Tuesday, January 26, 2010

Hayek and Keynes face off over free markets -- rap-style

Explaining the massive hurdles you'd have to overcome to impose a "rational" controlled society to people -- the sheer impossibility of substituting government planning for the values and preferences of millions of people -- is often a lost cause. Eyes glaze over, yawns are politely stifled (or not stifled at all), and the virtues of freedom and dynamism get lost in the vast disinterest many people harbor toward matters philosophical. Frankly, people want bad times made better -- and they're not interested in hearing anybody tell them that the cure is usually worse than the disease.

So, don't waste your time boring your friends. Instead, point them toward this video, the work of economist Russ Roberts and creative director John Papola, in which free-market economist F.A. Hayek and liberty-distrusting economist John Maynard Keynes lay down their opposing views in rap form while out on the town.

No, really -- it's good.

By the way, this economic debate is important beyond the economic sphere because the fact of the matter is that liberty is not divisible -- you can't expect to enjoy full civil liberties, like freedom of the press, if the government nationalizes the media. As Hayek wrote, "Economic control is not merely control of a sector of human life which can be separated from the rest. It is the control of the means for all our ends."


Friday, January 15, 2010

It's not just the feds; watch out for the neighborhood control freaks

There's been lots of justified concern in recent years that the federal government -- that crazy uncle in the attic -- has broken free of its restraints and is smashing the crockery and scaring the kids. Between George W. Bush's police state and Barack Obama's fascist economics (or is that Bush's fascism and Obama's police state?), the peril on the Potomac seems to represent an ever-growing threat to our liberty. But as the column I wrote earlier this week about a SWAT raid in small-town Arizona suggests, it's too easy to keep your eyes focused on D.C. and so miss the machinations of the control freaks in the local city hall.

The fact is that local governments have enormous power over the petty details of our day-to-day lives. Yes, the federal government may keep you awake at night fretting about wiretaps, bans, taxes and mandates, but it's local officials who get to decide whether you even have a bed in which to toss and turn. City councilmen, zoning and planning officials, building inspectors and the like get to determine whether you can move into a new home or open a business. A denied occupancy permit, a refused zoning variance or a hiked water fee can make all the difference in the world.

In a February 2010 article in Vanity Fair on the '70s disco scene, Ian Schrager of Studio 54 fame makes an interesting point about the far-reaching effects of petty regulations:
It wasn’t aids that made the nightclub business difficult. Government regulations did it in. Steve and I did our first nightclub [the Enchanted Garden, in Douglaston, Queens] for $27,000 and Studio 54 we did for $400,000. Now, with all the regulations, fire codes, sprinkler requirements, neighborhood issues, community planning boards … before you even put on the first coat of paint, you’re into it for over a million dollars. What it’s done is disenfranchise young people.
An April 2005 article in the North Bay Bohemian on the rise of underground restaurants in California made the same point:
"It costs $200,000 just for a permit to be allowed to buy water from the city!" exclaims [former underground restaurateur Michael] Hale. "You have to get tons of permits from various people. You've got to get a building permit, a permit if you want to remodel, you have to get licenses for beer and wine, and you have to get certified by the Health Board."
And, of course, the power of eminent domain is largely exercised at the local level, where bureaucrats and politicians decide who will be pushed off their own property to make way for some government-favored use.

Those rules can be a nightmare to navigate -- or an insurmountable hurdle -- if they are properly applied. But local government is a personal business. People know each other, develop friendships and enmities, and personal feelings can easily spill over into the application and enforcement of local rules. David Carl, the subject of my last column, insists that the SWAT raid on his Cottonwood, Arizona, business, over which he is filing a lawsuit, began as a dispute over signage regulations and an occupancy permit that turned personal. Indeed, a review of city records shows that one zoning commissioner displayed a continuing interest in the progress of the case.

Does that  prove that local rules were abusively applied? No. But it's suggestive. And even the fear of such abuse can cause people to mind their manners when dealing with local officials.

I remember when my wife and I, and our partners, went shopping for a general contractor to construct a building for my wife's medical practice. We received a lot of advice on who to use and who to avoid -- not just based on their personal merits, but also on their relations with local officials. We were warned that good relations could ease the way for permits and make inspections a breeze, while bad feelings could sabotage the whole project.

Given how matter-of-factly that advice was given -- and how often I've heard of similar advice given to people elsewhere -- that offers an important insight into the destructive power posed by local officials and their rules.

Local government is certainly closer to the people. But closer isn't always better. Often, we need to maintain a healthy distance from the people who want to wield coercive power over our lives. And as our experience with the federal government has demonstrated, even 3,000 miles and more isn't always enough.

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Tuesday, November 17, 2009

How can you call the federal stimulus a boondoggle?

It's not quite up to the standards of Depression-era court-packing, but the Obama administration is getting creative about  the number of congressional districts it claims to have bailed out with manna rained down from heaven fearless leader.
Just how big is the stimulus package? Well for one, it has doubled the size of the House of Representatives, according to recovery.gov, which says that funds were distributed to 440 congressional districts that do not exist.

According to data retrieved from recovery.gov, nearly $6.4 billion was used to “create or save” just under 30,000 jobs in these phantom congressional districts–almost $225,000 per job. The web site operates on an $84 million budget and is tasked with monitoring the distribution of the $787 billion stimulus package passed by Congress–which, for the record, counts 435 members–in early 2009.

Among the jurisdictions rescued from economic malaise are, we're told, New Mexico's 22nd Congressional District, and its 40th, 4th, 13th, 16th, 9th, 6th and 25th. That's quite a trick for a state that sends only three seat-warmers to the House of Representatives (but just wait until rattlesnakes win the franchise!).

This comes on the heel of earlier reports that the government's claims of having saved and created scads of new jobs in these tough times through free and easy spending might be just a bit overblown -- or even "wildly exaggerated" if you believe the Boston Globe. Looking at just one state, the Globe reported:
The federal stimulus report for Massachusetts has so many errors, missing data, or estimates instead of actual job counts that it may be impossible to accurately tally how many people have been employed by the massive infusion of federal money. Massachusetts is expected to receive an estimated $1 billion more in stimulus contracts, grants, and loans.

Among the "jobs created" were cost-of-living raises given to 150 existing staffers at the Head Start program. Each lucky raise recipient was counted as a new job created by stimulus money.

And extend those 150 new jobs across 440 newly created congressional districts, and you're talking good times all around!

Well, it's good to know that our tax dollars -- and those of our grandchildren -- aren't being completely wasted.

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Friday, September 18, 2009

Rep. Ron Paul on liberty and the need for a revived anti-war movement

Rep. Ron Paul in an interview by Time magazine. You have to love a guy who can coherently link a denunciation of the income tax to a denunciation of conscription.

By the way, Alexander Cockburn has made the same (accurate) point about how the anti-war movement has neutered itself now that Bush is out of office.

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Wednesday, September 2, 2009

The Hamptons just got a little more interesting

The inhabitants of two well-heeled towns on New York's Long Island are reportedly shocked to discover that brothels have been operating in residential neighborhoods -- and enjoying a booming business in otherwise trying economic times. Given the large number of politicians who maintain vacation houses in the area, you'd think the good people of Westhampton and Southampton would be accustomed to their neighbors peddling favors from their homes. But if they really want to minimize the disruption caused by underground prostitution, they should learn a lesson already taken to heart elsewhere, and eliminate laws against the trade.

Prostitution, for example, is legal in much of Nevada. The ability to work in legal -- and heavily regulated -- brothels has cut down the need for sex workers to operate under the radar by selling their services in venues that might not always be perceived as appropriate (such as residential neighborhoods).

But Nevada's solution isn't ideal. That heavy regulation forces sex workers into brothels, limiting their independence and their negotiating power. Given that an imbalance of power is already an issue (the prostitutes in the Hamptons brothels kept only $15 of the $40 charge for each trick), something a little more liberating may be in order.

Which brings us to New Zealand. In 2003, that nation decriminalized prostitution, essentially returning the sex trade to legal, free-market status. The government enforces laws against force and fraud as it does for other above-ground industries, but otherwise generally stays out of the way.

Last year, a government reviewed the impact of the reform -- and liked what it saw. According to the conclusion of the Report of the Prostitution Law Review Committee on the Operation of the Prostitution Reform Act 2003.

The PRA has been in force for five years. During that time, the sex industry has not increased in size, and many of the social evils predicted by some who opposed the decriminalisation of the sex industry have not been experienced. On the whole, the PRA has been effective in achieving its purpose, and the Committee is confident that the vast majority of people involved in the sex industry are better off under the PRA than they were previously.

In contrast with conditions where prostitution is illegal, only 4.3% of female sex workers (and half as many male prostitutes) in New Zealand have been coerced into the business. Employment conditions have dramatically improved now that sex workers have access to legal redress for mistreatment by employers and customers. They can also go to work on their own, without need of the "protection" of an established pimp.

Most importantly, the trade is now above-board, and doesn't need to pop up in odd locations, like rental houses in the Hamptons, in an effort to avoid the authorities.

Laws against prostitution don't do much but make life difficult for sex workers and the occasional unlucky customer -- just ask Eliot Spitzer, the last governor of New York, how deterred he felt by the laws he had enforced as attorney general. They also drive the trade into inconvenient locations through efforts to evade the police (and let's not forget the corrupting effect on public officials who take money or sex to look the other way).

So if residents of Westhampton, Southampton and points beyond want to get prostitutes out of their neighborhood, their best bet is to get rid of the laws against the sex trade.

As for getting politicians out of their neighborhood ... That's a tougher challenge.

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Tuesday, September 1, 2009

Will Barry soar to the tops of the pops?

Well, OK, perhaps it's a little early to ponder President Barack Obama's likely assessment by historians of the future. But it's certainly not too early to point out that he's well on his way to high regard according to the usual blood-and-brutality standards set by most scholars -- but that he's vying for a very low rank according to an intriguing rating system that grades presidents according to the service they do in maintaining peace, prosperity and liberty.

Earlier this year, for Presidents Day, C-Span released the most recent scorecard judging the nation's former chief executives on their leadership. These rankings have become a semi-regular event, during which historians are polled on their subjective assessments of the relative merits of the presidents. Not surpisingly, they reveal more about historians than they do about the men they rate. Tellingly, the top of the list almost always features the same names. Abraham Lincoln, George Washington and Franklin D. Roosevelt featured prominently this year, as they do in almost all such exercises.

I say almost all, because there are a few dissident voices playing this game. The latest such contrarian ratings come from Ivan Eland, Director of the Center on Peace and Liberty at the Independent Institute, and author of Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty.

It's not fair to say that Eland's rankings turn the usual results upside down -- but they come pretty close. At the top of Eland's list is John Tyler, who comes in at number 35 on the C-Span list. Pulling the worst rank on Eland's list is Woodrow Wilson, who finished in ninth place for C-Span.

How could the results be so wildly at odds?

Easy -- Eland uses very different criteria than those used by most historians when ranking the presidents.

As the title of his book suggests, Eland rates the presidents according to their ability to preserve and defend peace, prosperity and liberty. Specifically, as Eland puts it, "this analysis gives presidents credit for avoiding wars and conducting only necessary wars of self-defense." In terms of prosperity, Eland judges presidents not just by prevailing conditions while they were in office, but for the effects of their policies after they left -- presidents who artificially pumped up the economy and left a shambles for their successors get dinged. When it comes to liberty, the author looks at deeds more than words. "Presidents often claim that they are preserving liberty while, at the same time, they are taking actions to subvert it. Only genuine acts promoting economic freedom (deregulation) and political liberty will be counted in the plus column in this analysis."

Since bad presidents have frequently done their worst damage while expanding their authority at the expense of the other branches of government -- and in defiance of constitutional strictures -- Eland also looks at the extent to which they resisted the urge to illegitimately expand the power of the presidency to the near-monarchical clout it wields today.

C-Span, on the other hand, asked historians to rate presidents (PDF) on "Public Persuasion," "Crisis Leadership," "Economic Management," "Moral Authority," "International Relations," "Administrative Skills," "Relations with Congress," "Vision/Setting An Agenda," "Pursued Equal Justice for All," and "Performance Within the Context of His Times."

But it was considered inappropriate for presidents to appeal directly to the public until the twentieth century, automatically hobbling earlier officials in the rankings. "Crisis Leadership" and "Economic Management" inherently put at a disadvantage presidents who manage to avert crises and who believe they have no business managing the economy at all.

Most telling is that, of the five top-rated presidents in the C-Span list -- Abraham Lincoln, George Washington, FDR, Theodore Roosevelt and Harry Truman -- three presided over wars (and Theodore Roosevelt was overtly bellicose -- only George Washington seemed to have any taste for peace, and even he suppressed a tax revolt with troops and seized Indian lands). While the C-Span scholars celebrate these presidents' wartime leadership, Eland holds them to account for being unable or unwilling to avert bloody conflict.

Of those presidents, Lincoln and FDR get severely down-graded by Eland for civil liberties violations directly related to their war efforts, showing that much of what makes a president great or poor goes hand-in-hand.

Overall, most historians clearly prefer those presidents who leave the biggest mark on history -- in terms of blood, brutality and expensive monuments to themselves.

But the presidents who serve us best, as Eland points out, are those who quietly pass through office by using diplomacy, self-restraint and established channels to prevent crises, avert conflict, preserve our liberty and otherwise give us every reason to tend to our own affairs without worrying about political goings-on.

Ultimately, Tyler ranks so highly in Eland's list because of quiet actions like ending the Second Seminole War, slashing the size of the army by one-third, peacefully settling a boundary dispute with Canada, declining to send troops to suppress a minor rebellion in Rhode Island, maintaining sound money and controlling federal spending -- all while battling his own activist Whig party. That's not splashy stuff -- but it's the necessary basis for allowing people to raise families, build businesses and plan for the future.

Woodrow Wilson, on the other hand, ranked last on Eland's list for pushing America into an unnecessary war, criminalizing dissent, jailing political opponents and seizing private businesses. Those actions won him high rank among the C-Span historians.

So, how will President Barack Obama fare in the future? It's early yet, but based on his record, so far, of massive spending, continuing military adventures in Iraq and Afghanistan, expanding the role of government in the economy, and building on the authority and secrecy of the presidency, it's safe to predict that most historians will view him with fondness. They like the imperial presidency. He's unlikely to place very high on the Peace, Prosperity and Liberty index, however.

Of course, there's room for agreement even among scholars using very different criteria. Both Eland and C-Span ranked the last president -- George W. Bush -- at number 36, very near the bottom.

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Friday, June 5, 2009

It's a privilege to do business with you

From San Francisco comes the sad story of Larry Moore, a homeless man who got it together, started a shoeshine business and saved enough cash to rent an apartment -- until a city official slapped him with a bill for hundreds of dollars to pay for a sidewalk vendor permit. You see, in Mr. Moore's city, as in most places these days, offering goods and services for which people are willing to pay requires government permission. Somehow, the most fundamental of rights -- the right to make a living -- has been reduced to a privilege.

Some places make it explicit. In Pennsylvania, for example, if you want to do things for people in return for voluntarily given money, or sell goods to eager buyers, you have to pay a tax "for the Privilege of doing business." In some towns, it's considered a privilege to stick your toe across the border, and pretty much any presence will subject you to the eager attention of local officials.

San Francisco isn't as honest in its terminology, but the city does seem to require a license or permit for anything (and I mean anything (PDF)) that involves a few coins moving from one hand to the next. In Larry Moore's case, the city demanded $491 so he could continue to shine shoes with official blessing.

And if he couldn't come up with the tariff? Back to panhandling and living in shelters, I guess. Surviving on charity doesn't require permission -- it's only supporting yourself that must be licensed. As the San Francisco Chronicle puts it:

Along Market Street, Moore's supporters are indignant. Nothing happens when mentally ill men wander the street talking to themselves and drunkards pee in the alleys. Yet Moore creates a little business out of thin air, builds up a client base, and the city takes nearly every penny he's earned.

Some people think this is the way it should be. Even a business governance handbook written by a corporate CEO insists "business is a privilege, not a right -- the privilege to run a business in a society for the benefit of present and future generations." The Supreme Court of Missouri once wrote, with regard to pawnprokers:

No person has the right to follow such occupation within the limits of said city without first obtaining a license from its authorities for that purpose, which may be granted or withheld at pleasure. The business is a privilege, not a right ...

Working to make a living is a privilege to be dispensed by bureaucrats "at pleasure" (and at no small charge)? If that's the case, how free can we ever really be?

I write often about free speech, search and seizure, domestic relationships and the general right we all have to be left alone to conduct our lives, use our bodies and love our friends and family as we see fit, so long as we harm nobody else.

But it's difficult to fully enjoy those rights, no matter how well protected, if there isn't equivalent regard for the fundamental right to make a living. After all, if a license to do business can be withheld "at pleasure," displeasing officials with the way you conduct your life can have dire consequences for the ability to pay bills and put food on the table.

The idea of a right to go about your life unmolested and without asking permission isn't some novelty. It was only a bit over a century ago that the U.S. Supreme Court said:

The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no duty to the state or to his neighbors to divulge his business, or to open his doors to an investigation, so far as it may tend to criminate him. He owes no such duty to the state, since he receives nothing therefrom, beyond the protection of his life and property. His rights are such as existed by the law of the land long antecedent to the organization of the state, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself, and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights.

That point of view is considered a little antiquated today, but without it, aren't we all just getting from one meal to the next dependent on the whim of an army of politicians and bureaucrats?

Larry Moore was lucky. His customers came through to make sure that there was enough money for both the permit fee and the rent payment (and to help him pay the city its money, since the process is byzantine in its complexity).

But all of us, potentially, are just as vulnerable as a man trying to make his way off the street.

Sort of apropo to all of the above, here's Doug Stanhope, sounding off on freedom -- and licensing (thanks to Mike Frink for the heads-up).


Wednesday, June 3, 2009

The company you keep

From Reuters:
Venezuela's President Hugo Chavez said on Tuesday that he and Cuban ally Fidel Castro risk being more conservative than U.S. President Barack Obama as Washington prepares to take control of General Motors Corp.

During one of Chavez's customary lectures on the "curse" of capitalism and the bonanzas of socialism, the Venezuelan leader made reference to GM's bankruptcy filing, which is expected to give the U.S. government a 60 percent stake in the 100-year-old former symbol of American might.

"Hey, Obama has just nationalized nothing more and nothing less than General Motors. Comrade Obama! Fidel, careful or we are going to end up to his right," Chavez joked on a live television broadcast.

It's probably not true in some sort of absolute sense. I don't expect America's fearless leader to out-nationalize Venezuela's fearless leader, and there's no talk yet of President Obama inserting hosannas to himself in school texts or sending the Obamatons out to pound on the opposition.

But it is telling, I think.

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Tuesday, May 12, 2009

Thank God the new guys are in. Oh, wait ...

Last week, the Central Intelligence Agency upset a few political apple carts when it revealed what many people already suspected: that Speaker of the House Nancy Pelosi was briefed on the use of "enhanced interrogation tactics" -- torture -- against detainees suspected of terrorism as early as September of 2002. The revelation undercuts Pelosi's criticism of civil liberties violations committed by the Bush administration. It also helps to dispel the myth that either of the two major political parties in this country has much regard for individual liberty -- or basic decency.

According to CIA documents (PDF), Nancy Pelosi was one of the first two members of Congress clued in about the use of torture, the other being Porter Goss, the Republican then-Chairman of the House Intelligence Committee on which Pelosi sat as ranking Democrat.

Pelosi briefing

Other in-the-know members of Congress included Senators Bob Graham (D) and Richard Shelby (R), Senators Pat Roberts (R) and John Rockefeller (D), and Rep. Jane Harman (D) -- all briefed by early 2003. Others were informed of the use of enhanced interrogation techniques in the years that followed. The Washington Post has reported that none of the briefed lawmakers protested the use of the harsh practices.

All of the legislators informed of the use of torture were sworn to secrecy, though humanitarian concerns might be considered by some people to be of greater importance than any such vow.

None of this should be a surprise. As terrible as the Bush administration was when it came to respecting individual liberty and restraints on the power of the state, its excesses differed from those of previous administrations more in quantity than in quality.

In fact, after the terrorist attacks of September 11, the Bush administration crafted the enormous, government-empowering PATRIOT Act in what seemed like record time largely by recycling legislative proposals originally put forward by its predecessors. In 2003, former Rep. Bob Barr told Reason, "the first version of what later became the PATRIOT Act was very familiar to a number of us on the Hill. We had seen many of these provisions submitted previously by the Clinton administration."

Perhaps it was the Clintonian roots of the PATRIOT Act that made then-Senator Barack Obama comfortable enough with the law that he voted to reauthorize the measure. Obama also voted to expand the government's use of electronic surveillance and to immunize telecommunications companies against liability for helping the government with wiretapping.

And the Obama administration has one-upped the Bush administration in arguing that some government actions are so super-secret that, even when people's rights are violated, victims shouldn't be allowed to sue, since national security might be damaged by the court proceedings.

It's the same on economic matters, of course. The massive government intervention in the economy and binge-spending begun by then-President George W. Bush -- policies explicitly called "fascist" by Robert Scheer -- have been enthusiastically expanded and extended by President Barack Obama.

Republicans and Democrats alike love to use the the words "liberty" and "freedom," but, with rare exceptions, politicians operating under those affiliations are firm allies of the concepts behind those words only when they're out of power and a little rabble-rousing helps to favorably contrast them with the folks holding the reins. Once in control, or simply out of public view, they show themselves as the kind of people who can sit through briefings on the use of torture without batting an eyelash.

The eternal political warfare between Republicans and Democrats makes for great political theater. It's also an effective way to divide and conquer the people over whom they rule.

But if you're looking for principled advocates for your freedom, don't look to the creatures roaming the halls of power -- from either party.

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Tuesday, April 7, 2009

From now on, youse guys and us is partners, get it?

Organized crime has a long history of "buying into" legitimate businesses, whether the original owners are interested in acquiring partners or not. Those businesses are then redirected to ends favored by the mob, often at the expense of their long-term viability. The actual owners are pushed aside, of course, with little or no hope of winning back control of their companies.

So, is it too much to compare recent actions by the government to those of organized crime? You tell me. From Stuart Varney, writing at the Wall Street Journal:

Here's a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He's been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with "adverse" consequences if its chairman persists. That's politics talking, not economics.

In the end, an offer you can't refuse is an offer you can't refuse.


Wednesday, March 18, 2009

You can use those dollars to paper the wall or in the outhouse -- your choice

The Federal Reserve says, "to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."

The Wall Street Journal sums that move up nicely: "With rates near zero, the Fed is now essentially printing money to increase the supply of credit in the economy."

Now where's my Econ 101 textbook? I want to see what happens to the value of any given good when you suddenly flood the market with a new supply ...


Monday, March 9, 2009

Citibank is under new management, and there have been a few changes ...

You know it's coming, right?

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Freedom's pecking order -- how the states stack up

Think tanks have long ranked not just countries, but U.S. states, according to their economic freedom, and Reporters Without Borders grades nations on their respect for press freedom. Until recently, though, nobody has really tried to assess the attitude toward personal freedom prevailing at the state level, or to really get a handle on the best place to live in the United States for people who want the government to just leave them alone. A new report from George Mason University's Mercatus Center takes on that job, finishing the work started last summer by Reason magazine.

In Freedom in the 50 States: An Index of Personal and Economic Freedom, William Ruger, an assistant professor in the Department of Political Science at Texas State University, and Jason Sorens, an assistant professor of Political Science at the University at Buffalo, State University of New York, offer "the first-ever comprehensive ranking of the American states on their public policies affecting individual freedoms in the economic, social, and personal spheres." Ruger and Sorens very explicitly ground their understanding of freedom in a live-and-let-live understanding of the concept, in which people are able "to dispose of their lives, liberties, and property as they see fit, so long as they do not infringe on the rights of others."

In economic terms, that translates into assessments of burdensome regulations, high taxes, restrictive licensing laws, protection for property rights and the like.

Overall Freedom rankingsPersonal freedom scores depend on treatment of victimless activities such as gambling and prostitution, and restrictions on alcohol and tobacco. Asset forfeiture and violations of free-speech rights (campaign finance regulation) are also considered. Also included are policies toward marijuana, laws respecting same-sex relationships, gun control and regulation of education outside government schools.

Given the ideological divisions in this country, it's probably no surprise that states like New York, California and New Jersey come out poorly in the economic freedom rankings at 50, 48 and 46, respectively. Those states may even take pride that they failed the free-market test. But red-staters be warned: Alaska ranks at number 47 in terms of economic freedom.

When it comes to personal freedom, though, some familiar blue-state names reappear. New York ranks at 48 in this category, California at 37 and New Jersey at 45. Ouch.

Alaska gets the highest personal freedom ranking of all 50 states, creating a bit of a quandary for freedom-loving fans of the last frontier.

In terms of overall freedom, combining personal and economic considerations, the best scoring states are New Hampshire, Colorado and South Dakota.

New York ... well ... New York has really good restaurants.

As for New Jersey (number 49) ... There's still no good reason for living in the Garden State.

Last summer, Reason magazine published "What's the Matter With Chicago?," a treatment of the same issue, focusing on 35 cities instead of 50 states. The authors looked at each city's policies regarding sex, tobacco, alcohol, guns, movement, drugs, gambling and food/other to come up with their rankings.

According to Reason, Las Vegas ranked best in terms of personal freedom, while officials in Chicago are the most intrusive. According to the magazine, "The Windy City’s litany of meddlesome laws range from a tax on bottled water to a ban on serving alcohol at all-nude strip clubs. Local gun controls and a public smoking ban are among the most restrictive in the country. ... There’s a primary seat belt law, meaning motorists can be pulled over for not buckling up, and a ban on using cell phones while driving. The city is second only to New York in the use of surveillance cameras in public spaces and has more red light cameras than any metropolis in the country."

Sure enough, Illinois receives a mediocre ranking from Ruger and Sorens -- but so did Nevada. In part, that's a recognition that cities can be more or less liveable than the states in which they're located. But it's also a result of the somewhat subjective nature of ranking systems, which depend on categories included and excluded and the weights given each.

Ruger and Sorens admit that there's a subjective element to the weight they give each category. They make their data available online so that people can adjust their own rankings based on their own priorities. They also link to a site that is set up to adjust rankings using simple sliders, so have at it.

Before accusations fly that rankings like this are slanted to give the advantage to lefties or righties, let's read what Freedom in the 50 States has to say about the relative status of liberals and conservatives when it comes to respecting freedom:

[T]he relationship between ideology and personal freedom is flat, reflecting the propensity of liberal and conservative states to protect certain freedoms but not others. The relationship between liberalism and economic freedom is more strongly negative, and as a result the relationship between liberalism and overall freedom is modestly negative, but only among the most liberal states. In short, moderate states are no less or more free than conservative states, but liberal states do tend to be less free, particularly on economic issues.

Basically, neither of America's dominant political tribes has a lock on respect for liberty -- both tend to be selective about the freedoms they protect.

But if you're looking for a libertarian atmosphere of overall freedom, New Hampshire looks good. And the Wild West hasn't yet grown too mild.

Speaking of the West, Arizona, where my butt warms my sofa as I write, ranks 11 for economic freedom, 12 for personal freedom, and 8 overall. That's not too shabby.

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Wednesday, February 25, 2009

'Total lack of understanding of basic economics'

That's a quote from free-market pundit (and practitioner) Peter Schiff's rebuttal to the president's state-of-the-union address. In particular, Schiff takes on Obama's emphasis on prosperity-through-credit, as if running up the credit cards is the key to a healthy economy.

Schiff's prescription:
This is not a time to be talking about these grandiose ideas and things the government should be doing for the country. What we need is for the government to shrink; we need government to get out of the way. They've done enough damage.
Schiff, the president of Euro Pacific Capital, is best known for accurately predicting the onset of the current financial mess.

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Monday, February 23, 2009

Robert Scheer calls Obama's policies 'fascism'

My friend, Thaddeus Russell, points me to the February 20 edition of NPR-affiliate KCRW's "Left, Right & Center," (at 8:30 in the recording) in which Robert Scheer, a voice of the left on the show and contributing editor to The Nation, had some sharp points to make about the blast-from-the-blackshirted-past nature of President Barack Obama's economic policies.
Robert Scheer: I don't think the idea of nationalizing, as it's now being called--which means basically bailing out these banks, setting them straight, then letting them go private again, which is the model that everybody is using, and the people who get screwed are the people whose retirement funds had common or preferred shares and they get wiped out, and these bankers come out richer than ever at the other end--that's not a leftist idea and it's not socialism. This is what we used to, in Comparative Economic Systems, call fascism. It's putting government at the service of the big financial interests. That's what happened in Italy, that's what happened in Germany, that's what happened in Japan. . . .

Tony Blankley: What I don't understand is how my colleagues on this show, who I believe were for Obama, now saying he's leading a fascist regime. Did he mislead them a few weeks ago when he was still running? . . .

Robert Scheer: To answer your question, I am disappointed in Barack Obama and I'm not quite sure what he's doing.
Scheer was careful to say he wasn't calling Obama a fascist, just that his policies are fascism...


For the record, I think Scheer is accurate in emphasizing that the unsavory policy bouillabaisse coming out of D.C. these days has less to do with Leninist-style state socialism (and certainly nothing in common with non-statist syndicalism, anarcho-socialism or the other forms of cooperative economics that don't require men with guns to operate) than with the corporatist variant on socialism developed by Mussolini.

This should be no surprise, since the government-control-without-expropriation model pursued by the center-left over the past couple of decades has become increasingly corporatist in nature. Thomas J. DiLorenzo, a professor of economics at Loyola College, warned in a 1994 article in The Freeman:
[I]t is important to recognize that, as an economic system, fascism was widely accepted in the l920s and '30s. The evil deeds of individual fascists were later condemned, but the practice of economic fascism never was. ...
But what was fascism in policy terms? Said DiLorenzo:
From an economic perspective, fascism meant (and means) an interventionist industrial policy, mercantilism, protectionism, and an ideology that makes the individual subservient to the state. “Ask not what the State can do for you, but what you can do for the State” is an apt description of the economic philosophy of fascism. ...
And this is relevant to us today, he continued, because:

Now that socialism has collapsed and survives nowhere but in Cuba, China, Vietnam, and on American university campuses, the biggest threat to economic liberty and individual freedom lies in the new economic fascism. While the former Communist countries are trying to privatize as many industries as possible as fast as they can, they are still plagued by governmental controls, leaving them with essentially fascist economies: private property and private enterprise are permitted, but are heavily controlled and regulated by government.

As most of the rest of the world struggles to privatize industry and encourage free enterprise, we in the United States are seriously debating whether or not we should adopt 1930s-era economic fascism as the organizational principle of our entire health care system, which comprises 14 percent of GNP. We are also contemplating business-government “partnerships” in the automobile, airlines, and communications industries, among others, and are adopting government-managed trade policies, also in the spirit of the European corporatist schemes of the 1930s.

As government officials bail out their well-connected friends in the banking, auto and other industries, and further establish state authority over economic activity, you can almost hear the ghost of Mussolini standing in the background, approvingly saying, "Ecco un ditatore!" (behold a dictator!) as he did of FDR.


Thursday, February 19, 2009

CNBC's Rick Santelli tears into the 'stimulus' package

What happens when a TV broadcaster who knows what he's talking about has had enough?


Tuesday, February 17, 2009

Milton Friedman talks about greed

In 1979, Phil Donahue asked Milton Friedman how he could defend a system based on "greed." Friedman then proceeded to school Donahue in the realities of the world, including the self-interest at the basis of authoritarian, non-market socialist economic systems that Donahue seemed to favor.
"Is it really true that political self-interest is nobler somehow than economic self-interest?"

I guess this is a lesson that never truly sinks in.


Thursday, February 12, 2009

Wall Street Journal OpEd calls for competing hard currencies

I really never expected to see the following thoughts appear in the pages of the Wall Street Journal, but I guess despair over government spending gobs of money that doesn't even exist in order to metastasize itself into every nook and cranny of society has a way of moving the goalposts on acceptable opinion. Economist Judy Shelton writes:
If capitalism is to be preserved, it can't be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there's no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.

So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies -- and for good reason. A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that "every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard."

Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.

Hmmm ... Is anybody listening?


Monday, February 9, 2009

The culprit is fingered

Stanford University economist John B. Taylor has done some investigating, and he thinks he'd fingered a culprit in the financial crisis. From the Wall Street Journal:
Many are calling for a 9/11-type commission to investigate the financial crisis. Any such investigation should not rule out government itself as a major culprit. My research shows that government actions and interventions -- not any inherent failure or instability of the private economy -- caused, prolonged and dramatically worsened the crisis. ...

Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.

The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking. There is also evidence the excessive risk taking was encouraged by the excessively low interest rates. Delinquency rates and foreclosure rates are inversely related to housing price inflation. These rates declined rapidly during the years housing prices rose rapidly, likely throwing mortgage underwriting programs off track and misleading many people.

Adjustable-rate, subprime and other mortgages were packed into mortgage-backed securities of great complexity. Rating agencies underestimated the risk of these securities, either because of a lack of competition, poor accountability, or most likely the inherent difficulty in assessing risk due to the complexity.

Other government actions were at play: The government-sponsored enterprises Fannie Mae and Freddie Mac were encouraged to expand and buy mortgage-backed securities, including those formed with the risky subprime mortgages.

Government action also helped prolong the crisis. Consider that the financial crisis became acute on Aug. 9 and 10, 2007, when money-market interest rates rose dramatically. Interest rate spreads, such as the difference between three-month and overnight interbank loans, jumped to unprecedented levels.
But, of course, the people who got us into this mess are well-equipped to get us out.

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Marc Faber calls the stimulus package a path to third-world status

Swiss-born economist and investment adviser Marc Faber, best-known as a contrarian and pessimist with a pretty good track record when it comes to predicting economic downturns, suggests that the U.S. government is turning to Robert Mugabe for economic advice. In an interview with CNBC, Faber got just a tad bearish on U.S. prospects.

"We have different economic schools. We have the Austrian school, the school of rational expectations, the monetary school and so forth. In the U.S., we have a totally new school, and it’s called the Zimbabwe school. And it’s founded by one of the great leaders of this world, Mr. Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the U.S. is pursuing.

If something goes wrong, print. If it doesn't get fixed, print more. If it then goes even worse, print more."


Wednesday, January 28, 2009

Screw the stimulus -- let's scare off the lenders

Barring divine intervention by a team of heavenly economists, President Barack Obama's massive spending spree ... err ... stimulus package, will pass into law. That probably can't be stopped. But the money to be spent isn't yet in government hands; it will almost certainly have to be borrowed -- probably from overseas. That threatens to bind generations to come to paying off the bills run up today. Unless, that is, enough Americans dissuade lenders by announcing ahead of time that they plan to repudiate the debt the government intends to incur.

To be successful, such repudiation will have to be open and massive. And it will be most convincing if it's voiced loudest by young Americans -- those who have the potential to assume political power in the future. Millions of twenty-somethings saying, when they're in Congress 20 or 30 years from now, they won't honor hundreds of billions of dollars of treasury securities issued by today's profligate politicians, just may raise serious doubts among the world's lenders.

There's good reason to take such drastic action to kneecap the stimulus package after it passes. Harvard University economist Robert J. Barro points out that massive government spending in the past -- particularly, during World War II -- actually did economic harm.

[T]he war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.

Barro suggests that peacetime spending would be even more damaging than that during war, since people might perceive it as long-term policy and permanently adjust their own habits.

If he's right, the stimulus plan not only places us, our children and our grandchildren under the onerous burden of paying off massive debt -- it does so with the knowledge that the debt the government took on actually hurt us.

This really isn't surprising. As Professor John Cochrane of the University of Chicago puts it:

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about “crowding out.”

And Barro and Cochrane aren't alone. Roughly 200 prominent economists have signed a newspaper advertisement (PDF) sponsored by the Cato Institute that rejects the idea of massive government spending as a solution to economic troubles. Running in The New York Times and The Washington Post, the ad says, in part:

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Despite such sentiments among many economists, the stimulus plan is certain to be passed by Congress and signed by President Obama.

Which means the last chance to head off "stimulus" boondoggle is to make sure the money isn't there to be spent. And since our debt-ridden government has no money of its own to flush away, and will have to borrow the cash, scaring off potential lenders is the best bet.

So, come on America. Say it in print, on the radio, on TV, on blogs and in advertisements. Say it loud and say it proud: If the world is dumb enough to loan more money to the U.S. government, don't expect it to be paid back. The Americans who will be making decisions in the decades to come won't be bound by the folly of the current crop of office-holders.

If enough of us say it, the world will listen, and cut off the tap.

If that doesn't stop the spending spree, nothing will.

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Tuesday, January 27, 2009

Well, I guess a lot of economists do oppose the 'stimulus' spending spree

Yes, yes. We all heard that Paul "I won a Nobel Prize, y'know" Krugman has denounced anybody who opposes President Obama's fiscally irresponsible, budget-busting "stimulus" plan as a "dishonest flack" who should be ignored. But what Krugman glosses over is that those flacks include among their ranks hundreds of prominent economists with credentials of more current vintage than his own. The Cato Institute is running the following advertisement in major newspapers around the country. The ad says "More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s." It adds, "To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."

Oh, and, in case you're counting, three of the signatories are Nobel Laureates.

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Wednesday, January 7, 2009

New New Deal a dangerous (and expensive) idea

What's the price for ending the recession? How about trillion-dollar-plus deficits -- and a longer recession? Add in a bigger government and less freedom, and the incoming president's grand economic plans start sounding a little ... frightening.

President-Elect Barack Obama cautions that his economic plans will probably have the United States running "trillion-dollar deficits for years to come." Before the ink has dried on news reports of his mind-boggling concession, the Congressional Budget Office raises a red flag (PDF) and warns that the next resident of the White House is being unreasonably optimistic -- the tidal wave of red ink about to engulf the federal budget is bigger than anticipated even before taking into account Obama's plans for a "new New Deal."

It's all right, the president-to-be's partisans tell us. That vast new spending is necessary and will pull us out of recession just the way the FDR-era programs on which it's modeled saved us from the Great Depression.

Don't count on it. Plenty of experts think emulating the New Deal is a recipe for economic disaster.

Recently, Salon's David Sirota declared doubt about the wisdom of the New Deal to be "abject insanity." If it's insane to criticize 1930s-era economic policies, then it's a madness shared by a good many scholars. As Jonathan Bean, a historian at Southern Illinois University, points out at The Independent Institute's blog, The Beacon, a 1995 survey of economists and historians published in the Journal of Economic History found "[h]alf of the economists and a third of historians agreed, in whole or in part, that the New Deal prolonged the Great Depression."

Credible economists continue to research the issue and conclude that Franklin Delano Roosevelt's policies did, in fact, prolong the Great Depression and deepen the misery of the era. Two UCLA economists, Harold L. Cole and Lee E. Ohanian, studied FDR's economic policies for a 2004 paper (PDF) published by the Federal Reserve Bank of Minneapolis. They concluded that "New Deal policies are an important contributing factor to the persistence of the Great Depression." Labor and industrial policy, in particular, "accounts for about half of the continuation of the Great Depression between 1934 and 1939."

Among FDR's mistakes, The Beacon's Bean points out, was demonizing everybody who disagreed with him so they hunkered down and held off making investments until he was out of office. Even John Maynard Keynes "repeatedly criticized FDR for discouraging private business investment with his taxes, regulations and overheated rhetoric (the White House charged that opponents were 'Big Business Fascists')."

FDR's rhetoric was a bit rich, considering that his own National Recovery Administration boasted "The Fascist Principles are very similar to those we have been evolving here in America."

So there is good reason to be skeptical of claims that a new New Deal is just the medicine that America needs. That's especially true since this particular prescription may be the most expensive one ever written for the country. President-Elect Obama talks of trillion-dollar deficits, but the CBO says (PDF) the deficit for 2009 is already on track to be $1.2 trillion, before the new chief executive's "stimulus" package is even considered.

CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. Enactment of an economic stimulus package would add to that deficit. In CBO’s baseline, the deficit for 2010 falls to 4.9 percent of GDP, still high by historical standards.

A deficit that's 8.3 percent of the economy? That's simply unthinkable. That money has to come from somewhere, and the only source is the private sector, since that's where wealth is created. The money can be taxed, it can be borrowed or it can come from inflating the money supply and devaluing existing dollars -- in all cases, wealth is taken from the hands of private citizens so it can be spent by politicians and bureaucrats. The end result is a public flurry of checks cut by government officials, but nobody sees the checks that aren't being cut by millions of businesses and consumers who now have less to spend.

We're talking about a huge transfer of wealth and power. The New Deal made government much more powerful than it had ever been before, with terrible consequences for personal freedom. I'm not talking about the abstract value of free enterprise; I mean people thrown in jail because they had the nerve to set their own prices for their products.

Even if we don't get such intrusive regulation under a new New Deal, federal budgets so vast that the government is borrowing over eight percent of the economy inevitably means that individual decision-making will be displaced by state planning. While running up a national credit card that you and I will ultimately have to pay off, the government will purchase enormous power and influence over our lives.

The hangover from this spending spree won't just mean huge bills, it will mean huge changes in the balance of power between the people and the state. Bankrupt though the goverrnment will be, it will own things we never thought it would own, and it will have inserted itself into areas that we never thought appropriate.

That's what happened during the first New Deal, and it will happen again if those policies are repeated in any significant way.

If history is any guide, Barack Obama's proposed economic policies may actually prolong our economic woes. And they'll leave us with an unacceptably high tab in terms of both money and liberty.

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Sunday, December 21, 2008

Is Michael Lind the enemy of all that is good and right in the world?

The auto industry in the South -- Asian and European companies that produce well-designed cars in the U.S. in modern plants with largely non-union workers paid competitive wages -- is beating the pants off the archaic, high-cost American car companies in their rust-belt enclave in Michigan. Michael Lind's solution: To force southern states and the automobile companies with factories there to adopt the Detroit model.
Today the division is no longer between slave and free states, or agrarian and industrial states, but between two models of industrial society -- the Northern model, based on adequate public service funding and taxation and unionization, and the Southern model, based on low-tax, low-service government and low-wage, non-unionized, easily exploited labor. If the industrial North and the industrial South compete for global capital investment, then the industrial South is likely to prevail, because Northern advantages in the form of a skilled workforce and superior public services are unlikely to overcome the South's advantages of low wages and low taxes and state and local tax subsidies. ...

Call it the Third Reconstruction. The first step is to end the race to the bottom in wages and regulation, by national action. The national minimum wage should be gradually raised until it is a living wage, of $10 to $12 an hour, and it should be adjusted for inflation. At the same time, federal regulations should set a higher floor with respect to worker safety regulations, environmental regulations, and others, preventing America's own internal rogue states from gaining any advantages by flouting national standards. ...
At the other end of a lot of tendentious phraseology, what emerges is that Lind wants to force the southern states to adopt the welfare state political model of the rustbelt, along with state-mandated high wages and production costs, so that they lose their competitive advantage with the northern states with which he feels a political and cultural affinity.

Two models were tried, one failed. Lind wants to punish the winner and force everybody to adopt failed practices.

I'm not arguing that southern political and economic practices are models of free and open government and liberty-respecting laissez-faire economics. There's a lot to be criticized about government and economic policy in the South, including cronyism and favoritism. But throw Michigan into the mix, and Alabama stinks a hell of a lot less by comparison.

Lind's northern model can't compete with the southern model. Hell, I'll lay odds that the northern model just doesn't work at all. Eliminate federalism and outlaw state experimentation in favor of a centrally mandated Detroit-style model of ridiculously high labor costs, featherbedding and ossified corporatism, and you don't get prosperity ruled over by the victorious UAW. You get national catastrophe from an unsustainable system.

Honestly, you can't just order nonsense to make sense, you can't repeal economic reality through legislation, and you can't make the Detroit model work.

And by the way ... Right or wrong about the merits of any given system, using the power of the state to jam your preferred model down everybody's throats makes you an evil autocrat in and of itself.


Tuesday, December 9, 2008

Everything old is new again

As if the oh-so-delicious scandal enveloping Illinois Governor Rod Blagojevich over the apparent attempt to auction off President-Elect Barack Obama's old U.S. Senate seat weren't enough warning of just what lies at the core of government, the Ludwig Von Mises Institute publishes a review of a new book on the impact of FDR's New Deal, just in time to serve as a warning about the incoming administration's New New Deal. In his balanced but overall positive assessment of New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America, by Burton Folsom Jr., David Gordon writes:
One of his best insights is that the New Deal programs were financed in large part by the poor. At Roosevelt's behest, excise taxes were imposed on many popular items of consumption; and these weighed especially heavily on the impoverished. "In the first four years of Roosevelt's presidency, revenue from excise taxes exceeded that of income and corporate taxes combined" (p. 126). (I do not think it right, though, to call excise taxes "regressive," as Folsom does. Everyone paid the same rate; the poor were not charged more.)

This was far from the only way in which New Deal programs hurt the poor. Blacks fared very badly under Roosevelt, the supposed great exemplar of enlightened modern liberalism. Minimum-wage laws proved a stumbling block to efforts by blacks to secure jobs. These laws prevented employers from undercutting unions by offering lower wages to nonunion members. Since blacks faced exclusion from many of the powerful unions, they were in effect frozen out.
Since union empowerment and massive spending are both on the agenda once again, this is an important take on policies that may well be dusted off and reused.

The review comes as part of a handy matching set with a Reason magazine article by Michael T. Flynn on the causes of the financial crisis that is being used to justify the revival of activist government. In "Anatomy of a Breakdown," Flynn writes:
Throughout the 1990s and the early years of this century, both major political parties became intoxicated with the idea of promoting "affordable" housing. By the time the crisis blew up, Congress was mandating that roughly 50 percent of the mortgages issued by Fannie and Freddie go to households making below their area's median income.

Many conservative commentators have blamed the housing mess on the 1977 Community Reinvestment Act (CRA), which essentially required banks to increase lending in low-income areas. While the CRA was a bad law, its role in recent events has been overblown. After all, it was on the books for decades before the bubble began. The law's worst legacy is the permanent network of "affordable housing" advocates that sprang up after it passed. These groups, which were intended to facilitate lending in poor areas, continually called for increased activity by banks and additional government support for affordable housing initiatives. The CRA also helped create a climate in which lending to low-income households was a key metric and condition regulators used in approving bank mergers. ...

It's hard to overstate the role Fannie Mae and Freddie Mac played in creating this crisis. Chartered by Congress, Fannie in 1938 and Freddie in 1970, the two government-sponsored enterprises provided much of the liquidity for the nation's housing market. Because investors believed—correctly, it turns out—that Fannie Mae and Freddie Mac were backed by an implicit guarantee from the federal government, the companies were able to raise money more cheaply than their competitors. They were also exempt from federal, state, and local taxes. ...

But Fannie and Freddie by this point were political powerhouses. When the accounting scandal first emerged, Fannie's chairman was Franklin Raines, former director of the Office of Management and Budget under President Bill Clinton. Its vice chairman was Jamie Gorelick, a former Justice Department official who had served on the 9/11 commission. The two companies provided tens of millions of dollars in annual campaign contributions and spent more than $10 million a year combined on outside lobbyists.
The whole piece is worth a read to discover how government intervention in the market causes the problems that are then used as arguments in favor of more government intervention in the market.

Folsom's book seems to effectively describe the evil impact of the New Deal at the macro level, but it was a brutal thing to endure at the personal level, too. The Schechters, a family of butchers, are often (and correctly) rated as heroes for their ultimately successful battle to overturn some of FDR's more egregious regulations. But they were ultimately victims, too, since the effort destroyed their finances. The roots and victims of the New Deal are documented in Amity Shlaes's The Forgotten Man: A New History of the Great Depression, a book which deserves more recognition right now.

But what was the New Deal like on the enforcement end? John T. Flynn told that tale in The Roosevelt Myth back in 1948:
The NRA was discovering it could not enforce its rules. Black markets grew up. Only the most violent police methods could procure enforcement. In Sidney Hillman’s garment industry the code authority employed enforcement police. They roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants at night. But without these harsh methods many code authorities said there could be no compliance because the public was not back of it.
Obama and company seem sincere in their claims that they want to bring back the heady, big-government days of the New Deal. Let's take them out their word and closely analyze their justifications for doing what they intend, and just what it is they plan to visit upon us.


Friday, December 5, 2008

How much will that auto industry bailout cost?

What's a few billion dollars among friends? How about $25 billion ... err ... $34 billion ... umm ... I mean ... $125 billion?

What? $125 billion?

Yep. That's what at least one financial expert says may be required to save the Big Three automakers and the United Auto Workers from their successful effort to turn themselves into exhibits in a museum of industrial obsolescence.

From the Chicago Tribune:
Bolstering the notion that the aid request was only the beginning, Mark Zandi, chief economist at Moody's Economy.com, predicted the companies would need $75 billion to $125 billion in government loans to avoid bankruptcy over the next two years.
My Nissan truck drives just fine, by the way. I may buy another, although it's going strong after ten years. Admittedly, Nissan is suffering in these tough times, too. The company's net profits slipped to $1.3 billion for the last six months.

I wonder if Nissan would be willing to buy up any of the pieces of the Big Three. After they go through bankruptcy, of course.


Wednesday, December 3, 2008

How about some bailout love for those bygone tech firms?

Y'know, when overvalued tech firms with no viable plans for turning a profit started going belly-up a few years ago, nobody threw them a lifeline. And that's the way it should be.


Tuesday, December 2, 2008

Underground economy provides shelter for illegal workers

Not long ago, Arizona joined the immigrant-bashing frenzy by adopting a law (signed by Janet Napolitano, soon to head up Homeland Security), that essentially requires all new hires to be vetted through the federal government's buggy E-Verify system to determine their eligibility to work in the United States. Employers who knowingly hire illegal workers can have their business licenses suspended on a first offense and permanently withdrawn on a second offense. The law made it more difficult for businesses to openly hire illegal immigrants, but it didn't eliminate the need for willing and able labor. Now, not too surprisingly, it turns out that employers and workers are resolving the conflict between the law and economic reality by going underground.

The Arizona Republic reports:

Blocked by the law from getting payroll jobs, many illegal immigrants instead are performing services or selling items on the side for cash.

Others have tried a different strategy: borrowing the identities of citizens or legal residents to land jobs with employers.

The maneuvers are allowing many undocumented families to remain in the United States despite heightened enforcement of immigration laws and a battered economy that has erased many jobs.

There are no studies that estimate how many illegal immigrants have turned to cash-only work to survive in Arizona. But economists say one of the results is that much of the money immigrants earn is going unreported and untaxed. That deprives the state of income-tax revenue even as tax revenue in Arizona is plummeting because of the faltering economy.

This should be a shock to exactly nobody. In many countries over the past few decades, the United States included, an increasing share of business activity has been taking place out of sight of government authorities. Why? Well, the reasons for this growth in underground activity aren't difficult to determine. In a presentation to the World Bank, No-Wook Park, a research fellow at the Korea Institute of Public Finance, explained the causes of the underground economy as:

  • Higher tax rates and social security contributions
  • Increased regulation
  • Forced reduction of weekly working hours
  • Earlier retirement
  • Unemployment
  • Decline of civic virtue and loyalty towards public institutions

Independently, Friedrich Schneider, a professor of economics at Johannes Kepler University of Linz, says (PDF), "The shadow economy includes all market-based legal production of goods and services that are deliberately concealed from public authorities for the following reasons:

  1. to avoid payment of income, value added or other taxes,
  2. to avoid payment of social security contributions,
  3. to avoid having to meet certain legal labor market standards, such as minimum wages, maximum working hours, safety standards, etc., and
  4. to avoid complying with certain administrative procedures, such as completing statistical questionnaires or other administrative forms."

Note that avoiding regulations features prominently among the causes set forth in both definitions of the underground (or shadow) economy. Arizona's employee verification and employer sanction regulations may be popular among crowd-pleasing politicians and nativist voters, but they have proven to be exactly the sort of burdensome rules that businesses and workers want to dodge.

And so they go underground.

How many go underground? It's hard to know. In Arizona, income-tax collections are down 13% from last year, but the economy has slowed in that time, too. To get an idea of the scope of the phenomenon, we can look at Massachusetts. There, where regulation is especially intrusive, taxes are high, and there are plenty of illegal workers, a recent study (PDF) "estimates the underground economy on Martha’s Vineyard conservatively at 12 percent of reported wages and 16 percent of reported jobs."

No-Wook Park says the underground economy grew in the United States from the equivalent of 3.5% of GDP in 1960 to 9.5% in 1995. Schneider, whose numbers are generally considered the most authoritative, puts the shadow economy in the U.S at about 8.4% of GDP as of 2003. If Schneider and Park are right --and they almost certainly are -- increased regulations should increase the size of the underground economy. So, however much shadow economic activity was taking place in Arizona before the new law, there's certainly more of it now.

And as the underground economy grows, an increasing share of economic activity takes place beyond the reach of tax authorities. Arizona may already be feeling that pinch as revenues dry up. Raising tax rates is no solution, since that's yet another spur to operating in the shadows.The economy chugs along, in defiance of resented regulations -- and increasingly it does so without benefit to the government.

That might be a good thing in many ways. But the underground economy functions beyond the protections of the law, too, and without the benefits that accrue to an above-ground job. If your boss stiffs you, there's little recourse if you're working in the shadows. And you can probably forget about health coverage.

But despite the threat posed by law enforcement, the lack of legal protections and the uncertaintly if shadow status, a large number of people prefer life underground to surrendering to objectionable regulations. Regulations targeted at illegal workers are just like any other burdensome red tape. If they are so intrusive that they stand in the way of economic activity, that activity will continue underground without regard for the rules.

In Arizona, as elsewhere, the underground economy provides shelter of a sort for people who need to make a living no matter what the government says.

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Friday, November 28, 2008

Drew Carey on free trade and innovation

When good economies go bad, otherwise intelligent people sometimes advocate stupid policies -- like protectionism. When the Great Depression set in, Congress pushed through a tariff bill, better known as Smoot-Hawley, inspiring a round of beggar-thy-neighbor trade policies that impoverished people at home and abroad. This was only one of a series of economic policies adopted during the 1930s that turned a nasty down-turn into a catastrophe that spanned longer than a decade, but it was an important blow against prosperity and common sense.

Since bad times seem to be here again, it's once again become popular to advocate the construction of an economic barrier around the United States. Free trade and innovation are out, protectionism and make-work jobs are in. Swimming against the tide in the following video from ReasonTV, Drew Carey makes the case for free trade and real jobs.

But remember, politicians are largely insulated against the consequences of their own policies. As a result, they usually advocate not what is smart, but what is popular. If foreigner-bashing becomes, once again, a national sport, expect free trade to go by the wayside -- along with jobs and income.


Saturday, November 15, 2008

Financial deregulation? What financial deregulation?

Lawrence White, a professor of economic history at the University of Missouri - St. Louis, tells of walking across campus and hearing two non-economists blaming the financial crisis on greed and deregulation. "If I had butted in, I would have made two points. ... What deregulation have we had in the last decade? Please tell me."

What? An economist questions the role that excessive economic freedom played in the nation's current bath of red ink? How can that be?

"On the contrary," White continues. "[W]e’ve had a strengthening of the Community Reinvestment Act, which has encouraged banks to make mortgage loans to borrowers who previously would have been rejected as non-creditworthy. And we’ve had the imposition of Basel II capital requirements, which have encouraged banks to game the accounting system through quasi-off-balance-sheet vehicles, unhelpfully reducing balance sheet transparency."

White isn't alone, although you could be forgiven for thinking so given the volume of "blame deregulation" voices on the country's editorial pages. They may be overlooked by most journalists, but quite a few economists are not just questioning the role of deregulation in current troubles, they're suggesting that lttle if any deregulation has occurred in recent memory.

In Canada's Financial Post, Pierre Lemieux, an associate professor in the Department of Management Sciences of the Université du Québec en Outaouais and a research fellow at the Independent Institute, allows that there has been some deregulation, such as the gradual repeal of the Glass-Steagall Act by the late 1990s and the Commodity Futures Modernization Act of 2000 which, he says, "eliminated some regulatory Damocles swords over derivatives." But, he adds:

Other traces of deregulation are not easy to find. Robert Buzzanco, a history professor at the University of Houston, blames the financial crisis on “[t]he repeal of Glass-Steagall specifically, and the orgy of financial deregulation more generally.” The orgy, however, looks rather monastic as the author provides no other example, except for a cryptic reference to an obscure change in a Securities and Exchange Commission (SEC) rule.

Read more »


Thursday, November 13, 2008

Socialists? No, we're not socialists -- well, except for health care

Beware of a politician who has a long, detailed, plan for how an important area of human life should be run by the government. A politician, for instance, like Sen. Max Baucus:
Baucus, the Senate Finance Committee chairman, called on Congress to create health reform legislation that would achieve “coverage for every American while also addressing the underlying problems in our health system” in a detailed, 87-page plan that was made public yesterday.

Baucus’ plan, which he said is not intended to be a legislative proposal, is very similar to the plan Obama outlined on the campaign trail, the notable exception being that Baucus would eventually mandate coverage for adults as well as children.
Baucus concedes that, "In the short term, health care reform would cost taxpayers more than the government can achieve in savings from all reforms and financing changes..." Making that concession before the plan has even been debated, let alone implemented, is a clear assurance that a real-world version of his universal health care system would be outrageously fucking expensive by an order of magnitude greater than predictions, sort of like Medicare.

Baucus's proposal is actually 89 pages long. The full text can be found here (PDF).

Question: Why does the word "reform" out of a politician's mouth always preface a scheme for putting bureaucrats in charge of our lives?

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Monday, November 10, 2008

Good money after bad

Well, it's a good thing the seat-of-the-pants economic policy being worked out in D.C. through bipartisan cooperation is having such excellent results. After all, if you're going to throw around hundreds of billions of dollars of other people--

What's that? You say the money is doing no good and the feds are ordering up more?
Troubled insurer American International Group got a reworked $152.5 billion deal from the federal government Monday, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout.

The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points and extend the borrowing period to five years from two years.

In addition, the Treasury will use its special authority under last month's $700 billion bailout law - the so-called Troubled Asset Relief Program - to purchase $40 billion in preferred stock.
It seems that even after an infusion of taxpayer cash, AIG is still tottering or, as the news report put it, "having difficulty paying back its original bridge loan."

So, what's the prognosis for the new patch-work fix to a company that seems to have outlived its allotted free-market lifespan? Mmmm ... Not so good.

Andrew Barile, an insurance consultant at Andrew Barile Consulting Corp., said the bailout will help ease AIG's need to continue to post more collateral. But he said the company will continue to have trouble selling off its subsidiaries. In the current environment, other smaller companies may rather pluck talent away from AIG than assume its unwanted companies.

"People also underestimate the time it takes to sell off assets of an insurance company, which takes months and months," said Barile.

It's nice to know that there's continuity in Washington, D.C., even after a hard-fought election campaign. Continuity of massively expensive and apparently ineffective policy, that is.

Meanwhile, the auto industry is next in line for its turn at the trough. I'm sure that will work out much better.

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