Archive for August, 2011
The Hayek Surge Continues
Seen in New York City — not near NYU, with its longstanding program in Austrian economics, but uptown near Columbia University, at 112th Street and Broadway — a sidewalk portrait of F. A. Hayek:
Hat tip: ThinkMarkets. For more on the reviving interest in Hayek, see here and here and here.
Is Obama Worse Than Carter and Bush?
Conservatives have become so furious with President Obama that they forget just how bad some of his predecessors were. One Jeffrey Kuhner, whose over-the-top op-eds in the Washington Times belie the sober and judicious conservatism you might expect from the president of the “Edmund Burke Institute,” writes most recently:
A possible Great Depression haunts the land. Primarily one man is to blame: President Obama.
Mr. Obama has racked up more than $4 trillion in debt.
Yes, he has. And that’s almost as much as the $5 trillion in debt rung up by his predecessor, George W. Bush. True, on an annual basis Obama is leaving Bush in the dust. But acceleration has been the name of the game: In 190 years, 39 presidents racked up a trillion dollars in debt. The next three presidents ran the debt up to about $5.73 trillion. Then Bush 43 almost doubled the total public debt, to $10.7 trillion, in eight years. And now the 44th president has added almost $4 trillion in two years and seven months. (Here’s an online video depicting each president’s debt accumulation as driving speed.) So Obama is winning the debt war, but it’s not like he caused the debt crisis or the unemployment crisis all by himself.
And then, trying to prove that Obama is even worse than Jimmy Carter — even worse than Jimmy Carter! — Kuhner makes this curious claim:
Most importantly, Mr. Carter had respect for the dignity and integrity of the presidency. He never trashed his opponents the way Mr. Obama does.
Really? Maybe Mr. Kuhner is too young to remember Carter, and didn’t bother to check his claim, or maybe he just got carried away. But I can remember October 1980, when President Carter repeatedly said that the election of Ronald Reagan would be “a catastrophe” that would mean an America
separated, black from white, Jew from Christian, North from South, rural from urban.
Liberal columnist Anthony Lewis asked in the New York Times, “Has there ever been a campaign as vacuous, as negative, as whiny? Probably so — somewhere back in the mists of the American Presidency. But it would take a good deal of research to come up with anything like Jimmy Carter’s performance in the campaign of 1980.” The venerable Hugh Sidey wrote in Time magazine, “The wrath that escapes Carter’s lips about racism and hatred when he prays and poses as the epitome of Christian charity leads even his supporters to protest his meanness.”
Obama is a big spender who portrays himself as a “beyond left and right” above-the-fray president trying to work with everyone while demonizing his opponents. But let’s not forget the meanness of Jimmy Carter and the spendthrift record of George W. Bush in seeking to establish Obama’s uniqueness.
11th Circuit Finds ObamaCare’s Individual Mandate Unconstitutional
Here’s the meat of the majority opinion:
We first conclude that the Act’s Medicaid expansion is constitutional. Existing Supreme Court precedent does not establish that Congress’s inducements are unconstitutionally coercive, especially when the federal government will bear nearly all the costs of the program’s amplified enrollments.
Next, the individual mandate was enacted as a regulatory penalty, not a revenue-raising tax, and cannot be sustained as an exercise of Congress’s power under the Taxing and Spending Clause. The mandate is denominated as a penalty in the Act itself, and the legislative history and relevant case law confirm this reading of its function.
Further, the individual mandate exceeds Congress’s enumerated commerce power and is unconstitutional. This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority: the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them re-purchase that insurance product every month for their entire lives. We have not found any generally applicable, judicially enforceable limiting principle that would permit us to uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers. “Uniqueness” is not a constitutional principle in any antecedent Supreme Court decision. The individual mandate also finds no refuge in the aggregation doctrine, for decisions to abstain from the purchase of a product or service, whatever their cumulative effect, lack a sufficient nexus to commerce.
The individual mandate, however, can be severed from the remainder of the Act’s myriad reforms. The presumption of severability is rooted in notions of judicial restraint and respect for the separation of powers in our constitutional system. The Act’s other provisions remain legally operative after the mandate’s excision, and the high burden needed under Supreme Court precedent to rebut the presumption of severability has not been met.
Here is my colleague Ilya Shapiro’s statement on the ruling.
In Obamacare Case, Constitution Is Victor
Today is a great day for liberty. By striking down the individual mandate, the Eleventh Circuit has reaffirmed that the Constitution places limits on the federal government’s power. Congress can do a great many things under modern constitutional jurisprudence, but, as the court concludes, “what Congress cannot do under the Commerce Clause is mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die.” Indeed, just because Congress can regulate the health insurance industry does not mean it can also require people to buy that industry’s products.
One of the striking things about today’s ruling is that, for the first time in one of these cases, a Democrat-appointed judge, Frank Hull, has ruled against the government. Just as the Sixth Circuit Judge Jeffrey Sutton made waves by being the first Republican appointee to rule in the government’s favor, today’s 300-page ruling shows that the constitutional issues raised by the healthcare reform—and especially the individual mandate—are complex, serious, and non-ideological.
Supporters of limited constitutional government need to temper their celebrations—just as they wisely tempered their sorrows after the last ruling—because we must all now realize that this will not end until the Supreme Court rules. Nevertheless, today’s decision gives hope to those who believe that there are some things beyond the government’s reach and that the judiciary cannot abdicate its duty to hold Congress’s feet to the constitutional fire.
Deficits, Debt, and Debasement
The New York Times editorializes that the Federal Reserve should be “more aggressive” in pumping more money into the slow economy. A couple of weeks ago the Times was breathlessly hyping the mythical fear of “default” if the debt ceiling wasn’t promptly raised. With that problem out of the way, the paper now quietly recommends a slow default on the national debt:
A more aggressive strategy would be letting inflation rise above the Fed’s comfort level of 2 percent or so to, say, 4 percent. That could help the economy by easing the repayment of debt.
“Easing the repayment of debt”: that is, paying your creditors less in real terms than they had expected. That’s a slow-mo default. And it’s the path that Scott Beaulier and Peter Boettke warn about in the cover story of the current issue of Cato Policy Report: “Deficits, Debt, and Debasement”:
Debasement is the “pretend payment” of debt that occurs when governments inflate their currency by printing money. It’s a problem of nearly every government, from the “bread and circuses” of ancient times through today. In the 18th century, governments debased their currencies by trimming metal coins and recirculating them. By making a coin worth less in real terms, governments throughout Europe were able to spend beyond their means. “The honour of a state is surely very poorly provided for,” Adam Smith wrote in 1776, “when in order to cover the disgrace of real bankruptcy, it has recourse to a juggling trick of this kind.”
Today, paper money limits governments’ ability to physically trim the edges of metal coins. But by printing money to pay off debts, governments debase the currency and ultimately erode its purchasing power. Simply put, they are using a slight variation of the same “juggling trick” to achieve their ends: by pushing the debt problem into the future, they hide the full cost of repayment to the public.
This Week in Government Failure
Over at Downsizing the Federal Government, we focused on the following issues this past week:
- If pumping up Keynesian “aggregate demand” hasn’t worked, what can policymakers do? They should focus on microeconomic reforms to spur growth over the long run.
- If the U.S. Postal Service is to continue operating like a business instead of becoming just another taxpayer-funded bureaucracy, Congress is going to have to hand the reins over to the private sector.
- Those of us who desire the limited federal government that Madison envisioned are often accused of being uncaring about those who are in need. In fact, the opposite is the truth: we recognize that government programs are wasteful, ineffective, and counterproductive to the aims that they are trying to achieve.
- More Medicare fraud. In other news, the sun came up this morning.
- An essay on terminating the Small Business Administration has been added to the Downsizing website.
Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.
‘Corporations Are [Made of] People’
Mitt Romney’s explanation of why he’s against raising taxes on corporations — indeed, America already has some of the highest corporate tax rates in the developed world — at the Iowa State Fair was a bit awkward but not wholly incorrect. Reason‘s Katherine Mangu-Ward has a good post with video and transcript, but here’s the salient bit:
ROMNEY: We have to make sure that the promises we make — and Social Security, Medicaid, and Medicare — are promises we can keep. And there are various ways of doing that. One is, we could raise taxes on people.
AUDIENCE MEMBER: Corporations!
ROMNEY: Corporations are people, my friend. We can raise taxes on—
AUDIENCE MEMBER: No, they’re not!
ROMNEY: Of course they are. Everything corporations earn also goes to people.
AUDIENCE: [LAUGHTER]
ROMNEY: Where do you think it goes?
AUDIENCE MEMBER: It goes into their pockets!
ROMNEY: Whose pockets? Whose pockets? People’s pockets! Human beings, my friend. So number one, you can raise taxes. That’s not the approach that I would take.
Now, obviously, Romney is not saying that corporations are living, breathing beings with rights to abortion (or not, or depending on the stage of development of the fetal/baby corporations) and marriage, who are subject to Obamacare’s individual mandate (or even Romneycare’s for Massachusetts corporations), can be put to death if they murder someone, and so forth. He means that corporate money always comes from, flows through, and ends up in human hands. It cannot be otherwise: we are the only beings/entities/”things” on the planet that deal in money. Not even the honey badger does that.
Pell Grants Best for Buying Votes
Quite simply, Pell Grants are not supposed to be for the middle class. As the U.S. Department of Education’s website makes clear, Pell is supposed to be for “low-income undergraduate and certain postbaccalaureate students.”
So why characterize Pell as a benefit for the middle class? Because lots of people consider themselves to be in that group — which federal politicians rarely define — and policymakers want their votes.
Unfortunately, as Rep. George Miller (D-CA) recently demonstrated, saying Pell is intended for the middle class also makes it a valuable weapon in waging class warfare.
“Pell is the reason they are able to go to college and get ahead,” Miller said in response to congressional Republicans purportedly looking to trim the program as part of debt reduction. “It’s a shameful excuse and an attack on middle class families.”
Other than their usefulness in browbeating those who’d dare propose education cuts, Pell Grants are, at best, of limited value. Yes, they are needed by some people to go to college, but that’s because they are largely built into college prices. Basically, give me a dollar more to pay for school and my college will charge me another buck.
Of course it’s not just Pell that influences prices — there are lots of other sources of aid, and colleges confront numerous variables that affect their costs — but subsidize something and prices will go up. And boy, do they go up in higher education!
One last consideration is crucial but rarely mentioned. One of the great political benefits of Pell is that to recipients it’s free dough — no need to pay it back. That lets politicians play Santa Claus, not the mean banker who sinisterly comes after you to return student-loan money, plus interest. But keep in mind what, in most cases, college is ultimately for: to enable attendees to greatly increase their earnings. In light of that, how can politicians justify simply giving away money from taxpayers? Quick answer: They can’t.
Were you or I to do that it would be called “stealing.” When government does it, apparently, it’s called “helping the middle-class.”
C/P from the National Journal’s “Education Experts” blog.
Easy Money from the Federal Reserve Is Not the Solution for America’s Economic Problems
Allen Meltzer, an economist at Carnegie Mellon University, writes today in the Wall Street Journal about the Fed’s worrisome announcement that it will continue the easy-money policy of artificially low interest rates.
Professor Meltzer’s key point (at least to me) is that the economy is weak because of too much government intervention and too much federal spending, and you don’t solve those problems with a loose-money policy – especially since banks already are sitting on $1.6 trillion of excess reserves. (Why lend money when the economy is weak and you may not get repaid?)
Meltzer then outlines some of the reforms that would boost growth, all of which are desirable, albeit a bit tame for my tastes:
[T]he United States does not have the kind of problems that printing more money will cure. Banks currently hold more than $1.6 trillion of idle reserves at the Fed. Banks can use those idle reserves to create enormous amounts of money. Interest rates on federal funds remain near zero. Longer-term interest rates on Treasurys are at record lows. What reason can there be for adding more excess reserves? The main effect would be a further devaluation of the dollar against competing currencies and gold, followed by a rise in the price of oil and other imports. …Money growth (M2) reached 10% for the past six months, presaging more inflation ahead.
…What we need most is confidence in our future. That calls for:
- Reducing corporate tax rates permanently to encourage investment (paid for by closing loopholes).
- Agreeing on long-term reductions in entitlement spending.
- A five-year moratorium on new regulations affecting energy, environment, health and finance.
- An explicit inflation target between zero and 2% to force the Fed to pay more attention to the medium term and to increase public confidence that we will not experience runaway inflation.
The president is wrong to pose the issue as more taxes for millionaires to pay for more redistribution now. That path leads to future crises because higher taxes support the low productivity growth of the welfare state, delay the transition to export-led growth, and do not reduce future budget liabilities enough.
Meltzer’s final point about the futility of class-warfare taxes is very important. He doesn’t use the term, but he’s making a Laffer Curve argument. Simply stated, if punitive tax rates cause investors, entrepreneurs, and small business owners to earn/declare less taxable income, then the government won’t collect as much money as predicted by the Joint Committee on Taxation’s simplistic models.
Of course, Obama said in 2008 than he wanted high tax rates for reasons of “fairness,” even if such policies didn’t lead to more tax revenue. That destructive mentality probably helps explain why not only banks, but also other companies, are sitting on cash and afraid to make significant investments.
But if you really want to understand how Obama’s policies are causing “regime uncertainty,” this cartoon is spot on.
Government to Punish S&P for Downgrade
It’s a little too early to really tell what is going on here, but it certainly looks suspicious to me that a week after the rating agency Standard &Poor’s downgraded the U.S. government, we now have the Securities and Exchange Commission starting an insider-trading investigation of who inside S&P worked on the downgrade. This comes on top of an announced Senate probe into S&P’s decision.
I’ve long argued for reducing the role and influence of the rating agencies when it comes to financial regulation. One of the few things the Dodd-Frank Act got correct was pushing for a reduction in regulators’ reliance on the rating agencies. But still, it is nothing short of hypocritical for the same parties who complained that the agencies were too late on mortgages to complain they are too early when it comes to the federal government.
The decisions by the other two major ratings agencies, Fitch and Moody’s, to not downgrade U.S. debt was just as important as S&P’s decision. Are they going to be investigated too? My bet is not. You really have to wonder what our country has come to when you cannot speak an obvious truth without getting investigated by the government. So much for free speech.
2,000 Deaths per Year … for the Environment
Something as simple as the concept of tradeoffs can cause cognitive dissonance to good-hearted people who want too hard to drive the society toward their perception of the good.
A nice illustration of that is the cost in lives of making cars that use less gasoline. How can doing good for the environment possibly be harmful? Oh, it can be deadly.
Nicely illustrated by CEI’s Sam Kazman on John Stossel’s show.
Explaining Aircraft Carriers
Yesterday, State Department spokeswoman Victoria Nuland made the following comment regarding China’s maiden voyage in the old Varyag carcass it has been tinkering with for over a decade:
We would welcome any kind of explanation that China would like to give for needing this kind of equipment.
This echoes Donald Rumsfeld’s remarks at the 2005 Shangri-La Dialogue in which he puzzled in quintessentially Rumsfeldian fashion:
Since no nation threatens China, one must wonder:
* Why this growing investment?
* Why these continuing large and expanding arms purchases?
* Why these continuing robust deployments?
Maybe, like me, the Chinese are reading Aaron Friedberg’s new book on U.S.-China security competition (Friedberg worked on Asia for Vice President Cheney). Perhaps high-ranking military officials there shudder a bit when they read, on page 184, that someone very close to the levers of power in Washington admits mildly that
Stripped of diplomatic niceties, the ultimate aim of the American strategy is to hasten a revolution, albeit a peaceful one, that will sweep away China’s one-party authoritarian state and leave a liberal democracy in its place.
Given this, as Friedberg sensibly notes later (p. 231),
It is difficult to believe that the present Beijing regime will accept indefinitely a situation in which its fate could depend on American forbearance, and hard to see how it can escape that condition without building a much bigger and more capable navy.
I actually agree with David Axe’s characterization of the Shi Lang as “a piece of junk,” and given the geography of the region, I wouldn’t—as the Chinese aren’t—pour many resources into aircraft carriers to remedy this predicament. But if the roles were reversed, and China spent four times as much as we did on our military—and if China had naval bases ringing my coastline and fancied itself the “hub” of a “hub-and-spokes” set of alliances between itself and a variety of Latin American countries and Canada—I’d probably think that these facts, when assembled, constituted a pretty strong argument for spending more money on anything I could use to defend myself. Especially if China had recently gone on an ideological rampage trying to “hasten revolutions” and leaving smoldering wreckages in its wake.
At any rate, what’s good for the goose ought to be good for the gander, so I anxiously await the Pentagon’s detailed explanation for why we need each of our 11 aircraft carriers, every one of which is enormously more powerful than the PRC’s puny flattop.
Cross-posted from the National Interest.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
