Topic: Government and Politics

China Makes the Right Move

Yesterday, China’s Central Bank reduced bank reserve requirements for large banks by 50 basis points to 19.5%. The Chinese know that the nominal level of national income is determined by the magnitude of the money supply. They also know that banks produce the lion’s share of China’s money. Indeed, banks produce 77% of China’s M2 money.

As shown in the accompanying chart, the average annual growth rate of China’s money supply since January 2004 has been 17.45%. At present, the annual growth rate for the money supply has slumped to 11%. China’s reduction in the banks’ reserve requirements is designed to push money growth back up towards the trend rate so that an economic slump is avoided. China has made the right move.

Sec. Burwell: Right Now, My Focus is on Taking Hostages. I’ll Inform Them of Their Hostage Status When I’m Ready

Health and Human Services Secretary Sylvia Burwell is the lead defendant in King v. Burwell, in which the plaintiffs claim the Obama administration is taxing millions of employers and individuals and subsidizing millions of HealthCare.gov enrollees contrary to the plain language of the Patient Protection and Affordable Care Act (a.k.a., ObamaCare). The Supreme Court will hear oral arguments in the case on March 4, and will likely rule by late June. If the Court rules against Burwell, 57 million individuals and employers will be freed from those illegal taxes and maybe four million HealthCare.gov enrollees will lose subsidies that the administration never had the authority to issue in the first place. Those four million people could see their insurance bills quadruple, face an unexpected tax liability of up to $5,000, and lose their health insurance. You might think they have a right to know about that risk. You might think a responsible public servant like Secretary Burwell would inform them of that risk. 

You would be wrong.

Today, Burwell appeared before the Senate Finance Committee. Though HHS has already deployed its contingency plan for HealthCare.gov-participating insurers, she refused to answer whether HHS has a contingency plan for HealthCare.gov enrollees:

Right now, my focus is on completing and implementing the law, which we believe is the law. Right now, what we’re focused on is the open enrollment.

HHS Head Ducks Questions On ACA Tax Credit Backup Plan,” wrote Law360. Modern Healthcare wrote, “HHS Stonewalls on King v. Burwell,” while The Hill seemed to laud Burwell because she “did not back down” from her firm stand against transparency and consumer information. Sen. John Cornyn (R-TX) fumed, “to come here and repeatedly refuse to answer the questions strikes me as nothing less than contempt of our oversight responsibility.”

Lobbyists Swarm around the Winners

I’ve been talking a lot about the parasite economy this week – like in my forthcoming book The Libertarian Mind and on STOSSEL this Friday night – and two stories in the Washington Post today illustrate the problem.

John Wagner reports that campaign contributions are now flowing to surprise Maryland gubernatorial winner Larry Hogan. Why would campaign contributions come in after the campaign is over?

“A lot of people speculatively invested in the Brown campaign and now realize they made the wrong choice,” said Jennifer Bevan-Dangel, executive director of Common Cause Maryland, a group that closely monitors campaign contributions. “Donors give because it gets them in the door, regardless of who’s in power.”

The reports show that Hogan raised nearly $1.4 million in the two months after the election — roughly the amount that Martin O’Malley (D) raised after he was elected governor in 2006.

When a state government hands out some $40 billion a year, lots of people want to get friendly with the people who will influence how that money is spent. Through regulations, the government influences billions more, and lobbyists don’t want to be left out of those discussions either.

Money flowed to Hogan from utilities, banks and health-care companies that are regulated by the state and from associations that represent businesses in Annapolis. Groups representing chiropractors, nurse practitioners, nursing homes and psychologists have all given since the election….

Other donors include more than a dozen of the highest-paid lobbyists in Annapolis. 

Also in today’s Post, Mike DeBonis reports that council candidates backed by newly elected D.C. mayor Muriel Bowser are raking in cash for their upcoming special elections. People want a friend in city hall, too.

Why indeed do “chiropractors, nurse practitioners, nursing homes and psychologists” need lobbies, much less give campaign contributions? Because they want a piece of vast government expenditures on health care, they want regulatory protection from competition, or they want something else that government can deliver. 

I make no criticism here of Governor Hogan or Mayor Bowser. I have no reason to think that either of them has done anything inappropriate for a campaign contributor. This is a systemic problem.

It’s just part of the parasite economy, where you use the law to get something you couldn’t get voluntarily in the marketplace.

Federal Infrastructure: Often Low Value

President Obama’s budget would raise taxes to fund a $478 billion infrastructure spending plan for highways, transit, and other items. The budget (on page 26) cites an International Monetary Fund study that “highlights the importance of choosing high-efficiency infrastructure projects based on rigorous benefit-cost analysis.”

Unfortunately, that is not the type of “choosing” that the federal government usually does, based on more than a century of experience. As one historical example, here is what I found out about the choosing of federal dam projects in the wake of the 1902 Reclamation Act:

To secure support from the western states, the 1902 legislation required that 51 percent of the revenue from federal land sales in each state be spent on Reclamation projects within that state. However, there wasn’t necessarily a relationship between land-sale revenues and the locations of the best projects. This requirement “seriously compromised the ability of government engineers to select projects objectively.”

After the Reclamation Act passed, the Republican Party saw political advantage in quickly proposing a large number of projects in as many states as possible. This rush to launch projects for political reasons reduced efficiency. By 1907 Reclamation had requested and received congressional approval for 24 projects, with every western state receiving at least one. “Most of the projects were begun in great haste with little attention paid to economics, climate, soil, production, transportation, and markets.”

Much of the federal government’s history with infrastructure is one of pork barrel spending, environmental harm, fudged cost-benefit analyses, and cost overruns. Of course, there are mistakes and waste in state, local, and private infrastructure as well, but federal spending is usually worse for basic structural reasons. Those structural reasons—such as parochial politics and lack of oversight—are likely worse now than in 1902.

Will Greece Unravel the European Experiment?

The Greek elections, in which the radical left-wing Syriza won a near majority, shattered the Brussels consensus.  A breakdown of the European bail-out program might make a Greek exit from the Euro (“Grexit”) the only feasible option.  And the popular revolt against outsiders dictating economic policy may block new attempts to expand Brussels’ power over EU members.

Europe remains the world’s most important economic unit.  However, the EU failed to live up to the grand hopes of the Eurocrats, the academic, bureaucratic, business, media, and political elites who dominate continental politics and policy.  Voters rejected the proposed constitution to expand Brussels’ authority and reduce national independence a decade ago. 

The Eurocrats then repackaged the convoluted constitution as an incomprehensible treaty, for approval by national parliaments. More power shifted to Brussels. 

However, multiplying bureaucracy stifled action.  Loyalty to the EU failed to extend beyond the organization’s sprawling headquarters buildings in Brussels. 

Then the Euro crisis exploded.  The Eurozone created a common currency.  Only 19 of 28 EU members today belong, but in theory all are supposed to eventually join.  Even the Euro’s architects recognized the inherent instability of creating a monetary union without a common budget.

Once in, Athens borrowed at essentially German interest rates and spent wildly.  Soon the loan bills came due and Athens couldn’t pay, which triggered a cascade of crises and bail-outs.

Although nominally concerned about Greece and other aid recipients, many Eurocrats had a larger purpose in mind.  Said German Chancellor Angela Merkel:  “We must overcome the architectural flaws that worked their way into the economic and monetary union during its formation.”  Thus, Euroelites used the crisis to bludgeon the European public to accept further continental consolidation. 

European leaders insisted that no country, no matter how badly indebted, should leave the Eurozone.  The EU would lend more in return for economic austerity.  Although the Greek economy has started growing again, it shrank a quarter since 2008 and unemployment still tops 26 percent. 

That explains why Greeks voted for Syriza, which offered dreamy promises of more spending along with angry demands for debt relief.  The Eurocrats imagined that Tsipras would moderate like so many previous radicals had done.  But so far he and his party have given no indication of retreating. 

Using Racial Gerrymandering to Combat Racial Gerrymandering

I’ve previously written about the way that the existing case law regarding voting-rights protections requires the very kind of odious racialization of politics that Congress wrote the Voting Rights Act to forbid.  Specifically, courts have read the law in a way that essentially requires racial gerrymandering, which also racializes political differences between the parties. (The Supreme Court this term is considering one of the bizarre consequences of this line of precedent.)

Well, a couple of weeks ago an interesting lawsuit was filed by the Equal Voting Rights Institute (a Texas nonprofit run by Dan Morenoff, who is a friend of mine from law school) that illustrates where this jurisprudence leads when paired with the most basic notions of equal protection.

EVRI has brought exactly the same kind of suit long used by traditional voting-rights activists but this time on behalf of non-Hispanic-white voters in Dallas – where they constitute a racial minority that has seen its “preferred candidate” (a term of art in this arcane legal field) win only two county-wide races contested by the major parties over four election cycles, which is 2 out of about 150 elections. EVRI asks the courts to apply the same measuring sticks they’ve used for decades to require the drawing of districts for other groups in the new context of a “minority-majority” jurisdiction whose governing coalition still votes on ethnic lines and uses its political power to strip an out-of-step race of any chance to fairly participate in elections.

It’s hard to imagine a case where equal protection provisions are more starkly implicated: either the VRA protects the out-voted white voters of Dallas exactly as it protects the outvoted African American and Hispanic voters of Texas, or the Voting Rights Act – as construed by the courts – provides unequal protections to different races in flagrant violation of the Fourteenth Amendment.

But this means that a constitutional reading of the VRA would broaden the scope of its case law (and the odious racial gerrymandering it requires) to apply to every minority-majority jurisdiction in the country. In fact, as America becomes more diverse, it makes sense that judges would need to look at actual demographic facts on the ground to determine who needs their protection from racial disenfranchisement. That development may wake up the communities that have long viewed the Voting Rights Act as their proprietary cudgel to the need to return to the original understanding of the legislation: to police against actual instances of discrimination rather than maintain some sort of statistical parity akin to the “disparate impact” theories running rampant in other contexts. 

In other words, and to paraphrase Chief Justice John Roberts’s famous dictum, the way to stop racialized interpretations of the Voting Rights Act is to highlight the way that race-based decision-making has been used to interpret parts of that law. It’s a strange world where a classical liberal is required to root for more racially informed lawmaking in order to recover the core ban on racist voting laws that made the VRA the cornerstone of civil rights movement. But that is the world we live in.

For more on the case of Harding v. County of Dallas, Texas, see the complaint and EVRI’s press release.

Loretta Lynch’s Worrisome Answer on Civil Asset Forfeiture

Referring to the federal government’s forfeiture regime as “an important tool” in fighting crime, attorney general nominee Loretta Lynch staunchly defended the concept of civil asset forfeiture during the first day of her confirmation hearings.

After Sen. Mike Lee (R-UT) questioned the “fundamental fairness” of Americans having their property taken by the government without any proof (or often even suspicion) of criminal wrongdoing, Lynch asserted that there are “safeguards at every step of the process” to protect innocent people, “certainly implemented by [her] office … as well as an opportunity to be heard.”

Even setting aside the litany of federal civil asset forfeiture abuses that have come to light recently across the country, Lynch’s reference to her own office’s handling of civil forfeiture is particularly concerning.

Lynch is currently the U.S. attorney for the Eastern District of New York, and her office, despite its safeguards, is responsible for one of the more publicized and questionable uses of the asset forfeiture program.  In May of 2012 the Hirsch brothers, joint owners of Bi-County Distributors in Long Island, had their entire bank account drained by the Internal Revenue Service working in conjunction with Lynch’s office. Many of Bi-County’s customers paid in cash, and when the brothers made several deposits under $10,000, federal agents accused them of “structuring” their deposits in order to avoid the reporting requirements of the Bank Secrecy Act. Without so much as a criminal charge, the federal government emptied the account, totaling $446,651.11.

For more than two years, and in defiance of the 60-day deadline for the initiation of proceedings included in the Civil Asset Forfeiture Reform Act of 2000, Lynch’s office simply sat on the money while the Hirsch brothers survived off the goodwill their business had engendered with its vendors over the decades.