This graph from just-released Federal Reserve data caught my eye. It shows government layoffs and discharges from late 2000 through June of this year (raw data set downloadable here). Government jobs are remarkably stable. According to this BLS chart,government workers enjoy roughly three times the job security of private sector jobs. Government workers also compensated more than twice as well as the people who pay their salaries.
For most of the last decade, government workers had as small as a 1-in-200 chance of getting fired or laid off in a given month. This stability mostly held up even during recessions, which are marked as the shaded areas in the graph.
But notice the big spike that happened this June. The economy is out of recession. But times are still tough. And government deficits are at record highs. Is the sudden jump in layoffs and discharges due to government cutting spending to avoid fiscal disaster?
I’d guess not. June was when large numbers of temporary census workers finished their jobs. Still, for one shining second, I thought that Washington had come to its senses.
Progressives once believed in bureaucracy. A wise, enlightened civil service kept immune from the corrupting influence of politics would create Heaven on Earth. That blind faith in government as a better means of advancing the public interest had many roots: a secular substitute for declining faith in traditional religion, a power grab by an expanding intellectual class, the innovations that (they thought) would ensure this result (the “independent agency,” supposed advances in the social “sciences,” and an impatience with the evolutionary gains made possible by the free market. If spontaneous order could yield gains, think what a directed expert-led effort could achieve!
Reality has not been kind to the Progressives. Their hope of a non-political politics rapidly went astray as their first model, the Interstate Commerce Commission, was first captured by the railroads and then by the shippers. The ICC was soon a tool for suppressing competition, for rewarding special interest (the “regulatory capture” reality that the public choice school was to analyze much later). Regulatory agencies faced a swiftly changing marketplace and found themselves time and time again out-maneuvered. (It is, of course, always possible that somewhere in our society, there exists a handful of brilliant individuals who might be able to “regulate” a complex and changing marketplace, but it is highly unlikely that those individuals will be attracted to bureaucracy.)
As a result, Progressives have changed tactics. They still favor elite control of America, but they no longer place their faith in agencies, in the “independence” of civil servants. They have switched their allegiance to the Courts. And, that change has meant that the courts have become much more politicized than even the most powerful Progressive institution, the Federal Reserve. That point was alluded to in a recent Outlook piece in the Washington Post, “Picking a Justice, Ignoring the Fed” by Matthew Yglesias commenting on the massive attention given the retirement of Supreme Court justice, John Paul Stevens, compared to that given the retirement of several key Fed Reserve governors. Yglesias notes this is somewhat surprising since in many ways the Fed has even more influence over our daily lives than does the Court. No surprise really: the ideas of Keynes still dominate at the Fed so the Progressives are content. The Court is narrowly divided with Progressive ideology on the defensive. It remains narrowly a Progressive institution – they’ll fight to the death to keep it so.
Richard Morrison, Jeremy Lott and Marc Scribner get together to bring you Episode 75 of the LibertyWeek podcast. We take on Ben Bernanke’s recession theories, Canada’s struggle to provide affordable energy, the high cost of government-regulated credit cards, bringing booze to Salt Lake City and the FDA’s critics on the left.
I recently finished reading Swedish economist Johan Norberg‘s book about the financial crisis, aptly titled Financial Fiasco. It’s both short and informative. Six chapters and 155 pages, all of them worth reading.
The first two chapters are about the two big regulatory causes of the recession. One, monetary policy that was too easy for too long. The price system works. When the Fed messes with that price system, prices send out the wrong signals. People behave accordingly. Two, a decades-long drive to raise homeownership rates caused a lot of people to take out loans they couldn’t afford. It was only a matter of time before the consequences would come to bear.
Chapters 3 and 4 are about how the private sector reacted to the incentives regulators gave them. Let’s just say they acted badly. If people can game the system, they often will. Norberg’s criticism of overly-complicated securitized mortgage packages is both shocking and infuriating.
Chapter 5 is about how the government and private sector reacted to the crisis once the housing bubble popped. The $700 billion bailout program to reward bad behavior comes under fire.
Norberg is in top form in Chapter 6. Having looked at the causes and consequences of the crisis, now he offers a way out. One lesson is that politicians will always behave badly. “Politicians who distribute pork they cannot afford are reelected; butcher shops that sell pork they cannot afford go bankrupt. (p. 150)” Politicians are just like you and me. They go wherever their incentives lead them. We need to approach them accordingly.
The way to a full recovery is not bailouts. It is letting bad companies fail. And just as important, letting good ones prosper. “Government support for companies is thus not a way to save jobs, as politicians try to make us believe. It is a way to move jobs from good companies to bad companies.” (p. 151) In the long run, bailouts keep the economy down by keeping jobs and resources away from where they would do the most good.
Financial Fiasco has echoes of Tocqueville; a foreigner is trying to figure out how America works. Norberg, like Alexis de Tocqueville, is uncommonly perceptive. His experience living under an economy more thoroughly mixed than America’s allows him to see things that have escaped American commentators. This is extremely valuable. The fact that his book is concise, well written, and accessible to those of us who don’t have economics Ph.Ds makes it even moreso.
The latest figures on consumer credit from the Federal Reserve show that consumers are hunkering down, especially on credit card debt. Revolving credit outstanding – mainly credit card debt – fell at an annual rate of 9-3/4 percent in February 2009 from the month before. Revolving credit outstanding fell from $963.5 billion in January to $955.7 billion in February. Pools of securitized assets based on credit card debt fell from $448.1 billion to $440.3 billion. These balances are no longer carried on the books of the credit card issuers.
Delinquency figures on credit cards for the last quarter 2008 rose but in a range near the four-year average, according to the American Bankers Association. Their latest survey showed that credit card delinquencies increased from 4.20 percent to 4.52 percent — the four-year average is 4.47 percent.
Your hosts Richard Morrison and Cord Blomquist welcome back special guest co-host Michelle Minton for Episode 35 of the LibertyWeek podcast. We begin with a celebration of human achievement and a peek into the realm of secret government documents. We then investigate how the White House is going to waste another $1 trillion of your money and how the British beer tax has managed to kill off 20,000 jobs. Finally we focus on the history of the scandal-addled Sen. Dodd of Connecticut and the future of U.S. Olympic glory.
BONUS BOOK FEATURE: We congratulate our good friend Steve Milloy on the publication of his new book, Green Hell: How Environmentalists Plan to Ruin Your Life and What You Can Do to Stop Them. The book is a one-of-a-kind, comprehensive takedown of the entire environmental movement that will open your eyes to a looming threat to our economy, our civil liberties, and the entire American way of life.
From the blog of the great New Jersey-based independent radio station WFMU comes “Little Paper Airplanes,” a music video by the experimental rock band the Sursiks, that should put a smile on the faces of Murray Rothbard devotees — though it is a tad worrying to see monetary disaster find artistic expression. (Notice: strong language.)
Our friends at the Ayn Rand Center for Individual Rights are hosting what promises to be a fascinating public lecture on the state of the U.S. economy and what it means for the future of capitalism. Former CEO and current Board Chairman of BB&T bank, John Allison, will explain the interventionist government policies that brought us where we are today and their anti-capitalist underpinnings.
Location and Details:
The Financial Crisis: Causes and Possible Cures Thursday, January 29, 2009
National Building Museum—Great Hall 401 F Street NW Washington, DC 20001 Red Line Metro, Judiciary Square
“Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities. The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion” based on appraisals by the bond rating agencies Moody’s, Standard & Poor’s, and Fitch. So reports Bloomberg News.
Before the financial crisis, we repeatedly warned in vain that these ratings agencies were failing in their job, and that regulations that prevented independent companies from competing with them should be eliminated. But the Fed continues to rely only on these firms, and shield them from competition, bowing to their special status as the “major nationally recognized statistical ratings organizations,” rather than relying on independent ratings firms, such as those accountable to investors.
The Wall Street Journaleditorial got it exactly right:
The Federal Reserve cut rates to historic lows Tuesday, but today it plans to vote to tighten consumer credit — taking away with one hand what it gives with the other. On the agenda is a rule-making that would impose, for the first time, what amount to federal price controls on credit cards.
That’s what the Fed’s proposed amendment to Regulation AA would do.In changes pushed by consumerist groups and grand-standing lawmakers, the proposal would tell banks how to divide payments on a credit card account when there are different balances on that account.The changes would also prohibit card issuers from increasing the interest rate on an outstanding balance even if the borrower is less creditworthy. And the proposed rules wouldn’t allow banks to charge consumers for going over their credit limit if it’s because of a hold on the account for an expected cost, say, of a hotel or a rental car.
In trying to lower their credit card exposure risk, banks have already tightened up their requirements for issuing credit cards.They’ve also cut credit limits of lots of borrowers.This new proposal will tighten up credit even more and shift the increased costs to the good borrowers — those who stay within their limits and make their payments by the due date.
Guess who’s been one of the big advocates for these changes?No other than Rep. Barney Frank (D-MA), who also pushed for Fannie and Freddie to expand their portfolio of high-risk mortgage loans in the name of the Community Reinvestment Act. We all know what came of that policy.
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