Topic: Government and Politics

Of Course That Implies He Had Principles…

President Bush says that he “chucked aside my free-market principles” when faced with the current financial crisis. Well, duh!

The president said that he had no choice because he was “concerned that the credit freeze would cause us to be headed toward a depression greater than the Great Depression.” Even if one accepts that rather contestable premise, one is tempted to ask what caused him to chuck aside conservative and free market principles when he:

  • Increased federal domestic discretionary spending (even before the bailout) faster than any president since Lyndon Johnson.
  • Enacted the largest new entitlement program since the creation of Medicare and Medicaid, an unfunded Medicare prescription drug benefit that could add as much as $11.2 trillion to the program’s unfunded liabilities;
  • Dramatically increased federal control over local schools while increasing federal education spending by nearly 61 percent;
  • Signed a campaign finance bill that greatly restricts freedom of speech, despite saying he believed it was unconstitutional;
  • Authorized warrantless wiretapping and given vast new powers to law enforcement;
  • Federalized airport security and created a new cabinet-level Department of Homeland Security;
  • Added roughly 7,000 pages of new federal regulations, bringing the cost of federal regulations to the economy to more than $1.1 trillion;
  • Enacted a $1.5 billion program to promote marriage;
  • Proposed a $1.7 billion initiative to develop a hydrogen-powered car;
  • Abandoned traditional conservative support for free trade by imposing tariffs and other import restrictions on steel and lumber;
  • Expanded President Clinton’s national service program;
  • Increased farm subsidies;
  • Launched an array of new regulations on corporate governance and accounting; and
  • Generally did more to centralize government power in the executive branch than any administration since Richard Nixon.

One begins to detect a trend.

Making Work, Destroying Wealth

Journalists are telling us that John Maynard Keynes, the intellectual inspiration of the New Deal and its tax-and-spend philosophy, is all the rage again. The Wall Street Journal offers an interesting vignette on Keynes’s view of how to create jobs:

Drama was a Keynes tool. During a 1934 dinner in the U.S., after one economist carefully removed a towel from a stack to dry his hands, Mr. Keynes swept the whole pile of towels on the floor and crumpled them up, explaining that his way of using towels did more to stimulate employment among restaurant workers.

Now I should say that various people report this story, including Ludwig von Mises, but no one cites an original source. Assuming it’s true, though, it just seems to underline the absurdity of the whole “make-work” theory that is back in vogue. Keynes’s vandalism is just a variant of the broken-window fallacy that was exposed by Frederic Bastiat, Henry Hazlitt, and many other economists: A boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!”

But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.”

And the story of Keynes at the sink is the story of an educated, professional man intentionally acting like the village vandal. By adding to the costs of running a restaurant, he may well create additional jobs for janitors. But the restaurant owner will then have less money with which to hire another waiter, expand his business, or invest in other businesses. Before Keynes showed up in town, let us say, the town had three restaurants among its businesses, each with neatly stacked towels for guests. After Keynes’s triumphant speaking tour to all the Rotary Clubs in town, the town is exactly as it was, except the three restaurants are left to clean up the disarray. The town is very slightly less wealthy, and some people in town must spend scarce resources to restore the previous conditions. The man built an economic theory on this!

Now we are told that “Keynes is back,” and we need a new New Deal, and the Obama administration is going to create millions of jobs by shuffling money through the federal government. And the theoretical underpinning of this plan comes from a man who thought you could stimulate employment by breaking things.

As Jerry Jordan wrote in the Cato Journal, the real challenge for society is not creating jobs but creating wealth – that is, a higher standard of living for more people. There are many destructive ways, beyond messing up the towels in a restroom, to create jobs:

I am reminded of a story that a businessman told me a few years ago. While touring China, he came upon a team of nearly 100 workers building an earthen dam with shovels. The businessman commented to a local official that, with an earth-moving machine, a single worker could create the dam in an afternoon. The official’s curious response was, “Yes, but think of all the unemployment that would create.” “Oh,” said the businessman, “I thought you were building a dam. If it’s jobs you want to create, then take away their shovels and give them spoons!”

President-elect Obama proposes that the federal government “create or save” jobs by spending upwards of $600 billion. Where would this money come from? If it comes from taxes, it will be taken out of the more efficient private sector to be spent in the less efficient government sector, and the higher tax rates will discourage work and investment. If it is borrowed, it will again simply be transferred from market allocation to political allocation, and our debt burden will grow even greater. And if the money is simply created out of thin air on the balance sheets of the Federal Reserve, then it will surely lead to inflation.

There is no magic road to wealth. You have to work, save, and invest. And when the government lures individuals and businesses into making bad investments with cheap money, the malinvestment has to be liquidated. Avoiding that truth, prolonging the process of adjustment, is a good way to turn a recession into a depression. And you can’t get economic growth back by breaking windows, throwing towels on the floor, or spending money you don’t have.

Obama Backs Off Hiring 600,000 More Bureaucrats?

In his weekly radio address on January 4, President-elect Obama promised that his economic plan would “create three million new jobs, more than eighty percent of them in the private sector.” Dan Mitchell pointed out that that suggested that he intended to hire 600,000 new bureaucrats. That point got some attention, and apparently it actually made Obama and his supporters nervous.

Because in his January 11 radio address, he promised that 90 percent of the jobs he creates or saves will be in the private sector. And interestingly, both the Washington Post and the New York Times put that in the first sentence of their page-one stories on Sunday. This was the first sentence in the lead story in the Sunday Post:

Facing increased skepticism from both parties about the details of his economic stimulus proposal, President-elect Barack Obama and his team yesterday laid out new claims regarding the $775 billion package, saying that 90 percent of the jobs produced would be in the private sector, including hundreds of thousands in construction and manufacturing.

Well, it’s good to know that the Obama team is now thinking about – or at least wants us to think they’re thinking about – creating private-sector jobs rather than just hiring more bureaucrats. Of course, we still have the problem that huge government spending programs won’t actually create jobs.

Supreme Court Makes It a Little Interesting

The common refrain this Supreme Court term is that, after several years of blockbuster cases—race-based school assignment, partial-birth abortion, the rights of Guantánamo detainees, the D.C. gun ban, etc., etc.—this year the Court is giving the front pages a break. Indeed, as we celebrated the advent of 2009, the only cases guaranteed to make it into the Cato Supreme Court Review were a drug regulation case (Wyeth v. Levine) and one involving the detention of a civilian in the United States as an enemy combatant (Al-Marri v. Pucciarelli). Almost all the cases garnering media and scholarly attention would have been after-thoughts in previous years.

On Friday, however, as it rounded out its docket for the term (no more than a handful more will be added to the list of cases to be argued and decided before the Court recesses in June), the Court gave us four fascinating cases to chew on:

Northwest Austin Municipal Utility District Number One (“NAMUDNO”) v. Mukasey

This is a challenge to the requirement of section 5 of the Voting Rights Act that certain state and local governments, mostly but not entirely in the South, obtain “preclearance” before making any changes affecting voting. A small (3,500 residents) utility district in Austin, Texas, argues that it has never been accused of voting discrimination or other irregularities and should not have to seek federal permission to, for example, move the location of a polling place or coordinate voting for its board with other county or state elections. You may recall that the latest extension of the VRA, in 2006, did not pass without some controversy. Indeed, in our federal system, should certain jurisdictions still be under the Justice Department’s thumb over 40 years after the demise of Jim Crow (and to this extent of micromanagement)?

Ricci v. DeStefano

A group of firefighters (19 white, 1 Hispanic) allege that New Haven city officials racially discriminated against them when they refused to certify the results of two race-neutral promotional exams that yielded racially disproportionate results (i.e., a much higher percentage of whites and Hispanics qualified for promotion than did blacks). As offensive as the facts of the case are, the way that the Second Circuit—a panel including oft-mentioned Supreme Court contender Sonia Sotomayor—summarily dismissed the petitioners’ appeal is even more disconcerting. When the full court voted 7-6 not to rehear the case en banc, Judge José Cabranes (a Clinton appointee) excoriated his colleagues, concluding that “[t]his perfunctory disposition rests uneasily with the weighty issues presented by this appeal.” I won’t get into the weeds of legal analysis here, but Ed Whelan has two excellent posts discussing the Second Circuit shenanigans over at NRO and Stuart Taylor last month wrote a typically hard-hitting piece on it for the National Journal. But again, however the Supreme Court decides this one, it has already provided a potent line of attack on Judge Sotomayor when the next vacancy arises on the high court.

Republic of Iraq v. Beaty

This case asks the simple question of whether U.S courts have jurisdiction over claims regarding misdeeds committed by the Saddam Hussein regime—or whether today’s Iraqi government can assert sovereign immunity. This simple question actually involves the interplay of a host of legislative and executive action that the Court will have to wade through. Beaty joins the Eurodif (international trade, about which I wrote here) and Elahi (treaty enforcement) cases as this year’s leading contributions to the Court’s international law jurisprudence.

Horne v. Flores

Taking up a complicated conflict between the No Child Left Behind Act and earlier legislation, this is the term’s leading education case. The main issue is whether a state, in this case Arizona, which complies with NCLB on English language instruction can still be violating the funding requirements for such instruction imposed by the Equal Education Opportunity Act of 1974. The Ninth Circuit declined to modify an eight-year-old injunction requiring Arizona to spend millions on this instruction and imposing millions in fines. It’s a highly technical case but one with significant ramifications for a key part of President Bush’s domestic policy legacy.

Despite these four grants, however, it is still safe to say that Court shied away from many, many cases that should interest readers of this blog—not least the patent/abuse of state sovereign immunity case called BPMC v. California, which I had earlier urged the Court to accept for review.  I will be commenting further at least on NAMUDNO and Ricci when the Court hears argument and decides them.

Rubin Resigns from Giant Bank Taxpayergroup

The Washington Post reports:

Robert Rubin, a key figure in the U.S. financial boom as Treasury secretary and then as a senior adviser at Citigroup, announced his retirement from the troubled New York bank yesterday in the latest sign that Citigroup wants to break from its recent past.

Rubin joined Citigroup in 1999, soon after the company emerged as a financial services giant. He has since earned more than $115 million as Citigroup has suffered through setbacks and missteps that culminated in a November bailout by the federal government….

Citigroup, the long-time champion of free markets and deregulation, is increasingly dependent on the federal government, which has invested more than $50 billion to help it weather the economic crisis.

After we’ve invested $50 billion in the company, seems like we ought to call it Taxpayergroup. It’s not really a private company more, though private parties like Rubin may still profit handsomely from it.

Too Close for Comfort

NPR reports on the Illinois legislative debate about impeaching Gov. Rod Blagojevich:

Their case for impeachment goes beyond criminal allegations. They say he abused the power of his office: bypassing the Legislature to create new programs he couldn’t pay for; circumventing hiring laws to give jobs to political allies; and misappropriating taxpayer funds.

“He has snubbed his nose at that oath of office and, therefore, snubbed his nose at the people and the constitution,” said Republican Rep. Mike Bost.

It’s a good thing for presidents that members of Congress don’t apply such standards in Washington.

You Say McCaskill, I Say McCaskill

A headline from yesterday’s online version of the St. Louis Post-Dispatch:

McCaskill joins McCain in anti-earmark effort, announces local grants

Ugh.  One of my chief policy pet peeves is the idea that congressfolk earmarking money to special interests is bad, but having bureaucrats dole out the same sort of cheese through grants and loans is A-OK.

Says Sen. McCaskill (D-MO):

We are looking at deficits in the trillions, and I think Americans are fed up with the way Washington has been spending their money…. Changing the earmark culture is not the whole solution to bringing fiscal responsibility back, but it’s a start.

So far so good, but then:

Also Wednesday, McCaskill announced two grants from the U.S. Department of Agriculture (USDA):

  • A total of $752,560 to the city of Silex in Lincoln County. “The money is being provided through the United State’s Department of Agriculture’s Rural Development funding initiative, which works to improve the economy and quality of life in rural communities by supporting and providing government loans and grants…. According to the USDA, the city will receive a grant of $387,560 and a low-interest government loan of $365,000. The funds will be used to upgrade the centralized sewer system, providing improved water treatment facilities and adding thousands of feet in main line.”
  • $50,000 to the city of Berger in Franklin County. The money comes from the same USDA program targeting rural communities. “According to the USDA, the funding will be used to provide a centralized sewer system that will improve the health and sanitary conditions of the area by providing water to residents who currently rely on failing septic tanks,” the senator’s office said.”

So, if another member of the Missouri congressional delegation had instead instructed the USDA to redistribute taxpayer money to these two Missouri communities via language in a piece of legislation it would have been bad?  According to Sen. McCaskill, the answer is apparently “yes.”

Look, I’m happy Sen. McCaskill is on board the anti-earmark train.  Kudos to her.  But whichever means Congress chooses, the end is the same: taxpayers on the hook for special interest spending.