Topic: Government and Politics

Hillary’s Choices

When a politician has a vulnerability, there are different ways to deal with it. You can ignore it, stonewall questions, pretend it isn’t there. You can joke about it, as Ronald Reagan did with his age. Or you can embrace it, make it a virtue. In his early campaigns the rumpled and overweight Barney Frank (who has long since slimmed down and bought better suits) campaigned on the slogan “Neatness isn’t everything. Re-elect Barney.”

Hillary Clinton seems to have adopted the Barney Frank approach on the issue of corruption. Since 1991 or thereabouts, ethical questions have swirled around the Clintons–Whitewater, commodity trading, billing records, small-time grifters in the Cabinet, Travel Office firings, campaign fundraising, right on up to the midnight pardons as they left the White House. So she might have tried to run a squeaky-clean campaign to make people forget all that ancient history.

Tuesday night in Florida, however, it became pretty clear that that wouldn’t be her strategy. At her Florida victory speech, she was introduced by one of her national campaign co-chairs, Rep. Alcee Hastings. Back in 1988, Hastings was a federal judge. He was impeached by the House of Representatives on charges related to bribery and was removed by the Senate. Rep. John Conyers, now chairman of the Judiciary Committee, was one of the House impeachment managers. The House vote was 413 to 3.

On January 20, 2001, Bill Clinton pardoned William Borders, who was convicted and jailed in connection with the bribery of Hastings.

It looks like the Clintons are not embarrassed to be associated with other politicians who have been accused–and impeached–and indeed actually removed from office for unethical behavior. “Ethics isn’t everything. Bring back the Clintons.”

State of the Earmarks

Last night’s State of the Union address didn’t contain much in the way of new policy proposals. As I note in a podcast (Subscribe!), this is largely a reflection of President Bush’s limited political capital because of his lame duck status, low approval ratings, and the Democratic majority in Congress.

But one issue Bush did indicate he will tackle is the rampant earmarking on Capitol Hill. Bush said he would take a couple actions on this front – and while these might be modest steps in the right direction, the results will be far from earth shattering.

First, Bush will “issue an Executive Order that directs Federal agencies to ignore any future earmark that is not voted on by the Congress.” This is good step and one that fiscal conservatives on Capitol Hill have been urging for years. The President can ignore certain earmarks because Congressional appropriators routinely exclude them from the legislative text of spending bills. Instead they “airdrop” many earmarks into conference reports at the last minute. These reports are not technically part of the law, but serve as accompanying documents to inform the Executive Branch of Congress’s intentions. Appropriators do this to circumvent transparency measures and make questionable earmarks immune to points of order or striking amendments by critical members. Because the Executive branch has always played along, it has never been necessary for Congress to act otherwise.

Until now.

With the new Executive Order in place, Congress will presumably be forced to include earmarks in legislative text rather than putting them in nonbinding conference reports. This will likely increase transparency to some degree, but it’s unlikely to have a significant impact on earmarks beyond that. Enough support resides in Congress to continue to earmark funds and easily defeat procedural hurdles along the way. Furthermore, Bush missed a huge opportunity here. He could have applied the Executive Order to the current 2008 fiscal year and wiped out thousands of earmarks in the process.

Bush also indicated that he would veto appropriations bills that do not reduce the number or cost of earmarks by 50 percent. This might encourage appropriators to cut earmarks per the president’s request. But there is a danger here – rather than shooting for a significant reduction in earmarks, Congressional leaders could instead dole out more money for members’ pet projects in order to build a vested voting block large enough to override a veto. In terms of passing the annual spending bills, this could be an easier path for Congress to follow, as most spending bills already pass with large majorities. The result could be a net increase in earmarks.

Still, President Bush has made a good faith effort toward improving the earmarking process. And by discussing earmarks during his final State of the Union address, he brought a national spotlight to the issue. But few significant improvements will occur until members of Congress stop coveting earmarks and voters stop returning earmarkers to Congress.

Stimulus: Kindergarten Keynesianism

It is very curious that some top economists are pushing the Bush/Pelosi $100 billion stimulus giveaway.

  • For years, these same economists told us that more savings is good for the economy. Now they are saying that more consumption is good.
  • For years, these same economists have lambasted the budget deficit. Now, they support blowing a new $100 billion hole in the federal budget.
  • Finally, many economists have long complained that Americans are shopoholics and have far too much credit card debt. Now stimulus-supporting economists are demanding that Americans spend, spend, spend!

It is surprising that anyone takes economists seriously anymore.

Anyway, stimulus proponents say that mailing $100 billion of cash to families will cause the nation’s output to grow. Yet this simple Keynesian chart illustrates that the result will be higher prices, not more output.

The stimulus causes the aggregate demand curve to shift to the right, as proponents suggest. That moves us along the aggregate supply curve, which I believe should be drawn vertically in this case. The result is that prices jump up from P1 to P2, but output does not rise.

Stimulus proponents would argue that the aggregate supply curve should be sloped, at least in the short run. In that case, the figure would show a temporary bump upwards in output.

But that seems unlikely to me. Keynesian theories about why output might increase usually rely on imperfections in markets or information. Producers get fooled into increasing their output for a while, before the errors are worked out and output falls back to its long-term level.

But that wouldn’t seem to be the case here. Let’s say the rebate checks get mailed out in May and June. A U.S. cigarette producer may notice a slight uptick in sales in those months as smokers spend their government checks. But cigarette producers probably watch the news and they will know that this is just a temporary blip. As such, they won’t add any new workers or buy any new machines.

So output would stay pretty fixed, while prices would adjust upward slightly to clear markets. But I don’t claim to be a Keynesian expert, so if one of our Keynesian readers wants to tell me where I’m wrong, I’d be happy to hear it. Until then, I remain convinced that the Bush/Pelosi scheme is crack-pot.

Shaken, Not Served?

As Jacob Grier notes, the Washington Post ran an excellent article highlighting a silly Virginia law that bans sangria. The law does not specifically outlaw sangria, but states that restaurants cannot serve beverages in which spirits are added to beer or wine. Sangria is a traditional Spanish beverage that runs afoul of the law because it is typically made from red wine and brandy. A restaurant in Northern Virginia is currently facing a $2,000 fine for violating the law.

As the article indicates, the law has broader implications

It’s not just sangria. Other popular drinks are also off-limits, including kir royals, which are made with sparkling wine, and boilermakers, which include beer and a shot of liquor.

This invites a question: does the law also make martinis illegal? Martinis are a mixture of gin or vodka and dry vermouth, which is a blend of fortified wine and herbs. Can a bartender in Virginia add fortified wine to spirits? The text of the law says you cannot “sell wine to which spirits or alcohol, or both, have been added,” but does not clarify if it is illegal to add wine to spirits.

Regardless of the legal implications for martinis, Manhattans, and other cocktails with vermouth, this is a silly and unnecessary law. Unfortunately this is just the tip of the iceberg, as many other states still have outdated, Prohibition-era laws on their books. The U.S. is riddled with ridiculous state liquor laws that impose restrictions on the size of beer bottles, the number of ounces of spirits allowed in a particular beverage, and the percentage of alcohol in beer, just to name a few. These attempts to reduce alcohol consumption are misguided and often counterproductive. State governments should get out of the nanny business and allow responsible adults to enjoy the alcoholic beverage of their choosing.

Creating A National Mortgage Scandal

Details are murky, but Senator Dodd appears to want to spend many billions on a new federal agency to buy-up undefined “distressed” mortgages at less than their original value.

Suppose Mr. Jones has a $300,000 mortgage on a house now worth $250,000. The new agency would offer to pay off the loan for $250,000 and then let Jones stay in the house with a new $250,000 mortgage that would then be guaranteed by the Federal Housing Authority (which ultimately means the U.S. taxpayer). FHA would debase its customary lending standards.

If banks and mortgage service companies are willing to write-off a large part of the value of some mortgages, why would we need to put U.S. taxpayers at risk? Why couldn’t each borrower simply negotiate a new contract, as hundreds of thousands have already done (though usually for a lower interest rate rather than forgiveness of principal).

If a home owner or speculator like Mr. Jones could get a smaller mortgage through a government agency by not making payments and threatening to default, that would create a huge moral hazard. His neighbors would resent his special treatment, and threaten to default on their loans too.

Since everyone would rather have a smaller mortgage than a larger mortgage, there would be rationing problem of deciding who is or is not worthy for such special treatment. Such priorities are likely to be based on political considerations rather than sensible economics or risk management.

Since Mr. Jones is already seriously delinquent on the current mortgage, he may well have a history of not paying other bills and therefore a poor (subprime) credit rating. There is no good reason to expect that he will not also default on the new FHA mortgage. Risky loans still remain risky, but because of the FHA guarantee that risk would be shifted to taxpayers.

This scheme would convert a localized mortgage problem into a national mortgage scandal.

Welfare-Warfare Conservatism

The New Republic runs an article on the New York Times’ decision to hire Bill Kristol, and provides the short list of candidates for the spot:

[L]ast fall, [Times publisher Arthur] Sulzberger and Times editorial-page editor Andrew Rosenthal prepared a list of some 25 conservative writers. According to a person with knowledge of the search, the names included Washington Post columnist Charles Krauthammer, The Atlantic’s Ross Douthat, senior fellow at the Council on Foreign Relations Max Boot and three Weekly Standard staffers: senior editor Christopher Caldwell, associate editor Matthew Continetti, and the magazine’s editor and founder, Bill Kristol. On December 30, Sulzberger selected Kristol, who gave up his column at Time magazine for the Times appointment.

This is really pretty striking. Every author mentioned is an ardent supporter of the welfare-warfare state, with admittedly varying emphases. Douthat’s focus, for example, has been on attempting to craft a European Christian Democrat-style conservatism that fuses political sops to social conservatives to economic populism (read: “expanding the welfare state”) in an attempt to buy middle class votes. Max Boot and Charles Krauthammer, by contrast, have focused more on urging the United States into pointless and massively destructive foreign wars, the first of which has already killed more Americans than 9/11 and sucked half a trillion dollars from taxpayers’ pockets.

I’m loath to predict political outcomes. Maybe as a political matter this sort of thing will sell. But abandoning conservative economic principles in the pursuit of political success and simultaneously indulging the worst jingoist excesses of neoconservatism is a positively revolting platform. Looking at the slate of candidates for the Republican presidential nomination, maybe this new welfare-warfare fusionism has legs. But it certainly doesn’t offer very much to libertarians.