http://policybythenumbers.blogspot.com/2012/02/innovation-nation-versus-warfare.html

Mr. Tabbarok makes the case for government directed innovation and infrastructure investment:

Our ancestors were bold and industrious–they built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build that system today. Could we build the Hoover Dam today? We have the technology but do we have the will? Unfortunately, we cannot rely on the infrastructure of our past to travel to our future. Airports, an electricity smart grid that doesn’t throw millions into the dark every few years, ubiquitous Wi-Fi — these are among the important infrastructures of the 21st century, and they are caught in the regulatory thicket.

It seems to me that the low hanging fruit of government-provided infrastructure is largely gone, which is why there are fewer high-profile “shovel ready” public works projects. Everyone could see the benefit of the Hoover Dam and the interstate highway system. We built them and got significant return on investment. The remaining infrastructure projects, like those mentioned in the article, provide far less value. That’s why there is no political will to do them.

Airports – not sure what the problem is, other than TSA adding huge cost and invasion of personal privacy into the boarding process. The airports I fly through have functional concourses, jetways, luggage carousels, and runways. What else is needed, and why should the federal government be involved? If a local government wants to build a new airport for the convenience of its citizens or to attract new businesses they can do that with their own taxes. If Mr. Tabarrok meant to say “air traffic” then I would agree there is a place for federal government to regulate air traffic and that it needs to modernize the current system.

Smart grid – yeah we had a well-documented failure in 2003, but most people still experience excellent availability. When I think about raising my taxes to pay for improvements I say “I think the system now works well enough”. There may be some efficiency gains and information security benefits but I would leave it to the free market to work out those problems.

Ubiquitous Wi-Fi – no reason for bureaucrats to pick a technology for billions in government investment. If Wi-Fi is the right technology then Verizon and AT&T will figure that out and build the network. I think the private sector is doing just fine providing wireless data services.

My principle objection to government investment and infrastructure spending is that it puts government in the role of picking winners and losers. I prefer to see the free market perform that function.

I’m not opposed to all government spending but would limit it to only places where there is a clear, compelling advantage to the government’s involvement. In my view there are many areas the federal government is “investing” in that are far better solved by local governments or private enterprise. Federal government should be shrinking investment and returning the money to the states.

I plan to write more about this later, but wanted to bring it to your attention. Art Laffer is proposing a revenue-neutral carbon tax.

The concept of the revenue-neutral carbon tax is for the government to tax our carbon usage and refund the tax to us in the form of an income or payroll tax reduction. The idea is that since this will make carbon relatively more expensive that it will alter our consumption patterns to consume less carbon and thereby less pollution.

There are three problems with this plan as I see it:

1. Carbon is an input into everything – find a product that isn’t made with petroleum! As soon as the tax is refunded to us with are either going to buy a product that uses carbon as an input, or buy a service from someone who will then use the money they made  providing the service to buy carbon. Carbon is a proxy for standard of living so if you think you can reduce our usage of carbon you’re really saying you can reduce our overall standard of living. There is nothing we want to buy that doesn’t consume carbon so the idea that this tax will somehow alter our preferences is not very believable
2. The tax will only affect the United States – keep in mind that if tax ourselves to reduce our carbon usage it only serves to lower the price so that other countries can consume more. It is worth noting that even though a barrel of oil currently sells for about $100 a barrel oil companies can still pull it out of the ground for as little as $2 a barrel. The demand is what is driving the high costs, not the actual production cost. As we lower our consumption, and the price drops, you can be sure that other countries will pick up the slack. At the end of the day the same amount of carbon will be burned (globally) so this policy does nothing to address the burning of carbon on a global scale.
3. It’s regressive – this will impact the poor, who use a higher percentage of their income on carbon, more than the rich. This will likely cause all sorts of additional market distortions and tax complexity as the bureaucrat social engineers attempt to rectify the situation.

Because of these reasons I don’t believe this policy is useful for reducing global consumption of carbon (won’t help with man caused global warming, if it exists). It might work well for localities looking to reduce their carbon usage to help with air pollution or other externalities. If those localities so desire they could give it a try. I do not support this as a nation-wide policy for the United States as it would unfairly tax those citizens living in less populous areas.

From the WSJ:

“A survey published in November found that 60% of about 960,000 Chinese people with assets over 10 million yuan ($1.6 million) were either thinking about emigrating or taking steps to do so. The U.S. was the top destination, followed by Canada, Singapore and Europe, according to the survey by the state-run Bank of China and Hurun Report, which analyzes trends among China’s wealthy.”

Several months ago I was trying to sell a policy protecting against “civil unrest in the event of a U.S. government default on debt” to a young lady, Oxford graduate, and she gave me the following interesting suggestion:

“The U.S. could wipe out the deficit if it simple guaranteed citizenship to anyone willing to pay $1M.”

I wondered, “Why would anyone want to do that?”