Archive for October, 2010
Unfair Subsidies for Buses
Cato essays on the Department of Transportation contain a common theme: federal subsidies for various modes of transportation have stifled privately funded and operated alternatives. One emerging bright spot is private intercity bus companies.
From a Cato essay on Amtrak subsidies:
If Amtrak is privatized, passenger rail will be in a much better position to compete with resurgent intercity bus services. The rapid growth in bus services in recent years illustrates how private markets can solve our mobility needs if left reasonably unregulated and unsubsidized. A Washington Post reporter detailed her experiences with today’s low-cost intercity buses: “This new species offers curbside pickup and drop-offs, cheap fares, clean restrooms, express service, online reservations, free WiFi and loyalty programs . . . The bus fares undercut Amtrak and, depending on the number of passengers, personal vehicles.”
That’s why a story out of Minnesota is disturbing. According to the Duluth News Tribune, Jefferson Lines, which operates a bus line between Duluth and the Twin Cities, received $2.65 million in federal stimulus money to purchase five of the eight buses it has in service. One of Jefferson Lines’ competitors isn’t happy:
That angers Dave Clark, owner of Skyline Shuttle, which provides transportation from Duluth to the Twin Cities. Clark claims it’s unfair for Jefferson Lines to use government money to compete with his business and cut into his revenue.
“When there’s a market and they are competitors, it should be left to the market without government interference,” Clark said. “They could have taken the risk themselves, but they relied on the taxpayer to take the risk.”
The first problem is that federal taxpayers across the country are being forced to subsidize a private bus line in Minnesota. The second problem is that the government is effectively picking winners and losers in the market for intercity bus services. Instead of spreading transportation subsidies across every form of transportation, the federal government should cease with the seemingly endless interventions and allow free individuals to figure out what makes the most sense.
Would You Trade Higher Taxes for Much Lower Spending and Less Red Tape?
I dislike taxes as much as the next person (and probably a lot more), but other policies matter as well, so if I had the choice of replacing current government policies with the ones that existed at the end of the Clinton years, I would gladly make that trade. Yes, it would mean higher tax rates, but it also would mean slashing government spending from 24 percent of GDP down to 18 percent of GDP. It would mean no sleazy TARP bailout, no Sarbanes-Oxley red tape, no expansion of Fannie Mae and Freddie Mac, and no added power and authority for the federal government.
This is the argument that I made in this interview on CNBC, though my opponent tried to do his version of the Brezhnev Doctrine (what’s mine is mine, what’s yours is negotiable), so I concluded the interview by stating that in the real world higher taxes are completely unacceptable.
To elaborate on this discussion, here’s a chart showing actual revenue over the past decade and what spending would be if policy makers had simply maintained the overall budget level from the last year of the Clinton Administration and allowed spending to grow in line with inflation and population. The deficit would be much smaller. More important, the burden of federal spending would be almost $1 trillion lower.
Evo Morales’ Soccer Behavior Mirrors His Governing Style
The video speaks volumes: During a “friendly” game played in La Paz, Bolivia’s President Evo Morales (wearing green jersey number 10) approaches a rival player to confront him for a previous foul. Suddenly, Morales takes justice into his own hands and savagely knees the player in the groin. The referee sees the action but doesn’t red card Morales. Even the teammates of the assaulted player don’t complain. Instead, the referee expels the attacked player. The game goes on and Morales scores the tying goal for a 4-4 match. It was later reported that Morales’ security detail tried to arrest the player.
Evo Morales’ thuggish attitude towards his soccer rivals mirrors his attitude towards political opponents (actually, the team he was playing against was led by the mayor of La Paz, a political foe of the president). Before and since becoming president in 2006, Morales has repeatedly resorted to violence in order to advance his socialist agenda. A couple of other episodes are indicative of Morales’ governing style:
In November 2007, after months of impasse in the Constitutional Assembly in which the text of a new constitution could not be approved because of a lack of an absolute majority, the government called for a session of the Assembly to be held at a military base. When the opposition delegates tried to enter the premises, they were prevented from doing so by the military, the police and Morales’ supporters. The text of Bolivia’s new constitution was thus approved by the unrepresentative Assembly.
To become the law of the land, the new constitution had to be approved by a national referendum. However, the opposition-controlled Senate refused to call a referendum on a constitutional text that was rightly viewed as illegitimate. In February 2008 Morales called the leaders of the opposition to his official residence for a negotiation. Upon arrival, they were told that the president wasn’t there and that the bill to call for a referendum was about to be submitted for a vote on the Senate floor. When the legislators tried to return to the Congress, they were prevented doing so by Morales’ supporters and the police. The Senate passed the bill and Morales went on to win the referendum by a wide margin.
A couple of years ago, Evo Morales candidly recounted his attitude to following the rules: “When some lawyer tells me ‘Evo, you’re making a judicial mistake; what you’re doing is illegal,’ well, I keep going even though it’s illegal. I then tell the lawyers: ‘If it’s illegal, go ahead and make it legal. That’s what you went to school for.’”
Nobody should be surprised by Evo’s soccer antics. They are just a metaphor for his governing style.
IJ’s Steve Simpson on Doe v. Reed
If the government can force us to disclose the source of our funds when we speak publicly, what can’t they require of us? Steve Simpson from the Institute for Justice discussed disclosure laws in light of the Doe v. Reed Supreme Court decision at Cato’s Constitution Day. You can get a copy of the latest Cato Supreme Court Review at our bookstore.
Deirdre McCloskey at Cato Unbound
This month’s Cato Unbound features a lead essay by economist and polymath Deirdre McCloskey. Though she’s been professionally associated with the Chicago School, her ideas are anything but predictable, and she’s been one of the strongest critics of the mainstream of her discipline.
Economic activity, she argues, is driven primarily by forces outside of conventional economic theory. Sure, there’s supply and demand, and we all know the story, and there’s nothing terribly wrong with it, at least as far as it goes. Elaborations on the model aren’t wrong either — externalities, transaction costs, asymmetrical information, problems of coordination and public goods — these too are fine, as far as they go.
Where she disagrees is in her claim that a whole lot of things have to happen inside people’s minds before these things become terribly interesting to talk about. The decision to enter a marketplace, or to behave in ways that we might call “a market,” or even just the decision to look for economic incentives, all depend on some fairly deep value judgments. The creation of a highly market-driven society implies a commitment to a set of values.
What values are we talking about? Here’s a sample:
The Big Economic Story of our times has not been the Great Recession of 2007–2009, unpleasant though it was. And the important moral is not the one that was drawn in the journals of opinion during 2009 — about how very rotten the Great Recession shows economics to be, and especially an economics of free markets. Failure to predict recessions is not what is wrong with economics, whether free-market economics or not. Such prediction is anyway impossible: if economists were so smart as to be able to predict recessions they would be rich. They’re not. No science can predict its own future, which is what predicting business cycles entails. Economists are among the molecules their theory of cycles is supposed to predict. No can do — not in a society in which the molecules are watching and arbitraging.
The important flaw in economics, I argue here, is not its mathematical and necessarily mistaken theory of future business cycles, but its materialist and unnecessarily mistaken theory of past growth. The Big Economic Story of our own times is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in the economy, and came to attribute a dignity and a liberty to the bourgeoisie formerly denied. And then China and India exploded in economic growth. The important moral, therefore, is that in achieving a pretty good life for the mass of humankind, and a chance at a fully human existence, ideas have mattered more than the usual material causes.
A society that denigrates small businesses, small landowners, entrepreneurship, thrift, and innovation will see less of each. It will have different laws, customs, and institutions. Its resources will be used differently. Even its class structure will be different.
Societies that make a place for the artisan, the entrepreneur, the innovator — societies that see these people as valuable — will prosper. That’s the essence of the argument, anyway, and I’m only disappointed that we can’t present it in more detail (McCloskey is in the middle of a four-book series on this one very big idea).
Through the rest of the week, we have a lineup of notable response essayists, including U.C. Davis’s Gregory Clark, science journalist Matt Ridley, and Yale University’s Jonathan Feinstein. Be sure to stop by often, or just subscribe to our RSS feed.
Bill Clinton Channels Friedrich Hayek
Friedrich Hayek, The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Bill Clinton, 9/21: “Do you know how many political and economic decisions are made in this world by people who don’t know what in the living daylights they are talking about?”
Can We Take the Truth?
Today POLITICO Arena asks:
Is Alaska Republican Senate nominee Joe Miller correct to suggest that the federal minimum wage is unconstitutional? And beyond that constitutional question, is this a wise political strategy?
My response:
Joe Miller is absolutely right: The federal government has no authority under the Constitution to set a minimum wage — or to do so many of the countless other things it does today. When Nancy Pelosi was asked where in the Constitution Congress was authorized to order Americans to buy health insurance, she responded, “Are you serious?” That’s a mark of how little America’s political elites today understand the document they take an oath to uphold.
James Madison, the principal author of the Constitution, wrote in Federalist 45 that the powers of the new government would be “few and defined” – a far cry from today’s Leviathan. How did the change happen? In a nutshell, the ideas of the Progressives – in particular, wide-ranging rule by elites — were incorporated in “constitutional law” (not to be confused with the Constitution), not by constitutional amendment but by a cowed Supreme Court following Franklin Roosevelt’s infamous 1937 Court-packing scheme. That opened the floodgates to the modern redistributive and regulatory state that so many Americans love so much today. Don’t take my word for it. Here’s Rexford Tugwell, one of the principal architects of the New Deal, reflecting on his work some 30 years later: “To the extent that these new social virtues [i.e., New Deal policies] developed, they were tortured interpretations of a document [i.e., the Constitution] intended to prevent them.”
But that’s changing, if the Tea Party movement is any indication. The American people are waking up to the truth: The governmnet gives nothing that it doesn’t first take. It’s not Santa Claus. And whether the taking is in the form of money, property, or liberty, it comes to the same thing. So in answer to the question whether telling constitutional truths is wise political strategy, we’ll see. If the people can’t take the truth, it’s only a matter of time before we go the way of civilizations before us. Fortunately, we still have enough freedom to tell such truths.
Hysteria and the Threat of Mumbai-Style Attacks in Europe
The State Department has issued a travel warning for U.S. citizens visiting Europe. The alert comes after U.S. and European officials said there was a credible threat of commando style terror attacks against Britain, France, and Germany, similar to the attack in Mumbai almost two years ago.
Although many travelers were left wondering what to do in the face of a broad warning, the Obama administration has decided to take decisive action by stepping up drone strikes along the Afghanistan-Pakistan border against militants affiliated with the Haqqani network, Hafiz Gul Bahadur’s group, and other terrorist outfits.
As I write today over at the Skeptics blog on the National Interest (Online):
Nearly a decade after 9/11, these issues underscore a deeper problem with U.S. policy: determining what constitutes a terrorist sanctuary and deciding what course of action is most prudent for eradicating them.
Drone strikes are imperative for a policy of offshore balancing. Nevertheless, they are piecemeal, tactical efforts that do little to alter the Pakistani security establishment’s support for Islamist proxies as a hedge against India, Pakistan’s primary enemy. Indeed, massive aerial bombings did not win the war in Vietnam, and it’s not going to change the bigger picture in South Asia.
I go on to mention that:
…the neo-jihadists that threaten America are not held hostage to the outdated notion of “territory.” Only we are. We seem to have forgotten that 9/11 was planned not only in Afghanistan, but also in Germany, Spain, and the United States. Even the radicalized youths suspected of plotting the recent Mumbai-style terror plot in Europe came from the same mosque in Hamburg where the 9/11 hijackers gathered.
Check out the entire post here!
Media Darken Americans’ Perceptions of Trade
Today’s Wall Street Journal headline screams: “Americans Sour on Trade.” And why shouldn’t they? After all, the public is routinely bombarded with misleading or simplistic trade coverage that too often relies on cliché, innuendo, and regurgitated conventional wisdom: it’s Team America versus the world. Without the war metaphor, trade is just a peaceful, mutually-enriching endeavor between consenting parties. BO-RING!
Dan Griswold attributes the declining sentiment to the business cycle and goes on to suggest that this “collective attitude is more reflective of the complaints people hear in the media than of any hard reality on the ground.” Let me continue with that theme because I’ve made no secret of my concern about media’s inclination to eschew context and fact to pitch a particular narrative about trade. The polling data at the heart of today’s WSJ article bears out that concern. A nation that has strong misgivings about trade is less likely to stop a conspiracy of politicians and special interests from taking away their right to do so.
The problem is not just limited to one or two newspapers; the problem is endemic. Here are just a few examples of faulty trade reporting that my colleagues and I have criticized over the past year or so (Exhibit A, B, C, D, E, F, G, H, I, . . .). And here’s a more recent example from the editorial board of USA Today on Friday, October 1:
“From 2000 to 2009, America’s trade deficit with China surged nearly 300%. During that same time, 5.4 million American jobs in manufacturing were eliminated. It’s tough for U.S. manufacturers to compete against China’s lower wages, looser regulations and cheaper currency.”
Yes, the facts about the trade deficit and the American manufacturing jobs are correct. But the point is to imply that trade is responsible for the destruction of U.S. manufacturing. Nowhere does it mention that U.S. manufacturing jobs peaked in 1979 (well before trade with China was more than a statistical rounding error in our total trade figures) and has been trending downward ever since. Nowhere does it mention that China has lost many millions more manufacturing jobs than we have in the United States because of the same phenomenon: productivity growth. Nowhere in the editorial does it mention that U.S. manufacturing has been breaking records year after year during the decade (with the exceptions of recession years 2002 and 2009) with respect to output, value-added, revenues, profits, return on investment, and exports. Nowhere does it mention that U.S. manufactures are the world’s most prolific, accounting for the largest share of global manufacturing value added. Nowhere does it mention that China has been America’s fastest growing export market for a decade and that U.S. goods exports to China are up 36 percent compared to the same period last year, which is a 50 percent faster growth rate than U.S. exports to the rest of the world. Obviously, that fact would undermine the assertion that “it’s tough for U.S. manufacturers to compete against China’s lower wages, looser regulations and cheaper currency.” Nowhere does it caution that the use of statistics from 2009, the nadir of the recession, might be a bit misleading. Nowhere does it mention that as U.S. manufacturing jobs declined by 3.8 million between 2000 and 2008, a total of 8.8 million new jobs were created in the U.S. economy, for a net gain of 5 million jobs.
Americans have soured on trade largely because of the way media conveys its stories about trade. There is no alternative explanation for a majority of Americans harboring ill-will toward trade. Most Americans enjoy the fruits of international trade and globalization every day and in countless ways, and less than 3% of U.S. jobs loss is attributable to import competition or outsourcing. It is simply implausible that the degree of antipathy toward trade reflected in opinion polls is driven by past personal experiences or realistic fears about the future.
Rather than focus so much on shaping public opinion, media should rid itself of the curse of group think and get back to the basics of objectively reporting the facts, challenging the conventional wisdom, and citing multiples sources. The kind of lazy acceptance of unsubstantiated theories of cause and effect that are evident in international trade reporting these days is reminiscent of the media’s passive role in the months leading up to the invasion of Iraq.
Libertarian Student Conferences
I’ll be speaking at three Students for Liberty conferences this fall — first this weekend in Philadelphia, where they say they’re expecting 180 attendees, and then in New York and Berkeley.
Other speakers at the nine regional conferences include Richard Epstein, Patri Friedman, Tom Palmer, Barry Goldwater Jr., and Gary Johnson.
The conferences are open to both students and non-students. Better yet, non-students can donate via Paypal to cover the costs of penniless students!
Here’s How to Balance the Budget
Our fiscal policy goal should be smaller government, but here’s a video for folks who think that balancing the budget should be the main objective.
The main message is that restraining the growth of government is the right way to get rid of red ink, so there is no conflict between advocates of limited government and serious supporters of fiscal balance.
More specifically, the video shows that it is possible to quickly balance the budget while also making all the 2001 and 2003 tax cuts permanent and protecting taxpayers from the alternative minimum tax. All these good things can happen if politicians simply limit annual spending growth to 2 percent each year. And they’ll happen even faster if spending grows at an even slower rate.
This debunks the statist argument that there is no choice but to raise taxes.
Violence and Institutional Chaos in Ecuador
Last Thursday I left home at 7:50am to do a radio interview. Little did I know that I would not be able to get back to work that day until 3:00pm because the national police would block the main avenues and bridges in my city, Guayaquil, Ecuador.
The police went on a national strike burning tires and openly disobeying the government. Grocery stores, drugstores, banks and other shops were sacked for most of the day as a result. Some disgruntled members of the air force, who sympathized with the police and are in charge of running airports, shut down a few airports including the one in Quito, the capital.
President Rafael Correa was quick to call this a coup d’état attempt. But it was not. All of the military high command expressly supported the President from the beginning. It was a police strike that got out of hand mostly because the authorities with the power to have toned down the situation did the opposite. The policemen were demanding the repeal or reform of a law that reduced their compensation. The President or his ministers could have offered to negotiate the controversial provisions within that law. But the President went to the police barracks and provoked the policemen yelling “If you want to kill the president…here he is … kill him now!”
The policemen physically assaulted the President, throwing a teargas bomb at him among other objects, and he went across the street to the police hospital. There he received treatment and visits from his ministers and top aides, gave cell phone interviews and was at all times protected by his security team. Mary O`Grady in today’s Wall Street Journal and others credibly point out that the president was never kidnapped as he claims.
The political crisis that led to the police strike did not begin on Thursday. Ecuador has lived in constant political tension since before the year 2000, a situation that only intensified with the arrival of Rafael Correa’s government in January 2007. That year, his government was behind the forcible and illegal removal of the democratically elected opposition in Congress in order to approve a constitutional referendum that would give Correa more power. The press then discovered Correa’s Minister of Government holding a secret meeting with alternate congressmen, who serve in place of elected congressmen in case these cannot serve. After this meeting, with the support of the alternate congressmen, Correa got a majority in Congress that he did not have before.
When the Constitutional Court reinstated the opposition in Congress, Correa encouraged his followers to make the Constitutional Court “understand” the popular will and he ordered the police not to provide security to the Constitutional Court. An angry mob then physically assaulted the members of the court. Nevermind, Correa’s new majority in Congress removed the members of the Constitutional Court as they were in the way of a referendum that was clearly unconstitutional. The referendum asked if Ecuadorians wanted to hold a Constitutional Assembly of “unlimited powers” to draft a new constitution. A sizeable majority voted ‘yes’ and Correa’s majority at the Constitutional Assembly began its use of unlimited power by dissolving Congress in 2008.
After regularly disregarding the Constitution and the law for almost 4 years, it should come as no surprise that the policemen woke up one day thinking that, they too, could disobey the law and demand changes by force.
The 30th of September was a sad day for Ecuadorian democracy. The government ordered all media to broadcast state TV programming. We Ecuadorians were forced to watch government officials and sympathizers most of the day until two TV stations disobeyed the order at 9:00pm to show our military opening fire against our policemen, and rescuing a supposedly “kidnapped” President from the hospital. That day there were almost 300 wounded persons and 8 deaths that, most likely, could have been avoided.
There is nothing to celebrate. There is still no rule of law in Ecuador. While the President was celebrating a “victory for democracy” from the government palace’s balcony, the shooting between the military and policemen continued for 20 more minutes and the order to broadcast state TV was still in force. Naturally, state TV was only showing Correa’s address.
The damage is great. We have lost respect of our policemen and our government authorities, who act as if their power has no limits. The Ecuadorians of my generation have never seen this level of violence. We have also never been subjected to such an extreme state control of information, as we were that day.
The Organization of American States was quick to denounce the police uprising and express its support of democracy. But where have the OAS and other supposed defenders of democracy been when Correa has systematically violated the rule of law and undermined democratic institutions?
The institutional vacuum created by Correa’s government has led our society to unacceptable levels of violence. We hoped that the violent toll of the events on Thursday would have made the government change its authoritarian ways. So far, all evidence points to a radicalization of the government, which was already stigmatizing the opposition and harassing the independent press, and now seems set to exploit the day’s events to further undermine democracy.
What will it take for the OAS to denounce violations of the rule of law under Correa’s government?
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