Missing the Point

The Bush administration’s self-delusion about the state of the federal budget continues. At a speech at AEI yesterday, Karl Rove claimed that the growth rate in the nondefense, non-security portion of the budget had fallen. Fiscal conservatives who complain about spending are “missing the facts” Rove says. 

Yes “growth rates” are down in this small portion of the budget from the massive growth rates of earlier in the decade. But here, from the most recent federal budget, are the more important facts on Bush’s first five years. Data for fiscal 2006 are Bush estimates (actual 2006 spending is likely to be higher) in billions of dollars. 

2001 federal outlays 

Total: $1,863 

Department of Defense: $290 

Department of Homeland Security: $15 

Total outlays less defense and homeland security: $1,558 

2006 federal outlays

Total: $2,709 

Department of Defense: $512 

Department of Homeland Security: $44**

Total outlays less defense and homeland security: $2,153 

(**Homeland Security spending spikes in fiscal 2006 due to Katrina. To roughly take out this effect, I used the 2007 figure of $44 billion). 

What we have then over Bush’s 5 years is a 45 percent increase in federal spending and a 38 percent increase in spending excluding defense and homeland security. 

Of course, the Bush administration shouldn’t get a free ride for its massive increase in defense and security spending. Pentagon spending is notoriously wasteful, and much “homeland security” spending is either wasteful or properly the responsibility of state governments or the private sector. All added spending sucks more resources out the private economy and the average American’s wallet. 

Oil Unbound

There is a lot of worry in the public domain these days about whether we might be running out of oil.  That shouldn’t surprise - every time the oil industry goes through a boom cycle (and there have been six such price booms since the creation of the industry in the late 19th century), industry analysts and resource prognosticators have warned that, this time, the lights are truly going out. 

The worry, however, is overly broad.  There is virtually no limit to the amount of hydrocarbons available to the economy.  It has been estimated, for instance, that the amount of oil that we could theoretically extract from shale rock in the western United States is about three times as great as the proved reserves of oil in Saudi oil.  Other unconventional sources of oil such as tar sands (now being exploited with gusto in Alberta) promise even more.

But unconventional oil is expensive.  The reason it’s not exploited very aggressively at the moment is that conventional oil is still less expensive to deliver to market.  If conventional oil continues to increase in price - or if the technology related to unconventional oil extraction improves - that might change.

Worries about the depletion of conventional oil - and light crude oil in particular - are better grounded.  But how much better?

To worry about the future availability of light crude is to worry about the future availability of Persian Gulf crude oil in general and Saudi crude oil in particular.  If Saudi fields are running dry, then worries about conventional crude are probably well placed.  If not, then they probably aren’t.

The most credible analyst who’s made the argument that Saudi reserves are overstated and that Saudi Aramco is near a production plateau is Matthew Simmons, author of Twilight in the Desert.  The most impressive criticism of Simmons’ arguments come from energy economist Michael Lynch, who maintains that Saudi production is not even close to reaching its peak. 

Time will tell soon enough who’s right (I’d bet on Lynch), but in the meantime, a new report out today about Arab investments underway in the oil sector suggests that someone forgot to tell OPEC that the wells are running dry.  Of course, one might argue that all that money is necessary just to maintain current production levels.  Maybe - but the increasing production figures coming out of OPEC aren’t figments of the imagination.

Précarité is the Price You Must Pay

One of the things I’ve learned in my study of the happiness literature is that people don’t take enough risks. The evidence seems to indicate that many people would be happier if they quit their job and either went into business for themselves, or found a new job that better matched their individual strengths—even if it is a job that pays significantly less. (You can take a quiz here, at psychologist Martin Seligman’s website, to find out what your signature strengths are.)

Because we are so risk-averse—so wary of experiencing losses—and because we tend to predict that the downside of a risky decision will be bigger than it actually will be, doing what is most likely to make us happy—taking the periodic entrepreneurial gamble—requires a kind of bravery. But that’s just the personal side of the matter. Culturally, we need a climate of opinion that values risk and rewards initiative with respect and praise, reinforcing and encouraging personal courage. Institutionally, we need a flexible labor market that allows us to easily enter and exit new jobs in search of a good match for our interests and strengths, and a system of laws that does not make it difficult and expensive for people to start their own businesses.

This interesting article from Sunday’s Boston Globe about Brett Zaccardi, who dropped out of college to start his own “alternative media and communications agency,” makes this point well, even drawing on psychologist Daniel Gilbert’s work on predicting our future feelings:

When it comes to career schemes, we do not have accurate imaginations about what life will be like for us in different situations, says Daniel Gilbert, professor of psychology and author of ”Stumbling on Happiness.” Our most accurate information about what will make us happy comes from snooping on other people to see if they are happy. And the best way to watch other people is to be in a variety of offices. Gilbert calls the informal process of judging other peoples’ happiness ”surrogation.” He says ”surrogation is the best way to predict if we’ll be happy. Observe how happy people are in different situations.”

So what do you need to know before you decide? Figure out what was bad about the jobs you’ve had so you don’t duplicate the problem. Then just start testing the waters – put a toe in the current to see how it feels. Then take a leap, and if you don’t like where you land, reframe your landing pad as just a steppingstone. And put your foot in the water again.

”We should have more trust in our own resilience and less confidence in our predictions about how we’ll feel,” Gilbert says. ”We should be a bit more humble and a bit more brave.”

Clearly, this kind of serial toe dipping and steppingstone strolling requires an institutional climate where labor market entry and exit is easy, and where starting a new business is not a huge hassle. The predictable consequence of this kind of openness and dynamism will be a bit of volatility in employment and earnings, but if that’s what it takes, that’s what it takes.

Now, compare this absolutely gob smacking exchange between writer James Traub and Ségolène Royal in Traub’s NYT Magazine profile of the French politician (via Virginia Postrel):

In fact, Royal seems innocent of any taint of economic liberalism. She regards Villepin’s peremptory imposition of the new law as a sign of a systematic failure to listen to ordinary people; but she does not view the national suspicion of market forces as a comparable source of paralysis. I was surprised, I said during our interview, that someone whose entire life constituted a triumph over adversity would join the campaign to insure against précarité….Royal countered my observation with a familiar refrain: “The problem is that everybody isn’t subject to insecurity. Do you see businessmen being fired for incompetence? The young see politicians, who also have a stable and secure job, being civil servants, lecturing others on insecurity. So the young graduate will say, ‘In the name of what am I going to sign an insecure contract?’ “

Then the conversation took an odd turn. Royal asked me, with the air of someone pulling out a trump card, “Are you in an insecure situation?” Actually, I explained, as a contract writer for this magazine, I have little security.

Royal wasn’t going to be put off the scent that easily. “Yes, but how many years does your contract last?”

“I sign a new one every year.”

Now she was frankly incredulous. “You could be fired every year?” For all her own experience, Royal apparently viewed précarité as a kind of socioeconomic stigma rather than the price you might choose to pay for freedom. Or maybe you could say that for her, as for the left generally–and not only in France–market liberalism and globalization have the status merely of fact, which is categorically inferior to a right. This is no less so if the fact appears to obviate the right. “The global economy shouldn’t be supported by wage earners,” Royal insisted. “They have to be able to build a future, like any human being.”

This is amazing in part because many of us have never had anything but an “at-will” contract, according to which we can be fired any minute. And we should consider ourselves lucky. Societies obsessed with abolishing précarité—the so-called precariousness of dynamic markets—tend to implement rules that lock people into the first career track they set foot in, or lock people (immigrants especially) out of the labor market altogether. Regulatory insulation against employment and wage instability does provide a kind of stability—just not the kind that makes for satisfied lives. You get, on the one hand, stable sub-optimal matches between individual strengths and jobs, since it is difficult under those conditions to dip your toes in lots of different currents. In which case, careers are less likely to be seen as “callings” and work is less likely to be experienced as meaningful and intrinsically satisfying (causing demand for things like six hour work days and six weeks of vacation to go up.) On the other hand, you get stable levels of high unemployment. Studies show that long-term unemployment delivers a big hit to happiness only slightly less toxic than divorce. As it turns out, a little précarité is not simply, as Traub writes “the price you must choose to pay for freedom,” but the price you must pay for happiness.

We Don’t Need No Stinkin’ Guardrails

Last Sunday, David Brooks conceded in the New York Times that modern conservatism has abandoned the the last vestiges of liberty and freedom from the Reagan-Goldwater movement. Instead, Brooks writes, today’s right is all about authoritarianism. In a fit of candor that’s either refreshing or appalling – I’m not sure which – Brooks writes that not only is he okay with this, he embraces it. Brooks writes:

In the 1970’s and 80’s, conservatives felt the primary threat was the overweening nanny state. Ronald Reagan tried to loosen the structures that restricted individual initiative and led to national sclerosis. He and Margaret Thatcher deregulated, privatized, cut tax rates in order to liberate entrepreneurs. The dominant formula was simple: less government equals more freedom. “Government is the problem,” Reagan declared, expressing the organizing conservative principle of the day.

Times change. Now the chief problem is not sclerosis but disorder. The biggest threats come not from nanny states but from failed states and rogue states. There is less popular fear of bureaucrats possessing too much control than of ungoverned forces surging out of control: immigration, the federal debt, Iraqi sectarianism, Islamic radicalism, Chinese mercantilism, domestic rage and polarization.

According to Brooks, the remedy for these “isms” is state-imposed order. He dismisses market order as a “libertarian myth” from the 1980s, and calls for more of those ever-popular moral “guardrails” many on the right feel are necessary to keep society from sliding into social decay.

This is consistent with a lot of what’s come out from the big government right of late, many of whom not only pay little heed to what they derisively refer to as the “lifestyle libertarianism” or “leave us alone” crowd, but who actually see advocates for individual liberty as a threat. For a particularly absurd example, look to the conservative publication Human Events, which recently polled 15 “conservative scholars and public policy leaders” on the “most harmful” books of the last two centuries. Mill’s On Liberty garnered an honorable mention, ahead of Rachel Carson and Ralph Nader.

The threat of terrorism is real, of course. And reasonable people can disagree about what amount of government authority is appropriate to confront it. But beyond terrorism, I’m not sure what other trends or developments Brooks sees that cry out for government correction.

On the contrary, just about every social indicator over the last 15-20 years is pointing in a direction Brooks ought to find favorable: Teen pregnancy is down. Juvenile crime is down. Crimes against children are down. Incidence of rape is down. Overall crime is down. Divorce is down. Teens are waiting longer to have sex. High school dropouts are down. There are fewer abortions. Life expectancy in America continues to reach all-time highs. Unemployment remains low.

Pick a statistic. Odds are, it’s moving in the correct direction.

Oddly enough, all of these trends have been improving since at least the early-to-mid-1990s, the very period over which the family values crowd has been decrying the “coarsening of American culture.” Homosexuality has increasingly gained mainstream acceptance over that period. Unmarried couples have grown more likely to live together. The Internet has made pornography, gambling, and just about every fetish and taboo imaginable readily accessible within the privacy of one’s home, removing the barrier of public stigma. Satellite radio and cable television have brought South Park, the Sopranos, and raunchy comedy to the masses. And of course, strikingly realistic video game consoles have given us those infamous first-person shooter games and Grand Theft Auto. Finally, as any good Brent Bozell disciple will tell you, the last 15 years have also brought us Janet Jackson’s wardrobe malfunction, Howard Stern’s meteoric rise, gangsta’ rap, and Will and Grace.

So what gives? Seems to me that technology, relaxed public attitudes, and consumer choice have given Americans more lifestyle freedom over the last 15 years than we’ve ever had before. Yet not only is our national moral fabric not unraveling, it appears to be as durable and fibrous as it’s ever been.

So why exactly do we need more moral guardrails from the government aimed at restricting behavior?

(Interestingly, the one trend that hasn’t significantly declined over the last 15 years – or at least hasn’t receded as quickly as the others – is drug use. And that’s the one vice the government has been most aggressive about policing.)

Frankly, I think these statistics speak for themselves. We handle our liberty just fine, thanks. The vast majority of Americans don’t need government-imposed “guardrails.” Family, friends, churches, and other support networks more than suffice.


Debating the Massachusetts Health Plan

Tuesday the 23rd at noon, on Capitol Hill. I will be one of four participants. Details here.

My challenge will be to prioritize what I want to say. I have lots of criticisms of the Massachusetts plan, but I think I should stick to the most important ones. These are:

1. It doesn’t add up.

2. It leaves the elephants in the room. The two elephants in the health care room that no one wants to talk about are (a) the unfunded liability in Medicare and (b) what I call “gray-area medicine” (procedures that are long on cost and short on benefits). These elephants in the room are ignored in most discussions of health care policy, but they are addressed in Crisis of Abundance, a must-have book that incidentally makes a great gift.

3. Instead of freeing private insurers from its regulatory stranglehold, Massachusetts is creating a government-sponsored enterprise whose main advantage, if any, will be that it is exempt from some of the regulations that ordinary insurance brokers face.

4. Rather than bipartisan political compromise at the state level, I would prefer to see clean experiments. A single-payer approach in states that lean that one way, and a relatively unregulated and unsubsidized approach in states that lean the other.

But the interesting thing about the live event won’t be my planned remarks.  It will be the interaction with the other panelists and the audience.


Why Massive Tax Increases Are Not Inevitable

Optimistic economist (no, that’s not an oxymoron) David Henderson provides some food for thought on the question of whether the explosion in government spending – current and future – will inevitably lead to a tax increase. Henderson argues in this very compelling essay from the Hoover Institution’s journal Policy Review that the prospects for entitlement reform and spending restraint are not as grim as some conservatives and libertarians think they are.

Government revenue has never exceeded 21 percent of GDP in the past half-century. And as Brink Lindsey pointed out on this blog last week, government spending has been stable for at least a generation. These conditions persist for a variety of reasons, but Henderson suggests the primary influence is a “political equilibrium” we have reached in the U.S. That equilibrium is likely to tip in favor of entitlement reform as the Social Security and Medicare systems become more costly per worker than they are now.

Thus, the odds are that when it finally becomes politically necessary to do something about the entitlements problem, reform is likely to be the more politically preferred avenue than massive tax hikes. Just because something is not yet politically feasible, argues Henderson, does not mean it never will be.

Money quote:

“The budget numbers are such that various market-based reforms will be looked at seriously – soon and for a long time. We must not give up on these reforms because they are not politically popular today. What reformers should do, instead, is keep honing their proposals for reining in government spending and keep their powder dry.”