Archives: 07/2012

It’s All Your Fault, Fickle Friends of the Constitution

There’s an interesting convergence in the news this morning, with Kimberley Strassel in the Wall Street Journal and an article in the New York Times tackling President Obama’s trampling of the separation of powers. Strassel is dubbing Obama’s an “imperial presidency,” and while the Times offers a straight news piece about No Child Left Behind waivers, it too features a strong whiff of presidential imperialism:

Congress has tried and failed repeatedly to reauthorize the education law over the past five years because Democrats and Republicans cannot agree on an appropriate role for the federal government in education. And so, in the heat of an election year, the Obama administration has maneuvered around Congress, using the waivers to advance its own education agenda.

It’s easy and fun, of course, to cry imperialism when it’s the other guy’s party in power, and as Strassel points out many on the left employed such condemnation—not without cause—against George W. Bush.  But that’s precisely the problem: Liberals and conservatives both shunt aside the Constitution when it serves their purposes, but act shocked—shocked!—when the feds or the president employ unconstitutional power to do things they don’t like.

Well guess what, fickle friends of the Constitution: You all righteously shut down the containment unit. You’re all at fault for the demons running rampant.

There’s no better example of this than education, an area over which no federal authority exists yet politicians of both parties have ”helped the children” whenever they’ve felt they could get what they wanted. A heavily Democratic Congress and White House gave us the original Elementary and Secondary Education Act—liberals love spending money on schools—and conservatives decried the wasting of taxpayer dough. With NCLB, a largely Republican Congress and White House  escalated federal control—conservatives love being seen as tough guys who impose “accountability”—and many on the left became apoplectic.  Now President Obama is handing out NCLB waivers contingent on states adopting his favored reforms, and many on the right are rhetorical constitutionalists again.

Here’s the lesson: The next time the guy you despise does something you don’t like, remember when you’ve looked the other way as the Constitution was shoved in a drawer, or torn up, in pursuit of what you wanted. Remember, and heap blame on yourself, because it is your fault.

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Another Month of Data Re-Confirms Obama’s Horrible Record on Jobs

Remember back in 2009, when President Obama and his team told us that we needed to spend $800 billion on a so-called stimulus package?

The crowd in Washington was quite confident that Keynesian spending was going to save the day, even though similar efforts had failed for Hoover and Roosevelt in the 1930s, for Japan in the 1990s, and for Bush in 2008.

Nonetheless, we were assured that the stimulus was needed to keep unemployment from rising above 8 percent.

Well, that claim has turned out to be hollow. Not that we needed additional evidence, but the new numbers from the Labor Department re-confirm that the White House prediction was wildly inaccurate. The 8.2 percent unemployment rate is 2.5 percentage points above the administration’s prediction.

Defenders of the Obama administration sometimes respond by saying that the downturn was more serious than anyone predicted. That’s a legitimate point, so I don’t put too much blame on the White House for the initial spike in joblessness.

But I do blame them for the fact that the labor market has remained weak for such a long time. The chart below, which I generated this morning using the Minneapolis Fed’s interactive website, shows employment data for all the post-World War II recessions. The current business cycle is the red line. As you can see, some recessions were deeper in the beginning and some were milder. But the one thing that is unambiguous is that we’ve never had a jobs recovery as anemic as the one we’re experiencing now.

Job creation has been extraordinarily weak. Indeed, the current 8.2 percent unemployment rate understates the bad news because it doesn’t capture all the people who have given up and dropped out of the labor force.

By the way, I don’t think the so-called stimulus is the main cause of today’s poor employment data. Rather, the vast majority of that money was simply wasted.

Today’s weak job market is affected by factors such as the threat of higher taxes in 2013 (when the 2001 and 2003 tax cuts are scheduled to expire), the costly impact of Obamacare, and the harsh regulatory environment. This cartoon shows, in an amusing fashion, the effect these policies have on entrepreneurs and investors.

Postscript: Click on this link if you want to compare Obamanomics and Reaganomics. The difference is astounding.

Post-postscript: The president will probably continue to blame “headwinds” for the dismal job numbers, so this cartoon is definitely worth sharing.

Post-post-postscript: Since I’m sharing cartoons, I can’t resist recycling this classic about Keynesian stimulus.

Countrywide Cronyism

House Oversight and Government Reform Committee chairman Darrell Issa (R-CA) released a report today on failed mortgage company Countrywide’s use of a VIP loan program to curry favor with Beltway decision-makers. Members of Congress, congressional staffers, and cabinet officials received preferential treatment – including rate discounts and fee waivers – from Countrywide.

Countrywide was a major beneficiary of the federal government’s overzealous subsidization of housing, which contributed to the housing bubble and bust that fueled the recent economic downturn. As I explained in a Cato essay on HUD scandals, Countrywide had a close relationship with Fannie Mae, the government-sponsored mortgage giant that eventually collapsed and, along with Freddie Mac, has cost taxpayers over $180 billion and counting:

In 1999, Countrywide, which had become the nation’s largest residential housing lender, reached an exclusive agreement to sell Fannie Mae billions of dollars in mortgages in exchange for lower “guarantee” fees that Fannie charged originators when it bought their loans. The success, and then failure, of both entities became intertwined as Fannie purchased large amounts of subprime loans and securities, which allowed subprime lenders like Countrywide to grow their businesses. When the subprime market collapsed in 2007, Countrywide collapsed as well. It was bought at a fire sale price by the Bank of America, while a broken Fannie Mae was taken over by the federal government.

Fannie Mae executives received numerous VIP loans from Countrywide. According to Issa’s report, Countrywide “buttressed” Fannie’s massive lobbying efforts to stop Congress from passing legislation that would rein in the GSEs:

Countrywide gave VIP loans to congressional staff who played a role in policy discussions that affected Countrywide. Staff with connections to the committees of jurisdiction for mortgage industry issues in the House and Senate received VIP loans from Countrywide. Between 2000 and 2005, Fannie Mae and Freddie Mac committed their vast lobbying resources to defeating GSE reform legislation considered by the Senate Committee on Banking, Housing, and Urban Affairs and House Committee on Financial Services. Countrywide buttressed the efforts of Fannie’s lobbyists by connecting with key staffers through the VIP program. Documents obtained by the Committee show a staffer in the office of Senator Robert Bennett received several VIP loans. Along with Christopher Dodd, Bennett was a member of the Senate Banking Committee, the committee of jurisdiction for the Senate’s consideration of legislation affecting the GSEs and the mortgage industry. As early as 1998, House Financial Services Committee staff were receiving VIP loans from Countrywide.

Regardless of whether any of this was technically illegal, it’s another example of the privileged life enjoyed by the Beltway class. Both Republicans and Democrats benefited from the Countrywide favor factory, which is also another example of how when one clears away the fog of partisan politics, they will see that we taxpaying peons are merely pawns in a never-ending struggle for control over our lives.

One Reason GOP SCOTUS Picks Go Awry

Today POLITICO Arena asks:

 Is Marc Thiessen right that more GOP than Dem SCOTUS picks go awry?

My response:

Thiessen is absolutely right – more GOP than Dem SCOTUS picks go awry – but you have to be careful about what “going awry” means. Judging isn’t, or shouldn’t be, a “political” matter. Yet since the New Deal “constitutional revolution” that followed FDR’s infamous 1937 Court-packing threat, that’s what it’s too often been.

Democrats have understood and championed that. Indeed, they make no bones about reading the Constitution, which was written largely to limit government, as authorizing Congress to do almost anything. By contrast, Republicans have been uneven at best in reading the Constitution. Their initial reaction to the New Deal juggernaut arose only in the mid-1950s. Reacting to the Warren Court’s “rights revolution,” they called simply for “judicial deference” to the political branches, the very branches that were giving us ever more government. In the late ’70s, however, a more sophisticated “classical liberal” school began to emerge in Republican circles, calling for “judicial engagement” to better check out-of-control government, but it took some time before that view became a serious force. Yet it was clearly the force at the core of the opposition to ObamaCare.

The upshot for today’s question, however, is that this ambivalence – and, let’s be honest, obliviousness – among many Republicans about basic constitutional theory and history has led to a fractured and often uninformed judicial nomination process. Do we need any better example than George W. Bush’s selection of Harriet Miers, or his father’s selection of David Souter? To be sure, the dominant political and legal culture plays a part in explaining the differences between Republican and Democratic nominees. On balance, however, Democrats have had a better grasp than Republicans of their agenda and the methods needed to achieve it. But if the blowback Chief Justice Roberts is now receiving is any indication, that may be changing, and that would be good.

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The Simple and Predictable Story of Fiscal Bankruptcy in Cyprus

With all the fiscal troubles in Greece, Spain, Ireland, Portugal, and Italy, there’s not much attention being paid to Cyprus.

But the Mediterranean island nation is a good case study illustrating the economic dangers of big government.

For all intents and purposes, Cyprus is now bankrupt, and the only question that remains to be answered is whether it will get handouts from the IMF-ECB-EC troika, handouts from Russia, or both. Here’s some of what has been reported by AP.

Cyprus’ president on Thursday defended his government’s decision to seek financial aid from the island nation’s eurozone partners while at the same time asking for a loan from Russia, insisting that the two are perfectly compatible. …Cyprus, with a population of 862,000 people, last week became the fifth country that uses the euro currency to seek a European bailout… The country is currently in talks with the so-called ‘troika’ — the body made up of officials from the European Commission, the European Central Bank and the International Monetary Fund — on how much bailout money it will need and the conditions that will come attached. Locked out of international markets because of its junk credit rating status, Cyprus is paying its bills thanks to a €2.5 billion ($3.14 billion) Russian loan that it clinched last year. But that money is expected to run out by the end of the year.

So what caused this mess? Is Cyprus merely the helpless and innocent victim of economic turmoil in nearby Greece?

That’s certainly the spin from Cypriot politicians, but the budget data shows that Cyprus is in trouble because of excessive spending. This chart, based on data from the International Monetary Fund, shows that the burden of government spending has jumped by an average of 8.3 percent annually since the mid-1990s.

My Golden Rule of fiscal policy is that government spending should grow slower than economic output. Nations that follow that rule generally enjoy good results, while nations that violate that rule inevitably get in trouble.

Interestingly, if Cypriot politicians had engaged in a very modest amount of spending restraint and limited annual budgetary increases to 3 percent, there would be a giant budget surplus today and the burden of government spending would be down to 21.4 percent of GDP, very close to the levels in the hyper-prosperous jurisdictions of Hong Kong and Singapore.

Actually, that’s not true. If the burden of government spending had grown as 3 percent instead of 8.3 percent, economic growth would have been much stronger, so GDP would have been much larger and the public sector would be an ever smaller share of economic output.

Speaking of GDP, the burden of government spending in Cyprus, measured as a share of GDP, has climbed dramatically since 1995.

A simple way to look at this data is that Cyprus used to have a Swiss-sized government and now it has a Greek-sized government. Government spending is just one of many policies that impact economic performance, but is anyone surprised that this huge increase in the size of the public sector has had a big negative impact on Cyprus?

Interestingly, if government spending had remained at 33.9 percent of GDP in Cyprus, the nation would have a big budget surplus today. Would that have required huge and savage budget cuts? Perhaps in the fantasy world of Paul Krugman, but politicians could have achieved that modest goal if they had simply limited annual spending increases to 6 percent.

But that was too “draconian” for Cypriot politicians, so they increased spending by an average of more than 8 percent each year.

What’s the moral of the story? Simply stated, the fiscal policy variable that matters most is the growth of government. Cyprus got in trouble because the burden of government grew faster than the productive sector of the economy.

That’s the disease, and deficits and debt are the symptoms of that underlying problem.

Europe’s political elite doubtlessly will push for higher taxes, but that approach - at best - simply masks the symptoms in the short run and usually exacerbates the disease in the long run.

Challenging Anti-Dumping Duties

USTR has just announced that it will be bringing a WTO complaint against Chinese anti-dumping duties imposed on U.S.-made automobiles. According to USTR, these duties “appear to represent yet another abuse of trade remedies by China.”

One of the most important aspects of WTO rules is the disciplines they provide on anti-dumping duties, so as to prevent abuse. To the extent that WTO litigation can limit these abuses, it can be very useful. Of course, what would be even more useful is if everyone stopped imposing anti-dumping duties!

Obamacare Rethink Maybe

Right before leaving town for the summer, the Supreme Court ruled 8-1 that “Rethink Maybe” was the pop hit of the summer, overtaking last year’s remake of “Every Breath You Take”:

Rethink Maybe

I filed a brief with the Court,
Don’t worry, it’s rather short
Constitution and not tort,
But now you’re in my way

I’d trade my soul for a wish,
Limited powers it is
Nobody expected this,
But now you’re in my way

Blue-eyed stare was holdin’,
Black-robed, balls-strikes callin’
Then you started cavin’
Where you think you’re goin’, CJ?

Hey, John Roberts,
This is crazy,
Mandates aren’t taxes,
So rethink, maybe?

It’s hard to look right,
At you CJ,
Your op makes no sense,
So rethink, maybe?

I just read you,
The ruling’s crazy,
Read Article I,
And rethink, maybe?

The other justices,
Ruled on the law,
But you played politics,
So rethink, maybe?

You thought Congress was remiss,
But changed your mind after this
You gave me the Commerce Clause,
But still, you’re in my way

I beg, and argue and plead
Had foresight, reason indeed
I didn’t know how I’d feel,
But now it’s in my way

Blue-eyed stare was holdin’,
Black-robed, balls-strikes callin’
Then you started cavin’
Where you think you’re goin’, CJ?

It’s hard to look right,
At you CJ,
Your op makes no sense,
So rethink, maybe?

Hey, John Roberts,
This is crazy,
Mandates aren’t taxes,
So rethink, maybe?

It’s hard to look right,
At you CJ,
Your op makes no sense,
So rethink, maybe?

All other justices,
Ruled on the law,
Mandates aren’t taxes,
So rethink, maybe?

When you came onto the Court
I thought you so rad
My man-crush so bad
My man-crush so, so bad

Now thanks to you I’ll pay this tax
It made me so mad
But now I’m just sad
It makes me so, so sad

It’s hard to look right,
At you CJ,
Mandates aren’t taxes,
So rethink, maybe?

I just read you,
The ruling’s crazy,
Read Article I,
And rethink, maybe?

The other justices,
Ruled on the law,
But you played politics,
So rethink, maybe?

When you came onto the Court
I thought you so rad
My man-crush so bad
My man-crush so, so bad

Now thanks to you I’ll pay this tax
It makes me so sad
And you should know that

So rethink, maybe?