Archives: 10/2008

But Wait, There’s More!

The Democrat-aligned National Farmers Union is pushing for an increase (that’s right, an increase) in government price targets for agricultural commodities when (very few people seem to be using the word “if” these days) the Democrats take the White House and solidify their majority in Congress this fall.

Apparently, farmers’ production costs have increased above levels assumed by the current government price floors. Those floors therefore need to be adjusted upward so that if “prices stay low” (they are currently off their record highs, but still pretty high by historical standards) the safety net can be “bumped up,” according to the NFU’s president, Tom Buis. The increase in price-linked subsidies would be paid for by reducing direct payments, fiscally offensive but non–distortionary payments to farmers based on historical production. 

Hold on to what is left of your wallets, America.

You Want to Cover Everyone with This?

I just listened to a fantastic talk that Mark Smith of the California Healthcare Foundation gave last month at a conference sponsored by the Center for Health Policy and the Center for Primary Care and Outcomes Research at Stanford University. Here’s an excerpt:

It’s increasingly dysfunctional actually to talk about people in binary fashion as insured or uninsured because there are people with insurance who are going bankrupt…. On the other hand, there are people who are uninsured who are now able to access certain services for less out-of-pocket than people who are insured.

It is not clear to me why we pay Aetna $20, so they can pay Medco $15, so they can pay CVS $10, so CVS can collect their $5 copay from us for something we could have just bought at Wal-Mart for $4 in the first place….

Yet our debate in the public space is how can we get everybody into these traditional insurance products…at an increasingly unaffordable rate.

Read the whole thing

Smith could be a candidate for the Anti-Universal Coverage Club.

Is Capitalism Dead?

That seems to be the question on the cover of every magazine this week. It’s also the headline of the lead editorial in today’s Washington Post. But the subhead might surprise you.

Is Capitalism Dead?
The market that failed was not exactly free.

The editors begin:

As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush’s ideology. But this is wrong in two ways. The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

And they go on to note:

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.

Government support for housing was well-intentioned: Homeownership is a worthy goal. But when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance. Congress did not apply this sound principle to Fannie Mae and Freddie Mac; they were allowed to engage in profitable but increasingly risky activities with an implicit government guarantee. The result was that taxpayers had to assume more than $5 trillion of their obligations. Contrast U.S. experience with that of Canada, where there is no mortgage interest deduction and the law requires insurance on any mortgage over 80 percent of a home’s purchase price. Delinquency rates at Canada’s seven largest banks are near historic lows.

The new capitalist model that emerges from this crisis must operate according to more consistent principles. The Fed should set interest rates with the long-run value of the dollar in mind. Government must be more selective about manipulating markets; over the long term, business works best when it is subject to market discipline alone. In those cases — and there will and should be some — in which government intervenes on behalf of social goals, its support must be counterbalanced with taxpayer protections and regulation. Government-sponsored, upside-only capitalism is the kind that’s in crisis today, and we say: Good riddance.

That’s not quite what I’d have written. But the ending does remind me of the conclusion of my blog post a week ago:

…if this crisis leads us to question “American-style capitalism” — the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans — well, it might be a good thing to reconsider that “American-style capitalism.”

The War on Complacency

Secretary of Homeland Security Michael Chertoff is worried that we are letting our guard down. In the current issue of the Armed Forces Journal, he writes: “Among the security challenges America faces in the future, there is none greater than the problem of complacency.”

Some would call that good news. All the threats that we are told to fear — Iran, EMP pulses in the atmosphere, hackers, rusty Russian ships sailing to Venezuela, Bill Ayers — are apparently less worrisome than our failure to worry sufficiently about them. Doesn’t that mean we’re safe? Can we have a parade?

But note the Catch-22. That thought is itself the trouble. Safety leads you to think that you’re safe, which leaves you vulnerable. Then they get you. Safety is fleeting because it allows its own destruction. That’s some catch.

If complacency is the problem, then those who argue that we are safer than people like Michael Chertoff say are part of the threat.

I am particularly guilty. I have promoted complacency in the face of terrorism:

Terrorists, who get their name from an emotion, are psychological warriors. They make fear. By telling Americans in every corner of the nation to plan for attack and stay eternally alert, we deliver the terrorists’ message, at least to those still listening to their government’s warnings. If combating terrorists is war, it is primarily a psychological one, where the stakes are as much the American psyche as safety alone.

Victory is the return to normalcy, not for the intelligence agencies and the FBI, but for the man in the street. Victory is persuading — or permitting — regular Americans not to be afraid. Conventional pundits of homeland security worry that the public will become complacent. We should worry that it won’t.

Before they take me away, I want to clarify my position. I am only for some complacency.

For example, Secretary Chertoff is complacent about many dangers that worry me. His article sings the praises of US-VISIT, the program where we take the fingerprints of nearly all foreigners legally entering the United States. He is complacent about the threat of treating immigrants and tourists — who support our economy, enliven our universities, and start many of our most successful companies — like criminals. The article boasts about DHS’s Improvised Explosive Device Awareness campaign but is complacent about the cost of preventing the use of a weapon that has never been used in the United States. Chertoff mentions Project Bioshield, but he is complacent about the danger that our efforts to combat bioweapons are themselves heightening the risk of attack by spreading knowledge of the feared technology. And he is complacent about the danger that spending tens of billions to combat bioterrorism takes resources from efforts to fight diseases that kill infinitely more Americans (infinite because we are dividing by zero in most years) .

Elsewhere, Chertoff called terrorism a “significant existential threat” — existential was apparently an insufficient qualifier. He evidently remains complacent about the danger of that sort of threat inflation.

Something Smells Fishy

I don’t know if a sushi robot is really a necessity for the Los Angeles Unified School District. I strongly suspect it isn’t, but I don’t know enough about the state of modern chef-ing to say for sure that it isn’t a must for culinary arts instruction. Even if it is, though, this story stinks of bureaucratic incompetence. If truly necessary, you’d think some sushi teacher somewhere would be screaming “where in California is my CAL Roll 9000!?”

On the other hand, if no one noticed that the LAUSD Jawas failed to drop off their Roll2-D2, why the heck was it ordered in the first place?

Something just doesn’t smell right here.

The End of Jacob Weisberg

In an article for Slate (another version appears in Newsweek) entitled “The End of Libertarianism,” Jacob Weisberg mocks libertarians and other free-market supporters for arguing that interventionist government policies contributed to the financial crisis. In italicized exasperation he cries, “Haven’t you people done enough harm already?” According to Weisberg, it’s already clear that, when it comes to what caused the meltdown, “any competent forensic work has to put the libertarian theory of self-regulating financial markets at the scene of the crime.” Consequently, he argues, libertarians in general have now been utterly discredited. “They are bankrupt,” he concludes, “and this time, there will be no bailout.”

In firing this broadside, Weisberg poses as the pragmatic, empirically minded anti-ideologue. In fact, he is engaging in the lowest and most intellectually trivial form of ideological hack work.

As every good hack does, he bulls ahead with completely unjustified certainty. We’ve just experienced a global disruption of financial markets on a scale not seen in seven decades. And we’re still in the middle of it: the ultimate extent, severity, and consequences of this crisis remain unknown. Yet Weisberg can already sum up the story in a single sentence: the libertarians did it!

But consider the fact that it wasn’t until Milton Friedman and Anna Schwartz’s Monetary History of the United States — published in 1963, three decades after the event — that our contemporary understanding of the causes of the Great Depression began to take shape. That understanding has been further refined by contributions from, among others, Ben Bernanke and Barry Eichengreen during the 1980s and ’90s.

So serious people will be debating what triggered the current crisis for a long time to come. I’ve been reading voraciously in recent weeks, trying to get some handle on what’s going on, and I can tell you that there is nothing like a consensus among scholars yet — and certainly not a consensus in favor of some simple, monocausal explanation.

With regard to government interventionism as a cause of the crisis, Charles Calomiris and Peter Wallison have marshalled strong evidence that Fannie and Freddie played a major role in inflating the real estate bubble. Despite the fact that these two gentlemen have forgotten more about financial markets than Weisberg will ever know, Weisberg dismisses their analysis as not only wrong, but risible.

Here’s what I think, at least at this point. I think the whole system failed. Without a doubt, private actors succumbed to bubble psychology and perverse incentives, and their risk-taking grew increasingly reckless. Yet Weisberg’s simplistic morality tale that good prudent liberals were foiled by go-go free-marketeers doesn’t come close to mapping reality accurately. When exactly did Democrats try to arrest and reverse the steady relaxation of lending standards? When did they try to rein in the GSEs? Meanwhile, European banks are being battered by this crisis as well. Does anybody really think that European financial regulators are closet libertarians?

Far be it from Weisberg, though, to let such inconvenient questions get in the way of his cheap ideological point-scoring. Indeed, he isn’t content just to blame libertarianism for the financial crisis. He goes so far as to claim that libertarianism as a whole has now been decisively repudiated. Wow, talk about contagion! Because of what some people said about financial regulation, we no longer have to pay any attention to what other people say about trade, health care, energy, taxes, federal spending, etc. Here Weisberg further burnishes his hack credentials by demonstrating his facility with the wild, unsubstantiated smear.

To be truly shameless, a hack needs to mix his smears with double standards. And, bless him, Weisberg comes through once again. If one (alleged) error means we never have to listen to someone again, why is anybody still listening to Jacob Weisberg? After all, Weisberg admits that he “blew the biggest foreign-policy decision of the past decade” by supporting the Iraq war. (Full disclosure: I blew it, too, but my colleagues at Cato — whom Weisberg wants to write off for all time — got it right.) By his own standard, then, Weisberg should have had his pundit card permanently revoked.

All too aware of my own fallibility, I’m a more forgiving sort. But with this sloppy, shoddily reasoned attack on me and my colleagues (Cato and Reason, where I’m on the masthead as a contributing editor, are both mentioned by name), Weisberg is definitely testing my limits.

McCain Unleashes His Inner Goldwater

Dropping in the polls and running out of time, John McCain has finally gone on the offensive against Barack Obama on core Republican values that appeal to libertarians, conservatives, and Reagan Democrats. In his Saturday radio address he seized on Joe the Plumber’s question to candidate Obama:

My opponent’s answer showed that economic recovery isn’t even his top priority. His goal, as Senator Obama put it, is to “spread the wealth around.”

You see, he believes in redistributing wealth, not in policies that help us all make more of it. Joe, in his plainspoken way, said this sounded a lot like socialism. And a lot of Americans are thinking along those same lines. In the best case, “spreading the wealth around” is a familiar idea from the American left. And that kind of class warfare sure doesn’t sound like a “new kind of politics.”

This would also explain some big problems with my opponent’s claim that he will cut income taxes for 95 percent of Americans. You might ask: How do you cut income taxes for 95 percent of Americans, when more than 40 percent pay no income taxes right now? How do you reduce the number zero?

Well, that’s the key to Barack Obama’s whole plan: Since you can’t reduce taxes on those who pay zero, the government will write them all checks called a tax credit. And the Treasury will cover those checks by taxing other people, including a lot of folks just like Joe.

In other words, Barack Obama’s tax plan would convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington. I suppose when you’ve voted against lowering taxes 94 times, as Senator Obama has done, a new definition of the term “tax credit” comes in handy.

At least in Europe, the Socialist leaders who so admire my opponent are upfront about their objectives. They use real numbers and honest language. And we should demand equal candor from Senator Obama. Raising taxes on some in order to give checks to others is not a tax cut it’s just another government giveaway.

That just might remind lots of voters why they don’t like to elect Democrats. Of course, it might work better if the Republicans hadn’t raised spending more than a trillion dollars. And if the current Republican administration hadn’t just nationalized the banks. And if McCain himself didn’t have a health care “tax credit” that also means that “the government will write them all checks.”