Sunday, September 28, 2008
Cautionary Lessons from the Great Depression
...In considering this view, it's worth recognizing that many of the massive, decisive government interventions that FDR and the New Deal Congress enacted actually made the situation worse. As I discuss in in this article, the administration and various interest groups used the crisis of the Great Depression to enact sweeping legislation that benefited themselves at the expense of the general public, sometimes in ways that made the crisis worse than before. In these efforts, they were abetted by voters' sense of desperation and widespread ignorance of economics and public policy. This made it easy to portray measures that benefited narrow interest groups at the expense of the general public as "emergency measures" needed to address the crisis.
Perhaps the most egregious example was the National Industrial Recovery Act, the centerpiece of FDR's 1933 "First New Deal" (discussed at pp. 649-55 of my article). The NRA (not to be confused with the National Rifle Association) established a system of cartels to raise prices and wages throughout nearly the entire nonagricultural economy. This benefited certain big business interests and unions, which were able to suppress their competitors. But it also had the predictable result of greatly reducing economic output and increasing unemployment, especially among the poor and unskilled who were already suffering greatly. Economists estimate that it reduced GDP by as much as 6 to 1l percent (pg. 650). Co-blogger David Bernstein points out in his book Only One Place of Redress that the NRA particularly harmed low-wage black workers and that it was supported by some white labor unions in part because they hoped it would stifle black competition. The NRA - the biggest and most ballyhooed of FDR's early New Deal policies - made the Depression significantly worse than it would have been otherwise.
The NRA was the biggest and most damaging of the New Deal's harmful interest group power grabs. But it was far from the only one. For example, all law students study the Supreme Court's decision in Wickard v. Filburn, which upheld the Agricultural Adjustment Act requirement that farmers limit their production in order to raise prices. Like the NRA, the AAA was a cartel scheme intended to raise prices in order to benefit big producers (AAA production quotas and subsidies were based on the amount of farmland each farmer owned, thus benefiting bigger producers who owned more land) at the expense of consumers and smaller competitors. The predictable and intended effect of the AAA was to raise food prices - this in the midst of a Depression when many people were already suffering from malnutrition and could not easily tighten their belts further....
Going over the top in the ‘climate war’
‘Anyone who thinks global warming has stopped has their head in the sand. The evidence is clear – the long-term trend in global temperatures is rising, and humans are largely responsible for this rise.’ (1) This emphatic statement from the UK Met Office yesterday is just the latest shot in the ‘climate war’. But in truth, the polarised and highly politicised nature of the current discussion on global warming features plenty of people on both sides with their heads firmly buried, using ‘science’ to disguise the real debate about the future political and economic direction of society....
Tuesday, September 23, 2008
U.S. Government Veers Away From Capitalism
Forget AIG for a moment. Forget Freddie and Fannie, Merrill Lynch, Bear Stearns, and Lehman Brothers. Imagine a company much bigger. Imagine a company that at the end of this year will have spent $400 billion more than it has taken in. Worse, imagine that the company's accounting is so bad, the $400 billion doesn't even begin to cover the whole of this company's liabilities.
In fact, the company deliberately chooses to use what's known as "cash accounting" rather than the more accurate accrual accounting. Cash accounting looks at how much cash the company has on hand, regardless of future liabilities. It's like saying if you have $75 dollars in your checking account right now, you're $75 in the black, never mind that you've deferred your car payment this month, quit your job, and have a rent check due at the end of the month.
The company also practices dirty accounting tricks like "forward funding," "advance funding," and "delayed obligations," deceptive tricks that hide its precipitous finances from auditors and its investors.
This company routinely borrows from its workers' pension plan to pay off its debt. Its accountants then claim that because the company owes the borrowed money to its own pensioners and not to outside creditors, the resulting hole in the pension plan doesn't really count as a liability. Sometimes, the company's executives neglect to pass a budget at all. When that happens, they keep the company running with "emergency expenditures," which its accountants don't consider real expenditures for records-keeping purposes, even though they're paid with real money.
By now, you've probably guessed where I'm headed. I'm not really talking about any private company. I'm talking about your federal government. If any private corporation employed the same accounting tricks Congress and the White House use to hide the government's massive debt and financial liabilities, its board and executive officers would all be in prison. In the government, it's common practice. And that's not even considering the funding of our two ongoing wars, which somehow emanates from outside the normal budget process. ...
Taking Revenge on the Rich Will Not Bring Recovery
...But there's an important fallacy here. The stock market crash of October 1929 and the Great Depression were not the same thing. What made the depression great was not magnitude but duration -- the fact that unemployment was still 20% 10 years later. In the 1930s, policies like the ones described above did not speed recovery; they impeded it....
...In these years, the market was trying to recover, but prosecutors and tax collectors kept getting in the way. Mrs. Pelosi might note that even after the Pecora Commission finally completed its hearings, unemployment was still 20% rather than 10%.
Roosevelt's first effort at raising wages to revive the economy, the National Recovery Administration, was declared unconstitutional. Next came the Wagner Act, which led to massive unionization. Wages increased and unemployment even dipped a bit, but productivity did not rise in commensurate fashion. This contributed to companies' struggles, as Lee Ohanian of UCLA has shown. Industrial production plunged. In 1938, John L. Lewis of the CIO attained the apogee of his power, but unemployment was again at that appalling two in 10....
Friday, September 12, 2008
Science is rational; scientists are not
...I bring this up because many scientists believe that because science is such a superior method of extracting information about the world around us, and constructing predictive models which have been shown to have great utility, that that means that they as scientists can simply transfer their godlike powers to other domains with the greatest of ease. But as the above should make clear I believe this is a false perception, because the power of science arises from the intersection of the communal wisdom of tens of thousands of individuals over decades with the nature of the subject at hand. Granted, there are individual geniuses of great brilliance such as the great Isaac Newton, but the outcomes of his dabbling in alchemy and scriptural hermeneutics should go to illustrate that cognition applied to a fool's errand only results in glorious foolery....
Poll shows support for torture among Southern evangelicals
WASHINGTON -- A new poll released Thursday (Sept. 11) finds that nearly six in 10 white Southern evangelicals believe torture is justified, but their views can shift when they consider the Christian principle of the golden rule.
The poll, commissioned by Faith in Public Life and Mercer University, found that 57 percent of respondents said torture can be often or sometimes justified to gain important information from suspected terrorists. Thirty-eight percent said it was never or rarely justified....
Tuesday, September 09, 2008
Our Trillion-Dollar War
No, it’s not the War in Iraq—it’s the War on Poverty. Incredible as it may seem, Americans transfer more than a trillion dollars each year to low-income families through a bewildering variety of programs, all in the name of fighting poverty and inequality. That’s about seven times the cost of the Iraq war....
...It’s about ten times as much as we spent on redistributive policies in the 1950s (in inflation-adjusted dollars).
It’s equal to the total before-tax cash income of middle-income households. That’s right, we transfer to the low-income population an amount equal to the entire income of middle-income households, that is, households in the middle fifth (40th to 60th percentile) of the American income distribution.
If a trillion dollars were simply given to those counted as poor by the federal government (37 million in 2005), it would amount to $27,000 per person. That’s $81,000 for a family of three, higher than the median income of all American families, and far greater than the poverty threshold of $15,577. ...
Tuesday, September 02, 2008
Massive police raids on suspected protesters in Minneapolis
Protesters here in Minneapolis have been targeted by a series of highly intimidating, sweeping police raids across the city, involving teams of 25-30 officers in riot gear, with semi-automatic weapons drawn, entering homes of those suspected of planning protests, handcuffing and forcing them to lay on the floor, while law enforcement officers searched the homes, seizing computers, journals, and political pamphlets. Last night, members of the St. Paul police department and the Ramsey County sheriff's department handcuffed, photographed and detained dozens of people meeting at a public venue to plan a demonstration, charging them with no crime other than "fire code violations," and early this morning, the Sheriff's department sent teams of officers into at least four Minneapolis area homes where suspected protesters were staying....
The Great Society: Not So Great
...The key things to remember here are the LBJ launched the Great Society in 1964, and Ronald Reagan was inaugurated in 1981. Policies tend to take a year or two to go into effect, so the earliest changes we could plausibly credit to LBJ and Reagan are those that occurred after 1965 and 1982, respectively.
So what I see in this data is a period of steadily falling policy that began long before the Great Society. Unfortunately, we don’t have comparable pre-1959 data, so we can’t see how things looked during the 1950s, but my understanding is that the poverty rate had been falling steadily for decades before the Great Society was inaugurated. But in any event, something was already causing poverty to fall before LBJ announced his Great Society, and the best we can say is that his programs may have slightly accelerated the process.
But the thing about this graph that really undermines Matt’s story is the 1980s. The poverty rate hit bottom in 1978, increased sharply between 1979 and 1982, and then declined steadily, if slowly, from 1983 to 1989. If we’re going to be assigning blame based on eyeballing graphs (and again, I’m skeptical), surely the blame for this particular spike goes to the Carter administration, not “12 years of conservative rule.” The poverty rate in 1982, the first year we can attribute to Reagan policies, was virtually identical to the poverty rate in 1993, the last year we can attribute to Bush....
Socialism and Medicine, Part 2
...It is clear that economic calculation is much clearer and more exact if one is not depending on third parties for payment, so it is not surprising that when insurance companies and government officials realized they did not have bottomless pits of cash to pay to medical professionals, they began to limit what they were willing to pay. Despite the claims of economist Paul Krugman, who writes a column for the New York Times, and others who advocate socialist medical care, all third-party payers, be they insurance firms or governments, face cost constraints and have sought to limit their own exposure.
At the same time, the system has worked to make things more costly on the supply side. For example, state legislatures are fond of mandating new programs requiring all private insurers to provide certain benefits, such as yearly mammograms or mental-health coverage. Invariably, as health care becomes increasingly politicized, politicians seek to force insurers to carry the programs that are politically popular, even if they drive up costs and make insurance less affordable for private customers. ...
...The last statement will come as a shock to people who are convinced after reading Paul Krugman’s New York Times columns that medical care in this country is pure free enterprise and that it is free enterprise that is driving up the costs. In a recent column, Krugman declared that medical care in the United States is costly because of high-quality medical capital such as MRI and CAT scan devices. His reasoning goes as follows:
# Those devices are expensive.
# Doctors charge a lot for tests from those machines, since the devices are costly.
# Because the tests are expensive, they drive up health care costs.
If Krugman were not an economist, perhaps he could be forgiven for constructing such a faulty chain of economic logic. First, and most important, he is not examining what the CAT scan and MRI devices replace. They permit doctors to quickly engage in exploratory surgery in which they are able to quickly diagnose different disorders. Before the advent of these devices, doctors had to perform invasive procedures for which there was a recovery period; today, they are able to quickly diagnose problems at a fraction of the total costs that once were involved in such examinations. ...