The Libertarian Mind in the News

I’ve been busy talking up the libertarian moment, libertarian ideas, and The Libertarian Mind (buy it now, available everywhere) in person and in print lately. Here are a few recent examples.

My article on America’s libertarian roots in Sunday’s Philadelphia Inquirer:

Indeed, the principles of the Declaration are so closely associated with libertarianism that the Chinese edition of my previous book, Libertarianism: A Primer, features a cover photograph of the famous room in Independence Hall, complete with Windsor chairs and green tablecloths.

Libertarianism is the philosophy of freedom. It has, in different form throughout history, inspired people who fought for freedom, dignity, and individual rights - the early advocates of religious tolerance, the opponents of absolute monarchy, the American revolutionaries, the abolitionists, antiwar advocates and anti-imperialists, opponents of National Socialism and communism.

The next day, Nick Gillespie interviewed me at the National Constitution Center in Philadelphia. Video here.

My article “Black History Is American History” at HuffingtonPost:

Black history is American history, a story of oppression and liberation rooted in the libertarian idea of individual rights. Much of the progress we have made in the United States has involved extending the promises of the Declaration of Independence – life, liberty and the pursuit of happiness – to more and more people. The emphasis on the individual mind in the Enlightenment, the individualist nature of market capitalism and the demand for individual rights that inspired the American Revolution naturally led people to think more carefully about the nature of the individual and gradually to recognize that the dignity of individual rights should be extended to all.

And my interview with African American Conservatives.

My print interview yesterday with Salon:

Where am I the most optimistic? I am optimistic that around the world more and more people are moving into a world of property rights, markets, globalization, human rights, women’s rights, access to information and opportunity. Now that’s obviously not true everywhere; there are, at any given moment, unfortunate setbacks in Venezuela and Russia and some of Eastern Europe. But I do think the largest historical trend of our time is the move in a broadly libertarian direction, and therefore toward a higher standard of living for billions of people around the world.

Are you thinking of the growing middle class in China and India when you say this?

Absolutely. The change in economic conditions in China and India — right there you got one-third of the world. But also there have been some advances in the direction of human rights in Africa as well. So in a great deal of the world, you’ve seen a huge reduction in poverty and absolute poverty, and a rising middle class in many of these countries.

Interviews with Jim Bohannon, Garland Robinette, Bill Frezza, and others can be found here.

Buy the book!

 

What Fed Officials Really Don’t Want You to Know (Hint: They Are Telling You)

Yesterday morning I had a query from someone asking me to share my thoughts about the Federal Reserve Transparency Act, better known as the bill to “Audit the Fed.” Having given him a brief answer, I thought I might say a little more here.

Although Rand Paul promises that his measure will shed much-needed light on the Fed’s undertakings (the Senate version of his measure was even called “The Federal Reserve Sunshine Act”), the truth is that it’s unlikely to reveal anything of importance beyond what existing Fed audits–including those provided by Title XI of the Dodd-Frank Act (which provides for a GAO audit of the Fed’s crisis-related emergency lending)–can themselves reveal.

True, unlike existing measures Paul’s bill would also let the GAO “audit” the Fed’s conduct of monetary policy, including its open-market operations and financial dealings with other central banks. But if “sunshine” is the first word that pops into your head when contemplating this possibility, you probably have had a little too much of it already. Certainly you have not read many GAO reports.

Don’t get me wrong: the GAO does its job well, and a report by it on the Fed’s conduct of monetary policy would probably be a much better read than most academic papers on the same topic. But if you’re looking forward to seeing the GAO give the FOMC a good thrashing, or to any other sort of scintillating reading, you’re barking up the wrong tree, because what you’re likely to be in for instead is a bunch of charts and tables, accompanied by a competent but very measured and detached review of the Fed’s activities, of the sort that might prove very handy, but that is hardly likely to be the least-bit earth-shattering.

How Not to Spin a Big Drop in Top 1% Incomes

Pre-1944 method of estimating top 1% shares

When Thomas Piketty and Emmanuel Saez release their annual estimates of top 1 percent incomes, you can count on The New York Times to put it in a front page headline with additional hype on the editorial page.  This time, however, the news was that the top 1 percent had suffered a 14.9 percent decline in real income in 2013 if capital gains are included, as they always had been until now.  

The New York Times heroic spin was “The Gains From the Economic Recovery Are Still Limited to the Top One Percent.”  The author, Justin Wolfers of the Peterson Institute wrote, “Emmanuel Saez … has just released preliminary estimates for 2013. The share of total income (excluding capital gains) going to the top 1 percent remains above one ­sixth, at 17.5 percent. By this measure, the concentration of income among the richest Americans remains at levels last seen nearly a century ago.”

I will have more to say about this in another blog post.  For now, I just want to call attention to the artistic way in which the subject was changed.  Since 2008, Saez has been comparing changes in top incomes (for which he has preliminary IRS data) to incomes of the bottom 90 percent (for which IRS data are singularly inappropriate).   He always included realized capital gains because that makes the top 1 percent share both larger and more cyclical.

President Proposes More War: Congress Should Say “No”

The Islamic State is evil. But that’s no reason for America to go to war again in the Middle East or for Congress to approve more years of conflict.

The president requested formal legal authority to war against ISIL—more than six months after dropping the first bomb on the self-proclaimed caliphate. The United States is defending a gaggle of frenemies from a far weaker foe unable to seriously threaten America.

The Obama administration long ignored the group’s gains, recognizing that ISIL was more about insurgency than terrorism, and was targeting Middle Eastern countries, not the United States.

The administration reversed course when the group’s advances threatened Kurdistan’s capital of Erbil and Iraq’s Yazidi community. Then the beheading of two American hostages transformed administration policy.

Now President Obama claims the Islamic State threatens “U.S. national security.” But how? How can a few thousand insurgents, locked in bitter combat with several Middle Eastern nations endanger the globe’s superpower?

Failing to Clean Up the VA

The Department of Veterans Affairs (VA) has a long history of mismanagement. Last year, the public became aware of a wait-time scandal at the VA hospital in Phoenix. Veterans were forced to wait months for appointments, even as the hospital was reporting no delays in service and allowing its management to receive performance bonuses. Over 1,700 veterans were not placed on the official wait lists to hide the length of actual waits. The VA Inspector General suggested that the Phoenix VA was not the only center to modify its wait lists in this fashion.

In response to the crisis, Congress passed a  law that allowed veterans who were waiting for treatment to access non-VA providers. At the time, I cautioned about the risk of a possible large, unfunded entitlement program being created. Now it seems that there are other issues with the way that the VA is implementing the expanded program. Veterans continue to be shut out of service and providers are uncertain how to utilize the benefits.

The Washington Post reports:

The card gives veterans who have been waiting more than 30 days for appointments or who live more than 40 miles from a VA facility the chance to see a private doctor.

But instead, some veterans say that when they attempted to use their card, the VA told them they had to live more than 40 “miles in a straight line, or as the crow flies,” from their VA rather than Google maps miles, which makes the card harder to use. Several VA doctors e-mailed The Washington Post saying they themselves don’t understand how to use the program

Another reader wrote in saying that her stepfather, Charles Schuster, who died in 2009, recently received a card in the mail, a symbol of an agency still seemingly in disarray. “Gave me a good laugh,” she wrote.

So far, 27,000 veterans have made appointments for private care with their cards, the VA said last week. It’s a fraction of the 9 million veterans who depend on the delay-plagued VA health-care system, the largest network of health centers and hospitals in the country.

“As far as I can tell, the choice card has created more confusion and aggravation than improving access to clinical care, though it did gain political points,” said one VA primary care doctor, who says he’s on the front lines of doing intakes. He spoke on the condition of anonymity because VA employees are not allowed to speak to the media without permission. But he said he and other doctors “are confused by the choice card system and don’t understand how to implement it.”

The article  documents other instances of veterans being unable to utilize their choice cards.

The VA hospital system is a mess, showing the downsides of socialized health care. During last year’s scandal, Congress simply put a bandage on the problem by allowing some veterans to use outside providers. Congress should revisit the issue and institute more fundamental reforms to the Veterans Health Administration.

Congress’s Blank-Check Bills

Luke Rosiak at the Washington Examiner filed a report late last week on a little recognized, but important congressional practice: proposing open-ended spending. In the last Congress, fully 700 bills proposed spending without limits. That’s a lot.

A quick primer: congressional spending is a two-step process. First, there must be an authorization of appropriations. Then Congress appropriates funds, providing actual authority for executive branch agencies to spend.

The committees in Congress are divided by type between authorizing committees and appropriations committees. Authorizers are supposed to do the bulk of the oversight and authorize spending at amounts they determine. Appropriators would then dole out funds specifically. But over the years, the division of labor has shifted and power has collected in the appropriations committees, whose members are often referred to as “cardinals” … like “College of Cardinals.”

Backward incentives explain this. Members of Congress who authorize spending naturally appear to be pro-spending, which has political costs. The costs are at their worst when a specific amount is involved. “Senator So-and-So wants to spend $50 million on what?!” So many authorizing committees shirk their duties by eschewing reauthorization of the agencies in their jurisdiction. And sometimes the trick is authorizing spending of “such sums as may be necessary,” which doesn’t provide as good an angle for political attack.

representatives who wrote the most blank checksThat would make appropriators the only drag on spending, but it doesn’t because of a second perversion in politics. Appropriators get good enough at gathering the political emoluments of spending that they overcome the negatives and become an institutional pro-spending bloc. As Mike Franc of the Heritage Foundation put it in 2011, “appropriators, their professional staff, and legions of lobbyists serve as a mutually reinforcing triad bent on increasing spending today, tomorrow, and forevermore.”

Rosiak notes that the House Republican leadership cautioned against open-ended spending proposals at the beginning of the 113th Congress. Consequently, Republican blank-check bills are more rare. The top open-ended spenders are all Democrats, and they’re all on the party’s left wing.

So what’s to be done?

In 2010, the Senate joined the House in banning earmarks. This came after a few short years of applied transparency in the earmark area, including a contest to gather earmark data conducted by yours truly on WashingtonWatch.com. A group called Taxpayers Against Earmarks (now Ending Spending) applied some direct pressure. And a host of other groups were involved, of course.

The practice of proposing open-ended spending could similarly be curtailed with public oversight and pressure.

So who should do that work?

We’ve already started. Rosiak’s story was produced using the Cato Institute’s Deepbills data.

If We Decide to Keep Fannie Mae Around…

I’ve repeatedly said since 2009 that the further in time we get from the crisis, the greater the probability that Fannie Mae and Freddie Mac would survive in some form.  Such looks like an ever-increasing likelihood.  I’m occasionally asked if there are any reforms that would make Fannie & Freddie acceptable.  I’m tempted to say “no.” 

In the spirit of lively debate, I submit the following changes to address most of the flaws in the government sponsored enterprise (GSE) model that would also allow the companies to survive in some form.  I do emphasize that this is not an argument for keeping the GSEs.  That’s a different question altogether.

1)   Open up the charters to competition.  If we learned anything from the rampant corruption that characterized early 1800s U.S. state banking, it is that legislators shouldn’t give out exclusive charters.  Accordingly, the government should delegate chartering authority to the regulator and allow anyone who can meet the requirements to get a charter.

2)   Increase Capital.  Fannie and Freddie were (and still are) massively leveraged.  Laurie Goodman suggests 4 to 5 percent would be a reasonable minimum capital.  I believe something closer to what insurance companies have–around 8 percent (real, not risk-weighted) would be appropriate.  While I’m not completely in the Admati camp on capital, I do agree with her general point that capital isn’t “dead” –it would be used for lending.  And since GSEs aren’t providing some form of payment medium like banks, I see little cost to requiring higher capital levels. So I’d say 8 percent, if not more.

3)   Ditch loan limits, go with income.  In order to make sure these entities actually serve middle-class America, rather than be a subsidy to the well-off, we should eliminate the loan limits and make mortgage eligibility based on income.  This is similar to the USDA’s Rural Housing Service loans.

4)   Break ‘em up.  This might be the most controversial, but simply allowing other institutions to enter the market is unlikely to guarantee sufficient competition.  We broke up Ma Bell.  Under any antitrust standard, Fannie and Freddie are a duopoly.  Unless we are repealing the Sherman Act, the two companies should be broken into at least 6 pieces each and barred from merging.  Existing shareholders would get shares in the off-spring companies.

5)   Require More Mortgage Insurance.  In order to protect the taxpayer, mortgage insurance companies should take the first 35 percent of loss, instead of the customary 20 percent.

6)   Improve Underwriting Standards.  End the housing goals and require minimum down payments of 5 percent and minimum FICO scores of 700.

7)   End all securities law exemptions.  Subject companies to 1933 & 1934 Act requirements. 

8)   End banking law preferences.  Banks aren’t allowed to hold corporate equity, except for that of GSEs.  We know how that turned out.  For the purposes of all banking regulation, especially capital and asset concentration limits, treat GSE securities as you would any other corporate security.

9)   Limit portfolios.  Allow portfolios to be used for an inventory function only. A minimum of 90 percent of debt issued should be required to be mortgage-backed securities (MBS).

These are just some initial thoughts.  Implementing all of these would go a long way towards bringing competition to our mortgage markets and protecting the taxpayer.  If some remain concerned that this lacks a “catastrophic” backstop, then we can allow the Federal Home Loan Banks to discount advances on the MBS issued by these new and improved GSEs.