Thursday, December 16, 2010

Congress and the Constitution

The Senate has an "omnibus" spending bill and Senator Coburn's webpage has a spreadsheet the summarizes all the "earmarks" in the bill. The Senator's spreadsheet is worth a look. Here are a few of the things Congress is considering spending money on. Keep in mind that since the government is running a deficit, we might as well say these are some of the things Congress is borrowing money for:
  • $1 million - City of Rockville sanitary sewer rehabilitation project
  • $2.5 million - Long Creek Watershed Management District for a stormwater and water quality project
  • $1 million - City of Hamtramck for water and sewer line rehabilitation
  • $1 million - County of Riverside, Moreno Valley, CA, for facilities and equipment related to trauma care
  • $16.1 million - John F Kennedy Center for the Performing Arts and its affiliate, as authorized by the Elementary and Secondary Education Act
  • $10.5 million - National Board for Professional Teaching Standards. . . .
  • $25.6 million - National Writing Project . . . .
  • $1 million - Planning, Design, Renovation and Revitalization of Historic Building
  • $1 million - For event and meeting space infrastructure at the Bangor Regional Arena and Meeting Complex
  • $0.5 million - To acquire blighted property and renovate facilities to create an industrial park
  • $1 million - For the acquisition of facilities in Covington, LA to be used for community services and economic development
  • $1 million - (City) Demolition of Blighted Buildings
  • $1.25 million - For construction of a senior center
  • $1.55 million - For improvements to the Pigeon Harbor Industrial Park
  • $1 million - For construction of facility that will accommodate an education and interactive learning center
  • $1 million - To renovate the facility for the Jewish Vocational Service and to provide equipment and furnishings
  • $2.5 million - Legal Advocacy for Crime Victims (Nationwide)
  • $1 million - Bronx River and South Bronx Waterfront
  • $1 million - Washington State Methamphetamine Initiative
  • $4 million - Marine Aquaculture Lab Operations
  • $4.5 million - Center for Water Technology and Policy
  • $2 million - Sensors for Monitoring Chesapeake Bay Watershed Health
  • $2 million - Center of Teacher Excellence
  • $4 million - Life Sciences Commercialization Laboratory
  • $5 million - Phase II construction, National Center for Natural Products Research, Oxford, MS
  • $2 million - Market Development, WI
  • $2.6 million - Agricultural Pest Facility, HI
  • $3.49 million - Formosan Subterranean Termites Research, New Orleans, LA
  • $1.65 million - Human Nutrition Research, Boston, MA; Houston, TX; Kannapolis, NC
  • $1.45 million - Mosquito Trapping Research/West Nile Virus, Gainesville, FL
  • $1.25 million - University of Alabama, Rural Health Entrepreneurial Development Project, Tuscaloosa, AL
  • $2.4 million - Bank On USA demonstration projects, HI
This is just a really, really small part of the entire list.

Why is Congress spending money on these things, much less borrowing money for them? I suppose the answer to this question is simple, i.e., this is the way our rent seeking system of politics works these days.

I think the more important question is: Why do members of Congress think they have been granted the power to spend money on such things? Our Constitution defines our government, presumably, to be a limited government with specifically enumerated powers. You've read the Constitution. It goes something like this:
The Congress shall have Power . . . . To borrow money on the credit of the United States; To regulate Commerce with foreign Nations, and among the several States . . . . To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States; . . . . To establish Post Offices and Post Roads; To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries; . . . . To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years; To provide and maintain a Navy. . . .
I just can't find in my copy of the Constitution that Congress has the power to create a center for teacher excellence, or the power to renovate buildings for religious vocational services, or the power to create industrial parks, or the power to be an advocate for crime victims, or the power to demolish blighted buildings for city governments, or the power to provide facilities for trauma care. I suspect that if I had time to read through Senator Coburn's entire spreadsheet I would find no more than one or two percent of the spending items were associated with the actual enumerated constitutional powers of Congress.

Does it make sense to ask if the United States Government is now, properly speaking, a constitutional form of government?

Tuesday, December 14, 2010

Constitution & Health Care

I've been reading Judge Hudson's opinion concerning the recently passed "health care reform" statute. I'm not sure I can continue to endure the pain. I am suspicious of the logical gyrations that seem to be integral, these days, to constitutional jurisprudence. I think we should weep for our lost Constitution. But, perhaps, when the smoke clears on all the court challenges a bit of our Constitution will have been returned. After all, it seems to me that the gyrations of constitutional analysis are probably most needed when it should be easy for us to see that an act of Congress, and/or the President, is unconstitutional.

Let's consider a bit of the analysis in support of the constitutionality of the statute as summarized by Judge Hudson:
"Critical to the Secretary's argument is the notion that an individual's decision not to purchase health insurance is in effect 'economic activity.' The Secretary rejects the Commonwealth's implied premise that a person can simply elect to avoid participation in the health care market. It is inevitable, in her view, that every individual--today or in the future--healthy or otherwise--will require medical care. . . .The Secretary maintains that the irrefutable facts demonstrate that '[t]he conduct of the uninsured--their economic decision as to how to finance their health care needs, their actual use of the health care system, their migration in and out of coverage, and their shifting of costs on to the rest of the system when they cannot pay--plainly is economic activity.'" (p 11-12).
This analysis by the Secretary seems pure nonsense to me. The analysis seems to conclude that the actions of the uninsured, whatever the actions are or aren't, are plain old "economic activity." Well, I have been known to suggest to the students in my economics classes that "everything is economic." So, I'm with the Secretary in concluding we have lots of "economic activity" involved in choosing or not choosing "health care." But the nonsense in all of this is that we really should be asking what that "economic activity" has to do with the constitutional powers granted to Congress. Does Congress have the power to regulate any (and all) "economic activity?"

I think the short answer to this question is simple. NO.

Article 1 Section 8 specifically grants the power to Congress to regulate interstate commerce. It is not the case that economic activity is equal to interstate commerce. Commerce means someone buys a good or service from someone else. Interstate commerce means the buyer involved in the act of commerce is in one state and the seller involved in the same act of commerce is in a different state. If the buyer and seller engaging in the act of commerce between consenting adults are in the same place, such as when I buy a big mac at McDonalds for lunch, then it is an act of intrastate commerce. Congress has the power to regulate the buying and selling between people in different states, it does not have the constitutional power to regulate the buying between people in the same place or in the same state.

The Secretary's analysis is fun, but it seems a waste of time, resources, and taxpayer dollars because Congress is not supposed to have the constitutional power to regulate any/all economic activity, only the specific form of economic activity that involves exchange between a buyer in one state and a seller in another state.

Of course, the constitutional issue in this case involves whether Congress has the power to mandate that people purchase health insurance coverage. I certainly think that a person who chooses not to purchase health insurance has made an economic choice, but an economic choice is not economic activity, nor is an economic choice always an act of commerce. Apparently Judge Hudson concluded that the constitutional power to regulate interstate commerce was not the power to compel an act of commerce, whether of the interstate or intrastate variety. That certainly seems the sensible and correct conclusion to me. If I choose not to purchase insurance, or any other good, I have chosen not to engage in an act of commerce. It is even sensible to point out that I might sometimes not choose to engage in an act of commerce because I think the tax Congress has imposed on the commerce results in a price that is too high for what I get in return from my purchase. I hope that Congress does not have the power to both tax an act of commerce and then compel me to engage in that act of commerce as well.

I think the constitutionality, or unconstitutionality, of this statute should be quite straightforward. Congress has the power to regulate an act of commerce between a buyer in one state and a seller in another. Pretty much all of my actions to purchase health care services involve intrastate commerce. Why? Because I go to see my doctor in his office, and even if my doctor's office is in another state, the act of commerce between me and my doctor always takes place at one location. And, while the prescription drugs I purchase may come from a factory outside of Colorado, I always buy my prescription drugs from the Walgreens around the corner, which once again is a act of commerce at one location. The straightforward analysis of Congress's constitutional power is that Congress does not have the power to regulate, prohibit, or compel any of these sorts of acts of commerce I engage in frequently.

I can think of one sort of act of commerce in all of this that might involve me in an act of interstate commerce. I might purchase health insurance from a business which has its offices in a state other than Colorado. If I did, then Congress would have the constitutional power to regulate this act of purchasing/selling insurance. But, the power to regulate this commerce is not the same thing as the power to compel the act of commerce (which would then not be an act between consenting adults). In this area of constitutional power, I suspect that Congress has actually been neglecting it's constitutional duties. I think many states regulate health insurance providers in a way that amounts to erecting a barrier to interstate commerce. State law in many cases does not allow an individual to purchase health care insurance coverage from an insurance business which is located in a different state. If Congress would use it's interstate commerce power to prohibit such state regulations, then the cost of health care insurance would be less than it is these days. But, noooo, Congress acts instead to use power in unconstitutional ways.

It is unfortunate, perhaps even characteristic of an unjust government, that the Supreme Court, over time, has come to understand the Constitution in ways that encourage all the conceptual gyrations of lawyers and professors because, I think, the gyrations are efforts to encourage us to conclude the Constitution means something other than what the words in the Constitution actually mean. The words written into the Constitution seem to me to describe a government significantly limited in scope, and not a government that is supposed to have the power to regulate any "economic activity." The words written into the Constitution were chosen from the conceptual perspective of individual liberty and it seems to me the constitutional power of the Court was meant to be exercised in defense of individual liberty. Conceptual gyrations and gymnastics seem to me to serve the purpose of removing limits from Congressional power and thus infringing on individual liberty.

Thursday, September 16, 2010

A Repeal Amendment

Any provision of law or regulation of the United States may be repealed by the several states, and such repeal shall be effective when the legislatures of two-thirds of the several states approve resolutions for this purpose that particularly describe the same provision or provisions of law or regulation to be repealed.
Why amend the Constitution in this way?
The Repeal Amendment would help restore the ability of states to protect the powers "reserved to the states" noted in the 10th Amendment. And it would provide citizens another political avenue to protect the "rights . . . retained by the people" to which the Ninth Amendment refers. In short, the amendment provides a new political check on the threat to American liberties posed by a runaway federal government. And checking abuses of power is what the written Constitution is all about.
I think this is probably a good idea. However, I'm not sure 2/3 of the state legislatures would ever act to repeal a federal law or regulation. Still, I think it would probably be good if a number of state legislatures made efforts today to push this amendment. It would probably be a good thing is there were more people who looked at the Constitution and compared and contrasted the government implied by the Constitution to the governments we have today.

Speaking Sense To Government

FIVE ECONOMISTS TALK SENSE, instead of nonsense with respect to government and the economy. Here are some of examples:
"Nobel Prize-winning economist Edward Prescott examined international labor market data and showed that changes in tax rates on labor are associated with changes in employment and hours worked. From the 1970s to the 1990s, the effective tax rate on work increased by an average of 28% in Germany, France and Italy. Over that same period, work hours fell by an average of 22% in those three countries. When higher taxes reduce the reward for work, you get less of it."

"Having "skin in the game," unsurprisingly, leads to superior outcomes. As Milton Friedman famously observed: "Nobody spends somebody else's money as wisely as they spend their own." When legislators put other people's money at risk—as when Fannie Mae and Freddie Mac bought risky mortgages—crisis and economic hardship inevitably result. When minimal co-payments and low deductibles are mandated in the insurance market, wasteful health-care spending balloons."

The 2010 health-care law undermined positive reforms underway since the late 1990s, including higher co-payments and health savings accounts. The law should be repealed before its regulations and price controls further damage availability and quality of care. It should be replaced with policies that target specific health market concerns: quality, affordability and access. Making out-of-pocket expenditures and individual purchases of health insurance tax deductible, enhancing health savings accounts, and improving access to medical information are keys to more consumer involvement. Allowing consumers to buy insurance across state lines will lower the cost of insurance.

You really should read the whole piece.

Friday, September 10, 2010

Congressional Corruption

"The scholarships were publicly intended as charity, a way to impact the community by giving underprivileged students an opportunity to get an education they otherwise may miss. Instead, the two Representatives turned it into an entitlement program for the children and grandchildren of the already-powerful. Regardless of whether the CBC had explicit language barring the awarding of funds to family members, anyone with a sense of ethics would have known that putting that scholarship money into the hands of their own family violated the ostensible spirit of the charity. It also shows Bishop and Johnson as greedy, self-absorbed malefactors whose only consideration of the power they hold is how it can personally benefit themselves and their family."

Thursday, August 26, 2010

Ain't Rocket Science

"I don't possess a crystal ball, so I cannot forecast the economic future. But I do know that it is not good to expand the monetary base 140% or to run deficits the size we have, or accumulate public debt as we have. . . . This 'ain't rocket science'! There will be a day of reckoning due to the monetary mischief and fiscal irresponsibility.

I also know that the problems we are facing are not 'market problems' --- it is not that actors are all of a sudden 'irrational', and it is not that markets are inherently 'unstable'. Everything we are seeing in market behavior is a rational response to the environment created by public policy. This is not a psychological problem we are dealing with, it is a public policy problem. Bad public policy produce bad incentives which in turn produce bad results. Ultimately, this is a problem of bad ideas which result in bad public policies. Again, this ain't rocket science. The role of the economists in all of this should be like my Dad when I was a teenager (and truth be told an adult), and grab policy makers by the shoulders star them squarely in the face and state clearly 'this isn't rocket science' and explain clearly the Econ 101 basics of why the decisions we have made so far have not been correct."
Right on and well said: "Everything we are seeing in market behavior is a rational response to the environment created by public policy."

Sunday, July 25, 2010

Unintended Health Insurance Consequences

Some major health insurance companies will no longer issue certain types of policies for children, an unintended consequence of President Barack Obama's health care overhaul law, state officials said Friday.

[ . . . ]

The major types of coverage for children - employer plans and government programs - are not be affected by the disruption. But a subset of policies - those that cover children as individuals - may run into problems. Even so, insurers are not canceling children's coverage already issued, but refusing to write new policies.

The administration reacted sharply to the pullback. "We're disappointed that a small number of insurance companies are taking this unwarranted and unnecessary step," said Jessica Santillo, a spokeswoman for the Health and Human Services department.
Yesterday it was unintended consequences of "financial reform."

I wonder how people in the administration know these actions by insurance companies are "unwarranted and unnecessary?" It seems to me they must lack the knowledge these businesses need in their efforts to make a profit, and thus a living for many people, by supplying others with health insurance. The "health care reform" statute seems to attempt to force insurance businesses to structure risk pools in specific ways that would not otherwise have been chosen by these businesses. It seems to me one likely result of such government actions will be that at least some insurance businesses find that it is better to stop insuring than to try to earn a living insuring and following the government's new statute.

Saturday, July 24, 2010

Economists on Government & This Recession

Some argue that we need more deficit spending—another stimulus package—to boost the economy. I agree that the economy needs a boost, but not in the form of increased deficit spending. In my view, the economy is being held back by high deficit spending and related policy uncertainties. The large deficits are causing the federal debt to explode, raising concerns about how it will be financed.

So what has been the government’s response in the current crisis? Besides spending stimulus, it was tax incentives for new home buyers and cash for clunkers if you bought a new car. All three are programs for borrowing output, homes and cars from future production and sales. Using subsidies to pump up home sales beyond what people could afford was the problem that led to the crisis. Now the problem is touted as the solution.

Liability For An Uncertain Future?

The nation's three dominant credit-ratings providers have made an urgent new request of their clients: Please don't use our credit ratings.

The odd plea is emerging as the first consequence of the financial overhaul that is to be signed into law by President Obama on Wednesday. And it already is creating havoc in the bond markets, parts of which are shutting down in response to the request.

Standard & Poor's, Moody's Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law.

The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

[ . . . ]

Once the bill is signed into law, advice by the services will be considered "expert" if used in formal documents filed with the Securities and Exchange Commission. That definition would make them legally liable for their work, meaning that it will be easier to sue an firm if a bond doesn't perform up to the stated rating.

That is a change from the current law, which considers ratings merely an opinion, protected like any other media such as a newspaper.

Perhaps this is a nice illustration of the unintended consequences of actions taken by government, in this case Congress and the President. I assume Congress and the President did not intend for providers of bond credit-ratings to respond to their legislation by deciding to no longer be providers of bond credit-ratings.

On the other hand, perhaps Congress and the President did intend for this result. Who will provide bond credit-ratings if private businesses won't? I guess government could.

I also wonder why it is thought to be a good idea to say a provider of credit-ratings has liability for actions taken by others who consult these ratings. It seems to me that trying to create such liability amounts to saying the providers of credit-ratings should be liable for an uncertain future. The future is inherently uncertain, and while credit-ratings may provide some information about the risk involved in certain kinds of actions taken today, it seems to me foolish to believe that credit-ratings accurately predict the uncertain risk, much less remove the risk.

Friday, July 23, 2010

Tax Cuts For The Most Fortunate

Treasury Secretary Timothy Geithner:
We believe it is appropriate to let those tax cuts that go to the most fortunate expire

Most fortunate?

So, I wonder how these guys think a person gets income? To use a phrase like "most fortunate" suggests to me that they don't think income is earned, because if it is earned then large income may go to those who work hardest and that have the greatest abilities in producing goods and services for others.

I wonder how these guys think a person gains wealth? It seems to me wealth is chosen. In order to have wealth, I think a person has to choose to save something out of current income by not spending everything that he or she earns. I don't think the bottom line is that a person is fortunate to have wealth. It seems to me a person is wise to try to choose wealth by not consuming all that he or she earns.

Tax Increases & The Economy

Ever wonder about the idea that tax increases can be bad for the economy? Well the TAXPROF BLOG points out that apparently the Chair of the Council of Economic Advisers has just published research which "indicates that tax increases are highly contractionary":
Christina D. Romer (Chair, Council of Economic Advisers) & David H. Romer (UC-Berkeley, Department of Economics) have published The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks, 100 Am. Econ. Rev. 763 (2010). Here is the abstract:

This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.
Since the lead author is an adviser to the President, I'm wondering why the President, and members of Congress as well, are interested, especially in a period of recession and high unemployment, in letting tax cuts during the Bush Presidency expire. Hmmm. . . .tax increases "are highly contactionary." Maybe these elected representatives think the Romers aren't very good economic researchers? Maybe these elected representatives think there is good reason to believe things will be different this time around? Maybe these elected representatives have other goals than seeing the economy pull out of this recession?

Congress Created Them All

DON BOUDREAUX in a letter to the Washington Post:
You’re right to worry that Uncle Sam responded to the public’s anxiety about terrorism by creating an overgrown intelligence bureaucracy with bloated budgets that strain our wallets and arbitrary powers that mock the Constitution as they threaten our freedoms . . . Will bureaucrats in, say, the new Bureau of Consumer Financial Protection spend taxpayer funds more wisely than do bureaucrats in the NSA? Is the power to command people to purchase health insurance, or the power to prohibit consenting adults from buying and selling certain kinds of financial instruments, really so mild and beneficial that we should calmly welcome the exercise of these powers while we simultaneously quake with fear at the exercise of “intelligence” powers?

Sunday, July 04, 2010

July 4, 1776

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness -- That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, -- That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. -- Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States.

. . . And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

Friday, July 02, 2010

Federal Taxes on the Rich & the Poor

Average Federal Tax Rate by Income Quintile, 1979-2007

The pattern of average tax rates has varied over time. The lowest three income quintiles have seen steady declines in their average rate. The tax rate on the fourth quintile was flat over most of this period, before declining in the early part of this decade. The tax rate on the top quintile has fluctuated more, with periods of increases and decreases.
By the way, since this information comes from the CBO, we should assume that every member of Congress has this information available to him or her, or at least to staff members. So, the next time a member of Congress in on a soapbox opining about taxes on the rich and the poor, you will be able to judge the veracity of the assertions.

Independence Day?

Our government has managed to create endless opportunities, but not for ordinary people—only for political operators and influence peddlers, with the Obama Administration pushing some 4,500 pages of medical and financial regulation just in its first 18 months.
Something to celebrate this Independence Day, eh?

Wednesday, June 23, 2010

What Do Inequality Data Mean?

Steven Horwitz has an interesting post on inequality data. Here is the way he understands what the data means:
Carroll uses a nice analogy from Schumpeter that I'd never heard before: the distribution of income is like a hotel with some really fancy rooms on the top floors and some very basic ones on the bottom. All the rooms are always full, but who occupies which rooms changes from year to year.

If one wants to stretch the analogy a bit more, it's also the case that each year brings a new upgrade to every room. What constitutes a "basic" room gets slightly more luxurious each year as standards of living rise, and the same is true on other floors. It might be the case that the upgrades to the top floor rooms are proportionally greater than those to the basic and middle floor rooms, but given that the occupants of the rooms switch around from year to year, those greater improvements at the top are still consistent with improvements in the absolute standard of living for many.

And to take the analogy even further: if we account for immigration and other new entrants to the labor force, it's as if the hotel keeps adding rooms/floors on each year at the lower/basic level, enabling everyone else to potentially keep moving up (assuming that some occupants die or leave the country!).
I've often noted in my courses that aggregate data hide a large amount of important information. In the case of the static aggregate income distribution data, we cannot see what happens over time and within each income quintile.

It seems that many people assume a person who is in the lowest income quintile in any year will also be in the lowest income quintile 5 years and 10 years later. It also seems many assume that a person in the top income quintile in one year will still be in that top income quintile 5 years and 10 years later. If you check out Mr. Horwitz's post you can learn that such conclusions are not well-founded. For example:
Of those taxpayer households in the lowest quintile of income in 1999, 57.5% had moved up at least one quintile by 2007 and over 30% jumped two quintiles or more.

Of those in the top 1% in 1999, only 44.6% were still there in 2007.

Oil Spills & Executive Powers

I recently commented on the following taken from a speech by President Obama:
"Tomorrow, I will meet with the chairman of BP and inform him that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company's recklessness. In order to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent third party.
I asked if such actions as these promised by the President fall within existing statutes and also the responsibilities of the courts? The point of the earlier comment was different than this. So, I want to explain my concerns about what the President said in his speech.

In order to determine who has a legitimate claim for damages against BP, and in order to determine the amount of such damages, I think it is the case that the President, or an independent third party picked by the President, will have to make decisions and take actions that are supposed to, constitutionally, be within the Judicial power of government.

Shouldn't it be a significant concern to ask, and answer, whether or not the President has exceeded his constitutionally granted Executive power to inform the CEO of BP that he must set aside $20 billion? If a President can decide what a legitimate claim is against BP, and if a President can decide how much compensation must be paid by BP, then what is the difference between the Judicial branch and the Executive branch of government?

Thursday, June 17, 2010

Oil Spills, Oil Producers & Governments, Part 2

We might find another illustration of how earlier, and not easily seen, federal government actions could be involved in the BP Gulf Oil spill by wondering about something the President said in his recent OVAL OFFICE SPEECH:
Tomorrow, I will meet with the chairman of BP and inform him that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company's recklessness. In order to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent third party.
I don't understand this idea that the President will tell BP it has a liability for this accident, and further that the President is going to require BP to create an escrow account to be administered by an "independent third party." Don't such actions fall within existing statutes and responsibilities of the courts?

My first thought is to wonder about why the President would think actions such as these are appropriate and necessary. I have assumed all along that BP is liable for the damages caused by the oil spilled because of an accident involved with it's production of oil. I certainly expect that if I caused oil to be spilled on my neighbor's property, that I would be fully liable for the damages my actions caused to my neighbor. So, I assume BP understands already that it is liable for the damages.

This also leads me to wonder about why the President has been spending so much time and effort in his public speeches insisting that BP is going to be made to pay for the environmental harm it has caused. Once again, I assume that in the same way that I know I would be made to pay for harm I cause to others, BP knows it will have to pay for the harm it's actions have caused others.

But, now I think that perhaps I should start to by a bit more of my normal, cynical and dismal economist self. Do I smell a rat?

Perhaps I do. THE OIL POLLUTION ACT OF 1990 "imposes liability for removal costs and damages resulting from an incident in which oil is discharged into navigable waters or adjoining shorelines or the exclusive economic zone." Yep, just what I assumed to be true. But, the Act also limits liability:
Liability is limited by specific dollar amounts, which vary depending on the type of vessel or facility involved. These limits do not apply in the case of gross negligence or willful misconduct or the violation of an applicable federal safety, construction, or operating regulation or for failure to cooperate in certain specified ways.
Oh my, perhaps BP believed it would not be fully liable for the damages caused by an accident that resulted a spill such as is occurring in the Gulf. Can you imagine, Congress created a statute in 1990 (and some President must have signed it) that both made it clear that BP was liable for damage caused by this accident, and at the same time the statute told BP (and all other oil producers in the Gulf) that it's liability was limited, that it would not be fully liable.

Well, you can see the incentives partial liability creates for BP and every other oil producer in the Gulf. At the margin, this limited liability statute should result in BP being at least a little less cautious in it's operations than it would otherwise be. Same incentive and response by all the Gulf oil producers as well. In other words, by limiting liability with this statute Congress and the President did two things: (1) Incentives to produce oil in the Gulf were increased, and (2) the probability of an accident occurring in the Gulf was increased.

Now we come to the second sentence in the limited liability quotation above. I suspect members of Congress also understood the incentives they would create by limiting liability. So, of course, Congress also writes laws that allow for the Executive Branch to regulate how BP, and the other oil producers in the Gulf, go about the business of producing oil from Gulf waters. Do you remember hearing reports after the accident, and before the Oval Office speech, that BP had requested that the government agency overseeing its operations modify several permits in the last day or two before the accident? I'm guessing this indicates that the government regulatory agency was at least supposed to be closely involved in making sure BP's actions met with all the things government thought BP was supposed to be doing.

I think this is another illustration of government's involvement in the actions of people and businesses in the economy that we cannot easily see. It is my view that government should not limit liability, and that especially in the case of deep water oil production government's role should be to strictly enforce full liability.

And, because government regulatory actions are involved in oil production in the Gulf, my default position has to be that government has some part to share in this accident, unless it can be shown that BP violated permits and regulations that if followed would have prevented this specific accident from happening.

Finally, returning to the President's statement quoted above, I think there are some additional serious issues to bring up. I will do that with another post in the future.

Wednesday, June 16, 2010

Enough Money?

TOM SOWELL on politicians and enough money:
"One of the many shallow statements that sound good-- if you don't stop and think about it-- is that 'at some point, you have made enough money.'

The key word in this statement, made by President Barack Obama recently, is "you." There is nothing wrong with my deciding how much money is enough for me or your deciding how much money is enough for you, but when politicians think that they should be deciding how much money is enough for other people, that is starting down a very slippery slope.

Politicians with the power to determine each citizen's income are no longer public servants. They are public masters."
You should read the whole piece.

Tuesday, June 15, 2010

Oil Spills, Oil Producers & Governments

The accident in the gulf is a pretty ugly sight. I'm sure there is no person alive who actually likes the accident and the aftermath, which of course continues.

Today you can read news reports of our political leaders holding hearings to point fingers and hold the culprit's feet to the fire. And, of course, you may have read or heard the President castigating the oil producers and promising to kick the appropriate butts.

You can also read reports that assert British Petroleum made numerous bad decisions that led to the accident, and which were made in an effort to save some costs and improve profits. Even if there is some truth to such allegations, there may be more involved in terms of the incentives and the tradeoffs than meets the eye.

I make this last assertion myself because I'm come to believe government policy is almost always involved, and it is almost always well hidden from us, unless we are able to spend much time reading statutes, regulations, and executive orders.

STEVEN HORWITZ has written about just one example related to this accident:
"The Jones Act is actually section 27 of the MMA and requires 'that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents.' This, of course, includes the Gulf of Mexico. Thus any attempt to move equipment from one U.S. port to another for the purpose of either stopping or cleaning up the Deepwater Horizon leak must involve U.S. ships, fully constructed in the U.S., etc..

Of course in a world of globalized trade few such ships exist. In fact, a number of foreign-constructed or crewed ships are in U.S ports at the moment and could easily transport oil sucking equipment or more booms to the Gulf, but the Jones Act prevents them from doing so. Like the school buses that sat in a parking lot while folks were stranded during Hurricane Katrina, those non-U.S. ships and their equipment are sitting idle while an environmental disaster unfolds."
Professor Horwitz mentions the buses and Katrina because he wants to point out that the Jones Act was apparently waived two days after the hurricane. I haven't read the Jones Act, so I am not aware of whether the Act itself includes conditions by which it might be waived. Perhaps it does. Or, perhaps Congress must act to repeal the Act, something suggested by Professor Horwitz, and something I agree would be a good idea. In any case, Professor Horwitz does point out that apparently the President does not agree that Act should be waived or repealed since he writes: "Meanwhile, President Obama and others continue to insist that such a blanket waiver is 'not needed at this time.'"

So, who might benefit from not waiving or repealing the Jones Act? My guess would be some union or unions, and that is the view of Professor Horwitz as well. If this seems plausible, then it should also seem plausible to you that the President is making political calculations when he decides to trade off this against that. Not too surprising to me, and not really unlike the tradeoffs some assert BP made and should not have made.

It seems to me there are other aspects of this accident and the aftermath that involve government policies, regulations, and actions that are hidden from our easy view. I'm always suspicious this might be the case when our elected leaders in Washington rush to microphones and hearings to point fingers. I will try to add at least one or two additional illustrations in the next day or two.

Wednesday, May 12, 2010

Taxing Incomes & Estates

Ludwig von Mises:
If the present American methods of taxing incomes and estates had been adopted fifty years ago, most of those new things which no American would like to do without today would not have been developed at all or, if they had, would have been inaccessible to the greater part of the nation. (Theory and History, p. 238)

Friday, May 07, 2010

Economics: The Primary Civic Duty

In Human Action Ludwig von Mises writes:
". . . As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake.

Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty.

Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen." (p. 875)
Of course, this is a pretty easy thing for an economist to believe. I wonder how many others, economists and non-economists, agree with Mises?

Big Brother Is Green?

Washington Examiner:
"Alexandria residents soon will have to pay for larger home recycling bins featuring built-in monitoring devices.

The City Council added a mandatory $9 charge to its residents' annual waste collection fee.

That cash -- roughly $180,000 collected from 19,000 residents-- will pay for new larger recycling carts equipped with computer microchips, which will allow the city to keep tabs on its bins and track resident participation in the city's recycling program.

'If you know who's participating in the programs, you can focus your education and outreach to those who are not participating,' said Stacy Herring, Alexandria's recycling coordinator."
I suppose this is just like our parents when we were kids -- our paternal governors are just making sure we take out the trash, eh?

Thursday, May 06, 2010

Constitution & The Supreme Court

Senator Hatch offers some thoughts about how the Constitution is supposed to constrain all 3 branches of government, even the Supreme Court.

Federal Spending 2020

The Congressional Budget Office makes this projection. The CBO is projecting then, that in 2020 the federal government will be spending 47 cents of every dollar it spends on social security, medicare, and medicaid combined.

From a constitutional perspective, isn't this rather remarkable? After all, Congress is supposed to have only those powers explicitly enumerated in Article 1 Section 8 of the Constitution, and not one of these three programs is thus enumerated.

With respect to social security, the projection is that in 2020 22 cents of every dollar the national government spends will involve the redistribution of income from those who are working in 2020 to people who are among the retired.

I think we can consider social security, medicare, and medicaid as redistribution programs. If so, then this projection is that about 1/2 of every government dollar spent in 2020 will involve redistribution. Again, constitutionally remarkable since the Constitution seems to me to have created a limited government, mostly a "protective state" government, not a "redistributive state" government.

My son is not yet old enough to vote, but he will be in 2020. He may or may not be paying income taxes to the federal government then, both because he may be in college instead of the workforce and because a large percentage of people pay no taxes to the federal government today (I expect the same in the future). But, if he is paying income taxes then, note that 14 cents of every dollar spent by the national government will amount to him being required to make payments for loans taken out by others now and in the past. Assuming he is working, then 22 cents on the dollar will represent taking money from his paycheck to give to people who are retired and no longer a member of the workforce. Perhaps we can toss medicare and medicaid in with respect to these sorts of considerations as well. In any case, his income and productive abilities in the year 2020 as well as the years beyond have already been encumbered by federal government policies and programs, and he cannot yet vote.

As Hayek wrote, it seems to me the case that "the basic principles on which this civilization was built have been falling into increasing disregard and oblivion." The government I know today, and the government projected in the CBO's picture, seems impossibly different from the government I read about in the words of the Constitution.

Saturday, May 01, 2010

Profit & Loss

Ludwig von Mises:
“Profit is the difference between the higher value of the good obtained and the lower value of the good sacrificed for its obtainment. If the action, due to bungling, error, and unanticipated change in conditions, or to other circumstances, results in obtaining something to which the actor attaches a lower value than to the price paid, the action generates a loss. Since action invariably aims to substitute a state of affairs which the actor considers as more satisfactory for a state which he considers less satisfactory, action always aims at profit and never at loss. This is valid not only for the actions of individuals in a market economy but no less for the actions of the economic director of a socialist society.” (Theory and History, p. 210)
Here is President Obama commenting on profits for Wall Street businesses.

It seems to me that the best way to think about "profit" is the way Mises explains, and of course this view of profit does not support the President's view. It is always a time to profit, or to make profit, and never a welcome time when loss is made instead.

The President seems to believe that in a time of recession businesses should not be earning profits. The implication of this is that instead, in a time of recession, businesses should earning losses, because profit and loss are terms that characterize the opposite results of human actions. But this is a perverse view isn't it? After all, businesses can only earn profits if their efforts to produce and sell goods and services sufficiently predict consumer desires in the future.

Mises's view of profit and loss is also informative about the President's actions in encouraging us to believe that now is not the time for Wall Street businesses to earn profits. The President's actions in politics can either serve to gain a state of affairs he regards as more satisfactory (profit) or a state of affairs he regards as less satisfactory (loss). Thus the President is acting as though he believes he will personally profit by castigating the efforts made by others to profit themselves by supplying consumers with goods and services they want. Oh, and incidentally, when consumers are able to buy goods and services they want, the consumers gain profit for themselves as well.

In the freedom of voluntary market exchange, the actions of businesses and consumers to profit themselves is positive sum. It is indeed possible for buyers and sellers to choose well their personal courses of action in face of an uncertain future, and both buyers and sellers can profit from exchange.

The President seems to see the situation as zero sum. He seems to be suggesting that profits for Wall Street businesses necessarily mean losses for consumers. But, while a business or a consumer need not choose well and thus profit from their choices, on the whole the realm of free and voluntary exchange is positive sum. It is in the President's world, the world of politics in which the struggle between competitors is over which will win the opportunity to determine the way that force will be used in the lives of others, that we should be prepared to expect to find a zero sum (even a negative sum) world. So, it seems, the President is apparently thinking that he will personally profit by encouraging his listeners to believe that they will also profit if there is greater reliance of the zero sum realm of politics instead of the positive sum realm of market exchange.

I'm pretty sure the view the President encourages will not profit me, but I also fear that because of the nature of politics it may well profit him.

Monday, April 19, 2010

Knowledge & The Human Condition

The risks of making decisions with incomplete knowledge (there being no other kind) are part of the tragedy of the human condition. However, that has not stopped intellectuals from criticizing the inherent risks that turn out badly in everything from pharmaceutical drugs to military operations -- nor does it stop them from helping create a general atmosphere of unfulfillable expectations in which 'the thousand natural shocks that flesh is heir to' become a thousand bases for lawsuits. Without some sense of the tragedy of the human condition, it is all too easy to consider anything that goes wrong as being somebody's fault.

Tuesday, April 13, 2010

Jefferson -- On Democracy

Thomas Jefferson:
"A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine."
Do you suppose this is why the Constitution guarantees a "republican" form of government instead of a "democratic" form of government? At least this is a view of democracy that might help us understand why the conceptual foundation of the Constitution is supposed to be a national government, and specifically a legislature, that has only the powers granted to it by We The People and specifically enumerated in the Constitution itself. Unfortunately, the knowledge and wisdom expressed so simply and directly by Jefferson, and I think widely understood by many others of his day, seems to have been lost to many of us, even lost to the constitutional scholars of our day.

Perhaps you would want to pull out your handy dandy copy of the Constitution and see if you can find the enumerated power that was granted to Congress to create a statute popularly called "health care reform."

Wednesday, March 31, 2010

Good People

"I don't want good people to flee bad law, but bad law to flee good people."
I think this is worth reflecting on.

Countries & Taxes per Person

Greg Mankiw:
"The bottom line: The United States is indeed a low-tax country as judged by taxes as a percentage of GDP, but as judged by taxes per person, the United States is in the middle of the pack."
Check out his numbers.

Thursday, March 25, 2010

Borrowing For Unemployment Benefits reports:
"A bipartisan Senate deal to briefly extend a package of expiring provisions fell apart Thursday night, endangering unemployment aid set to expire April 5.

Senate leaders from both parties had neared a deal to allow swift passage of a package providing benefits for another week that would be fully paid for, according to Senate sources from both parties. The compromise was needed because Sen. Tom Coburn (R-Okla.) blocked Senate Democrats from quickly passing a month-long extension. Coburn objected because its cost -- $9.2 billion -- wasn't offset and would increase the $12.7 trillion national debt."
I know, this is going to be reported as such a terrible bit of partisan politics by Senator Coburn. The Senator must be heartless and mean. So, too, I suppose I will seem heartless and mean. And, I have no idea whether the reporting in this article is accurate or not.

But I just have to ask if this is really something we want our government to be either (1) borrowing money for or (2) creating money and thus causing inflation for.

I suspect few of us want to see this $9.2 billion paid for by inflation. After all, does it really make any sense to pay unemployment benefits to people today by causing all of us to have to pay higher and higher prices for the things we need and want tomorrow and the next day. So, let's move on to the only other way this $9.2 billion contribution to the government's budget deficit can be paid for.

Government can borrow this $9.2 billion. Who will be paying this money back when the loans come due? It depends on when the loans have to be repaid. It might be 5 years, or 10 years, or even 30 years in the future. The money to pay off the loans will have to come from tax revenue (unless it is paid by inflation or additional borrowing at that time). It will have to be paid by those paying taxes at that time. Some of these people paying taxes will be you and I. So, here is a question I think we should all ask. Do you want to borrow $9.2 billion today against our own income in the future so that unemployment benefits can be paid to some who are unemployed at this time?

Let me suggest a way to think about this question. Suppose you become unemployed. Would you take a personal loan, assuming someone would make this loan to you, in order to have money to live on while you look for another job? If you do this, you are actually borrowing money from your own future income when you return to working. You would be reducing your future income by the amount of your loan plus interest. More money for consumption today, but less money for consumption at some time in your future.

I don't know that there is a correct answer. But, notice something by contrasting this personal question with the government policy question. If you personally borrow money to cover a period of unemployment, you will personally have to pay the money back. If government borrows the money and gives it to you, then you won't have to pay it back. And, if you are unemployed now and don't have to pay back money you get from government, isn't that like taking money from others?

Let's go back now to that policy question I asked earlier: Do you want our government to borrow $9.2 billion today against our own income in the future so that unemployment benefits can be paid to some who are unemployed at this time? Perhaps you would like that tradeoff: more income for some who are unemployed today but less income for all of us to consume from in our futures.

But, let me add something to your deliberations of these issues. Why has this recession happened? My answer is that it is the result of bad government policies by many people in several Congresses and in the Presidency. It seems Alan Greenspan, along with many others, sees it this way as well. Therefore, the apparent "need" for additional unemployment benefits today is the result of past government actions. So, today there seem to have been many in the Senate who were angered by Senator Coburn who obstructed their efforts to borrow money from our future incomes, mine and yours, because they had chosen bad government policies in the past. I don't know about you, but it seems less than obvious to me that we want to borrow money today to pay additional unemployment benefits.

Still, I have one more thing to ask you to consider. There are children who are not now paying taxes, and who are not now able to vote, such as my 4th grade son, who will be working when the time comes to pay off this $9.2 billion loan to pay today's unemployment benefits. Some of the people who will have to repay these loans haven't even been born yet. Remember the Boston Tea Party? Talk about taxation without representation. These kids can't even vote NO yet and our government is acting on our behalf to promise some of their future incomes to pay off loans for unemployment benefits today. This seems unjust don't you think? Thomas Jefferson thought so to.

Recently I told my son I had a similar deal for him. I said I'd found someone who would loan me money to get another house. He thought: "nothing unusual about that." But, then I told him the punchline. The guy loaning me the money agreed that I didn't have to pay the money back. Instead, when my son began his first job after college this guy would start sending him a monthly bill of $2000 to pay off my loan. My son's response? You guessed it: UNFAIR.

So, please think again about what Senator Coburn did today, and think about about whether it makes any sense at all to borrow money to pay additional unemployment benefits. Perhaps Senator Coburn was merely thinking about taxation of those who aren't yet able to vote?

Tuesday, March 02, 2010

Obesity Bake Sales

Chidem Kurdas comments on New York city's BAN ON HOME BAKED GOODS at school bake sales:
Last week, New York City’s Panel for Educational Policy approved a new rule for school bake sales. Home-made treats are no-no, but pre-approved packaged products, the ones that are also in school vending machines, are fine.

The bake sale ban is supposed to reduce childhood obesity. An education bureaucrat explained that homemade goods can’t be allowed because it’s impossible to know their portion size and content. You may add raisins to your banana bread and slice it thin, while I add walnuts and cut it thick.

Hence banana bread, cupcakes and anything else baked at home have been banished; but kids are free to gorge on Kellogg’s Frosted Brown Sugar Cinnamon Pop-Tarts, which come in portion-controlled packages and have known ingredients—in fact a long list of ingredients from high fructose corn syrup to yellow dye #6.

This is a vivid little example of how regulation in general functions and the impact it has in many areas of social life.

One, regulators are almost always influenced by the industry involved and work to its advantage— the NYC schools’ chosen vending operator plans to sell “fund-raising kits” of packaged products.
I probably shouldn't be shocked, but I am shocked at just how far the nanny state has progressed in our country. If you've taken my second course in public sector economics you should also recognize this as yet another illustration of BOOTLEGGERS & BAPTISTS at work to help the local vending operators be successful rent seekers.

Thursday, February 25, 2010

The President & Prosperity

Yesterday PRESIDENT OBAMA SPOKE before the Business Roundtable and said this:
Whatever differences we have in this country, all of us have a stake in meeting the same goal, which is an America in which a growing prosperity is shared widely by its people.
Of course, the President goes on to talk about how this growing shared prosperity can be achieved through his favorite government policies. I agree with the goal of a growing shared prosperity. I wonder how this goal should be pursued?

I think we can discover the answer to this question by reading LUDWIG VON MISES:
“. . .there is only one way a nation can achieve prosperity: if you increase capital, you increase the marginal productivity of labor, and the effect will be that real wages will rise. (p. 88)”
If you read all of the President's speech, and/or if you follow the President's policy proposals, I think you will be forced to the conclusion that the President seems to know very little about how the country's prosperity was achieved, and very little about how the country's prosperity can be sustained.

Oh, and if you have some time, you will learn many more valuable lessons by reading the entire set of lecture by Mises, than you will from following all the speeches and policies of the President. I would go so far as to suggest that if you study these seven lecture by Mises the result will be that you will be one of the most economically literate voters in the country.

Wednesday, February 10, 2010

The Green Police

This GREEN POLICE video is one of the best commercials I've ever seen. I'm afraid that although this is very funny today, it is likely to be not so funny by the time my son graduates college. I'm not sure, but hasn't there already been a bill introduced to Congress to ban the incandescent bulb? Maybe this ban is already law, and that could be me they're loading into the squad car, eh?

Health Insurance Tax Credit

But there is another way to make exchanges viable, one that should be prominently on the table at Blair House: offer a tax break. Some Republicans like Tom Coburn of Oklahoma and Paul Ryan of Wisconsin propose a refundable tax credit for buying insurance. This can be linked to exchanges.

Since employer-provided health insurance has a huge tax advantage, the only way a market is going to develop outside employer-mediated insurance is to level the tax field with a proper tax incentive. It also happens to be fair, since a growing number of people work for themselves and hence are discriminated against in being forced to pay higher taxes compared to those who benefit from the employer health insurance tax break.

With a significant – say $3,000 a person – and permanent tax cut, exchanges have a chance of attracting enough customers. Justice and economic logic both demand this tax break.
I think this is a good idea. I think the whole idea would be even better if the tax exchange idea was dropped, plus the Congress said both that there would no longer be mandates for what must be in a policy at either the national or state levels and that there could no longer be restrictions on buying insurance from companies across state lines.

Please don't any body point out that this tax credit idea sounds a lot like a "voucher" for health insurance. If Democrats notice this they just might be afraid that if vouchers worked for health insurance they would probably work for education as well.

Friday, January 29, 2010

A Paralyzing Presidency

The U.S. economy ought to be flying out of recession. Yet bank lending is sluggish. Companies refuse to hire. Business is going elsewhere to raise capital: China last year outstripped the U.S. as a center for initial public offerings. The market gyrates on Washington's latest political drama.

A venture capitalist recently remarked to me that the uncertainty the administration has created is "nothing short of paralyzing." Nobody will invest in an industry that might be the next to be overtaxed, overregulated, or publicly disemboweled.

Add to that uncertainty the administration's new populist bent, and it's a recipe for a continued capital freeze. "People in the economy are thinking about whether to invest or take risks when what they are seeing are early signs of Hugo Chávez economics," says Wisconsin GOP Rep. Paul Ryan. . . .

It seems to me this is a reasonable observation. Investing in the creation of new productive economic activities is a risky business. Uncertainty about what Congress and the President might do that would further burden business means that creative new productive economic activities looks even more risky. By the time someone is able to realize in some future moment the fruits of a commitment today to new economic activities, the opportunity to earn a profit may have been burdened away by new actions and new policies of the President and the Congress.

Thursday, January 28, 2010

Climate Science. . .Trust Us?

"The University of East Anglia breached the Freedom of Information Act by refusing to comply with requests for data concerning claims by its scientists that man-made emissions were causing global warming."
who can we trust? Oh, I know. . . . .politicians. I almost forgot.

Alternative SOTU

Jeffrey Miron suggests an interesting 10-point libertarian state of the union.

Wednesday, January 27, 2010

A Thousand Central Planners

MATT WELCH & NICK GILLESPIE write to President Obama:
"A thousand central planners before you have learned it the hard way: Prosperity isn't something the government creates, it's something the government, in the best case, can enable, mostly by establishing a set of simple rules and getting the hell out of the way."
Wise advice, don't you think?

Health Care Reform Constitutional?

Are the health care reform bills passed recently passed by the House and the Senate constitutional? AKHIL REED AMAR argues yes, while ROB NATELSON argues no. Here is Natelson:
"I do not share the writer’s confidence that national health care mandates are constitutional even under the modern Supreme Court’s altered version of the Constitution — but I recognize that legal scholars differ on this question. However, the claim that the Founding Fathers would have thought the Constitution allows Congress to impose health care mandates is little short of absurd."
If you are interested in this issue, I recommend reading at least the piece by Natelson. Why? Because I think his analysis is the better analysis.

But, for myself, the constitutional issue should be much easier to answer. I suggest whenever you see an argument, like Amar's in this case, which goes on and on with this and that justification, you should be wary of the conclusion of constitutionality. The conceptual foundation of the Constitution does not require a long list of reasons to suppose any action by Congress is constitutional. In fact, I think the conceptual foundation of the Constitution requires just the opposite to argue an action is constitutional.

The Constitution is a document which grants specific and enumerated powers to Congress. The conceptual foundation of the document is the idea that unless there is a specific power granted to Congress that is directly written into the language of the Constitution, then the Congress does not, constitutionally, have the power to act as it wishes.

The enumerated powers of the Constitution can be found in Article 1, Section 8. There is a simple test of the constitutional question with respect to the health care reform bills, at least as far as I can understand the meaning of our Constitution. To see this consider some of the language in the enumerated powers clause of our Constitution:

The Congress shall have the Power . . .
  • To borrow money . . . .
  • To coin Money . . .
  • To establish Post Offices and post Roads. . .
  • To raise and support Armies. . . .
  • To provide and maintain a Navy. . . .
So, when I ask whether the bills passed by the House and the Senate regarding health care reform are constitutional I'm going to read Article 1, Section 8 looking to find something that would be like the following: "Congress shall have the power to provide health care services or health care insurance." I think the constitution issue should be this simple and this straight forward. And, if the proponent of the conclusion of constitutionality has to offer more than this kind of straight forward analysis, then the conclusion of constitutionality should probably, in my view, be seen as incorrect.

Of course, the health care reform bills passed by the House and the Senate could become constitutional. How? The Constitution could be amended to say that Article 1, Section 8 now includes the following: "Congress shall have the power to provide health care services or health care insurance." Of course, Congress seems not to be interested in doing health care reform the constitutional way (to paraphrase Justice Oliver Wendell Holmes).

Pretty Picture

Isn't this a pretty picture, eh? The lines depict the national government's revenues and outlays as a percentage of gross domestic product (GDP). This is from a report by the Congressional Budget Office. The CBO's analysis suggests that the deficit, the amount the national government chooses to borrow this budget year, will again represent about 10% of GDP. Check out the dotted lines which depict average revenues and outlays, and which suggest over the past 4 decades a deficit, on average, of about 2-3% of GDP. It looks a bit like something has changed. Have the preferences of the voters has changed?

Monday, January 25, 2010

Latest Index of Economic Freedom

The latest INDEX OF ECONOMIC FREEDOM is out. It reflects a downward trend over the past year for 8 of the top 10 countries with the greatest economic freedom. Only Switzerland and New Zealand, among the top 10, show an upward trend in economic freedom over the past year. The United States fell to #8 and is no longer characterized as "free" but only "mostly free." I'm not surprised.

TERRY MILLER offers commentary and this summary of the reasons for the decrease in economic freedom in the United States:
The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government's interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed "too big to fail." These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.

Wednesday, January 13, 2010

The Bonuses Problem

Jonathan Macey writes about bank bonuses and politics:
"There is only one way to resolve the bonus problem. We should continue to let shareholders pay their managers whatever and however they want. But we must get out of the business of guaranteeing against failure. The bankers and the shareholders who enjoy the rewards of risk-taking should be made to act like real capitalists: They should be required to assume the risks that go along with the banks' business activities."
Maybe another way to look at the issues here would be that we should not see executive bonuses as a problem. Without government policy that protects banks and other financial corporations from failure, costly risk taking by executives will not be rewarded with bonuses because such risk taking will turn out to be unprofitable.

But, given a government policy that says a bank or financial corporation is too big to fail, otherwise costly risk taking is turned into a return or revenue that comes from Uncle Sam and the taxpayers. Costly risk taking is turned into a idea with no reality for the protected from failure banks and financial corporations. Even otherwise costly risk taking by executives becomes an opportunity to turn a "profit," and from the government-is-my-protector corporation's perspective profits from any source are worthy of reward.

It seems to me we should not think that there is a bonuses problem. Instead we should see, if we see clearly, that there is a government policy problem.

Wednesday, January 06, 2010

A Liberty Lover's Top Ten List

Atlas Economic Research Foundation offers a list of the Top Ten Pro-Liberty Books of the Decade. How many have you read?

A Healthy Corruption?

Instead of appointing a formal conference committee to reconcile the House and Senate health bills, a handful of Democratic leaders will now negotiate in secret by themselves. Later this month, presumably white smoke will rise from the Capitol Dome, and then Nancy Pelosi, Harry Reid and the college of Democratic cardinals will unveil their miracle. The new bill will then be rushed through both chambers with little public scrutiny or even the chance for the Members to understand what they're passing.

Evading conference has become standard operating procedure in this Congress, though you might think they'd allow for the more open and thoughtful process on what Mr. Obama has called "the most important piece of social legislation since the Social Security Act passed in the 1930s and the most important reform of our health-care system since Medicare passed in the 1960s."
Does this Congress seem ever more corrupt? Or, perhaps it is tyrannical?