Archives: 11/2010

Fed Can’t Serve Two Masters

Last week Congressman Pence and Senator Corker announced a bill to end the Federal Reserve’s dual mandate of price stability and maximum employment.  Before getting into why this is a good start, what exactly is the dual mandate?  Section 2a of the Federal Reserve Act, which sets the Fed’s monetary policy objectives, directs the Fed to:

maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

Building upon the notion of the Phillips curve, which suggests an historical relation between inflation and unemployment, some have read 2a as implying that the Fed should pick an inflation-unemployment trade-off that improves social welfare.  It is this perceived “trade-off” that dominates the current actions of the Federal Reserve. Quite simply, Fed leaders, such as Bernanke, believe with a little extra inflation we can get more employment.

The problem is that this isn’t so.  As soon as policymakers tried to exploit this trade-off, in the 1960s and 1970s, it disappeared.  From about 1961 to 1966, it did indeed appear that one could choose a mix of inflation and unemployment.  But from 1966 until 1980, when Volcker moved to bring down inflation, inflation and unemployment were positively correlated.  It appeared that all we got was more inflation and more unemployment.

Despite the painful experiences of the 1970s, Bernanke seems intent on repeating those mistakes.  Which gets to me to the point of removing the dual mandate.  It forces the Fed to focus on the only thing it really has any influence over: inflation.  It also removes the temptation to exploit an inflation-unemployment trade-off that never existed in the first place. 

Now given Bernanke’s views on price stability, eliminating the dual mandate can only be a first step.  We ultimately need to remove the discretion of the government to indulge in the Phillips curve fantasy.

An Education in Bizarro Constitutional History

Last week, Rep. Mike Honda (D-CA) published a call in The Hill for a much bigger federal role in elementary and secondary education. His plans are loaded with flaws too numerous to dissect here, so I’ll just highlight one, depressing thing about his piece: his bizarro constitutional history. Follow Honda’s narrative and you’d think for most of our history the feds stayed out of education because of the Articles of Confederation, and a jerky little state called Rhode Island:

Inequity in education has historical roots. At its inception, the Federal Government lacked the capacity and the authority to take responsibility for public education. Before the Constitution was drafted, the 13 colonies operated under the Articles of Confederation, created by the Second Continental Congress. The Articles of Confederation could only be amended by unanimous vote of the states. Any state had effective veto power over any proposed change.

In addition, the Articles gave the weak federal government no taxing power. It was entirely dependent on the states for its money and had no power to force delinquent states to pay. In fact, Rhode Island, fearing that the Convention would work to its disadvantage, boycotted the Convention in the hopes of preventing any change to the Articles. When the Constitution was subsequently presented to the Confederation, Rhode Island refused to ratify it. To placate the states, the Tenth Amendment ceded broad authority to the state governments.

Consequently, as regions of the country developed their own public education systems, disparities opened up.

That Rep. Honda published this dreck is as good as any argument for keeping Washington way out of our schools, especially our American history and civics classes.

The Articles, for one thing, were weak on purpose – Americans were extremely concerned about concentrating too much power in the hands of a central government. Mr. Honda, however, sounds almost as if Americans somehow arrived to find the Articles of Confederation already in place and just had to put up with a bad situation.

Much more egregious – but also, I’m afraid, more common – Honda writes as if the Constitution does not contain Article I, Section 8, which purposely gives the federal government only specific, enumerated powers, and automatically leaves all others to the states and people. The 10th Amendment – which Honda asserts is what long kept DC out of education – does not actually change in any way what power belongs to the feds, states, and people – it just makes it more explicit.

Finally, very few Americans in the 1770s and 1780s would have even recognized something called “public education,” much less tried to give the national government “responsibility” for it. Back then education was almost entirely a family, church, and community affair, and most people wouldn’t have imagined anything different. 

Sadly, Honda’s piece is just further confirmation that many of our representatives in Washington care not one whit about what the Constitution says and permits Washington to do. That, or they really don’t know. Either way, it helps explain why the nation is in a world of hurt, and makes very clear that the obstacles to getting Washington out of education are very tall, indeed.

Why I Took an Anti-Depressant

Musing on the latest abuses of the Transportation Security Administration, George F. Will recalls a column by the late William F. Buckley Jr. Faced with disastrous service on a commuter railroad, Buckley wrote, “In a more virile age, I thought, the passengers would have seized the conductor and strapped him down on a seat over the radiator to share the fate of his patrons.” But he had “nonchalantly walked down the gauntlet of eighty sweating American freemen, and not one of them had asked him to explain why the passengers in that car had been consigned to suffer.”

Buckley went on:

Every year, whether the Republican or the Democratic Party is in office, more and more power drains away from the individual to feed vast reservoirs in far-off places; and we have less and less say about the shape of events which shape our future. From this alienation of personal power comes the sense of resignation with which we accept the political dispensations of a powerful government whose hold upon us continues to increase.

And here’s the part that sent me looking for the anti-depressants: Buckley wrote this jeremiad in 1961.

Barney Frank: Cut Military Spending by Following Cato Plan

U.S. Representative Barney Frank (D-Massachusetts) believes that cutting the military means rethinking the purpose of our military. He argues that the far-flung adventures that have killed thousands of American soldiers and consumed trillions of dollars simply haven’t been justified by U.S. defense needs. He also takes issue with President Obama exempting military spending from his so-called “spending freeze” proposed earlier this year. He spoke at the Cato Institute November 19, 2010.

Strip-Search Machines as the Downfall of the ‘War on Terror’

Here’s Wall Street Journal editorial page editor Paul Gigot on NBC’s Meet the Press:

I think the danger here is that the public begins to revolt against these kinds of security procedures. And then you risk losing public support, not just for airport screenings, but for the whole war on terror and the whole national security regime post-9/11.

Exactly.

The “danger” Gigot is talking about is that the government might lose control of counterterrorism policy, ceding that control back to a frustrated and increasingly restless American populace. The “War on Terror” theme supports a host of policies—most acutely, these airport searches—that are at best unexplained by the goverrnment and likely not merited by actual security conditions. As I noted in an earlier post, in seven billion domestic passenger trips over the last decade, there have been zero bombings. Yet we are to be searched like prison inmates at the whim of the TSA. That simply doesn’t comport with common sense.

(Top government officials and people I know and respect sometimes say things like, “If you knew what I’d learned in secret briefings … .” I don’t accept these assertions. Just like in a courtroom, facts not put into evidence are not facts in the public debate either. “War on Terror” secrecy policies are a failing pillar of post-9/11 security policy.)

There is not real danger in shifting from today’s overreactive, fear-based security regime to one that exploits terrorism’s many weaknesses to secure the country cost-effectively, confidently, and consistently with Americans’ liberty and prosperity. The Cato book, Terrorizing Ourselves: Why U.S. Counterterrorism Policy is Failing and How to Fix It, contains the thinking that undergirds a new, better approach.

Earmarks Are the Gateway Drug to Big Government Addiction

I haven’t commented much on earmarks, but an oped in today’s Washington Post was has goaded me into action. A former Reagan Administration appointee (the Gipper must be spinning in his grave), who now makes a living by selling our money to the highest bidder, made several ridiculous assertions, including:

…earmarks are largely irrelevant to balancing the budget. The $16.5 billion Congress spent on earmarks in fiscal year 2009 sounds like a lot, but leaves a minuscule footprint - about 1 percent of 2009’s $1.4 trillion deficit. Those seriously concerned about deficits should look elsewhere for meaningful spending reductions. …On Capitol Hill, party leaders must appeal to lawmakers’ interests as well as their principles to get the votes they need. The leaders must be able to offer incentives - such as earmarks - to win votes on difficult issues. Earmarks are not the only possible incentives, nor do they need to be the most compelling ones. But they are a tool for taking care of members who might otherwise stray.

The author is right that earmarks technically are not a big share of the budget. But he conveniently forgets to address the real issue, which is the degree to which earmarks are the proverbial apple in the congressional Garden of Eden. Members who otherwise might want to defend taxpayers are lured into becoming part of the problem. This is how I described the process in arecent PolitiFact article.

Daniel Mitchell, a senior fellow with the libertarian Cato Institute, …adds that the existence of earmarks increases the upward pressure on federal spending indirectly, since lawmakers “know they need to support the relevant powers on the spending committees in order to have their earmarks approved.” Mitchell calls earmarks a “gateway drug” that “seduces members into treating the federal budget as a good thing that can be milked for home-state/district projects.”

Since the author of the Washington Post column is trying, at least in part, to appeal to advocates of smaller government, I’m also puzzled that he says earmarks are good because they help grease the wheels so that more legislation can be passed. Does he really think reminding us about the “Cornhusker Kickback” and “Louisiana Purchase” will make us more sympathetic to his argument? Yes, it’s theoretically possible that congressional leaders will use earmarks to help pass legislation shrinking the burden of government. It’s also possible that I’ll play centerfield next year for the Yankees. But I’m not holding my breath for either of these things to happen.

Last but not least, earmarks are utterly corrupt. The fact that they are legal does not change the fact that they finance a racket featuring big payoffs to special interests, who give big fees to lobbyists (often former staffers and Members), who give big contributions to  politicians. Everyone wins…except taxpayers.

This is one of the many reasons why I did this video a couple of years ago with the simple message that big government means big corruption.