On Advocating Interventionism

Ludwig von Mises:

With a few exceptions contemporary commentators on economic problems are advocating economic intervention. This unanimity does not necessarily mean that they approve of interventionistic measures by government or other coercive powers. Authors of economics books, essays, articles, and political platforms demand interventionistic measures before they are taken, but once they have been imposed no one likes them. Then everyone--usually even the authorities responsible for them--call them insufficient and unsatisfactory. Generally the demand then arises for the replacement of unsatisfactory interventions by other, more suitable measures. And once the new demands have been met, the same scenario begins all over again. The universal desire for the interventionist system is matched by the rejection of all concrete measures of the interventionist policy. (A Critique of Interventionism, p. 33)

Interstate Commerce & the Health Insurance Mandate

Today the Supreme Court begins three days of oral argument with respect to judging the constitutionality of the Affordable Care Act (ACA), which is often referred to as either "health care reform" or "Obamacare." The Constitution is conceptually constructed on the idea of "we the people" granting specific powers to Congress by writing a list of "enumerated powers" in Article 1, Section 8 of the Constitution. Congress is supposed to have only the powers that are specifically enumerated, and when Congress creates a statute that falls outside the enumerated powers such a statute is supposed to be declared to not be law.

Thus, a key issue before the Supreme Court is whether or not the Constitution includes an enumerated power by which members of Congress (along with the President who also swears an oath to protect and defend the Constitution) have the power to create various statutory provisions in the ACA. Specifically, the question is whether Congress has the enumerated power to require every person to purchase government defined "minimum" health insurance coverage.

It is clear that such a power is not directly enumerated in the Constitution. The Congress may still have the power to act as it has in the ACA if the power to require the purchase of insurance can be said to fall within one of the enumerated powers. Congress and the President have asserted that the power does in fact fall within the enumerated power to regulate interstate commerce. Here is the relevant constitutional text:

The Congress shall have Power . . . . To regulate Commerce . . . among the several States . . . .

Notice that the words in the Constitution do not say "Congress shall have the power to regulate interstate commerce." However, I do think "interstate commerce" is a good modern statement of the meaning of the words "among the several states."

Does this enumerated power mean that Congress has the power to compel a person to purchase health insurance with certain "minimum" coverage? Former Senator Tom Daschle says yes:

"From both a legal and practical perspective, the choice is clear. Congress was well within its authority in passing the individual mandate to regulate the interstate effects of an industry that is almost 20 percent of our nation’s economy— more than $2.5 trillion each year."

It seems to me Mr. Daschle must think the interstate commerce clause of the Constitution is: Congress shall have the power to regulate economic activity. In addition, Mr. Daschle must think that the word "regulate" includes the meaning of the word "mandate." Mr. Daschle is not alone in this view of the interstate commerce clause, and many decades of Supreme Court constitutional jurisprudence has, at times, come very close to explicitly writing just what Mr. Daschle writes in this quote. So, if your reading of the Constitutional text suggests to you that Congress does not have the power to compel a person to purchase anything, not even health insurance, don't be quick to assume that the Supreme Court will say the Congress does not have this power.

In my view, such conclusions about the meaning of the interstate commerce clause amount to the Court's constitutional jurisprudence having essentially amended the Constitution to say something like: Congress shall have the power regulate, compel and prohibit economic activity. Well, maybe the Court hasn't yet said that Congress has the power to compel economic activity, but if it decides that the health insurance mandate is constitutional, then I suggest the Court's own copy of the Constitution must read as I suggest.

What does the power to regulate interstate commerce mean? First, I suggest commerce means an exchange between two persons, one being the buyer and the other the seller. Commerce does not mean any and all economic activity. For example, commerce does not include production activities (and the Court said this was so for many, many years, but not often now). Second, interstate commerce would mean an exchange such that the buyer is in one state and the seller is in another state. It does not mean an exchange between a buyer and a seller in the same state (and the Court said this for many years, but not so much now). Third, regulate means to specify rules, not to compel or to prohibit. It doesn't make sense to specify rules for commerce, or for exchanges, when there are no exchanges, regardless of whether there are no exchanges because there are people who do not want to exchange or there are people who want to exchange that have been prohibited from doing so because of government's prohibition (and the Court has said this at times with respect to prohibition).

Therefore, it seems to me that Congress has the constitutional power to specify rules for the interactions between a buyer and a seller who are located in different states.

Contrary to Mr. Daschle's apparent view of the Constitution, Congress does not have the power to regulate or to compel any economic activity just because such activity, in aggregate, can be said to involve a big number for the money that changes hands in all exchanges combined. There can be only exchanges by persons in one state that when accounted for in aggregate involve a large dollar figure.

The Court should say the Congress has the power to specify rules by which a buyer in one state and a seller in another state will exchange money for a health insurance contract. The Court should also say that this is the extent of the constitutional power of Congress with respect to health insurance. Of course, many today will say this limits Congress far too much. Such an understanding of the Constitution does indeed imply a Congress, and a President, with little power to intervene in our economic affairs. But, this is what the words in the Constitution actually say, and it is a view of limited government that the constitutional framers put before "we the people" to be ratified. If many today think the words in the Constitution should be different, then these words should be made different by a proper amending of the Constitution. After all, regardless of Court opinions, unless the words are amended, the words in the Constitution are still "The Congress shall have Power to regulate commerce among the states."

Quote of the Day

Tom Sowell:

Dependency pays off for politicians, even when it damages an economy or ruins a society.

Dimensions of Our Minds

F.A. Hayek:

What individualism teaches us is that society is greater than the individual only in so far as it is free. In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it. If the presumption of the modern mind, which will not respect anything that is not consciously controlled by individual reason, does not learn in time where to stop, we may, as Edmund Burke warned us, "be well assured that everything about us will dwindle by degrees, until at length our concerns are shrunk to the dimensions of our minds." ["Individualism: True and False]

Quote of the Day: Built To Last

President Obama in his recent state of the union address:

"Think about the America within our reach: A country that leads the world in educating its people. An America that attracts a new generation of high-tech manufacturing and high-paying jobs. A future where we're in control of our own energy, and our security and prosperity aren't so tied to unstable parts of the world. An economy built to last, where hard work pays off, and responsibility is rewarded."

Oh my, "an economy built to last." Economies are not built. Economies are "of human action, not of human design." Economies are emergent and dynamic and evolving.

Well, at least this is true for the catallaxy (thank you Hayek). But perhaps a personal economy can be humanly designed. What would an economy that could be personally designed look like? It would probably look something like me living alone on a farm/ranch some where in the middle of a plains state, perhaps around 1860. I could control my farm/ranch economy so I could design it and imprint my "built to last" motto over the fireplace. However, without being able to rely on the division of labor and exchanges with others, my built to last economy would provide a rather meager and subsistence way of life.

Sowell On Equality

Both Sowell and Uncle Milty are great in this video. In view of the recent State of the Union address, this should be required watching, eh?

Chevy Volt

TOM GANTERT:

"Each Chevy Volt sold thus far may have as much as $250,000 in state and federal dollars in incentives behind it – a total of $3 billion altogether, according to an analysis by James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy.

[. . . .]

GM has estimated they’ve sold 6,000 Volts so far. That would mean each of the 6,000 Volts sold would be subsidized between $50,000 and $250,000, depending on how many government subsidy milestones are realized.

[. . . .]

“It just goes to show there are certain folks that will spend anything to get their vision of what people should do,” said State Representative Tom McMillin, R-Rochester Hills. “It’s a glaring example of the failure of central planning trying to force citizens to purchase something they may not want. … They should let the free market make those decisions.”"

I hope you remember Magnum P.I., because the only thought that comes to mind is Higgins saying: "OH MY GOD!!!"

UPDATE January 5, 2012

All Volts sold in the U.S. have been "RECALLED" in order to fix fire hazard.

Government Organizing Injustice

I'm just now reading Bastiat's "The Law" for the first time. Of course Bastiat puts ideas so well. Just meditate for a while on the following:

Try to imagine a form of labor imposed by force, that is not a violation of liberty; a transmission of wealth imposed by force, that is not a violation of property. If you cannot succeed in reconciling this, you are bound to conclude that the law cannot organize labor and industry without organizing injustice.

Sowell On Greed

Thomas Sowell:

"Among the favorite sloppy words used by the shrill mobs in the streets is "Wall Street greed." But even if you think people in Wall Street, or anywhere else, are making more money than they deserve, "greed" is no explanation whatever.
"Greed" says how much you want. But you can become the greediest person on earth and that will not increase your pay in the slightest. It is what other people pay you that increases your income.

If the government has been sending too much of the taxpayers' money to people in Wall Street — or anywhere else — then the irresponsibility or corruption of politicians is the problem. "Occupy Wall Street" hooligans should be occupying Pennsylvania Avenue in Washington."

Unoccupy Econ

An Open Letter to Greg Mankiw:

"Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today."

If you read the letter you'll see Mankiw is being criticized for not including Keynes in this course. However, this semester of the course is apparently covering microeconomics, and Keynes will be discussed, where he should be, next semester in macroeconomics. Seems sad, don't you think, that these students are several weeks into the semester and they don't yet understand the difference between micro and macro?

Quote of the Day

FREDERIC BASTIAT:

I am, I confess, one of those who think that choice and impulse ought to come from below and not from above, from the citizen and not from the legislator; and the opposite doctrine appears to me to tend to the destruction of liberty and human dignity. (p. 12)

I confess the same!

Joke of the Day?

The DIAPER INVESTMENT AND AID TO PROMOTE ECONOMIC RECOVERY ACT must be a joke, right?

Oh wait, I forgot. Article 1 Section 8 of the Constitution says that "Congress shall have the power to give diapers to families."

I don’t understand aggregate demand

RUSS ROBERTS doesn't understand aggregate demand:

Does an increase in aggregate demand increase employment?

Yes, if by an increase in aggregate demand you mean people buying and selling more from each other where buying and selling includes consumers and manufacturers.

The above statement has virtually no informational content. It is equivalent to saying that when the economy is healthy, there is lots of exchange going on. When an economy is not healthy, there is less exchange. There is less buying and selling of goods and services and labor. To describe that unhealthiness as less aggregate demand is just to put the problem into different words.

You should read the rest of his post.

I don't understand either.

An Idea Intolerable To Modern Man

Hayek:

But when developments take an undesirable turn, the suggestion that this is not the effect of circumstances beyond our control, but the necessary consequence of our earlier decisions, is rejected with scorn. The idea that we are not fully free to pick and choose whatever combination of features we wish our society to possess, or to fit them together into a viable whole, that is, that we cannot build a desirable social order like a mosaic by selecting whatever particular parts we like best, and that many well-intentioned measures may have a long train of unforeseeable and undesirable consequences seems to be intolerable to modern man." [Law, Legislation and Liberty, vol 1, Rules and Order]

Hmm, seems to me this idea that is intolerable to modern man is one of the basic insights of economics. No wonder so few people seem interested in economics, and no wonder so few who study some economics come away with much understanding about the consequences of public policy for the world around them.

Hayek on American Constitutionalism

Hayek:

When Montesquieu and the framers of the American Constitution articulated the conception of a limiting constitution that had grown up in England, they set a pattern which liberal constitutionalism has followed ever since. Their chief aim was to provide institutional safeguards of individual freedom; and the device in which they placed their faith was the separation of powers. In the form in which we know this division of power between the legislature, the judiciary, and the administration, it has not achieved what it was meant to achieve. Governments everywhere have obtained by constitutional means powers which those men had meant to deny them. The first attempt to secure individual liberty by constitutions has evidently failed. [Law, Legislation and Liberty, Volume 1: Rules and Order, p. 1]

Does this seem correct? If so, are there any means by which limited government might be achieved?

Budget Reflections

With all the political drama in Washington these days over raising the US Government debt ceiling I thought perhaps I should see if it was possible to add a wee bit of perspective. I've taken the information portrayed in the following charts from the President's web page for his 2012 budget proposal.



This chart tells the basic story of the US Government Budget from 1950 - 2010. I realize the image here is pretty small, but if you click on the image you can see a larger more readable version. The blue line reflects millions of dollars spent annually by the US Congress, while the green line reflects millions of dollars annually taken in by the US Congress. The red line reflects the budget deficit and therefore the millions of dollars that have been borrowed annually by the US Congress since 1950.

So what basic story do I think this chart tells? From 1950 until about 1975 or 1980 there seemed to be almost no trend up or down in terms of the amount of money Congress decided to borrow each year. This period was followed by an increase in the annual amount of money Congress borrowed but this new period also showed a fairly horizontal line and thus not much of a tendency to further increase the amount of annual borrowing. Congress balanced the budget and even seems to have spent less than it took in for about three years around the year 2000. The trend shown by the red line depicts a significant increase in the amount of money Congress has chosen to borrow annually since around the year 2000.

Notice also that during the entire period from 1950 until 2010 the annual amounts taken in and spent by Congress increased. The green line which represents annual receipts shows almost a linear trend upward since around 1980, while in contrast, the blue line representing the amount Congress has spent annually kicks into a "new gear" with a much steeper line. Take note also that over this period from 1950-2010 there have been both recessions and expansions, and there have been both increases and decreases in the income tax rates imposed by Congress. Nonetheless, the story of Congress and the budget it has chosen annually reflects more revenues year to year and more spending year to year. The story also seems to be that Congress's habit of borrowing also kicked in to another gear since the last two or three budgets that were in surplus.

I suspect someone might say that this is not the proper way to evaluate the US Budget, so here is a picture of this same story but told in a chart the depicts receipts, outlays, and deficit/surplus as a percent of GDP.




Perhaps the story to notice from this chart is that both revenues and outlays as a percent of GDP have relatively flat trend lines starting around 1970. Also these trends are such that annual outlays have been around 20% of GDP while annual receipts have been around 18%. Of course periods of recession have reduced annual receipts. Once again I will point out that these trends include periods of recession and expansion as well as increases and decreases in income tax rates, and still a pretty flat trend. Also note that with the year 2008 there was a substantial increase in outlays as a percent of GDP, and an increase that has no precedent over this 60 years period.

It seems to me that Congress has acted less constrained concerning spending choices over time, and most recently Congress has shifted into another gear with spending and borrowing. I suppose we could fuss over whether Congress has a spending problem or a revenue problem, and thus we could pick the Republican side or the Democrat side with respect to the current debate over the debt limit. Yet, we know that revenues decline in recession, and without increasing any income tax rates, revenues will again increase (as reflected in the first chart) with expansion. But Congress has seen a significant recent decrease in revenue because of recession, and instead of reducing outlays or even holding outlays constant Congress has chosen to significantly increase annual spending. Where is Congress getting the money to increase it's annual spending so much? The amount borrowed has been increased to about 10% of annual GDP, which also is a number without precedent over this six decade period.

So, this last chart gives us some perspective on the choices Congress has made over the last 60 years with respect to the amount it borrows annually. The bars depict the amount number of cents borrowed by Congress for every dollar it spend. Years without bars mean that the budget


was in surplus and no money was borrowed that year. For the first 25 years over the period portrayed in the chart, Congress mostly borrowed less than 10 cents annually for every dollar it spent. Only 6 times between 1950 and 2008 did Congress annually borrow as much as around 20 cents of every dollar it spent. But, Congressional behavior changed significantly for the last two years of this period because in these last two years Congress has borrowed about 40 cents of every dollar it spent.

I suppose some may say we should understand the dire economic situation that characterized these last two years, and therefore Congress had to take action or else. But note that over the 60 years of Congressional behavior depicted in these charts there were, as I wrote earlier, plenty of recessions and expansions, and there were also times when Congress both increased and decreased income tax rates. I'm thinking it is very difficult to justify borrowing 40 cents of every dollar spent, even given the recent recession.

I'm thinking the annual budgetary behavior of Congress has been showing a trend from 1950 until now of more annual revenue, more annual spending, and more annual borrowing. This is the way I put recent budgetary politics into perspective.

Congress, along with the President, are debating whether to increase the ceiling on the aggregate amount of borrowing and debt that our national government can incur. I know some of these leaders think it is necessary to increase this ceiling or else bad things will happen. Borrowing 40 cents of every dollar spent seems like a bad thing has already happened. The trends since 1950 depicted in these three diagrams perhaps suggest it is unwise to allow our representatives in Washington to think they can continue to borrow and borrow and borrow. When our representatives are borrowing 40 cents of every dollar they spend perhaps it is already too late to think these folks can learn some fiscal responsibility.

I've described this budgetary perspective in terms of the actions of Congress instead of the President. Of course, much of the attention in public discussions is tuned in to the President. But, keep in mind that the President does not have the power to tax, and his authority to spend is granted by Congress. In addition, the President does not have the constitutional power to borrow money. That is a Congressional power. I think it is unwise to put all of the attention on the President, and it is much better for us to blame members of Congress when they vote for borrowing, taxing, and spending policies. But, of course, since the President can veto budgets presented to him by Congressional budget bills, the President also should be seen as responsible when the fiscal actions of the national government are irresponsible.

Quote Of The Day

A society that does not recognize that each individual has values of his own which he is entitled to follow can have no respect for the dignity of the individual and cannot really know freedom.

F. A. Hayek, The Constitution of Liberty

Equality & Inequality

In The Constitution of Liberty Hayek writes:

From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either the one or the other, but not both at the same time. (p. 150)

Open Letter to Barack Obama

Check out Professor Boudreaux's Open Letter to Barack Obama. Here is the punchline:

With respect, sir, you’re complaining about the source of our prosperity.

I hate it when this happens. Don't you wish more leaders in Washington understood how the world works and why we are able to live such prosperous lives?

Human Reason Advances

Hayek in THE CONSTITUTION OF LIBERTY:

Human reason can neither predict nor deliberately shape its own future. Its advances consist in finding out where it has been wrong. (p. 94)