to have her own blog, heard only the few minutes dealing with immigration and then China and summed up the candidates’ shared position as “We sure love immigrants, but we sure hate foreigners”.

I, by contrast, slogged through the entire thing. Here are my own less brilliant comments, typed in real time while watching the debate; not edited and perhaps in some cases not sufficiently thought through:

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Krugman — So Right and So Wrong

Paul Krugman offers a nice thought experiment to illustrate why government debt, in and of itself, does not make the country as a whole any poorer:

Suppose that … President Santorum passes a constitutional amendment requiring that from now on, each American whose name begins with the letters A through K will receive $5,000 a year from the federal government, with the money to be raised through extra taxes. Does this make America as a whole poorer?

The obvious answer is not, at least not in any direct sense. We’re just making a transfer from one group (the L through Zs) to another; total income isn’t changed. Now, you could argue that there are indirect costs because raising taxes distorts incentives. But that’s a very different story.

OK, you can see what’s coming: a debt inherited from the past is, in effect, simply a rule requiring that one group of people — the people who didn’t inherit bonds from their parents — make a transfer to another group, the people who did. It has distributional effects, but it does not in any direct sense make the country poorer.

Two comments:

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The Great Debate

Okay, I watched the debate —- and jotted down responses as I watched. These jottings were made in real time while trying to listen to the candidates, and are, I’m sure, in many cases, not as well thought out as they ought to be. But here they are, unedited:

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Stopped Clocks

Paul Krugman gets this one exactly right; among the 47% of Americans who pay no federal income tax in a given year, most do pay federal income tax at some point in their lives — and thus have at least some stake in the tax system.

But even putting that aside, what’s particularly distressing about Mitt Romney’s “47%” speech is the failure to recognize at least one of the following two propositions:

a) Even people who never pay federal income tax have a substantial personal stake in a healthy, thriving economy, and therefore have a stake in federal tax policy. In particular, wages are determined by productivity, and productivity depends to a substantial extent on the accumulation of capital, which can be directly influenced by tax policy.

b) It is possible for a skilled candidate to explain the above, and to sell pro-growth tax policies as pro-wage-earner tax policies.

Yes, the candidate who tries to make such a reasoned case will be the victim of a certain amount of demagoguery about “trickle-down economics”, but the candidate who allows himself to be paralyzed by such threats should not be running for president.

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Playing the Dunce

This morning I heard President Obama call for universities to lower their tuition rates so that “everybody in America can go to college”.

I am virtually certain that the President is not stupid enough to think that if tuition rates fell to zero, there would magically be enough room in the colleges for everybody in America. So I’ve got to believe that he’s purposely saying stupid things in order to appeal to stupid voters — the sort of voters, in other words, who probably don’t belong in college.

To believe what the President wants you to believe, you’d have to be not just stupid but badly misinformed. At the University where I teach, we do not lack for applicants. The reason we don’t have more students is not that they can’t afford us; it’s that we don’t have room for them.

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The Final Night

— Thank God for the hurricane; I don’t think I could have taken four nights of this.

— Off to a weak start tonight with Connie Mack mouthing platitudes and the Gingriches not adding much.

— Jeb Bush should have been the nominee. In fact, he should have been the nominee back in 2000. He was great tonight.

— It is heartening to see Bush, Condi Rice and others pushing education to the forefront. Rice called it the civil rights issue of our time. Me, I’d rank it second after immigration.

— Too damned many musical interludes.

— I feel like it’s my job to be cynical about the tearjerker stories, but I have to admit they were very effective.

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I Brag and Chant (and Complain a Bit) of Ryan, Ryan, Ryan, Ryan

Notes from the second night of the convention:

— What follows will be in more or less chronological order, except that I want to say upfront that Condi Rice gave one of the greatest political speeches in American history, and if you didn’t see it, you should scroll most of the way down this post and watch the video right now. (And no, that does not mean I agree with everything she said.)

— It took Cathy McMorris Rodgers less than 30 seconds to segue from “We will send every American to college” to “We will shrink the role of government”. This is the kind of thing that makes people hold Republicans in well-deserved contempt.

— Rand Paul lived up to my almost impossibly high expectations. He was superb:

— Rob Portman was good, on both substance and presentation. He did commit the sin of defending free trade as a boon to producers, as if consumers were nothing more than potted plants, but that’s only a sin of omission, and I don’t think it’s fair to expect too much depth in a ten minute convention speech. What he did say was spot on:

— There were far far too many musical interludes.

— Did I mention far too many musical interludes?

— Unlike Paul and Portman, Tim Pawlenty relies almost entirely on substance-free one-liners. He leaves me feeling dirty.

— Mike Huckabee, like Pawlenty, starts off largely substance-free and often negative, but pulls it off better because he’s more likable. Then he moves on to big themes, hits them well, and comes off lofty. He’s one of the best orators in American politics:

— I keep hearing, from speaker after speaker, that if you’ve been successful through study, hard work and risk-taking, then “you built it”, and therefore deserve your success. Okay. But it’s also true that if you’ve been successful through study, hard work and risk-taking, you probably had the good fortune of being born into a family that encouraged study, hard work and risk-taking. Not everyone has that good fortune, and it would be nice to hear that acknowledged.

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Report Card

Here, for what it’s worth (and I’m sure it’s not worth much) are the grades I assigned to last night’s speakers. These are primarily for presentation, not content. They’re mostly quite high, which is unsurprising because of course these people were chosen largely for their skill as presenters. I’m sure that some of them would have gotten different grades if they’d spoken a half hour earlier or later, when I was worse or better fed. I am not prepared to defend these grades terribly vigorously, but maybe they’ll provoke some interesting discussion:

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Conventional Wisdom

I became a lifelong political convention junkie in 1972, the year that George McGovern secured the nomination with a brilliantly executed ploy that nobody saw coming until it was over, and that even the sainted Walter Cronkite mistakenly reported as a disaster.

I was 18 years old. Most of the Democratic convention was held in the wee hours of the morning, and I went sleepless following the battle on black and white TV, jumping up every few minutes to twirl the dial to another network. All realtime analysis came from the anchormen, and at the crucial moment, the anchormen had no idea what was happening.

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In the Matter of Todd Akin

So there I was, putting together a long post on the fabric of the Universe, when Todd Akin came along and seemed to demand at least some brief commentary. A few remarks on that, and I’ll get back to the rest of the Universe in a day or two:

1) The exact quote, in response to a question about pregnancies resulting from rape, is: ““It seems to me, from what I understand from doctors, that’s really rare. If it’s a legitimate rape, the female body has ways to try to shut that whole thing down. But let’s assume that maybe that didn’t work or something: I think there should be some punishment, but the punishment ought to be of the rapist, and not attacking the child.”

2) It seems to me, from what I understand from news sources, that the female body does not in fact have ways of recognizing rape and preventing conception. I have absolutely no expertise in this matter; therefore my understanding might be wrong. Nevertheless, I’m happy to pass that understanding along.

3) It also seems to me that the phrase “from what I understand from doctors” says, in effect, “I am not an expert, so this might be wrong, but here’s what I’ve heard”. It is not unreasonable for people to make statements like this. In fact, I did it myself, just one paragraph back.

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Charting the Tax Plans

Ezra Klein, quoted with approval by Paul Krugman, offers this chart of how the Obama and Romney tax proposals will change rates for taxpayers in various quintiles:

What we’re supposed to infer, according to Krugman, is that

we have an election in which one candidate is proposing a redistribution from the top … downward, mainly to lower-income workers, while the other is proposing a large redistribution from the poor and the middle class to the top.

But no such thing is remotely true. What we actually have is an election in which both candidates are proposing massive redistributions from the top downward, one slightly less so than the other. You’d never know this from looking at Klein’s chart because it illustrates changes in rates, whereas what actually matters is the rates themselves. It makes no sense to ask whether any particular group ought to be paying more or less without reference to how much they’re already paying.

Indeed, this is a classic example of what I once called the “Grandfather Fallacy” — by focusing on changes instead of absolutes, Klein’s chart conceals any existing inequities and hence treats them as “grandfathered in”.

Fortunately, Greg Mankiw has provided the numbers that allow us to make the requisite correction. Here, according to Mankiw, are the current tax burdens on various income groups (counting transfers as negative taxes, as of course one should):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

That “-301 percent” means, for example, that a typical family in the bottom quintile receives $3.01 in net transfers for every $1 that it earns.

By adding these numbers to the numbers in Klein’s graph, we can construct a picture that actually depicts something interesting, namely the projected tax burdens for each group. It looks like this (the vertical axis represents percentage of income):

Note, for example, that, contrary to the impression you might have gotten from Klein’s and Krugman’s posts, both plans place the highest percentage burden on the top 1%, and both plans place a negative burden on the middle quintile — though Obama’s does both of these things to an ever-so-slightly greater extent than Romney’s does. There’s room for disagreement about which plan is fairer, but no room, I think, for disagreement about which chart is relevant.

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In the News

As long as we have anything like traditional marriage, I believe that restricting it to heterosexual couples is an exceptionally bad and stupid policy, laced with unnecessary cruelty. It is not, however, an issue that is likely ever to affect my vote, because so much else dwarfs its importance. Legalizing gay marriage would make life substantially better for a few million people of the wealthiest people in the world (i.e. Americans) and is therefore a good thing, but if I’m going to pick my battles, I’ll cast my lot with, say, the tens or hundreds of millions of Third Worlders who are relegated to dire poverty by American trade and immigration restrictions. I’ll take the homophobic free trader over the protectionist crusader for sexual equality every single time.

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Frankly Speaking

Here’s something curious about this year’s political rhetoric: The Republican candidates claim that President Obama has made things worse, while he claims he’s made things better.

You might not think that’s a hard thing to explain. If so, I conclude that you are not Robert Frank, who keeps reminding us via his New York Times column (this one for example) that in many circumstances people care less about their absolute economic well-being than about their place in the pecking order. According to Frank, we buy big homes and fast cars not because we like big homes and fast cars, but because we like our homes and cars to be bigger and faster than our neighbors’. This in turn calls for a tax increase to tamp down that wasteful arms race.

But here’s the thing: Each of us has pretty good information on how we ourselves are doing. When politicians say the economy is doing poorly, they’re mostly informing us that other people are doing poorly. If Frank is right, we’ll consider that good news and (if we believe the news to be accurate) reward the incumbent who brought everyone else down. In other words, is Frank is right, then President Obama’s best strategy is to take credit for a disastrous economy, while his Republican opponents should argue that in fact we’re in the midst of a strong recovery.

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Wisdom from the Ivy League

Greg Mankiw’s four principles of tax reform are extraordinarily wise, and I think it’s fair to say that almost everyone who has thought hard about these issues will agree with everything he says.

I have only one quibble, and that’s that Greg is very sure we should eliminate the mortgage interest deduction in accordance with his first principle: “Broaden the Base and Lower Rates”. I think we should maybe keep it in accordance with his second principle: “Tax Consumption Rather than Income”. (Though I certainly agree that after the second principle has been implemented, it will be time for the mortgage interest deduction to go.)

How sad that so much wisdom is sure to go unheeded.

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Ranking the Tax Plans

This post is a first attempt to rank the efficiency of the Republican candidates’ tax plans, concentrating on six dimensions:

1) The tax rate on wages and/or consumption. A wage tax and a consumption tax are pretty much interchangeable; you can tax the money as it comes in or you can tax it as it goes out. So I’m treating this as one category. The “right” level for this tax depends on your forecasts for future government spending.

2,3,4,5 and 6) The tax rates on dividends, interest, capital gains, corporate incomes and estates. I believe these tax rates should all be zero. That is not a statement about how progressive the tax system should be. A wage tax and/or a consumption tax can be as progressive (or regressive) as you like. It is instead a statement that while all taxes discourage both work and risk-taking, capital taxes have the added disadvantage that the discourage saving. This simple intuition is confirmed by much of the public finance literature of the past 25 years. (Here is a good example.)

My personal preference is for a system substantially less progressive than the one we’ve got, but for purposes of this exercise I won’t penalize candidates whose preferences differ from mine. For the record, Romney, Huntsman and Santorum are the three who (as far as I can tell) want to maintain substantial progressivity, with Romney, uniquely among the candidates, preferring even more progressivity than we currently have.

Here, then, is a chart, with candidates ranked roughly in order of their willingness to exempt capital income from taxation. I prepared this chart with a few quick Google searches (this is a blog post, not a journal article) and it probably contains errors. I’ll be glad for (documentable) corrections and will update the chart as they come in. Asterisks refer to further explanations, which you’ll find below the fold.

If we care about efficiency, we’re looking for zeroes in the last five columns. On the face of it, Johnson is the clear winner. But Cain’s 9/9/9 plan has two arguments in its favor that don’t appear on this chart. First of all, people are a lot less likely to bother evading one of three 9% taxes than a single 23% tax; therefore we’d have a lot fewer evasion problems under Cain than under Johnson. Second, it’s pretty easy to imagine Congress raising a 23% tax to 24% or 25% or 26%, but it’s a little harder to break the psychological barrier of single-digit tax rates, so Cain’s 9/9/9 might be more politically stable than Johnson’s 23. Therefore I’m calling this a tie between Johnson and Cain.

But the top six are all pretty good, except maybe for Paul, who hasn’t revealed his key number. Santorum is bad, Romney is atrocious, and Bachmann (who, as far as I can tell, has not bothered to release a tax plan) is an enigma.

Some explanations:

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Death And Taxes

Herewith my remarks about the estate tax (with particular reference to its effects on the very rich, and why we should care) to Congressional staffers, presented a couple of days ago under the auspices of the American Family Business Institute. Here is higher quality video. Here is the even higher quality YouTube version. Here is video of the entire event. I particularly recommend the first talk, by Stephen Entin.

Note that all of my remarks apply equally well to all forms of capital taxation. Entin did a better job of focusing on the particular shortcomings of the estate tax.

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Why Not Bob Dole?

So Mitt Romney wants to exempt capital gains from taxation — but only for taxpayers who earn less than $200,000 a year. In Tuesday night’s debate, Newt Gingrich asked him (I’m paraphrasing) “Why the cap?”. Romney’s answer — that he’s looking out for the middle class because “the rich can take care of themselves” — was as incoherent as anything I’ve heard this election year.

Here’s why:

I interpret Romney’s answer to mean that he wants to cut capital gains rates not on efficiency grounds, not on supply side grounds, and not on philosophical grounds, but on redistributionist grounds. Well, okay, I myself don’t think very much of redistribution as a primary driver of tax policy, but Romney and I can disagree on that one. But where the incoherence comes in is this: If your goal is to redistribute from the rich to the middle class, why on earth would you do it by cutting the capital gains tax, as opposed to lowering income tax rates in the middle and raising them at the top?

To put this another way: If you care about efficiency, you’ll want to cut the capital gains rate to zero for everyone. If you care about fairness, and if you believe fairness mitigates against double/triple/quadruple taxation, you’ll still want to cut the capital gains rate to zero for everyone. If you care about redistribution, you’ll want to juggle the tax brackets. But I can’t think of a single thing you could care about that would lead you to laser in on cutting capital gains rates for middle income taxpayers only.

Now it might be that somewhere in Romney’s 59 point economic plan there’s an answer to this. If so, Herman Cain was surely right when he intimated that Romney himself can’t be terribly familiar with the contents of that plan. Because, when asked a simple question about the justification, Romney wasn’t able to come anywhere close to making sense.

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Stopped Clocks

Incidentally, Paul Krugman made an incisive point last week when he wrote:

Here’s a question I haven’t seen asked: If fear of future regulations and taxes is holding business back, as everyone on the right asserts, why didn’t the Republican victory in the midterms set off a surge in employment?

After all, if you really believed that fears of Obamanite socialism were the key factor depressing employment, the GOP victory — with the clear possibility that the party will take the Senate and maybe the White House next year — should greatly reduce those fears. So, where’s the hiring surge?

I even set out to write a blogpost citing this argument with approval — but around the time I was composing it, Krugman followed up with this bit of idiocy, to which a response seemed more urgent.

Now that that’s out of the way, I can come back to the bit about the missing Boehner Boom. It’s a more-than-fair question. How would you respond to it?

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There He Goes Again

Paul Krugman’s latest venture into self-parody starts with a recent paper on the cost of air pollution, which finds that said costs are big and heavily concentrated in a few industries. Krugman then links to a New York Times article surveying Rick Perry’s past clashes with the EPA. With no further argument, he concludes that

Today’s American right doesn’t believe in externalities, or correcting market failures; it believes that there are no market failures, that capitalism unregulated is always right. Faced with evidence that market prices are in fact wrong, they simply attack the science.

Where to begin?

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Thursday Puzzle and More

Yesterday’s post on taxation generated a whole lot of comments that deserve responses; unfortunately I’m too swamped right now to respond. Worse yet, I’ll be out of town — and probably not blogging — for the next few days. Sometime next week, I’ll try to craft a new blogpost addressing much of what was said in those comments.

Meanwhile, here, courtesy of our frequent and invariably interesting commenter Mike H, is a puzzle to keep you busy while I’m gone:

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The Romney Plan

I have not read or even skimmed Mitt Romney’s 160-page economic plan; all I know is what I’ve seen in the headlines. So all of this is subject to revision. But:

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Krugman Followup

What I like about people in academics is that when we disagree, we actually care about figuring out who’s right — and therefore we have a tendency to reach consensus, though it can take a while.

Anybody who blogs often enough (very much not excluding yours truly) is occasionally going to post something that, at least as written if not as intended, is objectively plain flat out wrong. Paul Krugman did that a couple of days ago, I responded, he’s responded to my response, and at least 4/5 of our disagreement is now resolved. That’s exactly as it should be.

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Jesus Christ!

Kathleen Kennedy Townsend, writing in the Atlantic, has figured out that Jesus Christ wants you to be a Democrat. There are, you see, 2500 passages in the New Testament that call on us to care about other people. Rick Perry (and presumably others of his Republican ilk) ignores those passages, according to Ms. Townsend, when he voices “concerted opposition to government social programs”.

Now, of course Rick Perry is no more concertedly opposed to government social programs than is Kathleen Kennedy Townsend; instead, they disagree about how those programs should be structured and how extensive they should be. Not even Ms. Townsend (unless she is an even greater lunatic than she appears to be) believes that such programs should be unlimited, so her disagreement with Rick Perry is largely over where to draw the lines. Somewhere in those 2500 New Testament passages, she’s managed to discern an endorsement for her own preferred lines over Governor Perry’s. Quite a discerning reader she must be.

But it gets worse: According to Ms. Townsend’s reading of the Bible, we ought to “use all the tools we have at hand to help the poor, the sick and the hungry” — and I’m guessing that’s not someplace Kathleen Kennedy Townsend wants to go. That’s because using all the tools at hand to help the poor, the sick and the hungry means unleashing the power of capitalism. Regarding the poor and hungry, it means eliminating barriers to trade and immigration, reducing or eliminating capital taxation, and eliminating or drastically restructuring most federal regulations. Regarding the sick, it means curbing the power of the FDA, eliminating the tax deduction for employer-provided health insurance, and committing ourselves not to regulate the prices of prescription drugs. As a general rule, it means diminishing the power of the political class that Kathleen Kennedy Townsend has devoted her life to serving.

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Last Night’s Debate

Putting aside all issues of who I did or did not agree with, and putting aside all issues of who I would or would not like to see in the White House, and ranking them solely on the criterion of “Demonstrated Ability to Think on Their Feet”, I score it this way:

1) Gingrich
2) Santorum
3) Bachmann
4) Cain
5) Paul
6) Romney
7) Pawlenty
8) Huntsman


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Turn Off Their Lights

The EPA announced yesterday that new regulations mandating fuel efficiency standards for heavy trucks will cost vehicle buyers $8 billion, but that will be paid for in fuel savings over a year or two.

Oh. Sounds like the mandate is quite unnecessary then, no? With numbers like that, consumers will demand high efficiency vehicles with or without the EPA. Unless, of course, the EPA is, umm….lying.

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