One Approach To Economic Policy Is Right, And The Other Is Wrong

The neo-Keynesian sees two fundamental alternatives in fiscal policy, known by the misleading terms of "austerity" and "stimulus."  Austerity is some combination of spending cuts and tax increases; stimulus is some combination of spending increases and tax cuts.  Both are a muddle.​

I of course have a completely different way of looking at it.  On one side there is shrinking the government, meaning some combination of spending cuts and tax cuts; and on the other side there is growing the government, meaning some combination of spending increases and tax increases.  ​ One works and the other makes things worse.  Of course, our government is aggressively pursuing the one that makes things worse.

Those looking for some real information on which sort of economic policy works would do well to join me in reading the recent excellent biography of Calvin Coolidge by Amity Shlaes.   At least as regards domestic economic policy, Coolidge was literally the anti-Obama -- he did the exact opposite of everything Obama has done, or would have done had he been president in the 1920s.  While Obama has presided over an explosion of Federal spending, particularly handouts of various sorts, and endlessly advocates for higher income tax rates on high earners, Coolidge's entire focus on the domestic front as president was on cutting spending and cutting taxes.

A few examples to give some flavor of Coolidge's approach:​

• On June 30, 1924, at a speech to assembled government bureaucrats, many of whom were pushing for bigger budgets for their agencies, Coolidge instructed them that they were not allowed to advocate before Congressional committees for funds other than those approved by the President:   "I regret that there are still some officials who apparently feel that the estimates transmitted to the bureau of the budget are the estimates which they are authorized to advocate before the committees." ​  He then made this statement of his own position:  "I am for economy.  After that I am for more economy.  At this time, and under present circumstances, that is my conception of serving the people."
• Coolidge's top legislative priority was getting tax rates lowered.  In 1924 he succeeded in getting the top Federal income tax rate lowered from 46% to 25%.​  According to Shlaes (p. 320) the resulting decline in Federal income tax revenue was only 5% in the first year.
• ​Coolidge's top priority for allocating his own time was to meet with his budget director, Herbert Lord, to figure out ways of cutting spending.  An example was instituting various incentives and rewards to departments that submitted reduced budgets, such as creation of the "Two Percent Club" for departments that trimmed their budgets by that much.  Federal spending was actually lower in nominal dollars when Coolidge left office than when he entered.
• During Coolidge's presidency, Congress came up with endless plans to spend lots more money.  The biggest items of the times were various "bonus" schemes for World War I veterans and plans for subsidies and price supports for farmers.  Coolidge engaged in every sort of obstruction, including numerous vetoes, to keep these spending plans from getting through, and largely succeeded.​

​And how did the economy do?  Shlaes summarizes the state of the economy in 1925, after four years of Harding and Coolidge spending and tax cuts, at page 331:

Coal prices were stable and employment was so high that workers were scarce.  Wages rose, even though union membership and certainly union strikes were down.  The Dow Jones Industrial Average was now inching above [a record] 130.​

​Well, now we have exactly the opposite in economic policy:  a spending explosion, aggressive advertising by the government for its own expansion, persecution of those who advocate spending restraint, higher taxes and the push for still higher taxes.  Just compare Coolidge's praise for budget cutting to the Obama administration's reaction to the recent sequester, where the whole idea was to make a minuscule 3% spending cut as difficult and hurtful as possible.  And of course we have an endlessly sluggish economy.  What is the thinking?  Perhaps we should look to Larry Summers (former President of Harvard, Secretary of the Treasury under Clinton, head of the National Economic Council under Obama - now there are some credentials!) writing in the Financial Times on June 2:

[T]he US and other countries will not benefit from further fiscal contraction directed at rapid deficit reduction. Not only will output and jobs suffer. A weaker economy means that our children may inherit an economy with more debt and less capacity to bear the burden it imposes.

Got that?  If the government cuts spending, the result will be a weaker economy that means "our children may inherit an economy with more debt."  The reason you can't understand that brilliant logic is that you have not been President of Harvard and have not been head of the National Economic Council!  Our supposedly intelligent leaders literally don't know what they are talking about and say the most preposterous things.  And yet they have control of the large majority of the outlets of the media and spread this ridiculous nonsense endlessly.​

​Well, it can't be that both increasing spending and cutting spending are beneficial policies for the economy.  If one is right, the other is wrong.  I know which it is.  Barack Obama and Larry Summers do not.

 

Any Immigration Reform Passed By Congress Will Make Things Worse

If there's one thing that everyone can agree on in this country, it's that our immigration laws are a mess.  Even I agree!  But does that mean the immigration laws should be changed?  Remember, there's only one way to change the laws, and that's to get a new law through the Congress, and (absent two-thirds majorities) signed by the President.  What is the chance that any new immigration law that could get through the Congress and be signed by the President would be an improvement on the current situation?  Certainly if we are talking about some kind of "comprehensive" reform, the chance of it being an improvement over the current situation is zero.  Far better to stick with what we have.

​As much as the current situation is a mess, it has beneficial aspects that are rarely perceived.  Most notably, because most immigrants into the U.S are illegal, they are substantially deterred from obtaining welfare benefits and other state handouts.  To the extent these immigrants become legalized,  the vast legions of handout promoters would immediately be sicced upon them, and many immigrants would find themselves heeding the sirens' song.   The result of that in places that have tried it, namely much of Europe, is a huge alienated underclass seething with resentment and ready to explode in riots and/or terror attacks.  For example, consider Sweden, currently engulfed in about a week of riots with no end in sight.  The rioters are predominantly muslim immigrants, who make up about 6% of the population, while receiving some 70 - 80% of welfare payments.  Or consider the extensive rioting in the poor suburbs around Paris in 2005, again largely by unemployed immigrants subsisting on various forms of state handouts.  France just had another round of such riots in Amiens in 2012.  Relevant to this issue is the now eighteen-part series by Mickey Kaus of the Daily Caller titled "Does Welfare Cause Terrorism?"  Recent subjects of the series have included the Tsarnaev brothers of Boston marathon fame - yes, they had been on welfare.  In the latest installment, Kaus asks whether English terrorist Michael Adebolajo, famous for recently beheading an army man on the street in Woolwich, had been receiving welfare.  The answer is not yet in.  I know where I place my bet.​  Kaus has this to say about the underlying dynamic:

[R]elatively generous welfare benefits enable those in the ethnic ghetto to stay there, stay unemployed, and seethe. Without government subsidies, they would have to overcome the prejudice against them and integrate into the mainstream working culture. Work, in this sense, is anti-terrorist medicine. (And if you work all day, there's less time to dream up ways and reasons to kill infidels.)

​Then there is the issue of how any actual immigration reform would make things even worse.  At the top of every immigration reformer's agenda is what they call "border security."  Of course, this has little to do with the border.  Sure, we can build a fence, and that may help a little, but really "border security" is mostly not about the border but rather is about how to identify the people who have gotten in here legally but can't stay legally, so we can throw them out.  And the universal proposed "solution" is to track everybody all the time.  For example, here is Republican Senator Marco Rubio a few days ago on the Fox News Hannity program, saying (at about 1:44) "E Verify must by fully completed" as part of his "gang of 8" comprehensive immigration reform bill.  In other words, no working for anybody in the U.S. any more without the Federal government knowing about it and tracking it in a data base.  In case you thought this might apply just to immigrants, it does not. 

Any problem with that?  Well, to start with, is there any possibility that the government would mis-use such information for political purposes against its perceived enemies?  That's like asking whether the sun will rise in the east.  In fact, an employment tracking system will really be useful only against people of higher economic status who have regular employment, and likely of no use whatsoever on the immigration front.  Why not?  Consider things here in Greenwich Village.  In this neighborhood we have hundreds of small older buildings and a small army of casually-employed people who assist in maintaining those buildings.  There are people who will sweep the sidewalk in front of your house, or take out your garbage at the appointed time for pickup, or water your tree garden, or do handyman jobs around the house, or touch up the paint, or dust and vacuum, or fix a leak, or any one of a thousand other small jobs.  These people only work for a few hours at a time for any one building owner.  Many are of course immigrants.  They are not "employed" by anyone in any sense that I am aware of.    I don't see "full implementation" of e-verify having the slightest effect on this situation.  Are they really proposing to make it illegal to pay someone $20 to sweep a sidewalk?  But "full implementation" of e-verify would have a huge and intrusive effect on the relation between regularly-employed people and their government.​

The only beneficial reform of immigration law that might actually happen would be to allow a larger number of skilled workers to enter for employment particularly in the high tech field.  But that I don't really see happening, because most politicians interested in the area have as their primary goal getting big new blocs of votes to swing elections in their direction.  So be it.  We'll stick with what we have.​

The New York Times Covers The de Blasio Mayoral Campaign

Gearing up its coverage of the mayoral race, yesterday the New York Times in its New York section (page A21 in the print edition) ran a long article by Michael Barbaro on the campaign of Bill de Blasio.  de Blasio is currently Public Advocate, a city-wide elective office of no identifiable duties or purpose, serving only to give its occupant a platform to keep his name before the public and thereby try to make himself a candidate for mayor when the opportunity arises.

The Times article, like nearly everything that issues from that source, serves mostly to illustrate the New York conventional ignorance and what is wrong with it.   ​First, a short review of my own views of what is important in this race for mayor.  New York City government is ridiculously expensive, for reasons that have nothing to do with delivering a superior level of service to the people, and everything to do with paying back the employee unions for their support.  In a post late last year entitled Why New York City Is A High Tax Jurisdiction, I laid out the three main areas where we vastly overpay to get nothing of value:  public employee pensions (currently running a stunning $8 billion per year, 12% of the budget, and likely to double over the next ten years based on formulas already agreed to and desperately in need of reform); public schools (we spend about $20,000 per year per student, which is almost double the national average, the differential representing over $8 billion, which is 12% of the budget - and our student performance is worse than the national average); and Medicaid (we spend close to triple per beneficiary what is spent in California and Texas, for no better health results, although we are partially saved by the Feds and State picking up most of the tab; still, it is about a $2.5 billion issue in the City budget).  These three items together represent more than $15 billion in overspending for no value, about 22% of the budget down the rat hole, before getting to other large items.  This overspending is basically giveaways to favored constituencies, mainly the public employee unions, who contribute lavishly to their chosen mayoral candidates and are expert at bringing their voters out to the polls.  Every candidate for mayor needs to address this overspending issue as priority number 1.

With that in mind, let us look at the Times coverage of de Blasio's candidacy.  First of all, in an article spread over most of two full pages, there is not one word ​about the level of City spending, whether we are getting value for our taxes, or anything specific about worker pensions, school spending, or Medicaid spending.  Indeed, the article is almost completely devoid of substance on matters of policy.  So how can they even fill what amounts to a full page of text in the print edition without getting to any such subject?  Easy.  Here's how it starts:

​Bill de Blasio drives a gas-sipping Ford hybrid and cultivates tomatoes and peppers from his backyard in brownstone Brooklyn.  He works out at the socially responsible Y.M.C.A. and opted for the all-hands-on-deck rigors of the Park Slope Childcare Collective.  His wedding was a multicultural billboard for the borough: under a pin oak tree in Prospect Park, he married an African-American writer who previously identified as a lesbian.  In the race for New York mayor, this is the new face of borough agitation.

From that inauspicious beginning, the article goes on point out that de Blasio is proudly the candidate from Brooklyn, and to spin the main issue in the race as being the guy from long down-and-out but now up-and-coming Brooklyn against all the other guys from Manhattan.  Quinn is from Chelsea, Thompson from Harlem, and Weiner now lives on Park Avenue.  But de Blasio hails proudly from progressive, multicultural Park Slope!  Well, so what?  What does he have to say about any issue of substance?

In an article of several thousand words, the entire portion on the substantive issues of the race appears in two paragraphs near the end: (apparently omitted from the on-line version, so I'm typing them out):

Mr. de Blasio . . . has amassed a running tally of the indignities and inequities in four boroughs: a yawning income gap, a surge in fines for small businesses, slighted schools and inadequate early childhood education.  He envisions an activist city government that addresses those disparities head on.  Alone among the Democratic field, he calls for a tax increase on the rich, to bankroll universal prekindergarten.

​Typical of the New York Times, the reporter can conduct a lengthy interview with an apparently serious candidate for mayor, hear the candidate claim that the schools are "slighted," and not be able to ask the simplest question as to how the schools could possibly be "slighted" when we are already spending close to double the national average per student.  Even worse is de Blasio's call for "universal prekindergarten."  This proposal is of course the darling of the teachers' union, which sees in it a 10-15% increase in dues paying membership.  Meanwhile, expensive pre-K programs have never demonstrated any lasting educational benefit for the children.  For a mayoral candidate to sign on to this proposal is roughly the equivalent in competence for the job of mayor as for the CEO of Apple to agree to repatriate the $100 billion of overseas cash and gratuitously pay $35 billion in Federal taxes.  Indeed, at current wildly overgenerous pension formulas, the cost to New York City taxpayers of future pensions for the teachers in the universal pre-K program will be far more than $35 billion.  Frankly, I don't think either de Blasio or the New York Times reporter is remotely capable of doing this math.  But don't worry, he's going to pay for it with "a tax increase on the rich"!  Again, I don't think that de Blasio even knows that the entire City income tax only raises about $8 billion per year, so even a huge rate increase limited to "the rich" will only bring in maybe $1 billion, which will be extremely destructive to the economy and not remotely pay the cost of that universal pre-K program.

This is what we are dealing with here.​

Go to de Blasio's campaign web site to find out what his campaign is really about.​  It's one union endorsement after another, the biggest being 1199SEIU -- those are the hospital workers on the receiving end of the Medicaid spending.  The Times is just totally oblivious to this.

UPDATE:  In the online version of this article today, the Times ran a correction, noting that de Blasio is not the only candidate for mayor who has called for tax increases on "the rich," since Comptroller John Liu has also done so.​

An Issue Where I Can't Even Understand The Other Side Of The Argument

Since I'm a contrarian, there are many issues where I disagree with seemingly most other people.  But at least on a lot of those issues I have some understanding of the other side's argument, even if I disagree.  Then there are the many issues where I just can't understand what the argument is at all.

An example from the recent news comes from the Apple tax hearings.  Senator Carl Levin of Michigan, Chair of the Permanent Subcommittee on Investigations of the Senate, is shocked, shocked that Apple, after years of success at selling computers, iPhones and iPads, has accumulated some $100+ billion of cash overseas and declines to repatriate it to America.  Since the USA levies a tax of about 35% on corporate income, bringing this cash into the US would cost Apple's shareholders about $35 billion.​

To me it is completely obvious that any Apple executive who even thought for a second about bringing this money to the US and throwing away $35 billion of shareholder money would be totally incompetent and should be fired immediately.  It is ridiculous to suggest that any executive who knows anything about his job and his fiduciary duty to his shareholders would give this idea a moment's consideration.  So what in heaven's name is this hearing about?​

Granted, Levin is an idiot.  ​But how do you explain the likes of John McCain making statements like this (reported at cultofmac.com):

McCain concluded, “Apple has a negotiated tax rate of less than 2%. They have created loopholes to avoid paying $44 billion in taxes on income. $102 billion of $145 billion of Apple’s cash on hand is overseas. It’s time for Apple to reinvest in America.”

That man was the 2008 Republican candidate for President! Couldn't a high ranking former military officer like McCain give even a little deference to the fact that this man has a job and legal duties to his shareholders?  By the way, Senator Rand Paul did a fairly good job standing up for Apple, although in reading his remarks I can't find any mention of the idea that bringing this money to the US and paying a $35 billion voluntary tax bill would be total dereliction of duty by Cook. ​

Record Late Ice Break Up At Nenana, Alaska

From the department of global warming ain't happenin' comes news of the ice break up on the Tanana River at Nenana, Alaska.  This year it occurred yesterday, May 20, at 3:43 PM Alaska daylight time.  ​That set a new record for lateness of the break up.  I guess that doesn't fit the official global warming narrative.

In 1917 engineers working on construction of the Alaska Railroad started a pool betting on the date and time of break up of the ice at Nenana.  The betting has continued every year since, and these days the organizers amass a pool of over $300,000 to distribute to whoever guesses the time of break up time most closely.  In the 97 years of the records, the earliest break up has been on April 20 (1940, 1998), and the latest May 20 (1964), with the majority clustered from about April 29 to May 8.   Here is the log of all break up times from 1917 to 2011.

In the 2000s many global warming promoters got the idea that the Nenana ice break up records could serve as an indicator of ongoing climate change.    In 2001 two authors from Stanford, Raphael Sagarin and Fiorenza Micheli, analyzed the Nenana data and declared that ​recent records indicated that the break up was then occurring 5.5 days sooner than it did back in 1917.  That study got play, for example, in the New York Times.  Although before this year no records for early or late break up had been set post 2000, recent data have tended somewhat to the earlier portion of the range, leading plenty of global warming promoters to use these data to hype their cause.  For example, here is a post from the Daily Kos in 2007, pointing out that break up times for the years 2003 - 2007 were all (a little) earlier than the median.  The book Understanding Global Warming by Rebecca Johnson, published in 2009, declared "For scientists the Nenana Ice Classic, as this contest is called, is a source of data about climate change.  Based on event records, spring arrives ten days earlier around Nenana than it did in 1960."

​Well, with this year's record late break up the trend seems to have turned in the other direction.  And by the way, not just by a little.  Not only is May 20 the latest break up day ever, but there has only been one prior break up after May 16, and three after May 14.  It was a really, really cold spring in interior Alaska.  Funny that I can't find any mention of that in places like the New York Times, Washington Post, or big web sites like Daily Kos or Huffington Post, or climate alarmist web sites like realclimate.  However, there is plenty of coverage at climate skeptic web sites like wattsupwiththat.com and stevengoddard.wordpress.com.  Remember, it's only news if it fits the narrative.

The Government Is Not Capable Of Being Apolitical

Do you indulge yourself in the illusion that government bureaucracies are apolitical actors who ​perform their duties in a neutral fashion that is fair and just to all? Well, welcome to the IRS scandal.

My view is that government bureaucrats are human beings, and therefore behave like all other human beings. In other words, they seek to advance themselves in life, and part of that is growing and enhancing the organizations with which they are associated, which in this case means the government. Also, they seek to diminish or destroy those who would diminish them and their organizations. ​These ideas are not new with me. In fact, they are the fundamental principles of a branch of economics called Public Choice Theory, for which an economist named James Buchanan won the Nobel Prize in economics in 1986.

The corollary is that there is no such thing as a neutral apolitical actor or agency in the government. All government personnel are part of the main project, spoken or unspoken, to grow the government and to attack or destroy its enemies. It's like the sun coming up in the east.​

Which is why, of course, nothing about the current IRS scandal surprises me. Well, maybe the nakedness and thuggery of it surprises me a little, but not really, because the current administration has 90+% of the media prepared to cover for it, and given the dynamics of the process it was inevitable that the administration would push the envelope a little farther, and then a little farther, and sooner or later a nerve would be struck. This doesn't even have much to do with whether the members of the current administration are particularly bad guys. It's just the nature of human existence.

And now that the nerve has been struck, we start to find out how far things have gone. I've put together here a little sampling from around the web, not to mention from my personal e-mail.

• ​From Mark Hemingway at the Weekly Standard of May 27 (not yet out in print edition), comes a report, via attorney Cleta Mitchell, that the number of conservative groups seeking 501(c)(4) status that were subject to some form of IRS special scrutiny, delay and/or harassment over the last several years is no fewer than 471. According to Mitchell, "80 or 90 groups all got letters that are virtually identical, that are oppressive, with 30, 40, 50, 70 questions with parts and subparts and sub-subparts." Oh, all of this is in the context of a close election, of course, when applications by "progressive" groups could sail through without delay.
  
• ​From John Eastman of the Claremont Institute, and also Board Chair of the National Organization for Marriage, comes a mass e-mail stating that "A year ago, someone at the IRS
  illegally disclosed the confidential portions of [NOM's] tax return to the Human
  Rights Campaign, the leading organization on the other side of NOM in the war
  over the definition of marriage. At the time, HRC was headed by someone
  who had just been named national co-Chair of the Obama for President campaign. . . ." Eastman states that NOM has submitted an FOIA request demanding the name of the perpetrator, but the IRS has denied the request, stating that the name is "confidential." Disclosure of a tax return is a felony.
• ​From Jillian Kay Melchior at today's National Review Online comes the story of Catherine Engelbrecht, a co-proprietor with her husband of a small-ish Texas metal manufacturing business with about 30 employees, and founder of a right-leaning organization called True the Vote, a group seeking to prevent voter fraud and train poll volunteers. Catherine filed for 501(c)(4) status for her group in July 2010. The application went into limbo. Later that year, the FBI called to investigate an individual who had attended an event of the group. In February 2011, the IRS initiated audits of the Engelbrechts' business and personal tax returns. In April 2011 the IRS sent one of its long questionnaires for information about True the Vote. In October 2011, the application still pending, the IRS sent another questionnaire asking for more information. In February 2012 came a third request for information from the IRS. On the same day, representatives of ATF showed up unscheduled to inspect the manufacturing plant (it makes parts for firearms, among many other things). In July 2012 OSHA showed up unscheduled, at a time when the Engelbrechts were out of town, for another inspection.
• ​From Chris Horner of the Competitive Enterprise Institute, via ICECAP, comes the story of trying to get information out of the EPA by FOIA requests. Turns out that if you are friendly to the EPA, they give you the information you seek promptly and moreover waive the fees otherwise payable; but if you are perceived as unfriendly (like CEI), they fight you tooth and nail for information, and then charge you as much fees as they can get away with. All this, of course, in service of what Horner calls EPA's "anti-affordable energy policies."
  
• And so it goes.
  

Well, we now have hundreds of agencies at all levels that can regulate your business. They have hundreds of thousands of pages of regulations that you are supposed to comply with. Of course, it is not possible to comply perfectly with all of them. So, when you identify yourself as an enemy of the perpetually growing state, they can sic as many regulators on you as they feel like, each empowered to fly-speck your operations until they find something.​

And into this mix, let us throw Obamacare, otherwise known as government access to all medical records. Supposedly this is for the completely neutral and apolitical purposes of finding the best cures for disease and helping to control medical costs. Right! If they can access and leak your tax return, can they access and leak your medical records? Of course. We'll just have to see how long it is before someone posing a serious electoral threat to those in power (control of the Senate, perhaps?) finds something embarrassing in his medical records leaked to the friendly press. Not long, I predict. ​