Archive for May, 2011
Ayn Rand Sells Magazines
This article about donors who want to give colleges money with strings attached, published in Bloomberg Markets and splashed across a full page of the Sunday Washington Post, leads with the story of former BB&T chairman John Allison’s campaign to get the books and ideas of Ayn Rand into college classrooms and is lavishly decorated with big photographs of Rand.
Most of the story is actually about much less titillating demands — donors who variously want a say in hiring the next football coach, a change in the school’s tuition policy, a rejection of money from other donors. But apparently editors know that Ayn Rand’s name can bring in the readers. So they act in their rational self-interest and put her name on the cover and her picture at the top of the page.
At least the Post had the good sense to drop the dumb last line of the Bloomberg story: “As private donors gain more power on campuses, it’s just the kind of shift away from state control that Rand would applaud.” Actually, giving private money to state institutions is not the sort of privatization that libertarians seek. (And Ayn Rand was a libertarian, whether she liked to admit it or not.)
‘Anarchist’ Idiocy
The Washington Post splashes a story about “anarchists” in Greece across the front page today. The print headline is “Into the arms of anarchy,” and a photo-essay online is titled “In Greece, austerity kindles the flames of anarchy.” And what do these anarchists demand? Well, reporter Anthony Faiola doesn’t find out much about what they’re for, but they seem to be against, you know, what the establishment is doing, man:
The protests are an emblem of social discontent spreading across Europe in response to a new age of austerity. At a time when the United States is just beginning to consider deep spending cuts, countries such as Greece are coping with a fallout that has extended well beyond ordinary civil disobedience.
Perhaps most alarming, analysts here say, has been the resurgence of an anarchist movement, one with a long history in Europe. While militants have been disrupting life in Greece for years, authorities say that anger against the government has now given rise to dozens of new “amateur anarchist” groups.
Faiola does acknowledge that the term is used pretty loosely:
The anarchist movement in Europe has a long, storied past, embracing an anti-establishment universe influenced by a broad range of thinkers from French politician and philosopher Pierre-Joseph Proudhon to Karl Marx to Oscar Wilde.
So that’s, let’s see, a self-styled anarchist who was anti-state and anti-private property, the father of totalitarianism, and a witty playwright jailed for his homosexuality.
Defined narrowly, the movement includes groups of urban guerillas, radical youths and militant unionists. More broadly, it encompasses everything from punk rock to WikiLeaks.
And what are these various disgruntled groups opposed to?
The rolling back of social safety nets in Europe began more than a year ago, as countries from Britain to France to Greece moved to cut social benefits and slash public payrolls, to address mounting public debt. At least in the short term, the cuts have held back economic growth and job creation, exacerbating the social pain.
And Greece is not the only place in which segments of society are pushing back.
So these “anarchists” object that the state might cut back on its income transfers and payrolls. That is, they object to the state reducing its size, scope, and power. Odd anarchists, as George Will told the crowd at the 2010 Milton Friedman Prize for Advancing Liberty dinner:
It leads to the streets of Athens, where we had what the media described as “anti-government mobs.” Anti-government mobs composed almost entirely of government employees going berserk about threats to their entitlements!
Lots of talk in the Post article about anarchists:
“They are taking everything away from us,” [19-year-old law student Nikolas] Ganiaris said. “What will happen when I finish law school? Will I only find a job making copies in a shop? Will I then need to work until I’m 70 before I retire? Will I only get a few hundred euros as pension? What future have I got now?”
A radical minority is energizing the anarchist movement, a loose network of anti-establishment groups….
Since then, experts say, the economic crisis has helped the movement thrive, with anarchists positioning themselves as society’s new avengers. Long a den of anarchists, the graffiti-blanketed Exarchia neighborhood is alive anew with dissent. Nihilist youths are patrolling the local park, preventing police from entering and blocking authorities from building a parking lot on the site. On one evening at a local cafe, an anarchist group was broadcasting anti-government messages via a clandestine radio station using a laptop and a few young recruits.
The last vignette in the story is about 20-year-old Nikos Galanos, who has joined the anarchist movement in anger over his mother’s losing her government job and his father’s being the victim of a 15 percent salary cut in his own government job.
“I don’t support violence for violence’s sake, but violence is a response to the violence the government is committing against society,” Galanos said. He later added, “It is now hard for any of us to see a future here. I feel it’s my duty to fight against the system.”
In fact, the government has been committing violence against society for decades, by taxing people, overregulating business, and spending money it didn’t have. No wonder youth unemployment is 35 percent. And what is the actual “system” that Mr. Galanos wants to fight? Greek journalist Takis Michas described it at a Cato Forum:
In Greece, the fundamental principle that has been dictating economic and political development since the creation of the Greek state in the 19th century is political clientelism.
This is a system in which political support is provided in exchange for benefits.
In this situation, rent-seeking — the attempt by various groups and individuals to influence the location of political benefits — becomes paramount. The origins of political clientelism can be traced back to the origins of the Greek state in the 1830s. As a left-wing political historian puts it, “The fundamental structure of Greece has never been civil society. Ever since the middle of the 19th century, nothing could be done in Greece without its necessarily passing through the machinery of the state.”…
The largest part of public expenditure was directed, not to public works or infrastructure, but to the wages of public service workers and civil servants….
What makes the case of Greece interesting is that Greece can be said, in a certain sense, to provide the perfect realization of the left’s vision of putting people above markets.
Greek politicians have always placed people (their clients) above markets, with results we can all see today.
Real anarchists, of either the anarcho-capitalist or mutualist variety, might have something useful to say to Greeks in their current predicament. But disgruntled young people, lashing out at the end of an unsustainable welfare state, are not anarchists in any serious sense. They’re just angry children not ready to deal with reality. But reality has a way of happening whether you’re ready to deal with it or not.
This Week in Government Failure
Over at Downsizing the Federal Government, we focused on the following issues this week:
- HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers.
- Republicans should package their spending reforms as worth undertaking even if the government had a surplus.
- The sclerosis at the U.S. Postal Service is a reflection of the sclerosis in Congress.
- Promises to hold down future discretionary spending levels and partial program trims are not real spending cuts.
- The president’s high-speed rail plan is probably dead. Unfortunately, fiscal federalism isn’t faring much better.
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Data on Military Compensation
There is an interesting article posted over at the blog Hegemonic Obsessions discussing the need to reform military pay and benefits. One need not agree with the author’s suggestion that the U.S. Army might go the way of General Motors to understand his broader point: personnel expenses are consuming a larger and larger share of the DoD’s budget. Indeed, this has been one of Defense Secretary Robert Gates’ leading complaints for years.
The article provides some of the details:
The Defense Business Board estimates the average cost of a military member at $80,004 per year. Thankfully the military is made up mostly of junior enlisted personnel who leave the service well before they are eligible for a pension. There are, however, 1.9 million military retirees receiving an average of $47,000 per year in pension payments. This does not include their healthcare benefits.
And, just as was true for the pre-bankruptcy auto industry, there are more military retirees than soldiers, sailors, airmen, and marines on active duty. While it may be unpleasant to hear, the system is unsustainable. The military may very well collapse under its own personnel costs. In part, reform has stalled because any voice that questions military pay and benefits is tarred and feathered as unpatriotic.
Americans are understandably proud of the men and women who serve in our military. They endure enormous hardships, including long periods of separation from their families and exposure to all manner of hostile environments. They represent many of the finest attributes of this country. No wonder that the military is regularly cited as the most respected institution in national polls. I’m a little embarrassed to be counted a “veteran” — which is technically true — when many of the men and women with whom I graduated, or served, have stayed in the military for 20 years or more. At least one friend didn’t come home. They are the real heroes.
But while we can and should be proud, we shouldn’t be stupid. The author is right: the system is unsustainable. If we are going to get a handle on rising personnel costs, we must either reform the manner in which pay and benefits are distributed, or reduce the number of personnel. If we are to do the latter (and I think that we should) then we need to rethink roles and missions, and ask less, not more, of the men and women who remain in the service. (See Gen. Raymond Odierno’s recent comments on that score.)
If we succeed in restraining Washington’s interventionist impulses, and draw down the number of active-duty personnel to levels that prevailed in the late 1990s, the end result might be an even more elite force than the one that we have today. The future force would include individuals earning salaries that are competitive with the private sector, which is essential for maintaining the all-volunteer force. And that force would be more than sufficient to protect us from the real but manageable threats of the next few decades.
House Approps Strips TSA of Strip-Search Funds
The fiscal 2012 Department of Homeland Security spending bill is starting to make its way through the process, and the House Appropriations Committee said in a release today that “the bill does not provide $76 million requested by the President for 275 additional advanced inspection technology (AIT) scanners nor the 535 staff requested to operate them.”
If the House committee’s approach carries the day, there won’t be 275 more strip-search machines in our nation’s airports. No word on whether the committee will defund the operations of existing strip-search machines.
Saving money and reducing privacy invasion? Sounds like a win-win.
The National Equalization of Opportunity Board
The National Labor Relations Board filed a complaint last month to stop Boeing from building its new 787 in South Carolina rather than Washington State. As Arthur Laffer and Stephen Moore explain in today’s Wall Street Journal, the Board’s action stems from Boeing’s declaration that it cannot “afford a work stoppage every three years” as has been happening in Washington. The New York Times seems to endorse the NLRB complaint, implying that the federal government must force companies to do business in agency-shop states like Washington, because otherwise they couldn’t compete with more efficient right-to-work states like South Carolina.
Laffer and Moore claim that the NLRB’s move is unprecedented, but it is actually highly reminiscent of the “Equalization of Opportunity Bill.” The EOB forbade entrepreneurs from owning more than one business, in order to allow less efficient, less capable entrepreneurs to compete with them. The EOB is, of course, a measure enacted by the United States Government in Ayn Rand’s Atlas Shrugged.
Yet more evidence that the Obama administration is not only conversant with Rand’s classic, it is using the book as a policy model. It’s just a little confused as to which characters were the heroes and which the bad guys.

The 2011 Social Security Trustees Report — Harbinger of Bad News
The just-released 2011 annual report of the Social Security Trustees shows a significant worsening of the program’s finances.
Last year we were told that we would see payroll tax surpluses over benefit expenditures for a few more years — until 2015. That won’t happen according to the 2011 report; the program will now add to federal deficits in every future year — and increasingly so, which will ramp-up financial pressure to downsize other federal programs, increase taxes, or create yet more debt.
Note that both Republicans and Democrats negotiating over how to reduce federal deficits and the national debt have resolved to leave Social Security untouched for now. That leaves the program’s finances to fester and worsen — increasing the costs of future adjustments and burdens on future generations.
Many people, especially those who favor early reforms, say that the Social Security trust funds “don’t matter.” Note, however, that they lock up future federal revenues for Social Security benefit payments — on par with future dedicated payroll taxes.
The lock-up effect of the Social Security trust funds is demonstrated by the fact that the program’s cash flow deficits today are not forcing any benefit cuts or payroll tax increases. This can continue until the year 2036 according to the 2011 report.
But if we allow the situation to continue for that long, fixing the program will require a permanent benefit cut of at least 25 percent or a payroll tax increase of at least 40 percent of payrolls in 2036 and beyond.
Is Housing Holding Back Inflation?
Today the Bureau of Labor Statistics released the consumer price index (CPI) numbers for April, which generally gives us the best picture of inflation. The headline number is that between April 2010 and April 2011, consumer prices increased 3.2 percent, as measured by the CPI. Obviously this is well above 2 percent, the number Ben Bernanke defines as “price stability.” Setting aside the reasonableness of that definition, there is definitely some mild inflation in the economy.
Also of interest in the April numbers is that if you subtract housing, which makes up over 40% of the weight of the CPI, then prices increased 4.2 percent — twice Bernanke’s measure of stability. What has always been problematic of the housing component is that its largest piece is an estimate of what owners would pay themselves if they rented their own residence. This estimate makes up about a fourth of the CPI. As the chart below demonstrates, for much of 2010, the direction in this number was actually negative, which held down CPI over the last year. The current annualized figure for owner’s rent is 0.9 from April 2010 to April 2011. Oddly enough, this is below the actual increase in rents, which was 1.3. For most homeowners, the real cost of housing — their mortgage payment — has likely been flat, not decreasing. So whatever benefit there has been to declining housing costs, most consumers are unlikely to feel any benefit from those declines, if they are actually real.
While the primary driver of CPI has been energy costs, food prices have also garnered considerable attention. Excluding food from the CPI does not change the headline number, although this is due to the fact that the cost of eating out has been rising considerably slower than the cost of eating at home. So as along as you’ve been eating out every night, you’ve apparently been fine. This touches upon what is one of the less recognized features of current inflation trends: the regressive nature of these prices increases. If you rent, then you’ve seen costs increase more than if you own. If you mostly eat at home, then you’ve seen prices increase more than if you dine out a lot. If you have a lot of leisure time, the you’ve gained by the decrease in reaction prices. While I don’t think one’s position on inflation should be driven purely by distributional concerns, the fact that working middle-income households have been hit harder by recent inflation trends than higher-income households should cut against the claims that inflation is somehow good for the poor or working class.
As a Matter of Fact, the Baltic Nations Are a Success Story
I got a few cranky emails after my post suggesting the United States should copy the Baltic nations and implement genuine spending cuts. These emailers were upset that I favorably commented on the fiscal discipline of Estonia, Lithuania, and Latvia while failing to reveal that these nations were suffering from high unemployment.
From the tone of this correspondence, my new friends obviously think this is a “gotcha” moment. The gist of their messages is that the economic downturn that hit the Baltic nations is proof that the free-market model has failed, and that I somehow was guilty of a cover-up.
That’s certainly a strange interpretation, especially since I specifically noted that the three nations had suffered from an economic downturn. There’s no questioning the fact that unemployment spiked upwards because of the global financial crisis, which was especially damaging to the Baltics since they all had real estate bubbles.
But let’s deal with the bigger issue, which is whether this downturn is proof that the free market failed (and, for the sake of argument, let’s assume that all three Baltic nations are free market even though only Estonia gets high scores in the Economic Freedom of the World rankings).
If you look at the IMF’s World Economic Outlook Database, it does show that the Baltic nations had serious economic downturns. Indeed, if we look at the data from 2008 to the present, the recession was far deeper in those nations than in Western Europe and North America.
So at first glance, it seems my critics have a point.
But what happens if you look at a longer period of data? The IMF has data for all three Baltic nations going back to 1999. And if we look at the entire 12-year period, it turns out that Estonia, Latvia, and Lithuania have enjoyed comparatively strong growth. Indeed, as seen in the chart below the jump, they even surpass Hong Kong.
FTC Advert: Cut Our Budget!
An insert that ran in the Washington Times this week didn’t say directly that the Federal Trade Commission’s budget should be cut. But a few short steps get you there.
The FTC-produced insert—a 16-page, color brochure appearing in a number of papers—is titled: “Living Life Online.” It’s aimed at teaching children how to use the Internet, with articles titled: “Sharing Well With Others” and “Minding Your Manners.” An ad on the back points kids to an FTC Web site about advertising called Admongo.gov, and little smart-phone insets contain factoids like:
DID YOU KNOW? Teens text 50 messages a day on average, five times more than the typical adult (who sends or receives 10 text messages a day).
Well, I have some factoids to share, too:
DID YOU KNOW? The U.S. Constitution provides for a federal government of limited, enumerated powers (and teaching kids about the Internet is not one of them).
Here’s another:
DID YOU KNOW? The federal government has had massive deficit spending in recent years, of $459 billion in FY2008, $1.4 trillion in FY2009, $1.3 trillion in FY2010, and $1.5 trillion in FY2011 (which is a huge damper on economic recovery).
It’s time to make serious budget cuts, and a government agency that seeks to replace parenting with government propagandizing to children is a great opportunity to do that.
Cato’s Downsizing Government project has been making its way through the major agencies, but don’t overlook the little ones. President Obama’s budget called for the FTC to spend $321 million in fiscal 2012. Zeroing that out would save a bunch, not only in direct expenses but in the dead-weight loss to the economy and consumer welfare symbolized by the FTC’s awful “Man Restraining Trade” statues.
A Life of One’s Own
Since Tuesday’s oral arguments in Virginia v. Sebelius—the first Obamacare challenge to reach the circuit court level, and one in which Cato also filed an amicus brief—the legal blogosphere has been discussing the Fourth Circuit panel’s incredulity concerning the activity/inactivity distinction at the heart of our arguments against Obamacare. As Ilya Shapiro explains, we contend that if Congress’s power to regulate “interstate commerce” reaches the inactivity of not buying health insurance, then there is nothing it does not reach. The Supreme Court will eventually have to grapple with this question and decide whether the distinction is constitutionally meaningful.
As Volokh conspirator Jonathan Adler points out, the activity/inactivity distinction is long-standing. At common law, there was no legally enforceable duty to rescue. In other words, if you didn’t act to create the danger, you would not be liable for your inactivity in not helping. To put it bluntly: you would have no legal liability if you ignored a drowning child.
Legal philosophers have grappled with the meaning of “act” and “omission” for centuries. While there are some difficult issues to ponder, there is also an element of navel-gazing in the question and the Supreme Court may have to gaze long at their navels to answer it. But it is worth remembering why the act/omission distinction matters in a free society. At the risk of getting too philosophical, I will add some thoughts of my own.
Anyone who has been to law school has likely had long conversations, probably in torts class, over whether the act/omission distinction is both meaningful and moral. If your torts class was like mine, your professor lamented the “no duty to rescue” rule as evidence of our individualistic and selfish society. Many law professors believe our slavish adherence to the act/omission distinction not only allows us to let children drown, but that it is just another “Western” belief that holds back a robust welfare state.
The aversion to mandating action, however, is not about letting children drown. I wouldn’t let a child drown and I imagine you wouldn’t either. The extreme hypothetical helps gloss over a meaningful principle for normal, run-of-the-mill cases. Just as bad facts make bad law, bad hypotheticals can blur vital principles. The act/omission distinction helps delineate, albeit imperfectly, the personal sphere of control and the governmental sphere of control.
Friday Links
- Despite GM’s recent profitability, the auto bailout was a bad idea.
- A parent fixing a nutritious lunch is a better way to combat childhood obesity than the school taking pictures of what children eat.
- Spending cuts for an increase in the debt ceiling are a step in the right direction — but they need to be real spending cuts.
- Please join us Tuesday, May 17, 2011 for a Book Forum on Peddling Protectionism: Smoot-Hawley and the Great Depression, featuring the author Douglas A. Irwin, Professor of Economics, Dartmouth College; with comments by Daniel Griswold, director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies. Complimentary registration is required by noon, eastern, Monday May 16, 2011. We hope you can join us in person, or online.


