National Politics Chicago Style

The Washington Examiner has a good column lamenting -- and warning against -- the further erosion of the rule of law in our nation. It's a very scary trend, which if not stopped soon (and on principle) may be impossible to recover from. The whole article is well worth reading, but here's an excerpt to whet your appetite:

One basic principle of the rule of law is that laws apply to everybody. If the sign says "No Parking," you're not supposed to park there even if you're a pal of the alderman.

Another principle of the rule of law is that government can't make up new rules to help its cronies and hurt its adversaries except through due process, such as getting a legislature to pass a new law.

The Obamacare waiver process appears to violate that first rule. Two other recent Obama administration actions appear to violate the second.

One example is the National Labor Relations Board general counsel's action to prevent Boeing from building a $2 billion assembly plant for the 787 Dreamliner in South Carolina, which has a right-to-work law barring compulsory union membership. The NLRB says Boeing has to assemble the planes in non-right-to-work Washington state.

"I don't agree," says William Gould IV, NLRB chairman during the Clinton years. "The Boeing case is unprecedented."

The other example is the Internal Revenue Service's attempt to levy a gift tax on donors to certain 501(c)(4) organizations that just happen to have spent money to elect Republicans.

Medicare Fund Warning

In an earlier post I'd wondered why we have debt limit laws if, every time we approach the limit, we "automatically" raise it (with claims of imminent financial crisis if we don't)? In researching the social security and medicare debacles, I realized we do the same type of thing with respect to those schemes:

The Medicare Modernization Act (2003) requires that the Board of Trustees determine each year whether the annual difference between program outlays and dedicated revenues (the bottom four layers of Chart C) exceeds 45 percent of total Medicare outlays in any of the first seven fiscal years of the 75-year projection period. In effect, the law sets a threshold condition that signals that a trust fund’s general revenue financing of Medicare is becoming excessive. In that case, the annual Trustees Report includes a determination of "excess general revenue Medicare funding." When that determination is made in two consecutive reports, a "Medicare funding warning" is triggered. The warning directs the President to submit proposed legislation within 15 days of the next budget submission to respond to the warning and requires Congress to consider the proposal on an expedited basis.

This year’s report projects the difference between outlays and dedicated financing revenues to exceed 45 percent of total Medicare outlays during fiscal year 2011, prompting a determination of "excess general revenue Medicare funding" for the sixth consecutive report, triggering another "Medicare funding warning."

It's as if just having the warning system makes people feel like they did something about the problem.

Ari Armstrong on Free Speech

Two excellent columns of Ari Armstrong's are highlighted at Noodlefood. I particularly like opening of the first one.

Druckenmiller on the Debt Limit Discussions

Legendary hedge fund manager Stanly Druckenmiller was recently interviewed in the WSJ on the impact of a technical treasury default arising from our debt ceiling law. I agree with his main point and recommend reading the entire story:

"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured," he says.

Then there's "piece of paper number two," he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. "I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one."

(I'm also at a loss for why we even bother having a debt ceiling limit if everyone "knows" we just "have to" raise it any time we approach it?)

Study Shows "Stimulus" Protected Government Jobs while Destroying Private Ones

I may be suffering from confirmation bias, but this report showing that "the ARRA created/saved approximately 450 thousand state and local government jobs and destroyed/forestalled roughly one million private sector jobs" rings very true to me. Of course I doubt anyone could ever determine precisely what would happen in the absence of any particular government intervention in the economy, but we definitely know what it means in broad principle. This study fits that knowledge.

Comparing Education to Groceries

From Bastiat to Hazlitt, the better economic writers have endeavored to draw our attention to the unseen, to that-which-could-have-been. It's a difficult task, which is why I very much appreciated a recent column in the WSJ comparing public education to private grocery markets. I found it an excellent device to make the point. Here's the opener, but be sure to read the editorial in its entirety:

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—"for free"—from its neighborhood public supermarket.

GDP Statistics

This is a very illuminating article on GDP numbers and shows how their very calculation skews the numbers toward more government spending:

Yet even this correction implicitly assumes that government spending is the source of all recovery. The logic, as with Bernanke's and Zandi's analyses, is that government spending cuts reduce overall demand in the economy, which affects growth and then employment. This argument ignores the fact that the government has to take its money out of the economy by raising taxes, borrowing from investors, or printing dollars. Each of these options can shrink the economy.

All these analysts also systematically ignore the fact that GDP numbers include government spending. When the federal government pumps trillions of dollars into the economy, it looks as if GDP is growing. When government cuts spending—even cuts within the most inefficient programs—aggregate GDP shrinks.

But that's misleading. If Washington spends $1 a year on a bureaucrat's salary, for example, GDP numbers will register growth of exactly $1, whether or not the employee has produced any value for that money. By contrast, if a firm pays an engineer $1, that $1 only shows up in the GDP if the engineer produces $1 worth of stuff to sell. This distinction biases GDP numbers—and the policies based on them—toward ever-increasing government spending.

Vindicating Standard Oil

I'm hoping / planning to begin blogging regularly again. As a first piece, here's an excellent editorial by Alex Epstein.

Just to reiterate, when thinking about monopolies, it's crucial to differentiate between those created by government force (which are the only real form of monopoly) and those who win market share by competitive practices. The latter can maintain their market share only by continuing to serve the consumer, and as such should be appreciated and lauded by all who gain value from them. It's also relevant to think of the many impressive companies who weren't able to maintain their market share, either because others directly out-competed them or, more frequently, because someone came up with something completely new that radically changed the productive landscape.