The Question is, Does She Actually Believe This Nonsense

from the Corner at National Review:

Palin on 2012: ‘Does a Title Shackle a Person?’ September 28, 2011 7:39 A.M. By Katrina Trinko In an interview last night, Sarah Palin suggested that she feared she would lose influence if she decided to run for the presidency. “Is a title worth it?” Palin said in response to a question from Fox News host Greta Van Susteren about her presidential plans. “Does a title shackle a person? Are they — someone like me, who’s a maverick — you know, I do go rogue and I call it like I see it, and I don’t mind stirring it up in order to get people to think and debate aggressively, and to find solutions to or the problems that our country is facing.” “Somebody like me — is a title and is a campaign too shackling?” Palin continued. “Does that prohibit me from being out there, out of a box, not allowing handlers to shape me and to force my message to be what donors or what contributors or what political pundits want it to be? Does a title take away my freedom to call it like I see it and to affect positive change that we need in this country? That’s the biggest contemplation piece in my process.”

Creating Barriers, Not Jobs

In 1897 the State of New York passed what was known as the Bakeshop Act (more properly known as section 110, article 8, chapter 415 of the Laws of 1897, or the labor law of the State of New York). It said that "no employee shall be ... permitted to work in a biscuit, bread, or cake bakery or confectionery establishment more than sixty hours in any one week." So even if an employee were willing and able to work 61 or 65 hours in a given week and the employer was willing and able to pay the employee for said work on previously agreed upon terms, and both the employee and employer were to honor those terms, the employer could be held criminally liable.

Joseph Lochner owned a bakery in Utica, NY, Lochner's Home Bakery. In 1899 he was fined $25 for violating the act; in 1901 he drew a second fine for $50. He contested the fee in court as a denial of (substantive*) due process, the freedom to contract with anyone to do anything so long as the activity wasn't proscribed by the legitimate authority exercised under the state's "police power" (e.g., prostitution). He lost in appellate court and the New York Court of Appeals (the highest court in the state). He then appealed to the United States Supreme Court and in one of the greatest decisions ever handed down by that fine tribunal, good ole Mr. Lochner won and the Progressives of the time lost. See here and here for an overview of the case (overviews that do not share my enthusiasm for the decision, by the way) and here for a nice article by George Will about a new book regarding the decision. The full decision of the court, including a famous (and awful) dissent penned by Justice Oliver Wendell Holmes, is here. Holmes explicitly expresses hostility to the concept of laissez-faire (which certainly didn't exist at the time), to Herbert Spencer and to the notion that individuals and firms know what is better for themselves than the government does (it is important to note well that there was no allegation of coercion on the part of Mr. Lochner nor any claim that he did not remunerate his employees for their labor above and beyond the capricious and arbitrary limit of 60 hours).

This is all a very long preface to address the notion that the government can "create jobs."

First there is the idea that the government can invest where private capital fears to tread, leading to new products and services that, for whatever reason, the market would not create of its own accord. The Solyndra Scandal show rather well how nonsensical this idea is (see previous post). But let's just imagine that solar energy panels are indeed the way to the future; that our dear leaders, shoveling money that they take great care in garnishing from the people who create and earn it to firms that had the vision to support the candidate who ended up winning, have some sort of prescience as to what will "work;" that the scam, er investment, pays off. "Success" will be cried from the hills. Yes, but, as the Great Bastiat pointed out all too well, that is what is seen. What of the investment that didn't or couldn't happen due to the fact that there was less capital in the private market to fund it? What invention or innovation was denied existence because money was taken away from those whose job it is is to fund exactly these sorts of things? The new technology will more than pay for itself, the true believer will claim. Now that we will have houses and cars and factories that will run from the power of sunlight and remove us from the yoke of "foreign" oil and "dirty" coal there will be more capital free to fund any investment that anyone can think of, right?

Maybe. But maybe not. Again, you have the wishes of the few pretending to know not only what is best for everyone else, but to know better than the market how to allocate scare resources most efficiently.

How about the argument that government generally creates jobs?

"Not exactly" would be putting it mildly. A "job" in its most basic form is simply an agreement entered into between two parties to accomplish a certain task. What can the government do to facilitate such agreements? Precious little. What can the government do to act as an obstacle to such agreements? A lot.

Think of stimulus funds to a community to build a prison. The community needs the new prison (for whatever reason). The federal government has the money (thanks to current and future taxpayers). Keynesian analysis says that the feds giving the money to the locals to contract the prison to be built will inject "liquidity" into the economy. The individuals put to work (who were presumably unemployed, but this is generally not the case) will spend the money that they earn and, through the magic of the multiplier effect, the net gain in GDP will more than offset the drain on GDP through less consumption due to taxes paid and less investment due to crowding out. Thus $100 million taken from federal coffers (our pockets) will lead to, say, $130 million in future spending meaning a net gain of $30 of GDP that didn't exist before (the negative effects of less investment and dead-weight loss of the current and future taxes is much tougher to quantify so economists, especially Keynesians, simply ignore these negative externalities or quip that in the long run we are all dead, so no worries...and I am not bullshitting about that).

For sake of argument, let's pretend that this is true. $100 million from the feds to the locals will lead to about $30 million in net gain in consumption, focused in a particular area. Now does the government create any new jobs?

No.

The local are not free to hire whomever they want to build the prison. Bids must be accepted by a certain number of firms, a fixed quantity of those bids must come from businesses owned and/or operated by "minorities." The materials must usually be obtained from specific firms or through certain bureaucratic channels. And the workers must be paid what the government deems "prevailing wages." Every step of the process must be reviewed and approved by overseers from the various federal agencies involved in the appropriations procedures.

So the locals cannot farm out the work to the firm that will build the prison in the least amount of time, for the least amount of money using materials that cost the least to procure. In fact, the prison, if it is ever completed, will be built in the exact way that no sensible person would ever go about having something built. Certainly not how somebody who is responsible for the cost of the project would act. It will take longer to build than originally projected. It will cost more than originally projected. It will not last as long or be as functional as originally projected. And the people responsible for the mess that is created will put this as exhibit "a" as to why they should be re-elected. The costs are that which is unseen.

Bear in mind that the president himself laughed at the notion that a "shovel-ready" job meant that the job was "shovel-ready" or that there was ever such an animal.

Mind also that the work performed will usually be required to be done by union employees. Unions maintain wages higher than the market price by political (& coercive) manipulation and restricting membership. If the supply is held below what is required for demand to be met, the cost is increased; the market is not allowed to function properly by allowing the supply of the labor (for example, the unemployed) and the demand for the labor (the local government) to figure out what the locals are willing and able to pay to get the job done and what the workers are willing and able to accept to do the work. Everyone's freedom is curtailed and the taxpayer loses more money to boot: lose, lose, lose. Oh, and nary a single job was either created or saved.

This is a hypothetical based loosely on an actual event that happened in Montgomery County, PA. I can't find the links, but think seriously about what I wrote and think seriously about what is more plausible: my account of what happened or the Obama/Krugman/Keynes version of "reality?"

Government does not create jobs. It gets in the way of the processes that create jobs. And even when a job is created by the government, like making a new position for a bureaucrat, the gain created by that "new job" is more than offset by the loss in productivity in the economy and the dead-weight loss of the current and future taxes necessary to pay for that job.

*As a matter of course, I find the notion of the judicially created notion of "substantive" due process troublesome. It doesn't exist in the constitution and has no antecedent in the common law. It means, basically, whatever the judge(s) want it to mean at any particular time. As a libertarian, I like it when it is used to expand the notion of individual liberty and curb the power and authority of any level of government and I dislike it when it is used to expand the power and authority of any state actor or agency at the expense of individual liberty.

Let Us Count the Ways

An idiotic post from the increasingly idiotic Paul Krugman regarding the Solyndra Scandal. This company was given more than $500 million of taxpayer money bankrolling a company that just happened to back the Obama campaign. Relativists will rightly point out that Republicans give sweetheart deals to companies that back them all the time. Libertarians will point out that government shouldn't be in the business of trying to determine which products will receive any form of subsidy; a pox on both their houses and the fact that both sides do the same thing doesn't make it less noisome.

Anyway, Krugman's post in its entirety:

The Solyndra Scandal

Haven’t written about this. But it is indeed a terrible scandal, because the private sector never ever puts money into ventures that end up failing:

That is the whole post.

He fails, of course, to realize the difference between private investors betting on what consumers will get behind via voluntary exchange in the market and government using money taken from individuals under pain of law and giving it to select individuals as political patronage. The failure of a private concern is equivalent to the government giving a half billion dollars of other people's money to a private firm in return for political support, regardless of the fact that the firm's business plan was fatally flawed from the start. In February, the government also gave up its "first lien" position in an asinine bid to attract more private investment into the failing company. So the chances of American's getting any of their money back is not virtually nil. It is absolutely zero.

Creative destruction, innovation, the beauty and power of the market are lost on the Progressive. Government deciding what is best for you, determined by base political calculus, is the way of things. And anyone else who disagrees with this worldview is just too stupid to realize how right, how brilliant. the Progressives are.

On Tax & Circumstance

I was listening to a show called Radio Times that is produced by my local public radio station and they were discussing President Obama's job's/deficit reduction/recovery program, specifically whether "millionaires" should pay more in taxes.

The discussion is an extrapolation of the "Buffett Rule," because Warren Buffett recently stated that his effective tax rate is almost half of what his secretary's is. Greg Mankiw does a fine job of parsing the numbers and basically calling shenanigans on Buffett's populist nonsense here. What is important to note is that almost 46% of households filing a tax return under the current system pay no federal income tax at all (this does not include the payroll tax collected for Social Security, Medicare or Medicaid, but then, as Professor Krugman (and Professor Samuelson before him) notes so well, that is on account of the "Ponzi game aspect," despite the fact that he now claims not to have meant what he so clearly wrote. Please see Robert Murphy here and Alex Tabarrok here).

Anyway, back to the radio show. The host is interviewing a gentleman named Seth Hanlon who works for the Center for American Progress ("Progressive Ideas for a Strong, Just, and Free America" serial commas included, no doubt). So you just know we're going to get a really objective look at the proposal.

At one point the host asks, "Would higher taxes lead to job growth?"

Almost a challenging question. And the answer, of course, is no. There is not much debate about this among anyone really. And presumably, Mr. Hanlon knows this. So he doesn't answer the question. He says that the plan is for taxes to increase only on the "wealthy," and that they are going to go back to the level they were before the "Bush tax cuts." He then makes the point that there was robust economic growth in the 90s, when these tax rates were in effect....therefore, ipso facto, correlation is now causation. Higher taxes mean more robust economic growth.

This is, obviously, asinine.

Now you can (try to) make the point that the rich should pay more in taxes in order to reduce the deficit. My answer to that would be that congress has shown an uncanny knack for spending all of the revenue it it receives and then then spending more, so even if revenues were to increase, so would spending (mind you, that if money collected under the FICA "contributions" were kept in trust for the purposes for which they were collected, there would be no problem with Social Security for decades. As it is, the money was spent on "other shit" (technical phrase) and replaced with Treasury notes that we have the happy benefit of owing, plus interest).

You can make the point that the rich don't need as much money as they have. However, this is morally repugnant and indefensible. The easiest thing in the world to do is spend someone else's money and any income, legally obtained, is the property of the person who earned it. Government has no right or claim on anyone else's property, regardless of how much any one person may have. As another aside, Mr. Buffett is free to send as much of his personal fortune as he chooses in to the United States Treasury. He is also free not to set up a charitable trust to shield his considerable estate from federal inheritance tax. He has chosen to do neither.

The 90s also benefitted from something we have come to call the "Tech Bubble," which may have had more to do with the economic growth of the decade rather than the marginal tax rates.

Brother, Can You Spare a Bridge?

Where will the money come from?

The Sherman Minton Bridge, which connects Louisville, KY and New Albany, IN, was shut down last Friday after cracks were discovered in steel beams.

There are a couple of head scratching questions. First and foremost is how long it will take to repair the bridge. Estimates range from three months to two years, but officials still don't know. This is unacceptable. First of all, metallurgical analysis shouldn't take more than a few days, and that should be lessened significantly taking the severity of the situation into account. In other words, "officials" should have known by no later than Tuesday what the analysis and engineers inspection reports said.

As far as the time it takes to make the repairs, I would love to know what branch of the bureaucracy is in charge of coming up with these estimates. In September 1999 Hurricane Floyd buckled a very small bridge just south of New Hope, PA. The span is just over 15 feet. Residents were told to be happy that the repairs took just less than one year.

A bridge of just about the same size two block away from my house is also under repair, it was not damaged by the earthquake or hurricane, I believe it is just routine. The estimate is that it will be done in four months. The trucks came in and ripped the black-top off. And...no one has seen a worker on the sight since. So if this is done by Christmas, I'll eat my shoe.

There is another bridge a few miles away that crosses over the Pennsylvania Turnpike. I believe that this was also a matter of regular maintenance. It has been closed almost two years and I don't know that anyone knows when it will be done.

There is no reason why that bridge cannot be repaired in less than one year considering how important it is to the two states involved, and the goal should be no more than six months. It is estimated that replacing the bridge could take "years." Nothing more specific or any reason for such a vague answer is given.

But the big question is how will the repairs or replacement be paid for? Initial estimates to repair the cracks will cost $10 million; more extensive repairs would cost $60 million and replacing the bridge would cost "several hundred million dollars" (again with no context or explanation for the arbitrary and meaningless estimate). Everyone, including (disappointingly) Rand Paul, is running to the federal government, of course.

Thankfully, the Federal Highway Administration has an "emergency relief program." Ohhhh, but there is a problem: the law specifically states that "in no event" may funds "be used for repair or reconstruction of bridges that have been permanently closed because of imminent danger of collapse."

But that certainly isn’t going to stop the congresscritters and other urchins from trying to suck everything they can get from other people.

Now, I don’t necessarily have a problem with the federal government spending federal funds on roads, bridges &c, so long as those projects are directly involved in interstate commerce. And the Sherman Minton Bridge certainly fits that description. So let’s look at some numbers.

Anyone buying gas in Indiana pays 15¢ per gallon to the state treasury and the good folks in Kentucky collect 18¢ per gallon. This is all on top of the 18.4¢/g the federal government collects (closer to home, the Commonwealth of Pennsylvania collects an obscene 31.1¢/g, see here). In 2008 the federal government collected $37.9 billion in fuel taxes, Indiana collected $856 million and Kentucky raked in $617 million, see here. Indiana contributed 1.84% to national GDP in 2010 and Kentucky kicked in 1.11%, see here.

So a little common sense sprinkled with back of the envelope mathematics would show that collectively, the two states are entitled to 2.95% of the federal highway funds (you get back what you contribute, no?) which comes to over $1.1 billion dollars. This is on top of the $1.47 billion that the two states collected in fuel taxes that is ostensibly to be used for things like this. So I just found over $2.5 billion dollars from which these grubby little idiots can parse out the “several hundred million” or so that it would take to replace the bridge with enough left over to repair the one that they ignored and caused this problem to begin with. Building and maintaining roads and bridges is a legitimate function of government, and the federal government using federal funds to assist in maintaining those roads and bridges that affect interstate commerce is also legitimate. Because government at all levels have gone beyond their purview and keep expanding their bishopric to include, well, everything and not concentrating on that which it should, everyone suffers, and pays, more.

More resources are wasted; more people become dependent on government for services that the government can’t and should be providing; more capital is removed from the market; less is produced. So bridges crumble and then the politicians who are the most responsible for the fact that the bridges are crumbling get together, act serious and demand to know where they can get the money to fix their own mess. And in two years, or however long it takes to get the benighted thing fixed, they will all pose for pictures with an obnoxious ribbon and fake scissors and block traffic for just a few extra more minutes. Because they’re doing the people’s work.

Nasar on Economic Genius

Sylvia Nasar, the former New York Times economics reporter who wrote A Beautiful Mind (which I am almost embarrassed to admit that I haven't read despite enjoying the movie so thoroughly) has just published a new book called Grand Pursuit: the Story of Economic Genius.

The book was recently excerpted on Bloomberg.com in five parts.

Part I; Part II; Part III; Part IV and Part V.

Since my wife never reads this site I can freely say that I have ordered mine already and should have it in hand tomorrow. This will do nothing for the backlog that I already have hanging over me, but so it goes.

I hope (and believe) it will not fall into the "Great Thinkers" trap that many economic histories suffer (notably Richard Heilbroner's The Worldly Philosophers). There is nothing wrong with short biographies of the giants of any field, but it tends to do a disservice to the discipline. Murray Rothbard addressed this tendency in this lecture (audio here ≈ 20:30).

"I think this is a rotten way of approaching the history of thought. In the first place, all of these political thinkers and economic thinkers were involved in movements, almost all of them. When they say anything, they have certain intentions. They use the words in a certain way, have a certain author’s intention.

In order to understand their intention, you have to understand who they’re talking to, who their friends are, who their enemies are, who they’re reacting against. In other words, the historical context of what they’re saying."

That is why Rothbard wrote An Austrian Perspective on the History of Economic Thought, which I haven't read, but I have and it is a tremendous reference.

Anyway, I enjoyed the excerpts and look forward to reading Nasar's book.

See What Happens

when the government "creates" jobs?

And the funny part is, even though taxpayers were soaked for $535 million bucks, this would be considered a "good" in Keynesian analysis. At least that $535 was injected into the system to boost "aggregate demand" instead of sitting idly in someone's bank account.