Topic: Government and Politics

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.

Thugocracy?

Michael Barone on “The Coming Liberal Thugocracy:”

In September, St. Louis County Circuit Attorney Bob McCulloch and St. Louis City Circuit Attorney Jennifer Joyce warned citizens that they would bring criminal libel prosecutions against anyone who made statements against Mr. Obama that were “false.” I had been under the impression that the Alien and Sedition Acts had gone out of existence in 1801-‘02. Not so, apparently, in metropolitan St. Louis. Similarly, the Obama campaign called for a criminal investigation of the American Issues Project when it ran ads highlighting Mr. Obama’s ties to Mr. Ayers.

These attempts to shut down political speech have become routine for liberals. Congressional Democrats sought to reimpose the “fairness doctrine” on broadcasters, which until it was repealed in the 1980s required equal time for different points of view. The motive was plain: to shut down the one conservative-leaning communications medium, talk radio. Liberal talk-show hosts have mostly failed to draw audiences, and many liberals can’t abide having citizens hear contrary views. …

Corporate liberals have done their share in shutting down anti-liberal speech, too. “Saturday Night Live” ran a spoof of the financial crisis that skewered Democrats like House Financial Services Chairman Barney Frank and liberal contributors Herbert and Marion Sandler, who sold toxic-waste-filled Golden West to Wachovia Bank for $24 billion. Kind of surprising, but not for long. The tape of the broadcast disappeared from NBC’s Web site and was replaced with another that omitted the references to Mr. Frank and the Sandlers. Evidently NBC and its parent, General Electric, don’t want people to hear speech that attacks liberals.

Read the whole thing. Conservatives are not well-positioned to lodge complaints. Especially McCain.

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?