The Government Shutdown and the Debt Default Issue: The Dreadful Lesson

by Mario Rizzo

I grant that the government “shutdown” and the perceived threat of default on the debt was a public relations disaster for the Republican Party. I think that the shutdown problems, like those of the Sequester, were grossly exaggerated by the traditional media and as well as by various left-wing hysterics. Neither of these spending or service adjustments affected the overwhelming majority of our (excessive) government spending.

The default problem could have been much worse. It would have presented the following options: Delay payments to bond holders, axe discretionary spending, and/or cut entitlement spending. Another possibility would have been to continue borrowing anyway, perhaps provoking a Constitutional problem. I believe that had this continued for only a few days not much would have happened that would not have been quickly undone afterwards. However, none of this activity would have served the interests of reducing the size and scope of government.

So what is the “dreadful lesson”? It is this. We do not know how to reduce the size of our Leviathan state. Tea Party critics are correct, for example, that the longer ObamaCare stays unaltered or unrepealed the harder it will be to get rid of it. This is not because it will suddenly turn out to be good but because, as with so many other laws, special interests will benefit and will not easily yield.  How well have the efforts to find alternatives to Social Security and Medicare gone?

Provoking crises will not work. The current Republican Party does not seem competent enough to devise clever political methods to accomplish the goal of smaller government, even if it were truly willing to do so. (And that is debatable.)

So we are left, politically speaking, with nothing. How dreadful.

Raise Middle Class Taxes Now!

by Mario Rizzo

I now favor expiration of the Bush era tax rates for everyone.  Why? Because the only way to curb spending in the long run is to make as large a number of Americans as possible truly feel the consequences of the expenditures they appear to desire.

If Americans saw the cost of the gigantic welfare state in their paychecks, they would, I am confident, radically re-evaluate the expenditure side of the situation we are in. Then when someone comes up with a genius idea for spending, the people would think: Is it worth higher taxes? Might I not spend it better on my family, my church – or even – on… champagne?

Student Debt Bubble Side Effect

by Chidem Kurdas

Gore Vidal died a few days ago. He was a remarkably erudite author, as any reader of his marvelous historical novels – Burr and Lincoln are just a sample – notices.  He never went to college. 

Elitist Hokum from Krugman

by Chidem Kurdas

It has become a standard left-liberal jibe that those complaining of government largesse receive a piece thereof themselves. Such beneficiaries go against their own interest if they favor smaller government—so it is alleged. Thus Paul Krugman in the NYT  largely agrees with Thomas Frank, who attributed apparent red state ingratitude to the exploitation of social issues by Republicans in his book What’s the Matter with Kansas? 

In addition Mr. Krugman cites evidence suggesting large percentages of Social Security and Medicare beneficiaries  are confused about their use of these government programs.  They don’t seem to think they’re getting handouts.

Maybe that’s because they’re in fact not getting handouts. 

The Just Distribution of Income and Wealth

by Mario Rizzo

There has been a lot of talk this year, and especially during the holiday season, about the inequities in the distribution of wealth and income. But most of what has been written is quite simple-minded, if the writers mean to convey something more than their own personal preferences for a different distribution.

I have no objection to passive expressions of preference. But I do have objection when people attempt to bolster their case for intervention by the state under the banner of distributive justice, morality, religion or whatever is supposed to evoke some objectivity.

Revolution on Wall Street?

by Chidem Kurdas

Protestors have “occupied” a square near Wall Street for weeks. Hundreds of them were arrested, some 700 while blocking the Brooklyn Bridge. The movement may be spreading to other American cities. At least one demonstrator says: “This is a revolution.”

They complain of joblessness and the inequities of global capitalism, though the sources of their distress vary widely, from having to pay back student loans to the depredations of the internal combustion engine. At this point their immediate, tangible adversary appears to be the New York Police Department. It is easy to make fun of disaffected middle-class kids with Apple computers camping out in Downtown Manhattan. They bask in media limelight while taunting working-class cops. Still, we should try to understand the matter.

The Führer Principle – Light

by Mario Rizzo

David Gergen has written a piece decrying the lack of leadership on the debt-deficit “crisis” and calling for a new Churchill. David Gergen, who saw no problem working for both Ronald Reagan and Bill Clinton, now teaches at the JFK School of Government at Harvard. He has a claim to being a member of the political establishment if anyone has.

This call is not confined to Gergen, however. It appears as a widely agreed-upon diagnosis in the news media, whether old or new. It is the conventional wisdom of the day.

Yet it is dangerously superficial. It completely misdiagnoses the problem before us.

The Current Debt and Budgetary Impasse

by Mario Rizzo

One of the most important, but frequently ignored, aspects of the current negotiations about raising the debt ceiling is the lack of credible commitment on each side.

The problem has two aspects. One is clearly analyzed by Michael McConnell in today’s Wall Street Journal.  (Perhaps also here.) What exactly is “on the table”? The president or the GOP says “I propose X in budget cuts.” Are specific reductions being proposed or just general goals to be worked out later? Is the base-line current spending or is it current budgetary authority (that is, the current planned rate of increase)? If the president suggests revenue “enhancements,” how specific are these? Are they increases in marginal rates or elimination of specific “loopholes”? We just don’t know for sure.  

The second aspect is how enforceable would be such agreements under the current gun?

The Long-Run versus the Short

by Mario Rizzo

In this past Monday’s New York Times (July 11^th) there appeared an article entitled, “Economy Faces a Jolt as Benefit Checks Run Out.”  The following excerpt gives the gist of the article:

An extraordinary amount of personal income is coming directly from the government.

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics.

Confusion Masquerading as Science? Taxes and Spending

by Mario Rizzo

I am always amazed that when many economists give policy advice the sophistication and logical rigor that the discipline so values gets completely lost.

There are many ways to interpret this. One is that the level of precision appropriate to theory and to applied economics is not appropriate to the “art” of economic policy. Of course, I would suggest that maybe this teaches us something about the ultimate value of sophistication in the theoretical product. Do the precise concepts of theory and applied economics have referents in the “real world”? Or is most of the precision lost when we try to understand the world and recommend policies? This is an important question.

However, here I am interested in the sloppiness of the policy-relevant discussions that even very good and respectable economists produce. One interesting example is a recent “Economix” piece in The New York Times by the Princeton economist Uwe Reinhardt.

I have two points: first, the confusing mix of science and value judgments; and second, the naïve analysis of the political process.

The Wal-mart Solution

by Jerry O’Driscoll

Who should provide disaster relief? Who does provide disaster relief? In the Weekend Wall Street Journal, David Beito of the University of Alabama provides the answer for the victims of the devastating tornado in Tuscaloosa: it’s Wal-mart, churches, students, private individuals and, critically, talk radio.

The four Tuscaloosa Clear Channel stations organized a wholly voluntary relief effort. Beito recounts how, instead of taking Spring break, “students in the Greek system at the University of Alabama and historically black Stillman College stayed to cook more 7,000 meals per day.” The radio stations take calls from individuals in need and broadcast what is needed, by whom and where. Sometimes within minutes volunteer assistance arrives.

Medicare Reform, RIP?

by Mario Rizzo

The Financial Times  reports today that the Republicans may be backing away from the (Paul) Ryan proposal  eventually to replace traditional Medicare with subsidies for the purchase of  private insurance. The Financial Times  says, “This would shift exposure to rising health costs away from the  government and on to seniors…” Of course, this is literally true if there is  never an increase in the dollar amount of the subsidy, an unlikely event in  view of the regular increases in Social Security benefits.

Putting aside, for the moment, the details of the Ryan plan,  what many voters refuse to understand is the unpleasant choice they inevitably face. Either cost-control by the consumers or  cost-control (aka rationing) by the State.  The issue is stark.

Toward a Libertarian-Progressive Alliance

by Roger Koppl

Ralph Nader recently appeared on Judge Napolitano’s “Freedom Watch” to herald the rise of a coalition between “libertarian conservatives” and progressives.  Within Congress, he says, both groups put principle above party.  The first episode in this new alliance will be cooperation on the whistleblower bill.

Let’s hope it happens!

Sowing and Reaping: The True Sickness of Society

by Mario Rizzo  

There has been much moaning, even before the Arizona shooting incident, about why “we” cannot be civil in our political discussions and why political parties cannot work together for the common good. 

Most of this is pure logorrhea.

There are some simple facts the commentators cannot or will not face. The reason we cannot have a coherent, comprehensive plan to solve the political and economic difficulties of the federal government (and of the state governments) is that people do not have a coherent, comprehensive hierarchy of values beyond the basics of social order.

Word Games as a Mask for Compulsory Healthcare Equality

by Mario Rizzo  

The recent decision by the Food and Drug Administration (FDA) to revoke approval of the drug Avastin for late stage breast cancer is an action with considerable significance for the future of government financed or subsidized healthcare. The FDA pretends to do a risk-benefit analysis and comes to the conclusion that the benefits are not worth the risks.  But since we are dealing with likely terminal cases “risks” must be interpreted with a grain of salt. But, fundamentally, people should be able to strike their own risk-benefit tradeoff, especially in consultation with physicians and due attention to the specifics of their own case. 

Voters’ Best Interest

by Chidem Kurdas

Ronald Dworkin, a well-known legal scholar, describes last month’s election results as depressing and puzzling. In a commentary in the New York Review of Books, he asks, “Why do so many Americans insist on voting against their own best interests?” 

Emergency Rooms Just Encourage Drunk Driving

by Roger Koppl

I do not understand why so many pro-market commenters are opposed to extending unemployment relief.  The supposedly killer, knockdown, unanswerable argument is that unemployment relief encourages unemployment.  Hospital emergency rooms encourage drunk driving.   Should we therefore close hospital emergency rooms?  

Friedman on Social Security Reform

by Chidem Kurdas

This may be a good time to revisit Milton Friedman’s proposal for reforming all entitlement programs and social security, in one fell swoop. His idea goes back several decades but is no less powerful in its simplicity. A serious discussion on reform may now start with the Roadmap put forth by Wisconsin Congressman Paul Ryan, the next chairman of the House Budget Committee.  

Equality Destroyed in the Name of Equality

by Chidem Kurdas

Law and government should treat people equally. This old principle may seem obvious and firmly in place, but in fact it’s much violated. Instead, the focus is on income distribution. Thus Robert H Frank in the NYT points to the bad effects of income inequality – like people spending too much money to emulate the rich – and suggests we “try to do something about it.”

His column about the costs of income differences shows no awareness of the costs of equity-promoting policies.

Attempts to create income equality erode equality  before the law, as F. A. Hayek made clear. The Road to Serfdom – the historic experience as well as the title of Hayek’s book – is paved with egalitarian good intentions.  If you feel “serfdom” is too extreme a word, the operative term here is “the road”.

The Second Austrian Moment

by Mario Rizzo  

This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal.  

We are now witnessing many important developments that will affect economics and public perceptions for a long time to come.

Pragmatic Road to Bankruptcy

by Mario Rizzo

In the September 15th Wall Street Journal there is a chart that gives a quick view of the “pragmatic” expansion of entitlement programs that has led to where we are now. Who could have predicted the long-term consequences of case-by-case pragmatic problem solving?  I suggest Herbert Spencer, Ludwig von Mises, and Friedrich Hayek.

Anniversary of Social Security

by Mario Rizzo  

Today is the seventy-fifth anniversary of Social Security.  

Only an unreconstructed reactionary (that is, a classical liberal) would, at this late date, be opposed to Social Security Act of 1935.  

My purpose here is not to go over that issue, however. It is to comment on a recent Washington Post article on Social Security.  

Constitutionalism: Point/Counter-Point

By Chidem Kurdas and Thomas McQuade

In our previous post, Thomas argued that voter feedback is weak in constraining the exercise of legislative power. Chidem countered that the other fundamental constraint, the constitution, is therefore all-important. Commentators were divided, with cogent arguments pro and con. We continue this discussion.

Chidem:  Constitutionalism is the idea of subjecting political power to rules that stand above that power. The concept took a long time to develop and became effective only in some societies. Its roots go back to the Magna Carta of 1215 in which King John of England accepted limits to his authority and an earlier Charter of Liberties. Today’s struggles about the US Constitution are but another chapter in this long history.

Public choice pioneer and Nobel-prize winner James Buchanan powerfully made the constitutionalist case. Geoffrey Brennan and Buchanan offer this definition in The Reason of Rules (1985): “the essence of the constitutionalist approach is that political action (including the making of laws) be conducted according to certain rules (or meta-rules).”

In the alternative view, majority voting is the ultimate source of morally legitimate political power and there should be no constraints on it.  Buchanan and Roger Congleton (Politics by Principle, Not Interest, 1998) argue that in the absence of meta-rules politics devolves into majority-seeking deals where some benefit at the expense of others.  

“Never Let a Crisis Go to Waste”

by Mario Rizzo  

“They are opportunities to do big things.”  

I don’t find myself agreeing with Rahm Emanuel very much. However, he has a good point. Franklin Roosevelt used the Great Depression as an occasion to make permanent changes in the US economic system by creating programs and regulatory agencies that did not vanish when the depression ended. 

When I read stories about the budgetary “crises” facing most state governments as well as the long-term debt problems of the federal government, I can’t help but see an opportunity here.

Welcoming the Bankruptcy of the Welfare State

by Mario Rizzo   

There are at least two kinds of opponents of the welfare state. There are those who think it has gone too far because, for example, it is very expensive, counterproductive, reduces incentives for economic initiative, depresses general economic growth, and may cause an unsustainable debt burden. You can count many economists in this group.  

Then there are those who believe that these consequences will follow but also believe that the welfare state is a profoundly immoral institution. It is true that these economic consequences are one of the things that make the welfare state immoral. But that is not all that makes it immoral.  

The root of the problem is the welfare state’s bogus liberality.