Reaction to Powell’s UN speech has been pretty muted so far. Certainly, it doesn’t seem as if anyone is going to change their position as a result of it. On the whole, I thought Jack Straw did a better job of presenting a case for war. Powell had some significant new evidence but the speech had a lot of weaknesses. Of course, there was no ‘smoking gun’, but the speech was disappointing even relative to the diminished expectations of the recent past.

First, Powell (or the Administration) was unwilling to retreat from, or even pass over, those elements of the US case that have already been made public and have failed to stand up to critical scrutiny, most obviously Saddam’s supposed links to Al-Qaeda, but also claims about Iraq’s nuclear program. Given the weakness of these claims, it’s reasonable to be skeptical about new and untested evidence. Powell would have been better off admitting that the link is unclear, and pointing out that it’s not directly relevant to 1441.

Second, he led off with a telephone intercept which contained no direct evidence about weapons and relied critically on the translation of a single word, which he rendered as ‘evacuate’ (as in ‘weapons were evacuated’). Powell says this means ‘hidden, not destroyed’. I don’t know any Arabic, but we (those of a certain age, anyway) can all remember the fuss about the translation of words like ‘recalcitrant’. I’ll bet dollars to dinars that this will end up in a tangled debate that will confuse even Arabic speakers.

Third, the speech undermined the claim that the really good stuff can’t be revealed because it might tip the Iraqis off with respect to surveillance techniques etc. In what appears to be the most damning intercept (two Republican Guards officers talking about nerve gases) one warns the other that the Americans will be listening. In other words, as I pointed out in a comment that is probably lost forever in the Haloscan, everyone with a telephone and a secret must already be aware that Echelon (the US electronic surveillance system) is listening. The speech itself doesn’t include a full translation of the intercept, so it’s unclear how damning it actually is.

Overall, the speech doesn’t change things much. In the absence of a substantial backdown from Saddam on things like U2 flights and scientist interviews (both mentioned in Powell’s speech) the UNSC will very probably back a US invasion in some form or another, even if there is a delay of six weeks or so.. But this means that such a backdown is more probable than most commentators seem to think.

Update William Safire notes the possibility of a Saddam backdown. He also asserts, as he has done repeatedly, that the CIA has been lying and concealing evidence against Saddam. If Safire doesn’t believe US intelligence evidence, why should anyone else?

Another striking feature of Powell’s speech is that very little of the evidence predates Resolution 1441. This is surprising given the dossier of evidence that was previously circulated. Since that evidence is six months old, most of the problems with releasing it should have been resolved by now. And it was supposedly enough to convince Blair, Howard and others. It would have been good to see this dossier.

If two teams played each other in successive matches, would they be going head-to-head back-to-back? Sounds painful to me

Uncle at ABCwatch asks:

But why are political films always left-wing caricatures?

But can you imagine the uproar if someone made a film in which the hero/ine was expected to retain our sympathy while admitting to idolatory of Adolph Hitler, as the sainted Frida Kahlo, also the subject of a recent depiction, worshipped the monstrous Joseph Stalin? Or even cordial relations with Albert Speer?

Fascists! Beyond salvation by Art. Kiss that investment goodbye.

Two examples of recent films with sympathetic treatment of fascist characters are The English Patient and Captain Corelli’s Mandolin.

It’s true that, for both good and bad reasons, Hitler has come to be regarded as a uniquely evil historical character. But Speer has largely got away with passing himself off as a good guy. And the other fascist leaders (Mussolini, Franco, Pavelic etc) are generally regarded as being less morally objectionable than Stalin. This means that (allegedly) misguided sympathisers with these fascists can get the same kind of sympathetic treatment as (allegedly) misguided believers in Stalin.

As soon as I noted problems with Haloscan’s comment counter, they went away at least for me.

But the real news in this post, is that according to Haloscan’s count, there have been 2999 comments made on this blog since I started using this service. So whoever wants to respond to this post can be number 3000.

This kind of response makes the whole thing worthwhile. This blog may not get the hit counts of an Instapundit, or even of some other Ozblogs, but I think it has some of the best discussion going anywhere in the blogworld.

Update I spoke/posted too soon! As of now, Haloscan appears to have chewed up the last 75 comments. Miserable! I must repeat my advice to keep a file copy of any comments you think worth preserving.

My post on the national income identity has raised lots of interesting discussion, particularly focused on the notion of the ‘Laffer’ curve [scare quotes reflect the fact that neither the curve nor the underlying idea was original with Laffer]. The basic theory underlying the curve, that both zero and 100 per cent tax rates will raise no revenue, is close to self-evident and certainly accepted by all mainstream economists*

What might be called the Laffer proposition is that the US is, or was, near the point at which taxes can be cut without reducing revenue. This is empirically false, as was demonstrated under Reagan.

Standard economic estimates suggest that the loss of output associated with each additional dollar of tax revenue is somewhere between 0 and 50 cents, with the best estimates (IMO) around 20 cents. This isn’t all a loss of measured output. Some of it is due to time spent in compliance and some reflects losses in consumer welfare because of misallocation of resources. So, I’d guess that a $1 reduction in tax revenue might produce, in the long term, an increase in output of 10 cents.
[This would be offset if the money was taken from high-return investments like education, or if the deficit was allowed to grow, but let’s suppose the cuts are applied to panem et circenses – in Australia, fireworks are the obvious example].

On average, because of things like progressive income taxes and social insurance, about half of any change in output arising from greater capacity utilisation flows through to government budgets. So, of the 10 cents worth of extra output, governments would get about 5 cents. But if you used a high-end estimate of welfare loss, and assumed that most of it was reflected in measured output, you might get a clawback of 15 cents. So Laffer is between 5 per cent and 15 per cent right.

All of this is relevant because, as a result of consistent Republican pressure, the Congressional Budget Office is likely to implement what has been called ‘dynamic scoring’, incorporating assumed supply responses into estimates of the budget impact of fiscal policies such as tax cuts. You can read a critical assessment by Stan Collender here. While we have yet to see how, and if, this will work in practice, the numbers that are being bandied about justify Collender’s “fear for the future of the republic”. Here for example, is Bruce Bartlett of the National Review

At present, there is a systematic bias in the revenue-scoring process that encourages tax increases and discourages tax cuts. Look at it from the point of view of members of Congress. In the former case, they are told that a 10% increase in tax rates will raise 10% more revenue, when in fact it will raise perhaps 7%. In the latter case, they are told that a 10% tax-rate reduction will lose 10% revenue, when it probably will only lose 7%.

That is, dynamic scoring will reduce the measured cost by 30 per cent. As I’ve argued this is twice as much as a reasonable upper bound estimate and five or six times as much as is likely. This is for the favorable case when the tax cut is financed by reducing current government consumption. If it is financed by cutting investment, printing money, or issuing debt, the overestimate is even worse. In these cases, the final cost of the tax cut will typically be equal to or greater than the first-round effect.

Finally, I should say that I’m talking about the long run (the average over a full business cycle) here. In a recession, tax cuts may provide a Keynesian stimulus and produce a short run increase in output. Conversely in a boom, there are no unemployed resources to bring into action, so there’s no possibly dynamic payoff.

*It’s obviously true at zero. With 100 per cent taxation, a few idealists might keep working for nothing in the hope of providing enough revenue to keep themselves and everyone else from starving, but economists don’t like to count on this kind of thing.

My commenting facility, Haloscan, is generally pretty good, but it’s been having troubles lately. A week or so ago, it chewed up some comments, and now the comment count is not updating. As I’ve said many times, the comments are, as often as not, the best part of the blog. There’s a good discussion of the Laffer curve going on in the post on “Identity crisis”, and the Monday message board is excellent as usual. Just for now, you’ll have to disregard the numbers and click on the comments box even if it says “No comments yet”

Remember Pauline Hanson’s EasyTax? An identical proposal is being plugged in an Op-Ed piece in the New York Times. In essence the idea is a flat-rate tax on every transaction, without the system of input credits that distinguishes a VAT/GST.

The problem with a transactions tax of this kind is that people and firms can, at significant but not unbearable cost, economise greatly on transactions. For example, firms can produce all its inputs in-house rather than dealing with contractors and suppliers. This means the product is taxed only once, when it is finally sold, rather than at many different points along a supply chain. If a tax were levied at rates high enough to raise lots of revenue (enough say to replace the income tax) firms would certainly do this. Households have more trouble but can still manage.

A small tax on large-scale financial transactions, often called a Tobin tax, is a defensible idea (I’ve defended it here), but it would not produce anything like the revenue needed to replace income or sales taxes. In Australia at least, we already have taxes on retail financial transactions and the amount raised is pocket change in the governmental accounts.

Looking at my piece on the Tobin tax, from 1998, I can’t resist quoting the following.

Many commentators have seen in the US boom evidence of a new ‘miracle’ economy, in which recessions are a thing of the past. Two kinds of miracle have been proclaimed. One version is that the technological marvels of the Internet have fundamentally changed the nature of economic activity. The other is that the massive increase in flows of capital and goods around the world, commonly called ‘globalisation’ rewards free market countries like the United States at the expense of the sclerotic welfare states of Europe.

For those of us who don’t believe in miracles, however, the boom of the 1990s looks depressingly familiar. In every speculative boom, a theory is invented to show that this boom is different and will never end. The more appealing the theory and the longer the boom, the worse the subsequent crash.

The current economic crisis therefore provides something close to a crucial test. If the US economy comes through unscathed, it will be strong evidence in favour of claims of a free-market miracle. A slowdown or recession would add more support to the growing calls for a step back from deregulation.

The US did indeed come through the crisis I was referring to, arising from the collapse of Long Term Credit Management, but only by virtue of Greenspan’s willingness to pump unlimited funds into an already overheated system, providing a temporary fix at the cost of more trouble later on. As I said, ‘the longer the boom, the worse the subsequent crash.’

That’s the headline on Nicholas Kristof’s piece on the rapidly deteriorating situation regarding North Korea. As I said six weeks ago

there are no appealing options in this case. It seems clear that the co-operation, or at least acquiescence of the Chinese government is going to be needed, and that any military option raises a severe risk of an attack on South Korea and perhaps Japan. The most promising solution is one where China applies the pressure required to force the abandonment of North Korea’s nuclear program and its missile development.

Kristof makes the same point, observing that without Chinese support, sanctions will mean nothing.

Getting China to do something would be really difficult and would require the expenditure of a huge amount of diplomatic effort and political capital. It would not, however, be beyond the power of a determined US government, willing to put in an all-out effort to rally international support for a campaign against an evil dictator with real weapons of mass destruction, while applying a policy of containment to less immediate threats.

(As an aside, it’s often argued that the example of North Korea proves the good sense of moving pre-emptively. But in this case the US has tried eliminating the threat by force. General Macarthur’s army entered Pyongyang in 1951 before retreating when the Chinese entered the Korean War. So, the question to the advocates of pre-emption is – should the US have attacked China as Macarthur wanted? If not, when should the policy of pre-emption have been resumed?).

Parramatta defeated England in the final of the Rugby league World Sevens. As Henry Root’s daughter Doreen observed on a similar occasion “That’s not a football match, that’s a category mistake”