Topic: Government and Politics

This Month at Cato Unbound: What Happened?

Writing the history of a financial crisis can’t be easy, and it’s even harder when that crisis is still unfolding.  That’s why this month we’ve invited a team of economic experts for a very special issue of Cato Unbound.  Each brings a different perspective on our financial troubles, and, partly because the matter is so far from settled, we’ve decided to give them all equal billing:  Lawrence H. White, William K. Black, Casey Mulligan, and J. Bradford DeLong will each write a full-length essay in a first of its kind roundtable format.  The question at hand:  What happened?

Prof. White’s essay is available here, and I found the following particularly interesting:

One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses.

I’m just old enough to remember how everyone called the 1980s a decade of greed. Then there were the 1990s, also a decade of greed. The 2000s? Greed yet again. (I wish I could invest in this “greed” thing. It never seems to go out of style.)

I also liked the following, which makes one of its most substantive points in the final parenthesis:

As calculated by the Federal Reserve Bank of St. Louis, the Fed from early 2001 until late 2006 pushed the actual federal funds rate well below the estimated rate that would have been consistent with targeting a 2 percent inflation rate for the PCE [Personal Consumption Expenditure] deflator. The gap was especially large—200 basis point or more—from mid-2003 to mid-2005. [4]

The excess credit thus created went heavily into real estate. From mid-2003 to mid-2007, while the dollar volume of final sales of goods and services was growing at a compounded rate of 5.9 percent per annum, real-estate loans at commercial banks were (as already noted) growing at 12.26 percent. [5] Credit-fueled demand both pushed up the sale prices of existing houses and encouraged the construction of new housing on undeveloped land. Because real estate is an especially long-lived asset, its market value is especially boosted by low interest rates. The housing sector thus exhibited a disproportionate share of the price inflation predicted by the Taylor Rule. (House prices are not, however, included in standard measures of price inflation.)

I understand that it isn’t easy to incorporate housing prices into measures of inflation, and that there is no generally accepted method of doing it. It seems more important than ever, though, to include these prices in some way, if only to let the public know the sort of trouble housing inflation has very likely been causing.

The Pre-Public Choice View

I always thought the view that the private sector is full of greed and self-interest, while the public sector is all about selflessness and public service, was confined to 1950s civics books. But lo and behold, it turns out that view is still held by federal appointees interviewed by NPR:

“We’ve always thought of the government as motivated by a sense of service to the people,” says Charles Tiefer, whom Congress appointed earlier this year to the new Commission on Wartime Contracting, which oversees Pentagon contracts in Iraq and Afghanistan. “We’re getting away from that [by contracting out government services].”

After all, he says, federal employees take an oath to the Constitution, while private contractors are just motivated by their own economic interest. It’s a lovely vision, and apparently some people actually believe it. But about 50 years ago the public choice economists, such as James M. Buchanan, Gordon Tullock, and William Niskanen, began to suggest that people in government are still people, with all their good and bad characteristics. And also that analyzing the actions of government in the light of self-interest leads to pretty sound predictions and observations. As Buchanan put it in an interview:

I usually have a three-word description [of public choice economics] – it is “politics without romance”. Politics is a romantic search for the good and the true and the beautiful. “Public choice” came along and said, “Why don’t we model people more or less like everyday persons? Politicians and bureaucrats are no different from the rest of us. They will maximize their incentives just like everybody else.” By taking that very simple starting point, you get a completely different view of politics and its analysis.

Buchanan won a Nobel Prize for his insights, but obviously they haven’t fully permeated Washington yet.

A Perfect Introduction to Congress

NPR reports on the new public entry to the U.S. Capitol:

The U.S. Capitol Visitor Center formally opens to tourists Tuesday, over budget and behind schedule.

At 580,000 square feet, it’s the largest project in the Capitol’s 215-year history. It was originally scheduled to open almost four years ago, and the $621 million price tag is double the initial estimate.

What a perfect introduction to Congress and its activities! I hope they have a display in the entryway about the construction of the Visitor Center. And maybe they could have interactive graphs and figures showing cost overruns in the Visitor Center, weapons systems, Medicare, Medicaid, and other federal programs. A sign of the times in the Bush-Obama New New Deal era.

The Washington Post offers more details on the progress toward the Visitor Center:

The unveiling that will be marked with one Capitol Hill staple – speechifying by politicians in an invitation-only morning ceremony – already has achieved much else for which Congress is noted.

Take, for example, spending. What was proposed as a $71 million project in the early 1990s became a $265 million endeavor a decade later. By the time work got underway in 2002, the price tag was up to $368 million. Tomorrow, the ribbon will be cut on a $621 million project.

Then there was the congressional penchant for thinking big. The center’s architects were ordered to include 150,000 square feet of “shell space” for some future day when Congress might need more office area. The finished center is about two-thirds the size of the entire Capitol.

Then there have been delays, a malady common to many federal endeavors. The project once was expected to be finished in time for the presidential inauguration – in January 2005. As that date neared, the center was about half done, so the completion date was bumped ahead to spring 2006.

Six months after President Bushwas sworn in for a second term, the Government Accountability Office reported that the architects and contractors were making so many mistakes and facing so many unexpected problems that March 2007 was probably more realistic. When that target rolled around without a ribbon-cutting, project officials were summoned before a House subcommittee to explain why, and Rep. Jack Kingston(R-Ga.) scolded them for overseeing “a monument to government inefficiency, ineptitude and excessiveness.”

Members of Congress did manage to achieve one thing with the timing:

Top lawmakers and Congressional officials have been fretting for months that the visitor center would finally open its impressive doors in the weeks before Election Day. They worried that it would inspire a raft of news stories and snide commentary about how Congress had erected another monument to itself, just in time to irritate voters already irked at Washington.

Here Comes Democracy!

(Before you finish reading this, you’ll want to sign up for this policy forum.)

Ben Goddard’s most recent column in The Hill is called “Obama Marketing Lesson,” and he reviews how the Internet and savvy use of media energized President-Elect Obama’s campaign effort. “[S]ocial networks have returned as one of the most powerful forces in politics,” he says.

President-elect Obama has a database of some 10 million names and e-mail addresses, and those who built it have made clear they’ll activate that army to support the new president. is already preparing its supporters to advocate for progressive policies. Groups like Divided We Fail, Healthcare for America Now! and the American Medical Association are already running television and online campaigns to advocate for healthcare reform.

(Goddard will be lending some of his insights about communications strategies to secure the country against fear and overreaction at our January conference on counterterrorism strategy, by the way.)

The substance of the campaigns he talks about might be far from encouraging for libertarians. None of these are limited government advocates. Politicized online social networks could be the agar in which a new mobocracy grows - something our republican form of government was designed to prevent.

But what’s the solution? To oppose democracy and an active citizenry? Other than restoring constitutional limits on government, I don’t think so. As with speech, the cure for bad democracy is more of it, but good.

It’s not a given that online politics will amount to crowds of avatars with digital pitchforks and torches. The Internet is a fertile medium for careful debate about our public policies. Social networks can be smart and informed - if they get the data.

That process is starting. delivers data about where federal contracting dollars and grant awards go. This was a project of President-Elect Barack Obama who, with Senator Tom Coburn (R-OK), made transparency a signature issue in the Senate. The non-profit effort that broke ground for this is OMBWatch’s, which logged its 10 millionth search in June.

My humble effort,, attaches cost estimates to the bills in Congress and recently welcomed its millionth visitor for the year. The Sunlight Foundation has a list of insanely useful Web sites, each exposing some dimension of government action to greater public scrutiny. The organization is dedicated to developing a stable of private, non-profit, and volunteer efforts that promise revolutionary change once they can access standardized, structured, and open government data.

And that’s the bottleneck: access to good data. Government information now comes to us mediated by government Web sites and government-defined database queries. Getting the raw data would allow all kinds of actors to generate all kinds of new information about government. All citizens would have better information to work with, not only about taxes and spending, but about the results of government programs.

Libertarians bet that this would reduce demand for government. Liberals and progressives believe that this would deliver on the promise of government. If either side wins, we’re better off than we are here in the dark disappointment of government today.

On December 10th, the Cato Institute is having a policy forum on this topic. The title is “Just Give us the Data!

Fairness Doctrine Post-Mortem

You may have noticed a recent decline in chatter about reinstating the Fairness Doctrine, and some Democrats backing away from earlier pronouncements of support.  Marin Cogan claims that this was all a straw man anyway, the result of right-wing fear-mongering and a “manufactured controversy.”  Blake Dvorak responds by pointing to the words of Congressional leaders that really did call for a reinstatement of the Fairness Doctrine. 

Why backtrack now?  It could be that the economy, wars abroad, and serial bailout votes are crowding the Fairness Doctrine out of the agenda.  It may also be that proponents of the Fairness Doctrine took a closer look and decided that they would lose a constitutional challenge. 

A legal challenge to the new Fairness Doctrine would succeed for three reasons.  First, the legal rationale that justified it in the first place has been overcome by technology.  Second, the effect of a new Fairness Doctrine would be to restrict speech, not increase the volume and quality of discourse.  Third, the Supreme Court, as currently constituted, will overturn a new Fairness Doctrine.  


The Fairness Doctrine existed from 1949 to 1987 in FCC policies and regulations, requiring coverage and balanced discussion of social issues.  The end of the Fairness Doctrine came as a change in FCC policy, not from a defeat in court.  In fact, it survived Supreme Court review in the 1969 case Red Lion Broadcasting Co. v. FCC.  The lack of bandwidth in the early days of radio and the scarcity of broadcast licenses meant that commercial broadcast license-holders had to provide opposing views when covering controversial issues. 

Print editors fared better.  In 1974, the Court invalidated a state statute that mandated free space in newspapers for political candidates to reply to criticism and attacks in Miami Herald Publishing Co. v. Tornillo.  Minus the scarcity rationale, a free press cannot be forced to share its pages with opponents.  As technology advanced, the policy was not applied to all media.  The FCC later exempted “subscription television” (cable TV) from political access requirements in its 1978 Policy Statement. 

In 1984 the Court noted that technology had advanced in FCC v. League of Women Voters of California.  In a footnote, the Court acknowledged that the policy had come under criticism with the advent of cable and satellite TV, but declined to overturn the Fairness Doctrine without a signal from Congress or the FCC that scarcity was no longer a valid rationale for its imposition. 

Reconstitution of the Fairness Doctrine under a scarcity rationale is laughable today.  The advent of HD Radio, satellite radio, Wi-Fi radio in cars, streaming radio on cell phones, cable television (now in a majority of American households), satellite television, the internet, and streaming internet radio stations undermine any case for scarcity. 

Reducing Speech, Not Enhancing It

The Supreme Court said from the outset in Red Lion that if the Fairness Doctrine ends up improperly blocking speech from public discussion, then it would be unconstitutional.  Proponents of the Fairness Doctrine are pretty clearly gunning for conservative talk radio, which appears to be the only format of media that doesn’t lean left. 

The enforcement of the new Fairness Doctrine would likely be the same as standards for indecency or profanity.  Aggrieved listeners would file a complaint with the FCC, and the inevitable result is a deterrent against any opinion without a counterpoint commentator.  Prof. Jack Balkin provides a detailed description of how broadcasters complied without increasing the quality of their broadcasts.  Broad discretion as to which issues are covered and the advantage of picking your opposition make compliance easy but do not guarantee meaningful debate.  In short, a radio version Hannity & Colmes would pass muster, but did Colmes ever win one of those exchanges? 

The Fairness Doctrine ends up inhibiting a lively discussion of social issues.  Prof. Balkin believes that the Fairness Doctrine does pass constitutional muster but remains poor public policy, and recently commented that the Fairness Doctrine is not coming back, and certainly not to the internet.  Professors Eugene Volokh and Cass Sunstein agree that the Fairness Doctrine makes for bad policy in this video.  Prof. Volokh has also asked Fairness Doctrine supporters how media outlets would accommodate multiple viewpoints beyond the traditional left-right divide.  

Simply put, this is a measure that will restrict speech, and no amount of civic education window-dressing can hide that. 

Supreme Court Composition

Under the current composition of the Court, the Fairness Doctrine is unlikely to survive. 

This can only be fleshed out in an article of its own, but the bottom line is that the Court has recently held unconstitutional campaign finance reform measures that were far narrower than the Fairness Doctrine.  In FEC v. Wisconsin Right to Life, the Court invalidated part of the McCain-Feingold Bipartisan Campaign Reform Act of 2002 with respect to issue advocacy.  In Davis v. FEC, the Court invalidated the “millionaire’s amendment” of the same act, a provision giving fundraising advantages to political candidates facing wealthy opponents. 

Some may contend that I’m erring in making a connection between campaign finance and broadcast restrictions that inevitably come with a federal license.  But it’s hard to argue that these restrictions on political expression, which impact some advocacy groups and some political candidates, would be invalidated while a 24/7 restriction on a whole medium of communication on all controversial social issues would be upheld as constitutional.  Even harder when you take away any argument under a scarcity rationale and face the fact that implementation of the policy will inevitably reduce political discussion instead of enhancing it. 

The facts above lead me to believe that Barack Obama, a former constitutional law professor, omitted the Fairness Doctrine from his platform for a reason.  As Jesse Walker points out, there are many other levers the president and FCC can pull that influence public debate without inviting a constitutional challenge.

For the Good of Barack Obama, Mr. Rangel Should Step Aside

Or am I reading too much into the Washington Post editorial, “Step Aside, Mr. Rangel,” when it says:

At a time when President-elect Barack Obama is holding frequent news conferences to reassure the markets and the American people that he is ready to lead the nation to economic recovery, the last thing he will need is a chairman of Ways and Means caught up in a swirl of serious allegations.

The cult of the presidency, indeed.

Pointless, Political, and Pork-filled

Greg Mankiw speculates on the best alliterative description of the stimulus package:

Instead of fiscal stimulus that is temporary, targeted, and timely, John Taylor suggests that it be permanent, pervasive, and predictable.

What the Obama administration is aiming for, it seems, is helpful, hopeful, and humongous.

Critics fear it might end up pointless, political, and pork-filled.


Update: A reader emails me that Larry Summers now calls for stimulus that is speedy, substantial, and sustained.

Other readers think it will be:

big, bloated, and borrowed.
immodest, immoral, and imbecilic.
clumsy, corrupt, and counterproductive.
expansive, extensive, and expensive.
weighty, worrisome, and wayward.
politicized, pandered, and pathetic.
socialized, silly, and sorry.
random, record-setting, and ridiculed.
ultimate utilitarian utopianism.
absolutely abjectly apocalyptic.