Allocation, Distribution & Fairness

Peter Boettke:

The juxtaposition of the exchange approach to economics with the approach to economics that emphasizes optimal society allocation and just distribution as products of a benevolent social planner sets the stage for Buchanan's distinction between economics and politics, as well as the emphasis on rules and the institutional framework.  Questions of  "just distribution" are never about particular distributions of resources but instead always about the choices over the rules of the game which engender a pattern of exchange, production, and thus distribution.  Fairness is about rules, not outcomes; justice is about process, not end-states. [Living Economics, p. 50]

Unlimited Democracy

Hayek:

The true value of democracy is to serve as a sanitary precaution protecting us against an abuse of power.  It enables us to get rid of a government and try to replace it by a better one.  Or, to put it differently, it is the only convention we have yet discovered to make peaceful change possible. . . . In its present unlimited form democracy has today largely lost the capacity of serving as a protection against arbitrary power.  It has ceased to be a safeguard of personal liberty, a restraint on the abuse of governmental power which it was hoped it would prove to be when it was naively believed that, when all power was made subject to democratic control, all the other restraints on government power could be dispensed with.  It has, on the contrary, become the main cause of a progressive and accelerating increase of the power and weight of the administrative machine. . . . As everything tends to become a political issue for which the interference of the coercive powers of government can be invoked, an ever larger part of human activity is diverted from productive into political efforts . . . . In other words, we have under the false name of democracy created a machinery in which not the majority decides, but each member of the majority has to consent to make bribes to get majority support for his own special demands. [The Political Order of a Free People, 137-138]

Political Incentives

Hayek:

People who hope to be re-elected on the basis of what their party during the preceding three or four years has conferred in conspicuous special benefits on their voters are not in the sort of position which will make them pass the kind of general laws which would really be most in the public interest. [The Political Order of a Free People, p. 28]

HAPPY TAX DAY!

LARRY CORREIA rants about government on tax day. I think his rant is excellent. I'm going to have to check out his novels.

Congressional Corruption

HOT AIR:

"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."

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?

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.

A Healthy Corruption?

FROM THE WSJ:

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?

ObamaCare: Would I lie to you?

GREG MANKIW:

"At first, it sounds like the President is threatening to veto the bills being considered in Congress because, according to CBO, they will add significantly to deficits in the out years. If true, that would be a big story. But the provision he mentions in the next sentence seems to suggest he is just passing the buck.

Translation: 'I promise to fix the problem. And if I do not fix the problem now, I will fix it later, or some future president will, after I am long gone. I promise he will. Absolutely, positively, I am committed to that future president fixing the problem. You can count on it. Would I lie to you?'"

L'Obamatized

What is the definition of L'Obamatized? ANDREW WILSON:

That is the highly scientific condition of having half of your brain removed and the other half turned into jelly with no off/on switch to control veneration of the 44th president."

Kind of a cute term for RATIONAL IRRATIONALITY, eh?

The President's Power

KARL ROVE:

"President Barack Obama and his West Wing lieutenants are playing on the world's largest stage, yet act as if no one is watching them when they contradict their campaign promises. That behavior is unwittingly giving the Republicans an opening.

For example, Team Obama thinks the president, having spent a good portion of the campaign decrying the $2.9 trillion in deficits during the Bush years, can now double the national debt held by the public in 10 years. Having condemned earmarks during the campaign, the Obama administration now believes it can wave through 8,500 of them in the omnibus-spending bill, part of the biggest spending increase since World War II.

With the Dow at 7,486 and unemployment at 8.1%, Mr. Obama says the economy is fundamentally sound. Does he suppose the nation won't recall him attacking John McCain last September for saying the same thing -- when the Dow was at 11,000 and unemployment at 6.2%?"

I have to wonder, does the President think "we the people" are rationally ignorant or rationally irrational?

Here is Mr. Rove's parting observation:

Every president eventually depletes his political capital. Some have done so advancing great, difficult causes. Others squander it because of missteps, and what the public views as breaches of faith. Having been president for all of eight weeks, Mr. Obama retains much residual goodwill and could still change course on the budget to reach across the aisle. But his current strategy has made him weaker than he was and weaker than he needs to be. It's turning into a costly two months for America's 44th president.

Just a week ago, I discussed with my students in my public choice course whether the Congressional leadership or this President had the greater power. Even with all the good will and support President Obama garnered in his election, perhaps he is too young and too inexperienced to effectively use the potential power of the Presidency? Does it seem he is still campaigning rather than governing?

Endless Screwups

GLENN REYNOLDS:

"Our political class lacks the self-discipline needed to handle a crisis. They’re too busy reacting to headlines, polls, and fears of headlines and polls. The result is . . . well, endless screwups like this."

Maybe we should say this is the basic source of government failure, eh?

Folly & Washington Finger Pointing

A very interesting story is told today in a WALL STREET JOURNAL commentary:

"Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG 'rescue.' This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts."

Have you ever been suspicious when the those in the Washington political class are out in front of the cameras pointing fingers? I've come to suspect that when this happens the finger pointing is about trying to play offense to cover up the mistakes of government. The WSJ suggests this is the reason for the fingers pointing and wagging over greedy others right now:

The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.

Here is the bottom line to the commentary:

The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.

Of course the people of government will not blame themselves. They will instead try to help us overlook their accountability. As Ronald Reagan famously said, government is not the solution, government is the problem. It seems folly to turn to government thinking government can fix a mess it's earlier actions helped create.

The Corruption Continues

WSJ:

"Speaking of earmarks, they've quickly made a comeback even by the old definition. The $410 billion omnibus spending bill for fiscal 2009 now making its way through Congress contains at least 8,570 of them at a cost of $7.7 billion. Mr. Obama is not signaling any concern, much less a veto."

Please read this short editorial. We should all be paying attention. The corruption in Washington continues. It seems to me the corruption that is represented by earmarks is not being changed to un-corruption, but instead the direction of change we seem to be able to count out is a deepening of the corruption.

The number of earmarks in this omnibus spending bill alone represents, on average, about 20 personally determined, secret, spending projects for each member of Congress. In dollar terms, this means about $18 million is being spent secretly by each member of Congress.

This Crisis & Sowell Clarity

TOM SOWELL:

"From television specials to newspaper editorials, the media are pushing the idea that current economic problems were caused by the market and that only the government can rescue us.

What was lacking in the housing market, they say, was government regulation of the market's 'greed.' That makes great moral melodrama, but it turns the facts upside down.

It was precisely government intervention which turned a thriving industry into a basket case.

An economist specializing in financial markets gave a glimpse of the history of housing markets when he said: 'Lending money to American homebuyers had been one of the least risky and most profitable businesses a bank could engage in for nearly a century.'

That was what the market was like before the government intervened. Like many government interventions, it began small and later grew."

If you want insight, then you really should read the whole thing.

On the other hand, if you choose either rational ignorance or irrationality, then you want to stay far, far away from Tom Sowell.

National Debt History

JOHN STEELE GORDON:

"Still, it's the trend that is worrisome, to put it mildly. There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.

It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) -- no deficit hawk when his party is in the majority -- called it 'porky.'"

Our political economy is again beginning to show symptoms of the sclerosis Mancur Olson studied in THE RISE AND DECLINE OF NATIONS.

1st Amendment Economic Liberties

ED MORRISSEY:

"It’s an easy question. Does this administration believe in free speech or government censorship? Their sudden inability to provide a clear answer, when they had no problem giving such assurances eight months ago, does not bode well for the answer.

I’d like to say I told you so to all of those who accused us of paranoia, but the window on that ability to do so on the airwaves looks like it’s about to expire — like all of Obama’s campaign promises."

Check it out. An expiration date on the President's campaign promises, eh? Rational ignorance comes up again.

The policies falling under the idea of the "fairness doctrine" pose threats not just to speech and press liberties. The idea is going to be for government to force the owners of radio stations to make business choices with respect to their programming that they would otherwise not choose to make. So, economic liberties are going to be threatened as well.

Such threats to economic liberty seem to be part of this President's vision for the future of America, because we also have seen since his inauguration that he intends to cap pay for business executives and he is going to have a AUTO INDUSTRY COUNCIL that will restructure this US industry.

Hey, remember the song lyric "the future's so bright I gotta wear shades"? It's beginning to look like we can throw those shades away.

Politics, Ain't It Grand

ROGER KIMBALL WRITES, "now they tell us:"

"They haven’t even extracted the money yet and already they’re telling us poor suckers “not to expect instant miracles from the $787 billion economic stimulus bill he will sign this week, but said it would help eventually.”

. . . . White House spokesman Robert Gibbs today said that “the economy is going to get worse before it gets better.”

And what about the 3.5 million jobs the current President of the United States said his spending orgy would “save or create.” (Save or create? What does that mean? How would you measure the saved jobs?))

Oops, now it’s 2.5 million by the end of 2010."

Didn't the President say he would create 4 million new jobs? It seems the choices of our fearless leaders in Washington depend heavily on assuming voters are rationally ignorant. But, isn't this past week just a bit too much, as in: "Oh, my, the sky is falling. . . .We must do something. . . .Let's spend, spend, spend so we can save/create jobs. . . .But, never mind, now that our legislation has passed, don't hold you breath, because, you see, we really don't think our spending can change the direction of the economy any way."

Remember hope and change? I hope the change to a larger government in Washington doesn't continue, but there are still many months until mid-term Congressional elections.

Unemployed Trojan Horse

ALAN REYNOLDS wonders why most of Congressional stimulus bill is directed toward areas of the economy with little unemployment:

"House Democrats propose to spend $550 billion of their two-year, $825 billion 'stimulus bill' (the rest of it being tax cuts). Most of the spending is unlikely to be timely or temporary. Strangely, most of it is targeted toward sectors of the economy where unemployment is the lowest.

The December unemployment rate was only 2.3% for government workers and 3.8% in education and health. Unemployment rates in manufacturing and construction, by contrast, were 8.3% and 15.2% respectively. Yet 39% of the $550 billion in the bill would go to state and local governments. Another 17.3% would go to health and education -- sectors where relatively secure government jobs are also prevalent.

If the intent of the plan is to alleviate unemployment, why spend over half of the money on sectors where unemployment is lowest?"

Do our fearless leaders in Washington really overlook such details? Or, do they know well what they are doing and assume most of us are not watching? Are our fearless leaders confident they are safe in trying to fool us because most of us choose rational ignorance and/or rational irrationality?

Another View of the Trojan Horse

WSJ EDITORIAL:

"'Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before.'

So said White House Chief of Staff Rahm Emanuel in November, and Democrats in Congress are certainly taking his advice to heart. The 647-page, $825 billion House legislation is being sold as an economic 'stimulus,' but now that Democrats have finally released the details we understand Rahm's point much better. This is a political wonder that manages to spend money on just about every pent-up Democratic proposal of the last 40 years.

We've looked it over, and even we can't quite believe it. There's $1 billion for Amtrak, the federal railroad that hasn't turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There's even $650 million on top of the billions already doled out to pay for digital TV conversion coupons."