Topic: Government and Politics

Nice Little Bank You Got There; Shame If Anything Happened to It

Some years ago I wrote an article titled “The Gun behind the Law.” (Not online, but it appears in The Politics of Freedom.) It began with a photograph of 50 or so helmeted policemen storming the doors of a large and institutional building. As it turned out, the photograph depicted a bank nationalization in Peru during the first and disastrously leftist presidency of Alan Garcia. I noted that the Peruvians were helping us understand the real import of the term “bank nationalization”: “What really occurred there is that some people forced other people to give up their property at the point of a gun….As the bankers of Peru have learned, every law is en­forced at the point of a gun.”

And I noted that things are very different here: “When we Americans hear the words ‘bank nationalization,’ we are apt to imagine a piece of paper being signed by a bank president and a deputy assistant treasury secretary.”

Well, I was a little off. It was actually nine bank presidents and the secretary himself. But the general scene was right:

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left.

They weren’t allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room.”

At least one banker objected. “But by 6:30, all nine chief executives had signed — setting in motion the largest government intervention in the American banking system since the Depression.”

And all without any need for armed police takeovers of the banks. Nice and peaceful like. And no doubt some of the bankers were just delighted to get billions of dollars from the taxpayers. For those who didn’t want to be working for the government, the points I made in that long-ago article are still valid:

The gun is evident in the picture [from Peru], but it is no less real when an American is forced to give up his property by a law or regulation. Such commonly used terms as “national economic policy,” “social regulation,” “revenue enhancement,” “profamily legislation,” and “minimum-wage law” all obscure the simple fact that some people are forcing others to do as they’re told.

But Peru is not the United States, it will be said; our government would never send riot troops to take over a bank. That is largely because it wouldn’t have to—Americans don’t resist the demands of government. What would happen if they did?…

If more Americans decided to ignore absurd, special-interest, and counterproductive laws, it would soon be apparent that physical force lies behind the Federal Register. Does anyone believe that Americans would pay a large percentage of their income to the federal government if not for the ultimate threat of imprisonment and violence?

As the bankers of Peru have learned, every law is enforced at the point of a gun—a fact we should carefully consider when we are tempted to conclude that some perceived problem should be solved by enacting a law.

Debatable Education Policies

So last night, after hearing almost nothing about it in the three previous debates, education got the last question. In a way it’s a good sign that education has been largely frozen out — Washington shouldn’t be involved in the first place, as the Constitution makes clear and I’ll soon explain further — but since Washington is involved, we need to hear what the candidates have to say.

Because education has been such a marginal issue I haven’t had much reason to weigh in on it. Now that I’ve got the chance, I’m going whole-hog by reproducing most of the exchange from last night and commenting in italics beneath all the parts that demand it. This is, as a result, going to be a long entry, but it will address just about every issue the candidates touched. So grab a tasty beverage, pick up a snack, and take heart that while this could be long and tedious, it couldn’t possibly be as boring as the actual debate!

And now we join the debate already in progress…

SCHIEFFER: The question is this: the U.S. spends more per capita than any other country on education. Yet, by every international measurement, in math and science competence, from kindergarten through the 12th grade, we trail most of the countries of the world.

The implications of this are clearly obvious. Some even say it poses a threat to our national security.

Do you feel that way and what do you intend to do about it…

Great question, Mr. Schieffer! You are absolutely right on spending: According to the Organization for Economic Cooperation and Development (OECD), we spend more per-capita on education than any other industrialized nation. It should be noted, though, that in primary education we are outspent by Iceland and Luxembourg, and in secondary education by Luxembourg, Switzerland and Norway. But that still leaves almost everyone, including such high-flyers as Japan, Finland, and South Korea, well behind us. Oh, and it isn’t accurate to say that we trail “most of the countries of the world” in math and science competence. How we do depends on grade level and test, not to mention that most countries in the world don’t participate in international comparisons. Nonetheless, we regularly trail lots of industrialized nations that spend far less on education than we do, and that’s pretty bad.

OBAMA: This probably has more to do with our economic future than anything and that means it also has a national security implication, because there’s never been a nation on earth that saw its economy decline and continued to maintain its primacy as a military power. So we’ve got to get our education system right. Now, typically, what’s happened is that there’s been a debate between more money or reform, and I think we need both.

It’s nice to see Sen. Obama try to make the national security connection. This used to be the only way to sell federal involvement in education because the Constitution actually gives the feds authority over national defense, but I thought politicians had stopped bothering with it long ago. Of course, the link is far too tenuous for most federal education policy to actually be legitimate — a happy population is needed for national security, so why not have the feds give out cotton candy and rainbows to take on bin Laden? — but at least trying to make it still seems somewhat necessary.

In some cases, we are going to have to invest. Early childhood education, which closes the achievement gap, so that every child is prepared for school, every dollar we invest in that, we end up getting huge benefits with improved reading scores, reduced dropout rates, reduced delinquency rates.

Uggh! This is just pie in the sky. As Adam Schaeffer has made abundantly clear, the promises of untold riches accruing from “investment” in early-childhood education are based mainly on extrapolations of a handful of often-questionable studies of tiny, hyper-targeted programs. And as California learned with class-size reduction, small programs can’t explode into big ones without inflicting terrible damage.

I think it’s going to be critically important for us to recruit a generation of new teachers, an army of new teachers, especially in math and science, give them higher pay, give them more professional development and support in exchange for higher standards and accountability.

We do need math and science teachers, and the answer to that problem is to let schools pay them more (or give them more freedom, or some kind of inducement that would vary by teacher). Of course, schools should also be able to better reward high-performing English, math, PE, or any other subject teachers as well, but as long as we have government schooling the unions will have control, and that means no one will get compensated better than anyone else.

As for needing “an army” of new teachers overall? In 1965 we had 24.7 pupils per teacher and in 2005(the latest year available) we had 15.7, yet somehow scores on the National Assessment of Educational Progress have largely been stagnant.

We don’t need an army of new teachers. Heck, we probably don’t even need a platoon.

And I think it’s important for us to make college affordable. Right now, I meet young people all across the country who either have decided not to go to college or if they’re going to college, they are taking on $20,000, $30,000, $50,000, $60,000 worth of debt, and it’s very difficult for them to go into some fields, like basic research in science, for example, thinking to themselves that they’re going to have a mortgage before they even buy a house.

And that’s why I’ve proposed a $4,000 tuition credit, every student, every year, in exchange for some form of community service, whether it’s military service, whether it’s Peace Corps, whether it’s working in a community…

Boy, do I get tired of this one! Maybe the Senator knows someone who has taken on $60,000 in debt just to go to college, but the average undergraduate debt level for students who take on debt — which is far from every student — is only about $20,000. Maybe the $60,000 student should have economized a bit. And there’s the little matter of the average $1 million college wage premium that would make even a $60,000 investment a pretty good one. Oh, and why should the now-famous Joe the Plumber have to pay someone else’s way to Harvard?

That said, college costs have been rising really fast, but guess what? Student aid, especially provided by Washington, has helped to fuel the rocket! Quite simply, when you give a kid another hundred bucks, it’s a hundred bucks more that a school can charge. And have we been giving kids the bucks! According to the College Board (table 7), total, inflation-adjusted, aid per full-time-equivalent student, most of which came through Washington, rose almost 140 percent over the last twenty years, from $3,967 to $9,499. And yet, we still have massive affordability problems. Hmm..

If we do those things, then I believe that we can create a better school system.

But there’s one last ingredient that I just want to mention, and that’s parents. We can’t do it just in the schools. Parents are going to have to show more responsibility. They’ve got to turn off the TV set, put away the video games, and, finally, start instilling that thirst for knowledge that our students need.

Yes, parents have a role in our academic problems, and there is almost certainly a cultural component to why we don’t do as well on international exams as other nations. But isn’t one of the strongest messages of government schooling that parents can’t and shouldn’t be responsible for their children’s education, that that is the role of government? And, frankly, blaming parents for bad outcomes when we give them no real control over their children’s education — the power to pull their kids out of bad schools and put them into good ones — is pretty rich.

SCHIEFFER: Senator McCain?

MCCAIN: Well, it’s the civil rights issue of the 21st century. There’s no doubt that we have achieved equal access to schools in America after a long and difficult and terrible struggle.

But what is the advantage in a low income area of sending a child to a failed school and that being your only choice?

Good question!

So choice and competition amongst schools is one of the key elements that’s already been proven in places in like New Orleans and New York City and other places, where we have charter schools, where we take good teachers and we reward them and promote them.

And we find bad teachers another line of work. And we have to be able to give parents the same choice, frankly, that Senator Obama and Mrs. Obama had and Cindy and I had to send our kids to the school – their kids to the school of their choice. Charter schools aren’t the only answer, but they’re providing competition. They are providing the kind of competitions that have upgraded both schools – types of schools.

While Sen. McCain only mentions charter schools specifically, I read this as ultimately endorsing full school choice for all kids, giving all parents “the same choice, frankly, that Senator Obama and Mrs. Obama had and Cindy and I had to send our kids to the school – their kids to the school of their choice.” We know choice works in large part just by looking at all the wonderful things free markets have brought us, ranging from smaller and smaller iPods to faster and faster computers. We also, though, know that choice works in education when it is allowed to operate, as the huge literature review of market education just completed by Andrew Coulson powerfully shows.

Now, throwing money at the problem is not the answer. You will find that some of the worst school systems in America get the most money per student.

So I believe that we need to reward these good teachers.

By all means reward good teachers, but the only efficient and effective way to do that is to reward the best schools, and the only effective way to do that is universal school choice.

MCCAIN: We need to encourage programs such as Teach for America and Troops to Teachers where people, after having served in the military, can go right to teaching and not have to take these examinations which – or have the certification that some are required in some states.

Look, we must improve education in this country. As far as college education is concerned, we need to make those student loans available. We need to give them a repayment schedule that they can meet. We need to have full student loan program for in-state tuition. And we certainly need to adjust the certain loan eligibility to inflation.

D’oh! See my talk about student aid above. Sometimes the solution “we need” is the absolutely wrong one.

SCHIEFFER: Do you think the federal government should play a larger role in the schools? And I mean, more federal money?

OBAMA: Well, we have a tradition of local control of the schools and that’s a tradition that has served us well. But I do think that it is important for the federal government to step up and help local school districts do some of the things they need to do.

Now we tried to do this under President Bush. He put forward No Child Left Behind. Unfortunately, they left the money behind for No Child Left Behind. And local school districts end up having more of a burden, a bunch of unfunded mandates, the same kind of thing that happened with special education where we did the right thing by saying every school should provide education to kids with special needs, but we never followed through on the promise of funding, and that left local school districts very cash-strapped.

Cash-strapped schools my…! Let’s start with No Child Left Behind. Its problem is not that “they left the money behind.” Under President Bush, NCLB spending rose from $17.4 billion in 2001 to $24.4 billion in 2008, a 40 percent increase. That pretty big, and let’s not forget the part about our spending more per pupil than almost any other industrialized nation. Funding is simply not the problem! Bob Schieffer seems to understand that. Why doesn’t Sen. Obama?

So what I want to do is focus on early childhood education, providing teachers higher salaries in exchange for more support. Senator McCain and I actually agree on two things that he just mentioned.

Charter schools, I doubled the number of charter schools in Illinois despite some reservations from teachers unions. I think it’s important to foster competition inside the public schools.

Competition within public schools is pretty much no competition at all. Gray or off-white Trabant? There’s competition for you!

That said, charter schools are different from straight public-school choice because the schools can be fairly independent. The degree of independence, however, depends on how state laws are written — many permit almost no independence at all — and because charters are public schools, government can crush them whenever they want.

And we also agree on the need for making sure that if we have bad teachers that they are swiftly – after given an opportunity to prove themselves, if they can’t hack it, then we need to move on because our kids have to have their best future.

Where we disagree is on the idea that we can somehow give out vouchers – give vouchers as a way of securing the problems in our education system. And I also have to disagree on Senator McCain’s record when it comes to college accessibility and affordability.

Recently his key economic adviser was asked about why he didn’t seem to have some specific programs to help young people go to college and the response was, well, you know, we can’t give money to every interest group that comes along.

Nothing makes me sadder than the assumption that “specific programs” is synonymous with “solutions.” The federal government is teeming with “specific programs” in education, yet college costs keep right on ballooning and K-12 schools keep right on stagnating. It’s time for some real change, and that means acknowledging that doing more doesn’t necessarily mean doing better.

I don’t think America’s youth are interest groups, I think they’re our future. And this is an example of where we are going to have to prioritize. We can’t say we’re going to do things and then not explain in concrete terms how we’re going to pay for it.

College “youth” and their parents sure are interest groups! Or, at least, these guys are, and these folks, and these people over here

And if we’re going to do some of the things you mentioned, like lowering loan rates or what have you, somebody has got to pay for it. It’s not going to happen on its own.

SCHIEFFER: What about that, Senator?

MCCAIN: Well, sure. I’m sure you’re aware, Senator Obama, of the program in the Washington, D.C., school system where vouchers are provided and there’s a certain number, I think it’s a thousand and some and some 9,000 parents asked to be eligible for that.

Because they wanted to have the same choice that you and I and Cindy and your wife have had. And that is because they wanted to choose the school that they thought was best for their children.

And we all know the state of the Washington, D.C., school system. That was vouchers. That was voucher, Senator Obama. And I’m frankly surprised you didn’t pay more attention to that example.

Now as far as the No Child Left Behind is concerned, it was a great first beginning in my view. It had its flaws, it had its problems, the first time we had looked at the issue of education in America from a nationwide perspective. And we need to fix a lot of the problems. We need to sit down and reauthorize it.

It has flaws alright, most of all that it gives yet more power to politicians and bureaucrats and practically begs them to lie to parents about how the schools are really doing. The law doesn’t need to be reauthorized, it needs to be destroyed, because it, like all top-down education policies, invariably ends up working for the people employed by the system, not the parents and children it’s supposed to serve. Stick with school choice, Sen. McCain. It’s the only way to make schools truly accountable.

But, again, spending more money isn’t always the answer. I think the Head Start program is a great program. A lot of people, including me, said, look, it’s not doing what it should do. By the third grade many times children who were in the Head Start program aren’t any better off than the others.

Classic political confusion. I mean, what could be a greater program than one that doesn’t do what it’s supposed to? All I can think of is one that doesn’t do what it’s supposed to do but lavishes even more money on worthless stuff for cute kids so that politicians can show how much they “care.”

Let’s reform it. Let’s reform it and fund it. That was, of course, out-of-bounds by the Democrats. We need to reform these programs. We need to have transparency. We need to have rewards. It’s a system that cries out for accountability and transparency and the adequate funding.

And I just said to you earlier, town hall meeting after town hall meeting, parents come with kids, children – precious children who have autism. Sarah Palin knows about that better than most. And we’ll find and we’ll spend the money, research, to find the cause of autism. And we’ll care for these young children. And all Americans will open their wallets and their hearts to do so.

Remember school choice? The McKay scholarship program does a fantastic job helping disabled kids because it gives parents the power to demand the help their children need. In contrast, forcing parents to just “open their wallets” and “find” money gives us this.

MCCAIN: But to have a situation, as you mentioned in our earlier comments, that the most expensive education in the world is in the United States of America also means that it cries out for reform, as well.

And I will support those reforms, and I will fund the ones that are reformed. But I’m not going to continue to throw money at a problem. And I’ve got to tell you that vouchers, where they are requested and where they are agreed to, are a good and workable system. And it’s been proven.

“I’m not going to continue to throw money at a problem”? What happened to “and we’ll find and we’ll spend the money, research, to find the cause of autism. And we’ll care for these young children. And all Americans will open their wallets and their hearts to do so.” Again, classic political confusion.

OBAMA: I’ll just make a quick comment about vouchers in D.C. Senator McCain’s absolutely right: The D.C. school system is in terrible shape, and it has been for a very long time. And we’ve got a wonderful new superintendent there who’s working very hard with the young mayor there to try…

MCCAIN: Who supports vouchers.

OBAMA: … who initiated – actually, supports charters.

MCCAIN: She supports vouchers, also.

OBAMA: But the – but here’s the thing, is that, even if Senator McCain were to say that vouchers were the way to go – I disagree with him on this, because the data doesn’t show that it actually solves the problem – the centerpiece of Senator McCain’s education policy is to increase the voucher program in D.C. by 2,000 slots.

The data DOES show that choice works, though vouchers are not necessarily the best way to deliver it. Again, though, see Coulson…please! 

That leaves all of you who live in the other 50 states without an education reform policy from Senator McCain.

So if we are going to be serious about this issue, we’ve got to have a president who is going to tackle it head-on. And that’s what I intend to do as president.

We’ve had a president “tackle it head-on,” and what we got was NCLB. The fact of the matter is that the president can’t possibly be Principal-in-Chief — no two communities in America are exactly alike, much less any two students, so no one man or system can educate them equally well — and to pronounce otherwise exemplifies the pervasive, ludicrous assumption of presidential omnipotence. School choice, not more government promises or plans, is the only way to ultimately fix American education, and by focusing his rhetoric on that, McCain at least seems close to actually understanding reality.

Two Reasons to be Optimistic

The chart below reflects the public mood about government spending over the past half century. The higher the line on the chart, the more the public wants government to spend. (The chart is the work of James Stimson, a public opinion expert at the University of North Carolina, Chapel Hill).

The public has become more favorable toward public spending since 2001. However, it is likely that Obama’s election will coincide with a peak in this trend. Both LBJ’s election in 1964 and Clinton’s in 1992 marked such peaks. In Obama’s case, however, the peak will be substantially lower than in the Johnson and Clinton cases. Note also that those earlier peaks were followed immediately by declining support for more spending.

If history is any guide, Obama will not have as much public support for more spending as Clinton or LBJ and such support as he has will begin to decline almost immediately after he takes power.

Live Debate Commentary from Cato Scholars on Twitter

Join Cato policy analysts while they comment on the presidential debates live tonight at 9:00 p.m. EST.

Here’s how: Log on to Twitter when the debate begins and see what Cato scholars have to say about the policies the candidates propose.

Some Twitter highlights from the last presidential debate:

Did Sen. McCain answer the question about Social Security? I’d say no. –Jagadeesh Gokhale
Obama’s health plan would outlaw the most affordable 50 percent of health insurance plans currently on the market. -Michael Cannon
Need to understand the rest of the tax code to fix Social Security? Dissemblobama at its best! –Jagadeesh Gokhale
The $700 billion financial-sector bailout is less than one percent of the amount required to bail out Medicare. -Michael Cannon

Read more about Cato’s live-blogging of the debate on K Street Cafe.

Housing, Financial Markets, and Government

I’ve been absent for Cato-at-liberty in recent weeks because I’ve been busy with the bailout and various related issues. I’ve missed the opportunity to post and get feedback from readers, so I’m posting some of my recent articles for your reading pleasure.

My first foray into the issue was a column for Real Clear Politics arguing against the bailout.

Needless to say, the political class disregarded my sage advice and voted to give the Treasury Department a blank check for $700 billion. So my next article was part of a Google-sponsored debate on whether the turmoil in financial markets is a reason to expand the size and scope of government. You can also see my opponent’s article  and my rebuttal if you are so inclined. You can also rate both of our arguments if you feel like putting your thumbs on the scale.

I’m also taking part in a debate sponsored by the Los Angeles Times. Monday’s topic was whether government should have any role in subsidizing housing, and Tuesday’s topic focused on who should get blamed for the current mess. I’ll post subsequent debates as they become available.

What They Should Talk About

The Chicago Tribune quotes me this morning on issues the candidates aren’t talking about and may not anticipate. It’s true that issues are likely to arise in the next four years that no one anticipates today. But there are also some issues that are pretty easy to identify that the candidates aren’t being pressed to talk about. Some of those include:

  • The proper role and scope of the federal government. Both candidates have a laundry list of things they want the federal government to do, and maybe they could each mention something they don’t want it to do. But what’s the framework behind their policy choices? What should government do? What should be left to state and local governments, and what should be left to the non-coercive sectors of society? What’s the proper and/or constitutional role and scope of the federal government?
  • The looming entitlements crisis. Entitlements are already about 40 percent of the federal budget. In 20 years they may double as a share of national income. Can we afford that? Do we want a tax burden that high? Do we want that many people dependent on a check from the federal government? Do we have the nerve to say that transfer payments should be cut? Tough choices that nobody wants to confront, partly because each politician hopes that the problem won’t explode until he leaves the scene.
  • We now have 2.5 million people in prison. Isn’t that something to talk about? Should they all they be there? Some 400,000 of them are nonviolent drug offenders. A million arrests don’t stop people from using drugs, and meanwhile the war on drugs costs us some $40 billion a year, increases crime rates, destroys poor neighborhoods, makes criminals out of lots of peaceful people, engenders civil liberties abuses, and funds the Taliban and other nefarious groups abroad.

Paul Krugman’s Nobel Prize

Paul Krugman wrote some interesting essays in international economics theory (he is not noted for using facts), but began to put politics above economics ever since the 1992 presidential campaign –as shown in my 1994 review of his book, Peddling Prosperity.

Wiser choices for future Nobel prizes would be Arnold Harberger and Martin Feldstein for their innovative work in microeconomics and public finance.