A Moment of Truth in the Debt-Ceiling Impasse?

by Mario Rizzo

The difference between a conservative and a classical liberal/libertarian once again is manifest.

The conservative wants to get the debt crisis over with even at the cost of some tax increases and not so reliable budget cuts. He thinks that, in the end, there will be some budget cuts, the deficit will be lowered and we can go on to real reform some way down the road.

The radical classical liberal realizes that the government keeps expanding over the long run and that the ordinary politics of compromise has not changed the fundamental course. We now have a moment of truth or perhaps simply of anxiety. This can be used to “force” the system toward real change. The danger, of course, is that the debt ceiling won’t rise in time. In time for what?

Austrian Law and Economics: The Definitive Collection

by Mario Rizzo

Edward Elgar has announced the publication of a two-volume collection of Austrian law and economics articles. The marks the first definitive collection of articles in this field. It is a book for your university or public library. Please recommend it! 

THE BIG BOOK

 
Edited by Mario J. Rizzo, Department of Economics, New York University, US

August 2011 1,488 pp Hardback 978 1 84542 753 5 Regular Price $790.00  Web Price $711.00 

Description
The use of economics to study law was pioneered by the Austrian School of Economics. The nineteenth century founders of the school believed that economics could contribute to understanding the spontaneous development of common law as well as the nature of legal rights. For this insightful two-volume collection Mario Rizzo has selected key papers from today’s vibrant Austrian School, focusing on the study of property, market-chosen law, slippery-slope analysis, entrepreneurship, institutions, decentralized social knowledge, and the evolution of legal institutions.
These volumes represent the cutting-edge Austrian contributions to economics and will be an essential reference source for both students and researchers.

Tax Baseline Key to Debt Fight

by Chidem Kurdas

Neither House Republican Speaker John Boehner  nor Senate Democratic Majority Leader Harry Reid propose tax increases in their competing deficit and debt-ceiling plans. Indeed, the Reid plan’s omission of tax hikes is described by Democrats as a major concession to Republicans.

But even if there are no new obligations, taxes are primed to go up. That baseline, biased in favor of a growing tax burden, is key to proposed deals and will no doubt remain the pivotal point in budget negotiations long after the current debt ceiling is broached.

In a recent report on the long-term fiscal outlook, the Congressional Budget Office  estimated that the wide range of tax increases built into current law would generate substantial additional tax revenue and boost the share of taxes to levels not seen in recent decades. That’s the baseline scenario.

Them is Us: More Thoughts on Oslo and Multiculturalism

by Roger Koppl

An editorial in yesterday’s New York Times rightly notes, “A disturbing, and growing, intolerance across Europe for Muslims and other immigrants from Africa, Asia and the Middle East.  Inflammatory political rhetoric is increasingly tolerated. And anti-immigrant and anti-Islamic parties are getting stronger notably in northern European countries that have long had liberal immigration policies.”  Right.  The trends are real and bad.  But the next paragraph goes off the rails by equating multiculturalism with tolerance and (relatively) open borders.

Is the Fed Independent?

by Mario Rizzo

In today’s Wall Street Journal frequent contributor to ThinkMarkets, Jerry O’Driscoll, has an important opinion piece, “Why the Fed Is Not Independent.”

There has been much discussion recently of the importance of “preserving” Fed independence. But is the Fed independent? Independent of what? Jerry concentrates on the link between the Fed’s monetary policy and the Treasury’s fiscal policy.  Consider:

Today, however one parses the term, the Federal Reserve is not now independent. It has voluntarily relinquished the very independence it secured in 1951 by entering into a modern version of the bond support program. That is what the so-called zero interest rate policy amounts to, reinforced by the quantitative easing implemented through QE1 and QE2.

The Fed is committed to holding interest rates at a very low level by purchasing as much Treasury debt as necessary to maintain those interest rates. That is precisely the position the Fed found itself in before the 1951 accord.

Monetary policy once again is not independent of fiscal policy. None of the Fed’s critics can do as much harm to the institution’s independence as it has done to itself.

The whole article is quite interesting. It raises importance questions not only of economics but of politics as well.

Oslo and Multiculturalism

by Roger Koppl

The terrible Oslo killings by Anders Breivik have appropriately prompted discussion of the political implications of his act and his manifesto.  Multiculturalism is an important theme in the discussion around Breivik’s crimes and ideology.  A story in yesterday’s NYTimes links Breivik to the repudiation of multiculturalism by three European political leaders.

“Yet some of the primary motivations cited by the suspect in Norway, Anders Behring Breivik, are now mainstream issues.  Mrs. Merkel, President Nicolas Sarkozy of France and Prime Minister David Cameron in Britain all recently declared an end to multiculturalism.”  The article links Breivik’s actions to a supposed “climate” created by “right-wing” discourse.  “[S]ome experts say a climate of hatred in the political discourse has encouraged violent individuals.”

Individually Unintelligent but Collectively Brilliant

by Mario Rizzo

Today on CBS Sunday Morning there was a very interesting program about ants. In the aggregate inept creatures create amazing structures. And what’s more they do it without central direction. However, they are extremely specialized. They follow, in effect, fairly rigid rules, involving imitating the actions of other ants of like kind. They do complicated things with simple rules. Arguably, one of the scientists interviewed said, humans are too smart. From the point of view of society, it pays to have mostly ignorant individuals making “stupid” choices but leaving the overall order unplanned.

There are fairly obvious connections between this story and the discussions about economists of zero-information traders that produce efficient social outcomes.

I have two main reactions.

1. What is human intelligence for? The story of the ants gives the impression (through the program’s discussion about certain human parallels) that intelligence gets in the way. Why has evolution produced the conscious deliberately choosing mind?
2. I hate the ants and their society. This was a visceral reaction in part but also in part a reflective society. I would not like to live in a society in which people did not reflect on themselves and on the social order.

While I think we can learn much from studying ants and their societies, I think we need to think more deeply about what is relevant to human societies. And why.

 

 

Where is the Bubble?

by Jerry O’Driscoll  

The monetary analysis of the housing bubble focuses on the impact of low – even negative – real rates of interest on housing demand.  That theory suggests the Fed must be inflating new bubbles with its continued policy of a near-zero federal funds rate. Skeptics ask where are the bubbles?

In today’s Wall Street Journal Business World column, Holman Jenkins answers with “Plane Crazy.” He specifically points to the recently announced deal in which debt-burdened and unprofitable American Airlines will take delivery of 460 new planes.  How did American pull this off?

Boeing and Airbus will share the order and each will finance a substantial portion of the purchase. “Think about it this way: Two rival banks get together and offer you a ‘no-doc’ mortgage for 115% of the value of your home,” writes Jenkins. He characterizes this as an opportunity for a “go-for-broke shot at a turnaround” for American. It’s an offer the airline could not refuse.

There are an ample number of other candidates for a bubble: gold, oil, farmland in the Midwest and perhaps the S&P. The entire world is awash in cheap dollars and much of the impact of the Fed’s policy has been to inflate bubbles overseas. That can be seen directly with the AA deal. More than half the order is going to Airbus, a European company.

The Fed’s easy-money policy was supposed to stimulate the U.S. economy and produce jobs for Americans. Fed policy has produced prosperity and jobs, just not in the United States.

Healthcare as Social Planning

by Mario Rizzo

Although I am an advocate of voluntary birth control, I am not happy about (1) the equation of this choice with healthcare – even preventative healthcare (as if pregnancy were a disease); and (2) the government mandating that health insurers must cover these expenses, without even a copayment.

Taxes Are Already Scheduled To Rise

by Mario Rizzo

President Obama and his various spokespeople are saying incessantly that deficit reduction as a requirement (thanks to the Republicans) to raise the debt limit must be done in a “balanced” manner. There must be some kind of revenue increases to go along with the spending-growth reductions. There are many ways to talk about “balance.” In this case, however, they are all normative. If you think that taxes are already too high, then higher taxes add to the existing imbalance.

Nevertheless, in all of the discussion, few seem to be reminding us that there are already tax increases built into the current system largely to support the so-called entitlement programs.