Michael Lind’s Economic Philistinism

In a recently published article for the journal Democracy, Michael Lind of the New America Foundation lays out “The Case for Goliath” (registration required) – i.e., for returning to the good old days of price-and-entry regulation and cartelized industries. No, seriously.

I’ll give Lind credit for daring to go where his fellow devotees of “nostalgianomics” fear to tread.  Many on the left these days look back fondly at the ’50s and ’60s when activist government and strong unions coincided with a narrowing income distribution. What they fail to recognize, or at least admit, is that the political economy of that supposed golden age rested on a systematic muting of competition, both by circumstance and deliberate policy.  The devastation of Europe and Japan in World War II, price-and-entry controls, high trade barriers, and the threat of antitrust enforcement against industry leaders all combined to make heavy unionization and above-market wages for union workers economically viable.

This glaring oversight is understandable. There is, after all, overwhelming economic evidence that competition beats cartelization of industry hands down. When government restricts entry by new firms, the predictable result is a stifling of innovation. For example, consider this admission by former FCC chairman Michael Powell: “Because the history of the FCC is, when something happens that it doesn’t understand, kill it. We tried to kill cable. We tried to kill long-distance. When [MCI founder] Bill McGowan starting stringing out microwave towers that threatened AT&T, the FCC tried to stop him. The FCC tried to kill cable because it was going to threaten broadcasting.” (For more details on the the FCC’s lamentable track record, see here.)

The upshot is that progressive fantasies of a return to the good old days are just that – fantasies. Private-sector unions have withered and shrunk not because of changes in labor law, but because unionized firms haven’t been able to hack it in the new, more competitive marketplace (see “Auto industry, U.S.”). So the only way to get back to the days of Big Labor is by throttling the main engine of innovation and productivity: competition. And, well, that just doesn’t sound very progressive, does it?

Lind, though, grasps the nettle and chooses cartels and unions over economic progress. He does try to argue that we can have our cake and eat it too, but his case boils down to a crude post hoc ergo propter hoc fallacy: the big move toward cartelization in the ’30s was followed by good times in the ’50s and ’60s (let’s not talk about the ’70s), so therefore cartelization was good for the economy!  Yes, and the Union won the Civil War with inferior generals, so perhaps poor military leadership is a key to victory. The fact is, the strong economic performance of the early postwar decades occurred in spite of, not because of, widespread restrictions on competition.

Though the anticompetitive nostrums Lind peddles are pure poison, he nonetheless deserves commendation. By identifying correctly the link between cartelization and strong unions, Lind highlights the essentially reactionary nature of progressives’ infatuation with Big Labor. He has therefore, however unwittingly, performed a public service.

Why Obama Should Stay Silent on Iran

President Obama should keep quiet on the subject of Iran’s elections. At least two pernicious tendencies are on display in the Beltway discussion on the topic. First is the common Washington impulse to “do something!” without laying out clear objectives and tactics. What, after all, is President Obama or his administration supposed to do to “support protesters” in Iran in the first place? What would be the ultimate goal of such support? Most importantly, what is the mechanism by which the support is supposed to produce the desired outcome? That we are debating how America should intervene in Iran’s domestic politics indicates the sheer grandiosity of American foreign policy thought.

The second, related tendency is that of narcissism: to make foreign countries’ domestic politics all about us. In this game, American observers anoint from afar one side the “good,” “pro-Western” team and the other the “bad,” “radical” one and urge Washington to press its thumb on the good side of the scale. But doing so would risk winding up Iranian nationalism, a very real force that binds Iranians together more tightly than their differences pull them apart.

If Iran’s government has overreached, the right response is schadenfreude. It couldn’t have happened to a nicer group of guys. Meanwhile, President Obama has a full plate of problems to deal with in his own country. Whatever government emerges from the Iranian political process, we’re going to have to deal with it. Until then, whatever President Obama’s personal prayers or wishes are for Iran, he ought to keep them to himself.

C/P The Hill Congress Blog

Sen. Coburn’s List of 100 Questionable “Stimulus” Projects

My old boss, Sen. Tom Coburn (R-OK), has a report out this morning that identifies 100 “questionable” projects funded by the federal “stimulus” package.  I’m not going to mention particular examples here.  I’ll simply say that I hope the theme that readers of the Coburn report come away with is that the federal government should not fund state and local activities.  The numerous examples in the Coburn report provide concrete evidence of this truth, and I wish the report would have spent more time in the introduction fleshing it out.  Fortunately, my colleague Chris Edwards wrote an excellent policy analysis on the problems with federal subsidies to state and local government.  Thus, I would encourage those interested to read the Coburn and Edwards reports together.

ACLU on the REAL ID Revival Bill

The REAL ID Act should be repealed, not “fixed,” says the American Civil Liberties Union:

While offering some important privacy protections, this legislation could ultimately resurrect the discredited Real ID Act and become the basis for a National ID. “Four years after becoming law, the Real ID Act is essentially dead,” said Chris Calabrese, Counsel of the ACLU Technology and Liberty Program. “Senator Akaka is right in his efforts to eliminate a substantial number of the more problematic aspects of Real ID, including the creation of a national database of driver information and misuse of license information by the private sector. But while these attempts at improvement are commendable, Real ID cannot be ‘fixed,’ and we oppose anything that would revive it.”

The REAL ID revival bill is S. 1261.

Obama Financial Reform Plan Misses the Mark

The Obama Administration is presenting a misguided, ill-informed remake of our financial regulatory system that will likely increase the frequency and severity of future financial crisis. While our financial system, particularly our mortgage finance system, is broken, the Obama plan ignores the real flaws in our current structure, instead focusing on convenient targets.

Shockingly, the Obama plan makes no mention of those institutions at the very heart of the mortgage market meltdown – Fannie Mae and Freddie Mac. These two entities were the single largest source of liquidity for the subprime market during its height. In all likelihood, their ultimate cost to the taxpayer will exceed that of the TARP, once TARP repayments have begun. Any reform plan that leaves out Fannie and Freddie does not merit being taken seriously.

While the Administration plan recognizes the failure of the credit rating agencies, is appears to misunderstand the source of that failure: the rating agencies government created monopoly. Additional disclosure will not solve that problem. What is needed is an end to the exclusive government privileges that have been granted to the rating agencies. In addition, financial regulators should end the out-sourcing of their own due diligence to the rating agencies.

Instead of addressing our destructive federal policies at extending homeownership to households that cannot sustain it, the Obama plan calls for increased “consumer protections” in the mortgage industry. Sadly, the Administration misses the basic fact that the most important mortgage characteristic that is determinate of mortgage default is the borrower’s equity. However such recognition would also require admitting that the government’s own programs, such as the Federal Housing Administration, have been at the forefront of pushing unsustainable mortgage lending.

The Administration’s inability to admit to the failures of government regulation will only guarantee that the next failures will be even bigger than the current ones.

Education Tax Credits Still on the Table in Indiana

The Chicago Tribune reports today that education tax credits are still being pursued despite huge holes in Indiana state budgets … maybe because school choice saves money?

[Indiana] Republican Gov. Mitch Daniels’ budget proposal includes a scholarship tax credit that supporters say would give poor students the opportunity to attend private schools, but opponents say would open the door to vouchers.

Daniels’ budget proposal includes a 50 percent tax credit for donations to a nonprofit scholarship-granting organization that helps students from low-income families attend their choice of a private school or a public school outside their home district.

A couple of quick points.

I’m not sure how this would “open the door to vouchers,” since credits are an alternative form of school choice and obviate the need for vouchers.

Gov. Daniels should promote a 100% tax credit for donations, not a 50% credit. At the least, he can drop that to 90% like the successful Pennsylvania credit program. But 50% is simply too low to act as an effective catalyst for serious reform. And as we all know, its best to aim high at the start of negotiations so you have somewhere to go. He’s selling himself and his state short on this.