Monthly Archives: August 2010
I discussed this earlier with a post about Paul Krugman and Gary Becker, explaining why the German approach – essentially getting government out of the way while providing incentives to businesses for expansion and hiring – was superior to the tried and consistently failed tactic of huge amounts of government deficit spending as a "stimulus". Krugman and others waved away the German recovery as simply an upsurge in exports, nothing more.
E21 has an excellent article out today in which it takes exception to the Krugman claims (note too that E21 refuses to call Krugman and economist but instead refers to him as a “commentator”):
U.S. commentators, like Jonathan Chait and Paul Krugman, have taken issue with holding out Germany’s economic recovery as a success story – one that contains lessons for U.S. policymakers. Contrary to their claims, Germany’s recovery does not appear to just be about trade flows and global demand for their manufactured goods. 50% of their second quarter GDP came from private sector consumption and investment growth.
Private sector growth – what a concept, no?
Here is an extended excerpt which is probably one of the best explanations I’ve seen. The last line is so irony laden that it almost makes you wince. Also, as you read this carefully you will again note the obvious – “this ain’t rocket science”:
The contractionary effects of deficit-financed stimulus were highlighted by European Central Bank (ECB) President Jean-Claude Trichet at the Jackson Hole conclave. While many commentators in the U.S. still depict the debate over stimulus as pitting sagacious “pure” economists that favor more deficit spending against the politically astute economic illiterates, Mr. Trichet explains that the Franco-German technocrats in Frankfurt view the economic literature as counseling steep budget cuts in the current environment. Many U.S. economists speak of the need to increase deficit-financed public expenditure to avoid a Japanese-style “lost decade”, yet it is precisely the exploding public debt ratios that Mr. Trichet identifies as the real cause of Japan’s malaise and the greatest risk to Western economies today. To those who believe sharp reductions in public expenditure are too risky, given overall economic weakness, Mr. Trichet responds that deficit-financed stimulus is unlikely to provide any measureable boost to demand in the current environment because the government purchases are offset by reduced private expenditure. And on this point, Mr. Trichet even goes even further:
“There is the additional argument positing that credible fiscal deficit reductions through expenditure cuts lead the private sector to expect a lower future tax burden, especially when the nature of the cuts make future tax reductions more likely. This can generate higher consumption expenditures and more investment.”
Lest anyone believe Mr. Trichet was talking about modest cuts to public expenditure to assuage irrational markets, he went on to suggest that cuts to government spending should be sufficient to reduce debt-to-GDP ratios by 30 percentage points over the medium term. Mr. Trichet cites numerous examples where cuts of this magnitude have resulted in improved short-run economic performance. That it takes a French lifetime bureaucrat to travel to the American West for these words to be spoken at a U.S. policy symposium says something fairly profound about the current state of policymaking in the U.S.
Again, as I mentioned in the first post I’ve cited, the proof is in the pudding. Germany is back to pre-recession unemployment rates and excellent GDP growth. And where, again, is the US during “recovery summer”?
Perhaps now you can understand the reason Mort Zuckerman has referred to the economic policies of this administration as our “economic Katrina”. At this point we’d better hope the worst we suffer is a lost decade like Japan’s.
Did you know there’s a home in Mississippi that has flooded 34 times in 32 years? And each time it has flooded, the federal government, through FEMA’s Federal Flood Insurance Program, has paid the owner’s claim. The house, worth $69,900, has cost the government $663,000 in flood damage claims. That’s almost ten times the home’s worth and averages over $20,000 a year.
If insanity is doing the same thing over and over again and expecting different results, that aptly describes this federal program. It essentially incentivizes home owners to remain in flood prone areas by bailing them out each time they are flooded. And, as you might imagine, that’s finally caught up with the program, as USA Today reports:
FEMA’s National Flood Insurance Program is the nation’s main flood insurer, created by law in 1968 as private companies stopped covering flood damage. The program insures 5.6 million properties nationwide and aims to be self-sustaining by paying claims from premiums it collects.
Instead it’s running deeply in the red. A major reason, a USA TODAY review finds, is that the program has paid people to rebuild over and over in the nation’s worst flood zones while also discounting insurance rates by up to $1 billion a year for flood-prone properties.
Along with the huge losses from Hurricane Katrina, the generous benefits have forced the program to seek an unprecedented $19 billion taxpayer bailout.
As one critic succinctly points out, “if this were a private insurer, it would be bankrupt”. In fact, it with those business practices, it would have been bankrupt years, if not decades ago. And now, hat in hand, it goes to the taxpayer for a bailout. $19 billion dollars worth of bailout.
As a government program, federal flood insurance covers anyone. It’s similar to state-run programs that insure homeowners and drivers who cannot get private coverage. Policies cannot be canceled, and individual premiums cannot be raised based on claims payments.
"It is not run as a business," [FEMA Administrator Craig ]Fugate said.
Congress’ Government Accountability Office said in April that the program is "by design, not actuarially sound" because it has no cash reserves to pay for catastrophes such as Katrina and sets rates that "do not reflect actual flood risk."
Raising insurance rates or limiting coverage is hard. "The board of directors of this program is Congress," Fugate said. "They are very responsive to individuals who are being adversely affected."
Or said another way, Congress has been “captured” by influential constituents who see no problem using their influence to burden taxpayers to subsidize the way of life they prefer – no risk building in areas prone to natural disasters. It isn’t “regulatory capture” per se, but it could certainly be called “constituent capture”. It is certainly rent seeking. Whatever the name preferred, it is an abuse of the taxpayer’s money.
It appears the plan is to continue doing business as usual – providing cheap insurance to builders and homeowners who continue to build or rebuild in flood prone areas. No fault risk taking subsidized by the federal government via taxes. So when you see stories like this, you know who to blame:
In Fairhope, Ala., the owner of a $153,000 house has received $2.3 million in claims. A $116,000 Houston home has received $1.6 million. The payments are for damage to homes and what’s inside.
After all, the view’s beautiful, coverage cheap and can’t be canceled and the risk minimal in terms of dollar loss, so what incentive is there to relocate to an area less prone to flooding as long as the taxpayer is on the hook to subsidize that lifestyle and they keep paying?
Essentially, that’s the unvarnished version of what an independent commission recommended the UN’s IPCC do from now on – stay out of politics and concentrate on getting the science right.
UN climate change experts have been accused of making ‘imprecise and vague’ statements and over-egging the evidence.
A scathing report into the Intergovernmental Panel on Climate Change called for it to avoid politics and stick instead to predictions based on solid science.
The probe, by representatives of the Royal Society and foreign scientific academies, took a thinly-veiled swipe at Rajendra Pachauri, the panel’s chairman for the past eight years.
As anyone who has been keeping up with the scandal among the IPCC and warmist “science” crowd in general, the report last issued by the UN’s climate commission has been under heavy and increasing fire from many directions. This is the latest in the saga. The investigative panel also make it clear that they’re of the opinion that Pachauri is not the guy they believe should be in charge of the IPCC.
Harold Shapiro, a Princeton University professor and chair of the committee that conducted the review, said that a report by an IPCC working group "contains many statements that were assigned high confidence but for which there is little evidence."
Professor Shapiro said the IPCC’s response to errors when they were subsequently revealed was "slow and inadequate."
Asked about the Himalayan glaciers error, Professor Shapiro said, "At least in our judgment, it came from just not paying close enough attention to what [peer] reviewers said about that example."
He added that there was concern about the U.N. climate panel’s lack of a conflict of interest policy, as is standard in most Government departments and international bodies.
The report called for development of a "rigorous conflict of interest policy" and made detailed suggestions on what should be disclosed.
Among those disclosures recommended are any financial and other ties to groups with an interest in the outcome of such a report (Pachauri has previously acted as an adviser to green energy companies).
The main finding, as noted above, was that despite all the claims to the contrary, many of the findings published with a “high confidence” were not peer reviewed or, if they were, the process was badly flawed. Consequently, many of the findings were found to be erroneous.
That’s not to say that the panel found the overall IPCC report to be fraudulent – on the contrary – it claims to support the basic findings. And I’d be interested to know the panel’s leanings before their investigation. Nevertheless it does find the present report’s errors to have badly “dented the credibility of the process”.
The panel also made a recommendation that the head of the IPCC be professionally qualified to do the necessary job:
‘Because the IPCC chair is both the leader and the face of the organisation, he or she must have strong credentials (including high professional standing in an area covered by IPCC assessments), international stature, a broad vision, strong leadership skills, considerable management experience at a senior level, and experience relevant to the assessment task.’
Pachauri’s background is mechanical engineering and he served with the Indian railway system before entering academia. Few objective observers would his credentials as adequate for the job. However Pachauri has no plans to step down. This is another example of what putting an unqualified individual in high office will get you.
We’ll see how this plays out, but remember that the IPCC report is something by which countries set their environmental policies. If Pachauri stays on, with his credibility tarnished, a very good case exists for questioning the validity of the report (given this episode). My guess is pressure is going to mount to oust him and replace him with a scientist at least associated with the field under investigation.
Frankly I hope he stays on. In my estimation, he perfectly represents why the warmist movement – and that’s what it is – continues to lose its audience and fewer and fewer people believe what they’re trying to sell. And, afterall, he’s at least as qualified as Al Gore.
We already know that the legacy left-leaning media is queasy about the Democrats getting hammered this fall. They would like to help prevent it as best they can, though there isn’t a lot they can do at this stage other than outright distortion.
Via Drudge, I just saw that the GOP is up to ten points on the generic congressional ballot. That’s ” the GOP’s largest so far this year and is its largest in Gallup’s history of tracking the midterm generic ballot for Congress.”
Now of course, these numbers are going to wander around a bit in the next few weeks. The article includes this:
One cautionary note: Democrats moved ahead in Gallup’s generic ballot for several weeks earlier this summer, showing that change is possible between now and Election Day.
That led to a question in my mind. Pundits are fond of a conclusion that I find totally bogus – the idea of “peaking too early”. Certainly any candidate would like for their peak to be on election day, but I don’t believe that the peak is under any candidate or party’s control. I think there are just random fluctuations around bigger trends.
However, the idea of peaking too early is tailor-made for a lazy pundit to use in an attempt to restore hope that the Democrats won’t get thrashed. So, for entertainment purposes only, when do you think a pundit for major media will use that theme, and who do you think will be the first to do it?
(For the record, I’m not denying that the Republicans could still blow it and end up with only modest gains. The establishment Republicans are so out of touch that their wins will mostly be due to their opponents’ blunders instead of their own decision. But at this point they would have to screw up big time, or Obama would have to do something really impressive, to keep the Republicans from either gaining control of Congress back or coming close to it.)
Ed Morrissey reminds us that if we’re waiting on the present POTUS to show a little class and at least acknowledge the success in Iraq was due to his predecessor’s strategy and persistence, we shouldn’t hold our breath. Obama’s weekly address is an indicator of why that’s the case:
On Tuesday, after more than seven years, the United States of America will end its combat mission in Iraq and take an important step forward in responsibly ending the Iraq war.
As a candidate for this office, I pledged I would end this war. As president, that is what I am doing. We have brought home more than 90,000 troops since I took office. We have closed or turned over to Iraq hundreds of bases. In many parts of the country, Iraqis have already taken the lead for security.
In the months ahead, our troops will continue to support and train Iraqi forces, partner with Iraqis in counterterrorism missions, and protect our civilian and military efforts. But the bottom line is this: the war is ending. Like any sovereign, independent nation, Iraq is free to chart its own course. And by the end of next year, all of our troops will be home.
Of course he didn’t “end this war”, success has ended it and “we” (meaning “he”) hasn’t brought 90,000 troops home, a Status of Forces Agreement (SOFA) negotiated by the Bush administration and signed, sealed and delivered before he ever was elected is the reason they’re home.
4 “I”’s, no mention of success, no mention of Bush, and strangely, no mention of inheriting something that seems to be winding up well.
Iraq has been on SOFA auto-drive since the treaty was agreed too by both sides. It has nothing to do with Obama or his “promise”. And I’ll make you a bet right now that he’s wrong about all of our troops being home by “the end of next year”.
As Morrissey notes about that promise:
It’s certainly possible, although very unwise. The Iraqis still don’t have much of an air force or navy, and it will take years to build both. They face pressures from Iran and Syria, and while their army can maintain internal security now, they won’t be any match for Iran or Syria alone, let alone together, if the two countries decide to subjugate Baghdad. I’d put that promise in the easier-said-than-done category, where the promise to close Gitmo wound up. If we’re not involved in combat operations, the political pressure to withdraw those forces drops to about the same level of class shown by Barack Obama in this address.
I’d say that’s about right.
Originally posted at the Washington Examiner on August 28, 2010. Some edits have been made to the original article.
It’s an enduring doctrine in America that one’s home is off limits to prying eyes and ears, and can be defended to the death if necessary. It’s not strictly true, of course, and certain states have eroded the doctrine to a gossamer wisp of the core idea. Yet, we tend to operate on an almost instinctual presumption that, when we are on our own property, we are kings and queens of the castle.
The resisting-arrest conviction last week of Felicia Gibson has left a lot of people wondering. Can a person be charged with resisting arrest while observing a traffic stop from his or her own front porch?
Salisbury Police Officer Mark Hunter thought so, and last week District Court Judge Beth Dixon agreed. Because Gibson did not at first comply when the officer told her and others to go inside, the judge found Gibson guilty of resisting, delaying or obstructing an officer.
Gibson was not the only bystander watching the action on the street. She was the only one holding up a cell-phone video camera. But court testimony never indicated that Hunter told her to stop the camera; he just told her to go inside.
Taking video of police stops is becoming more common with the ubiquity of cell-phone cameras and the like, and so is the backlash from law enforcement as has been amply covered by people like Glenn Reynolds (the famous Instapundit) and Radley Balko (from Reason Magazine). From the account given, it appears this why Ms. Gibson was arrested. What makes her case unique, however, is that she was on her own front porch when the encounter took place, and that she was taken into custody on a charge of “resisting arrest.”
Salisbury Police Chief Rorie Collins explained the North Carolina statute, under which Gibson was charged, as this:
“This crime is considered a Class 2 misdemeanor and involves:
“Any person who shall willfully and unlawfully resist, delay, or obstruct a public officer in discharging or attempting to discharge a duty of his office.
“Obviously, this charge is rather broad and can encompass many different types of actions that are designed to, or serves to hinder a law enforcement officer as he/she performs their duties.
“This charge is most commonly used in situations where a person who is being arrested refuses to cooperate and either passively or aggressively resists an arrest or tries to run away.
“Another very common situation in which this charge is used involves instances when an officer is conducting an investigation and the individuals with whom he/she is dealing provide a false identity when required to identify themselves.
“As you can imagine, there are also many other circumstances in which this charge would be appropriate.”
Chief Collins wouldn’t comment on the specifics of Gibson’s case, but did allow that, in general one does have the right to observe a police stop from one’s own property. He also seemed to suggest that a charge of resisting arrest may still be appropriate in a situation where bystanders refuse to obey police commands to exit the area for their own safety.
“However, just as with many other scenarios, it is important to remember that every situation is based upon its own merits/circumstances. There are some circumstances in which the police who have stopped the vehicle in front of your house may determine that it is in the interest of safety (the officer’s, yours or the individual stopped) to require that folks move. As with other circumstances, it is best advised that an individual merely obey by the officer’s commands.”
Perhaps on a public street the Chief might have a point, in that a colorable argument could be made that the police are charged with protecting the safety of the public highways and byways, even where the only danger is self-imposed.
But to arrest someone who is unmistakably on their own property, and doing nothing remotely illegal, is an abuse of power pure and simple. Even if it were true that Gibson was endangering herself by witnessing the traffic stop from the confines of her front porch, how could that possibly be construed as “resisting arrest” or “obstructing the police” without eviscerating everything that the concept of private property (not to mention plain old individual rights) stands for? Taking such a risk is not illegal. Doing it while occupying one’s homestead should be recognized as unassailably within one’s rights.
Since it appears that neither the police nor the district attorney’s office can be shamed into refraining from such power abuses, perhaps it will take a fat lawsuit for violations of Gibson’s (et al.) constitutional rights to get their attention.
The castle walls may be crumbling and decayed, but the invaders can be fought back and the walls rebuilt.[ad#Banner]
This magic formula for doing what the title suggests is courtesy of a New York Times editorial. After the appropriate amount of "the obstructionist GOP", and "poor Obama inherited this mess" whining, the NYT gets down to what it considers to be the brass tacks of the situation:
The question then is whether Mr. Obama will lead. He cannot force Congress to act, but he could pre-empt Republicans’ diatribes — on the deficit, on small business, on taxes — with tough truths and a big mission that would tie together the strategies and the sacrifices that will be needed to put the economy right.
The first sentence pretty much shoots the whole thing in the foot, doesn’t it? Even if you agree 100% with the NYT formula for political success, getting Obama to lead on anything is simply not very likely. He’s not a leader in a job that demands such a type. He’s, at best, a policy wonk. And judging by his economic policies not a very good one.
But back to the magic show that the NYT claims could save the left. Per the editorial, the country needs “tough truths” and a “big mission” with which to motivate the people enough to “put the economy right”.
Here’s an idea – how about policies which enable businesses by providing incentives to get off the cash they’re piling up, expand and hire? Settle the markets down by backing off government regulation, and intrusiveness. Back off new taxes and roll back some old ones. Stop spending money we don’t have. Make a real attempt to address the deficit.
Mr. Obama also needs to inspire Americans who have been ground down by the economic crisis and Washington’s small-bore sniping. He needs to rally the nation around a big idea — a project that is worth sacrificing for, worth paying for, worth working for. One that lets them know that there is more ahead than just a return to a status quo of lopsided growth in which corporate profits surge while jobs and incomes lag.
That mission could be the “21st century infrastructure,” that Mr. Obama mentioned on a multi-city trip this month, “not just roads and bridges, but faster Internet access and high-speed rail.” It could be energy independence, with high-tech green jobs and a real chance for addressing global warming. Either of the above would make sense, economically and politically.
Mr. Obama and his economic team had clearly hoped for an economic rebound in time for the midterm elections. They are not going to get it. The economic damage they inherited was too deep, and the economic stimulus they pushed through Congress, for all of the fight, was too small. Standing back is not doing the country or his party any good. We believe Americans are ready for hard truths and big ideas.
Wait – didn’t we just pour almost a trillion borrowed dollars into that “big mission”? Wasn’t it all about shovel ready infrastructure projects? And hasn’t it been a spectacular failure.
Certainly there are “infrastructure” needs that require addressing. But when you have an official unemployment rate of 9.5% (and an unofficial and much more accurate one well into double digits), people aren’t going to be impressed by “faster internet” and “green projects” that never seem to get anywhere and cost and arm and a leg. And high-speed rail? Really?
Oh, and the “chance to address global warming” is what – a chance to increase taxes, cripple businesses and make it even less likely that unemployment will improve. Yeah, that’s the ticket.
Anyone who thinks people hurting economically would be impressed with this nonsense, even if Obama could and would lead, have to be living in an ivory tower somewhere. People want jobs, not high speed rail or faster internet. They don’t care if their job is a ‘green job’, they just want a freakin’ job. And global warming – the majority of the population doesn’t even agree it’s happening much less wanting costly government programs that address it by taking money from them.
Why is it the left doesn’t seem to understand that it is time to put the agenda aside and focus on the nuts and bolts of creating jobs? The need is immediate – not some 5 to 10 years away.
The reason is because such a focus would mean actually admitting that their present agenda is hurting such an effort as well as acknowledging that government may not be the answer (instead, getting government out of the way actually is the answer).
So we get these sorts of pathetic pleas to a man who couldn’t lead a group of 5 year olds to an ice cream truck to essentially keep the agenda alive by disguising it as something it is not – a way to fix our economic problems.
Clue to the NYT. Yes, the people are open for tough talk about shared sacrifice. The rally in DC this weekend underlines that. Here’s the problem for the left – the sacrifice they first want and expect to see is at the expense of this bloated, wasteful and ineffective national government that has its fingers in way to many pies. Until they see real spending cuts, real downsizing and real governmental reform that benefits them and the engine of the economy – businesses – they’re uninterested in any nonsense about more government or more government spending or 21st century agendas.
To continue a theme, this ain’t rocket science, but it certainly is something that seems to be beyond the capacity of the left to grasp. As it turns out, November will most likely reward them properly for their consistent inability to do so.
I‘ll never forget Dale telling me during a phone conversation, "the more I look at the economy and what the Austrians have been saying about it, the more I find their arguments compelling".
He’s not the only one.
"The Austrians", of course, are those economists from the "Austrian school", which is a true free market school. Probably the most famous of the Austrians is Frederic Hayek. Hayek wrote "The Road to Serfdom" and the "Constitution of Liberty". If you don’t mind my saying so, they’re "must have books".
Another "must have" is "Human Action" by Luwig von Mises.
The point, however, is their writings seem more and more valid each day as we watch the policies that are driving this economic debacle play out.
Anyway, the article tells about Prof. Pete Boettke at George Mason University who is leading the charge for the Austrian brand of economics. And, as you might imagine, there’s a increasingly bigger demand for information pertaining to it.
Economics, they [the Austrians -ed.] feared, was increasingly narrow and technical but not necessarily wise. They also remained skeptical of the Fed’s approach to targeting stability in consumer prices.
That shouldn’t be the Fed’s goal, says Mr. Boettke, who a friend lured back to George Mason a year after he was denied tenure. The Fed, he says, should be to make money "as neutral as possible, like the rule of law, which never favors one party over the other."
That sometimes means letting prices fall. There’s little to fear in deflation, he adds, when it accompanies periods of strong productivity growth. However, "anytime you saw the price level starting to fall, the Fed flooded the economy with cash," he says. "And that resulted in asset-price inflation, which set us up for these crises."
It wasn’t a lack of government oversight that led to the crisis, as some economists argue, but too much of it, Mr. Boettke says. Specifically, low interest rates and policies that subsidized homeownership "gave people the crazy juice," he says.
Boettke also participates in a group blog about Austrian economics if you’re interested. One of the posts is about the fact that in most cases, economics isn’t “rocket science”. That’s something I’ve been saying for years in various ways – human nature 101, common sense 101, economics 101.
All economics action is based deeply in individual actions of human beings driven by human nature. One of the reasons that von Mises named his book “Human Action” is he and the other Austrians recognize that fundamentally all economics is based in just that – human action. In other words, grassroots up. Not the other way – top down.
That’s precisely why you’ll constantly see Austrians claim “it ain’t rocket science” when they explain why central planning never works. And what we’re going through now is no exception. Boettke:
I don’t possess a crystal ball, so I cannot forecast the economic future. But I do know that it is not good to expand the monetary base 140% or to run deficits the size we have, or accumulate public debt as we have. See Laurence Kotlikoff in The Economist. This "ain’t rocket science"! There will be a day of reckoning due to the monetary mischief and fiscal irresponsibility.
I also know that the problems we are facing are not "market problems" — it is not that actors are all of a sudden ‘irrational’, and it is not that markets are inherently ‘unstable’. Everything we are seeing in market behavior is a rational response to the environment created by public policy. This is not a psychological problem we are dealing with, it is a public policy problem. Bad public policy produce bad incentives which in turn produce bad results. Ultimately, this is a problem of bad ideas which result in bad public policies. Again, this ain’t rocket science. The role of the economists in all of this should be like my Dad when I was a teenager (and truth be told an adult), and grab policy makers by the shoulders star them squarely in the face and state clearly "this isn’t rocket science" and explain clearly the Econ 101 basics of why the decisions we have made so far have not been correct.
Gerald O’Driscoll over at ThinkMarkets does precisely this today. Nothing that has gone on so far with the housing market would be unpredictable with a little return to the lessons of Econ 101 about incentives and information, and how markets work to coordinate plans through time via relative price adjustments and profit and loss accounting. Policies produce incentives, when individuals in the system follow the path those incentives lead them to pursue, we should not be surprised (and certainly not disappointed). The policies adopted produced the results we see, not individuals behaving badly or behaving ‘irrationally’. Unfortunately, in our efforts to be ‘sophisticated’ we often confuse simple economics with simple-minded economics. But there is nothing simple-minded about returning to simple basics of economic science. This ain’t rocket science, but individuals respond rationally to incentives and demand curves slope downward and supply curves slope upward.
Read through that carefully and recall how many times here we’ve discussed how humans respond to incentives and why a certain policy seems to ignore that and the "experts" seem "surprised" by the "unexpected" outcome.
It ain’t rocket science, for heaven sake, but like Boettke and the Austrians claim, we’ve decided mathematical models and technical arguments are more persuasive – in the policy making arena – than are human nature and common sense.
I mean, look around you at the shambles the other schools of economics have made this place.
If I had to give the Austrian school of economics another name it would be the common sense school. It is based exactly at the level it should be based, recognizes the fundamental role that individuals play in economics and economies, and the realize, from that fundamental truth – common sense – that top down, central planning is the wrong place to start when devising economic policy.
Unfortunately that’s precisely where our present economic policy is formulated and the result is fairly easy to predict.
The article ends with:
But as much as the Austrian diagnosis may resonate now, it doesn’t provide a playbook for what to do next, which could limit its current resurgence.
Mr. Hayek rightly warned of the dangers of central planning, Mr. Boettke says, but "he didn’t give a prescription for how to move from ‘serfdom’ back."
I disagree. If “serfdom” is found at the end of the policy road we’re traveling right now, then the prescription for how to move from “serfdom’ back is to reverse the route we’ve traveled.
It ain’t rocket science folks. We may not like the prescription, and it may include quite a bit of hardship, but there is a road back from the economic serfdom we’re destined for if we don’t do something and do it fairly quickly.
First, let me say – I love baseball. Since I was a kid and played in Little League, it has been the game for me. And consequently I’m a huge professional baseball fan. I live for the season and the playoffs.
However, I’m not a fan of professional baseball’s ethics at times. And I’m certainly not a fan of those who own teams and attempt to swindle taxpayers into paying for their new stadiums. Obviously that’s not just something that professional baseball teams do. You can find examples of it among all professional sports teams. But the latest example does come from professional baseball, specifically, the Florida Marlins.
If you follow the game at all, you know that the Miami-Dade county government has agreed to pick up the lion’s share of the cost of a new stadium for the team down there. Owner Jeffrey Loria and president David Samson have, for years, maintained that the Florida Marlin franchise was, at best, a break even venture. They claimed, they needed a new stadium to attract fans and become profitable and if the county couldn’t help provide it, they’d probably have to move the team.
The Miami-Dade County government acquiesced to this blatant attempt at rent-seeking, apparently believing the financial claims of the Marlin’s front office.
Miami-Dade County agreed – without the consent of taxpayers – to take $409 million in loans loaded with balloon payments and long grace periods. By 2049, when the debt is due, the county will have paid billions.
In fact, it is estimated the $645 million dollar stadium complex will end up costing $2.4 billion with all of the loans the county unilaterally took out without taxpayer permission to keep the team in Miami. The Marlin’s franchise will only pay $155 million of the stadium cost.
In case you’re not familiar with the term “rent seeking” or need a refresher, it’s defined as:
The expenditure of resources in order to bring about an uncompensated transfer of goods or services from another person or persons to one’s self as the result of a “favorable” decision on some public policy. … Examples of rent-seeking behavior would include all of the various ways by which individuals or groups lobby government for taxing, spending and regulatory policies that confer financial benefits or other special advantages upon them at the expense of the taxpayers or of consumers or of other groups or individuals with which the beneficiaries may be in economic competition.
That is precisely what the Florida Marlin team has done. As mentioned, they’re not alone. This happens all too often. Tax payers end up being burdened with increased taxation that benefits a private company or business but puts a huge dent in the government’s budget. That’s not how it should work. It is both an abuse of power by government and abuse of the taxpayer by the private entity via its rent seeking.
What’s even worse is it appears the county government may have been conned by the team, according to this report:
Most harrowing is the takeaway that baseball’s biggest welfare case could have funded a much greater portion of the ballpark. In 2009, when the Marlins started spending some of their profits on their portion of the stadium, they still had an operating income of $11.1 million. The team fought to conceal the $48.9 million in profits over the last two years because the revelation would have prompted county commissioners to insist the team provide more funding. Loria, an art dealer with a net worth of hundreds of millions, wouldn’t stand for that. He wanted as much public funding as possible – money that could’ve gone toward education or to save some of the 1,200 jobs the county is cutting this year.
The lesson, of course, is one that governments never seem to learn. The pot of money they have to work with is finite. There’s only so much the taxpayer will stand for. When government involves itself in a project of high cost and dubious worth – no matter what the “experts” tell them about the importance of something like a professional baseball franchise to the city – they usually end up hurting themselves and those they serve. The tradeoff here is actually obvious. Those interest payments on the huge loans taken by the county could have been used to save jobs that actually served the community.
Instead they are going to pay for a stadium from which a private enterprise will profit, even while that private entity pays less than a quarter of its cost.
That’s not the free enterprise system at work. That’s not capitalism. Instead it is an example of corporate rent-seeking – subsidizing business on the back of the taxpayers – that governments do more and more.
No baseball team is worth $2.4 billion dollars, but that’s what the citizens of Miami and Dade county, via their government, have now committed to spend to keep the Marlins there. I’m a fan of baseball, but I’m not a fan of rent seeking. And I’d guess most the taxpayers in Miami, no matter how much they enjoy the game, probably feel exactly as I do.
Well, not really, but that pretty much describes metaphorically how often Paul Krugman and I agree on things. But today, Krugman, wondering what Ben Bernanke of the Fed is going to say today in his big speech believes it will probably be more of the same. Albeit, we’re in a recovery, more slowly than we’d like and things will soon get better. Krugman isn’t buying it (and neither am I. If this is a recovery, I’d hate to see a recession). :
Unfortunately, that’s not true: this isn’t a recovery, in any sense that matters. And policy makers should be doing everything they can to change that fact.
Krugman also zeros in on the main problem that those policy makers should focus on:
The important question is whether growth is fast enough to bring down sky-high unemployment. We need about 2.5 percent growth just to keep unemployment from rising, and much faster growth to bring it significantly down. Yet growth is currently running somewhere between 1 and 2 percent, with a good chance that it will slow even further in the months ahead.
In fact, the GDP number for this past quarter is 1.6%. That’s revised sharply downward from the original 2.4% reported and touted by Democrats recently. That, as Krugman points out, isn’t a good number when you are looking at unemployment.
Krugman then chastises those who are pumping sunshine up our skirts when the real economic news doesn’t warrant it – like the President and VP. Bernanke and Geithner:
Why are people who know better sugar-coating economic reality? The answer, I’m sorry to say, is that it’s all about evading responsibility.
Ya think! Gee wish I’d been saying that for, oh, I don’t know, 18 months. For 12 of that it was Bush’s fault. For the past 6, it’s been all sunshine, roses and “recovery summer”. In effect, although not at all as blatantly, Krugman is validating John Boehner’s call to fire Obama’s economic team. Because it is clear that the policy makers haven’t a clue of how to fix this mess.
At this point in his op-ed, Krugman reverts to his old self – a hack. After talking about evading responsibility, he goes for the “obstructive Republicans” canard.
And when he finally gets around to saying what he’d do, as you might suppose, it is spend more money that we don’t have.
Addressing the Fed he says:
The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.
In layman’s terms he’s saying let inflation loose and buy more debt (borrow). He then covers his rear by saying “hey, it may not work, but it is better than doing nothing”.
I’m not at all sure that’s the case. In fact, my guess is if you let the inflation dragon out of the cage, you’ll never recapture it until it has ravaged the economy. All that money that’s been pumped into the economy has to be wrung out at some point. And there are no painless ways to do that of which I’m aware.
As for the administration his advice is as follows:
The administration has less freedom of action, since it can’t get legislation past the Republican blockade. But it still has options. It can revamp its deeply unsuccessful attempt to aid troubled homeowners. It can use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families — yes, Republicans will howl, but they’re doing that anyway. It can finally get serious about confronting China over its currency manipulation: how many times do the Chinese have to promise to change their policies, then renege, before the administration decides that it’s time to act?
Sure, let’s hand even more money to the two financial black holes – Freddie and Fanny – that have already sucked down half a trillion dollars we don’t have trying to shore up their loses and return them to solvency. Republicans have every reason to howl about Freddie and Fannie. If Krugman were anything but a hack, he’d have to admit that.
And if he thinks the Chinese – who are actually in a real recovery – are going to stomp on their economic progress to fix ours, he’s dreaming. Both proposals are absurd on their face. But then when it comes to actual solutions, I’ve come to expect that from him.
However, at least in the first part of his column, he and I were in pretty much perfect agreement. I need to go take a bath now.