State Government Spending and Borrowing Is Soaring

The Department of Commerce released second quarter national income data today. The data includes estimates of state and local spending and revenues. (See Table 3.3)

Here is what I found comparing the first two quarters of 2008 with the first two quarters of 2007.

- State and local tax revenues have grown about 2.1 percent over last year, with personal income taxes up 4.2 percent and property taxes up 4.3 percent. (I say “about” because I estimated the missing data item for corporate tax revenues).

- State and local total expenditures have soared 6.8 percent over last year.

There are two items of interest here. First, leading newspapers have been running stories in recent months about the horrible cutting and slashing going on in state budgets. With spending growth at about 7 percent, such budget downsizing is apparently not widespread, to say the least.

Second, the gap between spending at about 7 percent and revenues at about 2 percent is curious, given that state governments are supposed to balance their budgets each year. The explanation, according to the Commerce data, is that state and local government borrowing is soaring.

Federal Reserve data confirm the state/local government borrowing binge. See Table D.3.

Steve Chapman on Consent Searches

Steve Chapman takes a look at the problem of ‘voluntary’ roadside searches.  Excerpt:

If I approach as you pull into a parking space and ask if you’d mind my rummaging through your car, the chances are at least 90 percent that you’d decline. But if a police officer stops you with the same request, the chances are higher than 90 percent that you’d agree. Something about that badge makes citizens eager to be helpful.

Or maybe not. In civics class and 4th of July speeches, we are told that American democracy rests on the consent of the governed. But interactions with the police serve as a useful reminder that government rests less on voluntary cooperation than on fear and force. A nation is free to the extent it prevents the rulers from bullying and coercing the ruled. By that standard, American society still has a way to go.

Read the whole thing

Learn what your rights are.  Get the Busted dvd.  Related Cato work, here.

It’s Midnight in America

You could be excused for getting that vibe from this McCain campaign video, what with its vaguely X-Files-esque theme music and apocalyptic imagery (am I the only one who finds the little girl picking flowers reminiscent of “Daisy” the famous anti-Goldwater ad from the ‘64 campaign?). The Teddy Roosevelt tape is from TR’s unhinged speech to the 1912 Progressive Party convention, a speech that ends “we stand at Armageddon–and we battle for the Lord!”

Election 2008: the Messiah vs. the Prophet of Doom. Sigh. Whatever happened to normalcy? Where have you gone Warren Harding? A nation turns its lonely eyes to you.

EPI Gets Trade and Jobs Story Wrong Again

According to a report released today by the Economic Policy Institute, trade with China has caused a loss of 2.3 million American jobs since the Asian giant joined the World Trade Organization in 2001. The study will get a lot of coverage, but its numbers and methodology are shockingly flawed.

This is a well-traveled road for EPI and the report’s main author Robert Scott. Scott has authored other reports that have come to the same conclusion about NAFTA and earlier periods of trade with China. The methodology virtually guarantees a finding of job losses: It assumes that imports displace a certain number of workers while exports create new jobs, and since we run trade deficits with China and Mexico—surprise!—trade with those countries leads to net job losses.

I’ve dissected the flaws of EPI’s approach elsewhere, but to just summarize what everyone should keep in mind when you read about the EPI report:

EPI exaggerates the number of American companies and workers who compete directly against Chinese imports. Many of our main imports from China—shoes, clothing, toys, and consumer electronics—were being imported from other countries before China’s emergence as a major supplier. In fact, as imports from China have risen since 2001 as a share of total imports, imports from other Asian countries have been in relative decline. So imports from China do not typically displace U.S. production but instead displace imports from other countries. In fact, in the past year, the U.S. unemployment rate has been heading up as our overall trade deficit has been heading down.

EPI ignores the creation of jobs elsewhere in the economy that are made possible by trade and globalization. Exports aren’t the only channel through which trade and globalization creates jobs. Foreign capital flowing into the United States—the flip side of the trade deficit—creates jobs through direct investment in U.S. companies and indirectly by lowering interest rates, which stimulates more domestic investment.

Even when trade does displace workers, in a flexible and growing economy, new jobs will be created elsewhere. As I reported in my October 2007 study “Trading Up,” job losses in manufacturing during the past decade have been more than offset by net job gains in better-paying services sectors.

Since China joined the WTO in 2001, U.S. exports to China have shot up by 22 percent per year, the U.S. economy has added a net 6 million new jobs, real compensation per hour earned by U.S. workers—that is, wages plus benefits adjusted for inflation—is up 9 percent, and manufacturing output is up 10 percent. Last year, America’s supposedly beleaguered manufacturers earned collective profits of $305 billion, more than five times what they earned the year China joined the WTO.

As we struggle through a domestic slowdown and rising prices for consumers, we could use more trade with China, not less.

The Stevens Scandal

Don Boudreaux of George Mason University sent out the following missive about Ted Stevens’s indictment. I don’t see it posted at Cafe Hayek, though it might yet be. But since I can’t improve on his pithy commentary, I offer it here:

I’m delighted to see Sen. Ted Stevens face jail time for his crimes while in office. To charge him with concealing gifts totaling $250,000, however, is the equivalent of charging a confessed mass murderer with jaywalking. If that’s the only way to bring the criminal to justice, fine. But Sen. Stevens’s most significant misdeeds - ones of which he boasts! - are his decades-long success at directing billions of taxpayer dollars to special-interest groups for no reason other than the fact that he possessed the power and position to buy himself even greater security in office by doing so.

Of course, punishing all the criminals guilty of THAT offense would depopulate Capitol Hill.

Building Afghanistan

Building a state in Afghanistan is the job of the Afghans. The United States can help, especially with infrastructure projects and military training, but our principle objective there should not be counter-insurgency, but counter-terrorism. That mission requires no surge in American or NATO forces.

Don’t take it from me, take it from Rory Stewart, the crazy Scotsman and former employee of the British Foreign Office, who walked across Afghanistan in 2002 with a dog, lived to write a great book about it, and now lives in Kabul.

Stewart’s article is latest in an outbreak of Afghanistan surge skepticism.