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Archive for June, 2011

Wal-Mart on the brain

I keep bringing up Wal-Mart in posts and comments, which is strange since Wal-Mart isn’t something pleasant to think about.   But I wish there was more discussion about the recent SCOTUS ruling in favor of Wal-Mart because that case brings up some critically important issues for the future of the American economy.  Though Wal-Mart was successful, the case still reveals how perilously close we are to a massive, court-ordered imposition of government-think on American business.

Writing on the case in National Review Online, Michael Barone says:

The conclusion I draw is that Ginsburg thinks the only fair way to run a large organization is the way government runs civil service.

All jobs should be numerically classified to eliminate “arbitrary and subjective criteria.” Promotions should be determined by written tests or seniority, not by managers choosing “on the basis of their own subjective interpretations.”

Managers should understand that they will face harsh scrutiny if they don’t hire and promote equal numbers of men and women and pay them all the same. Better just to figure out how to make your gender quotas and avoid any trouble

Battles over government budgets get a lot of press.  I wish there were more press on the much more pernicious effect of government’s meddling in the operation of firms.  Huge efficiency losses occur when government-think is imposed on business.  This happens through court decisions and regulations that most people don’t pay much attention to.  The Obama administration’s decision to try to keep Boeing from building productive capacity in South Carolina, a right-to-work state, is another egregious and unconstitutional example of government raising the cost of doing business.  Hopefully Boeing will be successful in their efforts.  Obama cannot push Big Labor’s agenda through legislation, so he is trying to squash the healthy competition between states that allows firms to lower long-run labor costs, even as they create more jobs.

I think our economy can thrive even with an inefficient, bloated public sector.  But the expansion of government’s sticky fingers into the day-to-day operations of businesses is much harder to overcome because it is hard to see and has consequences that are hard to measure. Sometimes political candidates talk about stripping away regulations, but neither party has ever shown an aggressive agenda for dismantling the regulatory state.

Unfortunately, most companies don’t have the resources to fight the government that Wal-Mart or Boeing do, so they just knuckle under.  The sad irony is that the Lefties promote these job-killing federal actions in the name of improving life for the working class.

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Worth Reading (and Not)

A few pieces around the internets that are worth reading:

1.  At the Chronicle of Higher Education, Mark Bauerlein discusses research suggesting that the lecture format is beneficial for students compared to progressive teaching methods.  As one paper notes, “Contrary to contemporary pedagogical thinking, we find that students score higher on standardized tests in the subject in which their teachers spent more time on lecture-style presentations than in the subject in which the teacher devoted more time to problem-solving activities.”  (This piece is a lot better than the one by his colleague that mocks Adam Smith ties in a rather juvenile fashion).

2.  A little dated, but this take down of ethanol subsidies is great.  Now we need him to write one against sugar protectionism.  Down with concentrated interests who gorge at the public trough!

3.  And in the “Not Worth a Read” category, David Greenberg – a historian at Rutgers who should know better – writes a thin critique of “isolationists” in the New York Times today.  Hasn’t this kind of simplistic “history” and inaccurate categorization of today’s critics of liberal internationalism/neoconservatism been written about a million times already?  And aren’t these types of pieces really just rhetorical bullying to prevent a serious discussion of American foreign policy?

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“Imagine There’s No Taxes, It’s Easy if You Try…” There are so many sour notes that must be passing through the minds of Beatles fans as they hear allegations that John Lennon may have become a conservative in the final years of his life.  As his former assistant recalls:

“John, basically, made it very clear that if he were an American he would vote for Reagan because he was really sour on Jimmy Carter.”

As you might expect, such allegation have provoked quite a response. See the coverage in the Telegraph and the attack on the messenger in the Nation.

Although I am somewhat skeptical, who really knows what Lennon believed in the final years of his life (his last album was a pop album with no real political content). Perhaps if we play Double Fantasy backwards we will find some clues…

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For many libertarians, the single most important policy reform today would be abolishing the Federal Reserve and replacing it with competing currencies issued by unregulated, private banks. Ron Paul has repeatedly introduced bills to abolish the Fed and has made the issue a key theme of his presidential campaigns. Many libertarians get involved in efforts to use silver as a medium of exchange, such as the Liberty Dollar and Shire Silver.

Why do so many libertarians think that abolishing the Fed should take such a high priority? Some economists have explored the history and theory of “free banking,” such as Larry White and George Selgin. But I suspect many libertarians derive their monetary ideas not from reading White or Selgin, but from Ron Paul or lurid, conspiratorial books like The Creature from Jekyll Island. One commonly encounters views such as, “The Fed is creating hyperinflation that will destroy the value of the dollar,” and, “The Fed prints money to fund the government’s war machine.”

It’s important to note that these views are not correct. The main way that the Fed creates money is by (more…)

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Here is a neat little video that shows some of the correlates of economic freedom.  BLUF: economic freedom matters for a lot of things we care about!

Update: I can’t get it to embed properly – so here is the link to it on Youtube: http://www.youtube.com/watch?feature=player_embedded&v=v1U1Jzdghjk

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Romney-Bachmann, 2012

There are at least a half dozen credible candidates to win the GOP nomination for President.  In fact there are so many that they are all unlikely to win.  But the most likely of the “unlikelies” is Mitt Romney—though I wouldn’t put any money on that prediction.  Perry is a threat and Christie is a threat, but none of the current crop is likely to topple him Romney from his front-runner status.

Should this prediction pan out, I think the politically prudent choice of a running mate is Michelle Bachmann.   I think she will make a run at Romney in the primaries and may win in Iowa, but I don’t think she has the organization or the reputation to go the distance.  She and Mitt will feud over his record on abortion and health care, among other things, but I don’t see that battle going nuclear.  He probably isn’t impressed with her, but if anyone is prepared to sacrifice his personal views for the sake of political expediency, it is Mitt Romney (he became pro-choice when it was expedient to do so and pro-life when it was expedient to do so).

What she will provide for him is rock solid support among the Tea Party base, enormous fund-raising ability, and the lack of a Y chromosome.   She is sort of the turbo-charged version of Sarah Palin.  She has all the qualities that made Palin a good pick, but not so many of the bad ones.  Palin lacked any sort of national experience or a grasp of the national or international issues.  Bachmann, on the other hand, has experience as a tax lawyer and has been in Congress for a decade.  Most important, she has been under the heat lamp of the national press for a long time.  They hate her more than they grew to hate Palin, but as a VP, her feisty relationship with the press will be good because it will draw press.  VP candidates are supposed to be pit bulls.  She is also reasonably smart and articulate (though with her share of gaffes), whereas as Palin is, though it is not kind to say, rather dim.  And, to boot, Romney-Bachmann will make the most beautiful ticket since, well, forever.

Just remember, you heard it here first!

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Postscript: I blogged a few months back on whether Jon Huntsman could pull off the nomination.  He is another Unlikely, probably very unlikely.   I do agree with Stanley Fish who writes the following today:  “Well-spoken, well-heeled, well-informed, smart, fresh-faced and cheerful, a good administrator, slightly progressive on social issues, conservative economically and savvy about foreign policy — Huntsman is an independent’s dream and the Democrats’ nightmare.”  Of course caring about electability isn’t a strong suit of the Republican primary voter (e.g: Christine O’Donnell, Sharon Angle, etc. etc.).  Indeed President Obama’s greatest electoral asset is the Republican primary voter.

Post-postscript: Because of their Utah ties, both Romney and Huntsman interest me, but I’m not a supporter of either of them.

Post-post-script: The other obvious contender for VP is Marco Rubio.  He would be a very advantageous pick and might beat out Bachmann.

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I recently ran a poll here to gauge support for the idea of giving voters with bachelor’s and/or doctoral degrees extra votes in elections. I ran the same poll on a non-political site to get an idea of support from the general public. Surprisingly, Pileus readers opposed the reform overwhelmingly, 82-18%, while respondents on the other site were slightly more supportive, with opposition running at 74-26% (31 respondents). In both polls I simply asked the question and did not offer any reasons for either side of the issue. The sample sizes are too small to draw terribly confident conclusions about the general public’s support for this proposal, but support does seem surprisingly high given that no Western democracy since the 1940s has given multiple votes to college graduates (Belgium and the United Kingdom formerly did so).

The impetus for the poll came from a discussion I had with Bryan Caplan, author of The Myth of the Rational Voter. Caplan finds that voters have strikingly different views from economists on many economic issues. The general public tends to suffer from anti-market, anti-foreign, and pessimistic biases. However, the more educated you are, the more likely you are to think like an economist (the smaller your biases on economic issues). In subsequent research, Caplan says that the effect is really one of IQ: smarter people are more likely to think like economists, and smarter people are also likely to get more education. Nevertheless, the logic implies that giving people with more education more votes will lead to better politicians and better economic policies. I argued that giving additional votes to more educated voters might actually be a popular change in the long run, if it were actually proposed and defended at length. Bryan thought that it would be overwhelmingly unpopular and essentially not worth proposing.

The precise implications of these poll results are up for debate, but it seems to me that support for some reform of this kind actually does have some base of support in the public, even when no logical or evidentiary support for the change is offered.

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Those of you who read David Stockman’s memoir The Triumph of Politics will recall his discussion of “Rosy Scenario” and the impact it has in the economic debates internal to the first Reagan term. It appears that Rosy Scenario has returned to town.  As Lawrence Lindsey notes in today’s WSJ (“The Deficit is Worse Than We Think”):

official growth forecasts are much higher than what the academic consensus believes we should expect after a financial crisis. That consensus holds that economies tend to return to trend growth of about 2.5%, without ever recapturing what was lost in the downturn.

But the president’s budget of February 2011 projects economic growth of 4% in 2012, 4.5% in 2013, and 4.2% in 2014. That budget also estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion. So, if we just grow at trend those three years, we will miss the president’s forecast by a cumulative 5.2 percentage points and—using the numbers provided in his budget—incur additional debt of $4 trillion. That is the equivalent of all of the 10-year savings in Congressman Paul Ryan’s budget, passed by the House in April, or in the Bowles-Simpson budget plan.

The challenges of gaining control of the long-term fiscal situation will only become greater if we continue to tailor our assumptions to minimize the extent of the problems.

 

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In these days of economic turmoil, the Economist comes to the rescue with an interesting fact: “Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010, according to an updated version of Angus Maddison’s figures.”

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When tensions with England finally began to degenerate into violent altercations, first on the western frontier in such places as Tippecanoe and later along the Great Lakes, the Madison administration decided the time had come to vindicate America’s claims of offended sovereignty. Unsurprisingly, these claims also happened to coincide with popular desires to expand into the Old Northwest and Canada. Those particular voices were especially powerful in the mid Atlantic and southern states. Two of the leading voices of those regions, Henry Clay and J.C. Calhoun were united at this point in their careers, generally supporting more vigorous forms of nationalism at home and abroad.

But Mr. Madison had let the charter of the first Bank of the United States expire in 1811, and when he turned to finance his war he had of necessity to turn to state banking institutions. These entities were comprised of various private and state banks who were generally quite willing to buy American treasury securities. There was one region, however, that was not quite so willing: the New England states and the banks that operated under their approval.

Already rocked by years of embargo, New Englanders were poised to suffer even more outrages in open war. Popular sentiment ran high against the conflict, and when the treasury presented its notes for sale to New England banks they received a cool reception. The vast majority of such paper was consequently sold to the south and west. Indeed, needing to purchase supplies in the north, the national government found this a particularly galling impediment. To remedy the situation, Madison’s administration not only borrowed from existing banks in the mid-Atlantic states, it actively promoted new ones, even over the existing laws of those states that had tended to restrict private unchartered banks.

From 1811 to 1815 the number of banks more than doubled, from 117 to 247, 35 of which were unincorporated. The result was a massive increase in circulating paper money–nearly three times the amount in circulation at the start of the war. Treasury certificates were used as, and encouraged to be considered backing for notes in the same fashion as gold or silver. But one difficulty was not anticipated. When the District of Columbia was burned by British marines on August 24, 1814, it quickly became apparent that certificates on the U.S. government might not be such a sound investment.

Runs the banks that very month demonstrated the insolvency of most of the new institutions, and in opposition to various state laws, the national government encouraged the mid-Atlantic and southern states to ignore or restrict bankruptcy proceedings against their offending banks, but allowed those very institutions to pursue such proceedings against their own debtors. All this was done, no less, while they continued to make new loans, adding yet even more to the already general inflation.

Only one region did not experience suspension of payments or bank runs: New England. For once in over six years, the New England states could boast a small economic indicator in their favor. In Federalist 10, Madison had argued that federalism might serve to insulate local evils from becoming universal, national ones. In this case, the evils of expansionism had been halted at the gates of Massachusetts, and New England’s representatives left little doubt about their sentiments in this regard.

In words that would later come back to him, a young Daniel Webster, then a representative of New Hampshire, declared in Congress on December 9, 1814, that the “operation of measures unconstitutional and illegal ought to be prevented by a resort to other measures which are both constitutional and legal. It will be the solemn duty of the State Governments to protect their own authority over their own militia, and to interpose between their citizens and arbitrary power. These are among the objects for which the State Governments exist, and their highest obligations bind them to the preservation of their own rights and the liberties of their people.”

Would it be too much to suspect that Webster both knew and approved of the New York statement of ratification? But even if he hadn’t, and that seems dubious, the words demonstrate just how deeply the sense of the states as checks to central power was engrained in the American mind. At this point in time, Webster was no Jeffersonian. He was a New England Federalist, and the home states were listening. On to Hartford.

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George Weigel argues on National Review Online that the passage of gay marriage in New York “is an exercise of power that libertarians ought, in theory, to resist, not support.”  Here is more:

Marriage, as both religious and secular thinkers have acknowledged for millennia, is a social institution that is older than the state and that precedes the state. The task of a just state is to recognize and support this older, prior social institution; it is not to attempt its redefinition. To do the latter involves indulging the totalitarian temptation that lurks within all modern states: the temptation to remanufacture reality. The American civil-rights movement was a call to recognize moral reality; the call for gay marriage is a call to reinvent reality to fit an agenda of personal willfulness. The gay-marriage movement is thus not the heir of the civil-rights movement; it is the heir of Bull Connor and others who tried to impose their false idea of moral reality on others by coercive state power.

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I stumbled upon this anecdote about Governor Rick Perry of Texas:

Recently Governor Perry allowed his Labrador Retriever to accompany him on his daily six mile jog. While on his run, he and his pet were accosted by a menacing coyote. After remaining still and waiting to see what the wild coyote would do, the governor pulled out a .380 Ruger and shot the coyote dead when it become apparent the coyote was after his pup. 

When he returned to the governor’s office he was queried about his “heartless” actions towards “innocent” animals. After answering more than one question on the matter, and in a mildly exasperated manner he replied, “Don’t go after my dog!”  In other words while the press was confused about his value system, he saw it in very simple terms.

Now, I have no problem with the Guv having a handgun or shooting a “menacing” coyote.  But, seriously, isn’t this story sort of weird?  Wouldn’t running with that kind of heat be a little, um, uncomfortable?  Or, perhaps, he had someone in his entourage carrying it for him (of course running with an entourage sort of takes the romance out of the story: manly governor out running being trailed by a black Suburban filled with his security detail borrows gun to shoot coyote, rather than simply putting the pup in the Suburban for protection).

But the really strange part of this story is that the author uses this anecdote to argue that “Perry has core convictions.”  I don’t know, but I might look for something like standing up to Republican donors who want corporate welfare as an example of having core convictions.  “Willing to shoot annoying wildlife” isn’t quite the “core conviction” I’m looking for.  But that’s just me.

This early in the campaign season, we should all be forgiven for holding uninformed prejudices about candidates (or potential ones in this case).  I haven’t caught the fire for Perry yet, maybe because I know little about him.   So far I know 1) he is handsome, but in a shifty, Clintonesque sort of way; 2) he is from Texas, never a good sign (think: LBJ, W., and all the annoying Texans you have certainly encountered); 3) he packs heat while jogging.

But, as I said, it’s still early.


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Addendum: Apparently life imitates art.  A faithful reader (OK, my mother-in-law) sent me this funny comparison between what happens when the governor of California encounters a coyote while jogging and what happens when the governor of Wyoming  encounters the same thing.  This post (from Jan. 5) is so eerily similar to the Perry coyote shooting that I can’t help wonder if some enterprising aid staged the whole thing!  If I were an investigative journalist (or any kind of journalist) I’d try to get to the bottom of this.

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“The tragedy of the world’s 160 million missing girls isn’t that they’re “missing.” The tragedy is that they’re dead.”

—Ross Douhat writing on abortion and imbalanced sex ratios in Asia, 6/26/2011

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Presidential candidate Gary Johnson on the War in Libya:

“I think that military intervention in Libya is unwarranted. Where was the military threat from Libya? Where was the congressional authorization to go into Libya? Where in the Constitution does this say that because we don’t like a foreign leader we should go in and topple that foreign leader? (We) need to look at the unintended consequences of these actions we take. … We do all of these good things in the name of liberty, and the consequence oftentimes is much different.”

Source: RCP

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The Wall Street Journal reports bad news out of the Granite State.  According to a piece in today’s paper, the Republican leadership in the New Hampshire House of Representatives doesn’t have the votes lined up to override the governor’s veto of a right to work bill that would have seen NH join 22 other states that “allow private-sector workers to opt not to join a union or pay dues at unionized workplaces.”

This is bad news because right to work laws help counter federal initiatives empowering unions at the expense of individual freedom of association (of both workers and capitalists).  Here is what Hayek said along these lines (though, as the linked article notes, there is some reasonable debate among free-market folks about right to work laws):

If legislation, jurisdiction, and the tolerance of executive agencies had not created privileges for the unions, the need for special legislation concerning them would probably not have arisen in common-law countries. But, once special privileges have become part of the law of the land, they can be removed only by special legislation. Though there ought to be no need for special ‘right-to-work laws,’ it is difficult to deny that the situation created in the United States by legislation and by the decisions of the Supreme Court may make special legislation the only practicable way of restoring the principles of freedom.

Right to work laws are also helpful for economic growth, though it isn’t clear that NH will benefit as much as other states from such a change given the nature of the market there.  However, NH Speaker Bill O’Brien has been selling it as part of an overall package of policies that would help the state become the Hong Kong of the Northeast US and maybe even the US: “Passing right to work on top of not having an income tax could make us the Hong Kong of the region.”   

New Hampshire as Hong Kong would be good for NH but also good for the rest of the country as the competition forced other states (especially other New England states) to mimic NH or risk losing businesses and taxpayers to the Granite State.  So here’s hoping that Speaker O’Brien is able to muster the votes in the fall for a repeal.  However, we should not be surprised if concentrated interests (and self-interested politicians) make such a change difficult until NH elects a Republican as governor.  Republican Rep Lee Quandt - who voted against the repeal - essentially placed himself in one of those categories when he noted that there are many Republican voters among the 63,000 union members in the state: “You don’t pick up money and support by sticking it to thousands and thousands of Republicans,” Mr. Quandt said. “There’s a pretty strong group of Republicans that are not budging.”

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For anyone concerned with the welfare of the republic, this week was not one of the best in recent memory. Consider the events of Wednesday and Thursday:

Wednesday:

In the long-run, we are all dead: The CBO released its annual Long-Term Budget Outlook. Under its most realistic scenario, “debt held by the public would exceed 100 percent of GDP by 2021. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2023 and would approach 190 percent in 2035.” The CBO’s report contained some frank reflections on the potential for a fiscal crisis (see my earlier posting here).

In the short-run, we are confused: While the CBO addressed the long-term, Chairman Bernanke addressed the short-term (transcript here). As the Chairman admitted:

“We don’t have a precise read on why this slower pace of growth is persisting. One way to think about it is that maybe some of the headwinds that have been concerning us, like, you know, weakness in the financial sector, problems in the housing sector, balance sheet and de-leveraging issues — some of these headwinds may be stronger and more persistent than we thought. And I think it’s an appropriate balance to attribute a slowdown partly to these identifiable temporary factors, but to acknowledge the possibility that some of the slowdown is due to factors which are longer-lived and which will be still operative by next year.”

The implications for unemployment are rather dire:

 “we project unemployment to come down very painfully slowly. At some point, if growth picks up as we anticipate, job numbers will start getting better. We’re still some years away from full employment in the sense of 5.5 percent, say, and that’s, of course, veryfrustrating because it means that many people will be out of work for a very extended time and that can have significant long-term consequences that concern me very much.”

Confusion is not restricted to the economy: The President interrupted the summer’s reality TV offerings to announce his plans for the drawdown in Afghanistan: “starting next month, we will be able to remove 10,000 of our troops from Afghanistan by the end of this year, and we will bring home a total of 33,000 troops by next summer, fully recovering the surge I announced at West Point.”

The announcement underwhelmed Obama’s base. Assuming that the withdrawal occurs as scheduled, the number of troops in Afghanistan would still be more than twice the number (31,000) when Obama assumed office. The announcement also underwhelmed those concerned with the long-term fiscal imbalances, given that the war costs in excess of $100 billion a year (See my earlier post here, and John Stewart’s far more elegant take here).

Thursday

In the Land of the Blind, the One  Eyed Man is King. Even if Chairman Bernanke admitted that he couldn’t get a “precise read” on the slow growth, the President apparently believed that doing something (or creating the impression of doing something) was a superior option. Thus, the administration announced its plans to release 2 million barrel a day during the next month from U.S. and international reserves. Given that the strategic petroleum reserves is to be used for national emergencies—releases have been authorized only twice before—many found it odd that this decision was made on the 20th consecutive day of falling prices at the pump.

Even if these releases will have, at best, a miniscule and temporary effect on gas prices, they may serve a far more important political purpose. Polls reveal that only 34 percent approve—and 64 percent disapprove—of the president’s handling of gas prices. While the larger disapproval of economic management is seemingly beyond the President’s control, the SPR releases may allow the President to claim credit for the now well established downward trajectory in the price of gas.

Speaking of the Land of the Blind: Negotiations over the debt ceiling were knocked off course. House Majority Leader Eric Cantor exited, reportedly, “because the group had reached an impasse over the question of whether tax increases should be included in the deal.” Speaker Boehner explained the nature of the impasse: “These conversations could continue if they take the tax hikes out of the conversation.”

Reportedly, Democrats were willing to accept cuts to Medicare providers—but not beneficiaries—if combined with increases in revenues elsewhere.  Whether the GOP will retain its firm opposition to any tax increases (including the elimination of tax expenditures) or it is simply hoping to lure the President into the debates to assume responsibility for tax hikes remains to be seen. Nevertheless, there is little to suggest that any of the negotiators are cognizant of the significance of the growing fiscal gap, the long-term projections, and the kinds of changes in spending and revenues that will be necessary to achieve anything approaching sustainability.

One can only hope beyond all hope that next week will bring a touch of sanity.

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Early summer each year, the Congressional Budget Office releases its Long-Term Budget Outlook.  This year’s installment (found here), unsurprisingly, is particularly bleak. As you may recall, the CBO projects the numbers under two scenarios. The “extended baseline scenario” basically assumes that existing laws will remain in place and all core assumptions hold. The “alternative fiscal scenario” adopts a more pragmatic tone. As the CBO notes: “Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does.” Both scenarios raise significant concerns. But let us focus on the projections generated under the alternative fiscal scenario. The CBO projects:

With significantly lower revenues and higher outlays, debt held by the public would exceed 100 percent of GDP by 2021. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2023 and would approach 190 percent in 2035.

The CBO admits in the introduction that its projections understate the depth of the problem:

CBO’s projections in most of this report understate the severity of the long-term budget problem because they do not incorporate the negative effects that additional federal debt would have on the economy, nor do they include the impact of higher tax rates on people’s incentives to work and save. In particular, large budget deficits and growing debt would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States. Taking those effects into account, CBO estimates that under the extended- baseline scenario, real (inflation-adjusted) gross national product (GNP) would be reduced slightly by 2025 and by as much as 2 percent by 2035, compared with what it would be under the stable economic environment that underlies most of the projections in this report. Under the alternative fiscal scenario, real GNP would be 2 percent to 6 percent lower in 2025, and 7 percent to 18 percent lower in 2035, than under a stable economic environment (p. xi)

Although the projections are more dire than in past years, they are consistent with the message the CBO has presented for quite some time (albeit with little interest from our elected officials).

With the fiscal crisis in Greece unfolding around us in all its glory and current debates over whether to raise the debt ceiling this summer, it is comforting to note that the CBO argues that the current trajectory “increase[s] the probability of a fiscal crisis for the United States.” It elaborates on the ramifications:

If a fiscal crisis occurred in the United States, policymakers would have only limited and unattractive options for responding to it. In particular, the government would need to undertake some combination of three actions: restructuring its debt (that is, seeking to modify the contractual terms of its existing obligations); pursuing inflationary monetary policy (that is, increasing the sup- ply of money); and adopting an austerity program of spending cuts and tax increases. Thus, such a crisis would confront policymakers with extremely difficult choices and probably have a very significant negative impact on the country. (p. 34)

The CBO does not provide specific policy recommendations (other than the obvious need to control entitlement spending and increase revenues). It does note that the longer we postpone significant reform, the greater the costs to the economy and the greater the likelihood of fiscal crisis. One might ask: Why delay the inevitable, particularly when the costs of adjustment will become increasingly unbearable?

The answer is simple. Consider the CBO’s discussion of how the generational distribution of costs is affected by the timing of reforms:

generations born after about 2015 would be worse off if action to stabilize the debt-to-GDP ratio was postponed from 2015 to 2025. People born before 1990, however, would be better off if action was delayed, largely because they would partly or wholly avoid the policy changes needed to stabilize the debt (with the exception of the negative effects stemming from a possible fiscal crisis and the government’s reduced flexibility to respond to economic challenges, which are discussed below). Generations born between 1990 and 2015 could either gain or lose from a delay, depending on the details of the policy used to stabilize the debt (again, with the exception of some other effects of growing debt). In the long run, a 10-year delay would reduce the well-being of all future generation by amounts equivalent to a cut of roughly 1 percent to 3 percent in their lifetime spending, depending on the specific policies that were adopted. (p. 33, emphasis added)

Given that those born before 1990 constitute the active electorate, postponing reform would appear to make great sense to those who operate on a two, four, or six year electoral calculus and know that voters (1) love their entitlements and (2) loathe taxes.

One only wishes that members of Congress would bother to read and reflect on the CBO’s Long-Term Budget Outlook. It is far too easy nurture puerile thoughts (e.g., this is simply a product of Bush’s tax cuts, Bush’s wars) and engage in the little arts of popularity (e.g., reform=throwing Grandma off a cliff). One only wishes that it would garner the same kind of breathless attention from the media as the “bipartisan CBO” received when it was releasing its projections of the Affordable Care Act (of course, how can long-term economic collapse compete with the Weiner scandal or the Casey Anthony trial in Florida).

Unfortunately, I think the probability of fiscal crisis is far greater than the probability that the CBO’s projections will gain any political traction. Those born after 2015 better get ready. Its going to be a long, hard, slog.

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I Plead the 2nd

The newest edition to the Cleveland gun rack.  I just hope he gets along with his brothers!  And I’m feeling the need to add to the family.

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In the last 24 hours alone I’ve seen two liberal sources – Bill Maher and the New York Times - note that we are paying for two expensive wars right now in the midst of our domestic economic woes.  At least in Maher’s case, the upshot is that this is bad for the United States and we should shift spending from prosecuting the two wars to domestic priorities.*  From the context, it is clear that they mean Iraq and Afghanistan.  Have they simply forgotten about Libya or are they buying the President’s difficult-to-defend notion (even for the government’s lawyers) that we aren’t at war there?  Are these anti-war liberals being partisan or just “misremembering” in order to deal with the cognitive dissonance of their hero starting a war while our cities supposedly crumble?  So, I count three wars with the third admittedly not as phenomenally expensive as the others but still pricey– so let’s not forget Libya.

* I agree that we need to reduce offense war defense funding (hard to call Iraq “defense”) but unlike Maher, I want to return the peace dividend to the people who created the wealth in the first place and not spend it on the pet government projects of politicians and commentators of either party.

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I don’t like shopping anywhere, but particularly at Wal-Mart.  It’s overcrowded with both crap and people. Yuck!

But I love the Wal-Mart corporation because it has all the right enemies: people who think that aggressive price competition and efficiency are bad things for the economy and that poor urban communities are made better off by keeping out a company that offers low-priced goods and lots of low-skilled jobs (you see, the overpriced, corner liquor store model with unemployed youth hanging out in front that prevails in many inner city neighborhoods is so much better than letting the underclass have access to a Wal-Mart, which, ya know, exploits people!)

Fortunately the Supremes tossed out the ridiculous class action suit against Wal-Mart this week.  But their decision did not please historian Nelson Lichtenstein, who argues in the Times that Wal-Mart is bad because it “views low labor costs and a high degree of workplace flexibility as a signal competitive advantage.”

Oh, the horror.  They hate unions and keep labor costs low as well as doing nasty things like putting a lot of pressure on managers’ bottom lines.  Moreover, their policy, he writes, of requiring new mangers to relocate to new cities (so they can serve the interests of the company bottom line rather than please their former co-workers) constitutes sex discrimination against middle-aged women.  Seriously, this takes the definition of what constitutes sex discrimination to a ridiculous new low.

Some of the abundant fruits of Wal-Mart’s business model go to shareholders, but a lot going to expanding the empire  and creating more and more jobs.  I imagine working at Wal-Mart is no more fun than shopping there, and other retailers like Costco seem to be doing well with much more worker-friendly models, but in studying his history, Prof. Lichtenstein apparently forgot to look at long-term trends in productivity.  Leftists are deluded into thinking that economies prosper because of “investments” by government and by pro-union policies.  Economies prosper because firms have the incentives to invest in better technologies and because mangers try to get the most out of employees.

So, please celebrate the Supreme Court decision by shopping at Wal-Mart and, while you are it, give a smile to one of those miserably treated workers that are helping you out.  If you do, you’ll get some good deals and there will be one less person I’ll have to bump into at Target or Costco!

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The economic historian Professor Sheilagh Ogilvie is an intellectual heroine of modern classical liberalism. Her work on the operation of proto-industries such as woollens manufacture in sixteenth century Baden Wurttenburg may seem esoteric but its study has a remarkable amount to offer our understanding of modern political economy. Ogilvie’s latest book Institutions and European Trade, (Cambridge University Press: 2011) presents a magnificent history of the economic role of merchant guilds between 1000 and 1800. The guilds were legally privileged associations whose members secured from the state exclusive rights to trade in particular commodities or industrial sectors and were the forerunners of modern trades unions and the cartelised business associations found in ‘corporatist’ regimes. There are three themes that emerge from Ogilvie’s work to which all should pay heed.

First, Ogilvie documents the historic responsiveness of individuals to economic incentives. Using a vast array of sources she offers compelling evidence that serfs, peasant producers and early merchants were highly responsive to changes in relative prices and thus that ‘incentives matter’ when trying to understand what lead to or prevented economic development in different historical periods. By drawing attention to this evidence Ogilvie’s work drives yet another nail in the coffin of those who claim, a la Karl Polanyi (see my post last week ‘Down with Karl Polanyi’ on this) that price responsive behaviour is merely a ‘social construction’ reflecting the obsession of contemporary economists with rational actor modelling.

Second, while the response of self-interested agents to incentives is crucial, whether or not the pursuit of self-interest leads to beneficial outcomes is a function of the institutions which structure these incentives. Specifically, the privileges bestowed on merchant guilds by early European states were a form of highly developed rent-seeking which enriched guild members and state rulers who received political support in exchange for granting legal restrictive practices, while simultaneously blocking access to markets for most ordinary people and thus stifling the potential for wider economic development. As such, Ogilvie’s work directly contradicts the panglossian ‘whatever was, was efficient’ view that characterises some versions of neo-classical economic history. According to the latter, owing to the absence of viable alternative methods for contract enforcement, the provision of security to traders, and the minimisation of asymmetric information problems in quality control, the legal privileges granted to merchant guilds were an optimal form of economic organisation given the conditions of the age. Using a wide breadth of sources, however, Ogilvie demonstrates a) that alternative and potentially more efficient methods of organising trade and enforcing contracts (such as private arbitration) were in fact available; and b) that ordinary people who sought access to markets were prevented from using these methods as guild members used the power of the state to maintain monopolistic control.

In drawing these conclusions, Ogilvie’s work sides with the Virginia school of public choice theory and Douglas North’s institutional economics against the ‘myth of government failure’ perspective reflected in the work of Chicago school economists such as Donald Wittman. The former recognises the role that power structures play in preventing efficiency enhancing moves. That those who lose from such structures fail to mobilise effectively against them should not be taken as evidence of the absence of inefficiency any more than the fact that revolutions against oppressive regimes are rare should be taken as evidence that dictatorships are welfare enhancing. Though it may be in the collective interests of the ‘losers’ to bring about institutional reform it may not be individually rational to join such a mobilisation given the high costs and the miniscule chance that a personal contribution will decide the final outcome. Collective action problems of this nature are a major blockage to institutional reform.

Third, while guild institutions might seem to reflect a form of ‘social capital’ of the sort eulogised by the communitarian left and by ‘Red Tories’ such as Philip Blond, this was a thoroughly exclusive form of ‘solidarity’ which impeded wider progress. Solidarity was for guild members only. The corporatist structures enforced by the pre-industrial state stifled innovation and economic growth and contributed to the systematic exclusion of women, members of ethnic and religious minorities and other ‘outcast’ groups deemed not to conform to prevailing community norms. In contrast to countries such as Germany, where the guilds were at their most powerful, the more liberal economies of the Netherlands and England which did not enforce guild privileges were much more successful in the promotion of innovation and growth and provided superior employment and social opportunities for women and ‘un-conventionals’.

Though it delves into the mists of time Ogilivie’s work should resonate with a generation that inhabits an age of auto-bail-outs, state supervised banking cartels and public sector unionism. Her message is a thoroughly classical liberal or libertarian one. Beware of those who use the power of the state to protect ‘the community’ from ‘the market’. More often than not they seek privileges – which cannot be supplied to all.

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Which is better, an invasive government that restricts people’s freedoms haphazardly or one that restricts them consistently?

Libertarians don’t like the question, especially those who are hostile to utilitarian calculations in defense of policy actions.  But it seems to me that even if we like very limited government, we want to tweak the edges of policy for utilitarian reasons.

This question is sparked by the story today that cigarette manufactures will soon (barring a successful lawsuit) be required to put graphic images (decaying teeth, shriveled lungs, a corpse, etc.) along with the written warning on each package of cigarettes.  The tobacco companies are naturally saying that this new regulation interferes with their freedom of commerce, which it does.  But there are already a lot of restrictions on cigarette marketing and distribution.  This one happens to be visually jarring, but I don’t think it is substantively different than the simple written warnings.  It might be more effective, though.

The cigarette companies would have a stronger moral leg to stand on had they a different history, one where they didn’t lie and deceive at every possible moment.  Since relatively few people choose to start smoking after adolescence, the only way the industry survives is if it can do again what it has done so successfully in the past:  convince a new generation of kids to start.  So, this is an industry whose entire future is fueled by damaging, often permanently, the lives of kids whose brains are poorly equipped to make decisions about health risks.

From a utilitarian perspective, one might justify the government’s anti-smoking campaign in several ways beyond deterring youth from taking up the habit.  First, smoking cessation saves lives and improves health.  Second, anti-smoking campaigns can work.  California, for instance, has been particularly aggressive with anti-smoking laws, and California now has notably lower smoking prevalence than almost all other states.  Third, as noted the tobacco industry’s main long-term goal is to recruit smokers, which they do by making smoking seem more attractive and downgrading the health consequences.  There are certainly worse things the government could do than fighting these greedy bastards.  Fourth, since so much health care is paid for by the state, it makes sense to impose burdens on the industry and consumers who are imposing these costs on society through their behavior.*

This last point is particularly problematic.  Using an externality-based argument to justify a policy that exists only because government created it with another policy can be a slippery slope to a lot of bad policies.  Obamacare’s health insurance mandate, for instance, is justified as necessary because requiring insurance companies to take on all comers, regardless of pre-existing conditions, only works if the everyone is required to purchase health insurance [unfortunately a lot of Republicans want to keep the restrictions on pre-existing conditions but do away with the mandate, which is a prescription for drastically higher premiums and, in my mind, would be worse than allowing the mandate].

There are possible negative consequences of the action.  The ads may may cause psychic harm to adult smokers.  People who are trapped in addiction are not necessarily helped by being reminded about the risks of smoking.  Most of them know it is dangerous and many want to quit.  Given how strongly addictive the cigarettes are, making the warnings more graphic may only serve to increase the stress of people who aren’t happy about their habit.  The new campaign might also increase administrative costs to the government (I wonder how much has been spent already).

If I were in charge, I’d probably scrap the FDA in its entirely (though I might keep around some food safety provisions).  So, I’m not defending any government action that starts with the idea that the frightening and pervasive powers of the FDA are in any way a defensible imposition on our freedoms.   But, given how far we have slid down this slope already, I can’t say I’m (further) outraged by this action.   When Leviathan stomps out my remaining freedoms, I’d prefer it be done in a sensible, reasonable way.

* There is pretty good evidence that smoking cessation, in aggregate, actually raises health care costs.  If we look at medical expenditures alone, it is cheaper to kill someone off from emphysema at age 55 than it is pay for all that health care that would be consumed if that person lived to age 85.

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Wednesday night, President Obama is scheduled to announce his plans for reducing the number of troops in Afghanistan. According to the LA Times:

Pentagon and White House officials say about 10,000 troops will probably come home this year, a bigger number than Gen. David Petraeus wanted. …In 2009 the president coupled his decision to send an additional 30,000 troops to Afghanistan with a pledge to begin removing some of those forces this summer. U.S. officials and outside experts familiar with recent deliberations said Obama was leaning toward withdrawing all the additional troops by the end of 2012 or early 2013. That would leave close to 70,000 U.S. forces in Afghanistan.

The case for remaining in Afghanistan seems extraordinarily weak to me.

  1. Even if there is a credible case that the war against the Taliban was justified in the wake of 911, it seems particularly odd to remain there a decade later. Al Qaeda has largely evacuated the nation (as CIA chief Panetta noted: “”I think at most, we’re looking at maybe 50 to 100, maybe less…there’s no question that the main location of Al Qaeda is in tribal areas of Pakistan.”). Given this fact, remaining in Afghanistan reminds me of the old joke about the drunk who was looking for his keys under the street light. He admitted that he lost his keys elsewhere but decided to keep looking where there was light.
  2. The ruling kleptocracy seems, at best, unsupportive. As President Karzai warned in response to a recent bombing of civilian houses: “If they continue their attacks on our houses, then their presence will change from a force that is fighting against terrorism to a force that is fighting against the people of Afghanistan. And in that case, history shows what Afghans do with trespassers and with occupiers.”
  3. Domestic support is weak. A recent poll by the Hill revealed: “Seventy-two percent of those polled said the United States is fighting in too many places, with only 16 percent saying the current level of engagement represented an appropriate level.” Given our long-term structural deficit, a decision to remain engaged in these wars will necessarily require either (1) deeper cuts in our largest domestic entitlements or (2) a decision to delay reform for another day. We cannot devote $1 million per year per deployed soldier given our current fiscal conditions. Any every dollar spent to prop up Karzai et al is a dollar that could arguably be put to better use at home.
  4. Even if there is a case to be made that building a stable Afghanistan will limit the ability of the Taliban and Al Qaeda to reassert themselves, is there any evidence that our efforts at nation-building have been successful? David Brooks cites World Bank figures that 97 percent of Afghanistan’s GDP stems from spending related to the military and donor community presence (one wonders if these figures take into account the contribution of opium). Brooks notes: “It overwhelms provincial governments. It fuels corruption. As aid workers grow frustrated by nonfunctioning Afghan bureaucracies, they build their own parallel ones that, in turn, take responsibility from and infantilize the Afghan agencies that are going to have to administer the country in the long run….Many gains that have been made may be unsustainable. A flood of money washed into Afghanistan, and the reports warn about what will happen when the flood dries up in a few years.”
  5. Contrary to the above figures regarding GDP, the World Bank also reports: “The opium economy is equivalent to more than one-third of Afghanistan’s licit economy. It is the country’s largest source of export earnings, and it comprises a major source of income and employment in rural areas.” After almost one decade of “occupation,” to use Karzai’s term, Afghanistan remains the world’s largest producer of opium. According to the UNODC World Drug Report (2010, p. 38): “By itself, Afghanistan provides 85% of the estimated global heroin and morphine supply, a near monopoly.”

Given the heavy dependence of foreign spending and the continued power of the opium trade, is there any doubt that the minute we dismount from Afghanistan—whether it is in a year or in a decade—things will revert to the pre-2002 status quo?

Given the facts that (1) Al Qaeda is no longer in Afghanistan, (2) the US and NATO are viewed as occupiers by the Afghan kleptocracy, (3) there is limited domestic support for continued involvement, and (4) nation-building has largely failed, I would like to better understand the justification for continued involvement in this war?

My recommendation for the President: Announce an immediate withdrawal from Afghanistan to be completed by year’s end (if not sooner).

As a domestic policy guy, I admit that my thinking on these issues may not be nearly as sophisticated as those who are steeped in foreign policy (e.g., Grover Cleveland). What is your view?

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At a recent Institute for Humane Studies conference, I had a bit of a debate with Bryan Caplan about the potential popularity of this proposal. In conjunction with this poll, which admittedly suffers from serious self-selection bias, I have another poll running on a non-political site. We’ll check back in a few days and see what the results show.

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As many readers already know, the Mercatus Center at George Mason University just released a new study I’ve coauthored with Texas State political scientist William Ruger, Freedom in the 50 States 2011: An Index of Personal and Economic Freedom. It’s the second edition of a study first published in 2009. The new edition updates and expands the data, ranks the states, and examines some correlates of economic and personal freedom.

I’ll try to blog a few of the findings from the study here in the near future, but in this post I wanted to explore something more in the vein of traditional academic political science, using the same data. (The data for the study, and to which I refer here, are available to the public at statepolicyindex.com.) When we try to understand how states differ systematically from each other in the mixes of public policies they have chosen, we have at our disposal a statistical method known as factor analysis. Factor analysis allows us to extract from a large number of variables a small number of dimensions – new variables that express meaningful correlation across policies. For instance, if states that have strict gun control laws also tend to have high cigarette taxes and lax abortion laws (which is true by the way), factor analysis could tell us that because of the high correlations across these three variables, a single variable can explain much of the variance in all three policies.

The dimensions that emerge from factor analysis of state policies are referred to as “state policy ideology.” We could think of them as regime orientations, ways in which different state governments have typically approached a wide range of public policies. The most important dimension of policy ideology is, unsurprisingly, the liberal-conservative, left-right dimension. Policy-liberal states tend to have, for instance, (more…)

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More Evidence for Greek Default

The Economist has a chart up today comparing growth rates pre- and post-default in recent years. Interestingly, countries have typically grown faster after default than before. There are reasons to be skeptical of a causal relationship, but it still shows that default is no disaster.

Scholarly work by John Ahlquist also has shown that default tends to attract more rather than less private investment. I have found a similar relationship in the data I have worked with.

More reasons to think that the catastrophic scenarios entertained to get European taxpayers to go along with bailouts are just not realistic.

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Ross Douthat has an interesting piece in the New York Times juxtaposing two very different foreign policy visions currently being expressed (one might say, at war) within the Republican Party: the assertive, muscular, idealistic neoconservative vision of Marco Rubio and the restrained, prudential, conservative realist outlook of Rand Paul.

I was an opponent of neoconservatism and foreign policy idealism before it was cool – meaning, before 9/11 and the debacle that followed in Iraq (let’s not be revisionist or forget that both parties and the Washington Foreign Policy Establishment were and have been on-board with the basic outlines of American hegemonialism and all that implies for a very long time).  Therefore, it is not surprising that I find Paul’s view much more compelling.

But what is interesting is that the foreign policy ideas once only expressed by libertarians, paleoconservatives, a few leftists, and capital R realists and that were derided as “irresponsible” or “narrow-minded” or “cynical” or just “crazy” and “extremist” are now going mainstream through such people as Rand Paul.  Our foreign policy debate is very much improved by widening the scope of discussion, so thanks Rand.  And for this, we have at least some Tea Partiers to thank — which is pretty ironic since some of those on the left probably agree that we need a more restrained foreign policy and yet have spent months and months noting that the Tea Party is a malevolent force in American politics if not a meer construction of the Koch brothers (an argument which seems to represent the paranoid style more than the object of the left’s ire).

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The Future of the Qaddafis

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Pileus blogger Jason Sorens recently released his co-authored study “Freedom in the 50 States.” This is now the second edition of the report, and it has deservedly generated a lot of attention. Even Paul Krugman has added his two cents.

At Salon.com, Andrew Leonard criticizes the report under the sarcastic headline, “Why do liberals hate freedom so much?” Because the Mercatus Center, which sponsored the research that led to the report, has received funding from the Koch Foundation, by a long chain of guilt-by-association reasoning, Leonard implies that the intent of the report is not really to gather and present data that provide an objective, quantifiable measure of both economic and personal freedom in each state, but is rather simply to bash liberals. A rather egocentric view of the world, that.

Of course, even if Leonard’s insinuations were true, that the study were part of Charles and David Koch’s nefarious plot to, well, extend economic and personal freedom, that fact would have no bearing on whether its findings were true. Attacking an author, or an author’s (alleged) motives, does not defeat the author’s argument. Philosophy 101: the ad hominem fallacy is . . . a fallacy.

But Leonard raises two other objections. The first:

[According to the report,] Most Americans are not free. A telling example: In the Mercatus rankings the two states blessed by the highest freedom quotient boast a combined population of a little over 2 million—South Dakota and New Hampshire (the latter of which, admittedly, went for Obama in 2008). The bottom three states were New York, New Jersey and California, which have a combined population of over 65 million.

Sixty-five million Americans in just three states cower under a totalitarian shadow! That’s a little distressing!

(Why “admittedly”? Is Leonard aiming to provide analysis, or advocacy? But that is by the by.)

As analysis, this is quite weak. Sorens and his co-author William Ruger claim that there are real differences between the least “free” and most “free” states in their report, but they do not claim that even residents of the, by their measure, “least free” state, New York, face anything like what people in, say, North Korea face. Although there are real relative differences among the states, no place in America is under a “totalitarian shadow.” To say otherwise is just moral posturing.

More substantively, however, one need not believe that their conception of economic and personal “freedom” is the only or the best one. They provide an explicit definition of their terms; they provide explanations and justifications for the metrics they use; and their data are openly available. If they make an error in their math or their reasoning, that should be simple enough to discover and point out. Leonard does not do that.

Leonard apparently wants to define “freedom” differently. Fair enough. He unfortunately is not as explicit about his own preferred definition as Sorens and Ruger are. Yet Leonard does, perhaps inadvertantly, disclose a clue about what his definition of freedom would be. He writes:

But from my perspective, not having access to universal healthcare is an imposition on my freedom. The fact that for most Americans healthcare is tied to one’s employer is a dread shackle limiting the freedom of movement of every worker. How much more liberated would we all be if we could switch jobs or work for ourselves without the fear that at any moment we might be crippled by an exorbitantly expensive health emergency? Similarly, a state requirement that employers offer paid parental leave (another black mark against California) clearly frees me to be a better father to my newborn. I’d really love to see what would happen to internal migration patterns in the United States if all the big blue states had universal single-payer healthcare, while everyone else was left at the mercy of a completely unregulated private market. That civil war would end rather quickly, I suspect. [Leonard's emphasis]

So his objection is that Sorens and Ruger do not consider the enjoyment of government-provided health care as an element of freedom, along with government-mandated (paid, presumably) parental leave from work. How much freer would Leonard be if he did not have to pay for his own health care? How much freer would he be if he did not have to work to support his family, but could instead simply spend time with his family?

How much freer indeed. The life Leonard wants for himself has its attractions. It is the life of an old-fashioned aristocrat, of a manorly lord. Leonard has the freedom of leisure to be a gentleman, pursuing properly gentlemanly ends—not the ignominious and base life of a man who has to actually work to support himself in the lifestyle he chooses. 

Now, Leonard has the feigned greatness of soul to allow that he would like this life of gentlemanly leisure for “all” of us. But that is dishonesty. He knows as well as anyone that we cannot all be leisured gentlemen. Someone will actually have to labor to provide the goods and services off which the gentlemen will live. Who are those people making his life free? Who are the people providing him his health care, paying his bills while he takes time off to romp with the kids, bearing the costs generated by his insousciant skipping from one activity to the next as he follows his bliss?

And now we see the real import of the “freedom” Leonard wants. It is the freedom of the pharaoh: the serfs, whom I never deign to see and whom I never condescend to consider, will labor to provide me the comforts and enjoyments and leisure I require. I am not held responsible for them—that would be beneath me.

I believe that is not only a loathsome attitude, but it is a morally reprehensible position. Mr. Leonard, you have no right to live off the fruits of others’ labor. Yes, it would increase your freedom if you could command others to work for you, but yours is a moral code that entitles one group of people to live at the expense of unwilling others, that requires one group of people to be held responsible for the leisurely lifestyle of another, that treats one group as superior to others and fails to respect the inherent dignity of the members of the other group as independent moral agents and indeed as fully human.

Realizing that we are not entitled to others’ labor, and that we are ourselves responsible for the choices—and the consequences of the choices—that we make is bracing and can be, depending on where our moral heads were to begin with, startling. But it is the only way to respect human dignity, both in ourselves and in others. And it implies the only freedom worth the name.

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Although I am usually quite pessimistic about the ability of policymakers and transfer-seekers to rise above well established pathologies, there were a few notable events at the end of the week that deserve notice.

Ethanol: Despite the odds, the Senate voted (73-27) Thursday to end ethanol subsidies (both the 45 cents a gallon tax credit and trade barriers).  Although the measure may never make its way through the entire legislative process (the President has threatened to veto it in the name of developing alternative sources of energy) the New York Times suggests: “the lopsided ethanol vote showed that Congressional support for ethanol is eroding and signaled that many Senate Republicans who voted to kill the tax credits might favor some measures that reduce the deficit by ending a tax break.” From your lips to God’s ears.

Social Security: Laura Meckler, WSJ, is reporting that the AARP is altering its position on Social Security reform. She writes: “AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington’s debate over how to revamp the nation’s entitlement programs.” In essence, the AARP has concluded that reform is inevitable given the problem of the structural deficit and thus it would like to participate actively in the reform process.  “If they come around and say they’re ready to do something, it will be like the Arctic icecap cracking,” said former Sen. Alan Simpson, co-chairman of a White House commission on the deficit.  One can only hope that this is more than a strategic ploy on the part of AARP.

Yes, I know, we are still embroiled in two (or three) wars, the debt crisis in Greece is spinning out of control, our own fiscal trajectory is simply unsustainable, etc., but sometimes you have to celebrate the streams of light into the darkness, even if they are small.  Have a great weekend and a Happy Father’s Day!

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America vs. France

Academics, especially those on the left, are prone to think Europe is wonderful and most of America hardly worth flying over.  Frequently, this prejudice is aimed at American attitudes.  But I think the American way of thinking is often underrated, especially the “can do” spirit that is still alive and well here in the USA.  Thus, despite my wariness of cultural generalizations, I was nodding my head when reading this comparative statement by freelance writer Barbara Diggs:  

I hardly know how to start describing the differences between the French and Americans. Sometimes I feel as if I live in ‘Opposite Land.’ The French definitely know how to enjoy life in terms of wine, food and relaxation. But despite all their philosophers and intellectuals, they’re not a forward-thinking people. ‘Yes, we can!’ is not a phrase that would motivate the masses here — they just don’t think that way. As Americans, we take for granted the attitude that we can do anything if we just put our minds to it and add a little elbow-grease. Maybe it’s not true, but that’s what we are taught to believe. That philosophy doesn’t exist here. At all. And it’s frustrating when you need someone to think outside the box to solve a problem. … This ‘can’t do’ attitude exists on every level and makes life endlessly and needlessly difficult.

Of course, there are wonderful things about those beyond our shores and problems in our own mindsets, but there are non-institutional reasons why America is what it is today and we would be wrong to ignore what’s under the hood of the NASCAR-loving American skull when explaining our relative success.  The place on this side of the Atlantic I’ve seen the French attitude described above is in the federal government – and so I worry that this defeatist attitude will bleed into society and change our outlook as more and more people experience and work for the Feds.  Viva la difference!    

Seems like an appropriate lead-in to watch one of the best motivational speeches and examples of the can-do spirit in the history of film (Caveat: Belushi swears):

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As many of our readers may know, fellow Pilei Jason Sorens was the founder of the Free State Project (if you don’t know much about it, here is the project’s website).  Thus it was with some interest that I opened David Weigel’s piece at Slate on the movement that Jason founded.

Unfortunately, all I got was a rather sensationalist account that focused primarily on an offshoot of Free Staters, the Free Keene project.  I’m still making my mind up about the Free Keene folks, their “voluntaryism,” and their more radical tactics.*  But Weigel does a real disservice to the FSP’ers by not painting a broader picture of the movement in a piece that suggests it is going to introduce us to this interesting but not well-known experiment in liberty.  I’m not an expert on FSP’ers, but I’m guessing that there is a bigger range in that group than we see on display in the Slate piece.  I think I might have to go to PORCfest or another of the movement’s gatherings and see for myself what those committed to “liberty in our lifetime” are really like – though even this may only represent a certain type of Free Stater.

*My adherence to a form of “virtue libertarianism” and the importance I place on prudence in politics suggests my take is going to be mixed, but I’m open to going either way once I get to know them a little better.

UPDATE: I think it is worth noting that I am not currently a member of the Free State Project because I cannot commit to my satisfaction to move to New Hampshire within 5 years of 20,000 people joining the movement.  However, I am in full agreement with the goal of the rest of the FSP’s statement of intent:  “I hereby state my solemn intent to move to the state of New Hampshire. Once there, I will exert the fullest practical effort toward the creation of a society in which the maximum role of civil government is the protection of life, liberty, and property.”  And I would certainly join and move if I could get a decent equivalent position in my chosen profession (or a job for which it was worth leaving my profession).

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Down with Karl Polanyi

When advancing the case for ‘free markets ‘ classical liberals are often chided for failing to recognise the wisdom of Karl Polanyi. In The Great Transformation Polanyi claimed that the pursuit of a ‘free market’ system is chimerical. Historically such an economy did not emerge spontaneously but was the result of social engineering by a nineteenth century state heady on the ideology of Adam Smith. Prior to this period it is alleged that markets and the pursuit of personal gain barely existed and that the responsiveness of people to price signals and incentives is merely a construct of modern economics. According to Polanyi, the result of the great social experiment with markets in the 19th century was a period of social dislocation which resulted in a widespread movement to regulate capitalism and build the welfare state. The market economy, therefore, is neither free in its origins and neither can it be left free to function without intervention of the state. Rather, markets should be recognised as ‘embedded’ in a nexus of social norms and institutions which emphasise solidarity and not as autonomous, freely operating structures in which the state misguidedly ‘intervenes’.

Notwithstanding Polanyi’s enduring popularity on the left his supposed insights are either historically inaccurate or based on a crude misrepresentation of classical liberalism. First, the vast majority of modern historical research on the origins of markets ably summarised by Hejeebu and McCloskey contradicts Polanyi’s central claims.* The historical record reveals ample evidence of profit-seeking behaviour for centuries prior to the alleged ‘creation’ of economic man by 19th century liberalism. In the case of Britain, for example, complex labour and agricultural markets thrived under the fragmented legal structure of medieval England. To the extent that the 18th and 19th century British state engaged in deliberate attempts to further the development of markets, therefore, this did not represent a sudden and deliberate ‘transformation’ of the social structure, but was the culmination of hundreds of years of incremental change. More recently, twentieth century evidence confirms that responsiveness to price signals and incentives is evident even in social systems explicitly committed to the eradiaction of such behaviour – at the height of the Cultural Revolution in Maoist China, black markets were still in operation.

Second, classical liberalism has never claimed that narrowly selfish behaviour is all that is required to sustain the social fabric. Of course markets are always ‘embedded’ in a broader nexus of institutions, but the question we need to ask is precisely what sort of institutional and social norms are required to facilitate social cooperation on the widest possible scale. Polanyi and his followers prefer to rely on hackneyed accounts of the Wealth of Nations rather than recognise that Smith’s support for markets and ‘self interest’ constituted part of a broader ethical system set out in the Theory of Moral Sentiments. Specifically, Smith was concerned to elucidate the balance between the social norms appropriate to contexts of commercial exchange and those appropriate in more intimate environments. From Smith’s point of view feelings of sympathy which include love, friendship and reciprocity are reserved for people of whom we have detailed personal knowledge. The morals expected in commercial relations which are often between relative strangers, however, tend to be more impersonal , focussed on principles such as the observance of contracts and are oriented more towards the ‘self interest’ of the parties involved rather than the direct benefit of ‘others’. The great mistake is to suppose that the type of ethos that pervades family life or that in tight knit communities can operate on a much wider scale. The development of inclusive markets requires a more impersonal ethos which enables people to engage with diverse actors who may not share the same moral outlook. If people deal only with those who share the same moral outlook or trade only with ‘locals’ rather than engage in transactions with ‘foreigners’ then the sphere of potentially cooperative relationships will be reduced. The alternative to self-interest is not solidarity, but suspicion if not outright conflict.

These Smithian insights continue to be crucial when thinking through the contemporary dilemmas of the modern welfare state. It is significant that many of the European countries which preach the Polanyian values of social ‘solidarity’ and manifest this with tightly regulated labour markets combined with large scale income redistribution are highly restrictive in terms of who benefits from this ‘solidarity’. They are characterised by ‘insider’ and ‘outsider’ markets in which the beneficiaries of government restrictions congratulate themselves on their commitment to social justice while showing little sympathy for those who lack jobs owing to its existence. And, they exhibit an intolerant, bordering on hostile attitude to immigrants. The Polanyian perspective far from offering an account of how to facilitate a wider sphere of cooperation has nothing to say about the type of social norms and distributive practices needed to facilitate more outward and inclusive practices. So, the next time you are confronted with an opponent waxing lyrical about Polanyi’s supposedly profound insights on the status of markets and political economy, invite them to read some history – and some Adam Smith.

References
Hejeebu, S., McCloskey, D.(2000) The Reproving of Karl Polanyi, Critical Review, 13 (4)
Hejeebu, S., McCloskey, D. (2004) Polanyi and the History of Capitalism: Rejoinder to Blyth, Critical Review, 16 (1).

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An interesting dispute helped derail the efforts to eliminate government subsidies for ethanol.  Oddly enough, it appears that some of the credit can be awarded to Americans for Tax Reform. Grover Norquist, head of Americans for Tax Reform, has been a powerful voice for tax reductions over the years, convincing Republican legislators to sign the Taxpayer Protection Pledge, in which they pledge to their constituents to:

ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and

TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

At first glance, the opposition to new (and existing taxes) is in keeping with Norquist’s broader goal of reducing the role of government (as Norquist famously remarked: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

The second provision of the pledge is odd for one who appears to embrace some form of libertarianism. The case against tax expenditures is relatively straightforward: For all practical purposes, they are government subsidies, albeit subsidies delivered to transfer-seekers via the tax system. When they are awarded to industry, they are little more than corporate welfare. When they are awarded to households, they overwhelmingly benefit the top quintile of the income distribution. Because they help create a revenue code that is more holes than cheese, they force higher marginal rates than would otherwise be necessary. Finally, they distort market signals and investment decisions.

Of course, none of this seems to matter once one has developed a fetish over taxation. To eliminate a tax expenditure—even if it is a naked subsidy for industry or agribusiness—is to increase taxes and hence a violation of the Taxpayer Protection Pledge.

This odd logic led Norquist, most recently, to oppose efforts in the Senate to cut $5 billion in subsidies to ethanol. As Manu Raju reports in Politico:

Norquist — head of the advocacy group Americans for Tax Reform — has for months ripped Sen. Tom Coburn (R-Okla.) for pushing a plan to slash more than $5 billion in ethanol subsidies, a move his group sees as a blatant tax hike. But instead of warning senators that supporting the Coburn plan would violate the group’s pledge not to raise taxes — which has been signed by virtually every Republican member of Congress — Norquist said that a vote for Coburn’s proposal was fine as long as senators also voted for a separate plan offered by Sen. Jim DeMint (R-S.C.) that would cut taxes.

The Coburn amendment was defeated on Tuesday. The transfers to agribusiness are safe!

Any meaningful efforts to address the long-term structural deficit will require increasing revenues and it makes great sense to begin the process with the elimination of many of the existing tax expenditures.  The elimination of these transfers could be combined with a reduction in marginal rates (as recommended by the Bowles-Simpson commission), although it would be my preference to defer rate cuts until we get our fiscal house in order. While I would guess that  Mr. Norquist rejects industrial policy and the vision of elite social engineering it embodies, he fails to realize that our system of tax expenditures constitute an industrial policy, albeit one that is painfully incoherent and defined by the legislative acumen of transfer-seekers capable of making mutually-beneficial exchanges with legislators (many of whom, undoubtedly, can view their actions as being perfectly compatible with the Taxpayer Protection Pledge).

To the extent that the Taxpayer Protection Pledge prevents legislators from eliminating tax expenditures, it will constitute a major impediment to fiscal stability.

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An owner who isn’t trying to rob the public treasury blind is a rarity in this day of pro sports.  Thus it was really nice to see Dallas Mavericks owner Mark Cuban say this about a parade celebrating the Mavs’ win over the (hated, thanks to LBJ) Heat:

“We’ll do it,” Cuban said early Monday morning. “All I told them was — Terdema Ussery, our president — you plan the parade. I’ll pay for it because I don’t think it’s right for the city to have to pay for it. And let’s just have some fun.”

Unfortunately, we can only give the Mavs one cheer.  According to this aggregation of news stories on the arena, the place the Mavs play in was partially funded by coerced taxpayer money.  Specifically, Dallas taxes hotels and rental cars to help pay for this modern form of the Roman circus.  To partially defend Cuban, he was not the owner of the team when the stadium bill was passed.

Speaking of Cuban, he is a bit of a libertarian – so his stance on the parade fits quite nicely with his philosophical views.  I love when stated and revealed preferences match!  Here is what he said about government and politicians in 2007 (before he voted for President Obama – ouch!):

I’m not a Republican. I’m not a Democrat. Although I like to tell people I’m a Libertarian, I’m really not. I’m unaffiliated with any political party. In fact I can’t think of anything good that comes from political parties because they do just one thing, politics.

When I vote in any local or state election, I vote for the candidate who I think will do the least. Not the least of anything specific, just the least amount of everything. The perfect candidate for me would be one that would walk around kissing babies. I think we have enough state and federals. We have 200+ years of making local and state laws. That’s enough.

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The GOP presidential candidates will go live in a debate tonight at St. Anselm College. I do not really find much value in these debates. Questions are presented and usually ignored, as candidates attempt to fit their Hallmark-tailored talking points into whatever space they are given.  The time allotted is so short that it is nearly impossible to discern the depth of a candidate’s knowledge on any given subject.  The media watches in anticipation, hoping to find sound bytes or embarrassing gaffs. The lights dim, the spin begins, and we move on to the next equally unenlightening debate.

It would be far more effective to take a page out of history of the Catholic Church and appoint an official advocatus diaboli. For some 400 years, the Catholic Church used the devil’s advocate to challenge candidates for canonization. In its political incarnation, a candidate could present his or her core argument at which point the devil’s advocate could make counter arguments, test the basic propositions, question the character and competency of the candidate. The candidate would be required to respond to the challenges when posed and prove his or her fitness for office. Imagine if we subjected each candidate to this treatment for an uninterrupted 90 minutes on prime time television? With the national love for reality programming, it might actually attract a significant audience.

The selection of the devil’s advocate would be critical. You would need someone with strong partisan leanings, a powerful understanding of public policy and a quick wit. I could imagine a few people on the Left who might play this role effectively, for example, Robert Kuttner, Robert Reich, Lawrence O’Donnell, or Sy Hersh. Democratic candidates would have to face a comparable foe drawn from the Right.

In my perfect world, candidates would have to submit themselves to the devil’s advocate before they could gain access to debates. It would be an effective means of eliminating those who excel in the little arts of popularity but have nothing of substance to bring to what is arguably the most important position in the world.

I wonder how many of the current GOP candidates would prevail in a 90 minute questioning by any of the above? I am certain that Ron Paul would make it through the process and would likely embrace the challenge.

But Michelle Bachmann? Herman Cain?

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Having taken on left-liberals in my last post, it’s only fair to take a shot at the right too. Here‘s the Deseret News editorializing on why our recommendations for Utah are wrong:

The report’s authors are clear about their definition of freedom. “In our view, individuals should be allowed to dispose of their lives, liberties, and properties as they see fit, as long as they do not infringe on the rights of others,” they write. But few personal behaviors can intrude more on the rights of others than drinking alcohol and gambling… [T]he enormous alcohol industry, relentlessly pushing everything from glamorous images to new products such as sweet-flavored alco-pops, would, if left unfettered, eventually rob more people of freedoms.

The line taken here seems to be that if you make bad decisions that decrease your life satisfaction, you have lost freedom (to whom?). And if you encourage someone to make a decision that might be bad, you’ve violated his rights. For the benefit of the Deseret News, I’ve compiled a new list of policy recommendations for Utah based on this new definition of freedom:

1. The enormous credit card industry gets people hooked on cheap credit, and the debt they take on means less freedom. Enact a state monopoly of credit.

2. Television and books encourage people to sit at home rather than get up and exercise, resulting in an epidemic of obesity and, of course, violating their victims’ rights. Tightly regulate their use.

3. Many people get involved in mistaken relationships when they are young, sometimes resulting in children and often resulting in heartbreak. Clearly these young lovers have taken away each other’s freedoms. Ban fornication. Fund a virtue police to monitor young couples. Iran has a system that works, at least compared to decadent, unfree societies in the West.

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Matt Yglesias throws some scorn the way of Freedom in the 50 States 2011:

Reasonable people can disagree as to whether there’s more freedom in Los Angeles or Brooklyn, and there may be good reasons to move from either place to Sioux Falls, but obviously “for the freedom” is not one of those reasons. For the lower taxes? Sure. Because there’s less government regulation? Maybe so. But because there’s more freedom? Clearly not. They say that they “explicitly ground our conception of freedom on an individual rights framework” but all that goes to show is that their understanding of the individual rights framework offers an unsound conception of freedom. These answers are clearly and uncontroversially mistaken.

Because he doesn’t propose any alternative conception of freedom, it’s unclear precisely in what way he thinks that the libertarian conception of freedom is mistaken. But it’s even more perplexing how he comes to the conclusion that the ranking “refutes” the libertarian conception of freedom. California lost 4.4% of its 2000 population over the next 9 years to other states, on net. New York lost 8.9% of its 2000 population over the next 9 years to other states, on net. New Hampshire, by contrast, enjoyed a net gain of 2.8% of its 2000 population over the same period. South Dakota’s net in-migration was 0.8%. The study finds that freer states experience more net in-migration, controlling for climate.

So let’s get this straight: People are fleeing a state with gorgeous year-round climate, world-class universities, Silicon Valley, and Hollywood and flocking to a wintry, windswept state with… the Badlands. People are fleeing a state with Wall Street, the Met, the Yankees, and Broadway for a wintry, rural state with… the Old Man of the Mountain. Wait, he’s gone now too. The omitted variable? Libertarian freedom. And that makes all the difference.

So how do libgressives define freedom? They often seem to conflate freedom and utility. (See for instance the quotes at the end of this story.) But surely a man locked in a cell hooked to an experience machine isn’t really free, is he?

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I’ve just gotten back from a Cato Institute event discussing the new study, Freedom in the 50 States, with my coauthor William Ruger, John Samples, and Michael Barone. I’ll post the video when it’s available. The Mercatus site for the study allows you to download the study and to use a calculator to see how states would change on the index if they made certain policy reforms. They’ve also put together this nice little video for the project:

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Matthew Slaughter and Robert Lawrence have an interesting little proposal in the NY Times: abolishing Trade Adjustment Assistance (TAA), rolling it into unemployment insurance, and reforming the program so as to reduce its work disincentives. They also advocate special tax treatment for unemployed workers’ expenditures on job retraining. They sell the plan, which they say will cost about $20 billion, as a way of building public support for trade agreements, which has dissipated in recent years.

On the whole, the reforms make sense to me. Nevertheless, they are still just tinkering. I am not sure that these relatively arcane changes will be enough to change the public’s fundamentally hostile attitudes toward globalization these days, and I think we need to consider far more radical reforms to achieve rapid reductions in unemployment.

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