Bailout Gallows Humor:

TODD ZYWICKI points to a nice letter to the editor:

"While witnessing, but not participating in, the home real estate frenzy in 2005 and 2006, I kept asking: Who is the idiot buying up all these mortgages issued on inflated home prices to all these people who have neither the capacity nor the intention to repay the loans?

Now I learn it was me.

TED THACKER Ann Arbor, Mich."

Oh, it seems to be getting hard to avoid that sinking feeling, eh?

Chilling Bailout

ARNOLD KLING on bailout:

"I found this story too depressing to finish. It says that we have a bipartisan agreement on a bailout, and I read only as far as the proud quotes from Chris Dodd and Barney Frank.

The unemployment rate is 6.1 percent, about average for the last 30 years. What adversity there is in the real economy is due more to oil prices than to credit market developments. Acting historic emergency legislation now is like doing a heart transplant on a patient with a head cold or calling out the National Guard to stop a food fight in the school cafeteria.

The Case Against the Bailout seems compelling, or at least worth discussing. The case for it is a vague threat issued by the nation's leaders that awful things are in store if this is not done. Awful things are in store, all right. Because of what is about to be done.

For me, this is like watching an announcement that in order to restore order Washington is being taken over by a military coup. I find it that chilling."

Interventionism & The Lessons of History

Ludwig von Mises from his book INTERVENTIONISM:

This analysis is intended merely to explain that the economic policy of interventionism,which is advertised by its advocates as a progressive socio-economic policy, is based on a fallacy. This book demonstrates that it is not true that interventionism can lead to a lasting system of economic organization. The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, distress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the short-comings of earlier interventions, they will find eventually that they have adopted socialism.

[ . . . . ]

If there is anything history could teach us it would be that no nation has ever created a higher civilization without private ownership of the means of production and that democracy has only been found where private ownership of the means of production has existed.

Should our civilization perish, it will not be because it is doomed, but because people refused to learn from theory or from history. It is not fate that determines the future of human society, but man himself. The decay of Western civilization is not an act of God, something which cannot be averted. If it comes, it will be the result of a policy which still can be abandoned and replaced by a better policy. (pp. 92-93)

Our system of political economy today is very much interventionist. Of course it is also "capitalist" in that there is a large realm of private ownership of the means of production. One of the important things to learn from this book is that the policies of the interventionist don't accomplish the goals of the interventionist. But not to worry for the interventionist because for the interventionist this just means it will always seem like there is more work to do later on. In other words, the interventionist politician has a pretty good scam working in that the earlier interventions of legislation and regulation just turn into situations later that are seen as needing more legislation and more regulation. Aaron Wildavsky noticed this too, and in SPEAKING TRUTH TO POWER he explained his conclusion that government had never fixed any of the problems it sought to fix. Instead, it was his assessment that government merely created more and/or different problems for the future to face.

Ludwig von Mises ends his analysis of interventionism with the words I quote above. So, he seems to hold some optimism that we can, and might, still learn our lessons from history. Unfortunately, it seems to me that politics today suggests that not enough people have learned these lessons. There seem to be very few voices speaking about interventionism and the present financial situation. Certainly few of our politicians are speaking publicly about the present "crisis" by noting it is likely the result of earlier government interventions.

Take a look also at the policies advocated by the presidential candidates and by our two major political parties. The policy debates tend not to be about reducing the interventionism in our system of political economy, but rather they seem to be about which new intervention will be the better intervention. The "change" being debated is not a change away from interventionism and back toward capitalism. Pity. It seems too many refuse to learn from history.

FAN & FRED

A WSJ EDITORIAL take note of politics with respect to Fannie Mae and Fredie Mac:

"The MBS portfolios have long been both the chief source of the systemic risk posed by the two mortgage giants and of the profits that so handsomely enriched shareholders and officers alike for decades. Without the extreme leverage inherent in those portfolios -- which the companies borrowed heavily, at taxpayer-subsidized rates, to accumulate -- their federal takeover might never have become necessary.

For years, Mr. Frank and other friends of Fan and Fred opposed not only bills written to limit the size of their portfolios, but any bill that in their view gave an independent regulator too much discretion to order a reduction. This was true of the reform that his House committee passed last year. Only when the White House caved to Mr. Frank and dropped its earlier insistence that a reform bill rein in the portfolios did Mr. Frank move his bill."

I'm not trying to draw attention to the politician under the WSJ's spotlight here. I suppose if the staunch support didn't come from this politician it would have come from another politician. The point I want to draw attention to is that the failures of FAN and FRED have much to do with the failures of government. Check out the entire editorial and note the idea that "taxpayer-subsidized rates" are important parts of the story of these failures.

Congressional Secrecy & Corruption

Email from Senator DeMint:

The Senate will likely vote tomorrow on Sen. DeMint's amendment to the Defense Authorization bill. The amendment strikes Section 1002 that incorporates all of the secret earmarks written in committee reports, giving them the force of law even though they are not in the bill, not debated, not voted on, and not signed into law.

This "incorporation language" must be stopped.

- It effectively reverses the President's Executive Order that Porkbusters pushed him to issue, which aims to stop secret, non-legislative earmarks dead in their tracks.

- It forces agencies to make funding decisions based on the instructions they get from committee staff who author these reports rather than on merit.

- It prevents Congress from debating and voting on earmarks, which is the only true form of transparency and accountability.

- It sets a dangerous precedent that will be repeated if it is not challenged and stopped.

Please also note that the GOP earmark reform task force created by Sen. McConnell recommended that all earmarks be written into our bills. That's what the Constitution requires. The vote tomorrow on DeMint's amendment will test Republican support for this principle.

If the amendment is adopted, the earmarks in the reports will become what Sen. Durbin famously described as just a "note to your sister" and will not be legally binding. Instead, government agencies will be able to spend these taxpayer funds on true national priorities, not special interest politics.

Glenn Reynolds:

If people want appropriations for their pet projects, it seems to me they should have to ask for them publicly, have them reviewed through the usual channels, and have them voted for. Is that asking too much? Apparently. But efforts at putting secret earmarks through are likely to play badly right now, with the federal government already facing financial strain from bailing out corrupt, politically-connected entities like Fannie Mae.

I also notice that the press seemed a bit quicker to pick up on these earmark stories back when the GOP controlled Congress . . . .

I certainly hope earmarking will play badly these days. I think it should be regarded as unconstitutional for Congress to "act" without actually writing legislation for review by all members of Congress, much less by the public. And, if earmarking can't be seen as unconstitutional, then surely secrecy in spending decisions should suggest that our Congress is corrupt.

Earmarks: Senators vs. Governors

There is an article today in the Wall Street Journal about earmarks, and it seems to me the authors either (a) seek to use their article to influence public opinion negatively toward Governor Palin, or (b) they reveal their ignorance of the very matters they choose to report on. Here is how the article begins:

Last week, Republican presidential candidate Sen. John McCain said his running mate, Alaska Gov. Sarah Palin, hadn't sought earmarks or special-interest spending from Congress, presenting her as a fiscal conservative. But state records show Gov. Palin has asked U.S. taxpayers to fund $453 million in specific Alaska projects over the past two years.

These projects include more than $130 million in federal funds that would benefit Alaska's fishing industry and an additional $9 million to help Alaska oil companies. She also has sought $4.5 million to upgrade an airport on a Bering Sea island that has a year-round population of less than 100.

The article begins by noting that the governor of Alaska asked the national government for funding for projects in Alaska. So, who is surprised by this? I suspect many people in Alaska, as well as people in each of the rest of the 50 states, expect this to be part of the normal job responsibilities of their governor. Perhaps the Alaska state legislature was involved in these projects as well.

The article moves on to bring up the controversy over earmarks, and seems to take it for granted that Governor Palin was asking for earmarks:

During an appearance Friday on ABC's "The View," Sen. McCain said Gov. Palin shared his views, and hasn't sought congressional earmarks. "Not as governor she hasn't," he said.

In fact, in the current fiscal year, she is seeking $197 million for 31 projects, the records show. In the prior year, her first year in office, she sought $256 million for dozens more projects ranging from research on rockfish and harbor-seal genetics to rural sanitation and obesity prevention. By comparison, her predecessor, Gov. Frank Murkowski, sought more than $350 million in his last year in office.

Now, I may be a fool, but it seems to me that phrases like "she is seeking" and "she sought" are inaccurate, and quite possibly intentionally chosen to distort. It seems to me that Governor Palin was not acting for herself, but instead, that she was carrying out her duties as governor of "the great state of Alaska." In other words, it was the state of Alaska that was seeking funds from the national government for "projects ranging from research on rockfish and harbor-seal genetics etc."

The article ends by noting the McCain campaign, including Governor Palin, has been critical of Senator Obama's record with respect to earmarks:

On the campaign trail, Gov. Palin has repeatedly attacked Sen. Obama on earmarks. "Our opponent has requested nearly one billion dollars in earmarks in three years. That's about a million for every working day," she said at a rally in Albuquerque, N.M.

Sen. Barack Obama requested a total of $860 million in earmarks in his Senate years, according to Taxpayers for Common Sense. That doesn't include $78 million for projects that were national in scope and had been requested by many lawmakers. Sen. Obama halted all earmark requests in fiscal 2009.

It is difficult to compare Sen. Obama's earmark record with Gov. Palin's -- their states differ in size, for instance, and the two candidates play different roles in the process. . . .

Indeed, Senator Obama and Governor Palin do have different roles to play with respect to earmarks, while Senators Obama and McCain play quite the same roles with respect to earmarks.

The practice of earmarking is a Congressional practice. Both Senator Obama and Senator McCain are members of Congress, and therefore both Senator Obama and Senator McCain can participate in the corrupt practice of Congressional earmarking. In stark contrast, Governor Palin is not a member of Congress, and therefore Governor Palin cannot choose to engage in the corrupt practice of Congressional earmarking.

Why do I say Congressional earmarking is corruption? In case you haven't been paying close attention to the scandal that is Congressional earmarking consider the following explanation from an article at Harpers online:

Only later, after the approved bill had been shuffled off to the President for signature, could lawmakers and laymen alike peruse its contents in earnest. Scattered throughout the bill were hundreds of hastily inserted pages of “earmarks,” or allocations for local projects that are tucked into federal budgets. As approved at the November 17 appropriations meeting, the Foreign Operations bill had contained a mere nine earmarks. The omnibus measure, which was completed after two feverish days of work, allocated money for 11,772 separate earmarks. There was $100,000 for goat-meat research in Texas, $549,000 for “Future Foods” development in Illinois, $569,000 for “Cool Season Legume Research” in Idaho and Washington, $63,000 for a program to combat noxious weeds in the desert Southwest, $175,000 for obesity research in Texas. In the end, the bill’s earmarks were worth a combined total of nearly $16 billion—a figure almost as large as the annual budget of the Department of Agriculture and roughly twice that of the Environmental Protection Agency. It was the biggest single piece of pork-barrel legislation in American history.

Of who added these grants, no public record exists. Except in rare cases, members of Congress will refuse to discuss their involvement in establishing earmarks, and the appropriations committees have a blanket rule against commenting. Often it is difficult to discern even who is receiving the funds: earmarks are itemized in bills but generally without disclosure of the direct recipient—just a dollar amount, destination, and broad purpose. Indeed, in the matter of the $16 billion burglary, and the similar acts of mass theft plotted for this year, the only certainty seems to be this: that lawmakers and lobbyists collude to conceal, to the utmost extent possible, their actions from the American taxpayer, who serves as the ultimate benefactor to their chronic bouts of generosity.

What do members of Congress want to hide when it comes to the practice of earmarking? Their corruption of course. Please allow me to quote myself so that I might try to drive the point home:

It's kind of hard for me to imagine that our Constitution is consistent with the practice of earmarks. It is certainly true that the Constitution grants Congress the power to tax and spend on programs consistent with the enumerated powers of Congress. But this is a power of Congress and not a power granted to each individual member of Congress. Earmarks allow Congressman X or Senator Y to say that project Z back home, which is the brain child of Mr. K (a friend? neighbor? contributor?), will get money from taxpayers all across the country.

Individual members of Congress have been allowed the opportunity to individually use the government's power to tax in order to pay friends, family, favored political supporters, and maybe even themselves on at least some occasions. That's corruption, and if it wasn't corruption then as a member of Congress you would want your constituents to know the many ways in which you've been bringing back home the Congressional bacon.

As a matter of Senators versus Governors, Governors simply cannot choose to make a Congressional earmark, nor can they choose to hide their earmarks from public review. Actually I can imagine that the so-called "earmark" requests of Governor Palin arrived in Washington on official Governor of Alaska letterhead. In contrast, the part in the earmarking process played by individual members of Congress not only does not appear on their official letterhead, but the earmarks themselves do not appear in written form in legislation and often there is meant to be no official and public way to tie an earmark to the member of Congress who makes it.

So, how do Senators Obama and McCain stack up with respect to earmark corruption? Since I've been following this scandal I know that Senator McCain has fought in the Senate to end the practice. While I've not followed Senator Obama closely on this issue, my impression is that he did not fight against the practice in the past.

With respect to the authors of the Wall Street Journal article, they seem to me to have made little effort to help the reader understand the corruption of earmarks and the role in earmarks played by Senators versus Governors. Does this reflect ignorance or bias?

[Hat Tip: Instapundit]

Wits To Prosper

Deirdre McCloskey in THE BOURGEOIS VIRTUES:

"The real danger comes from assaults on the human capital that made land scarcity irrelevant in the first place. We can pollute Lake Erie. In fact, we did. During the 1960s every environmentalist declared with angry assurance that Erie was biologically dead forever, kaput, finite, over. And yet in the 1990s we can bring it back for fishing and swimming, and did, if we have our wits about us. . . . . The modern world is different from a zero-sum world, which Malthus theorized just as it was disappearing forever. . . .If we have our wits about us. Responding to the real danger threatening our future, I argue, requires attention to human freedom. It is human freedom which has given us the wits to prosper." (34-35)

I have not yet read her entire book, but I think the first chapter is a marvelous defense of capitalism and freedom.

Taxing The Wealthy

We hear pretty often in politics these days about "tax cuts for the wealthy" and about taxing the wealthy because they can afford to pay. The underlying assumption of those who speak of such things seems to be that reducing taxes on the wealthy would surely not be in the interest of those who aren't wealthy. Perhaps there is something to be learned from Ludwig von Mises on such issues:

"Popular opinion is inclined to believe that the taxing away of huge incomes does not concern the less wealthy classes. This is a fallacy. The recipients of higher incomes usually consume a smaller proportion of their incomes and save and invest a larger part than the less wealthy. And it is only through saving that capital is created. Only that part of income that is not consumed can be accumulated as capital. By making the higher incomes pay a larger share of the public expenditures than lower inncomes, one impedes the operation of capital and eliminates the tendency, which prevails in a society with increasing capital, to increase the marginal productivity of labor and therefore to raise wages." [Ludwig von Mises, Interventionism, p. 51]

Friedman Says -- Innovation Policy Please

THOMAS FRIEDMAN:

"What I found missing in both conventions was a sense of priorities. Both Barack Obama and John McCain offered a list of good things they plan to do as president, but, since you can’t do everything, where’s the focus going to be?

That focus needs to be on strengthening our capacity for innovation — our most important competitive advantage. If we can’t remain the most innovative country in the world, we are not going to have $1 billion to toss at either the country Georgia or the state of Georgia.

While we still have enormous innovative energy bubbling up from the American people, it is not being supported and nurtured as needed in today’s supercompetitive world. Right now, we feel like a country in a very slow decline — in infrastructure, basic research and education — just slow enough to lull us into thinking that we have all the time and money to play around in Tbilisi, Georgia, more than Atlanta, Georgia."

Both candidates are now talking about "change" as a center point in their campaigns. It seems to me they don't want to be too explicit about the changes they would like to see happen. Still Senator McCain seems to be saying that he specifically wants to change the way Congress is corrupt with respect to earmarks. I would like to see the corrupt practice of earmarking ended.

Senator Obama's "change" most often seems to me just about changing the political party that claims the occupant of the White House. And, when Senator Obama talks about possible changes in policy, then I start to get a bit concerned because of the issue discussed in my last post. You see, I agree with Friedman that it would be good if the policies of the next President were good for innovation and entrepreneurship in the United States. Unfortunately, in my view, the very liberal policies Senator Obama has voted for in the past tend to be the sorts of policies that reduce innovation and entrepreneurship over time.

Instead of turning to Washington and government policies for change, perhaps we would do well to realize that change happens all the time in our lives and in our system of political economy. Sometimes the change is not so good, but most often the economic changes in a system of political economy like ours have been, over time, good for our standard of living. Over time, the changes that have allowed us all to enjoy greater prosperity are the changes that follow from innovation and entrepreneurship. And, of course, the innovation and entrepreneurship flow from the private sector and capitalism, not from the interventionist public policies of Congress and the Presidency. Senator McCain may understand this. Senator Obama's past suggests he likely does not understand this.

Obama Searching For The Median

VICTOR DAVIS HANSON:

"It is interesting how Obama has been evolving toward McCain’s positions rather than vice versa. Take Iran. At first, to Obama it posed little threat; now it is a danger large indeed—as McCain insisted all along. Obama used to ridicule the surge and claim it had failed; now he assures us that it has worked beyond our wildest dreams. Obama was opposed to oil drilling, and was silent about coal and nuclear power. Now suddenly he has dropped mention of inflating our tires, and is referring to oil, gas, coal, and nuclear production as legitimate means to wean ourselves off foreign oil. In political terms, all this is wise, since voters ultimately want to be reassured about centrist positions rather than worry over consistency. As Anbar quiets and we leave, expect him to suggest his pressure and criticism were responsible for the Iraqi government’s turn-about.

On matters like abortion, capital punishment, gun control and FISA, Obama again moves closer to McCain rather than vice versa. Apparently, he realizes that no northern Democratic liberal has been elected since JFK, nearly a half-century ago—an amazing fact in and of itself—and so has to follow the Bill Clinton centrist route, which can be accomplished by a variety of measures."

It is interesting, and it does seem to be happening. The simple voting model in economics that says the preferences of the median voter will determine the outcome of an election seems to apply in this case.

It has been observed that Senator Obama has the most liberal voting record in the Senate, and then he picked the 3rd most liberal senator in Senator Biden to join him on the ticket. Unless the median voter preferences in the country are very liberal, it would seem that Senator Obama has quite a ways to go to get to the median. Mr. Hanson's observations suggest that even Senator Obama recognizes that his past policy preferences aren't likely to capture the median voter's preferences.

Now I have to wonder if Senator Obama is going to be successful in his search to appeal to the median voter. Will voters decide that his past policy preferences are his true policy preferences? Or will voters decide that what he says now actually reflects his true policy preferences?

The Real Economic Scorecard

ROBERT SAMUELSON takes a look at the economy:

"Just last week, the Census Bureau released its annual study of household incomes, poverty and health insurance -- often called the nation's 'economic report card.' Its hard numbers seemed to confirm how many Americans feel. Sure, we're prosperous, but prosperity is fraying. Except for the rich, living standards are stagnant. Poverty is up; health insurance coverage is down. Naturally, both Barack Obama and John McCain seized upon the report to claim that their policies would restore progress.

Hold it.

Though echoed by policy wonks, pundits and politicians -- last week, Bill Clinton -- the conventional wisdom is wrong or, at least, misleading. Here's a more accurate assessment. For most Americans, living standards are increasing, albeit slowly, over any meaningful period. But rising health spending is eroding take-home pay, and immigrants are boosting both poverty and the lack of health insurance. Unless we control health spending and immigration, the economic report card will continue to disappoint. Unfortunately, neither Obama nor McCain seriously addresses these problems."

Samuelson makes sense to me. He specifically suggests three reasons why the "conventional wisdom" of the politicians paints an inaccurate picture. One of these reasons I think we should pay particular attention to:

Low-skilled immigrants, concentrated among Hispanics, outnumber the high-skilled. They drag down median incomes and raise poverty and the number of uninsured. One way to filter out the effect on income is to examine groups with few immigrants or their American-born children. Consider non-Hispanic white families. From 1997 to 2007, their median incomes rose about $6,000, to $69,937, a gain of about 9 percent. For black families, the increase was also about 9 percent, though only to $40,222. Again, not stagnation.

Immigration's effects on poverty and health insurance coverage are greater. Since 1990, Hispanics numerically account for all the increase in the number of officially poor. Similarly, immigrants represented 55 percent of the increase of the uninsured from 1994 to 2006, says the Employee Benefit Research Institute. Many unskilled workers can't get well-paid jobs with insurance.

Perhaps another way of putting his point is that the country is effectively importing poverty. It strikes me as a bit odd for public policy to be to import poverty while at the same time our politicians get on the stump and say they will create new government programs to end poverty. It seems that much of the recent "measured" increase in poverty could be "cured" by changing immigration policy.

But perhaps there is another, more ironic, point to consider. The conventional "wisdom" is that the economy is struggling through a bad time. Perhaps. But, the idea that the country is importing poverty suggests there is a bigger picture and a larger truth. Those who come to this country, whether legally or illegally, do so because they expect to be able to become better off here than they can be if they stay where they come from. Not only is the country importing poverty, but in doing so the country's economy provides the means by which many people are escaping even worse poverty. The economy of this country is not only able to import poverty but it is able to improve the lives of those our census bureau "measures" to be in poverty. Isn't it ironic that even in times of a struggling economy in this country, the country as a whole is still an "engine" and the means by which so many do better for themselves.

While it seems ironic, perhaps there is a serious danger lurking in our politics these days. If we misunderstand the economic picture, especially the larger truth of our economy, then it becomes more likely that the public policies that will follow this election cycle will impede and diminish the ability of our economy to continue to be the engine by which so many prosper.

Candidates & The Court

Pastor Rick Warren interviewed the presidential candidates on Saturday. He asked each senator which Supreme Court Justice he would not have nominated. Here are Senator Obama's views:

"WARREN: OK. The courts. Let me ask it this way. Which existing Supreme Court justice would you not have nominated?

OBAMA: That's a good one. That's a good one. I would not have nominated Clarence Thomas. [ applause ] I don't think that he -- I don't think that he was as strong enough jurist or legal thinker at the time for that elevation, setting aside the fact that I profoundly disagree with his interpretations of a lot of the Constitution. I would not nominate Justice Scalia, although I don't think there's any doubt about his intellectual brilliance, because he and I just disagree. He taught at the University of Chicago, as did I in the law school.

WARREN: How about John Roberts?

OBAMA: John Roberts, I have to say was a tougher question only because I find him to be a very compelling person, you know, in conversation individually. He's clearly smart, very thoughtful. I will tell you that how I've seen him operate since he went to the bench confirms the suspicions that I had and the reason that I voted against him, and I'll give you one very specific instance and this is not a stump speech.

WARREN: All right.

OBAMA: I think one of the -

WARREN: I think --

OBAMA: Right, exactly. I'm getting the cues. I'm getting the cues. One of the most important jobs of, I believe the Supreme Court is to guard against the encroachment of the executive branch on the other, the power of the other branches.

WARREN: OK.

OBAMA: And I think that he has been a little bit too willing and eager to give an administration, whether it's mine or George Bush's, more power than I think the Constitution originally intended."

So, Senator Obama seems to disagree with the constitutional interpretations of Justices Thomas, Scalia, and Roberts. How about Senator McCain:

[WARREN:] "The first one is on the courts. Which existing Supreme Court Justices would you not have nominated?

MCCAIN: With all due respect, Justice Ginsburg, Justice Breyer, Justice Souter, and Justice Stephens.

WARREN: Why? Tell me why.

MCCAIN: Well, I think that the president of the United States has incredible responsibility in nominating people to the United States Supreme Court. They are lifetime positions, as well as the federal bench. There will be two or maybe three vacancies. This nomination should be based on the criteria of proven record, of strictly adhering to the Constitution of the United States of America and not legislating from the bench. Some of the worst damage has been done by legislating from the bench. (APPLAUSE).

And by the way, Justices Alito and Roberts are two of my most recent favorites, by the way. They really are. They are very fine. (LAUGHTER). And I'm proud of President Bush for nominating them."

Senator McCain seems to disagree with the constitutional interpretations of Justices Ginsberg, Breyer, Souter, and Stephens.

In my view the Constitution defines a limited national government and as written it seems to me to protect individual economic liberty. The opinions of Justices Scalia, Thomas, Roberts and Alito are mostly consistent with this view, while the opinions of Justices Ginsberg, Breyer, Souter, and Stephens are inconsistent with this view. I agree with McCain's answer.

I also must mention one pet peeve of mine which comes up in Senator Obama's answer:

". . . more power than I think the Constitution originally intended."

I don't believe a piece of paper can have intentions.

Prosperity & Its Discontents

JONAH GOLDBERG ON CAPITALISM and prosperity:

"Capitalism is the greatest system ever created for alleviating general human misery, and yet it breeds ingratitude.

People ask, “Why is there poverty in the world?” It’s a silly question. Poverty is the default human condition. It is the factory preset of this mortal coil. As individuals and as a species, we are born naked and penniless, bereft of skills or possessions. Likewise, in his civilizational infancy man was poor, in every sense. He lived in ignorance, filth, hunger, and pain, and he died very young, either by violence or disease.

The interesting question isn’t “Why is there poverty?” It’s “Why is there wealth?” Or: “Why is there prosperity here but not there?”

At the end of the day, the first answer is capitalism, rightly understood. That is to say: free markets, private property, the spirit of entrepreneurialism and the conviction that the fruits of your labors are your own."

I like his point about the "default position." Looking over the course of world economic history, the important question does seem to be: Why do some countries enjoy great prosperity while others don't? It seems to me the answer to this question has to involve the idea that the for what ever reason the prosperous countries have governments sufficiently limited in scope and sufficiently attentive to protecting individual economic liberty. Or, in other words, what Goldberg says in his last paragraph above.

Greenspan's View

ALAN GREENSPAN'S WISDOM:

"The economic edifice – market capitalism – that has fostered this expansion is now being pilloried for the pause and partial retrenchment. The cause of our economic despair, however, is human nature’s propensity to sway from fear to euphoria and back, a condition that no economic paradigm has proved capable of suppressing without severe hardship. Regulation, the alleged effective solution to today’s crisis, has never been able to eliminate history’s crises.

[ . . . ]

We may not easily confront or accept the price dynamics of home and equity prices, but we can fend off cries of political despair which counsel the containment of competitive markets. It is essential that we do so. The remarkably strong performance of the world economy since the near universal adoption of market capitalism is testament to the benefits of increasing economic flexibility.

It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. In reality, the past decade has seen mounting global forces (the international version of Adam Smith’s invisible hand) quietly displacing government control of economic affairs. Since early this decade, central banks have had to cede control of long-term interest rates to global market forces. Previously heavily controlled economies – such as China, Russia and India – have embraced competitive markets in lieu of bureaucratic edict. The danger is that some governments, bedevilled by emerging inflationary forces, will endeavour to reassert their grip on economic affairs. If that becomes widespread, globalisation could reverse – at awesome cost."

Obama Promises Energy

SENATOR OBAMA SPOKE ABOUT new energy for America today:

"If I am President, I will immediately direct the full resources of the federal government and the full energy of the private sector to a single, overarching goal – in ten years, we will eliminate the need for oil from the entire Middle East and Venezuela. To do this, we will invest $150 billion over the next ten years and leverage billions more in private capital to build a new energy economy that harnesses American energy and creates five million new American jobs."

Oh dear, I don't think I like the sounds of this. Notice first that Senator Obama promises, if President, to direct the full energy of the private sector. Oh my, I wonder what the Senator has been reading to think that he can direct the full energy of the private sector? If the Senator, as President, could direct the full energy of the private sector toward anything, then would there be a private sector?

Quick get out your copy of the Constitution, and see if the President has the constitutional power to direct the full energy of the private sector. Nope, I can't find this power listed there, can you?

So, what do you suppose he means when he says "the full energy of the private sector?" The private sector encompasses an awful lot of stuff, including resources directed to producing homes, schooling, restaurants, baseball bats, golf clubs, tennis shoes, cell phones, and of course this list has to be enormously long. Does he really want to direct the full energy of the private sector to just one goal?

I must say, I see such a campaign promise to reveal the Senator as someone who may well understand virtually nothing of "the basic principles upon which this civilization was built."

And, then of course, even though I think he has taught constitutional law, he may not have consulted his copy of the constitution lately. Because the second thing I note is that he promises to direct the full resources of the federal government to his one favorite goal. Again, I'm not liking the sounds of this. I believe a great deal of the power that will be necessary to accomplish directing the full resources of the federal government has to be power that is, as a matter of our constitution, the power of Congress.

Now, this is starting to sound a bit familiar to me. I can't quite pull from my memory where I've heard this sort of thing done before. Hmmm. Wait a minute, something is coming to me. Yep, I've got it now. President Chavez of Venezuela, didn't he decide to essentially become the government so he could direct the full resources of the government to his purposes? And, didn't President Chavez decide to "nationalize" oil so that he could direct the full energy of what was a private oil sector in the economy?

But of course, there is still more in the one paragraph of promises quoted above. When the Senator says "we will invest" I wonder who the "we" is? I'm afraid he is not talking about investing his own money or the money of his family or even the money of his campaign. I'm afraid he's talking about investing some of the money I will earn over the next 10 years. Oh my, the Senator and his friends in Washington already have plans for "investing" a significant part of the money I will earn over the next 10 years for social security checks and medicare payments for the retired (i.e., those no longer earning an income).

Of course, the President doesn't have the power to tax, and the President doesn't have the power to create a budget for the federal government. So, maybe the President has already talked this over with Congress, and the "we" is both the President and the Congress. Or, maybe the Senator is simply making a grand promise he well knows he cannot keep by his own actions alone.

Or, maybe the Senator and his friends have some pretty grand plans for our government that are quite inconsistent with "the basic principles upon which this civilization was built."

And, I haven't even noted his reference to "leverage" billions in private capital. Enough is enough! At least for now.

What If Iraq Works?

Victor Davis Hanson considers the future of power & prosperity in Iraq:

"Iraq could still degenerate into one of those models. But for now, Iraq -- with an elected government and free press -- is not investing its wealth in subsidizing terrorists outside its borders, spreading abroad fundamentalist madrassas, building centrifuges or allowing a few thousand royal first cousins to squander its oil profits.

Iraq for the last 20 years was the worst place in the Middle East. The irony is that it may now have the most promising future in the entire region."

Energy Conservation

Be a patriot and check your tires daily.

Obama Believes Rational Ignorance

ANN ALTHOUSE considers Senator Obama's inconsistency:

"Does he think we are idiots?"

Just another illustration of a politician assuming voters are rationally ignorant, eh?

On Obama's Sense Of Patriotism

Senator Obama's speech on patriotism includes:

As I got older, that gut instinct - that America is the greatest country on earth - would survive my growing awareness of our nation's imperfections: it's ongoing racial strife; the perversion of our political system laid bare during the Watergate hearings; the wrenching poverty of the Mississippi Delta and the hills of Appalachia. Not only because, in my mind, the joys of American life and culture, its vitality, its variety and its freedom, always outweighed its imperfections, but because I learned that what makes America great has never been its perfection but the belief that it can be made better. I came to understand that our revolution was waged for the sake of that belief - that we could be governed by laws, not men; that we could be equal in the eyes of those laws; that we could be free to say what we want and assemble with whomever we want and worship as we please; that we could have the right to pursue our individual dreams but the obligation to help our fellow citizens pursue theirs.

Unfortunately, the Senator's view seems not to include economic liberty in the things he values. I suspect the men and women of our founding period were much more comfortable believing with John Locke that the endowment of individual liberty included the ownership of the fruit of our labor than they would be believing with Senator Obama today that there is an obligation to others that should be enforced through a government.

The Senator finds patriotism in holding a commitment to ideals:

That is why, for me, patriotism is always more than just loyalty to a place on a map or a certain kind of people. Instead, it is also loyalty to America's ideals - ideals for which anyone can sacrifice, or defend, or give their last full measure of devotion. I believe it is this loyalty that allows a country teeming with different races and ethnicities, religions and customs, to come together as one. It is the application of these ideals that separate us from Zimbabwe, where the opposition party and their supporters have been silently hunted, tortured or killed; or Burma, where tens of thousands continue to struggle for basic food and shelter in the wake of a monstrous storm because a military junta fears opening up the country to outsiders; or Iraq, where despite the heroic efforts of our military, and the courage of many ordinary Iraqis, even limited cooperation between various factions remains far too elusive.

I believe those who attack America's flaws without acknowledging the singular greatness of our ideals, and their proven capacity to inspire a better world, do not truly understand America. [emphasis mine]

Given the Senator's interest in cooperation and understanding, perhaps it is also unfortunate that the Senator ignores one of the most important ideals for the success of our system of political economy. Specifically, his view of the ideals important to this country seem to neglect (perhaps avoid) the obvious idea of a system of free markets.

Perhaps if the Senator becomes president I will have my own opportunity to be a patriot:

We may hope that our leaders and our government stand up for our ideals, and there are many times in our history when that's occurred. But when our laws, our leaders or our government are out of alignment with our ideals, then the dissent of ordinary Americans may prove to be one of the truest expression of patriotism. . . . Recognizing a wrong being committed in this country's name; insisting that we deliver on the promise of our Constitution - these are the acts of patriots, men and women who are defending that which is best in America. . . .

I would like to insist that our elected leaders pay much more attention to our Constitution. Our Constitution is supposed to be a constitution for a limited government, one which has only the powers specifically enumerated in the constitution itself. If those politicians in Congress and in the office of the President defended the Constitution, then government would be much, much smaller and markets would be much, much more free. If the Senator's speech on patriotism included an emphasis on economic liberty, an emphasis perhaps on freeing our markets, then I would think the Senator was indeed a patriot to the ideals on which our country was founded. Because the ideal of economic liberty seems no where to be found in the Senator's speech on patriotism, if he is elected I suspect I will frequently get my chance to be a patriot by pointing out that he and his political colleagues are not delivering on the promise of our Constitution.

Senator Obama also speaks about what we should teach our children:

As we begin our fourth century as a nation, it is easy to take the extraordinary nature of America for granted. But it is our responsibility as Americans and as parents to instill that history in our children, both at home and at school. The loss of quality civic education from so many of our classrooms has left too many young Americans without the most basic knowledge of who our forefathers are, or what they did, or the significance of the founding documents that bear their names. Too many children are ignorant of the sheer effort, the risks and sacrifices made by previous generations, to ensure that this country survived war and depression; through the great struggles for civil, and social, and worker's rights.

It is up to us, then, to teach them. It is up to us to teach them that even though we have faced great challenges and made our share of mistakes, we have always been able to come together and make this nation stronger, and more prosperous, and more united, and more just. It is up to us to teach them that America has been a force for good in the world, and that other nations and other people have looked to us as the last, best hope of Earth. It is up to us to teach them that it is good to give back to one's community; that it is honorable to serve in the military; that it is vital to participate in our democracy and make our voices heard.

And it is up to us to teach our children a lesson that those of us in politics too often forget: that patriotism involves not only defending this country against external threat, but also working constantly to make America a better place for future generations.

Once again it seems to me the Senator's view of this country misses one of the most important reasons for success. Where in his list of things to teach is the value of economic liberty, free markets, and capitalism?

Good Taxes or Bad Taxes?

One of the economic ideas about public policy that comes from the concept of a corrective tax for a negative externality is that in choosing tax bases we should tax the "bad things" (e.g. pollution) while leaving the "good things" (e.g. income, savings, investment) untaxed. GREG LOPEZ has a different view:

My rejection in a nutshell: The knowledge of which things are good or bad, in which circumstances of time and place, and to what dollar amount, are beyond the reach of anyone including policymakers; but even absent the knowledge problem, the incentive problem ensures that the enacted policies would be diverted by compromise from what little we do happen to know of the public interest.

In short, Hayek and Buchanan trump Pigou.

[ Hat Tip: Peter Boettke ]