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Archive for May, 2012

It seems that all we have heard of late is about the sharp partisan battles in Congress that have placed it in a gridlock and prevented it from working in a bipartisan fashion to “do the nation’s business.” Yes, the “do nothing Congress.”

But there are exceptions to this description.  Given the depth and severity of the financial collapse, it is good to see bipartisanship in addressing the issue of financial regulation, or more correctly, providing exemptions when there are mutually beneficial exchanges to be made.

As John Bresnahan reports, the prospects look good for a “one sentence bill worth $300 million to a bank owned by a politically connected family that has doled out hundreds of thousands of dollars in campaign donations.”

The bill would allow Emigrant Bank to avoid meeting the requirements for Tier 1 capital by allowing it to base capital requirements on what its assets were on March 31, 2010, before it broke the Dodd-Frank threshold of $15 billion. Of course, the argument is that the bank only broke the $15 billion mark for a brief period of time. By tweaking Dodd-Frank, Congress could allow the bank to free up funds, thereby allowing it to make additional loans, largely in New York.

Although the bill was sponsored by a Republican (Rep. Michael Grimm, R-NY), it has strong bipartisan support from members of the Financial Services Committee (success in the Senate remains uncertain). Why the support? Howard Milstein, owner of Emigrant Bank, was “a bundler for President Barack Obama’s 2008 campaign.”  Bresnahan provides some additional details on Milstein:

He is a force in New York state politics. Aside from his fundraising for Obama four years ago, Milstein has been a prominent financial backer of Gov. Andrew Cuomo. The Democrat tapped Milstein last year to head the New York State Thruway Authority despite complaints by watchdog groups that having a real estate mogul run the agency would be a conflict of interest.

Even Diana Cantor, wife of House Majority Leader Eric Cantor (R-Va.), worked for a Milstein-owned trust that catered to the needs of high-income customers.

The Milsteins, along with business associates and other family members, have donated hundreds of thousands of dollars to both GOP and Democratic lawmakers over the past decade. Along with Grimm, New York Democratic Reps. Carolyn Maloney, Carolyn McCarthy and Gregory Meeks — all co-sponsors of the bill — have received $11,500 in donations from the Milsteins this cycle.

According to a statement by Emigrant Bank, “H.R. 3128 is all about credit availability in underserved communities throughout New York City.” Perhaps. But one might also note that so many of the poor decisions leading up to the recent collapse (e.g., regarding relaxed underwriting standards, securitization, and the GSEs pumping liquidity into the low and moderate income segments of the market) were given the same justification, often by members of the House Financial Services Committee.

There is a powerful public choice argument regarding some of the factors that contributed to the financial collapse. In the election cycles leading up to the financial collapse, the securities and investment industry and real estate industry contributed tens of millions of dollars to the campaign chests of the Financial Services Committee and its Senate counterpart. Regardless of the party in control, the committee members prevented and/or gamed any attempts to impose regulatory reforms that might have had lessened the severity of the impending financial collapse. Certainly Congress responded in the aftermath of the collapse, albeit it ways that were far from sufficient.

But now that attention has turned elsewhere, normal practices appear to have resumed. The days of reform have run their course and Congress appears ready to return to its standard mud farming, imposing new regulations only to relax when a mutually advantageous deal can be struck.

At least we know that in 2012, gridlock has its limits and bipartisanship is still a possibility.

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The Cato Institute has a new project and accompanying website devoted to tracking police misconduct.  Isn’t it sad that the society that produced this has need for such a thing?  It is probably more accurate (even aside from the obvious sense) to say that we are a different people now.  Unfortunately, I think police misconduct is only going to get worse, especially with the militarization of state and local police forces that has been going on for some time and exacerbated by 9/11.

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Victor Davis Hanson has one of the most awful columns I’ve ever seen out on the wire today. The argument is that Greece is in trouble because of its bad culture, while places like Germany and Switzerland have good culture and therefore sound economic policies. Leaving aside the laziness of this kind of culture argument (what can’t it explain?), I was simply distracted by the gross errors of fact coming one after the other in quick succession.

Switzerland, by modern standards, should be poor. Like Bolivia, it is landlocked. Like Italy, it has no real gas or oil wealth. Like Afghanistan, its northern climate and mountainous terrain limit agricultural productivity to upland plains. And like Turkey, it is not a part of the European Union.

Wait, Italy is poor? Italy?

Unlike Americans, the Swiss are among the most homogeneous people in the world,

The country with four official languages? I’m sure they would be surprised to hear that they are “among the most homogeneous people in the world.”

and without much diversity, and they make it nearly impossible to immigrate to their country.

Apparently, the 22.9% of Switzerland’s population that is foreign-born, highest of any significant country in Europe, all got there illegally, and not through Switzerland’s generous guest-worker program. Huh.

OK, I can’t resist taking a dig at the culture-is-destiny claim too:

But government-driven efforts to change national behavior often ignore stubborn cultural differences that reflect centuries of complex history as well as ancient habits and adaptations to geography and climate. Greeks can no more easily give up siestas than the Swiss can mandate two-hour afternoon naps. If tax cheating is a national pastime in Palermo, by comparison it is difficult along the Rhine.

Yes, that’s the reason schoolchildren learn about the German Empire that dominated the ancient world. Cultures never change, and they are the ultimate determinant of prosperity; just look at your history. Wait, isn’t this guy a classicist?

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This is awesome. As we all know, the Obama Administration claims that it has the right to kill anyone it considers a terrorist, so long as it has some internal process for deciding whom to kill. Now someone has set up a petition on whitehouse.gov:

Considering that the government already has a “Do Not Call” list and a “No Fly” list, we hereby request that the White House create a “Do Not Kill” list in which American citizens can sign up to avoid being put on the president’s “kill list” and therefore avoid being executed without indictment, judge, jury, trial or due process of law.

Not that it will really accomplish anything. But humiliating the turncoat in the Oval Office would nevertheless warm the cockles of my jaded heart.

HT: Glenn Greenwald

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Sustainable misery

Here are some of the latest economic ideas coming out of Europe:

  • Take longer coffee breaks.
  • Don’t upgrade your software or buy a new computer.
  • Forget about that graduate degree.
  • Bring your child to work.  All day.  Every day.
  • Spend a lot of time on the internet.  With a dial-up modem, of course.
  • Don’t maintain the machinery at your plant.  That might keep it from breaking down.
  • Cut your R&D budget.
  • Forget that; eliminate your R&D budget.

These weren’t exactly the proposals advocated by Tim Jackson in a Times editorial today, but they might as well have been.  Jackson is a “professor of sustainable development” and advocates that we should pursue “less productivity” (seriously!) in the economy.  Here is the take-away.

Perhaps in the long run it’s an easier and a more compelling solution: to loosen our grip on the relentless pursuit of productivity. By easing up on the gas pedal of efficiency and creating jobs in what are traditionally seen as “low productivity” sectors, we have within our grasp the means to maintain or increase employment, even when the economy stagnates.

Just when I thought that Europeans (and the rest of us) couldn’t get any worse economic advice than Paul Krugman’s ranting about the evils of austerity, along comes Prof. Jackson with this sage advice: just do things less well.

Sustainable development is one of those very dangerous buzz words that came out of the last century.  Dangerous because it cloaks old-fashioned anti-capitalist gibberish in jargon that has an appealing sound.  Who could be against sustainability or development, after all?  But it is unusual to see the regressive aims of this movement couched in such stark terms.  And, in case your wondering, the sustainability is questionable, and the development is non-existent.

Jackson thinks we should transform our economy into one that cares more about the “caring professions,” jobs where time and human interaction are key: medicine, education, social work.  But only if it is one with less focus on efficiency.  We don’t want educational tools that allow more learning with fewer dollars, or medical innovations that reduce suffering and disease.  What Jackson wants is more time–more human time.  “Even to speak of reducing the time involved,” says Jackson, “is to misunderstand its value.”

In an economy that focuses on efficiency, there is more time for human interactions.  Indeed, that is the very definition of increasing labor productivity is reducing the time required to perform a particular task.  So, if we want doctors to have more face time with patients or teachers to have more one-on-one time with struggling students, we need more productivity, not less.  That doesn’t mean productivity gains will be channeled into the activities Jackson values, of course.  But the unstated essence of what he is saying, and what those people who would increase command and control in the economy always always say, is that “people should value what I care about instead of what they care about.”

Jackson sees a less productive labor force as a means of increasing employment.  In this view, since there is a certain amount of work to be done, if workers are less productive, it takes more time to do that fixed amount of work.  Voila! Unemployment solved.  But what he doesn’t mention is who pays for all of these new unproductive workers.  Ahhhhh, there’s the rub.  You see, in the background of Jackson’s sustainable lifestyles is a powerful mechanism that  diverts, through force, productive resources that are focused on profit to paying for an ever-increasing number of workers whose aim is not economic value, but “caring.”

So, when we peel back the rosy language of caring and sustainability and people “devoted to work with devotion, patience and attention” we get something not new at all, namely a massive welfare state continually draining the capacity of the economy to produce goods and services, while workers work less, do less, for shorter time with greater compensation.

Jackson is the author of a book called Prosperity without Growth: Economics for a Finite Planet.  I would say what is really “finite” is Jackson’s mind and the future of the economy if more and more people buy into his vision of sustainability.

Hollande for President, anyone?

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On this Memorial Day, a salute to all those Americans who have lost their lives fighting in foreign wars.

A special salute to Major Brian Mescall, a graduate of the Citadel, who was killed in action in Afghanistan.  And one to Captain Ray Conard, killed in his B-24 during WWII (he was a member of the 734th Bomber Squadron, 453rd Bomber Group in Britain).  This may be the story (though I haven’t been able to verify it) of what happened to Captain Conard:

MISSION # 182 – BIELEFELD, GERMANY – 26 NOV. – SUN.

41 aircraft flew on to bomb a railway viaduct just outside Bielefeld. Using a visual correction through a cloud break on a PFF run, 101 tons fell on the target with fair results.

For the third time in the month, tragedy stalked the 734th Squadron. Capt. Conard, leading mission 182, crashed a few miles from the base. Apparently unable to get his plane to climb, Capt. Conard jettisoned his bomb load. Never over a few hundred feet above ground, the ship lost altitude steadily and headed for two homes about forty or fifty feet apart. Unable to climb over them or fly between them, [Capt Conard stood the big ship on its right wing and cartwheeled between them.]*  Capt. Conard’s action is believed by Major McFadden and Col. Thomas, who investigated the crash, to have been deliberate in order to avoid striking the homes and injuring or killing the occupants. His courageous action cost him his life along with the lives of his crew, but the occupants of the homes were in no way harmed, This, despite the fact that an engine damaged a corner of one of the homes as it was dislodged from the plane. Capt. Conard has been recommended for the DSC, posthumously.  

*added in some versions of the story found on the web

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Senator Tom Coburn (R-Oklahoma) on CBS News:

S&P’s downgrade on us was right. Matter of fact, we’re going to get another downgrade. I can tell you right now… If you look what’s getting ready to happen to us, in another five years, we’re going to have $22 trillion worth of debt. We’re going to have 120% of our total GDP in debt. If you look at historic interest rates, we’re going to be paying $800 billion a year in interest. Where are we going to get that money?

HT: Fox.

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What Would You Do…

In response to a reader question, Angus at Kids Prefer Cheese lists the five things he would do if he were the supreme ruler of the USA.  Here they are:

1. Increase the inflow of skilled immigrants.

2. Increase school choice, especially for lower income families.

3. Big tax reform with a broad base, low rates, and a carbon tax included in the mix.

4. Use a combination of size limits, leverage limits, and capital requirements that move with size/leverage to reduce the frequency with which finance blows up the economy (instead of trying to micro-manage a la Dodd-Frank / Volcker rule).

5. De-porkify the Federal Government (Dept. of Agriculture, Ex-Imp bank, small business administration, military procurement).

This has internet craze written all over it.  So I’ll jump in early.  But first, I wonder why Angus would only increase school choice since he’s the supreme ruler and all??

Here is my off-the-cuff list (my first instinct was to have only one thing on it: declare it impossible for anyone to be the supreme leader):

1.  End sugar subsidies in the US.  This would save consumers and other sugar users about $4 billion or so (see here for more on this).

2.  Repeal the 17th Amendment to increase the power of the states in the federal government.

3.  Declare victory in the Cold War, retire NATO, and bring back all of our soldiers from Europe (though I would still have a bilateral deal with Italy to keep a Navy base in the region).  Obviously, this would end our Article 5 treaty obligation that currently commits the US to the collective defense of states such as Latvia, Lithuania, and Estonia – among too many others – against armed attack.

4.  Rewrite the commerce clause of the U.S. Constitution so that precedents such as Wickard v. Filburn will by logic be overturned and ObamaCare clearly ruled unconstitutional. 

5.  Strengthen protection for private property by adding an explicit ban on the use of eminent domain for private purposes to the takings clause of the 5th Amendment of the U.S. Constitution.

As you can see, I’m bigger on structural reform than specific policy prescriptions.  What are your suggestions?

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A new Washington Post-ABC poll focuses on voter perceptions of whether Obama or Romney would do more to improve the economy (poll results here, discussion here).

When asked “Who would do more to advance the economic interests of middle-class Americans,” Obama wins over Romney, 50% to 44%.  When asked who would do more to advance the economic interests of financial interests, Romney wins 56% to 33%. When asked who would do the most to advance the interests of the wealthy, Romney wins 68% to 21%.

Thus far, a win for Obama. The take home message: there is a strong class division at play. To the extent that Obama can exploit class divisions, he will be successful (after all, we are a middle class nation and as the poll reveals, the majority believe that Obama will advance the interests of the middle-class).

But this lesson seems to be the wrong one to glean from the poll results. When white voters are asked “Who would do more to advance the economic interest of you and your family?” the poll reveals the following results:

  •  Working class: Romney 44%, Obama 42%
  • Comfortable in current class: Romney 49%, Obama 41%
  • Middle class: Romney 53%, Obama 38%
  • Struggling to remain in current class: Romney 55%, Obama 32%
  • Laid off/knows someone whose been laid off: Romney 56%, Obama 32%
  • Upper middle class/better off: Romney 61%, Obama 29%

This raises an interesting question: how could a majority believe that Obama would advance the interests of the middle class when members of the middle class (and working class, and upper middle class, etc) believe that their best bet is Romney?

Public opinion is interesting and frustrating. In one of the classes I teach (environmental policy) I provide students with some data that shows two things: (1) a majority believe the environment has gotten worse, and (2) a majority believe that the environment, as they experience it, has improved. Both can’t be true simultaneously. I use this example to explain that people tend to gain their impression of macro-conditions via the media, which focuses on sensational stories, even if the larger story stands at odds with their own experiences. As a result, a majority thinks the environment has improved for them but has become worse for everyone else–an impossibility, to be certain.

The media seems committed to a distinct meta-narrative:  Obama will promote the interests of the middle class whereas Romney will cater to the 1 percent. To some extent, it appears, voters have accepted this portrayal. Yet, in their own assessment of how the candidates would impact on the economic welfare of themselves and their families, they depart from the meta-narrative.

This is not good news for the Obama campaign, particularly if voters will decide in November  based on their projections of how a given candidate’s victory will impact on them and their families. This is the big lesson.

 

 

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The last week has brought a fair amount of attention to the Obama campaign attacks on Romney and Bain Capital, most of which might have been lifted straight out of the “vulture capital” meme started by the Rick Perry campaign. It all started with Corey Booker’s rejection of the Obama strategy on Meet the Press ( a decision that is reportedly paying off quite nicely). It then spread quickly, ultimately finding an expression in Romney ads.

Steve Ratner, former Obama car czar and financier, has an interesting piece in the NYT that is worth a quick read.  A few quick quotes:

In fact, Bain Capital — like other private equity firms — was founded and managed for profit: ideally, huge amounts of gain earned legally and legitimately. Any job creation was a welcome but secondary byproduct.

The language in one prospectus seeking Bain Capital investors was clear: “The objective of the Fund is to achieve an annual rate of return on invested capital in excess of the returns generated” by other investments. Any job creation was accidental. …

That’s not wrong; it’s part of capitalism. Whatever its flaws, private equity has made a material contribution to sharpening management. But don’t confuse a leveraged buyout with job creation.

Ratner chastises Romney for claiming responsibility for all jobs created, even after he left Bain, while deflecting any responsibility for jobs lost. It seems that Ratner has a point.

Yet, if this was Romney’s mistake, he is not alone. All we have heard in the past 3 years and 5 months is that every job lost since inauguration day was the product of Bush’s policies whereas every job created (and/or saved) since inauguration a product of the Obama policies. There is no honest accounting, no recognition that some jobs have been lost or created in spite of public policy decisions.

The President seems to have altered his tone—only slightly—and now claims that there is nothing wrong with private equity firms. But even successful management of a private equity firm does not qualify you to be president where you must make jobs.

At least Ratner et al are directing attention back to the fact that capitalism’s primary function is not to generate an endless stream of jobs, even if this is one of the beneficial byproducts.

One only wishes we could apply the same lesson to government. Government’s primary job is to defend life, liberty, and property rights. If it restricts itself to these functions, there may be a stream of new jobs. But as with private equity, it is one of the beneficial side effects, not its primary function.

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Campaign Tidbits

1.  Fans of Mitch Daniels won’t be seeing him in the VP slot.  From the NYT: “If I thought that call was coming, I would disconnect the phone,” Mr. Daniels said, adding that the job of the No. 2 in the White House is “not an office I want to hold, expect to hold, have any plans to hold.”

My questions: What is next for Mitch?  Is he through with politics?  If Romney wins, a Cabinet slot? 

2.  I guess neither CNN nor the NYT think that Obama’s poor showing in the Kentucky and Arkansas primaries is news that is fit to print (on the internet at least) since I’m having trouble finding anything on their websites about it.  Here is National Review on it.

3.  Dan Drezner on Romney’s foreign policy team (having trouble but does it matter?).

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The Gray Lady is running an article on-line today about public libraries that are choosing not to stock copies of Fifty Shades of Grey, the steamy new bestseller.  Apparently, a more appropriate title for the trilogy might be Filthy Shades of Grey, and some libraries are choosing not to stock it because they deem it pornographic or because the don’t think it is the place of public libraries to distribute erotic fiction.

The Times sees this as a censorship issue.  As we know, book banners are always morally suspect individuals, right up there with people who don’t support campaign finance restrictions or people who make fun of vegetarians.   They quote the National Coalition Against Censorship’s formal response to this issue, who say:

The very act of rejecting erotica as a category suitable for public libraries sends an unmistakable message of condemnation that is moralistic in tone, and totally inappropriate in a public institution dedicated to serving the needs and interests of all members of the community.

It is often amusing how people who love to take the moral high ground are often so oblivious to moral reasoning that might undermine their position.  One might start with a challenge to the notion that public institutions cannot be moralistic.  I bet the people at the National Coalition wouldn’t be offended if the library were distributing free pamphlets on the dangers of global warming and how to reduce energy consumption, though certainly such an action is at least as moralistic as telling people they have to buy their porn from Barnes and Noble.  One could also challenge the notion that erotic fiction helps serve the “needs” of people in the community.  I’ve never read Filthy Shades, but I’m wondering what kind of human need it satisfies and, more important, why public dollars should serve such a need.  And does anyone seriously think that the interests of “all the members of the community” should be served by the public library?  Does not such a view completely undermine any rationale that public libraries might have?

Indeed, we can think of the very creation of a public library as a moralistic exercise.  Books are both excludable and rivalrous, meaning they fail the classic definition of a public good.  Therefore, using public funds to provide a library can only be justified as some sort of positive externality.  The (admittedly tenuous) claim is that extorting tax dollars  to provide free reading materials to the few serves a larger public interest by building a more literate citizenry.  Or, perhaps, public libraries and things like public swimming pools and parks reduce crime.  I’m skeptical of these arguments, though I can think of far worse things for government to be involved in.  Providing free access to educational materials and a quiet place where they can read them strikes me as a decent thing to do on humanitarian and egalitarian grounds.  Giving children access to books that their families either cannot afford or will not buy is a similarly judicious use of public funds, I believe.

But such an argument implies a large measure of restraint and a clear sense of mission—a highly moralistic perspective in other words.  But most libraries these days are run as out of control entitlement programs.   Patrons demand the libraries buy the popular materials and librarians bow to the pressure out a misguided sense of mission.  Again, do we use public funds to buy smut just because people want smut?

Libraries should be very careful and restrained about what materials they distribute because any ethical rationale for their existence requires it.   Whether the material is erotic or non-erotic is largely beside the point.  Libraries shouldn’t be distributing popular pulp fiction (or DVDs, for that matter) unless they have a financing mechanism to fund that distribution that doesn’t require public funds.  Implementing small fees on popular items and new releases would also be a way to alleviate the need for public funds.  But libraries are taking the exact opposite approach—buying numerous copies of popular books at the expense of less popular but higher quality materials.

I am a lover of libraries.  I can’t think of any place I’d rather spend a vacation than sitting in a comfortable chair in a nice, quiet library with a good book.  That’s my Disney Land.  This is why I’m relatively eager to work out a rationale for using public funds to provide libraries, even if the logic is somewhat tortured and offends my more doctrinaire libertarian friends.  I like it that families with limited means have a place to go to get books for their children to read.  I like it that people with hard, chaotic lives have a safe place where they can go to access the internet or quietly read a good book or magazine.  I like it that students and ordinary people who don’t have access to a college library can have a place where they can go to do research and maybe be guided by a librarian.  I like it when a community takes a positive, moralistic stand and says “this is good stuff; come and read”  (though deciding who gets to say what is worthwhile and what is not will always be problematic).

What I don’t appreciate, though, is my tax dollars being used to buy 50 copies of the latest Grisham novel or other pulp fiction, whether it is trashy or not.  That’s why we have Amazon.com.

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Recently I came across an interesting question posed (in a 2010 article) by David Beckworth and William Ruger of Texas State University: What would Milton Friedman say about Fed policy under Bernanke?

Their answer, I think, would surprise many fans of Friedman, for the heart of their argument is that the Fed has not been aggresive enough in the wake of the 2008 financial crisis and ensuing recession (including now).  I had always thought of Friedman as being concerned with stable growth of the money supply.  Beckworth and Ruger, however, point out Friedman’s 1992 argument requiring the Fed to stabilize inflation expectations and nominal GDP, not money growth.  Because expectations can change on a dime, this policy rule requires that the Fed move aggressively to inflate the currency quickly (and perhaps dramatically) as a response to dampened inflation expectations.

Beckworth and Ruger provide a “market monetarist” reading of Friedman’s corpus.  As I wrote awhile back, I think the market monetarists have the potential to become the new thing in macroeconomics.  They have the potential to unite those who want an activist policy response to monetary shocks with those who are against discretionary government power, particularly the evils of fiscal policy.  Their free-market approach, however, faces opposition from the loony part of the libertarian right, those infatuated with the gold standard, the power of the Fed and inflation.  One might call this the Ron Paul wing of the movement (though that perhaps paint with too broad a brush).  And then there are the more traditional anti-inflation types, principally those who are hurt by inflation (which is a form of a tax).  But that is more of a raw interest than an ideology.

I don’t know the Friedman intellectual history, nor am I a fully convinced (maybe 85%) that the market monetarists are telling the right story.  One important thing to keep in mind, though, is that in conjuring up the spirit of Uncle Milty, they have preserved Friedman’s emphasis on rules over discretion.  Discretion comes in terms of picking the right rule.  Friedman argued for aggressive Fed actions, but only within the framework of the rule.  And, in Friedman’s world, the Fed doesn’t get to pick the rules.

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At Bleeding Heart Libertarians, Jason Brennan takes up the question of which country is most libertarian and lodges a complaint against global “economic freedom” indices:

This index may understate how anti-libertarian the United States is. After all, the index penalizes countries if their governments spend large amounts on social insurance. Yet classical liberals and neoclassical liberals are not in principle opposed to government social insurance. [That is, they will accept it under certain conditions.]

Thus, suppose we separate the idea of the administrative state—which tries to control, regulate, manipulate, and manage the economy—from the social insurance state—which provides tax-financed education, healthcare, or unemployment insurance. On the Index of Economic Freedom, many countries that rank lower than the US have far less extensive administrative states than the US. For instance, Denmark ranks much higher than the United States on property rights, freedom from corruption, business freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Luxembourg, the Netherlands, the United Kingdom, and many other countries beat the US on these measures as well. Thus, many other European countries might reasonably be considered more economically libertarian than the US.

Jason makes a legitimate point here: a dollar transferred to a social security recipient is less violative of freedom than a dollar spent hiring a drug enforcement agent or antitrust litigator. This is so even for those declassé Rothbardian absolutists, for whom the immorality of taxation is compounded when it is used to fund further violations of people’s rights.

However, even a bleeding-heart libertarian should see really existing welfare states as problematic for two basic reasons. First, (more…)

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I’m sure I’m not the only one who has been chagrined by some of the things we’ve seen in the past several years from newsweeklies like Time and Newsweek.  Last week’s Obama cover story in Newsweek was only the most recent case in point for the broad decline in standards (and if Andrew Sullivan didn’t jump the shark with his Iraq War coverage – on both sides! – or his Palin Derangement Syndrome, then he surely did with this fawning story.  Will Wilkinson’s excellent piece on Sullivan’s Obamaphilia seems to nail part of Sullivan’s problem and reminded me a bit of Bellow on Bloom in Ravelstein). 

But this isn’t a Time or a Newsweek specific problem even though Tina Brown probably best represents this era.  There has been a widespread decline in general news and opinion journalism.       

That all being said, Newsweek brings us a blast of fresh air this week with an adult issue that deserves our praise.  Most impressively, it has a fascinating cover story on the multiverse that is an example of the kind of general interest journalism that doesn’t pander to its lay readers’ baser desires or affections but appeals to their loftiest intellectual needs.  That article alone would merit our attention and kudos.  But there is also an informative piece on Cronkite (with nuggets of information I’d never heard before), a sobering discussion of the high suicide rates in the GWOT military by none other than Jarhead‘s Anthony Swofford, and more.

Three cheers for Newsweek – this week!

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Robert Nisbet in an essay titled “Uneasy Cousins” in the underappreciated ISI book, Freedom and Virtue: The Conservative/Libertarian Debate (ed. George W. Carey):

I believe a state of mind is developing among libertarians in which the coercions of family, church, local community, and school will seem almost as inimical to freedom as those of the political government.  If so, this will most certainly widen the gulf between libertarians and conservatives.

I think Nisbet was already late to the development of this state of mind in 1984.  In fact, one can find it in Mill over a hundred years earlier.  Furthermore, Nisbet would have been wise to put “coercions” within quotation marks since what he was really talking about are the social pressures, mores, and approbations/disapprobations of non-state communities rather than coercion (which is properly understood as the threat or use of physical violence).   

But Nisbet was right to point to the development of this view and how it separates conservatives and libertarians.  One could add more than a quarter decade later that it works to prevent the revival of the fusionism that held together the opponents of modern liberalism during Nisbet’s time.  The view that “social pressure of communities equals coercion” remains troubling today and something that seems more broadly held amongst libertarians than in the past.  A bad sign for virtue libertarians, right-libertarians, conservative libertarians, or whatever we want to call those who don’t identify with what might be called libertine libertarianism or Millian libertarianism or lumped in with left-libertarianism or liberaltarianism.

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George Will has a good column today on civil asset forfeiture abuse. He highlights an ongoing case in Tewksbury, Mass., where the DOJ and local police department are colluding to seize a motel from the owners because some drug dealers have stayed there in the past. The government is not claiming that the owners knew or even should have known about criminal activity at the motel; they can seize the property anyway, accusing an inanimate object of committing a crime. The Institute for Justice, who put out the recent Policing for Profit report blowing the whistle on ongoing forfeiture abuse around the country, is representing the owners and challenging the forfeiture on both Eighth and 10th Amendment grounds.

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I have a hard time taking Republicans too seriously when it comes to their commitment to fiscal sanity, but it is nice to see Romney highlight this stimulus wonder in New Hampshire (note that one cannot exactly use the bridge for transportation!): here.

Even if public parks should exist, isn’t this the kind of project that should be financed locally if citizens want to spend hundreds of thousands of good dollars for a non-functioning bridge from the 1800′s that few outside this nice little town will ever deem significant enough to visit?   

HT: New York Times!

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Which public policies make an economy better for business? One way to answer this question is to ask businesspeople. Two recent surveys ask businesspeople to rank the American states on their friendliness toward business.

Now, libertarians often remind us that friendliness toward business is not the same as friendliness toward markets. Indeed, libertarians believe that many of their favored policies, such as abolishing trade protection, corporate welfare, and regulations that privilege big business, will redound to the benefit of workers and small business owners. What’s so interesting about these two surveys is that they are of different types of business owners: CEOs of large companies and small businesspeople. The first survey was conducted by Chief Executive magazine and the second by thumbtack.com in partnership with the Kauffman Foundation. By relating respondents’ views about the friendliness of their states to those states’ actual policies, we can see where big and small businesses agree and disagree about which policies are most important for their success.

My first step was to draw out of these survey data those numbers that relate specifically to different states’ policy environments, as opposed to other aspects of the economic climate. From the CEO survey, therefore, I took the taxation/regulation score given for each state (higher is better). From the small business survey, I took the “Regulations” component grades. Unfortunately, the small business survey does not include raw scores for each state, so I simply quantified the grades as follows: A+ = 0, A = 1, A- = 2, and so on, up to F = 11. The small business survey only covers 45 states, but for these states, the correlation between CEO and small business scores was -0.76. Since higher is better in the CEO survey and lower is better in the small business survey, that high correlation indicates a surprising degree of agreement between large and small businesses about states’ friendliness toward their businesses.

Nevertheless, there may remain some important differences in which policies large and small businesses prioritize. To get a handle on this question, (more…)

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The New Hampshire House and Senate have overwhelmingly approved a bill that would give businesses tax credits for contributing to scholarship funds, which could make payments on behalf of students attending private schools. Even if the governor vetoes, the bill should pass into law. According to the Ruger-Sorens database of state policies, New Hampshire will join Arizona, Florida, Illinois, Iowa, Minnesota, and Pennsylvania in offering tax credit or deduction programs for private education.

(Nota bene: The New Hampshire Supreme Court has previously ruled that giving tax relief to parents for sending children to religious schools would violate the establishment clause of the state constitution. Thus, this sort of program is the only way that full school choice that includes religious schools can be enacted in New Hampshire.)

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As we approach another round of debt-ceiling debates–conveniently timed to land after November–Speaker John Boehner made his position crystal clear at Peter G. Peterson’s Fiscal Summit.  As the Speaker proclaimed:

Yes, allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without taking dramatic steps to reduce spending and reform the budget process. We shouldn’t dread the debt limit. We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction…. When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase. This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance.

 As one might guess, such talk drew the fire of Democrats. As the Christian Science Monitor reports, Senate Majority Leader Harry Reid issued a clear judgment on Boehner’s position:

“American people have had enough of this brinkmanship,” Mr. Reid told reporters Tuesday afternoon. “It’s pretty clear to me that the tea party direction to the Republican Party is driving them over the cliff.”

It looks as if the nation is ready to witness another principled battle over the issue of fiscal responsibility, each side driven by a commitment to responsible government, albeit a commitment that is shaped by deep philosophical differences regarding the role of the state.

At the same time, we can question the depth of these convictions.

The Speaker, for example, has been working to secure $150 million in federal transfers to a uranium enrichment plant in Ohio. Since the corporation in question is headquartered in Kentucky, Minority Leader Mitch McConnell has been a strong source of support. And in a fine example of bipartisanship in the name of fiscal responsibility, the Obama administration has been supportive (there is no better was to secure the gratitude of a swing state than to provide transfers). Jonathan Allen provides the details on this story here.

So, it appears that the Speaker’s heroic embrace of fiscal responsibility is only limited by the appeal of ladling corporate welfare to a firm in the fine state of Ohio (insert expression of shocked disbelief here).

As for Senator Reid, one has reason to question his sincerity as well. In a stunning profile in courage, the Democratic majority has failed to propose or pass a budget in three years.  As Scott Wong explains:

The Democratic-led Senate on Wednesday is expected to reject all four GOP budget plans, including the contentious House-passed proposal authored by Rep. Paul Ryan (R-Wisc.). A fifth budget, offered by Republicans and based on President Barack Obama 2013 spending blueprint, also will likely fall short of the 50 votes needed to pass, dealing the White House an embarrassing election-year blow.

But Democratic leaders have defiantly refused to lay out their own vision for how to deal with federal debt and spending, arguing that last summer’s debt-ceiling deal essentially serves as an actual budget. While a budget resolution is non-binding, they say, the Budget Control Act was signed into law.

So while Senator Reid has described the GOP budget as “ridiculous,” “absurd,” and “all just for show,” he has countered with…nothing. If Senator Reid is convinced (as the earlier quote suggests) that the tea party dominated GOP is driving the economy off the cliff, one can only question why he, as leader of the world’s greatest deliberative body (insert snicker here), refuses to take the wheel. The answer is clear: fear of the political repercussions of passing a budget since it would force attention on entitlement reform.

If one is in search of fiscal responsibility, it is clear that it may be a difficult quest at least until capital markets turn on our debt. On one side, we can achieve fiscal balance as long as we eschew tax increases and nod and wink as we work around the so-called earmark ban when politically advantageous. On the other side, we can achieve it as long as we reject entitlement reform and refuse to pass budgets.

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Sven certainly is entitled to make his case below for regulation (and it is clear from the comments that he is talking about more than the recent JPM loss).  But this article by Jonathan Macey in the WSJ is closer to my own view (as you’ll also see in the comments to Sven’s post).

The entire piece is worth reading, but here is a nice sample:

The trades that J.P. Morgan made were extremely complex, and it certainly appears that they did not work the way that they were supposed to. But the reason that markets work better than central planning is because market participants learn from experience, and they learn fast and thoroughly because they suffer significant losses when their investments, whether they be hedges or not, turn out badly.

Thus, far from serving as a pretext to justify still more regulation of providers of capital, J.P. Morgan’s losses should be treated as further proof that markets work. J.P. Morgan and its competitors will learn from this experience and do a better job of hedging the next time. They will learn because they have to: In the long run their survival depends on it. And in the short run their jobs and bonuses depend on it.

The second lesson from J.P. Morgan’s failed hedging effort is that politicians and regulators are opportunists who will use any pretext to increase their power and influence. Rahm Emanuel, the former chief of staff to President Obama, once famously said that one should never let a crisis to go to waste. It appears that the current regulatory class is of the view that even crises that are not serious must be exploited.

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Risk and regulation

A minor miracle happened today.  I made it to the end of a Paul Krugman column without disagreeing with anything.

In fact, I found that his assessment of the need for risk regulation of the banking sector was a tad too moderate.  Even if deposits were not federally insured, the external costs of insufficient regulation are too great to leave unchecked.

In talking about risk management with students, I often mention that a good guideline for buying insurance is whether a loss would seriously disrupt one’s life.  Unless your TV blowing up puts a serious dent in your financial picture, buying insurance on that TV is a very bad idea.  Salespeople in consumer electronics know this, which is why they push extended warranties harder than the product itself.   Even if the warranties were not actuarially outrageous, they are still a bad idea.  The answer for sound insurance policies is to purchase insurance only against catastrophic losses.

The lesson is this: for losses that can be absorbed without too much pain, a consumer who self-insures is better off over the long run.  This applies broadly.  Over-insurance—and the resulting over-treatement—is one of the main problems in the health care market, for instance.  The reason Obamacare is bad policy is not because of mandates.  It is a failure because we should be structuring health care reform around incentivizing consumers to internalize more risk through high-deductible plans and health savings (as well as borrowing).

This lesson can be writ large to the financial sector as well.  We do not need to insure against all risks because risks are what drives innovation, creativity and work.  Firms, including financial institutions, need to be allowed to face the consequences of bad decisions.  The economy can absorb failures and bankruptcies and market devaluations.

But we do need protection against catastrophic risk, just as almost everyone needs some kind of catastrophic health insurance.  I would put my trust in markets against anyone who has a clue how the real world works—that is to say, people who realize that we don’t live in a financial fantasyland where all that is necessary to avoid systemic, potentially catastrophic risk in the financial sector is market discipline and letting financial institutions fail.  The external effects on the rest of the economy, which we’ve seen through hundreds of years of financial crises, are too large to suffer a laissez affair approach to our large financial institutions.

I’m ambivalent about the mix of policy tools that would be optimal, and I’m cognizant that regulation dampens profits in the financial sector.  But just as I’m willing to pay a little bit for the term life insurance that I have little prospect of needing in the next couple of decades, I’m willing to pay for financial regulation that protects against catastrophic failures, such as what happened in 2008.

I’m also not naïve enough to think that regulators know best.  The brightest financial minds do not, by and large, become government regulators.  And as the debacle of Fannie & Freddie show, government regulation sometimes creates merely the illusion of security. But neither am I content to let the Jamie Dimon’s of the world make unrestricted gambles with other people’s money.

Faith in markets promotes growth and prosperity.  Fantasies about markets just promote potential disaster.

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Eyeballing the electoral map on Real Clear Politics, it looks like Romney is going to have a tough time getting to 270 without taking nearly all of the current toss-up states. 

Of those toss-ups, I’m assuming Team Republican can take Arizona (11), Colorado (9), and North Carolina (15) – even though limited polls in CO suggest it is currently close.  And despite the typical voting issues that seem to emerge in Missouri (10), I’m going to put that in Romney’s camp as well.  Florida (29) and Ohio (18) are absolute must-wins unless Romney eats into Obama’s core and leaning states.  If Romney doesn’t win in Ohio and Florida (assuming Obama holds his core and leaners), it won’t matter whether the Republican nominee wins or loses the remaining three toss-up states.  But if Romney takes both of those states but can’t eat into Obama’s current base of 253 votes, he has to take 8 votes out of three toss-up states: New Hampshire (4) Iowa (6) Virginia (13).  Basically this makes New Hampshire moot (sorry Kelly Ayotte) unless Romney thinks he can win in Iowa as well. 

So what does this mean for the Veepstakes.  Romney has no shot without Florida and Ohio.  This is obviously why Rubio and Portman are getting serious consideration – especially the latter given that Portman wouldn’t even be in the ballpark if he was from Alaska or any other deep-red state.  Of course, this assumes that the Veep choice can help win a state – something that is probably only with the realm of possibility in very close state races.  Of course, Ohio and Florida might be very, very close calls and worth spending the Veep pick to lock down (all other things being equal). 

Now unless Iowa can be turned, it suggests that Gov. McDowell of Virginia ought to get serious consideration as well.  But some of his recent moves might be great fodder for those in the Obama camp who would love more culture war talk.  So I’d take him off my shortlist (where he was until recently). 

Too bad Ayotte doesn’t have a summer home in Iowa (then again, why would anyone want to be in Iowa vice NH for the summer?)!  But maybe someone from Iowa ought to be on Romney’s shortlist??  I’m hearing crickets…..  Or at least someone who would appeal to Iowans without harming Romney’s chances elsewhere (sorry Rick Santorum) — maybe Mitch Daniels (and you basically have him spend all his time in three states: Iowa, Missouri, and Ohio with maybe a trip or two to more libertarian New Hampshire) or heaven forbid, Mike Huckabee (whose populism scares me but he could help Romney if located in Iowa doing retail politics and otherwise kept in the background!).  

As for Rubio and Portman, either would be a safe pick (though I doubt Rubio helps that much nationally with Hispanics given that the Hispanic vote isn’t a solid block.  And btw, J. Bush has the wrong last name for this cycle otherwise he’d be a stellar pick).  Ayotte only works if  Iowa is in play or Romney wants to try to change the game rather than try to win any really significant state with the pick.  And if Romney really wants a game-changer, then Chris Christie is the man (sorry Paul Ryan, but I don’t see you helping enough in any particular state or changing the dynamic of the race enough to pick over a state-centric choice.  Ditto for Martinez and Rice).  

Of course, Romney could just go for someone who would make a competent VP without focusing too much on the always hoped for “Veep who brings a state.”  Hello Bobby Jindal?            

Well, this is only some scattered musing.  And please don’t hold me to any of this since I’ve spent hours and hours grading (which seems to make me dumb and dumberer the longer I do it).

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Samuel Huntington on Fisher Ames 1795 speech to Congress:

A monarchy or despotism, Ames suggested, is like a full-rigged sailing ship.  It moves swiftly and efficiently.  It is beautiful to behold.  It responds sharply to the helm.  But in troubled waters, when it strikes a rock, its shell is pierced, and it quickly sinks to the bottom.  A republic, however, is like a raft:  slow, ungainly, impossible to steer, no place from which to control events, and yet endurable and safe.  It will not sink, but one’s feet are always wet. 

Sorry I’m late.  HT: Richard Betts’ chapter in American Civil-Military Relations, pg. 40-41

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Unlike his son Warren, Old Right Congressman Howard Buffett was a committed defender of liberty.  According to this article by Philip Klein, Howard’s wife noted that Buffett “considered only one issue when deciding whether or not to vote for a bill  ‘Will this add to, or subtract from, human liberty?’”  This sounds like a much better “Buffett Rule” than the one offered by his wayward son.

Howard Buffett was also a staunch anti-interventionist.  He once argued, as Klein relates, that “Even if it were desirable, America is not strong enough to police the world by military force. If that attempt is made, the blessings of liberty will be replaced by coercion and tyranny at home. Our Christian ideals cannot be exported to other lands by dollars and guns.”

Buffett was even a “fan” of anarcho-capitalist Murray Rothbard and wrote an article in the New Individualist Review that equated the draft with slavery and called for its abolition.*

Here is how Joseph Stromborg (research fellow at the Independent Institute) described the less famous Buffett way back in April 2001:

In his four terms as Republican Congressman from Nebraska’s second district, 1943-1949 and 1951-1953, Buffett emerged as a trenchant critic of the domestic statism and foreign interventionism of Roosevelt’s New Deal and Truman’s Fair Deal. A committed “isolationist,” he served as Midwestern campaign director for Senator Robert Taft’s ill-fated run for the Republican presidential nomination in 1952. At the end of his second congressional term, Buffett returned to Nebraska and worked in banking. Even in that occupation he was a bit out of step, as a consistent advocate of gold-based sound money.

Buffett’s consistent defense of classical liberal, free-market, republican, and anti-interventionist positions makes him an interesting, if little remembered, forerunner of today’s libertarianism and anti-Establishment conservatism. He was, as Murray Rothbard later pointed out, the most hard-core of the dwindling handful of Old Right politicians in the early Cold War period.

Young libertarians and conservatives would be well-advised to learn more about Old Right figures like Howard Buffett since so few contemporary conservatives and Republicans offer a serious choice to or argument against big and broad government. 

* See Brian Doherty’s Radicals for Capitalism, pg. 259 and pg. 306.

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In short, BHL’ers (or at least utilitarian BHL’ers) – while decrying statism – would have to agree that “Statism, then, could be a great thing, if it increased utility.”  For more, see James Bruce’s whole argument here at Liberty Fund’s new Liberty and Law blog.

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The press is quite pleased with President Obama’s proclamations on gay marriage. The evolutionary process appears to have finally come to a conclusion. Yet, it might be useful to place the President’s epiphany in historical context. To assist in the process, I have placed several quotes from past and present elected officials on the issue of gay rights, civil unions and marriage. Lets see how many readers can correctly identify the speaker (answers below…no cheating)

Quote Number 1

The big thing is to make this country, along with every other country in the world with a few exceptions, quit discriminating against people just because they’re gay. You don’t have to agree with it, but they have a constitutional right to be gay. And that’s what brings me into it.

Quote Number 2

Well, I think that freedom means freedom for everyone. … I think people ought to be free to enter into any kind of union they wish. Any kind of arrangement they wish. The question of whether or not there ought to be a federal statute that governs this, I don’t support. I do believe that historically the way marriage has been regulated is at the state level. It has always been a state issue, and I think that’s the way it ought to be handled today, that is on a state-by-state basis. Different states will make different decisions. But I don’t have any problem with that. I think people ought to get a shot at that.

Quote Number 3

 I believe that marriage is the union between a man and a woman. Now, for me as a Christian — for me — for me as a Christian, it is also a sacred union. God’s in the mix…. . I am not somebody who promotes same-sex marriage, but I do believe in civil unions. I do believe that we should not — that for gay partners to want to visit each other in the hospital for the state to say, you know what, that’s all right, I don’t think in any way inhibits my core beliefs about what marriage are. I think my faith is strong enough and my marriage is strong enough that I can afford those civil rights to others, even if I have a different perspective or different view.

Quote Number 4

I don’t think we should deny people rights to a civil union, a legal arrangement, if that’s when a state chooses to do so. … I view the definition of marriage different from legal arrangements that enable people to have rights. And I strongly believe that marriage ought to be defined as between, a union between a man and a woman.

Quote Number 5.

I’ve just concluded that– for me personally, it is important for me to go ahead and affirm that– I think same-sex couples should be able to get married. Now– I have to tell you that part of my hesitation on this has also been I didn’t want to nationalize the issue. … I continue to believe that this is an issue that is gonna be worked out at the local level, because historically, this has not been a federal issue, what’s recognized as a marriage.

Answers:

1. Barry Goldwater, July 1994 (source)

2. Dick Cheney, July 2009 (source)

3. Barack Obama, August 2008 (source)

4. George W. Bush, October 2004 (source)

5. Barack Obama, May 2012 (source)

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From the great IJ:

 

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Greece Update

My go-to guy on Greece these days is Harris Mylonas, a fellow Yalie from a few years back, now teaching at GW. Here’s his latest take on coalition negotiations in Greece. Bottom line: new elections in a few weeks are looking increasingly likely, and the result might yield something more stable. Also check out his book.

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Now that the press has ratcheted up the pressure on the President to clarify his ever evolving position on gay marriage, President Obama has agreed to “a hastily scheduled interview just a day after voters in North Carolina approved a state constitutional amendment defining marriage as a union between a man and a woman.” See Politico coverage here.

This should prove interesting. Supporters seem baffled at the slow pace at which the President’s thinking has evolved. They should be far more surprised with how quickly it has evolved on the closing of Guantanamo and the use of military tribunals, the extensive use of drones, the urgent need for climate change legislation, the Employee Free Choice Act (card check), the Bush tax cuts, etc., etc., all of which were central to the promise of “Hope and Change.”

Of course, Mr. Obama is not alone (I think we can all recall the 2000 election season and the promises of a humble foreign policy, an end to nation-building, and reducing the government to 16 percent of GDP; if you need a refresher, James Bovard stands ready to assist you). And Mitt Romney has certainly evolved, devolved, and re-evolved in recent years.

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In the 2010 election, the conventional wisdom was that Senator Bob Bennett of Utah lost his seat because of the rise of the Tea Party and their ideological extremism.  Most media accounts went something like this: “The Tea Party is so extreme that even a conservative stalwart and influential senator such as Bennett isn’t safe.”

The real story (as I wrote in 2010) was that Bennett lost because of Utah’s unusual party institutions.  A well-organized minority can catch people off guard through the caucus/convention system and deny the incumbent the opportunity to even have a primary.  This is what the Tea Party groups did to Bennett.  If Bennett had been able to make it to a Republican primary, he would still be Senator.  End of story.

If you are a political junkie, you may have heard that Senator Orrin Hatch seems to be avoiding the fate of his colleague.  Hatch pumped millions into the race prior to the state convention.  He came a few dozen votes shy (of about 4,000 convention delegates voting at the April 21 convention) of claiming the nomination outright and avoiding a primary, but there is only a small chance he will lose in the June contest.  After that, barring something like a massive stroke, he will be re-elected.

The national media narrative going forward seems to be one of two varieties: 1) the Tea Party is waning in influence; 2) incumbents are still effective at spending their war chests to fight off challengers.  Both of those are true to an extent, but there is more to the story.  Two other factors have been critical to Hatch’s re-election.

First, the influence of the LDS church was critical.  In the weeks preceding the primary, the church announced over the pulpit and through the media that it was encouraging all members to attend the March caucus meetings of their party and declaring that no church meetings or events should be held during those times (the two major parties held their caucuses on two different days in the same week).  In years past the caucuses were completely under the radar; they were poorly advertised and attended mostly by the politically active (indeed, going to a caucus was almost the definition of politically active).  This low visibility was why the Tea Party was able to manipulate them in 2010.

But this year the caucuses were bursting at the seams.  Hatch was able to bring out a lot of supporters, but many Mormons went simply because they felt they were supposed to.  Mormons already go to a lot of meetings as part of their religious observance.  Going to a long, tedious caucus (and, believe me, they are long and tedious) isn’t something that most citizens are eager to do.  But Mormons also have a tendency to do as they are told.  They attended (and suffered) in large numbers.

The LDS church likely didn’t favor the types of politicians coming out of the 2010 elections, particularly with respect to immigration issues.  The church has been quite progressive on immigration, and the 2011 legislative session saw a fairly acrimonious battle over immigration, with (mostly Mormon) Tea Partiers wanting to push through Arizona-style legislation and the church being their primary opponent.  Rather than further engaging on the issue with Tea Partiers, the church decided to mobilize the center of the party.  All they had to do this was say, “Go.”  Issue solved.

Second, I have noticed a lingering sentiment that what happened to Bennett was unfortunate, even amongst people who have been largely pleased with the record of Mike Lee, Bennett’s successor.  What I heard over and over again in talking with convention delegates was that these contests should be decided in primaries, not by an organized minority.  Most Bennett supporters (and Bennett himself) were stunned by the 2010 outcome and resented that a Senator they like was ousted before most people were even paying any attention to the race. Thus, any evaluation of how strong Hatch is with respect to his opponent is incomplete without accounting for the resentment about process.  Once it became obvious that Hatch was not going down at the convention, many delegates likely switched their allegiance to Dan Liljenquist, Hatch’s primary opponent.  In short, the vote represents more than just support for/against Hatch.

What also gets missed in national discussion are local issues.  There isn’t really a national debate about federalism.  Instead there are 50 different debates.  One issue that has had a very high prominence in Utah lately lies at the very root of federalism—the control of land.  One of the things that differentiates Utah from, say, Texas is that Texans (or the state of Texas) controls almost all the state.  In Utah, the federal government owns and controls over 2/3 of land in the state.  If you live in New Jersey, odds are you don’t even know what the BLM is, but every Utahn living in or visiting a rural area knows encounters the BLM is: they are the people who control our land.  The issue of “state sovereignty” was one of the most widely trumpeted issues at the state convention.  This concerns not only how public lands are used (where roads are built, where recreation is allowed, where animals can graze, etc.), but it also has real implications for state finances, since many of our natural resources could be a revenue source if the land were controlled by the state.

Land issues don’t typically get much play among conservatives or libertarians nationally, though they should.  That is because most of you are able to control your own land.  This makes the prospects for reform dim, since the fight against environmental extremists (who would basically like to make the entire western US a designated wilderness area) needs the support of those who don’t face the issue.  Imagine if someone had proposed at the Constitutional Convention that each of the 13 colonies had to cede 2/3 of their land to the federal government. Obviously, such a proposal would not have won a single vote.  Yet that ridiculous proposal is the status quo in many western states.  Maybe if Utahns were as obnoxious as Texans, we could change things.

A final note.  Here is a name to remember: Mia Love.  She came almost out of nowhere to gain 70% of the vote at the convention and will go on to face blue dog Jim Matheson in the general. Given that redistricting made any effort to return to Congress difficult, Matheson faced an uphill battle.  Mia Love seals the deal.  She is a young, very conservative, black woman and the daughter of Haitian Immigrants.  Her convention speech was electrifying (the low-quality recording here doesn’t do it justice).  It was sort of like a Republican version of Obama’s speech at the 2004 Democratic convention, except she didn’t have teleprompters.  Love has been all over the national news media because, as she says, she isn’t supposed to exist.  But she does.  I’d love to see her get a spot on the podium at Tampa.

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The Institute for Justice has just released a new study of occupational licensing requirements in the 50 states and D.C. These requirements disproportionately harm low- and moderate-income people who are seeking to ply a trade.

License to Work finds that Louisiana licenses 71 of the 102 occupations, more than any other state, followed by Arizona (64), California (62) and Oregon (59). Wyoming, with a mere 24, licenses the fewest, followed by Vermont and Kentucky, each at 27. Hawaii has the most burdensome average requirements for the occupations it licenses, while Pennsylvania’s average requirements are the lightest.

Arizona leads the nation with the worst combination of number of licenses and burdensome requirements to secure those licenses, followed by California, Oregon, Nevada, Arkansas, Hawaii, Florida and Louisiana. In those eight states it takes on average a year-and-a-half of training, an exam and more than $300 to get a license, a tremendous burden for would-be entrepreneurs and workers.

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In my last post on this topic, I described an ideal system of federalism and its advantages and disadvantages. One of the concerns that progressives often have about this kind of federalism, which I wish to take seriously, is that it will lead to a growing gap between the incomes of rich and poor regions (such as states in the U.S.). In this post, I’m going to summarize my findings on the empirical evidence on the relationship between federalism and inequality.

What I want to explain here is the extent to which different countries feature regional convergence or divergence in per capita incomes. That is, in some countries rich regions grow faster than poor ones, and in others poor regions grow faster than rich ones. The way to measure that is with the “annual rate of convergence,” which represents the average rate at which the differences in per capita income between a poor economy and a rich economy disappear, all else equal. A figure of 2% would mean that 2% of the average income difference between a rich and poor economy disappears each year. Even when convergence is happening, that does not mean that measured inequality between regions necessarily goes down, because random shocks can intervene (such as oil discoveries or real estate busts). But it’s a key question whether federalism can cause regional economies to convergence faster or more slowly (or even diverge).

Here is how some countries differ in their measured rate of regional convergence over the 1995-2005 period, the longest and most recent period for which consistent data are available (regions are defined as the subnational tier of government enjoying the greatest economic self-rule, which is in turn defined below: states in the U.S., autonomous communities in Spain, provinces in Canada, Laender in Germany, counties in Denmark, etc.):

Some countries actually experience regional divergence, in which richer regions grow faster than poorer ones: Slovakia, Poland, Ireland, Hungary, the Netherlands, and Japan, most notably. The fastest converger in the sample is the European Union (the 15-member EU prior to the entry of the postcommunist states and Cyprus). In other words, the gap between poorer EU states and richer EU states was erased at a 5% annual clip between 1995 and 2005. Much of this remarkable performance had to do with the steep rise of Ireland, but even when Ireland is excluded, the EU is a star performer among these “countries.”

In the chart above, there is no clear relationship between how (more…)

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Indian Superbugs

As a followup on my libertarian case for prescription laws, I note this recent story on Indian superbugs that are totally antibiotic-resistant:

India’s $12.4 billion pharmaceutical industry manufactures almost a third of the world’s antibiotics, and people use them so liberally that relatively benign and beneficial bacteria are becoming drug immune in a pool of resistance that thwarts even high-powered antibiotics, the so-called remedies of last resort.

So this is not just a domestic problem, but an international one. Drug-resistant bacteria are now spreading across the globe. Soon we may re-enter the dark age when “[t]hings as common as strep throat or a child’s scratched knee could once again kill,” in the words of WHO chief Margaret Chan. If the Indian government is not going to regulate antibiotics on its own initiative, other governments need to impose sanctions on it in order to force it to do so.

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General government final consumption expenditures for the 27 member countries of the European Union, from 2002 to 2011 (fiscal years):

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My dear wife is on a Wendell Berry poetry kick.  Of course, that means I get roped in and read to despite the fact that I’m not so keen about everything Berry writes.  Nonetheless, this one below appealed to us both and we thought it would make for an inspiring and thought-provoking Sunday Morning Quotation. 

From poem VIII in section “Sabbaths 2003″ of his book Given:

All that patriotism requires, and all that it can be,
is eagerness to maintain intact and incorrupt
the founding principles of the nation, and to preserve
undiminished the land and the people.  If national conduct
forsakes these aims, it is one’s patriotic duty
to say so and to oppose.  What else have we to live for?

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The unemployment rate fell again, hitting a three-year low of 8.1 percent. But, as the New York Times explains:

The unemployment rate ticked down to 8.1 percent in April, from 8.2 percent, but that was not because more unemployed workers found jobs; it was because workers dropped out of the labor force.

The share of working-age Americans who are in the labor force, meaning they are either working or actively looking for a job, is now at its lowest level since 1981 — when far fewer women were doing paid work. The share of men taking part in the labor force fell to 70 percent, the lowest number since the Labor Department began collecting these data in 1948.

Of course, if you are a glass-half full guy,  you might interpret the numbers a bit differently:

“Today’s employment report provides further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression”said Alan B. Krueger, chairman of the Council of Economic Advisers, “but much more remains to be done to repair the damage caused by the financial crisis and the deep recession.”

At what point are we going to stop looking at the unemployment rate as an indicator of economic health? If people keep dropping out of the labor force at this rate, we might simultaneously have “full employment” and new record lows in workforce participation just in time for election day.

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There is an interesting NYT piece by Adam Davidson on Edward Conard, former Bain partner and author of a forthcoming book entitled Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong. Here is one excerpt from a fascinating article:

A central problem with the U.S. economy, he [Conard] told me, is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money. For proof, he looks to the market. At a nearby table we saw three young people with plaid shirts and floppy hair. For all we know, they may have been plotting the next generation’s Twitter, but Conard felt sure they were merely lounging on the sidelines. “What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.” Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life. In Conard’s mind, this includes, surprisingly, people like lawyers, who opt for stable professions that don’t maximize their wealth-creating potential. He said the only way to persuade these “art-history majors” to join the fiercely competitive economic mechanism is to tempt them with extraordinary payoffs.

Conard seems to minimize the importance of transfer-seeking behavior in shaping the economy–a point that is nicely developed by Davidson. Any reactions?

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Fellow Pilei James Otteson makes the case for the morality of capitalism here in a new report put out by the Manhattan Institute.

Otteson’s finale (though I recommend reading the entire piece):

Capitalism is not perfect. But no system created by human beings is, or ever will be, perfect. The most we can hope for is continuing gradual improvement. To this end, we must honestly examine the prospects of the available systems of political economy. The benefits of the free-enterprise society are enormous and unprecedented; they have meant the difference between life and death for hundreds of millions of people and have afforded a dignity to populations that are otherwise forgotten. We should wish to extend these benefits rather than to curtail them.

It would be all too easy for us, among the wealthiest people who have ever lived, in one of the richest places on earth, to disdain the institutions that have enabled us to escape the strictures of poverty and disrespect that have plagued humanity for the vast majority of its existence. Our crime today, however, would lie not in our inequalities but rather in our refusal to uphold the institutions that give humanity the only hope it has ever known of rising out of its natural state of destitution. The great and precious blessings of freedom and prosperity that we Americans have enjoyed, and that some, but not enough, others around the world have also experienced, deserve nothing less.

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