When the Wall Street Journal, the Financial Times and the New York Times agree on the merits of a policy, readers will understandably be confused.
At the annual rendezvous of central bankers in Jackson Hole, Wyoming this past weekend, the IMF’s new managing director Christine Lagarde asserted that Europe’s banks should be recapitalized. This, she claimed, would make the banks “safer” and improve the chances for European growth.
On August 29th, I wrote that Ms. Lagarde had misdiagnosed Europe’s banking problems and is confused. Indeed, her prescription would be deflationary and put more stress on Europe’s fragile economies.
On August 30th, I criticized the Wall Street Journal’s editorial which praised Ms. Lagarde’s recapitalization ideas. Strike one.
On August 31st, I commented on the F.T.‘s effusive endorsement of Ms. Lagarde’s recapitalization proposals. Strike two.
With the New York Times, we have strike three. Ms. Lagarde’s recapitalization ideas are out.
Recapitalizing banks in the middle of economic troubles is a dangerous and unwise course. For more on this issue, I recommend Prof. Tim Congdon’s book Money in a Free Society which Encounter Books will release in October. Prof. Congdon’s book is profound and I am pleased that its dust jacket will carry my endorsement:
Prof. Tim Congdon, one of the world’s most eminent monetarists, employs his multiple talents and experience – as a first‐rate scholar, market economist and financial journalist – to unravel the mysteries of modern money and banking systems. His most careful and anxious attention to the arguments proffered in the great canonical works and debates of the past is unmatched. This, coupled with his mastery of the tricky intricacies of modern money, will ensure that readers of “Money in a Free Society” are richly rewarded. Among other things, they will learn that Nobelist Paul Krugman and the Chairman of the Federal Reserve Ben S. Bernanke have a tenuous grasp on both economic theory and reality, rendering their analyses of the current crisis wrong and/or irrelevant.
The recent decision of a Colorado court to halt a first‐of‐its‐kind voucher system instituted by a local school district has, not surprisingly, been subjected to widespread criticism from school choice supporters.
The Heritage Foundation’s Rachel Sheffield, for instance, argues “The judge’s decision is the result of a lawsuit brought by the American Civil Liberties Union that claims that the program violates the law by providing public money to religious organizations.… In typical statist fashion, these claims are born from a philosophy that holds that the money you earn is in fact not yours to keep but instead belongs to the state.”
The problem with this argument, and with vouchers generally, is that voucher money DOES belong to the state. The recent U.S. Supreme Court ruling in Arizona Christian School Tuition Organization v. Winn that Rachel cites here concerned an education tax credit program in Arizona, not a voucher program.
Vouchers are grants of government funds, while tax credits are private funds. The court held that money spent and claimed as a credit, which is never collected in taxes in the first place, remains private money, not government spending like school vouchers. Other taxpayers can’t be harmed by the choices of those claiming credits because each taxpayer gets to decide, individually, what happens to their own money.
Under vouchers, as Justice Kennedy explained, “a dissenter whose tax dollars are ‘extracted and spent’ knows that he has in some small measure been made to contribute to an establishment in violation of conscience. … [By contrast,] awarding some citizens a tax credit allows other citizens to retain control over their own funds in accordance with their own consciences.”
The challenge to the AZ education tax credit program failed because only private funds are involved. A taxpayer challenging a voucher program would have standing under this decision.
State constitutions typically include provisions that are much more restrictive of how state funds can be used in education and which pose much greater threats to voucher programs. Colorado’s court ruling, for instance, identified five separate legal problems with the Douglas County voucher program.
Part of the reason Colorado’s program was stopped in its tracks is a state constitutional provision that reads: “No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state, nor to any denominational or sectarian institution or association.”
There is certainly room for a different interpretation of this provision, but ruling that vouchers are in violation of it constitutes neither judicial activism nor statist thinking. Indeed, it could be argued that this is the more conservative, originalist interpretation.
There is simply no way around the fact that vouchers are government funds, subject to whatever constitutional and statutory restrictions a state may place on their use. In the case of education, these restrictions are many and serious.
The most recent and bracing conclusion comes, again, from Arizona. In 2009, the Arizona Supreme Court ruled in Caine v. Horne that voucher programs for disabled and foster children violated a state constitutional ban on aid to private schools because it was an expenditure of government funds. That same court previously upheld a state tax credit program on the grounds that the credits did not constitute an expenditure of government funds. The status of vouchers as government funds was key to the decisions overturning Colorado’s earlier voucher program in 2004 and Florida’s in 2006.
Unlike vouchers, education tax credit programs have withstood every state and federal challenge advanced against them over the past two decades. Major credit programs in Indiana, Florida, Georgia and Pennsylvania – to name a few – have yet to be challenged. And for good reason; they are on solid constitutional ground at both the state and federal level.
Using state money to fund private school choice with vouchers opens a world of serious and legitimate risks to which education tax credits are not vulnerable.
Jason Kuznicki and I have already posted a couple of times correcting some of the points in Michael Lind’s howler‐laden screed in Salon, which attacked libertarians and classical liberals for our supposed promotion of autocracy and other bad things. For a closer look at Lind’s method, check out Will Wilkinson’s post at The Economist exploring what Mises and Hayek actually thought about democracy, which is at sharp variance with what Lind represents them as thinking. (As Wilkinson points out, finding out what these distinguished scholars said does not call for a lot of research time in libraries; Mises’s book Liberalism, including its chapter “Democracy,” can be read online.) I’ve gathered links to a few other responses at my Overlawyered site, including posts worth reading by Damon Root (Reason “Hit and Run”) and Roderick Long (Bleeding Heart Libertarians).
I've written extensively about the flaws of Keynesian economics, and I've even narrated a video on the flaws of Keynesian theory.
But this clever cartoon may be more effective than anything I've ever done.
If you like cartoons that teach economics, check out this gem. It's not on Keynesianism, but it's very good.