Economy

Peter Diamond’s Nomination to Fed Benefits from Double Standard

by Hans Bader on April 16, 2011

in Bailout Watch, Economy, Legal, Politics as Usual, Zeitgeist

Liberal economist Peter Diamond is likely to be confirmed to a powerful position, despite issues far more severe than those that blocked the confirmations of highly-respected conservatives. It smacks of a big double standard.

Diamond was nominated to one of the most powerful positions in the land — the Federal Reserve’s Board of Governors, which sets monetary policy. (The Fed is now printing hundreds of billions of dollars to buy up government debt and inflate the money supply, in a controversial policy known as “quantitative easing” or QE2, which some economists have predicted will lead to substantial inflation.)

By law, the Board is supposed to be balanced regionally, but it isn’t: its members come almost entirely from the East and West Coast. So does Diamond, a professor at the Massachusetts Institute of Technology (MIT). He has lived in Massachusetts since 1960.

The Obama administration nominated Diamond for a seat on the Board representing a district in the Midwest, claiming he is from Chicago because he has lectured at Northwestern University. But as economist Mark Calabria notes, Diamond is really from Massachusetts, which already has a representative on the Fed (Fed Board member Dan Tarullo). That violates Section 10-1 of the Federal Reserve Act, which says a new Fed member may not come from a district that already has a representative. If Diamond is confirmed, every single member of the Fed’s Board will come from a coastal state, and none from America’s heartland.

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3 Numbers: Why a U.S. Economic Meltdown is Inevitable

by Michael Fumento on April 5, 2011

in Economy

Post image for 3 Numbers: Why a U.S. Economic Meltdown is Inevitable
  • Amount Democrats argue should be cut from current budget to raise debt ceiling: $33 billion.
  • Amount Republicans argue should be cut: $61 billion.
  • Monthly increase in publicly held U.S. debt during past year (March to March): $139 billion.

We are a spendaholic nation of people who feel entitled; we will not change. Time to reread The Grapes of Wrath — or read it for the first time.

CEI Podcast for March 28, 2011: Human Achievement Hour

by Ryan Young on March 28, 2011

in Environment, Podcast

Have a listen here.

Human Achievement Hour founder Michelle Minton talks about the annual celebration of human creativity and innovation that happens at the same time every year as Earth Hour. Ecology and economy are quite compatible. One definition of progress, after all, is doing more with less. When people are left free to achieve and innovate, that is exactly what happens, to the environment’s benefit — and mankind’s.

March Madness

by Fred Smith on March 28, 2011

in Deregulate to Stimulate, Economy, Energy, Environment, Features, International

Post image for March Madness

In the closing days of March, not only are sports fans a bit crazy, so also are the electorate. Consider the German state of Baden-Wuerttemberg, long secure within the Christian Democratic “right-of-center” view (recall this is Europe, so “right” is at best “moderate” American conservatism), has moved left. More alarming, the Green Party gained most in the election and the Greens, one will recall, are anti-nuclear and anti-coal. The prospects for reversing the earlier German government decision to close down nuclear plants have dropped sharply and the increased clout of the climate change alarmists makes the prospect for new coal plants dim also.

As one unhappy CDU official noted, The election was decided in Japan, referring to the tsunami created nuclear disaster. That tragedy turned a side-issue in the German election into a major concern and led to the CDU defeat.

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Big Company With Ties to White House Paid No Taxes; GE Also Got Corporate Welfare and Bailout on Special Terms

by Hans Bader on March 27, 2011

in Bailout Watch, Economy, Energy, Environment, Stimulus to Nowhere

“The top corporate tax rate in the United States is 35 percent, one of the highest in the world,” but General Electric, whose CEO was recently tapped to lead President Obama’s Council on Jobs and Competitiveness, pays no taxes at all, reported the New York Times.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.  Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

This negative tax rate is the product of lobbying aimed mostly at liberal lawmakers. “G.E. has spent tens of millions of dollars to push for changes in tax law,” such as “‘green energy’ credits for its wind turbines.” “Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment.”

In his State of the Union address, President Obama called for even more spending on forms of energy that benefit GE.  Government energy spending and tax credits disproportionately benefit GE, which recently spent  $65.7 million on lobbying to get government subsidies.

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Obama Administration Understated Deficits by $2.3 Trillion; Resists Spending Cuts Needed to Stem Deficits

by Hans Bader on March 25, 2011

in Economy, Employment, Energy, Environment, Stimulus to Nowhere

The Congressional Budget Office reported last week that the Obama administration understated budget deficits “by more than $2.3 trillion over the upcoming decade,” and that “if Obama’s February budget submission is enacted into law it would produce deficits totaling $9.5 trillion over 10 years — an average of almost $1 trillion a year.” President Obama objects to even a tiny two percent cut in the federal budget, submitting a self-indulgent, smoke-and-mirrors budget that would actually increase spending even faster than previously proposed for 2012.

Obama’s record deficit spending is based on the notion — contrary to all evidence — that if the government increases spending, that spending will more than pay for itself through increased economic growth. (Never mind that Canada’s economy boomed after it slashed government spending in the 1990’s, and America experienced an “economic boom” after our government slashed spending in 1946.)

For example, even though “federal education spending has gone through the roof” in recent years, Obama has called for big increases in education spending, saying that “the best economic policy is one that produces more college graduates.” But dumping more money on colleges won’t spur economic growth.

Jacking up college attendance rates further just results in the presence of bored, unmotivated students who are not interested in learning, and only go to college to get a diploma, while spawning an economically-destructive “arms race” over who can acquire the most unnecessary credentials. Already, “36%” of “the nation’s undergraduates” learn “little” or nothing after four years of college, according to a study cited by USA Today. Many of their professors didn’t even try to teach them much: “32% never took a course in a typical semester where they read more than 40 pages per week.”

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A Tsunami is Not a Stimulus

by Ryan Young on March 11, 2011

in Economy, International, Stimulus to Nowhere

Tragedy struck Japan this morning. It will be some time before we know just how many lives the tsunami took, and how much damage was done. But pundits are already saying dumb things.

Larry Summers, who should know better, committed the economists’ cardinal sin this morning: he fell for the broken window fallacy. The sunny side of the destruction is that it will boost the economy. Just think of all the jobs that will be created by the rebuilding process!

Over at the Daily Caller, I gently correct Summers. Natural disasters are bad for the economy. All the rebuilding activity in the next few years will only get Japan back to where it was. If the tsunami had never happened, all that energy could be put to creating new wealth. Disasters are just that: disasters.

Egyptian Military Seeks to Reverse Economic Reforms

by Hans Bader on February 21, 2011 · 1 comment

in Deregulate to Stimulate, Economy, International, Property Rights

The military government that replaced Egyptian ruler Hosni Mubarak is now moving to reverse recent reforms that gave Egypt solid economic growth in the last several years. It wants to curb free-market competition with military-run enterprises that dominate parts of Egypt’s economy.

As The New York Times reported on Friday, economists say the military “has already begun taking steps to protect the privileges of its gated economy, discouraging changes that some argue are crucial if Egypt is to emerge as a more stable, prosperous country.”

Field Marshal Mohamed Hussein Tantawi, the minister of defense and military production who now leads the council of officers ruling Egypt, has been a strong advocate of government control of prices and production. He has consistently opposed steps to open up the economy. . . already there are signs that the military is purging from the cabinet and ruling party advocates of market-oriented economic changes, like selling off state-owned companies and reducing barriers to trade. . . the military-led government also struck at advocates of economic openness, including the former finance minister Youssef Boutros-Ghali, who was forced from his job, and the former trade minister Rachid Mohamed Rachid.

The young protesters who helped bring down the Mubarak government are short-sightedly not criticizing these measures. Indeed, the Times reports that “some of the young revolutionaries at the vanguard of the revolt identify themselves as leftists or socialists.”

Egypt’s economy had long been a moribund socialist backwater after much of the economy was nationalized by the founder of Egypt’s ruling party, Gamal Abdel Nasser. His successors Sadat and Mubarak had largely continued those policies. But in the last five years, Mubarak finally embarked on serious economic reform, resulting in sustained economic growth. The reforms made property rights more secure, and made it easier to start a business — although much of Egyptian industry remained government-owned.

Ironically enough, this economic liberalization made possible the recent demands for political liberalization that contributed to Mubarak’s ouster, by giving Egyptians access to cell phones, the Internet, and other means of mass communication, and increasing their political consciousness. As Marshall Stocker noted:

Egypt today evidences Milton Friedman’s ‘Capitalism and Freedom’ thesis that a large measure of political freedom only comes when economic freedom exists. The World Bank’s 2006 “Ease of Doing Business index” scored Egypt 165 of 175, among the worst countries for business. After several years of economic liberalization, Egypt is 94 of 183 this year, more economically free than Brazil, India and Russia. The number of days it takes to start a business legally has dropped 85%. It now takes me 10, not the 500 days it took Mr. de Soto in 2004. The World Bank says that property registration now takes 72 days, down from 193, and now costs 90% less.  Economic liberalization permitted Egyptians to afford the tools of freedom: cell phones, satellite TV, Facebook and Twitter. Economic liberalization facilitated this revolution.

The economic regression occurring in Egypt is mirrored in more backward Yemen, where the longtime ruler of Yemen, one of the world’s poorest countries, has sought to shore up his popular support in the face of mass unrest by promising rigid “price controls” and an expansion of welfare to cover 500,000 more people. President Ali Abdullah Saleh has promised to expand his bureaucracy to hire more “college graduates,” and is increasing the pay of government employees. These measures will wreak havoc with his country’s finances, resulting in massive deficit spending. They will further stifle his country’s slow-growing economy, which has failed to keep pace with rapid population increases. Yemen’s lousy economy has helped make it a fertile ground for Al Qaeda recruiters.

In Libya, the viciously bloody and oppressive longtime dictator Muammar Qaddafi is shoring up his support base in the face of public protests by promising to double public-employee pay, even though public employees are much richer than the average Libyan. Egypt recently increased government employee pay by 15 percent to buttress their loyalty, a decision sure to increase its budget deficit and aggravate its economic problems.

We wrote earlier about how ethanol subsidies and mandates were fueling Islamic extremism and contributing to unrest in Egypt’s slums by driving up wheat prices, and thus shifting the locus of opposition to the Mubarak government away from Egypt’s small pro-democracy movements towards the anti-American Muslim Brotherhood, which is popular in the slums because of its relief efforts there.

Image credit: Muhammad Ghafari via Wikimedia Commons.

The End of the Imaginary Age of Civility

by Hans Bader on February 7, 2011 · 1 comment

in Politics as Usual, Sanctimony, Zeitgeist

After the Tucson shooting, liberals lectured America, and especially conservatives, on the alleged need for more civility (even though there was no evidence that the shooter was influenced by any uncivil political rhetoric, and the shooter was not a conservative).

But the new era of civility didn’t last long, if it ever existed at all.  Some of the very people who loudly demanded civility from others quickly returned to their own deeply-ingrained habit of trash talk and hate-filled vitriol.

Liberal actor and activist Richard Dreyfuss set up a project to promote “civility in political discourse” after the shootings.  When he was asked about a liberal radio host’s yearning for the death of the “dirtbag” Dick Cheney, he praised it as “beautifully phrased,” endorsing an intemperate diatribe that also branded Cheney as an “enemy of the country,” and a “freakin’ loser.”

The liberal lobbying group Common Cause, which had hectored America about the need for civility, helped organize a demonstration outside a conference in California where participants called for the lynching of Supreme Court Justice Clarence Thomas.

Liberal Congressman Steve Cohen (D-Tenn.) helped usher in the new Age of Civility by likening Republicans to Nazis like Joseph Goebbels.

The Washington Post and New York Times enlisted two prominent practitioners of trash talk to lecture America about the need for civility. Al Sharpton preached about the “dangers of inflammatory rhetoric” in the Washington Post, despite his own past history of helping incite a deadly race riot, and a court judgment against him for defamation arising out of the Tawana Brawley hate-crime hoax.   Ex-congressman Paul Kanjorski (D) lectured about the need for “civility” in the Times, despite his October 2010 statement that Florida governor Rick Scott (R) should be shot.

The Post op-ed writers who endorsed the calls for civility then paved the way for yet more civility, both by branding conservatives as spiteful lobotomy patients, and by insinuating that opponents of gun control are collectively guilty of subversion and nativism, writing that “the descriptions of President Obama as a ‘tyrant,’ the intimations that he is ‘alien’ and the suggestions that his presidency is illegitimate are essential to the core rationale for resisting any restrictions on firearms.”

Even as it prattled about the need for civility, the New York Times editorial board directed readers to its earlier diatribe that baselessly accused Republicans, the Tea Party, and conservative media of creating a climate of “division” and “anger” that made the Tucson shootings possible. The Times did so even though a column by its own David Brooks had earlier pointed out that there was “no evidence” that the shooter was influenced in any way by conservatives.

While the Post and the Times don’t seem at all concerned about the death threats recently made by liberal activists against Republican lawmakers in Florida and in Wisconsin, they are very up in arms about factual references to the health care law as being “job-killing”  (a claim based partly on Congressional Budget Office findings that Obamacare would reduce the size of the American labor force by perhaps 800,000 people). The Post‘s Dana Milbank seems to think that criticizing the killing of an inanimate object (like a job) is violent rhetoric, and he recently wrote a long, sanctimonious editorial devoted almost entirely to the alleged incivility of referring to Obamacare as “job-killing,” which he regards as rhetorical “poison.”

Since the big-government policies they favor typically wipe out jobs  (like the $800 billion stimulus package, which wiped out jobs in America’s export sector, while subsidizing foreign green jobs, and which the CBO admitted would shrink the size of the U.S. economy in “the long run“), it’s not surprising that liberal journalists like Milbank would want to squelch discussion of “job-killing” policies.

Thomas Sowell on the Value of Consumer Choice

by Ivan Osorio on February 2, 2011 · 1 comment

in Deregulate to Stimulate, Economy, Regulation

One of Thomas Sowell’s greatest insights is that in public policy, there are no solutions, only trade-offs. That extends to deciding what to spend money on, even when some purchases that are foregone might be perceived as valuable.

However, that value on which the purchasing decision is made is entirely relative to the other options at hand. In his most recent column, Sowell explains that point nicely:

Under a headline that said, “Obama May Find Useless Regulations Are Scarcer Than Thought,” the [New York] Times writers declared that there were few, if any, “useless” regulations. But is that the relevant criterion?

Is there any individual or business willing to spend money on everything that is not absolutely useless? There are thousands of useful things out there that any given individual or business would not spend their money on.

When I had young children, I often thought it would be useful to have a set of the Encyclopedia Britannica for them. But I never bought one.

Why? Because there were other little things to spend money on, like food, clothing and shelter.

By the time I could afford to buy a set of the Encyclopedia Britannica, the kids were grown and gone. But at no time did I consider the Encyclopedia Britannica “useless.”

Weighing benefits against costs is the way most people make decisions — and the way most businesses make decisions, if they want to stay in business. Only in government is any benefit, however small, considered to be worth any cost, however large.

Worse, when large costs go to pay for small benefits, the result is a net loss. Government, by operating independently of the market, has nothing against which to compare the relative value of the things it spends money on. Explained that way, it’s not hard to see why costly government “stimulus” spending doesn’t work.

“You can’t always get what you want” may not be the most pleasant thought, but much more unpleasant is the harm that can result from trying to ignore it.

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