Crop cronyism’s destructive results
We talk about it. Politicians condemn it. Nothing ever happens to change it though.
This year’s agriculture bill again redistributes your money to rent seekers:
Combine a Midwestern drought with pointless ethanol mandates, and the supplies of corn inevitably dwindle, driving prices sky high. Politicians like Sen. Claire McCaskill, Missouri Democrat, are citing the crop crisis as an excuse to ram through a near-$1 trillion farm bill. While a bit of that cash might find its way to a small farmer, the bulk of the loot will be transferred to individuals who are anything but poor. Like the bank bailouts and TARP, the farm bill illustrates the capture of the legislative process by special interests.
The last farm bill in 2008 was the focus of $173.5 million in lobbying expenditure, according to a report released Tuesday by Food & Water Watch. This is all money spent on what the Mercatus Center’s Matthew Mitchell calls “unproductive entrepreneurship” where people are organizing and expending their talent to become rent seekers, and the end result is wealth redistribution, not wealth creation. Real entrepreneurship innovates in ways that are socially useful. Cronyism diverts resources — both money and talent — into a system that rewards privileges to favored groups. In the case of the 2008 farm bill, recipients of subsidies of $30,000 or more had an average household income of $210,000.
Mr. Mitchell argues that “government-granted privilege is an extraordinarily destructive force” because it not only results in a misallocation of resources and slower growth, it undermines civil society and the legitimacy of government by providing a rich soil for corruption.”
She’s absolutely right. And, of course, when you mess with markets, like has been done with the corn market and mandated ethanol, the expected results occur when something unanticipated, like a drought, happens:
Corn and soybeans soared to record highs on Thursday as the worsening drought in the U.S. farm belt stirred fears of a food crisis, with prices coming off peaks after investors cashed out of the biggest grains rally since 2008.
Corn prices crossed into uncharted territory above $8 per bushel — about three-and-a-half times the average price 10 years ago of $2.28. Soybeans punched past $17 for the first time — also three-and-a-half times the 2002 average.
Analysts said that while forecasts for continued dry weather are expected to sustain the rally, corn prices could be vulnerable to any move by the government to lower the amount of corn-based ethanol blenders are required to mix with gasoline.
Notice what entity is mentioned in the last paragraph? Yes, government. A key player in the increase in corn prices (yes, understood, they’d be higher with the drought alone, but government’s ethanol mandate has driven them even higher yet).
Meanwhile, as mentioned above, we’re subsidizing agriculture to the tune of $1 trillion dollars of your money (in cash or in debt to be paid back in the future). Meanwhile, you’ll be paying more for corn based products at the grocery store as well.
Nita Ghei lays out the bottom line problem with this sort of cronyism and rent seeking:
Government privileges come in many forms, direct and indirect. It might be a monopoly, such as the one granted to utilities like Pepco. Regulations such as licensing can be used to limit entry to a particular field to the benefit of existing businesses. Lobbying and the revolving door in Washington create what economists call “regulatory capture,” which is what happens when existing firms use regulatory agencies to benefit themselves. Tax breaks, loan guarantees and subsidies are the most direct signs of a government’s favor. Bailouts of big banks under TARP, and Fannie Mae and Freddie Mac when the housing bubble burst, are the most recent examples of direct action.
Extending each of these privileges reduces America’s economic competitiveness. A monopoly protected by the government has little incentive to provide good service. The greater the availability of privileges, the greater is the incentive to indulge in rent seeking, which diverts resources from truly productive activities. In the long run, the result of anti-competitive policies is less innovation, lower growth and a smaller pie to share.
The greatest scourge to the honest Midwest farmer is not unfavorable weather, pestilence or disease. Far worse for them is the plague of politicians who create an artificial market in which only those with influence can truly compete. Defeating the budget-busting 2012 farm bill is the best chance at a good harvest.
The chances of that happening, however, are slim to none. Regulatory capture is as common now as government debt and unemployment. It is a systemic problem that rewards rent seekers and the well connected to the detriment of innovators and competition. It is the antithesis of capitalism.
Unless we have the will to stop this sort of cronyism, we’re on a short road to failure. This is another, in a long line of government programs, that are unsustainable, destructive and just flat something government shouldn’t be involved in.
But my guess is, this time next year, we’ll still be talking about it, politicians will still be condemning it and nothing will change except the higher national debt number.
~McQ
Twitter: @McQandO
Why no hiring? Taxes and health care, that’s why
As I’ve mentioned many times, the engine of America is small business. Those businesses provide jobs to 85% of Americans. And according to the US Chamber of Commerce, they’re not going to be doing much if any hiring in the near future:
Small business owners’ concerns about the future—particularly on health care and taxes-—are impacting their hiring, according to the U.S. Chamber’s fifth quarterly small business survey released today.
Only one in five small businesses (20%) expect to add employees in 2013, according to the poll of 1,225 small business owners, conducted by Harris Interactive. The majority of small businesses say they are likely to keep the same number of employees over the next year – meaning there is likely to be little change in overall unemployment figures.
Concerns about health care and taxes (both brought to you by Barack Obama) are causing caution among small businesses and that’s because they perceive an “unsettled” business climate. Consequently there’s no incentive for them to change the status quo. In fact, they obviously believe there is some safety in the status quo (see the survey to see how they feel about their businesses locally) .
As we’ve mentioned repeatedly, government policy does have an effect on the economy. It can be an enabler that helps create incentives for businesses to expand and hire or it can be a disabler, doing precisely what it is doing now to unsettle the business climate, create disincentives for expansion or hiring and have small businesses go into a defensive posture.
It doesn’t get more defensive than now.
More from the Chamber survey:
- 78% want government to get out of the way.
- 90% are concerned about the impending fiscal cliff and are worried that Congress will fail to take action to prevent it.
- Nearly 60% say that expiration of the 2001 and 2003 tax rates and other business provisions, coupled with sequestration, will directly impact their business’ growth.
As you might imagine the road map to a better business climate is not hard to follow. There’s just no desire by the class warriors to do that.
Instead of doing the hard work of creating a business climate that will provide small business incentives to expand and hire, they’d rather tax them while demonizing them as the evil rich and talking about “fair shares” to 50% of the country that pay’s no – zero- income tax.
If this doesn’t paint the picture of what is wrong with the policies of this administration, I’m not sure what will. This is Econ 101 stuff. And apparently it is like a foreign language to this administration.
The golden goose is on life support, and the administration is about to pull the plug.
But let’s talk about Bain Capital, shall we?
~McQ
Twitter: @McQandO
ICYMI: Companies planning on less hiring in near future
According a report by Reuters, much of it is related to the looming crisis in Europe:
Only 23 percent of the firms polled in June plan to add to staff in the next six months, the National Association for Business Economics said on Monday.
NABE’s prior survey, conducted in late March and early April, had shown 39 percent of companies planning to add workers.
The point, of course, is now is certainly not the time, with unemployment at 8.2%, to give business another reason to delay hiring, right? That would seem, to most, to be a reasonable point. While the European problem unfolds and comes to some sort of resolution, you’d think government would be attempting to encourage and enable domestic businesses to do some hiring anyway, right?
Instead, as demonstrated in the story below, you have a president (and a party) who seem dedicated to killing whatever possibility there is for such hiring in the bud by calling for higher taxes on the “rich”.
Of course they count on the bulk of the public being ignorant of what comprises the “rich” that the administration wants taxed (small business which produces 85% of the jobs in the US) and certainly, to some extent, they’ve been successful in that endeavor.
Many will tell you that there’s really not much government can do economically. That they get blamed or praised when it goes south or does well, but in fact that’s more political tradition than reality.
I disagree. Economic policy can have a profound effect on the economy. A policy that encourages and enables business will have a net positive effect economically. One that discourages or unsettles the business climate (increased regulation, increased taxation, etc.) will have the opposite effect.
Right now we have an example of the latter. The 8.2% unemployment rate we now endure isn’t a result of the “European crisis”, it is the result of an unsettled and hostile domestic business climate, much of it created by the current administration’s policies. Europe’s woes will only add to that. Instead of doing everything they can domestically to encourage expansion and hiring, this administration has decided to again lobby for taxing the job creators at an even higher level.
Of course be prepared for the ready excuse that the crisis in Europe presents. Blaming Bush doesn’t work as well now as it did 4 years ago. ATMs and tsunamis won’t work either. But President “It’s the Other Guy’s Fault” will try very hard to shift the blame of any economic downturn in the next few months across the Atlantic.
But remember – we are at 8.2% now. And that has much more to do with this President’s policies than anything that has happened in Europe.
~McQ
Twitter: @McQandO
President thinks his biggest mistake of his Presidency is … “story telling”?
I swear I almost laughed out loud when I read this. President Obama is asked in an interview what the biggest mistake of his presidency has been:
"When I think about what we’ve done well and what we haven’t done well," the president said, "the mistake of my first term – couple of years – was thinking that this job was just about getting the policy right. And that’s important. But the nature of this office is also to tell a story to the American people that gives them a sense of unity and purpose and optimism, especially during tough times."
Story telling is his biggest mistake? He’s been telling “stories” for 4 years, most of them fictional. It is his abysmal and clueless performance in office that’s been his biggest mistake. OK, poor performance probably isn’t a mistake, it’s, well, poor performance. Perhaps his biggest mistake was thinking he’s done well. No, that’s just ignorance and ego.
No his biggest mistake was concentrating on his legacy while he let the economy go to hell and now it’s all but unrecoverable (in his 1st term, which is all that matters to him). He continually told a story about how he and Sheriff Joe were “focused like lasers” on jobs and the economy.
And here we are.
But all of that is not why I almost laughed out loud.
How many times have you seen the left and Democrats claim that it isn’t the message that is the problem but how it is delivered?
The above quote is the Obama version of that very premise. You can’t instill a sense of unity, purpose and optimism when you’re continually taking away freedoms.
Cluebat for the left: it has nothing to do with delivery, it has to do with the fact that most Americans think your policies (and ideology, at least the part that continually calls for more expensive and intrusive government and sees government as the solution to all problems) suck.
It isn’t the “story”, okay?
Forward.
~McQ
Twitter: @McQandO
ObamaCare ruling: Silver lining or whistling past the graveyard?
George Will has a column out today declaring that conservatism won “a substantial victory” yesterday:
Conservatives distraught about the survival of the individual mandate are missing the considerable consolation prize they won when the Supreme Court rejected a constitutional rationale for the mandate — Congress’s rationale — that was pregnant with rampant statism.
The case challenged the court to fashion a judicially administrable principle that limits Congress’s power to act on the mere pretense of regulating interstate commerce. At least Roberts got the court to embrace emphatic language rejecting the Commerce Clause rationale for penalizing the inactivity of not buying insurance:
“The power to regulate commerce presupposes the existence of commercial activity to be regulated. . . . The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. . . . Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and — under the government’s theory — empower Congress to make those decisions for him.”
If the mandate had been upheld under the Commerce Clause, the Supreme Court would have decisively construed this clause so permissively as to give Congress an essentially unlimited police power — the power to mandate, proscribe and regulate behavior for whatever Congress deems a public benefit. Instead, the court rejected the Obama administration’s Commerce Clause doctrine. The court remains clearly committed to this previous holding: “Under our written Constitution . . . the limitation of congressional authority is not solely a matter of legislative grace.”
The court held that the mandate is constitutional only because Congress could have identified its enforcement penalty as a tax. The court thereby guaranteed that the argument ignited by the mandate will continue as the principal fault line in our polity.
I’m sorry, I’m just not feeling it. What part of the “tax” isn’t “pregnant with rampant statism”? Why did John Roberts feel compelled to save the mandate by helping the administration identify it as a tax?
And more importantly, since when did taxation go from simply being a means for funding the functions of government to a means of incentivizing/controlling behavior? To me that’s what approving the mandate as a tax has sanctioned. We make fun of the nannies who want to control what we do, eat, say, etc. This precedent just sanctioned a method of doing so. It says it is okay to coerce desired behavior through taxation.
Perhaps, as Will opines, it will limit the Commerce clause which is already insanely overstretched in application. Maybe it finally does draw a much brighter line around the clause, at least marginally.
However, the downside is worse than any upside. The ruling essentially sanctioned the state’s requirement to purchase health insurance and gave it the okay to “tax” those who don’t comply. I’m sorry, you may want to play the word game with them and call it a tax, but it is clearly identifiable to me as a penalty.
That’s just wrong.
One of the more interesting ironies is that within the same ruling the Court found that the Federal government was being coercive toward the states by requiring they comply with the new Medicaid mandates or lose their current Medicaid funding.
How is that anymore coercive than the “tax” required to be paid if an individual decides not to purchase health care insurance?
Taxation as a mechanism of control and/or enforcement of desired behavior is as coercive as the part on Medicaid which was struck down by the court. At least in my opinion.
There may indeed be a silver lining in the ruling as Will outlines. But a “substantial victory”? It sounds like David Axlerod trying to spin the Wisconsin results as a huge win for Obama and trouble for Romney, doesn’t it? If this was a “substantial victory”, then so was Pearl Harbor.
~McQ
Twitter: @McQandO
UAVs, extrajudicial and targeted killings
If you haven’t wondered about the morality of this or its legality, I’d be surprised.
It’s easy to overlook, after all it’s the “good guys” doing it, right?
While I usually ignore most of what the UN says, I think there’s some substance here:
The US policy of using aerial drones to carry out targeted killings presents a major challenge to the system of international law that has endured since the second world war, a United Nations investigator has said.
Christof Heyns, the UN special rapporteur on extrajudicial killings, summary or arbitrary executions, told a conference in Geneva that President Obama’s attacks in Pakistan, Yemen and elsewhere, carried out by the CIA, would encourage other states to flout long-established human rights standards.
In his strongest critique so far of drone strikes, Heyns suggested some may even constitute "war crimes". His comments come amid rising international unease over the surge in killings by remotely piloted unmanned aerial vehicles (UAVs).
A lot of times I apply the “what if some other country was doing this to the US” standard to things we do. Take Fast and Furious. What if Mexico had run that operation on us? We’d be “furious”. We’d condemn them roundly. We’d be seeking redress. We’d be initiating some sort of action.
Now given, in certain of the cases with UAV’s, governments of countries effected are cooperating and, in some cases, even giving permission. But that isn’t always the case as we well know. In fact, many times this country just executes an extra-judicial and/or targeted killing without the knowledge or consent of the government of the state in which it takes place.
As you might expect, there’s a lot of death of innocents that is euphemistically waved away as “collateral damage”.
Certainly the use of UAVs as a military asset that can both gather intel and be used to attack legitimate enemies makes sense. But we’re into a very gray moral area with “extra-judicial” and targeted killings in other countries.
The irony, of course, is the administration that arrogantly condemned its predecessor for secret jails and military tribunals and insisted that the judicial system be used in the war on terror instead now acts as judge, jury and executioner in these UAV killings.
I just wondered what we’d think if Pakistan began flying UAVs into the US and knocking off politicians who supported UAV strikes in Pakistan, calling them “war criminals” and all?
Think we’d find that outrageous, a violation of our sovereignty and international law and be whining to the UN about what was being done by that country (not to mention beating the war drums here at home)?
Yeah, me too.
Would we have a legal or moral leg to stand on?
~McQ
Twitter: @McQandO
Government debt is a drag on the GDP? D’oh, who knew?
Well, we did. We’ve been telling you that for quite some time. And so have other economists (that, of course, wouldn’t include Paul Krugman).
Yesterday, this came out (and, most surprisingly, on Ezra Klein’s blog, although not by Ezra Klein):
What’s the real harm of a massive government deficit? Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff find that high public debt is associated with a significantly lower level of GDP in the long run.
In a new paper for the National Bureau of Economic Research, the researchers examined the historical incidence of high government debt levels in advanced economies since 1800, examining 26 different “debt overhang episodes” when public debt levels were above 90 percent for at least five years.
And what do you suppose they found?
The debt episodes included everything from Netherlands’ Napoleonic War debts and the Japan banking crisis of the 1990s to Greece’s current fiscal crisis. On average, the researchers found that growth during these periods of high debt were 1.2 percent lower on average, consistent with Reinhart and Rogoff’s findings in 2010. What they also found, however, was these episodes of high debt and lower growth were quite lengthy, averaging 23 years. And the accompanying long-term drag on GDP was substantial. “By the end of the median episode, the level of output is nearly a quarter below that predicted by the trend in lower-debt periods,” they explain.
Japan’s “lost decade” has lasted much more than a decade, hasn’t it?
And the policies being pursued by this president seem to be offering up an attempt to see if this country can’t move that average beyond 23 years.
Need a picture?
We’re at 101% of debt/GDP so, according to these folks, we’ll actually perform below the red line.
But hey, more spending please. Because, you know, we need more government jobs (the private sector is doing fine).
Forward (into economic oblivion)!
~McQ
Twitter: @McQandO
Quote of the Day: Which Republican said this edition
Tell me if you know which Republican Congressman said this:
"President Obama and others in Washington need to realize that we cannot spend our way to prosperity and that to in order to create jobs," … "We need to address unfair trade deals that ship jobs overseas and enact policies that allow us to take advantage of our vast natural resources such as coal and natural gas in a safe and responsible manner which will lower energy costs and create jobs and approving the Keystone XL Pipeline would be a good first step."
House Speaker Boehner? Paul Ryan? Eric Cantor?
Uh, no … it wasn’t a Republican at all. It was Rep. Mark Critz, D-PA. The guy who represents most of John Murtha’s old district. Does this sound like a guy who is wanting the president anywhere near his district as he runs for re-election?
Meanwhile the President gave a “major speech” yesterday in Ohio that was 54 minutes long and could be boiled down into one sentence – No change: more spending, more taxes, same old failed economic policies and blame Bush.
It was widely panned by the usually supportive media. Said Jon Healy of the LA Times:
President Obama’s much-anticipated speech Thursday on the economy didn’t lay out any new initiatives or make any new arguments. It often sounded like a recap of his first three years, or another version of the familiar "how we got here" blamefest.
Meanwhile, going back to part of Rep. Critz criticism, the Keystone XL pipeline, something which would mean jobs for this country and a big step toward increasing our energy security, is indeed proceeding – toward China or elsewhere:
While Joe Oliver, Canada’s minister of natural resources, said in an interview that the United States would remain Canada’s “most important customer,” billions of barrels of oil that would have been refined and used in the United States are now poised to head elsewhere. Expansion of Canada’s fast-growing oil-sands industry will be restricted by the lack of pipeline capacity before the decade’s end, he said, which “adds to the urgency of building them so that the resources will not be stranded.”
Three new pipeline network proposals — two that call for heading west and the other east — have been put forward.
If ever there were a blunder of historic proportions, Obama’s petulant and politically motivated disapproval of the pipeline rank up in the top.
The scale of this blunder, which the President made ostensibly on environmental grounds, is compounded by the fact that there is no putting the genie back in the bottle. Once a new pipeline is built, Canada has no reason to return to selling its oil products solely to the U.S. at a reduced price. The decision not to approve Keystone XL makes Solyndra look like a stroke of genius.
Indeed.
Oh and finally, can anyone guess what was required to attend the President’s Ohio speech?
Yeah, that’s right – a photo ID.
~McQ
Twitter: @McQandO
Do we need “more teachers?”
The latest little dust up is about President Obama claiming we need to hire more teachers (i.e. we need more government jobs) and the Romney campaign saying we really don’t. Who is right?
Former Gov. John Sununu steps in with the following:
Former New Hampshire Gov. John H. Sununu, a surrogate for Mitt Romney’s presidential campaign, defended the presumptive Republican nominee’s comments that the nation should have fewer teachers, firefighters and police officers, saying there was "wisdom" in Romney’s remarks.
"There are municipalities, there are states where there is flight of population, and as the population goes down, you need fewer teachers. As technology contributes to community security and dealing with issues that firefighters have to issue, you would hope that you can as a taxpayer see the benefits of the efficiency in personnel you can get out of that," Sununu said during an interview on MSNBC’s "Jansing & Co." Monday, prefacing that he was speaking "as a taxpayer" and not a representative of the Romney campaign. "There may be others who run away from those comments, but I’m going to tell you that there are places where just pumping money in to add to the public payroll is not what the taxpayers of this country want."
So do we or don’t we need more teachers? That should be fairly easy to determine, shouldn’t it? And, as it turns out it is:
Since 1970 we’ve seen a 100% increase in Public School employment and a, what, an 8% increase in Public School enrollment?
Am I missing something here? It would seem we have a plethora of educators available. Or at least education employees. If they’re not educators, then my suggestion is perhaps the way to get “more teachers”, if they’re really needed, is to look at the current employee mix and reduce administrative overhead while increasing the number of teachers. Problem solved.
That, of course, could be done without spending a dime. And that, as Sununu points out, would certainly be satisfactory to taxpayers. Oh, wait, teacher’s unions – yeah, not going to happen is it?.
But let’s get real about this Obama gambit – it is the usual appeal. Whenever the Democrats want to increase the size of government, the first jobs they talk about are “teachers, firemen and cops”. Without exception. It is a tired old ploy that most people ought to be on too by now.
And yet we continue to see it employed and, unfortunately, it works. The scare factor. See the above chart if you don’t believe me.
In the case of schools, what has it given us over the years as the taxpayer has answered the inevitable appeal and thrown money at schools?
A 90% increase in cost and flatlined (and even subpar) achievement.
We don’t need more teachers.
We need less government.
~McQ
Twitter: @McQandO
The new fossil fuel reality
Myth: The US has only 2% of the world’s proven reserves.
From Canada to Colombia to Brazil, oil and gas production in the Western Hemisphere is booming, with the United States emerging less dependent on supplies from an unstable Middle East. Central to the new energy equation is the United States itself, which has ramped up production and is now churning out 1.7 million more barrels of oil and liquid fuel per day than in 2005.
“There are new players and drivers in the world,” said Ruben Etcheverry, chief executive of Gas and Oil of Neuquen, a state-owned energy firm that is positioning itself to develop oil and gas fields here in Patagonia. “There is a new geopolitical shift, and those countries that never provided oil and gas can now do so. For the United States, there is a glimmer of the possibility of self-sufficiency.”
Or, as the article from which those two paragraphs are taken is entitled, “Center of gravity in oil world shifts to America”.
And, given recent finds, there’s more than a “glimmer of the possibility of self-sufficiency for the United States” there is a real possibility for self-sufficiency if a coherent energy policy is put together that exploits the reserves we have.
Currently the US imports 45% of its petroleum needs. 29% of all imports comes from Canada, 8% from Mexico. Saudi Arabia supplies 14% Nigeria 10% and Venezuela 11%, with lesser suppliers picking up the rest.
Canada’s supplies of crude oil are going to continue to rise, from a current base of 4.3 million barrels a day to 6.6 million a day in 2035. But the US is projected to see a big an increase as well. From the current 10 million barrels of oil a day to 12.8 million in 2035.
But that’s the case only if we tap into it or are allowed to tap into it, much being found under land controlled by the federal government who has been anything but friendly to the idea here recently.
Production has risen strikingly fast in places such as the tar sands of Alberta, Canada, and the “tight” rock formations of North Dakota and Texas — basins with resources so hard to refine or reach that they were not considered economically viable until recently
Technology has made the recovery of these resources economically viable and they promise a abundant energy future.
Then, of course, there’s natural gas, something the US is blessed with in huge quantities as well. It is a distinct possibility that the use of natural gas will increase markedly over the next few decades as it is applied to more and more uses traditionally the realm of other energy sources. Part of that may come among auto and truck fleets. If so, then it is more than a “glimmer of a possibility of self-sufficiency” we’re beginning to see.
It is a real possibility.
But only if we use it. And, only if the government and radical environmentalists get out of the way.
One of those two problems can be helped this November.
Forward.
~McQ
Twitter: @McQandO