Topic: Government and Politics

A Libertarian Dilemma

In the November issue of Liberty magazine I write about one factor that I think reduces the political impact of libertarian-leaning voters: the fact that they’re all over the map about which party or faction represents the lesser of the evils:

One reason why libertarians underperform politically is that they are politically split, not just between radicals and incrementalists, as can happen in any political movement, but also among various political movements — while being too small to influence any of them very much.

It seems to me that libertarians come in several political groupings:

(1) Those who care primarily about free markets and thus support conservative Republicans. Given the candidates on offer, that means helping to move the GOP to the right on social issues (and war and civil liberties) as well as on economic issues. This group would include the Club for Growth, Republican “Leave Us Alone” activist Grover Norquist, many donors to free-market thinktanks, and probably most libertarian-leaning politically active people.

(2) Those who want to make the GOP more socially tolerant and thus support moderate Republicans, which effectively means Republicans who aren’t very free-market. This would include Log Cabin Republicans, pro-choice Republicans, and lots of Wall Street and Silicon Valley businesspeople.

(3) Those who think the GOP is irredeemably bad on social issues and civil liberties and thus support Democrats. This would again include some Silicon Valley businessmen who are pro-entrepreneurship and fiscally conservative but just can’t support a party that is opposed to abortion rights and gay rights. A dramatic example is Tim Gill, the founder of Quark, who calls himself a libertarian but has contributed millions of dollars to Democrats because of Republican opposition to gay rights. There are also broadly libertarian people involved in the ACLU, the drug-reform movement, and other civil libertarian causes.

(4) Those who support the Libertarian Party. They don’t get many votes, but they include a large percentage of libertarian activists.

If only some candidate or movement could bring them all together.

Missile Defense and the Banks

Many argue that the demand for public goods justifies government spending and taxing.  Defense spending is a classic public good. The New Times offers an interesting case study of how the federal government actually spends money on defense.

The story recounts the activities of Michael Cantrell, a Defense Department employee who turned into a lobbyist for various projects connected to the missile defense program. According to the story, Cantrell “extracted nearly $350 million for projects the Pentagon did not want, wasting taxpayer money on what would become dead-end ventures.”

Cantrell is awaiting sentencing on corruption charges related to taking kickbacks for defense contractors. But his violations of the law did not start until 2000. Much of the $350 million wasted on defense projects happened before he started taking a cut of the action.

Read the whole story. Here is my summary: Pentagon officials did not want the projects Cantrell pushed, but powerful members of Congress did support such outlays. DOD had missile ranges around the world, but Ted Stevens thought another one was needed in Alaska. Acoustics research might have been conducted many places, but Trent Lott preferred the work done by the University of Mississippi in Oxford and a Huntsville defense contractor that had a branch office in Oxford. And so on.

In other words, members were directing the DOD budget to benefit their constituents in exchange for votes on election day. “Vote for me and I will give you $1,000” is not limited to presidential elections.

Gordon Tullock once wrote of campaign finance:

It should of course be kept in mind that [campaign contributions] are not actually for the purpose of buying votes. The votes are bought by the bills passed by Congress, or the Legislature, which benefit voters. But the campaign money is used to inform the voters about what their congressman has done. Since the voters pay little attention, concentrating the message on a narrow scope and repeating it again and again is necessary even though it annoys intellectuals. On the whole it is the actual things done for the voters by the votes of their and other congressmen, which attract voters to elect those congressmen.

The Cantrell story confirms Tullock’s insight. The reporter mentions campaign finance contributions by defense contractors, but by and large, the story is one of constituent service (that is, the creation and maintenance of vote purchase schemes).

There are several interesting questions here. Can Congress actually provide public goods efficiently? Isn’t Cantrell’s story one of earmarking without the earmarks? If so, won’t the practice of earmarking continue even if Congress gets rid of earmarks? The story shows Congress in a poor light, but don’t we want the legislature to control its agents (like the Pentagon) instead of simply delegating authority to spend to them?

One final lesson. The Cantrell story shows what happens when Congress has money to spend on national defense. In coming days, the federal government may come into ownership of many banks. How do you think Congress will spend the capital of those banks?

Do Economists Count?

Jonathan Chait, a journalist who frequently attacks supply-side economics, derides Peter Robinson of National Review for making a big deal out of a statement by 100 economists (or maybe it’s only 90) warning about the dangers of Barack Obama’s plans to raise taxes and restrict international trade. Robinson may have gone a bit far in calling the statement “The Booming of the Big Guns.” As Chait says, 100 economists isn’t all that many. After all, 200 economists warned against the Wall Street bailout, and you see how much good that did.

But Chait also sneers at the quality of the economists who signed this statement opposing new burdens on production and trade. “The list certainly does not suggest excessive discrimination about credentials. It’s heavily larded with GOP apparatchiks now residing in the right-wing think tank world.” Actually, it’s not. There are maybe half a dozen who list think-tank affiliations, including people like Eric Hanushek of the Hoover Institution, who–perhaps Chait does not know–holds a Ph.D. from MIT and taught for years at the highly regarded University of Rochester econ department. And then there are five Nobel Laureates–Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith.

After his snipe at “GOP apparatchiks now residing in the right-wing think tank world,” Chait says “(my favorite is “economist” George Schultz of the Hoover Institution).” OK, let’s think about that. First, it’s Shultz, not Schultz. And just who is this “GOP apparatchik George Schultz”? Well, Chait probably thinks that seven successful years as Secretary of State doesn’t qualify you as an expert on taxes and international trade. Maybe not. But Shultz also has a Ph.D. from MIT. And he taught economics for 20 years at MIT and the University of Chicago. He then served as director of OMB and Secretary of the Treasury. Qualified to comment on U.S. economic policy? I’d say so.

But if you insist on academic credentials–and 20 years at MIT and Chicago in the past doesn’t count–that still leaves you five Nobel laureates. And lots more economists of substantial accomplishment and reputation, including some who just might get a Nobel Prize one of these days, people like Robert Barro, Mike Jensen, John Taylor, Michael Boskin, Martin Feldstein, Anne Krueger, Glenn Hubbard, Burton Malkiel, Kevin Murphy, and Cato’s own Bill Niskanen. The fact is, I’ve seen a lot of petitions from economists, and this one is more top-heavy with academic credentials than most.   

It’s intriguing to note that the statement does not endorse McCain’s economic proposals, it just criticizes Obama’s. Perhaps they couldn’t get five Nobel laureates and the other accomplished economists on the list to do that.

The End of American Capitalism?

At the top of today’s front page, the Washington Post joins other Big Media in dancing on the grave of capitalism and smaller government. And compared with such past headlines as “A Fresh Look at the Apostle of Free Markets” or “Crisis Turns Free Marketeers into Regulators,” the Post goes all the way: “The End of American Capitalism?” It does have a question mark.

But what is the Post’s evidence that “American-style capitalism” is a casualty of the financial crisis? Well, for one, “The Bush administration is considering a partial nationalization of some banks.” I’m not sure that an administration that has given us nationalized schools, expanded entitlements, burdensome Sarbanes-Oxley securities regulations (how’d those work out, by the way?), nation-building around the world, and a trillion-dollar increase in federal spending is exactly an example of free-marketers finally giving in to the lure of big government.

But it’s not just American politicians, the Post tells us, who have lost faith in capitalism. “European leaders … are calling for broad new international codes to impose scrutiny on global finance.” So the people who run the U.S. government and the people who run European governments are united in seeking more power for governments.

But wait, there’s more. “To some degree, those calls are even being echoed by the International Monetary Fund.” So even an intergovernmental organization devoted to forced wealth transfers also wants more power for governments.

Also Nobel laureate Joseph Stiglitz: “We told them if you wanted to be like us, here’s what you have to do — hand over power to the market. The point now is that no one has respect for that kind of model anymore given this crisis.” So the most left-leaning Nobel laureate thinks our policies should move to the left. But if reporter Anthony Faiola had interviewed such recent laureates as Vernon Smith, Ed Prescott, Robert Mundell, Gary Becker, Myron Scholes, Douglass North, or James Buchanan, he might have gotten a different answer.

There’s no question that the global financial crisis is causing people to question how well capitalism works. But we’re still not in any Great Depression. And the evidence in this article is almost entirely that governments are — as usual — taking advantage of a crisis to expand their scope and power.

Of course, 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.”

No, It Wasn’t Joe Biden

But I couldn’t help thinking of him when I read this Washington Post headline:

Ex-Sailor Guilty of Pretending to Be an Admiral
Delaware Man Gave Speech to Vietnamese American Group in Va.

And I was transported back to 1987, when Biden withdrew from the presidential race after appropriating the details of British Labor Party leader Neil Kinnock’s life in his speeches, falsely claiming to have three college degrees, and boasting of a much higher rank in his law school class than he actually achieved.

I remembered a purported “Joe Biden resume” that circulated widely back in 1987. Being from prehistoric days, alas, it’s not on the World Wide Web, so I have to recall it from memory. But as I recall, in standard resume fashion it recounted Biden’s achievements in life: NCAA basketball championship, Heisman Trophy, top of his law school class, chairman of the Joint Chiefs of Staff, Nobel Prize in physics, Pulitzer Price for literature, Oscar, chief justice of the United States, and so on.

Of course, if he actually had all those accomplishments, Sarah Palin would dismiss him as an elitist.

Joe Klein on Obama, McCain & Health Care

In a recap of the second McCain-Obama debate, Joe Klein offers his thoughts on the role of government generally and in health care in particular.  Excerpts and comments follow:

Obama began his response with a simple declarative sentence: “I believe that health care is a right for every American.”

Health care is a bundle of goods and services.  Treat health care like a “right,” and watch it disappear

The rest of his answer could be used as a template for how to deal with a complex issue in a town-hall debate. He began with a personal story: his mother, dying of cancer at age 53, having to fight her insurance company, trying to prove that her disease had not been a pre-existing condition.

Obama has said his mother ”had been diagnosed just as she was transitioning between jobs.”  Neither candidate can claim that their health plan would have saved her life.  But McCain can claim that the federal government created an employer-based health insurance system that routinely strips people of coverage right before and right after they get sick.  In its attacks on McCain’s health-insurance tax credit, I haven’t once heard the Obama campaign acknowledge that McCain’s plan would have spared Obama’s mother that deathbed worry.

He broadened that into a general proposition about the proper role of government: “It is absolutely true that I think it is important for government to crack down on insurance companies that are cheating their customers.”

Government should crack down on cheats.  If an insurance company commits fraud or breaches its contracts, let ‘em have it.  One senses that Obama means something else, perhaps that insurance companies “cheat” any time they deny coverage for anything?  Maybe because he thinks health care is a right? 

And finally, he transformed the issue into a metaphor for the entire campaign: “That is a fundamental difference that I have with Senator McCain. He believes in deregulation in every circumstance. That’s what we’ve been going through for the last eight years. It hasn’t worked, and we need fundamental change.”

Regarding Obama’s silly attacks on McCain’s proposal to deregulate health insurance, click here.

Obama’s gamble is that the public — worried at the beginning of the campaign, terrified now — is ready for greater government support and regulation of the health-insurance system. That assumption has always been a sure loser in American politics. Republicans have perpetually and successfully waved the bloody flag of “socialized medicine.”  But the employer-provided-health-care system is fraying, costs to average families are rising, and almost everyone has a friend with a horror story.

Indeed.  If only Klein and the Republicans recognized that socialized medicine is the root cause of those horror stories.

McCain’s plan is a half-baked vestige of Reagan-era ideology: it tilts the incentives away from employer-provided health insurance and assumes that people will act in their enlightened self-interest if they are thrust out into a free market. That’s absolutely true when it comes to buying refrigerators. But health insurance is complicated and scary; most people don’t have the time or expertise necessary to make wise choices.

Health insurance is complicated; illness is scary.  It would be nice if health insurers won customers by making health insurance simple and taking away patients’ fears of illness and financial ruin (rather than focusing on employers’ fears of absenteeism and rising labor costs).  For that, the individual customer has to control the money.

They rely on their employers to make sure they’re getting a good deal — and to fight for them if the insurance companies try to cheat them. And with many employers slouching away from that responsibility, the public seems ready to turn to the government for protection. In a collapsing economy, government regulation — forcing insurers to cover everyone at reasonable rates — sounds more comforting than stultifying.

Employers are shirking – but the government won’t?  Even when Obama gives them a jillion more things to do than enforce contracts and prosecute fraud?  And reasonable rates??  Does Klein know nothing about Medicare?