Which Republican Candidate Is Prepared To Recognize Limits On Government's Ability To Solve All Problems?

I have often said that in matters of political philosophy, there are two fundamentally different ways of looking at the world.  Believers in Way 1 think that the government through its taxing, spending and police powers is capable of solving all of the personal problems of the people and of eliminating all down-side risk from human life.  The government's credit card is infinite!  And, as I put it on my About page,

The obvious corollary is that since all problems can be solved by taxing and spending, therefore they must be solved by taxing and spending, and anyone who stands in the way of those solutions is immoral. 

Meanwhile, Way 2 of looking at the world sees that down the road of infinite government spending to solve all problems lies the socialist fallacy and ultimate disaster, although the disaster might take a long time to unfold.  Since demands for government solutions to problems are endless and infinite, somewhere lines need to be drawn and limits set.

Clearly the Democratic candidates for President subscribe to Way 1.  Their campaigns are full of proposals for bigger and bigger new government spending to solve smaller and smaller problems, including proposals for single-payer health care for all, free college tuition for all, vast enhancements to social security, universal cures for  income inequality, and so forth.  All of this with no price tags attached, but instead a vague notion that all costs can be somehow charged to the magical top one percent of income earners.

One might think that the Republican candidates are the advocates for Way 2.  But the problem is that Way 2 inevitably leads to the necessity for drawing some lines and setting some limits, and this in the face of a usually hostile press that is always ready to accuse the candidate of immorality for standing in the way of any proposed government solution to any problem.  And so, one by one, when pressed, the Republican candidates decline to draw any lines or set any limits, and agree to go along with one or another, or multiple, of the currently-proposed big government solutions to the personal problems of the people.

Examples:

• Donald Trump has famously advocated at times for some kind of comprehensive or single-payer healthcare scheme for the United States.  A BuzzFeed article on July 17 has this quote from Trump in 1999:  “I would put forward a comprehensive health care program and fund it with an increase in corporate taxes."     Peter Suderman at Reason on August 7 has a series of amusing quotes from the first Republican debate, where Bret Baier of Fox News tried to pin Trump down on this subject.  After devoting most of his answer to the question about single-payer healthcare to the Iraq war, Trump finally got around to this: "As far as single payer," Trump says, "it works in Canada. It works incredibly well in Scotland. It could have worked in a different age, which is the age you're talking about here."    OK, that's pretty vague, but as far as I can find Trump has never explicitly disavowed his endorsement of single-payer (socialized) healthcare for the U.S., although he also has never put out any specific plan with details and costs.  The question is, where are the limits to be drawn here, if at all?
• HotAir reports yesterday that Carly Fiorina came out in 2013 for at least a form of an individual mandate for healthcare coverage.  The 2013 date is significant because it postdates the Supreme Court's 2012 decision in NFIB v. Sibelius holding the individual mandate in Obamacare unconstitutional as a mandate (although then upholding it as a tax).   HotAir quotes from a CNN panel discussion in 2013 where Stephanie Cutter of CNN asked Fiorina if she agreed with "the mandate idea," and with the "ban on pre-existing conditions," and Fiorina responded "I actually do agree with those two provisions."    To be fair to Fiorina, she went on to call Obamacare "an abomination."  But again, what are the limits she would set on government trying to achieve perfect fairness in healthcare through spending and mandates?
• John Kasich has famously supported and overseen the adoption of the massive Obamacare Medicaid expansion in his state of Ohio.  NPR has a summary of his actions and positions on the subject here.   His main defense of his actions is basically that he owed it to the people of Ohio to take the free federal money that was lying on the table.  OK though, John, you're now running for President.  Is the federal money really free in unlimited amounts, and if not, what are the limits?
• Chris Christie got big play in 2012 for his huge and, frankly, ridiculous demands on the federal government for disaster relief for Hurricane Sandy.  This was previously covered by the Manhattan Contrarian here and here.   When the Republican Congress initially refused to pass a wildly inflated $60 billion handout bill on New Year's Eve, Christie was quoted by ABC News as calling their action "disgusting."  The $60 billion went way beyond mere aid to help people get back on their feet, and included things like paying for all losses of all business, plus some $7.4 billion for unspecified "mitigation."  Shortly before that Christie had been photographed walking on the beach and hugging President Obama while making a plea for the aid.  Again, does this guy just think that the feds have infinite amounts of money to pass out, or are there some limits?
• And finally, Ben Carson has recently seemingly joined the bandwagon calling for a massive increase in the federal minimum wage.    Granted, this one is not a spending program, but still represents acceptance of the concept that the federal government somehow has the power to create fairness through mandates, without downsides like higher unemployment among the young and minority populations and higher poverty. 

And I'm sure I could come up with more examples with a little more digging.  The question is, which Republican candidate is ever actually going to say that there are limits here and the government cannot solve everybody's problems by taxing, spending and mandates?    

Is The Problem With Socialism Really That They Just Haven't Executed Correctly Yet?

A couple of weeks ago I invited commenters to try to explain how they could support the avowed socialist Bernie Sanders in the face of the failures -- nay, disasters -- of the Soviet Union, Cuba, North Korea, Venezuela, etc., and a commenter named Justin Ferraro took me up on my invitation.  Basically, his answer was, those guys' hearts were in the right place, but they just didn't execute correctly.

Just as the USSR was a sham of a communist country it is also a failure of socialism, which is doomed, like any other economic system, if it exists within an authoritarian framework.

But this time we'll do it right, and it's sure to work!

Well, we don't have full-blown socialism in this country, but we do have pockets of socialism, that is, areas of the economy where the government owns the assets and passes them out to the people on some government-determined basis of "fairness," or something like that.  One of those areas is public housing.

So how has the public housing thing worked out in the U.S.?  Here's my summary:  They started out in the 50s and 60s building massive "projects" of gigantic high-rises; but those quickly became concentrated islands of poverty, crime and violence.  They weren't executing correctly!  In the 90s they (led by HUD and its then-Secretary Andrew Cuomo) instituted programs of destroying the previous high-rises and replacing them with more widely-distributed low-rises and with Section 8 vouchers.  And how has that worked out?  Terrible!  They're not executing correctly!  So we need to expand public housing initiatives and, or course, we'll execute correctly this time.

Over at The Atlantic, it seems that they run one article after the other on public and affordable housing initiatives.  A reporter named Alana Semuels generates at least an article a month, most recently on September 22.   The overriding theme of the articles is -- you guessed it -- public housing has been a disaster so far in the United States, basically because of poor execution, so what's needed now is more government funding and better execution.  It's really touching how these people can maintain an unshaken belief in the socialist model no matter how often and how disastrously it fails -- or it would be touching, if it didn't entail trapping millions of innocent victims into lifetimes of poverty.

The September 22 article contains a brief summary of the history of public housing in the U.S., not differing much in its essentials from my summary a paragraph above.  Much of Ms. Semuels' history is sourced from a new book by Professor Ed Goetz of the University of Minnesota, "New Deal Ruins: Race, Economic Justice and Public Housing Policy."  Goetz traces the decline of the original massive-high-rise public housing model to as early as the 70s:

Going into the 1970s, public-housing authorities were becoming poorly-run, barely-financed departments, with most of their properties located in urban areas that were marked by declines related to white flight. And then they had to face urban decline, crime, and the gangs that rose up in the 1970s and 1980s with diminishing funding from both HUD and the local municipalities that didn’t want to spend money on deteriorating properties for the poor.  “It is impossible to overstate the dysfunctional state of some public housing complexes in the late 1980s and 1990s,” Goetz writes, in his book. 

Funny, isn't it, how with over 3000 public housing authorities in the U.S., they all made the exact same execution errors at the same time?  But the new policies of decentralization and vouchers were in place by the early 90s, just in time for the Clinton presidency.

This [new decentralization and voucher] strategy became federal law in 1992, when public-housing authorities began receiving billions through the HOPE VI to tear down some of the nation’s worst housing complexes. The idea was that projects like the infamous Cabrini-Green in Chicago would go away, and along with them, the blight that characterized center cities.

And then in 1997, Andrew Cuomo -- now our governor in New York -- became Secretary of HUD.  If anybody could "execute" this new strategy correctly, he would be the guy.  Right?

“CHA [Chicago Housing Authority] must come down. You can no longer put a Band-Aid on a bullet wound,” Andrew Cuomo, the secretary of HUD, said in 2000.

So, Alana, what's the review of how the new strategy is faring today?  From a June 24, 2015 article in The Atlantic by the same author:

But somewhere along the way, “Section 8” became a colloquialism for housing that is, to many, indistinguishable from the public-housing properties the program was designed to help families escape.  How did this happen? To begin with, Section 8 is poorly designed. 

Really, you have to hate when this happens.  It's just so obvious to all the right-thinking people that the socialist government-handout model can cure injustice and lift the poor out of poverty with some minimal proper execution, and yet once again it has failed.

So, Alana, are you prepared now to admit that public housing is never going to work?  The opposite.  In the most recent article (September 22) Semuels goes to Austin, Texas, to find an example of a public housing success story:

Public housing gets a bad rap, but Maddie Garrett has no complaints. She’s lived on the same few blocks on Austin’s east side for 50 years, moving between one of the nation’s oldest public-housing complexes, Rosewood Courts, and a senior housing development called Salina Apartments. When her family grew, the housing authority helped her move to a bigger apartment; when her kids moved away, she moved back to a smaller one. When her husband became disabled, the housing authority put them in a unit that could accommodate his disabilities.  “It’s comfortable; it’s safe; I haven’t had any problems,” she told me, in the shady courtyard of her apartment building. . . .   “The story of American public housing is one of quiet successes drowned out by loud failures,” writes Ed Goetz, a professor at the University of Minnesota. 

Maintained for 50 years by government hand-outs in a life of continuous poverty -- that's what counts as "success."  I wonder what counts as failure?

When Falsely Shouting "Crime" Pays

Over at the Huffington Post, they're running a gigantic 15-part 58,000 word serial by Steven Brill titled "America's Most Admired Lawbreaker."   Today they're up to Chapter 6.  The subject is the off-label marketing by Johnson & Johnson of a drug called Risperdal, to young and old people, without specific approval from the FDA to do so.  Already Nicholas Kristof of the New York Times has devoted an entire op-ed column, titled "When Crime Pays: J&J's Drug Risperdal," to the series and its supposed revelations.  

This is the most blatant possible chasing of the Pulitzer Prize, intended to impress you as being great crusading in the tradition of muckraking journalism.  The theme is that great old standby, evil corporation puts profits over people.  In Brill's telling, this story represents a particularly egregious instance of corporate misbehavior, first because J&J made a lot of money, second because J&J presented itself to the world as a particularly ethical company, but most importantly because all the while J&J's behavior, according to Brill, was systematically and intentionally "illegal" and "criminal."  The evil company cynically committed "crimes" because the pay-off was bigger than the fines they would have to pay.  Here's the very first line:

Over the course of 20 years, Johnson & Johnson created a powerful drug, promoted it illegally to children and the elderly, covered up the side effects and made billions of dollars.      

Accompanying the series is a "Letter From the Editors," signed by Greg Veis and Rachel Morris of HuffPo, telling you (as if you hadn't already figured it out) how terribly, terribly important this story is, and how it is intentionally designed to play on your emotions:

At some point over the course of this massive, magisterial 15-chapter story, you will get angry, and you will stay angry. It may happen when you learn that Johnson & Johnson handed out promotional Legos to pediatricians so that they’d be more likely to prescribe a drug called Risperdal to children with behavioral problems, although the FDA had repeatedly told the company not to market it to children. . . .

Actually, I have gotten angry after reading the first few chapters of this series, but not for any of the reasons given by Veis and Morris.  I have gotten angry because the story throws around accusations of "illegal" and "criminal" conduct without ever giving an accurate statement of what is legal and illegal in the area of off-label marketing of drugs.  I have gotten angry because Brill unthinkingly accords to the FDA the status of God and lawgiver, without any recognition that we have in this country a Constitution that gives no authority to bureaucrats to make law, and a First Amendment that restrains what government bureaucrats can order the people to do and not do.  I have gotten angry because the article is permeated by the unthinking and ignorant premise that if the self-important pooh-bahs at the FDA "tell a company not to market" a drug to some category of people, then it is then a crime for the company to market the drug to those people.  A correct statement of the law is that when the FDA purports to tell a company that it cannot market a drug to someone by making truthful statements about it, it is the FDA that is behaving lawlessly, not the company.  The FDA systematically behaves in this lawless manner, so far without consequence to itself or any individuals who work for it, and in my view that is a far, far bigger problem for this country than anything that J&J may have done in marketing Risperdal.

Not that I'm standing up for everything that J&J may have done here.  They may well have stepped over the line in some instances.  But Brill's series goes so far in making accusations of criminality for conduct that is specifically legal that I don't think any of the rest of his series can be trusted at all.

In Chapter 2 of his article, Brill lays out what he apparently thinks is the law of off-label marketing of drugs:

A key provision of the [1962 amendments to the Food and Drugs Act of 1906] made it a crime for drug companies to promote drugs to doctors for patients with illnesses for which the drug, according to its FDA-approved label, was not intended and approved for use. . . .  Thus, for Johnson & Johnson to expand the market to reach its [Risperdal] business plan targets, doctors had to be sold on the value of Risperdal in populations that were not included on the label as the drug’s intended users. Yet it was a crime for the company to sell the doctors on the benefits of using Risperdal to treat those populations.  

This is just plain, dead wrong as a statement of the law.  It's not just that people like me have been pointing out since at least 1999 that this interpretation of the FDA Act cannot be reconciled with the First Amendment.  It's that the courts have specifically and emphatically agreed with me and have shot down lawless FDA efforts to criminalize true speech -- on the few occasions when those issues have actually reached the courts.  But those occasions have included one in the Second Circuit Court of Appeals in 2012, and another in the Southern District of New York just last month.  Are Brill and the HuffPo unaware of this decisive case law?

In 2012 the Second Circuit reversed the conviction of Alfred Caronia for what was clearly and admittedly off-label marketing of a drug to an FDA-unapproved population.  Here is the key language of the court:

[W]e decline to adopt the government’s construction of the FDCA’s misbranding provisions to prohibit manufacturer promotion alone as it would unconstitutionally restrict free speech. We construe the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA-approved prescription drugs. Our conclusion is limited to FDA-approved drugs for which off-label use is not prohibited, and we do not hold, of course, that the FDA cannot regulate the marketing of prescription drugs. We conclude simply that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug. 

Then, just last month, Judge Engelmayer of the Southern District of New York actually granted an injunction against the FDA, prohibiting it from bringing a so-called "misbranding" action against a company called Amarin for off-label marketing of a drug to an FDA-unapproved population.  That opinion was covered at Manhattan Contrarian on August 10 here.  After quoting the language of Caronia above, Judge Engelmayer concluded as follows:

Therefore, insofar as Amarin seeks preliminary relief recognizing its First Amendment right to be free from a misbranding action based on truthful speech promoting the off-label use of an FDA-approved drug, Amarin has established a substantial likelihood of success on the merits on this point.  

Brill seems to think his view of the law is supported by the fact that in 2013 (after the Caronia decision) J&J settled FDA charges over the off-label marketing of Risperdal and paid a fine in excess of $2.2 billion.  So?  To me, all this proves is that large companies with a franchise to protect will never take the government to trial.  Partly that's because they can't risk losing, but more important is that they can't risk having the FDA hold up twenty other drugs in the pipeline as revenge.  After the clear holding in Caronia, the FDA cooked up a preposterous position that Caronia's outcome was just a result of peculiar aspects of the trial in that case, and that the Second Circuit's statements as to legality of off-label marketing were not the "holding" of the case.  Judge Engelmayer shreds those arguments in the Amarin decision.  That 71-page decision is too long to summarize here, but read it yourself at the link above if you are curious.  The important thing to note is that these precedents have been set in the situations of an individual (Caronia) and a very small company (Amarin) who have nothing to lose beyond the particular case in which they are involved.  Not so for the big companies.  As Judge Engelmayer notes in his opinion, lots of other big pharma companies have settled FDA off-label marketing charges for huge dollars, including a $3 billion settlement of GSK involving marketing of drugs including Paxil and Wellbutrin, and a $2.3 billion settlement with Pfizer over Bextra and other drugs.  That doesn't mean that any of the conduct was in fact criminal.  It's just a reflection of the leverage that the petty and vindictive bureaucrats at the FDA have over their subjects.

Brill also endlessly cites as evidence of J&J's criminal intent various facts indicating that J&J took steps to conceal from the FDA the actions it was taking to market Risperdal off-label.  Sorry, but again that proves absolutely nothing.  Here we have a lawless bureaucracy repeatedly threatening to prosecute you for conduct that is completely legal, and that you know is legal.  They have hundreds of lawyers and infinite resources.  They have extracted billions upon billions of dollars from your peer firms for conduct that is completely legal.  How would you proceed?

If you read this series, or at least the first 6 Chapters (I would not recommend it) you will come away with the clear impression that Risperdal is way too dangerous to be used for the unapproved populations of young people and the elderly.  Well, what about this:  The J&J 2013 Risperdal settlement covers off-label marketing of the drug to those two populations in the period 1999 - 2005.   Dare we mention that Risperdal was specifically approved by the FDA for treatment of children and adolescents ages 10 - 17 for certain conditions in 2007?  That's right, in 2013 the FDA collected $2.2 billion for off-label marketing of a drug to a population and for conditions that it had actually approved well before the settlement?  Huh?  Here's what you (and Steve Brill) don't understand:  This has nothing to do with whether this drug is appropriate and useful for these populations.  This has only to do with the FDA protecting its bureaucratic prerogatives and fiefdoms.  The FDA would gladly see half of the American people die while they consider and reconsider for years approving some drug, in order to establish the proposition that the FDA and only the FDA has the bureaucratic say-so to determine when and how a drug can be marketed.  I can't find any discussion of that issue in Chapters 1 through 6 of Brill's series.  Maybe it will turn up in Chapter 14.

There are lots of problems with the pricing and marketing of pharmaceuticals in the United States today.  The large majority of drugs are paid for by third-party payers, including the government (Medicare and Medicaid) and insurance companies, and the pharma companies have perfected the art of charging high prices to these price-insensitive entities.  Many important issues in this arena could have been explored by Mr. Brill had he chosen to do so.  Instead, he chose the easy and cheap narrative of evil company committing crimes to put profits before people.  That narrative is just wrong, and misses everything important.    

Donald Trump And The Trade Deficit Fallacy

I think I've picked on Bernie Sanders enough lately, so how about somebody else?  Donald Trump comes to mind.

I was watching a news show last night, and they were playing a video of a speech that Trump had made yesterday on the battleship Iowa in Los Angeles harbor.  Here's a clip of the speech.  As I tuned in Trump was in the middle of things and starting to talk about one of his favorite subjects, trade deficits.  The following appears starting at about 8:30 of the clip:

What is the United States trade deficit with Mexico, Japan and China?  Let's start with China.  Almost $400 billion per year.  If you have a company when you're losing $400 billion you've got to do something very fast.  We don't.  We've been losing hundreds of billions of dollars per year, frankly for decades.  It's not going to happen any more.

Wow -- Donald Trump thinks that a country like the United States, issuing a reserve currency and running a trade deficit, is like a company losing money.  I would have said that running a trade deficit for such a country is equivalent to a company making money.  It's very hard for me to get my head around Trump's apparent level of incomprehension and confusion.  Where to start?

Well, what does it mean for the United States to run a $400 billion trade deficit with another country?  Very simply, after netting out everything else, it means at the end of the year the United States ended up with $400 billion dollars worth of real goods and services produced by the other country through hard work and sweat, and in return the other country got $400 billion face value of non-interest-bearing pieces of paper created out of thin air at essentially no cost by the Federal Reserve system.  Now, who came out ahead?  If you're struggling with this, think of it as people rather than countries.  Suppose you (like the Fed) are given the magical ability to issue unlimited amounts of money that everybody else will somehow take in payment for goods and services.  In a given year, you spend a couple of minutes running a photocopy machine to produce a few million worth of your money, and then you buy yourself a nice mansion, a few luxury cars, and a couple of fur coats for the wife.  Who came out ahead -- you, or the people who worked thousands of hours to make all that stuff and sold it to you and got nothing in return but your scrip?  And, playing out the analogy further, the people who got your money could theoretically use it to buy something back from you, but by hypothesis they are never actually going to do it (because if they did, then you wouldn't have any trade deficit any more).

More broadly, the power to issue money is probably the most jealously guarded perk of governments and sovereigns.  Why would this be a carefully-guarded perk if it's a terrible detriment?  The power to issue money is the power to buy stuff without work or effort, not even levying a tax if you are a government.  Of course that's a benefit, not a detriment, to the money issuer.  Certainly, no one gives up the power to issue money if they don't have to.  Now, you do have to be somewhat judicious in using this power.  Within your country, you as sovereign can compel everyone to accept your money; but if you just flood the place with new currency, you'll soon find yourself in an inflation, and then a hyperinflation, and you can kill the goose that laid the golden egg.  Outside your borders, you need to be even more judicious.  You have no ability to compel anyone to take the money, so your ability to go on for years running trade deficits financed only by your own currency depends on nurturing the confidence of your trade partners that you are not going to hyperinflate the currency.  If you are Venezuela and you hyperinflate your currency, no one outside your borders will take it,  and then you need to get your hands on some reserve currency issued by someone else if you want to buy anything.  On the other hand, if you are issuing a reserve currency (meaning only a currency such that trade partners are psychologically willing to accept it), then you're golden.  As long as you are reasonably careful about it, you can go on essentially indefinitely consuming more than you produce.  You are doing a service to the world providing it with a relatively stable international money supply, and the grateful world compensates you to the tune of hundreds of billions of dollars worth of goods and services per year.

The United States has an incredible advantage in that, as irresponsible as we are in managing our money supply, virtually all the other countries are even more irresponsible.  (An exception is Switzerland, but they don't have nearly a big enough economy or enough money in circulation for the currency to act as a world money supply.)  So even as we run large trade deficits, our dollar has been appreciating in value against almost all world currencies for the past several years.  Essentially, that means that the dollar is acting as the world money supply and the world needs the liquidity.  The United States makes literally hundreds of billons of dollars per year (last year it was $505 billion according to the Economic Policy Institute) by getting to act as a reserve currency for the world.   That $505 billion is what is otherwise known as the trade deficit.  One way of looking at it is that it pays for almost all of the defense budget.

Admittedly, Donald Trump is far from alone in being completely confused about the significance of a trade deficit.  Certainly, almost no journalist understands this subject, and the number of newspaper and magazine articles equating higher trade deficits with "bad" or "worsening" and lower with "good" or "improving" is way too many to count.  And I have no idea how many of the other presidential candidates have any good grasp of this either.  Most of them just keep their mouths shut about the subject.   But Trump has somehow chosen to take a subject that he knows nothing about, and where everything he says can be shown to be 180 degrees wrong to anyone who pays attention for even two minutes, and make this a centerpiece of his campaign.  And then there's this (from about 10:00 in the video clip linked above):

The leaders of Mexico, Japan, China and every other country that we do business with -- they're smarter, more cunning, sharper than our own leaders. . . .

Well, if Trump is out to demonstrate that he is "smarter" and "sharper" than the geniuses from Mexico, Japan and China, he's going to have to do a lot better than his pronouncements to date on the subject of trade deficits.  Our current leaders certainly can't claim credit for getting us into the excellent position we currently find ourselves in as reserve currency provider to the world, but at least they haven't intentionally destroyed that position (yet).   If, as he claims, Trump is a really great negotiator, maybe he'll end us up in the position where the Chinese yuan is the reserve currency and instead of them paying us, we'll pay them $500 billion dollars a year for the service of providing the world money supply.  Way to go Donald!  Would it be even better if we paid them $600 billion?

One Last Update On Bernie Sanders

The Wall Street Journal weighs in this morning with a front page article headlined "Price Tag of Sanders Proposals: $18 Trillion."  They've gone through the various proposals of the Sanders campaign and put a ten-year price tag on each.  The big number is a $15 trillion ten-year price tag that they attach to Sanders's proposal to extend the Medicare-style "single-payer" healthcare system to all.  (That number comes from a study by economist Gerald Friedman of UMass Amherst of a similar proposal by Congressman John Conyers of Michigan; but the article quotes a Sanders spokesperson as agreeing that the $15 trillion is a "fair estimate" of the cost of Sanders's universal single-payer plan.)

Other than the single-payer healthcare proposal, here are the sources of the other amounts:

• Social Security benefit increases -- $1.2 trillion
• Infrastructure program -- $1.0 trillion
• College affordability (free tuition for all!) -- $750 billion
• New paid leave fund -- $319 billion
• Bolster private pension funds -- $29 billion
• Youth jobs initiative -- $5.5 billion

Do you notice anything a little odd about the $18 trillion?  That's right, not a dime goes for the poor, or for doing anything about poverty.  Not that I'd be in favor of more government spending on the failed anti-poverty efforts.  But, after all, this is a guy who pretends to "care about the poor," and who advocates that we show how much we "care about the poor" by spending government money on them.  Oh, and none of this proposed new spending addresses income inequality either.  (Do you think that government spending on healthcare or education counts in anyone's income?  It doesn't.)

Actually, it's much worse than that.  $15 trillion for single-payer health care -- wait a minute, don't the poor and the elderly already have near-complete single-payer health-care through Medicaid and Medicare?  That means that essentially all of the $15 trillion is to be spent on the non-elderly middle class and affluent.  And this is someone's idea of how to use government coercive redistribution to improve social justice?

Keep going through that list and see if you can spot any of the spending that might arguably improve the poverty or income inequality statistics even a little.  How about "college affordability," you ask?  Highly unlikely.  Bernie's program calls for the free tuition to be at state colleges and universities.  Sure a few low-income kids go there, but far and away these are semi-elite schools that cater to the top half of the income distribution.  The post-secondary schools that cater to the bottom half of the income distribution are predominantly the trade schools and for-profit schools.  Nothing in Bernie's program for them!  OK, so how about the "youth jobs initiative" -- surely some of that would go to poor kids?  Well, at $5.5 billion it's all of 0.03% of Bernie's proposed incremental spending, and if I know anything about government jobs programs, the well-connected will somehow figure out how to claim most of that money.  And not many of the well-connected are poor.

Meanwhile, to support this additional spending, the federal government's share of GDP goes from about 20% to about 30% (WSJ estimate).  That means that everybody's ability to spend on anything other than healthcare goes down by much more than 10%.  Here's the calculation:  Federal, state and local governments already take about 40% of GDP.  Adding 10% to the federal share of GDP raises the total government share to 50%, and shrinks the private share of GDP from 60% to 50%, which is a drop of 16.7%.  So if the question is, how much of your current disposable income would the Sanders plan cost you, the answer is, about 16.7%.  And that's without proposing anything to address the issues of poverty or income inequality.  

Do you think that an incremental 10% of GDP can be extracted from just the top 1% by income?  The entire adjusted gross income (base for federal income tax) of the top 1% is less than 10% of GDP.  And by the way, they are already sending about 35% of that (and in some cases 50% and more) off the top to federal, state and local governments.  So taking 100 cents on the dollar of everything that the top 1% currently has left nets you at most 5% of GDP -- and that's assuming that everybody in the top 1% is so stupid that they will continue to declare all that income when it is completely confiscated by the government.

Yes, socialism is just so inspiring!  But at least this is not as bad as North Korea!

Time To Round Up The Hoarders And Speculators!

They go by different names in different places.  The most generic description is the "hoarders and speculators," a term currently in favor as the preferred scapegoats of the disastrous Venezuelan regime.  For Stalin, it was the "kulaks."  For Hitler, it was the "Jews."  For Bernie Sanders, Elizabeth Warren, and others on the current Democratic left, it's the "greedy Wall Street bankers."  In economies hobbled by brain-dead socialist policies or by overzealous regulation, they are the people making lots of money doing things that many people don't understand.  Most commonly they have found a way to bet on the failure of government coercion to keep people from acting in their own self-interest.

Latest to join the theater is the government of China.  China had made it official policy to encourage margin borrowing to drive stock market valuations to unsustainable heights.  When that all started to come apart over the summer, this now wasn't just a normal market correction, it was a dissing of the all-knowing and perfect leaders.  The New York Times reports on the government's reaction in last Thursday's lead article in the upper right on page A-1, headlined "China's Response To Stock Plunge Rattles Traders."  Catching up with the Manhattan Contrarian from two weeks ago, the Times now reports that the Chinese government is responding to the plunging of its stock markets and the onset of an obvious recession (not reflected in official statistics, which are thereby revealed to be fraudulent -- but you already knew that) by rounding up the usual suspects.  In this case the usual suspects are stock traders, including those who had the nerve to do no more than to sell securities when the market was declining.

Police officers under the Chinese Ministry of Public Security specializing in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals.  Police officers have downloaded extensive trading data and asked fund managers why they sold shares when the market was going down, prompting discussions about basic investment strategy. Officers have bluntly told some fund managers to just stop selling.

The all-knowing and perfect leaders seem to have no idea that they will need to have a lot of non-spooked investors and traders around if they ever want their stock market to recover and resume providing capital to businesses.  Well, all I can say is, thank God that here in the United States our enlightened authorities actually understand and believe in capitalism and resist the unjustified criminalization of normal market transactions!

Oh, wait a minute.  There on the same front page of the same September 9 New York Times, immediately adjacent to the article about China linked above, we have another one headlined "Justice Dept. Sets Its Sights On Executives."    This article reports on a memo and subsequent interview with one Sally Yates, Deputy Attorney General in the U.S. Justice Department.  Seems that Ms. Yates has just announced a renewed Justice Department initiative to focus its efforts and energies on jailing top executives of Wall Street firms for allegedly "criminal" behavior.

The [Yates] memo is a tacit acknowledgment of criticism that despite securing record fines from major corporations, the Justice Department under President Obama has punished few executives involved in the housing crisis, the financial meltdown and corporate scandals.  “Corporations can only commit crimes through flesh-and-blood people,” Sally Q. Yates, the deputy attorney general and the author of the memo, said in an interview on Wednesday. “It’s only fair that the people who are responsible for committing those crimes be held accountable."

The "criticism" referred to would be from the likes of Senator Elizabeth Warren, known for her repeated demands that the government put Wall Street bankers in jail.   Of course a small problem here is that they need to come up with some crime that has been committed to justify the jailing.  I call that a "small" problem, because the lack of any clearly defined statutory crime to charge has not deterred many prosecutions against large banks for things like participation in the mortgage-backed securities markets, or against individuals for the non-crime of non-insider insider trading.  Nor has the lack of a crime to charge prevented dozens of convictions for non-crimes.  But then there is the pesky appeal process.  And thus the government, for example, continues to press its cert petition in the case of Messrs. Newman and Chiasson for non-insider insider trading, even as many people convicted of that non-crime continue to languish in limbo.

But even as the Justice Department descends further into lawlessness, there is a small piece of good news from the SEC.  Just this afternoon, an SEC Administrative Law Judge has dismissed after trial a non-insider insider trading case against a Well Fargo trader named Joseph Ruggieri.   (You'll have to wait until tomorrow to find a non-paywalled link.)  Ruggieri's alleged "insider trading" consisted of trading on Wells Fargo analyst reports before they were released to the public.  How is that even "insider trading" at all?  The government argued in the case that the Second Circuit's Newman/Chiasson decision should be ignored (!), or alternatively that Ruggieri's "friendship" with a stock analyst at WF was sufficient to constitute "compensation" to make Ruggieri into an insider.

Really, is this the best that our government can come up with in the way of scapegoats that are supposedly harming our economy?  The case was so pitiful that they couldn't even win in front of their own rigged ALJ.  Somebody who's paying attention might even get the idea that the economy languishes because of the government's own incompetent policies, and not because of any mythical "hoarders and speculators."