When people try to pin the blame for the financial crisis on the introduction of derivatives, or the increase in securitization, or the failure of ratings agencies, it’s important to remember that the magnitude of both boom and bust was increased exponentially because of the notion in the back of everyone’s mind that if things went badly, the government would bail us out. And in fact, that is what the federal government has done. But before critiquing this series of interventions, perhaps we should ask what the alternative was. Lots of people talk as if there was no option other than bailing out financial institutions. But you always have a choice. You may not like the other choices, but you always have a choice. We could have, for example, done nothing.
By doing nothing, I mean we could have done nothing new. Existing policies were available, which means bankruptcy or, in the case of banks, Federal Deposit Insurance Corporation receivership. Some sort of orderly, temporary control of a failing institution for the purpose of either selling off the assets and liquidating them, or, preferably, zeroing out the equity holders, giving the creditors a haircut and making them the new equity holders. Similarly, a bankruptcy or receivership proceeding might sell the institution to some player in the private sector willing to own it for some price.
With that method, taxpayer funds are generally unneeded, or at least needed to a much smaller extent than with the bailout approach. In weighing bankruptcy vs. bailouts, it’s useful to look at the problem from three perspectives: in terms of income distribution, long-run efficiency, and short-term efficiency.
From the distributional perspective, the choice is a no-brainer. Bailouts took money from the taxpayers and gave it to banks that willingly, knowingly, and repeatedly took huge amounts of risk, hoping they’d get bailed out by everyone else. It clearly was an unfair transfer of funds. Under bankruptcy, on the other hand, the people who take most or even all of the loss are the equity holders and creditors of these institutions. This is appropriate, because these are the stakeholders who win on the upside when there’s money to be made. Distributionally, we clearly did the wrong thing.
It’s too late to reverse history. But it would help if Washington politicians stopped plotting new bail-outs. At this stage, most every American could argue that they are entitled to a bail-out because most every other American has already received one.
An op-ed in today’s NYT describes the abysmal organ tranplant situation in the United States, where the demand for healthy organs vastly outstrips the supply. A snippet :
There are 85,000 people biding their time [awaiting kidney transplant]… More than 4,500 of them died last year waiting. On average, that’s 13 people dying each day awaiting a kidney. (Maybe you should hope for liver disease: there are only about 16,000 people on the liver waiting list, and one-third of them get their liver in any one year.)
The column’s author is Daniel Asa Rose, whose new bookLarry’s Kidney describes his cousin’s travel to China to receive a transplant (skirting Chinese law).
Rose argues the United States can resolve the transplant organ shortage by adopting three policies:
[B]etter finance stem-cell research so we can start simply growing kidneys; build better mechanical organs; and change the presumed consent option so that people would have to opt out of donating organs rather than opt in.
The first two proposals, unfortunately, are more wishful thinking than serious policy, at least in the near term. Decades of attempts at robotic organs have yielded very disappointing results, and the many advances that we’re promised from stem cell research seem to be many years in the offing. If the United States is to save the lives of most of the people now on organ transplant lists, or who will join the lists in the next decade, it will be because of a dramatic increase in organ transplantation.
One way to accomplish this increase is to adopt Rose’s third policy — hospitals would harvest organs from the recently deceased unless the deceased has explicitly refused to make his organs available for donation. As the op-ed notes, several countries around the world already have this policy.
But this policy should trouble people who care about civil liberties. Should a person have to explicitly state on a legal document that he wants his body to be kept intact after his death? And even if the person has done so, what if the hospital (perhaps conveniently) cannot find the deceased’s documents?
Fortunately, there is an intermediate policy that would be much more respectful to the deceased and to civil liberties, would be easy to implement, would dramatically increase the supply of organs, and would have little cost relative to the other costs of transplantation: Incentivize people to volunteer to be organ donors — perhaps by granting a tax credit to their estate or covering their funeral expenses if, upon their passing, a healthy organ is harvested for transplantation.
With unemployment continuing to climb and the economy struggling along, some lawmakers and pundits are raising the possibility of a second stimulus package at some point in the future. The Cato Institute was strongly opposed to the $787 billion package passed earlier this year, and would oppose additional stimulus packages on the same grounds.
“Once government expands beyond the level of providing core public goods such as the rule of law, there tends to be an inverse relationship between the size of government and economic growth,” argues Cato scholar Daniel J. Mitchell. “Doing more of a bad thing is not a recipe for growth.”
Mitchell narrated a video in January that punctures the myth that bigger government “stimulates” the economy. In short, the stimulus, and all big-spending programs are good for government, but will have negative effects on the economy.
Writing in Forbes, Cato scholar Alan Reynolds weighs in on the failures of stimulus packages at home and abroad:
In reality, the so-called stimulus package was actually just a deferred tax increase of $787 billion plus interest.
Whether we are talking about India, Japan or the U.S., all such unaffordable spending packages have repeatedly been shown to be effective only in severely depressing the value of stocks and bonds (private wealth). To call that result a “stimulus” is semantic double talk, and would be merely silly were it not so dangerous.
Palin’s future remains uncertain, but it’s hard to see how her cryptic and poorly drafted resignation speech positions her for a presidential run. Nonetheless, her departure presents a good opportunity to reflect on the Right’s affinity for presidential contenders who - how to put this? - don’t exactly overwhelm you with their intellectual depth.
It’s one thing to reject liberal elitism. It’s another thing to become so consumed with annoying liberals that you cleave to anyone they mock, and make presidential virtues out of shallow policy knowledge and lack of intellectual curiosity.
Writing at Politico, Cato scholars David Boaz and Roger Pilon weigh in on what her resignation means for the former Vice-Presidential candidate’s political future:
Will we one day say that her presidency was ‘born on the Fourth of July’? I doubt it. This appears to be just the latest evidence that Sarah Palin is not ready for prime time. The day McCain chose her, I compared her unfavorably to Mark Sanford. Despite everything, I’d still stand by that analysis. At the time I noted that devout conservative Ramesh Ponnuru said ‘Palin has been governor for about two minutes.’ Now it’s three minutes.
Running for president after a single term as governor is a gamble. Running after quitting in the middle of your first term is something else again. If this is indeed a political move to clear the decks for a national campaign, then she needs adult supervision soon. But I can’t really believe that’s what’s going on here. I suspect we’re going to hear soon about a yet-unknown scandal that was about to make continuing in office untenable.
It seems that since her return to the state following the campaign, activist opponents and bloggers have bombarded the governor’s office with endless document requests. And she’s faced 16 ethics inquiries, with no end in sight. All but one have since been resolved, but the politics of personal destruction has cost the state millions, as Palin noted. Add to that the unrelenting, often vicious and gratuitous attacks on her and even on her family, and it’s no wonder that she would say ‘Enough.’ It has nothing to do with ‘quitting’ or with being ‘unable to take the heat.’ It has everything to do with stepping back and saying you’re not willing to put your family and your state through any more. She seems confident that history will judge her more thoughtless critics for what they are. I hope she’s right.
Honduras’ President Is Removed from Office
In reaction to Honduran President Manuel Zelaya’s attempt to stay in power despite term limits set by the nation’s Constitution, armed forces removed him, sending the Latin American nation into political turmoil.
Juan Carlos Hidalgo, an expert on Latin American affairs, comments:
The removal from office of Zelaya on Sunday by the armed forces is the result of his continuous attempts to promote a referendum that would allow for his reelection, a move that had been declared illegal by the Supreme Court and the Electoral Tribunal and condemned by the Honduran Congress and the attorney general. Unfortunately, the Honduran constitution does not provide an effective civilian mechanism for removing a president from office after repeated violations of the law, such as impeachment in the U.S. Constitution. Nonetheless, the armed forces acted under the order of the country’s Supreme Court, and the presidency has been promptly bestowed on the civilian figure — the president of Congress — specified by the constitution.
To be sure, Hidalgo writes, the military action in Honduras was not a coup:
What happened in Honduras on June 28 was not a military coup. It was the constitutional removal of a president who abused his powers and tried to subvert the country’s democratic institutions in order to stay in office.
The extent to which this episode has been misreported is truly remarkable.
Of course, if California public schools had doubled student achievement and eliminated dropouts, that might justify their staggering increase in cost. They haven’t. On the most reliable available measure of state academic achievement trends, the NAEP, California public school students have seen their scores go up by about 0.2% per year at the 4th and 8th grades since state-level data became available in 1990. In other words, the state’s scores have barely budged from the low position they have long occupied. As a 2005 RAND paper observes:
California placed 48th out of 50 states on the average NAEP score across all tests, just above Louisiana and Mississippi… California’s low scores cannot be accounted for by the high percentage of minority students. California’s scores for students from families with similar characteristics are the lowest in the nation: It ranks 47th out of 47 states when we compare scores for these students.
California is in budgetary hell because of a massive collapse in the productivity of its public schools. If the public schools had just maintained the productivity level they enjoyed in 1974-75, taxpayers would now be saving $36 billion annually. That’s $10 billion more than the deficit the state is currently facing.
It’s not hard to understand why: public schooling is a monopoly. There is no field within the free enterprise sector of the economy that has had a similarly horrendous productivity collapse over the past 35 years.
Under the policy, any vehicle entering an area that has been declared a “Neighborhood Safety Zone” by the city’s police chief can be “stopped for the purpose of determining whether the driver has a legitimate reason for entering the NSZ.”
Here’s an excerpt from the appelate court decision:
We further conclude that appellants have sufficiently demonstrated irreparable injury, particularly in light of their strong likelihood of success on the merits. … The harm to the rights of appellants is apparent. It cannot be gainsaid that citizens have a right to drive upon the public streets of the District of Columbia or any other city absent a constitutionally sound reason for limiting their access. As our discussion of the likelihood of success has demonstrated, there is no such constitutionally sound bar in the NSZ checkpoint program. It is apparent that appellants’ constitutional rights are violated. It has long been established that the loss of constitutional freedoms, “for even minimal periods of time, unquestionably constitutes irreparable injury.” …Granted, the District is not currently imposing an NSZ checkpoint, but it has done so more than once, and the police chief has expressed her intent to continue to use the program until a judge stops her.
It’s time for Mayor Adrian Fenty to show Peter Nickles, the Attorney General of the city, to the door. Too many of his ideas have proven to be misguided and contrary to law.
The NY Timesreports today on various state government efforts to regulate yoga classes by forcing instructors to obtain a government license.
I’m not going to get into why government licensing is a pernicious racket here. Rather, I just want to make a point about the nature of the mini–Washington DCs currently in charge of laundering Uncle Sam’s so-called economic “stimulus” money.
From the NYT article:
In March, Michigan gave schools on the list one week to be certified by the state or cease operations. Virginia’s cumbersome licensing rules include a $2,500 sign-up fee — a big hit for modest studios that are often little more than one-room storefronts.
Lisa Rapp, who owns My Yoga Spirit in Norfolk, Va., said she had canceled her future classes and was preparing to close her seven-year-old business this summer. “This caused us to shut down the studio all together,” Ms. Rapp said. “It’s too bad, because this community really needs yoga.”
A nice little story to keep in mind the next time you hear some politician or government apologist claim that the states’ current inability to spend as they did before the recession is somehow endangering an economic recovery.
I think what disgusts me the most about this story is the fact that the yoga “industry” opened itself up for attack by creating an online registry “to establish teaching standards in an effort to have the industry regulate itself.” As a friend sarcastically intoned to me in an email, “They tried to self-regulate and Leviathan just ended up using it to impose regulation. Brilliant.”
The NYT captures the mentality of these bureaucratic thugs:
The conflict started in January when a Virginia official directed regulators from more than a dozen states to an online national registry of schools that teach yoga and, in the words of a Kansas official, earn a “handsome income” in the process…
“If you’re going to start a school and take people’s money, you should play by a set of rules,” said Patrick Sweeney, a Wisconsin licensing official, who believes that in 2004 he was the first state official to discover the online registry and use it to begin regulating yoga teaching.
The bright side is that these yoga instructors are feeling the government’s boot on their throat and not liking it:
Brette Popper, a co-founder of Yoga City NYC, a Web site that has closely chronicled licensing developments, said that the yoga community — described on the site as “a group that doesn’t even always agree about how to pronounce ‘Om’ ” — was finally uniting around a common enemy. (Emphasis mine.)
The NYT quotes one regulation opponent as saying the conflict is about “bureaucracy versus freedom.” Amen, my friend. I don’t know much about yoga, and I’m as flexible as steel, but today we lovers of liberty are all yoga instructors!
A YouTube video that catches Bob Chanin, retiring general counsel of the National Education Association, calling right-wing groups ”bastards” for attacking his soon-to-be-former employer has recently been making the rounds. Not surprisingly, some right-wingers haven’t been too happy about Chanin’s retirement speech, not caring for the “bastard” label. I, however, want to thank Mr. Chanin for his salty valedictory.
Why? First off, because his pugnacious presentation has a certain Teamsters feel to it, furnishing almost visceral confirmation that the National Education Association is a labor union pure-and-simple — not the high-brow “professional employee organization” it bills itself as — ready to slash tires or do whatever else it thinks necessary to get its way.
But I’m especially grateful because Mr. Chanin all but declares that the NEA is a power-obsessed, hyper-political union that serves not children, but adults. Of course, anyone who has followed the NEA knows that — indeed, its exactly what we should expect considering that it’s the adults who pay the dues — but it’s a shocking admission from someone so high in the association, and a reality the public all too often misses.
What follows is my transcription of the speech’s most revelatory section. Of course, if you would prefer to catch all the inflections, hemming and hawing, and crowd reactions, you can just watch the video. If you’re going to do that, either start at the beginning for the whole address (obviously) or go to about the 15-minute mark to hit the really revealing stuff. And maybe, when you’re done either reading or watching, send Mr. Chanin a retirement card with a little thank you note in it. After all, giving this honesty-filled speech could very well be the best thing he’s ever done for children or the public:
Why are these conservative and right-wing bastards picking on NEA and its affiliates? I will tell you why: It is the price we pay for success. NEA and its affiliates have been singled out because they are the most effective unions in the United States. And they are the nation’s leading advocates for public education and the type of liberal social and economic agenda that these groups find unacceptable….
At first glance, some of you may find these attacks troubling. But you would be wrong. They are, in fact, really a good thing. When I first came to NEA in the early ’60s it had few enemies, and was almost never criticized, attacked, or even mentioned in the media. This was because no one really gave a damn about what NEA did, or what NEA said. It was the proverbial sleeping giant: a conservative, apolitical, do-nothing organization.
But then, NEA began to change. It embraced collective bargaining. It supported teacher strikes. It established a political action committee. It spoke out for affirmative action, and it defended gay and lesbian rights. What NEA said and did began to matter. And the more we said and did, the more we pissed people off. And, in turn, the more enemies we made.
So the bad news, or depending on your point of view, the good news, is that NEA and its affiliates will continue to be attacked by conservative and right-wing groups as long as we continue to be effective advocates for public education, for education employees, and for human and civil rights.
And that brings me to my final, and most important point. Which is why, at least in my opinion, NEA and its affiliates are such effective advocates. Despite what some among us would like to believe, it is not because of our creative ideas. It is not because of the merit of our positions. It is not because we care about children. And it is not because we have a vision of a great public school for every child. NEA and its affiliates are effective advocates because we have power. And we have power because there are more than 3.2 million people who are willing to pay us hundreds of millions of dollars in dues each year because they believe that we are the unions that can most effectively represent them, the unions that can protect their rights and advance their interests as education employees.
This is not to say that the concern of NEA and its affiliates with closing achievement gaps, reducing dropout rates, improving teacher quality, and the like are unimportant or inappropriate. To the contrary, these are the goals that guide the work we do. But they need not and must not be achieved at the expense of due process, employee rights, and collective bargaining. That simply is too high a price to pay!
When all is said and done, NEA and its affiliates must never lose sight of the fact that they are unions, and what unions do first and foremost is represent their members.