Topic: Government and Politics

Are We All Keynesians Now?

Reuters reports that Obama may propose as much as $1 trillion (yes, trillion) of new spending, which would be in addition to the huge expansion of government under Bush, is it true (as Richard Nixon once remarked) that “we are all Keynesians now?

Not quite. Here’s a new video that explains why Keynesian “stimulus” proposals are theoretically misguided. The video also provides real-world evidence showing that bigger government does not work.

So if Keynesian spending is theoretically flawed and doesn’t work in the real world, why are politicians on a spending binge? As I state in the conclusion, they love spending other people’s money.

As always, feedback is welcome.

Taxpayers Picking Up the Tab for a Bigger Bailout Thanks to Republican Lobbyists

The Associated Press reports on the various former Republican politicians who got fat contracts and enriched themselves in exchange for lobbying on behalf of Freddie Mac. Unfortunately for taxpayers, these amoral lobbyists were successful and the government-created entity was able to dig itself even deeper into a hole - which taxpayers are now responsible for filling.

When the Washington Nationals played their first-ever baseball game in the nation’s capital in April 2005, two congressmen who oversaw mortgage giant Freddie Mac had choice seats — courtesy of the very company they were supposed to be keeping an eye on. …The Nationals tickets were bargains for Freddie Mac, part of a well-orchestrated, multimillion-dollar campaign to preserve its largely regulatory-free environment, with particular pressure exerted on Republicans who controlled Congress at the time. Internal Freddie Mac budget records show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts. Freddie Mac paid the following amounts to the firms of former Republican lawmakers or ex-GOP staffers in 2006: Sen. Alfonse D’Amato of New York, at Park Strategies, $240,000. Rep. Vin Weber of Minnesota, at Clark & Weinstock, $360,297. Rep. Susan Molinari of New York, at Washington Group, $300,062. Susan Hirschmann at Williams & Jensen, former chief of staff to House Majority Leader Tom DeLay, R-Texas, $240,790. …The tactics worked — for a time. Freddie Mac was able to operate with a relatively free hand until the housing bubble ultimately burst in 2007.

Interestingly, at least one of these former politicians is contemplating a return to the political arena. He even portrays himself as a friend of the taxpayer. It is unclear, though, how much of a friend he really is considering that the story reveals that, “Freddie Mac enlisted prominent conservatives, including Gingrich…, paying [him] $300,000 in 2006, according to internal records.”

George ‘Herbert Hoover’ Bush

According to Politico.com, Vice President Dick Cheney lobbied Republican senators to support the bailout of auto companies, arguing that it would be “Herbert Hoover time” in the absence of government intervention.

Cheney is right, but for the wrong reasons. To the extent that it is “Herbert Hoover time,” it is because the current administration has repeated many of the mistakes that were made by President Hoover. There was a huge expansion in the burden of government spending under Hoover, up 47 percent in just four years. There’s been an equally huge increase in government spending under Bush. Hoover dramatically increased government intervention with everything from schemes to prop up wages to protectionism. Bush’s intervention takes a different form, with mistakes such as steel tariffs, Sarbanes-Oxley, and bailouts.

Hoover’s legacy is statism. Bush’s legacy is statism. The only unanswered question is whether Obama will be the new Roosevelt — i.e., someone who compounds the damage caused by his predecessor with further expansions in the burden of government.

Does Obama Know Blagojevich?

At the top of the front page of the Washington Post, Eli Saslow’s article is headlined “Obama Worked to Distance Self From Blagojevich Early On.”

The article assures us that they’re very different kinds of Chicago politicians, and they barely know each other. Obamaphile Abner Mikva says, “Obama saw this coming, and he was very cautious about not having dealings with the governor for quite some time.”

But Saslow never mentions a very interesting statement from Obama’s incoming chief of staff, Rep. Rahm Emanuel, that had been reported by ABC, the Wall Street Journal, and other sources in the past few days. Emanuel told The New Yorker earlier this year that six years ago he and Mr. Obama “participated in a small group that met weekly when Rod was running for governor. We basically laid out the general election, Barack and I and these two [other participants].”

Original New Yorker story here. True, one of those other two participants, strategist David Wilhelm, said that Emanuel had overstated Obama’s role. But Rahm Emanuel, a totally connected Chicago pol who is now Obama’s White House chief of staff, says that he and Obama were key strategists for Blagojevich. And that statement had been widely reported. How could Saslow and his editors not mention it?

Sometimes the article’s a bit mysterious. For instance, this paragraph is supposedly about how Obama kept his distance from Blago, but the facts seem to be more about Blago keeping away from Obama:

Long before federal prosecutors charged Blagojevich with bribery this week, Obama had worked to distance himself from his home-state governor. The two men have not talked for more than a year, colleagues said, save for a requisite handshake at a funeral or public event. Blagojevich rarely campaigned for Obama and never stumped with him. The governor arrived late at the Democratic convention and skipped Obama’s victory-night celebration at Chicago’s Grant Park.

And this paragraph? Shouldn’t the phrase “Even though” actually be “Because”?

Even though they often occupied the same political space — two young lawyers in Chicago, two power brokers in Springfield, two ambitious men who coveted the presidency — Obama and Blagojevich never warmed to each other, Illinois politicians said. They sometimes used each other to propel their own careers but privately acted like rivals.

Race-Based Government in Paradise?

The current Supreme Court term is a bit of a letdown for those of us who track and comment on the machinations of One First Street; a steady diet of technical statutory interpretation questions without many “meaty” constitutional issues. Well, yesterday Cato filed its first amicus brief of the term in a case that itself is fairly sui generis — the issue is whether Hawaii can sell certain state lands without getting approval from a weird racialist commission called the Office of Hawaiian Affairs (OHA). But the case has broader ramifications for the Court’s equal protection jurisprudence. Moreover, as Cato’s resident Hawaii expert (we have a low bar here for that niche), I can say that the case threatens to set a terrible precedent for a state that has otherwise been a model of racial harmony.

In the 2000 case of Rice v. Cayetano, the Supreme Court held that a race-based scheme allowing only statutorily defined “Hawaiians” to vote for the OHA’s trustees was unconstitutional. Despite Rice, and despite Justice John Marshall Harlan’s dissenting statement in Plessy v. Ferguson 112 years ago that “[o]ur Constitution is color-blind, and neither knows nor tolerates classes among citizens,” the OHA continues to view Hawaiian citizens through racial lenses. This practice has spawned numerous lawsuits, including the present legal crisis in which the state’s sovereign authority to manage its land for the good of all of its citizens has been replaced with a court-imposed duty to hold the land for the benefit of one racial class.

Specifically, the Hawaii Supreme Court blocked the sale of certain state lands based on a mistaken (and race-based) interpretation of a joint resolution that Congress passed in 1993 to apologize to Hawaiian people for the overthrow of the Kingdom of Hawaii — which was itself based on a slanted view of history. Cato’s brief, joining with the Pacific Legal Foundation and the Center for Equal Opportunity, argues that race-based government is impermissible under the Fourteenth Amendment’s Equal Protection Clause, that the Constitution’s Indian Commerce Clause does not provide a basis for laws that grant preferences to “Native Hawaiians,” and that the Apology Resolution neither amended nor rescinded the federal laws that gave the State of Hawaii full control over the disputed land.

For other filings in the case, see here. Argument is scheduled for February 25.

Investment: Government and Private

There is much excitement about a federal “stimulus” plan focusing on state and local infrastructure spending. At first blush, it seems like a pro-growth idea to get unemployed construction workers off the couch and onto the job site building new government highways, bridges, and the like.

However, national income data from the Bureau of Economic Analysis puts some perspective on such government investment ideas. (See Tables 1.1.5 and 3.17)

The government isn’t the only entity that builds “infrastructure.” New semiconductor plants, refineries, and electricity transmission wires are private infrastructure, which is every bit as important to economic growth as government highways. Indeed, U.S. private infrastructure investment is 4.6 times larger than all federal, state, and local investment combined.

The figure shows that gross private domestic investment was $2.1 trillion in 2007. That compared to $340 billion of gross investment for state and local governments and just $123 billion for the federal government. And note that most ($82 billion) of the federal investment was for military hardware, and thus did nothing for our standard of living in the sense of creating consumable products.

What is the policy upshot? It is far more important for the government to create an environment where private investment can thrive than it is for the government to invest itself. 

The private sector puts new factories and equipment in place when it can earn at least a normal return on the income generated over future years. The government skims off roughly a third of the return in income taxes (and most of that money dissappears down the economic black hole of transfer spending). A reduction in that skim would cause relatively little government revenue loss compared to the huge leverage effect it would have over the gigantic private sector investment budget.

So, let’s cut the corporate income tax, and while we’re at it, privatize as much state and local infrastructure spending as we can.

Blagojevich Rex

Illinois Gov. Rod Blagojevich (D) is innocent until proven guilty.

That said, as I blogged in October, this is a man who thinks he has the power to write the laws:

Gov. Rod Blagojevich’s agenda was dealt a major blow Friday after a state appellate court ruled he doesn’t have the power to expand state-subsidized health care without lawmakers’ approval…

Last year, Blagojevich sought to expand health-care coverage through an “emergency rule” allowing families with higher incomes—up to $83,000 a year for a family of four—to sign up. The move was quickly shot down by a legislative rules-making panel and blocked by Secretary of State Jesse White, but Blagojevich signed up people anyway…

“This is a clear and predictable message to the governor that no matter how laudable the goal is, he is not a one-man legislature and he has to work in conjunction with the General Assembly to pass this kind of program,” said state Rep. John Fritchey (D-Chicago).

So it hardly stretches credulity to believe that a man who fancies himself a monarch might also be guilty of lesser acts of corruption like using his office to enrich himself, which is pretty much what all politicians do.