Archives: 09/2008

An Alternative to the United States of Permanent Receivership

If you have not seen this essay [.pdf] already, it is well worth your time. Zingales ends the essay:

The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation
is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.

The next 50 years? Perhaps. Markets deal with risk through deterrence. Individuals and firms take risks and gain or lose from their decisions. The gain or loss comes after the decision. If individuals and firms are protected from losses through taxpayer interventions, deterrence against bad risks cannot work. Risks are dealt with prior to a decision rather than afterwards. The government is charged with preventing unwise risk-taking before any decisions are made. Government officials come to have a veto over choices by private actors.

In this way, the United States of permanent receivership becomes in theory, and more and more in practice, a state of control over private decisions.

Fear of Sharia? Oh, Please.

Reviewing the new bills in Congress for my side-project WashingtonWatch.com, I come across some interesting stuff — and some dumb stuff.

Very dumb is how I would characterize a new bill introduced this week. H.R. 6975 would require aliens to attest that they will not advocate installing a Sharia law system in the United States as a condition of their admission to our country.

On the WashingtonWatch.com blog, I assessed it thusly:

First, there’s the simple bureaucratic nonsense of administering this thing: We’re going to ask every Christian, Catholic, Zen Buddhist, and Hindu not to advocate traditional Islamic law? What an utterly stupid waste of time. I don’t want a penny of my money going to pay for this.

But more importantly, a law like this communicates precisely the wrong thing to new immigrants and the world at large. It tells the world that we’re a weak, fearful country, and that we believe Sharia law is possible in the United States. It tells the world that we’ve come off our traditional moorings and that we no longer believe in free speech and tolerance of all opinions, no matter how wrong.

Let’s talk substance, just in case one or two of you out there are weak and fearful: There is no possibility — none — that Sharia law will be established in the United States. Not by any government body at any level. This country can stand to have Sharia advocated by whatever tiny minority might want to — without any risk. In fact, allowing such discussion will help dispel whatever small demand there could be for Sharia, because it would be so obviously incompatible with our way of life.

It’s embarassing that a strong, free country like ours would even consider an idea like this.

When to Worry about Moral Hazard?

In three different, recent op-eds, I’ve read that only during boom times should we worry about moral hazard — the idea that some actor will engage in overly risky behavior because he believes that he’ll be bailed out if the risk goes bad. The most recent op-ed to say this is Charles Goodhart’s, in today’s FT

OK, I did worry about moral hazard in 1998 when stock prices peaked. And again in 2006 during the housing price boom. 

Question: Instead of worrying, when is it time to “do” something about moral hazard? 

It seems the answer is never. During boom times, no one asks for government to play Good Samaritan. And during a bust — like now — when there’s opportunity to tell negligent investors to “go swim in the lake,” we’re told, well, the time to worry about moral hazard is during boom times! 

That’s another reason to call moral hazard the ”Samaritan’s Dilemma.”

A Presumption of Liberty

In 2006, there was an initiative in the state of Washington to ban smoking in public places. The scope of the ban was controversial; when government officials said it applied to private establishments, the ban was challenged by a small shop, the American Legion Post #149. The Post has seven employees; six were smokers and the seventh had no objection to smoking on the premises. The state supreme court nevertheless upheld the ban.

A strong dissent was filed by Judge Richard Sanders. Sanders began his opinion by observing the way in which the state government was attempting to frame the question before the court. The state’s lawyers asserted that the smoking ban ought to be “presumed constitutional and such presumption may be overcome only by proof beyond a reasonable doubt.” Not so, wrote Sanders. ”If any presumption exists, it is a presumption of liberty, wherein the State must prove the necessity and propriety of its restrictions on liberty.” 

Sanders then referred readers to two works available from Cato’s Book Store, Randy Barnett’s Restoring the Lost Constitution: The Presumption of Liberty and The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded FreedomSanders then analyzed the smoking ban more closely and concluded that it is unconstitutional. Read the whole thing.

Randy Barnett delivered the keynote address here at Cato on Constitution Day, where he elaborates on his approach to constitutional interpretation. Check it out.

HRW’s Deafening Denunciation of Hugo Chávez

Human Rights Watch cannot be accused of being a right-wing organization fostering Washington’s imperialist agenda. Thus, its recent report bluntly condemning Hugo Chávez for the erosion of democracy and the gross violation of civil liberties in Venezuela is creating shockwaves. The first reaction from the government in Caracas has been to expel HRW director José Miguel Vivanco.

In 236 pages, the report, titled “A Decade Under Chávez: Political Intolerance and Lost Opportunities for Advancing Human Rights in Venezuela,” details Chávez’s abuses against opposition groups, the media, organized labor, civil society, and his assault on the Courts. It’s a worthwhile read.

The United States of Permanent Receivership

Next year marks the 30th anniversary of the appearance of the second edition of Theodore J. Lowi’s The End of Liberalism, subtitled The Second Republic of the United States. The preface to the second edition ends, “I want to express a very belated thanks to Friedrich A. Hayek. His work had much more of an influence on me than I realized during the writing of the First Edition. I neither began nor ended as a Hayekist but instead found myself confirming, by process of elimination and discovery, many of his fears about the modern liberal state.”

Lowi argues that the Second Republic is marked by “the state of permanent receivership,” which is defined as “a state whose government maintains a steadfast position that any institution large enough to be a significant factor in the community may have its stability underwritten. It is a system of policies that sets a general floor under risk, either by attempting to eliminate risk or to reduce or share the costs of failure.” This state includes anticipatory receivership, which includes “businesses that are not actually on the brink of bankruptcy but are in a sector of the economy where bankruptcies or reorganizations are likely unless there is some kind of a preventive measure.”

Thirty years out, Ted Lowi looks pretty good this morning. Not much else looks good, but the second edition of The End of Liberalism shows that this dour morning has been coming for some time.

Read the book.

A Clarification

In a previous post, I wrote the following about friend and debate partner Sally Pipes:

And I’m now prepared to induct John Stossel into the Anti-Universal Coverage Club. Sally Pipes I’m still not sure about; you can judge for yourself when the IQ2 folks post the transcript of the debate here.

My intention was not to disparage Pipes. The Anti-Universal Coverage Club exists to challenge the idea that government should pursue a policy of universal health insurance coverage. Some free-marketers believe that’s a fine goal, so long as government goes about it using market mechanisms. At our recent Intelligence Squared debate, Pipes remarked:

By supporting universal choice in health care, and empowering consumers, we will achieve universal coverage.

Pipes is one of the leading opponents of government-run health care. When I heard that remark, though, I thought perhaps Pipes might fall into that aforementioned group of free-marketers. So I didn’t want to induct her into the Anti-Universal Coverage Club if that’s not her thing.

Colleagues of Pipes objected to my blog post. In an email to me, Pipes writes:

I support allowing the market to work resulting in more choice for consumers. The government should not be involved.

I did not mean to suggest anything to the contrary, but I can see why they would think I had. I apologize to Pipes and her colleagues.