We're not known here for our over-the-top Christmas decorations. But here are a few homes and stores dressed well for the holiday:
West side of Bleecker St. at Perry St.
East side of Bleecker St. at Perry St.
West side of Bleecker St. at Charles St.
North side of Charles St. between Bleecker St. and West 4th St.
Northeast corner of Charles St. and West 4th St.
The U.S. economy has now completed a full four plus years of stagnation. Always before in downturns (with the single exception of the Hoover/Roosevelt ten year war against capital in the 1930s) the economy has hit bottom and recovered rapidly. Won't it finally get going some time soon? Sadly, there is every reason to think that it will not.
Start with the broadest aspects of macroeconomic policy. On a cash basis we have trillion dollar plus annual deficits. Nothing about the "fiscal cliff" negotiations even treats this issue as if it were a significant problem. Tax increases on high earners might reduce the cash basis deficit by 5% or so at unknown cost of undermining incentives for investment. The real annual deficit, taking account of reasonable accruals for unfunded health and retirement obligations, is more like $7 trillion per year, and the proposed tax increases on high earners will address less than 1% of that amount. The Fed proposes to monetize essentially all of the cash basis deficit to maintain zero interest rates.
Does anyone actually believe that these huge deficits and this money printing year after year constitute some kind of "stimulus" to the economy -- what I call "fake Keynesianism"? If you do, kindly look at Japan, now going into year 23 of stagnation and doubling down yet again on the exact same failed policies. In reality the huge deficits represent the displacement of efficient and dynamic private economic activity with wasteful and inefficient government spending, a massive and ever-growing drag on the economy.
And just in case the private economy actually shows some signs of starting to overcome the government's crowding it out, the ideologue Obama bureaucracy is going to make sure that that won't happen. The latest bad news comes from the Federal Court of Appeals for the D.C. Circuit, which last week denied rehearing en banc of a case challenging the unbelievable EPA "greenhouse gas" regulations under the Clean Air Act (CAA). In essence, the D.C. Circuit has upheld the EPA's position that under the CAA it can regulate and require permits for any economic activity emitting as little as 100 tons of CO2 per year. Just about every business meets this criterion -- every factory, every office building, every school, every hospital. Your household might even meet this criterion if you do a reasonable amount of breathing, driving, flying, and you use light, heat, air conditioning, refrigeration and computers. EPA itself estimates that the number of entities that would require permits if it exercised its maximum authority would be "millions." Anyway, the only thing standing in the way of this steamroller of economic destruction is the Supreme Court, and, for reasons set forth below, I wouldn't count on rescue from that direction.
There is a tortured history leading to this latest D.C. Circuit opinion, and I'll give just the briefest summary. CO2 -- a colorless, odorless gas with no harmful health effects -- is emitted in large amounts in the 90 +/- % of economic activity not powered by nuclear, hydro, wind or solar. The only knock on CO2, if it is a knock, is the alleged threat of global warming. After the global warming scare got going in the 90s, and in the face of pressure from environmental groups, the EPA during the G.W. Bush administration declined to undertake regulation of CO2 as a "pollutant" under the CAA. A coalition of environmental groups sued, and was then joined by several blue states, led by Massachusetts (Romney was governor!), seeking to force the EPA to regulate. After the D.C. Circuit issued an ambiguous decision, the plaintiffs petitioned to the Supreme Court. In a 5-4 decision in 2007, the Supremes held that CO2 met the CAA definition of pollutant and ordered the EPA to regulate unless it determined that CO2 did not "endanger public health or welfare." The Supreme Court decision came just in time for the Obama EPA to take over. No amount of lack of evidence of warming was going to convince the Obama EPA to forego this opportunity for power. The "endangerment" finding came out in December 2009.
At that point the EPA had to confront the problem that if CO2 is a pollutant and if it were to follow the literal words of the CAA, regulators would need to consider and issue or deny literally millions of permits. Not even possible! They addressed this problem by coming up with the so-called "Timing and Tailoring Rules," under which they basically say that we'll start by requiring permits for facilities issuing 75,000 tons of CO2 per year and up, and then later (but we won't say when!) gradually clamp down on smaller and smaller emitters until everyone in the country has to answer to us. Another coalition of opponents sued (this time business groups and red states), but a panel of the D.C. Circuit upheld the EPA back in June. Then last week the full D.C. Circuit denied rehearing en banc. Two judges (Brown and Kavanagh) issued spirited dissents, but to no avail. Nowhere left to go but back to the Supremes, where the only question is whether Justice Kennedy has yet figured out that he got scammed back in 2007. Don't count on it.
So unless by some miracle the Supreme Court turns it around, the EPA (along with equally committed brethren in state environmental regulators) now has won the authority to veto essentially any and all economic activity. These are zealots who think that economic activity is evil and that by shutting it down they are "saving the planet." They have no idea that they are impoverishing the people. Literally trillions of dollars of economic activity are at stake.
So is there any real chance of the economy getting going in the next four years? Unlikely.
As I have written before, for example here, when it comes to politics there are two diametrically opposite ways of looking at the world. One way is the progressive orthodoxy, pervasive here in Manhattan, and the other way is my way, probably best called libertarian. The difference has been on full display in the recent debate over gun control in the aftermath of the shootings in Sandy Hook, Connecticut.
Both philosophies start from the premise that human society is filled with flawed behavior and unfair results. In the progressive view, there is a simple solution to every such human problem: the government can fix it with new laws ordering people to behave properly, or alternatively through the power to spend money. The libertarian view sees major problems with these seemingly simple solutions, including that many people do not obey rules, that government actors are themselves flawed and often corrupt, that people engage in evasive strategies, that there are endless unintended consequences, and that the effort to make things perfect through more rules actually makes things worse because of loss of freedom.
Consider the recent debate over gun control. Probably the leading spokespersons for the progressive position have been President Obama and Mayor Mike Bloomberg of New York. I’ll let them speak for themselves. Here are excerpts from President Obama’s speech at Sandy Hook a few days after the shootings:
[T]here have been an endless series of deadly shootings across the country. . . . We can't tolerate this anymore. These tragedies must end. And to end them, we must change. We will be told that the causes of such violence are complex, and that is true. . . . . But that can't be an excuse for inaction. Surely, we can do better than this. If there is even one step we can take to save another child, or another parent, or another town . . . then surely we have an obligation to try.
Mayor Bloomberg issued a statement shortly after the tragedy. Here are key excerpts:
President Obama rightly sent his heartfelt condolences to the families in Newtown. But the country needs him to send a bill to Congress to fix this problem. Calling for ‘meaningful action’ is not enough. We need immediate action. We have heard all the rhetoric before. What we have not seen is leadership – not from the White House and not from Congress. That must end today.
That captures the progressive view perfectly. You “send a bill to Congress” and that will “fix the problem.” No ifs, ands, or buts. Of course everyone will do what Congress orders them to do, and law enforcement will perform flawlessly.
Unfortunately I think things are a lot more complicated than that. The best statement I have seen of the other side of the question comes from a guy named Larry Correia, writing at a site called Monster Hunter Nation. His post is long and should be read in full. Here are some excerpts:
Police are awesome. I love working with cops. However any honest cop will tell you that when seconds count they are only minutes away.
In the case of Sandy Hook, it took the police a full 20 minutes to arrive. That was plenty of time for the shooter to kill 26 people, whether or not he had some fancy “assault weapon.”
The average number of people shot in a mass shooting event when the shooter is stopped by law enforcement: 14. The average number of people shot in a mass shooting event when the shooter is stopped by civilians: 2.5. The reason is simple. The armed civilians are there when it started. . . .
Gun Free Zones are hunting preserves for innocent people. . . .
The man that attacked the midnight showing of Batman didn’t attack just any theater. There were like ten to choose from. He didn’t attack the closest. It wasn’t about biggest or smallest. He attacked the one that was posted NO GUNS ALLOWED.
There were four mass killing attempts this week. Only one made the news because it helped the agreed upon media narrative.
1. Oregon. NOT a gun free zone. Shooter confronted by permit holder. Shooter commits suicide. Only a few casualties.
2. Texas. NOT a gun free zone. Shooter killed immediately by off duty cop. Only a few casualties.
3. Connecticut. GUN FREE ZONE. Shooter kills until the police arrive. Suicide. 26 dead.
4. China. GUN FREE COUNTRY. A guy with a KNIFE stabs 22 children.
So what exactly is the legislation that will “fix the problem”? The proposals on the table, generally involving renewing the lapsed Federal restrictions on “assault weapons,” are completely meaningless in my view. They certainly would not have had any meaningful effect in the Connecticut event.
Is there an alternative proposal? Ban gun ownership by civilians entirely and authorize the police to search everyone’s house and seize the weapons? Then we have a world where millions of law-abiding citizens have their guns taken and guns are owned only by the police and by the worst of violent criminals, who of course will pay no attention to the ban. Improvement?
The most amazing aspect of this is that the leading spokespersons for the progressive position all have their own armed protection. President Obama has the secret service. Mayor Bloomberg has 24-hour armed protection from the New York City police. Diane Feinstein, leading Senate proponent of new gun restrictions, is a gun permit holder. Love this picture from Instapundit. Is President Obama's life more important than mine, or yours?
A heroic first responder is injured on the job and ends up permanently disabled. Should he be able to retire on a decent pension? Almost everyone would say yes. But it turns out that programs that pay extra for alleged disabilities are subject to unbelievable amounts of systematic overpayment if not outright fraud.
Examples are legion. The latest comes from the front page of yesterday's New York Times, which reports that the New York City Department of Health has just issued a very large study comparing cancer incidence in World Trade Center responders versus the general public. Result: no evidence of heightened risk of cancer in the WTC responders.
Oops, that was the wrong answer. They studied over 55,000 people, and seem to have done very careful work. Meanwhile, the New York and New Jersey Congressional delegations spent years trying to get Federal payouts for WTC responders who had subsequently contracted cancer. After failing in several efforts, they finally broke a Senate filibuster and got the so-called "Zadroga" Act passed in the lame duck session after the big Republican election victory in 2010. The Zadroga Act opened up the WTC victims compensation fund -- the spigot of Federal dollars -- to additional categories of people, including potentially those who subsequently contracted cancer. It then went to the National Institute of Occupational Safety and Health to decide which cancers to include. NIOSH issued the list, including most every form of cancer, just two months ago, in October 2012. And now the New York City Department of Health comes along to spoil the party with an actual study. Who wants to take bets on whether the payments go forward anyway?
And by the way, who was Zadroga? He was a New York City policeman who was a first responder at the WTC and died in 2007 of lung disease at the age of 34. That certainly sounds like a compelling case for compensation. Oops again: the New York City Medical Examiner's office did an autopsy and determined that his lung disease and death were caused by self-injection of prescription drugs. But that didn't stop Zadroga from becoming the poster child for expanded compensation programs for former Ground Zero workers who have contracted cancer or respiratory disease. Besides the Federal act named after him, there is also a New York State law, passed in 2006, making cancer and respiratory disease in Ground Zero workers a presumptive ground to get a disability pension. A disability pension carries enhanced payouts and also exemption from state and local income taxes as compared to a regular pension. In other words, billions of dollars of extra payouts, and now it turns out that there is no basis for the causal connection.
The more you look at disability pensions the worse it gets. Here is an article from the New York Post in March 2012 reporting that some three-quarters of New York City firemen who retire get disability pensions. Does anyone think that could possibly be honest? The article focuses on the story of one Cliff Stabner, retired since 2003 on a New York City disability pension of $95,000 per year, who now works as an emergency worker at NASCAR races. Wait, we thought he was disabled!
But of course the 75% "disability" rate of New York City firemen is small time compared to the rate of Long Island Rail Road workers, which was more like 97% for years until someone thought to actually take a look. Turns out almost all of them are fraudulent.
Nor is this confined to New York. Here's a report from Quincy, Massachusetts in 2009. The best vignette:
In the realm of bad economic policy ideas, the country of Argentina has to rank near the top of almost everyone's list. OK, the Soviet Union was worse, but they're gone. Cuba, North Korea, Venezuela -- there are a few more. But Argentina was once one of the world's wealthiest countries, and then went into a tailspin for what is now over two generations.
The United States once knew what good economic policy looked like. It made us the wealthiest country in the world. Today, we have mostly forgotten. We have forgotten so badly that we even support Argentina in its folly. Most recently the U.S. government has supported Argentina in its efforts to avoid collection of judgments issued by U.S. courts to enforce repudiated Argentine debt.
The era of good economic policy in the United States is not of course the recent era of fancy Ph.D.s from Ivy League schools at Treasury and the Fed. Rather, it is the founding era. The prime motivation for the founding was that the government under the Articles of Confederacy had no taxing power and couldn't pay the Revolutionary War debt. The founders recognized that they needed a government that could pay its debts and establish its credit.
Literally the first thing that the government of the new United States did on the founding was to create a plan for paying off the Revolutionary War debt at full value. One of the best accounts I have read is in the Ron Chernow biography of Hamilton. Significantly, much of the debt had been bought up at steep discounts after being in default for long periods. But Washington and Hamilton recognized that the way to establish the credit of the new country and make it a player on the world stage was to pay off the debt at par. Clearly this is not the only reason that the United States took off as an economic power, but it is one of the top few reasons. The United States had top international credit from the time of the founding through the Obama administration, when it received its first downgrade.
Now shift to today's Argentina. The list of destructive economic policies is long. Here is an article from the Wall Street Journal on August 8 with a good summary: crony capitalism on steroids; subsidies for everything; currency controls with special exchange rates for friends of the government; expropriation of the big Spanish oil company YPF; raging inflation; tariffs that make most manufacturing impossible; and so on. But high on anyone's list must be the fact that in 2001 Argentina repudiated some $80 billion of bonds that it had issued in the 1990s.
Today the United States thinks that the way to live your life, as an individual or a country, is to spend unsustainably and take on as much debt as you can get away with. Then you do a "bailout" or a "restructuring" and resume with another round of unsustainable spending and debt. Here is the quote of their philosophy from an amicus brief submitted last April in support at Argentina's continuing efforts to avoid paying the repudiated debt:
[T]he district court's interpretation of the pari passu provision could enable a single creditor to thwart the implementation of an internationally supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises. Allowing creditors recourse to such an enforcement mechanism would have adverse consequences on the prospects for voluntary sovereign debt restructuring , on the stability of international financial markets, and on the repayment of loans extended by international financial institutions.
It may seem briefly that these "internationally supported restructuring plans" promote "stability," but over time it is a fallacy. The seeming "stability" just enables the next round of overspending and bad policies to continue. The route to economic success is the one taken by the United States. But the word is that the United States intends to continue to submit another amicus brief in support of the Argentine repudiation in the next round in the Second Circuit taking place over the next couple of months. We'll see how badly they embarrass themselves.
As the tax/debt/deficit talks proceed in Washington, the Republicans supposedly are trying to put some limits on the explosion of Federal spending. Can they trim, nip or tuck a little bit of the entitlement gusher? Even as their attention is focused on entitlements, ten other things are taking off like a rocket, from food stamps, to Social Security disability, to student loans, and so forth. Let's look at just one "little" item on the current Federal list: spending for disaster relief from Hurricane Sandy. Last week President Obama put out a number of $60.4 billion as what he wants the current Congress to appropriate right now as Sandy relief before going home for the year.
The lead story in the New York section of Saturday's Wall Street Journal was "Return Favor, Donors Tell Republicans," a report on how major Republican donors from New York are currently engaged in lobbying the Republican members of Congress to get behind President Obama's $60.4 billion Sandy relief request. It seems that certain wealthy New Yorkers who contributed to the campaigns of Republican congressmen around the country are trying to use the clout from their donations to ensure passage of the relief package. For example, here is Ken Langone (of Home Depot fame): "There's a time for all of us to pull together, and there's a time for all my colleagues in business to pick up the phone, and call all of those people up and say, 'OK, now you can do something for us.'"
I know I am a contrarian, but if the Congress can't resist this one, we might as well just throw in the towel. Even if you believe that the Federal government should act as the infinite insurer of everything, and should draw on the infinite credit card to pay every dollar of every demonstrable loss from every hurricane or other natural disaster, there is still the issue that this $60 billion number is wildly, wildly inflated and is really just a thinly-disguised bailout of the budgets of three of the most fiscally irresponsible states, New York, New Jersey and Connecticut.
How do I know that the $60 billion is wildly inflated? Because I've been paying attention.
Here's a story I previously linked from Crain's New York Business of November 26 describing how New York's Governor Andrew Cuomo put together his $40 billion demand for Federal funds. A few tidbits: "Mr. Cuomo is seeking 100% reimbursement from Washington for the recovery, citing the precedent of Hurricane Katrina and other disasters." And what items are included? How about: "$5.7 billion in lost gross product in the city, most of it among the city's small businesses." How about $4.9 billion "to cover storm victims who lack insurance." (Aren't those two duplicative?) And here is my favorite: "[A]n additional $9 billion for what Mr. Cuomo described as 'mitigation [and] prevention."In other words, give us an extra $9 billion for things that we can't even tell you what they are now and have no idea of how much they will ultimately cost and whether they will do any good.
Let's take a little closer look at another one of the items in the New York request, $4.7 billion for the MTA to get the subways and other trains up and running after the storm. As I previously wrote here, this number is a very large multiple of anything remotely reasonable for repair of these facilities. Included is $600 million for "repair" of the station at South Ferry that was just built new and opened in 2009 at a cost of $530 million. It is absolutely not possible that even a full year repair project on this station could cost more than the four-plus year construction project to build it from scratch just a few years ago, including digging the gigantic hole. Besides which the $530 million for just one station was wildly inflated to begin with. Milan, Italy is currently building a 3.5 mile underground subway line with seven stations for $700 million. Here is an article comparing New York's transit construction costs to those of other international cities -- we are a large multiple in every case. I can understand that we might be 20% higher, or even 50% higher, but how could it be that our costs are more than 10 times as high? To run up $600 million to repair this station over a year, you'd have to pay 2000 people $300,000 each. There are nothing like 2000 people working on this. Can't anyone recognize that this is a ridiculous sham? They're going to spend maybe $100 million to repair this station -- even that far more than necessary -- and the rest of the money will disappear into a black hole. The same comments go for the rest of the MTA's $4.7 billion. It is preposterous. Almost all of the system is already back up and running. They would have had to have more than a hundred thousand people working on the repair to run up that much cost that fast. The real number is less than a tenth of that.
Finally, a comment on New Jersey. As I wrote here, Governor Christie initially came up with a wildly inflated figure of $29.4 billion, and then immediately got "out bid" by Cuomo's ridiculous $40 billion. But in particular Christie, a man not otherwise known for lack of chutzpah, hadn't thought to toss in an extra stack of billions for future "mitigation." On seeing Cuomo's $40 billion, including $9 billion of this imaginary "mitigation," Christie promptly upped his demand by $7.4 billion. I like the .4 at the end -- it gives an air of precision, as if it was not a totally made-up number. He should have made it $7.413 billion.
To just appropriate the $60.4 billion without seeing and scrutinizing the actual costs is the worst possible thing that Congress can do. There is no possibility that legitimate Hurricane Sandy costs are remotely in that range. And if we're just giving out handouts to anyone and everyone, then inevitably everything will get rebuilt bigger and better on the barrier islands ready to get hit by the next storm.
This infinite credit card stuff is a really dangerous game. Republicans, show what you are made of!
