The Government Can!

h/t: Jonah Goldberg

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.

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.

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.

Parsing Time

President Obama is engaging the Republicans in a game of chicken over the debt ceiling, insisting that tax increases be part of any deal. Regardless of the fact that back in 2009 he said, “the last thing you want to do is raise taxes in the middle of a recession because that would just suck up – take more demand out of the economy and put business further in a hole.” Which is similar in reasoning to something I posted right before he said it.

Now, just to clarify where I stand on a few things: restoring the marginal tax rates to pre-W levels is, in fact, a tax increase (even if it is only on those rates paid by those bastards who just have too much damn money). Whether you wrap it in the language of "letting them expire" or whatever else. If the government takes 35% of the money you earn over $379,150 in 2011 and then the next year the government takes 39% of that money, you are paying higher taxes. The government has effected a tax increase. Period. Full stop.

But the Republicans are playing a little fast and loose with the definition of "tax increase" themselves. Some Republicans, apparently under the sway of a little gnome named Grover Norquist, have said that eliminating tax subsidies, specifically those enjoyed by oil and gas companies, is the same thing as a tax increase. No, it isn't. Any special cut away for any firm or industry for whatever reason creates market distortions and inefficiencies. Yes, it is more efficient for a firm to spend its own money the best way it sees fit, but it is inefficient (along with unfair and immoral and it rightly gives the impression of bribery) for any firm or industry to be given any special favors regarding taxation by the legislature. Even if everyone thinks it's a good idea. This goes for oil companies, agribusiness, sugar producers, colleges and universities, mortgage holders. Everyone.

Now these are not "loopholes," they are intentional favors enacted by congressmen of both parties. For a fuller, and better, exposition on this matter please see this post by Kevin Williamson.

I really don't care how this is settled, because it will be a deal between and among politicians and the only ones who will end up getting screwed will be the rest of us.

This post was to be a lot longer, but I'm tired.

And Joe Biden is still an ass.

On Not Knowing What You're Talking About

Mr. Richard Stengel wrote a 5,000 word piece for Time magazine on the Constitution. I might be going out on a limb here, but this could well be the finest demonstration of what happens when a person writes so much about a topic that he knows absolutely nothing about.

Just for fun I will annotate the first four paragraphs of this specious exegesis. The original text is as is with my notes in bold:

Here are a few things the framers did not know about: World War II. DNA. Sexting. Airplanes. The atom. Television. Medicare. Collateralized debt obligations. The germ theory of disease. Miniskirts. The internal combustion engine. Computers. Antibiotics. Lady Gaga. This is the hook. Effective so far as it goes, but rife with foreboding about the juvenile line of reasoning that the author will employ. While doing research on a paper about obscenity in high school I remember reading a great line that went "asking what the founders would think about Deep Throat is like asking what they would think about helicopters." It would be an interesting conversation, to be sure, but utterly meaningless. None of the examples the author leads with give rise to any sort of constitutional question. But the founders were aware of the concepts of both technological innovation and, I'm sure, bad music.

People on the right and left constantly ask what the framers would say about some event that is happening today. What would the framers say about whether the drones over Libya constitute a violation of Article I, Section 8, which gives Congress the power to declare war? (I may be splitting hairs here, but using military means for policy ends is something the founders might have been able to wrap their heads around. The question becomes does the president have the authority to use the military without congressional approval. The answer is that the congress has the power of the purse strings and if the president were to misappropriate funds to carry out a military exercise that the congress has forbidden, the president has then committed an impeachable offense. Whether congress carries out the act of impeaching and removing the president is entirely up to the discretion of the congress.) Well, since George Washington didn't even dream that man could fly (The myth of Icarus predates Washington by about 17 centuries. Washington admired Seneca, but even Stoics can dream, no?), much less use a global-positioning satellite to aim a missile, it's hard to say what he would think (Nor does it matter, but a tiptoe through the Pacificus-Helvidius debates could give anyone with the time and desire to know what one is talking about an idea). What would the framers say about whether a tax on people who did not buy health insurance is an abuse of Congress's authority under the commerce clause? (The Commerce Clause was intended to allow the free flow of commerce between the states. Our modern understanding of our federated republic is ignorant of the parochialism that plagued the young nation. But why let the plain meaning of the words used (and a lack of anything added to the constitution to the contrary) get in the way. It is, very simply put, beyond the constitutional authority of congress to require a citizen to buy anything, even if it is for his own good.) Well, since James Madison did not know what health insurance was and doctors back then still used leeches (Still do, dumbass. This falls under the fallacious reasoning of the Whig Theory of History (& here) something done a long time ago must be foolish, and we are necessarily smarter today than we were in the past. It is also a false analogy, just because there have been advancements in our understanding of medicine doesn't mean that we haven't lost an appreciation for what our constitution says and does.), it's difficult to know what he would say. And what would Thomas Jefferson, a man who owned slaves and is believed to have fathered children with at least one of them (prurient and irrelevant), think about a half-white, half-black American President born in Hawaii (a state that did not exist)? Again, hard to say (Er, no it isn't. If we were to reanimate old TJ, give him a quick primer on the events from his death through the Civil War and to today and then show him the election returns from the 2008 election, he would probably say "congratulations." But again, it doesn't matter because history happened and Mr. Obama won the election. There is no constitutional controversy here.).

The framers were not gods and were not infallible (Textbook sophistry, no one has ever argued thus. Ever. To belabor this further would lend credence that this level of asininity does not deserve). Yes, they gave us, and the world, a blueprint for the protection of democratic freedoms — freedom of speech, assembly, religion (no, they didn't)— but they also gave us the idea that a black person was three-fifths of a human being (no, they didn't. The 3/5s compromise did not mean a black person was "3/5s" of a human being and this argument is as lazy as it is wrong. Here the actual words that were written will be helpful, "Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons." So saying that this clause makes slaves (n.b., not "blacks") 3/5s of a person is akin to saying that the constitution made the Indians unpersons. This was a hedge against Southern hegemony specifically on the notion of slavery and was done to hasten the day that slavery would be abolished, not to forestall it), that women were not allowed to vote (neither the founders (in convention) nor the constitution said any such thing) and that South Dakota should have the same number of Senators as California, which is kind of crazy (Why? Does the author not understand bicameral republicanism? Or simply not like the fact that those rubes in South Dakota are entitled to the same representation as those enlightened superhumans who live in California? And I should point out that neither South Dakota nor California existed at the time; both joined the union knowing full well what the rules of the game were, and the Connecticut Compromise is one of the finest examples of political compromise on the history of mankind. Crazy indeed.). And I'm not even going to mention the Electoral College (Why not? I'm going to go out on a limb and posit that it might be because the author doesn't understand how it works or why the founders thought it important (though hardly essential).). They did not give us income taxes (Thankfully). Or Prohibition (See, they were smart after all). Those came later (Perhaps, in the case of the former, they realized that the fruits of one's labor were rightly that person's property and in the latter that attempts to regulate individual behavior were a fool's errand. Regardless, at least it was realized at some point that increases in the authority of the government did require amending the constitution according to the established protocols.).

Americans have debated the Constitution since the day it was signed, but seldom have so many disagreed so fiercely about so much (First clause is indubitably correct, the latter is ahistorical stupidity). Would it be unconstitutional to default on our debt? (No.) Should we have a balanced-budget amendment? (Academic and moot, if enough people want to do it, the mechanism is there to do it. The founders did not find it necessary, for whatever reason, to include such a requirement. Though it is doubtful that they would be comfortable with deficits quite like we have today.) Is it constitutional to ask illegal immigrants to carry documents? (Maybe, maybe not, but it certainly is constitutional to control migration, so far as it is practicable, into sovereign borders.) The past decade, beginning with the disputed election of 2000, has been a long national civics class about what the Constitution means — and how much it still matters. For eight years under George W. Bush, the nation wrestled with the balance between privacy and security (an issue the framers contended with) while the left portrayed the country as moving toward tyranny (an argument conspicuously dropped even though the Obama administration has carried on virtually all of Bush's policies and even gone far beyond anything Bush or his henchmen ever considered.). For the past three years under President Obama, we have weighed issues of individual freedom vs. government control while the right has portrayed the country as moving toward a socialist welfare state (Here the author provides a link to tea-party protesters carrying signs; no reasoned examination of the incontrovertible argument that the government has increased the public provision of non-public goods (what socialism is), just an assertion supported by a link to eight pictures taken during a protest march. Smell that? That's modern American journalism).

I could go on, but really, what's the point? I encourage you to read the whole thing. The only thing any honest reading of the article will present you with is the knowledge that the author doesn't know what he's talking about.

Same as He Ever Was

In case you thought being relieved of his congressional duties would have restored Arlen Specter to sanity...well, it hasn't.

Klavan on Ryan v Obama

I thought this was pretty good, especially his descriptions of Keynesian thoughts. I'm not necessarily 100% sold on Ryan's plan (it's growth estimations are complete fiction, but then, so are all estimations in politics), but it is certainly preferable to anything the Democrats have come up with.

Sean Penn is Still an Idiot

I saw this by would-be diplomat Sean Penn. Some highlights:

• There has been a systemic barrage of misreporting and context-shifting within the U.S. media and espoused by many U.S. Representatives relative to Venezuela and its democratically elected President Hugo Chavez.
• The American people have grown accustomed to hearing the Venezuelan president referred to as a dictator, not only by media representatives but by members of the leadership in both parties. This is a defamation, not only to President Chavez, but also to the majority of Venezuelan people, poor people who have elected him president time and time again.
• a president elected by the impoverished and at the service of the Venezuelan constitution, a document not unlike our own.
• He is a flamboyant, passionate leader. And while our own cultural and constitutional conditioning would lead us to serious concerns in the powers of his office, there must be an informed adjustment to give our analyses a context that may extend beyond our borders.

(All emphasis added by me)

I am fortunate to know some people that live in Venezuela. People that are subject to the dictator, Hugo Chavez. There is no other title that he is worthy of. He is not democratically elected, and he is certainly not returned to office out of the love of his imprisoned subjects. He is, second to the Brothers Castro, the embodiment of what happens to a vibrant, diverse and hard-working people, economy and nation when subject to socialism and Marxian ideals (apparently the kind that Thomas Friedman finds so appealing).

The contest between who is more repulsive is a tight one. Obviously Chavez himself is a despicable person who maintains an iron grip on control of his country while its people suffer at the hand of his idiotic policies borne of his megalomania. Critical members of the media and any nascent political opposition frequently disappear. He is re-elected because there is no choice. It's pretty easy to win a race when you're the only one running, you write the rules and officiate the match all in one. A nuance perhaps lost on Mr. Penn.

Is Mr. Penn more repulsive than Mr. Chavez? Which is worse, the bloodthirsty dictator or his allegedly educated and enlightened actor apologist?

Chavez has the actual blood on his hands, so he is obviously worse. But Penn fights the good fight. And if he keeps writing as poorly as in this piece and this other golden oldie, he might start to nudge his good buddy Hugo off the pedestal.

Keynes on Keynesianism

‎"The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory."

--John Maynard Keynes, from the forward to the 1936 German Edition of his General Theory of Employment, Interest and Money

n.b.-this was written in 1936 when some little totalitarian dick named Hitler was running things in Germany. Giving proof that Keynesianism, properly understood, works best in a totalitarian system; where government is the master and the people are the servants.

When WE do it, it's OK

Imagine a company were publicly to express confidence in its future earnings and ability to meet its debt obligations while privately pressuring one of the major ratings agencies not to downgrade its bond rating. We would have a term for that, and it would be securities fraud. But nary an eye is blinked when Uncle Sam does it.

15 April

I don't like taxes. Any of them. And I'm put off by people who are either ambivalent about them or think they are a good idea. A necessary evil, perhaps, but the operative word would be evil over necessary. I know government needs revenue in order to function, and though I admire and respect Murray Rothbard, I am not an anarchist. Anarchy may be a fine aspiration (mankind living harmoniously, with respect to human, civil and property rights without the need for government), but I don't think it realistic.

The establishment of government means that we all have to give up some liberty in exchange for order. But since some liberty must be sacrificed, and since liberty is something held dear, we should keep the amount we must sacrifice to the absolute minimum. And this requires keeping government to an absolute minimum. Which would keep the amount of revenue needed for the government to function as low as possible. Which would have the happy consequence of keeping taxes as low as possible.

People who say "I would gladly pay more in taxes" are, to put it mildly, idiots. That means that they quite obviously receive too much compensation for the work they do. Secondly, anyone who wishes to pay more in taxes can. Have your employer withhold the maximum amount from your pay and don't claim any deductions. And don't cash your refund check. It is obvious that anyone who would do these things is not a rational actor. And I don't want irrational people telling me what to do with my money.

Then we have those who say the "rich" should pay their "fair share." I have said it before and I will say it again: the easiest thing in the world to do is to spend someone else's money. Milton Friedman devotes a chapter to this in his book Free to Choose (Chapter 4, From Cradle to Grave, please see the video that accompanies the chapter here). Not only is it easy to spend someone else's money, it is just as easy to waste someone else's money. And government, every single government that has ever existed, proves exceptionally good at this.

So when you couple this almost genetic compulsion to waste money, even when the task at hand is a legitimate function of government and works to the best interest of all participants with no negative externalities, with the propensity to spend more money than taken in, you have what is known as a problem. And folks, we got a big problem. And the problem has gotten as big as it is because government, and people's expectations of government, has become unchained from what its legitimate function is.

In his speech on Wednesday, 13 April 2011, President Obama pointed out that he doesn't care for the spending plan for the 2012 budget laid out by the Republicans because "their vision is less about reducing the deficit than it is about changing the basic social compact in America."

Really?

Social Security was started in 1935 and Medicare and Medicaid were started in 1965, 76 and 46 years respectively. The country is 235 years old and the constitution is 222 years old. I don't think a transfer program that is one-month younger than my step-father can be considered a more important social compact than the constitution of the United States.

Realizing that people not only are responsible for themselves, but actually can be responsible for themselves in an anathema to most politicians, because what then would the politician be good for if not taking from the many to give to the few in order to remain in office?

Another point. Obama also said in his speech: "Part of this American belief that we are all connected also expresses itself in a conviction that each one of us deserves some basic measure of security. We recognize that no matter how responsibly we live our lives, hard times or bad luck, a crippling illness or a layoff, may strike any one of us. 'There but for the grace of God go I,' we say to ourselves, and so we contribute to programs like Medicare and Social Security[.]" Pleasing rhetoric, no doubt, but utter nonsense.

No one I know "contributes" anything to Social Security, Medicare or Medicaid. It is taken from your pay by your employer and remitted to the government quarterly, along with the employer's matching "contribution" under penalty of law. Things tight this quarter? Need to pass on making that "contribution"? Guess what happens? You won't be discussing the virtues of government mandated compassion with the fellow with the pleasing rhetoric. You will be faced with fines and penalties and liens on any real estate you own. Decide to keep too much of your own money and you're looking at accommodations at some other federally run resorts.

We don't "give" to Social Security, Medicare and Medicaid because we are compassionate towards our fellow citizens. We give to churches, the Red Cross, food pantries. We give our time and effort and money to others. That is charity. That is compassion. Because it is voluntary, it is not good, it is great. It is a very small step towards that Utopia of Anarchy. It is also something people have done since people have been around. It even precedes people. Evidence of altruistic behavior can be seen throughout the animal kingdom. But we "give" to these government entities, the ones that will spend the money foolishly while increasing the soul-deadening bureaucracy, because if we don't we will lose more money, lose our homes, go to jail or all three.

These programs throw the government-liberty balance completely out of whack.

More Fallacies

This interview with Robert Reich, for Labor Secretary for President Clinton, encapsulates nicely what liberals and Keynesians continue to get wrong about economics. First, the 12 year old host of the program states that we were "brought to the brink" over what amounts to 1% of federal spending. I am becoming more and more amused by this argument, which boils down to "we can't cut this program because it costs too little to make a difference." Well, if it costs so little, then they won't miss the money, right? If what Planned Parenthood or NPR does is so significant, then as private organizations they are responsible for covering their own nut. The conservatives and Republicans use this fatuous line of reasoning when it comes to international aid, pointing out how little it is in the grand scheme of the budget (which if you only count the money distributed through the State Department is true, but what they don't mention is the aid funneled through the Defense Department generally and the CIA specifically, which raises that number significantly). The point for both sides remains that if the amount being cut is so small, then why should we fight it? Not why should we make the cut, no?

Next, we come to the argument made by Reich that attempts to balance the budget are what exacerbated the Great Depression in 1937. This silly notion has been disproved time and again. If deficit spending worked and was actually able to boost "aggregate demand", balancing the budget eight years after the depression started wouldn't have been an issue because there had been nothing but federal intervention and deficit spending since the crash in 1929 (I am surprised that no one brought up Hoover and his alleged do-nothingness for good measure). Government spending can not "make up" for slouching consumer demand. It merely crowds out private investment in less efficient production. Any would-be gain is lost in diminished efficiency and higher borrowing costs, not to mention higher taxes.

Then there is the argument that now is not the time to cut spending. Ostensibly because government is needed to boost demand. This assumes that liberals and democrats would be enthusiastic supporters of spending cuts when things are going well. But of course, the argument then is either "well, we have the money, why not spend it" and "if we don't spend this money on these programs, aggregate demand will sag thus causing a recession." This would appear to be having it both ways, no?

What it boils down to is that congress was given authority to handle a few things. And bribing foreign governments and making sure the folks in some remote corner of Wyoming can hear Morning Edition aren't among them. The responsibility of congress should be to keep spending and taxes as low as possible (and please stop comparing our tax rates to other countries, I don't care if people in Norway are just ducky with an effective 70% tax rate, that doesn't mean I have to). The burden for any new proposed spending measure should be if it falls clearly within congress' authority.

Visit msnbc.com for breaking news, world news, and news about the economy

Whatever Would We Do Without Cowboy Poetry

Why shouldn't we slash federal spending? Because necessary federal programs would be cut. How necessary? Well, I'll let senate majority leader Harry Reid explain (italics added):

“The mean-spirited bill, H.R. 1 … eliminates the National Endowment of the Humanities, National Endowment of the Arts,” said Reid. “These programs create jobs. The National Endowment of the Humanities is the reason we have in northern Nevada every January a cowboy poetry festival. Had that program not been around, the tens of thousands of people who come there every year would not exist.”

That's right, not only would the world have to struggle along without Nevada's world-renown cowboy poetry festival, but the existence of any would be attendees would be snuffed out. Tens of thousands of people!

Malapropism of simply hyperbole? Who knows? But if cutting the budget means that the country would be without tens of thousands of people who would flock to Nevada for a cowboy poetry festival (and not just the cowboy poetry festival), then I say let's start cutting.

Suing John Ashcroft

I heard this on NPR this morning. I won't recap the whole thing, it's not that long a story, but the gist of it is that an American citizen is suing the former attorney general, personally, for violating the citizen's constitutional rights by misusing the "material witness" statute. The Material Witness Statute has been around for a long time and it basically means that the feds have the authority to arrest someone whose testimony is material in a criminal case, and that a subpoena might not be enough to compel his testimony. I find this repugnant on so many levels, but since government agents and legislators seem not to care about the fact that individual rights are mere nuisances to the effective administration of the state, it should not be surprising that both major political parties seem to adore such authority (the Obama administration is appealing a decision by the federal appeals court that would have allowed the case against Ashcroft to go to trial*).
Anyway, the statute has been around for centuries, but the abuse of the authority was kicked up a bit after the attacks on 11 September 2001 and the Justice Department was headed by John Ashcroft.
Again, I don't want to rehash the whole story, but this little tidbit really struck me:

Former Attorney General Mukasey says it's important for the attorney general to be able to use the material witness law in this way "without having to worry about individual liability and saying, 'You know, maybe I better not do this. Maybe we better just let these folks slip through our fingers because one of these individuals might sue.' " (emphasis added)

This was my major complaint with the Bush administration and it is being carried on with great gusto by the Obama administration. Lost in their zeal to protect everyone is the essence of what this country was founded on. A public official granted wide authority by statute, and not by the constitution, is not to be held personally liable in a situation clearly showing disregard not only of basic (fundamental) human rights (life, liberty, property) but of the actual text of the statute itself. Mukasey worries about officials being scared into inaction by threat of lawsuit, when they should be considering, first, foremost and every time, whether the rights of the individual in question are being violated. If the answer is yes, and it clearly is in this case, then no action is to be taken against that individual. Who cares if the guy was going to Saudi Arabia? Whether his ticket was round-trip in coach or one way in first-class, he was not a criminal; not charged with any crime, not suspected of having committed any crime.
And even if he is to be detained merely for providing testimony in a potential criminal case against someone else...three maximum security facilities and frequent strip searches? Not holding the individuals responsible for these atrocities personally liable for their actions merely pushes the burden onto the taxpayer. Yes, the plaintiff will get his payday, but he, and we, will be denied justice. At least he'll get some money, we'll get the bill.
I hope (but doubt) that the Supreme Court will stand on the side of the individual. If not, we will take another step down the Road to Serfdom, accepting more the notion that the government is the master and the people the servants.

*the Obama administration talked a good game before coming to office about how bad the Bush administration was in areas of presidential authority and civil rights. In practice, it has embraced most of the policies and broadened some others. But for the life of me, I can't seem to recall the nasty articles from the New Republic condemning the practices under Obama.

FDR on State Unions

From here, reprinted in its entirety:

My dear Mr. Steward:

As I am unable to accept your kind invitation to be present on the occasion of the Twentieth Jubilee Convention of the National Federation of Federal Employees, I am taking this method of sending greetings and a message.

Reading your letter of July 14, 1937, I was especially interested in the timeliness of your remark that the manner in which the activities of your organization have been carried on during the past two decades "has been in complete consonance with the best traditions of public employee relationships." Organizations of Government employees have a logical place in Government affairs.

The desire of Government employees for fair and adequate pay, reasonable hours of work, safe and suitable working conditions, development of opportunities for advancement, facilities for fair and impartial consideration and review of grievances, and other objectives of a proper employee relations policy, is basically no different from that of employees in private industry. Organization on their part to present their views on such matters is both natural and logical, but meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the Government.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of Government activities. This obligation is paramount. Since their own services have to do with the functioning of the Government, a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable. It is, therefore, with a feeling of gratification that I have noted in the constitution of the National Federation of Federal Employees the provision that "under no circumstances shall this Federation engage in or support strikes against the United States Government."

I congratulate the National Federation of Federal Employees the twentieth anniversary of its founding and trust that the convention will, in every way, be successful.

Very sincerely yours,


Mr. Luther C. Steward,
President, National Federation of Federal Employees,
10 Independence Avenue, S.W., Washington, D.C.


APP Note: Although this letter appears to be signed, "Very sincerely yours, Mr. Luther C. Steward, President, National Federation of Federal Employees, 10 Independence Avenue, S.W., Washington, D.C.," the letter is from Roosevelt to Steward. The placement of the addressee's name and address at the bottom of the document was an editorial decision in the original "Public Papers and Addresses of Franklin D. Roosevelt." The American Presidency Project's policy is to reproduce documents in their original form.

Government and Home Ownership

I am reading Meltdown by Thomas Woods, an economist of the Austrian school. It is his take on the housing crisis. I am sympathetic to his line of argument.

By chance, I happened upon this piece by David Coates (professor of something called Anglo-American studies at Wake Forest) at the Huffington Post.

Mr. Coates uses the recently published ("long awaited") Treasury Department report on reforming America's housing finance market to lambaste both republicans for having the chutzpah to disagree with the reports main finding (that more rigorous regulations and enforcement are needed in the market) and also the Obama administration for doing nothing to, well, further interfere in the market.

Mr. Coates gives short shrift to the notion that agencies such as Fannie Mae and Freddie Mac and government policies had much to do with causing the "crisis." Apparently the report does so as well, I haven't had a chance to read it yet. Perhaps these intervention exacerbated the situation, but the government certainly didn't cause anything.

Let's go over a few points:

• The Federal Reserve...as pointed out in this editorial in the Wall Street Journal, written as President W was leaving office, the Federal Reserve kept interest rates too low for too long. The created distortions in the market place, signaling to investors that money should be spent on long-range capital investments. Interest rates, when allowed to operate according to market rules, will be lower as more people save money. This increases the market for loanable funds. People are saving for future consumption. Lower interest rates tell industry that since people are saving for future consumption, they should borrow cheaper money to invest in longer-range investments to be able to provide more goods and services in the future.
• Fannie Mae and Freddie Mac...forget, for a moment, collateralized debt obligations, credit-default swaps and "carving up mortgages" you may have heard about. The federal government set up ostensibly private institutions whose sole purpose was to purchase mortgage "debt" from banks in order to free up more money to lend. The age-old accounting equation states that assets must equal liabilities plus owner equity. So mortgages are not debt or liabilities to banks. They are assets. But so is cash. So the banks "trade" one asset for another with these GSEs, "freeing up" more money to lend. A simple supply and demand curve will show that the best way to drive the price of something up is to increase the amount of buyers out there. Buying the mortgages from banks with the explicit goal (mandate) of getting them to lend more money to more people to buy houses pushes up, artificially, the price of houses.

Now things are a bit more complicated than this and I'm certainly not saying that banks have no responsibility in the matter. But as one wag put it, blaming the crisis on greed is like blaming gravity for a plane crash. Too many people were given too much money to buy too many houses. Short- and long-term investment strategies were jumbled up with mixed messages from the deus ex machina of the federal government, spiced up with a dash of moral hazard, because everyone except elected officials and the talking heads at CNBC seemed to know that if (when) the poop hit the oscillator, the government was going to come in and pay the bad actors off.

So it boils down to this: where did the money come from? Bank of America can't print money. Washington Mutual had no control over where interest rates were set. No bank can force another bank to hold a note to free up more cash.

Sorry, Mr. Coates. Federal government policies were responsible for the genesis of the crisis. And as someone who works in the mortgage/real estate business, I can assure you or anyone else there is no problem from lack of regulation. The problem is that there are far too many. Too many, in fact, to make any kind of responsible enforcement completely impractical. Never mind the sticky issues of no regulators going into any of the big banks in certain congressional or senate bishoprics and ruffling any potential donors' feathers (calling Mr. Dodd, Mr. Chris Dodd!).

Stick to "Anglo-American studies," because you don't know jack about markets.

What's Wrong with Our Agriculture Policy

Wrapped up in a neat little six minute interview.

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Tom Vilsack
www.colbertnation.com
Colbert Report Full Episodes 2010 Election March to Keep Fear Alive

"Trying to make sure that folks continue to have affordable food in this country."*

"Americans spend less of their disposable income for groceries than just about anybody else on the face of the earth which means we have more discretionary income to spend on other things like cars, nicer homes, vacations."**

After Colbert asks why we subsidize foods and then tell kids not to eat them (meaning high fructose corn syrup, I guess), Vilsack replies "The reality is we have to have a safety net for our farmers because its a tough business. You have no control over weather, you have no control over markets. You need to know that probably 90% of America's farmers are just barely making it, 10% are doing pretty well, but there are a lot of farmers out there who struggle, so it is important to have a strong safety net. At the same time it is important that we have affordable food for folks in this country and the programs at the USDA are designed to help that."***

*The law of unintended consequences and about 23 seconds of critical thinking shows that any effort the federal government exerts to make sure folks have affordable food does the exact opposite; not to mention the moral repugnance of assuming that people cannot fend for themselves and help their neighbors of their own volition. It is a religious mission to feed the hungry and clothe the naked, not a political one.

**the money that is spent by the government comes through taxes causing dead-weight loss and lost productivity or deficit spending reducing the market for loanable funds and distorting the time preference for money, skewing short- and long-term interest rates. Meaning that, contrary to the best efforts of socialists, we all have less money for cars, nicer homes and vacations.

***Farmers used to be respected because theirs was a difficult lot. Hence the phrase "yeoman's job." Now, apparently, they are to be given money by the government on top of what they manage to produce and sell because it's a tough job. By prohibiting the most efficient allocation of resources (and as far as the government is concerned, this is entirely made up of other people's money) we reward unproductive work, stunt innovation and further the cause of dependence on government. Market uncertainty encourages innovation, thrift and the most efficient allocation of resources which all boost production and productivity. Which helps everyone. These assertions are self-evident and, as Mises would say, "apodictically certain." No econometric models are necessary. No calculus. The only group that would suffer more than the farmers (and some farmers would definitely suffer, but this only means that we have too many farmers) would be the politicians who would lose campaign contributions and lobbying gigs for when they leave office.

The Question isn't What Are We Going to Do

The questions is what can't we do? To Representative Pete Stark? Nothing.



I don't think the Health Care Bill violates the 13th amendment, but congress does overstep its bounds by requiring people to purchase a service that they may not want to.

Now, if congress meddles further and commands that doctors must perform certain services to certain people and accept a legislated wage, that could be construed as a form of servitude (even if we think the remuneration is adequate). It is no different or less reprehensible than the draft.

Stark isn't alone in his obnoxious conception of government (and of his own powers), but at least he's honest about it. Most Republican legislators talk about limiting or reducing government in fora such as this, and then do whatever they want in Washington.

Good Job

Sometimes people really surprise you. My hat is off to Congressman Barney Frank of Massachusetts for doing his part to curb the influence of lobbyists.
Well done, Mr. Frank.