Chicago’s new mayor, Rahm Emanuel, has followed in the footsteps of President Obama and Education Secretary Arne Duncan, choosing to send his kids to the elite private UC Lab School. It’s a very good school by all accounts, so it’s probably an excellent choice. So why did Rahm get so grouchy when asked about it?

I think it might have something to do with the obvious hypocrisy of cherishing and exercising educational choice for one’s own kids while advocating a one-size fits-few state monopoly school system that makes private schooling unaffordable to the majority of your fellow citizens. Just a thought.

Rahm Emanuel Practices School Choice… Grouchily is a post from Cato @ Liberty - Cato Institute Blog

Peter Wallison calls attention to President Obama’s amnesia regarding events that precipitated Fannie Mae and Freddie Mac’s collapse. Writing in the Wall Street Journal, Wallison points out that in 2005 then-Senator Obama joined with his Democratic colleagues in stopping legislation that would have helped rein in the government-sponsored housing duo’s risky behavior:

The bill would have established a new regulator for Fannie and Freddie and given it authority to ensure that they maintained adequate capital, properly managed their interest rate risk, had adequate liquidity and reserves, and controlled their asset and investment portfolio growth.

These authorities were necessary to control the GSEs’ risk-taking, but opposition by Fannie and Freddie—then the most politically powerful firms in the country—had consistently prevented reform.

The date of the Senate Banking Committee’s action is important. It was in 2005 that the GSEs—which had been acquiring increasing numbers of subprime and Alt-A loans for many years in order to meet their HUD-imposed affordable housing requirements—accelerated the purchases that led to their 2008 insolvency. If legislation along the lines of the Senate committee’s bill had been enacted in that year, many if not all the losses that Fannie and Freddie have suffered, and will suffer in the future, might have been avoided.

The president’s complicity in the housing collapse hasn’t stopped him from pinning the blame on Republicans, “special interests,” and Wall Street “fat cats.” As he does with other problems, the president blames everyone except himself and his party.

As I recounted in a Cato Policy Analysis, Fannie and Freddie epitomized the tawdry relationship between businesses that receive special federal breaks and policymakers. Democrats, including Obama’s chief of staff Rahm Emanuel, played a key role in facilitating Fannie and Freddie’s destructive activities. Emanuel, a then recent senior adviser to President Clinton, was appointed by Clinton to Freddie Mac’s board of directors, where he earned $320,000 in compensation and sold company stock worth more than $100,000.

Then there’s the current Office of Management and Budget director, Peter Orszag. In 2002, Fannie Mae commissioned a paper authored by Nobel Laureate Joseph Stiglitz, Jonathan Orszag, and Peter Orszag, who was then at the Brookings Institution. The study concluded that “the probability of default by the GSEs is extremely small.” Oops.

Given the company Obama keeps, it’s not surprising that the administration still hasn’t come up for a plan on what to do with Fannie and Freddie.

The administration has intentionally not incorporated Fannie and Freddie into the federal budget in order to hide the cost to taxpayers. And on Christmas Eve the administration quietly announced that the government would cover all of Fannie and Freddie’s losses beyond the original $400 billion limit through 2012. The Congressional Budget Office estimates that the final cost to taxpayers for bailing out Fannie and Freddie will approach that figure, although Wallison calls that projection “optimistic.”

See this essay for more on the problems the federal government causes in the housing market.

Obama’s Fannie and Freddie Amnesia is a post from Cato @ Liberty - Cato Institute Blog

U.S. Department of Housing and Urban Development Secretary Shaun Donovan recently gave a speech in New York in which he spoke of a “new direction in housing.” If there’s one constant with cabinet secretaries, it’s that they all promise that their department will be new and improved. The following are a few of Donovan’s lines that deserve comment.

The Federal Housing Administration is providing another critical bridge to economic stability…And with nearly half of first-time buyers using FHA loans, it is clear that the FHA has been central to recovery.

Thanks to his predecessor, Alphonso Jackson, who was “absolutely emphatic about winning back our share of the market,” the FHA’s willingness to pick up the subprime lending slack when the housing bubble burst has opened the door for a potentially huge taxpayer bailout. In fact, the government hasn’t just come to dominate the housing finance market — it practically is the housing finance market. Thus, there are plenty of doubts as to whether the housing “recovery” Donovan speaks of is sustainable without the government crutch.

In crisis comes enormous opportunity for change — as Rahm Emanuel says, ‘a crisis is a terrible thing to waste.’ Ensuring we don’t starts with getting the government back into the business of building and preserving affordable housing. Homeownership is incredibly important. But if this crisis has taught us anything, it’s that it is long past time we had a balanced, comprehensive national housing policy – one that supports homeownership, but also provides affordable rental opportunities, and ensures nobody falls through the cracks.

Like his boss, Donovan’s use of the word “change” is just a euphemism for bigger government. His contention that the government needs to get “back” into affordable housing is laughable. When did it leave?

This crisis has illustrated that only the Federal government has the scale and mechanisms to deal effectively with some of the forces that caused it.

It was the federal government’s “scale and mechanisms” that helped cause the crisis! Only powerful institutions with national “scale” such as the Federal Reserve, Fannie and Freddie, and HUD had the power and potential to create such a nation-wide bubble, bust, and recession. Donovan wants the arsonist to put out the fire.

The Federal government can be a key partner in helping communities foster the kinds of synergies between housing, education, public safety, and health you’ve helped nurture at the neighborhood level.

Words like “synergy”, “nurture”, and “foster” are vacuous bureaucratic rhetoric. They are supposed to imply that the federal government can turn decaying urban centers into utopias with gobs of taxpayer money and bureaucratic meddling. That’s just bunk.

In my recent paper on three decades of scandals, mismanagement, and policy failures at HUD, I show that little has changed at HUD other than the individuals occupying the throne. The history of Shaun Donovan’s tenure is yet to be written, but his speech makes me pessimistic.

New HUD Same as Old is a post from Cato @ Liberty - Cato Institute Blog

A. It’s encouraging to see Rahm Emanuel and John Kerry saying that we shouldn’t up force levels in Afghanistan without a reliable partner. But if we shouldn’t send 40,000 more troops to prop up a crooked government, why keep the 68,000 we have there? A focused counter-terrorism mission would require far less than that.

B. According to Dexter Filkins’ article in the New York Times Magazine, the war in Iraq taught General Stanley McChrystal the following:

No situation, no matter how dire, is ever irredeemable — if you have the time, resources and the correct strategy. In the spring of 2006, Iraq seemed lost. The dead were piling up. The society was disintegrating. One possible conclusion was that it was time for the United States to cut its losses in a country that it never truly understood. But the American military believed it had found a strategy that worked, and it hung in there, and it finally turned the tide.

What’s interesting about this claim is its utter confidence in the potential efficacy of US military power — it is not just necessary to solving Iraq’s problems, but sufficient. If this view is right, Iraqis themselves, and their civil war, were unnecessary to the limited political reconciliation that occurred there.

Filkins, surprisingly, seems to agree, depicting the evolution of the war this way:

For four years, the American military had tried to crush the Iraqi insurgency and got the opposite: the insurgency bloomed, and the country imploded. By refocusing their efforts on protecting Iraqi civilians, American troops were able to cut off the insurgents from their base of support. Then the Americans struck peace deals with tens of thousands of former fighters — the phenomenon known as the Sunni Awakening — while at the same time fashioning a formidable Iraqi army. After a bloody first push, violence in Iraq dropped to its lowest levels since the war began.

Note the use of the word “then” preceding the sentence about peace deals. It carries a heavy load. Filkins wants to say that the hearts and mind theory of counterinsurgency caused the Anbar Awakening. But he offers no real causal story about how they are connected; he just says that one happened and then the other.

Another view, one that leaves Iraqis some agency, is that the growth of the al Qaeda Iraq and the progress of the civil war changed the Sunni insurgents’ strategic calculus, such that they decided to cooperate with Americans to gain locally. And that in turn, limited violence. U.S. forces had a role in this — the covert killing campaign that McChrystal led and Filkins chronicles probably pressured insurgents and weakened AQI, for one. But the deals — the awakening — began well before the troop surge and before David Petraeus took command and tried to implement a new counterinsurgency doctrine. The key American decision was willingness to play ball with insurgent groups. This decision had little to do with winning hearts and minds via population security and increased troop levels. And by empowering forces at odds with the central government, it contradicted the goal of state-building in Iraq, at least in the short-term.

I obviously agree with the latter view. Our dependence on local politics limits what we can accomplish in counterinsurgency. We can certainly affect what happens in Afghanistan, but it is hubris to think we control it.

Filkins also quotes McChrystal on Afghanistan’s effect on Pakistan:

“If we are good here, it will have a good effect on Pakistan,” he told me. “But if we fail here, Pakistan will not be able to solve their problems — it would be like burning leaves on a windy day next door.

It’s sensible to conclude chaos nearby is unhelpful to stability in Pakistan, but it goes way too far to say that Afghanistan’s stability is necessary to Pakistan’s, which has been fairly stable for long periods while Afghanistan was not. What’s more, as Robert Pape argues, it is likely that U.S. forces are a cause of insurgency in both countries.

Emanuel on TV and Filkins on McChrystal is a post from Cato @ Liberty - Cato Institute Blog

Bloomberg News points out that President Obama needs a health-care crisis in order to impose a health-care “solution”:

President Barack Obama returns to Washington next week in search of one thing that can revive his health-care overhaul: a sense of crisis….

“At the moment, except for the people without insurance, we’re not in a health-care crisis,” said Stephen Wayne, a professor of government at Georgetown University in Washington. “You do need a crisis to generate movement in Congress and to help build a consensus.”

This administration has used Naomi Klein’s book The Shock Doctrine as a manual. Klein said in an interview that

The Shock Doctrine is a political strategy that the Republican right has been perfecting over the past 35 years to use for various different kinds of shocks. They could be wars, natural disasters, economic crises, anything that sends a society into a state of shock to push through what economists call ‘economic shock therapy’ – rapid-fire, pro-corporate policies that they couldn’t get through if people weren’t in a state of fear and panic.

Whether or not that’s true about the “right-wing” policies that she purported to analyze, the Obama admininstration has taken it to heart. Rahm Emanuel said, “You never want a serious crisis to go to waste.  And this crisis provides the opportunity for us to do things that you could not do before” such as taking control of the financial, energy, information and healthcare industries. Vice President Joe Biden, Secretary of State Hillary Clinton, and the president himself all echoed Emanuel’s exultation about the opportunities presented by crisis.

The financial crisis turned out to be shocking enough to let the federal government extend the power of the Federal Reserve, nationalize two automobile companies, spend $700 billion on corporate bailouts and another $787 billion on pork and “stimulus,” and inject a trillion dollars of inflationary credit into the economy. But now people are balking at further expansions of government, and the administration is longing for just a little more crisis to serve as a further opportunity.

If I Only Had a Crisis is a post from Cato @ Liberty - Cato Institute Blog

A media drumbeat is steadily building to keep those on the government’s terrorist watch list from buying firearms. A month ago, Rep. Carolyn McCarthy (D-NY) introduced a bill to bar them from purchasing a gun even if they had no legally disqualifying criminal conviction. Now Sen. Frank Lautenberg (D-NJ) has introduced his own legislation to achieve the same goal.

This is arbitrary government at its best. The “no-fly” list used to prevent suspected terrorists from boarding aircraft has tagged Nelson Mandela, Sen. Ted Kennedy (D-MA), Rep. Loretta Sanchez (D-CA), Rep. Don Young (R-AK), Rep. John Lewis (D-GA), a retired general, a Marine reservist returning from Iraq, the President of Bolivia and dead 9/11 hijackers, a former federal prosecutor, and over twenty men named John Thompson as threats to our national security. The list now contains over 1 million names. This prompted calls for probes into the watch list, and the ACLU filed suit to challenge the list.

The push to prevent firearms purchases by persons on this list is nothing new. Here is White House Chief of Staff Rahm Emanuel saying in 2007 that, “if you’re on that no-fly list, your access to the right to bear arms is cancelled, because you’re not part of the American family; you don’t deserve that right. There is no right for you if you’re on that terrorist list.”

If the government can take an enumerated liberty away from selected citizens by placing them on a “no-rights” list without due process, the rule of law is dead.

The No-Rights List is a post from Cato @ Liberty - Cato Institute Blog

The Washington Post reports that there is growing interest among politicians for a form of national sales tax known as the value-added tax (VAT). But rather than use the VAT to replace the income tax, the politicians want a new source of revenue to expand the burden of government. The story explains:

With… President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need… At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate. “There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.” …”While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers,” said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag. Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book “Health Care, Guaranteed.” Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT. “Everybody who understands our long-term budget problems understands we’re going to need a new source of revenue, and a VAT is an obvious candidate,” said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan.

Not surprisingly, the Washington Post did not bother to quote any free-market people who oppose giving politicians a new source of money. For what it is worth, I wrote a piece for National Review in 2005 that explains why a VAT is a terrible idea. The core arguments are just as relevant today as they were then:

A VAT might have some theoretically attractive features, but it is a perniciously effective way of raising revenues and inevitably leads to bigger government. The best evidence comes from Europe. Back in the mid-1960s, the burden of government in Europe wasn’t that much higher than it was in the United States. Tax revenues consumed about 30 percent of gross domestic product in Europe. The U.S. had a small advantage: The tax burden, including state and local governments, was about 27 percent of GDP. But then European governments started adopting the VAT. Denmark was the first to do so in 1967. France and Germany followed, with many other European nations imposing the tax within 5 years. For politicians, the VAT was great news. Besides being a new source of revenue, the VAT has been a disturbingly easy tax to increase since it’s built into the price of products and hidden from consumers. Moreover, even small increases generate a big pile of revenue because the tax base is so broad. The tax has become so easy to raise that VAT rates in Europe average more than 20 percent. For taxpayers, however, the news has been disastrous. Thanks to this levy, the burden of government in Europe today is much higher than it is in the U.S. On average, taxes consume about 41 percent of Europe’s economic output. While other taxes have also climbed, the VAT certainly has helped finance the explosion of social welfare spending that creates such a drag on European economies. In the U.S., by contrast, the total tax burden as a share of GDP is about where it was 40 years ago — 27 percent… Many European governments…claimed that more destructive taxes would be reduced or repealed once the VAT was implemented. In the short term, this was true: As late as 1975, taxes on income and profits were lower in the EU than they were in the U.S. But this was a transitory phenomenon. Income-tax rates quickly began climbing and almost immediately jumped above U.S. levels. Ironically, the VAT facilitated higher tax rates on income since politicians often argued that a higher VAT had to be accompanied by higher income-tax burdens to ensure the tax burden wasn’t being shifted to lower-income taxpayers. There is only one scenario that would make a VAT acceptable. If U.S. lawmakers were willing to repeal the 16th Amendment and abolish all taxes on income, a VAT would be an acceptable risk. But until that happens, taxpayers should vigorously resist the Europeanization of America.

Greedy Politicians Intrigued by Value-Added Tax to Finance European-Style Welfare State in America is a post from Cato @ Liberty - Cato Institute Blog

Hillary Rodham Clinton, the secretary of state who no doubt thinks of herself as “fourth in the line of succession,” tells a European audience how the Obama administration will pass an agenda that Americans have previously rejected: “Never waste a good crisis … Don’t waste it when it can have a very positive impact on climate change and energy security.”

As I’ve written several times, governments throughout the decades have taken advantage of wars and economic crises to expand their size, scope, and power. Bob Higgs wrote about “Crisis and Leviathan” long before Naomi Klein called it “The Shock Doctrine.”

But the striking thing about the Obama administration is that they openly acknowledge that’s what they’re doing — using a crisis to ram through their entire policy agenda while people are in a state of panic. Projects like national health insurance, raising the price of energy, and subsidizing more schooling — the three prongs of President Obama’s speech to Congress — have nothing to do with solving the current economic crisis. But the administration is trying to push them all through as “stimulus” measures. And they keep proclaiming their strategy.

First it was Rahm Emanuel: “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before.” Then Joe Biden: “Opportunity presents itself in the middle of a crisis.”  Not to mention Paul Krugman and Arianna Huffington. And now Hillary.

Not since George Bush the elder told the media that his campaign theme was “Message: I care” has a president been so open about his political strategy. But these people are displaying a contempt for the voters. They’re telling us that we’re so dumb, we’ll go along with a sweeping agenda of economic and social change because we’re in a state of shock. They may be right.

But voters and members of Congress should remember Bill Niskanen’s sobering analysis of previous laws passed in a panic.

Hillary’s Shock Doctrine is a post from Cato @ Liberty - Cato Institute Blog