Tuesday, August 28, 2012

The(ir) Capital

Gene Healy is a vice president at the Cato Institute, author of The Cult of the Presidency, and a Washington Examiner columnist. Along the lines fellow D.C. resident Robert Tracinski earlier expressed, Healy holds a jaundiced view of our nation’s capital:
  • outside [the Beltway], you'll see a lot of boarded-up storefronts[, but not] headlines like "D.C. Leads List of Most Shopaholic Cities in America." 
  • [Or,] "Beltway Earnings Make U.S. Capital Richer Than Silicon Valley," as the Bloomberg News headline put it. [But] Silicon Valley "creates" wealth, while we—smart as we are— mostly shuffle it around. 
  • [Bloomberg says D.C. generates wealth via] massive defense contracts, "federal employees whose compensation averages more than $126,000," "the nation's greatest concentration of lawyers," and record-high lobbying expenditures. "Wall Street has moved to K Street," comments Barbara Lang, head of the DC Chamber of Commerce.
  • The District is "not exactly the nation's entrepreneurial capital," the Washington Post's Steven Pearlstein observes. "Other than goods and services sold to government, only 12% of the region's output is sold to people and businesses outside the region, a number that has fallen in recent years."
Healy draws on an article by New York Times D.C. bureau chief David Leonhardt, who wrote, “Washington may have the healthiest economy of any major metropolitan area in the country. You can actually see the prosperity.”

But Healy is put off by Leonhardt’s claiming D.C. prosperity is because the capital gobbled up "more stimulus dollars per capita than any state," showing that "a Keynesian response to an economic crisis really can make a difference." Healy harrumphs, “if everyone got more than their fair share of the fixed pie of federal boodle, then all the municipalities could be above average.”

Leonhardt also links the Captial’s prosperity to the fact that "education matters," noting D.C. boasts more college degrees than any other major metropolitan area in America. "If you wanted to imagine what the economy might look like if the country were much better educated, you can look at Washington."

Healy’s response, “it's one thing to use brainpower to build new products, and another thing entirely when it's employed to redistribute wealth that other smart people have created.”

Luigi Zingales, a University of Chicago professor talking to the Economist, went after the K Street lobbyists at the center of Washington D.C.’s crony capitalism prosperity. Though Zingales zings Bush-era lobbyist shenanigans, he is also telling us how today's Capital helps insiders suck up national wealth:
Companies with a lot of money abroad sponsored a bill in 2004/5 that allowed them to repatriate their profits at a low tax rate. Thus $1 produced $220 of tax savings. The Bush-approved drug and Medicare act was a huge bonanza for the drug industry.
So the Capital prospers. As for the rest of us?

Monday, August 27, 2012

Health Care: Statism or Competition?

"A government with all this mass of favours to give or to withhold, however free in name, wields a power of bribery scarcely surpassed by an avowed autocracy, rendering it master of the elections in almost any circumstances but those of rare and extraordinary public excitement."

 --John Stuart Mill  

“[W]e're moving from a society where the goal of government is not to equalize opportunity but to equalize the results of our lives. ... The more we ask government to do for us, the more government can take from us. ... Government is doing so much in our lives that we have less freedom to govern ourselves."

 --Paul Ryan

Obamacare is the key path to government take-over of American society. Stanford economist Victor Fuchs said, in a 1976 statement repeatedly quoted here, a “most effective” way to build “allegiance to the state is through national health insurance.” It’s certainly worked in Europe’s top-down social democracies, beginning with Otto von Bismark’s autocratic German state in 1883.

Obamacare’s not just about a loss of freedom. It’s about the well-understood inefficiencies of any big government program. As Harvard conservative Niall Ferguson wrote recently:
[Obamacare] did nothing to address the core defects of [health care]: the long-run explosion of Medicare costs as the baby boomers retire, the “fee for service” model that drives health-care inflation, the link from employment to insurance that explains why so many Americans lack coverage, and the excessive costs of the liability insurance that our doctors need to protect them from our lawyers.
Obamacare doesn’t fix the big problems with our health care system. It primarily expands ponderous, big government coverage to 30 million more people.

Here’s another health care warning, this about Medicare from the National Review’s conservative Yuval Levin:
Democrats want to test the idea that yet more price controls and central planning will make [Medicare] more efficient while Republicans want to test the idea that intense competition for customers among providers will make the system more efficient. The Democrats’ idea has been tried for decades, it is the organizing principle of Medicare’s fiscal design, and it has gotten us to our current predicament. The Republican idea . . . — as Medicare’s chief actuary, who works for President Obama, has said [—] “can get you to the lowest cost consistent with good quality of care.”
Scott W. Atlas, MD, is a senior fellow at Stanford’s conservative Hoover Institution. He defends the Romney-Ryan Medicare reform plan as one that
would present American seniors with the option of private insurance, instead of traditional Medicare – and voters of all ages should contemplate this next phrase very seriously – giving seniors the choice is an idea that President Obama and his supporters find unacceptable and threatening.
Atlas is worried Obama is transforming America’s health care system into a Western European one, where waiting lists and technology shortages have already moved citizens in Denmark, England, Finland, Ireland, Italy, the Netherlands, New Zealand, Norway, Spain, and Sweden to move toward privatization.

Grace-Marie Turner, a market-based health care reform advocate who heads the Galen Institute, recently took apart the president’s August 25 radio address on Medicare. She first quotes Obama saying that as part of Obamacare’s reforms, “we gave seniors deeper discounts on prescription drugs, and made sure preventive care like mammograms are free without a co-pay.”

Turner’s response:
Does he believe that seniors aren’t going to understand that $4 billion worth of drugs and free mammograms can’t begin to equate with the $716 billion that will be taken [from Medicare]?
Why is the pro-con debate so even on Obamacare and Medicare reform, when the contrast between what works in the competitive private sector and big government inefficiencies is so stark? Isn’t it because such a large portion of the electorate is already dependent upon government?

With this administration, there is another reason. Advocates for our free enterprise system are--to an historically unprecedented degree (see below chart)--almost wholly absent from the Obama leadership team.  J.P. Morgan examined the prior private sector experience of 432 cabinet members in presidential administrations since 1900, including secretaries of Commerce, Treasury, State, Interior, Agriculture, Transportation, Housing and Urban Development, Labor, and Energy (and excluding Navy, Postmaster General, War, Homeland Security, Veterans Affairs, and Health, Education and Welfare).

The results:

Tuesday, August 21, 2012

Better or badder, it’s different inside the Beltway.

“The Intellectual Activist’s” conservative Robert Tracinski is bothered by life in our nation’s capital:
Washington has sucked an extra trillion dollars out of the economy and sent it through the conduits of the federal bureaucracy, employing tens of thousands of college-educated, middle-class functionaries to process all of the stimulus checks and write all of the new regulations. . . [The] New York Times [reports] "the District of Columbia's [has] received more stimulus dollars per capita than any state."
Tracinski quotes New York’s liberal writer Jonathan Chait on how life really is in D.C.:
I live in a Washington neighborhood almost entirely filled with college-educated professionals, and it occurred to me not long ago that, when my children grow up, they'll have no personal memory of having lived through the greatest economic crisis in eighty years. It is more akin to a famine in Africa. For millions and millions of Americans, the economic crisis is the worst event of their lives. They have lost jobs, homes, health insurance, opportunities for their children, seen their skills deteriorate, and lost their sense of self-worth. But from the perspective of those in a position to alleviate their suffering, the crisis is merely a sad and distant tragedy.
But Tracinski faults Chait for not adding that big government has
become its own entrenched interest, responding to the special pleading of its lobbyists and hangers-on, without being able or willing to respond to . . . the millions . . . outside the capital.
Tracinski feels Washington’s elite possesses “an unchallenged belief in the morality of welfare-state altruism,” that within this context, supporting oneself and one’s own needs has no moral significance, but providing for the needs of others makes you virtuous. It’s the best position of all. As the middleman distributing handouts from the haves to the have-nots, you don’t sacrifice your own prosperity, but you gain the moral high ground that comes with playing Robin Hood. Government ends up the answer to every problem because it supports the little guy.

Tracinski believes Chait and his Washington elite encourage people to outsource responsibility for their own lives, and to depend instead on distant bureaucrats who 1) are not necessarily benevolent, 2) are living off of an unlimited stream of free money-tax money, and 3) prosper regardless of whether their work actually helps anyone.

Tracinski advocates “a totally different moral and economic model” summed up by Adam Smith’s "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest."

The businessman or investor may, like Chait's neighbors, live in a comfortable suburb among upper-middle-class professionals, and may not know or care what happens outside. But here’s the difference: he doesn't have to care. All he has to do is follow his own interests. If he hires you, it is because he thinks he can profit by expanding his business. If he reduces the price of your goods, or if he creates some valuable new product or service, it’s a manifestation of his self-interest. He merely offers value for value.

Do you truly prefer Chait’s way: sitting around waiting for comfortable upper-middle-class types to feel sorry for you and enact a government program that has a strong chance of failure? Or would you rather take destiny into your own hands?

Washington or Main Street. 

Thursday, August 16, 2012

It’s about the money, money, money.

“Reagan will raise taxes, and so will I. He won't tell you. I just did.”

 --Walter Mondale (1984)

The fundamental economics problem is unlimited wants set against limited resources.

Conservatives are classical liberals, believers in “negative liberty.” Provide people the freedom to pursue wealth through hard work, according to predictable and fixed rules, and prosperity will result. Our founding fathers, who escaped the tyranny of the British monarchy at the exact moment (1776) Adam Smith spelled out the virtues of a market economy, thought this way. As Gary Sorman says in the conservative City Journal, “rules reinforce the power of the people.”

Today’s liberals or progressives are in the tradition of Jean Jacques Rousseau and the French Revolution, of Marx’s critique of capitalism as modified to West European social democracy, believing in “positive liberty,” government’s need to rectify the capitalist imbalance in the direction of “égalité,” wanting freedom and equality.

In practical terms, liberals fear capitalism and embrace government. Conservatives fear government and embrace market growth.

In policy terms, liberals raise taxes to pay for more government, conservatives lower taxes or hold them steady to keep resources in the private sector. Liberals think government spending spurs growth, conservatives think private sector growth will finance more social good.

The Democratic Party is a coalition of special interests tied to government power. Republicans are a coalition that mistrusts big government. The 2012 election is a zero-sum game; one side will win at the expense of the other. These are basic truths.

Democrats, however, are up against two gigantic problems: 1) their big government has failed to get the economy going, and 2) voters don’t want the tax increases Democrats need. So Democrats are operating a smokescreen campaign, even as insiders know a Democratic victory means higher middle class taxes.

Yet behind the smokescreen, one can see the outlines of Democrats’ ultimate objective, as Walter Mondale so honestly said in 1984 on his way to crushing defeat--raise taxes on the middle class.

Here is the liberal Washington Post, in a recent editorial:
it’s impossible to tackle the federal debt by taxing only the wealthy. As the cost of retirement and health care for an aging population rises, the middle class is going to have to pay more, and federal benefits are going to have to be adjusted.
And here is Timothy Noah, in the liberal New Republic:
income tax rates need to return across the board to the Clinton-era levels. "I don't want to raise taxes on the middle class," Obama says. But if he doesn't, he can forget about achieving meaningful deficit reduction. . . It would be political suicide for Obama to say any of this right now, because voters think taxes are already too high. . . Taxes . . . need to rise on the middle class. . .if Obama gets a second term, he'll have to get over his aversion to raising taxes on the middle class. The past three decades have been rough on the middle class in all sorts of ways—but not when it comes to taxation. Their taxes have fallen and now the country is broke. [emphasis added]
William Voegeli, in the conservative National Review, pounced on Noah’s words, adding, “In other words, tell lies during the campaign and face reality after the election.”

I would say, “of course.” The facts are simple and and they are stark. As Voegeli notes, total (federal, state, and local) government spending had already increased from 26.5% of GDP in 1965, the year the Great Society began, to 32.6% in 2008, and that before Obama began his massive spending.

The current revenue-expenditure gap--at 7% of GDP--is unsustainable. Republicans will cut big government, Democrats will raise taxes on the middle class. The choice is yours, in the unlikely event you aren’t already tied to one side or the other.

Monday, August 13, 2012

The Smartest Guy in the Room

"Romney may have concluded: There is nothing Obama won’t say about me, because he has nothing to say for himself, so I will chose a running mate whose seriousness about large problems and ideas underscores what the president has become — silly and small."

--George Will, Washington Post 

"Who would have thought that Mitt Romney would fully embrace [the] bold [Ryan] ideological alternative? Now that he has, the stakes of the election rise significantly. A Romney win would . . . be the triumph of a comprehensive conservative substitute for modern liberalism. . . That increases Romney’s political degree of difficulty, increases the intensity of his liberal opposition — and gives his candidacy an unexpected historical significance."

--Michael Gerson, Washington Post

Paul Ryan understands the budget better than anyone. Partly because he knows the budget so well, Ryan is able to communicate to ordinary folks why less spending helps. We need Ryan at a time when downsizing government is the key to job growth and prosperity.

Ryan has the guts to show where we can cut government spending, even though Democrats turn his details into negative TV ads. Details are the “third rail” that usually sends candidates to defeat.

Romney picking Ryan is a shocker for me. Romney is cautious, and Ryan, as Gerson says, is a bold pick. But with Ryan, who is every bit as good a selection demographically as my choices Rubio or Christie would have been (all are ethnic Catholics), Romney now leads a team that can reshape America’s economy for all our benefit.

As said here, the Romney camp was determined to pick a Cheney, not a Palin, someone who could govern, not qualifications-deficient flash. But I failed to note that Bush picking Cheney was also bold. Bush took a chance going with someone from Wyoming (only 3 electoral votes) and Texas (Bush already had Texas) who offered zero electoral balance. But Bush showed confidence when he added a veep with far more gravitas than himself.

Now Romney is showing daring (Ryan’s dangerous detailing of budget cuts) and Bush-like personal confidence by going with Ryan. Ryan is the Cheney-bold pick that neither Ohio Senator Rob Portman nor ex-Minnesota Governor Tim Pawlenty would have been. Thank you Mitt Romney.

As the chart below shows, bold vice presidential picks outperform the bad ones, 6 to 3, or 2:1 (I don’t count “bold v. bold” or “bad v. bad”). If Palin counts as “bad” rather than “bold” (she is both), then the score is 6 to 2, or 3:1.

Twilight of the Meritocracy (II)

"I am always struck by people who think, well, (their success) must be because (they were) just so smart. There are a lot of smart people out there. It must be because (they) worked harder than everybody else. Let me tell you - there are a whole bunch of hardworking people out there.”

--Barack Obama

This election is raising national consciousness of our meritocratic elite. And that could be unhealthy for those at the top.

Most recently, we found the meritocracy’s family newspaper, the New York Times, discussing how over the decades since Washington’s meritocracy declared a war on poverty in 1964, a sharp increase of single parent families has made poverty ever more intractable. Whether or not the solution is, as conservatives believe, the moral one of taking responsibility for one’s own actions, top-down big government programs haven’t worked. Those in poverty rose from 36 million in 1964 to 46 million in last year’s report--the highest number ever. The poverty rate at 15.1% is at its highest since 1993.

Unemployment, at 5.2% in 1964, is now at 8.3%.

We also discussed how the meritocracy’s solidification of its high status is increasing anxiety within its own ranks. Some object to meritocracy’s relentless pressure on families in each generation to re-compete to retain high status; others are upset that a semi-permanent class of underachievers seems to be emerging within our democracy.

There is a basic contradiction between meritocracy and democracy. If the people do rule, they will not accept a permanent elite--those at the top must rule only temporarily, replaced by others through open competition. “Meritocratic” rule through big government Washington is now “four score” years old, and folks don’t like how money and tests are working to hold that rule within a privileged subset of Americans. President Obama is playing to popular resentment when he says (opening quotation) smart people at the top claiming to be hardworking aren’t so special.

David Brooks, a New York Times house conservative who believes in elite meritocratic rule, is disturbed by the challenges facing today’s meritocracy. In his “Why Our Elites Stink” column that reflects his ongoing attention to our elite, Brooks writes,
white Protestant men [used to] dominate[] the universities, the world of finance, the local country clubs and even high government service. Over the past half–century, a more diverse and meritocratic elite has replaced the Protestant Establishment. People are more likely to rise on the basis of grades, test scores, effort and performance. Yet, as this meritocratic elite has taken over institutions, trust in them has plummeted. . . the brainy elite is[n’t] doing a better job of running them than the old boys’ network.
[Liberal] Christopher Hayes of [Twilight of the Elites] believes that the problem is inherent in the nature of meritocracies. . . meritocratic elites may rise on the basis of grades, effort and merit, but, to preserve their status, they become corrupt. They create wildly unequal societies, and then they rig things so that few can climb the ladders behind them. Meritocracy leads to oligarchy.
corruption [at the top is] endemic . . . to the specific culture of our meritocracy. . . today’s meritocratic elites cannot admit to themselves that they are elites. Everybody thinks they are countercultural rebels, insurgents against the true establishment, which is always somewhere else.
Brooks adds that today’s elite, lacking any self-conscious leadership code talks the language of meritocracy (how to succeed) rather than the language of morality (how to be virtuous): “they are brats; they have no sense that they are guardians for an institution the world depends on; they have no consciousness of their larger social role.”

Brooks openly declares that “I want to keep the current social order, but I want to give it a different ethos.” The WASP elite he admires “had a stewardship mentality,” believing “they were temporary caretakers of institutions that would span generations. They . . . believe[d] in restraint, reticence and service.”

Brooks would argue that every state structure has an elite at the top, that a meritocratic elite admitting members by examination from all classes represents a democracy’s best possible elite, and that that elite should be trained in the virtues of “restraint, reticence and service.”

I would respond that, as Christopher Hayes himself asserts, “meritocracy leads to oligarchy,” and that corruption at the top is “endemic.” Best to introduce the virtues of capitalism to our governing structure, massively decentralizing decisionmaking to the population as a whole, offering all of us as much choice as possible when it comes to education (beyond government schools), health (no national health system), and general government (diffuse power, no permanent bureaucracy, wide use of initiative, referendum, recall, and term limits).

One hopes America will move past meritocratic elite rule relatively painlessly.  Yet it’s human nature to press for the illusionary security the status quo offers.