Archives: October, 2008

Cato Debates Potential Auto Industry Bailout on NPR.org

Cato Senior Fellow Daniel J. Mitchell participated in a debate yesterday on NPR.org that discussed the possible implications of a government bailout of the U.S. auto industry. Mitchell argued against it, and in the middle of the debate, NPR held an online poll that showed that 68 percent of listeners agreed with him.
Quotes from Daniel Mitchell pulled from the debate:

  • Consumers, acting in the marketplace, should determine which companies succeed or fail. Business success should not depend on which companies can hire the slickest lobbyists.
  • Every dollar the taxpayers send to Detroit will be one less dollar that will be available in the productive sector of the economy. This means fewer jobs in other industries, fewer jobs in the service sector, and fewer jobs in all other fields.
  • A federal bailout deprives other sectors of the economy of resources. Moreover, a bailout delays the much-needed restructuring of the US auto industry, much as handouts to the proverbial worthless brother-in-law enables him to continue sitting on the couch all day instead of putting his life back in order.
  • Foreign companies with plants in America are much more successful. It baffles me that politicians want to reward incompetence. Actually, it’s not that surprising. Detroit probably spends a lot more on lobbyists. Too bad they don’t put an equal amount of time and effort into improving their goods and services.
  • I don’t care if the bailout is profitable for government. The economic damage occurs because politicians interfere in the allocation of resources. Government intervention is a big reason why European welfare states grow slower, have higher unemployment, and lower living standards than America. We should not emulate nations such as France and Germany.
  • Five years ago, a merger of GM and Chrysler would probably be killed by the antitrust bureaucrats. Now the politicians want to subsidize the merger?!?
  • Bankruptcy almost surely will make consumers a bit more wary, but a bailout ensures that the auto companies won’t change the bad policies that got them in trouble. Better to restructure now. You don’t cure an alcoholic by giving him more to drink.

You can follow the entire debate here.

Does Harper Support Regulation of Gambling and Financial Services?

My post yesterday regarding Members of Congress who voted to exempt financial derivatives from state gambling laws created a firestorm of controversy. Well, two people asked me about it, anyway …

(A new WashingtonWatch.com post on the presidential candidates who didn’t help create our economic problems is available for your perusal, by the way.)

“Why would a libertarian think it’s bad to exempt anyone from regulation? Do you support gambling laws? Do you support financial services regulation?”

These are all fair questions, given my objection to preempting state gambling laws in this case. So let me expand on this observation from my earlier post:

Many gambling laws are nanny-statism, of course, but if they’re going to go away, they should be repealed by the legislatures that wrote them. This federal preemption gave special permission to certain parts of the financial services industry to run a huge gambling operation masquerading as a market in real assets.

I’m quite a bit less a fan of preemption than many of my colleagues. There are fair-minded people who believe that national markets call for national regulatory regimes to replace the states’. As commerce has become national, the Commerce Clause has become a grant of authority to regulate national markets, they appear to believe.

I’m not convinced. Given the nation’s experience under the Articles of Confederation, the Commerce Clause was included in the Constitution to prevent states from regulating parochially - that is, for the benefit of local interests over out-of-staters. The Constitution gave Congress authority to regulate commerce “among the states” - which, if words have meaning, is something narrower than just regulating all commerce.

So when state gambling laws interfere with an interest capturing the sympathy of a majority in Washington, D.C., that doesn’t necessarily empower Congress to withdraw state authority. Congress is supposed to prevent only state parochialism, not every bad idea coming out of a state legislature.

If we are to have a healthy political economy, debates about state gambling regulations should be taken to each state that enacted them. The merits of freedom and personal responsibility should be made clear there so they win majorities once again.

The alternative preferred by many is a shortcut: trumping states by moving power to the federal level. This is not a felicitous trend, and its end-point - a remote national government with plenary power - is not good for liberty.

Gambling regulation is nanny-statism, but I wouldn’t go and kick the legs out from under state anti-gambling regulation through federal preemption - especially not for one narrow part of the financial services industry. This is not a game, where any loss for regulation is a gain for liberty.

If responsibility for self-protection against gambling is going to be restored to people in a given state, the legislature of that state should repeal the anti-gambling laws, signaling people that they are once again responsible for themselves. What happened here was that Congress trumped state power and withdrew the protection of state anti-gambling regulation without signaling to anyone that there were risks to be encountered. What looked like asset-based financial services to all but a few was in fact gambling.

The Congress helped perpetrate a deception about what was going on with financial derivatives - and just because some regulation went under the tires, that isn’t a victory for liberty.

No Socialists Here

Is Barack Obama a socialist? That’s the question Cato adjunct scholar Don Boudreaux asks in one of the last paper editions of the Christian Science Monitor. Not really, he concludes. But

Anyone who speaks glibly of “spreading the wealth around” sees wealth not as resulting chiefly from individual effort, initiative, and risk-taking, but from great social forces beyond any private producer’s control….This “socialism-lite,” however, is as specious as is classic socialism. And its insidious nature makes it even more dangerous. Across Europe, this “mild” form of socialism acts as a parasitic ideology that has slowly drained entrepreneurial energy – and freedoms – from its free-market host.

So why does he say that Obama is not a socialist? Well, after all,

“Socialism” originally meant government ownership of the major means of production and finance, such as land, coal mines, steel mills, automobile factories, and banks.

And no American politician would favor that, right? Oh, right.

Today at Cato

Article: “Nuclear Energy: Risky Business,” by Jerry Taylor in Reason Magazine

Nuclear energy is to the Right what solar energy is to the Left: Religious devotion in practice, a wonderful technology in theory, but an economic white elephant in fact (some crossovers on both sides notwithstanding). When the day comes that the electricity from solar or nuclear power plants is worth more than the costs associated with generating it, I will be as happy as the next Greenpeace member (in the case of the former) or MIT graduate (in the case of the latter) to support either technology. But that day is not on the horizon and government policies can’t accelerate the economic clock.

Op-Ed: “Banking Crises: Plus Ça Change,” by Steve H. Hanke in Globe Asia

Banking crises are all too common. They are also costly. The potential cost of the most recent bail-out package in the United States is a staggering $2.25 trillion. That’s 16% of GDP. Compared to the actual bail-out costs following Indonesia’s banking crisis of 1997-98, the US figure is small change. Indeed, Indonesia’s bail out costs amounted to 40% of GDP.

The most shocking thing about banking crises is that few lessons are learned.

Article: “Mark to Market Accounting – What Are the Issues?” by Warren Coats for Cato.org

A number of respected people have blamed accounting rules for much of the current financial crisis. “Fair value” or “mark to market” accounting aims to present a more accurate picture of a bank’s condition and should not be abandoned.

Article: “Global Warming Fantasies Meet Financial Contraction” by Patrick J. MIchaels for Cato.org

Legislation proposed by both John McCain and Barack Obama will require that the cost of energy to become so high that people will avoid using it. The serious question is: why would we do this in the current economic environment?

Podcast: “Housing Boom, Bust and an Artificial Shortage” featuring Randal O’Toole.


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Who Should Pay for Your Sheepskin?

Over at Economist.com, they’ve just kicked off a debate on the resolution  “that individuals, not the state, should pay for higher education.”

On Monday, they will post my “featured guest” statement on the resolution in question, so I can’t give away my exciting conclusions right now. I can, though, give you a hint about one thing I might discuss. Think “third-party payer problem”—and I heartily encourage you to follow the whole debate and participate if you’d like.

Professor Alison Wolf of King’s College, London, provides an excellent opening defense of the resolution, and I suspect that she and all the participants will offer lots of insightful arguments while this Oxford-style throw-down goes on.