WSJ.com - Bank of Political Works

Before you decide in favor of the newly proposed infrastructure bank, read this article.

 

WSJ.com - Opinion: Bank of Political Works

 

[The proposed infrastructure bank] is the Fannie Mae model applied to public works. The new bank would be a government-sponsored enterprise, or GSE, whether or not anyone admits it.

Such an outfit will inevitably be politicized, as similar examples have been all over the world.

No one disputes that American public works need improving, and government has been spending huge sums to do so. As the nearby table shows, between 2001 and 2011 federal "public physical capital investment outlays" more than doubled to $330 billion from $142 billion. Every major area of infrastructure—transportation, Army Corps of Engineers, energy—is up by at least 75% in a decade.

The scandal is that we buy so little brick and mortar with all this money. Earmarking has wasted billions and is an inevitable byproduct of a system that collects federal taxes and allows Congressmen to send it back to their districts. The bank is supposed to eliminate earmarking, but the Members will surely find a way to influence the bank's lending too.

Instead of a Washington-centric bank that picks winners and losers, Congress would be wise to move in the opposite direction: devolving most public-works decisions to the state and local levels so users decide whether they want to finance a new school, bridge or water system. The feds can focus on maintaining the interstate highway system and then let states and localities choose what to fund.

 

 

 

WSJ.com - A Short Primer on the National Debt

If you’ve ever been confused about the various terminology used in the debt debates, this article contains very accessible definitions and explanations, as well as a breakdown of the figures to understand today’s debt in relation to the past.

 

WSJ.com - Opinion: A Short Primer on the National Debt

 

With the national debt certain to be a front-and-center issue in the 2012 campaign, it is important to understand the true measure of its size. That size seems to vary considerably in news reports. Some news organizations use the debt held by the public, others use total debt. Still others report total future liabilities of the federal government, without making clear what, exactly, that means.

So, a few definitions.  The total national debt of the United States is the sum of all federal bills, notes and bonds that have been issued by the Treasury and not yet redeemed. The publicly held de bt is the sum of the Treasury securities held by individuals, financial institutions and foreign governments.

The intra-governmental debt is the sum of Treasury bonds held by agencies of the federal government, principally the so-called Social Security Trust Fund. The liabilities equal the future pensions, health care, Social Security payments, etc., that are promised under current legislation.

But while the Treasury securities bear the full faith and credit of the United States and any failure to pay the interest or redeem the principal in a timely fashion would be a default, the liabilities are liabilities only so long as current law remains unchanged.

In absolute numbers, the total public debt as of Aug. 11 was $9.924 trillion, and the intra-government debt was $4.666 trillion, for a total of $14.587 trillion.

It's the debt's size relative to gross domestic product that matters, just as personal debts must be measured against a person's income before they can be properly evaluated. The GDP of the United States was $15.003 trillion at the end of the first quarter in 2011. That makes the public debt equal to 66.1% of GDP and the intra-governmental debt 31.1%. Total debt is now 97.2% of GDP and climbing rapidly.

 

 

 

 

WSJ.com - Opinion: Why Americans Hate Economics

 

 

WSJ.com - Opinion: Why Americans Hate Economics

 

I'm surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense.

What the White House is telling us is that the more unemployed people we can pay for not working, the more people will work. Only someone with a Ph.D. in economics from an elite university would believe this.

I have two teenage sons. One worked all summer and the other sat on his duff. To stimulate the economy, the White House wants to take more money from the son who works and give it to the one who doesn't work. I can say with 100% certainty as a parent that in the Moore household this will lead to less work.

The Center for American Progress held a forum earlier this summer arguing that raising the minimum wage would create more jobs. For this to be true, you have to believe that the more it costs a business to hire a worker, the more workers companies will want to hire.

Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical "multiplier"—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there's a fairy passing out free dollars.

Over the years, [the macroeconomic dismissal of the rules of economics] has led to some horrific blunders, such as the New Deal decision to pay farmers to burn crops and slaughter livestock to keep food prices high: To encourage food production, destroy it.

 

 

 

WSJ.com - Obamanonics vs. Reaganomics

WSJ.com - Opinion: Obamanonics vs. Reaganomics

The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.

By the end of the summer of Reagan's third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and '84 output was growing so fast the biggest worry was that the economy would "overheat." In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a "double-dip" recession. By the end of Reagan's first term, it was Morning in America. Today there is gloomy talk of America in its twilight.

My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn't.

The Reagan philosophy was to incentivize production—i.e., the "supply side" of the economy—by lowering restraints on business expansion and investment. This was done by slashing marginal income tax rates, eliminating regulatory high hurdles, and reining in inflation with a tighter monetary policy.

The Keynesians in the early 1980s assured us that the Reagan expansion would not and could not happen.

There is something that is genuinely different this time. It isn't the nature of the crisis Mr. Obama inherited, but the nature of his policy prescriptions.

WSJ.com - Why the Gender Gap Won't Go Away

 

WSJ.com - Opinion: Why the Gender Gap Won't Go Away

 

"women still earn on average only about 75 cents for every dollar a man earns. That's a huge discrepancy."

It is a huge discrepancy. It's also an exquisite example of what journalist Charles Seife has dubbed "proofiness." Proofiness is the use of misleading statistics to confirm what you already believe. Indeed, the 75-cent meme depends on a panoply of apple-to-orange comparisons that support a variety of feminist policy initiatives, from the Paycheck Fairness Act to universal child care, while telling us next to nothing about the well-being of women.

Many studies have examined the subject, and a consensus has emerged that when you control for what researchers call "observable" differences—not just hours worked and occupation, but also marital and parental status, experience, college major, and industry—there is still a small unexplained wage gap between men and women. In 2009, the CONSAD Research Corporation, under the auspices of the Labor Department, located the gap a little lower, at 4.8 to 7.1 percent.

The point is that we don't know the reason—or, more likely, reasons—for the 7 percent gap. What we do know is that making discrimination the default explanation for a wage gap, as proofers want us to do, leads us down some weird rabbit holes. Asian men and women earn more than white men and women do, says the Bureau of Labor Statistics. Does that mean that whites are discriminated against in favor of Asians? Female cafeteria attendants earn more than male ones do. Are men discriminated against in that field? Women who work in construction earn almost exactly what men in the field do, while women in education earn considerably less. The logic of default discrimination would lead us to conclude that construction workers are more open to having female colleagues than educators are. With all due respect to the construction workers, that seems unlikely.

So why do women work fewer hours, choose less demanding jobs, and then earn less than men do? The answer is obvious: kids. A number of researchers have found that if you consider only childless women, the wage gap disappears.

When working mothers can, they tend to spend less time at work. That explains all those female pharmacists looking for reduced hours. It explains why female lawyers are twice as likely as men to go into public-interest law, in which hours are less brutal than in the partner track at Sullivan & Cromwell. Female medical students tell researchers that they're choosing not to become surgeons because of "lifestyle issues," which seems to be a euphemism for wanting more time with the kids. Thirty-three percent of female pediatricians are part-timers—and that's not because they want more time to play golf.

If women work fewer hours than men do, it appears to be because they want it that way.

In fact, women choose fewer hours—despite the resulting gap in earnings—all over the world. That includes countries with generous family leave and child-care policies.

So it makes no sense to think of either the mommy track or the resulting wage differential as an injustice to women. Less time at work, whether in the form of part-time jobs or fewer full-time hours, is what many women want and what those who can afford it tend to choose. Feminists can object till the Singularity arrives that women are "socialized" to think that they have to be the primary parent. But after decades of feminism and Nordic engineering, the continuing female tropism toward shorter work hours suggests that that view is either false or irrelevant. Even the determined Swedes haven't been able to get women to stick around the office.

 

 

 

WSJ.com - The Soft-on-Crime Roots of British Disorder

Let’s hope we can learn from other’s mistakes so we don’t have to make them ourselves.

 

WSJ.com - Opinion: The Soft-on-Crime Roots of British Disorder

 

Great Britain's leniency began in the 1950s, with a policy that only under extraordinary circumstances would anyone under 17 be sent to prison. This was meant to rehabilitate young offenders. But the alternative to incarceration has been simply to warn them to behave, maybe require community service, and return them to the streets. There has been justifiable concern about causes of crime such as poverty and unemployment, but little admission that some individuals prefer theft to work and that deterrence must be taken seriously.

Victims of aggression who defend themselves or attempt to protect their property have been shown no such leniency. Burglars who injured themselves breaking into houses have successfully sued homeowners for damages. In February, police in Surrey told gardeners not to put wire mesh on the windows of their garden sheds as burglars might hurt themselves when they break in.

If a homeowner protecting himself and his family injures an intruder beyond what the law considers "reasonable," he will be prosecuted for assault.

All sorts of weapons useful for self-defense have been severely restricted or banned… Along with rocket launchers and machine guns, the list includes chemical sprays and any knife with a blade more than three inches long.

The ban on handguns did not stop actual crimes committed with handguns. Those crimes rose nearly 40 and doubled by a decade later…

Knives? It's illegal for anyone under age 18 to buy one, and using a knife for self-defense is unlawful.

The lesson from many years of failed criminal justice policies is that deterrence matters, police cannot always protect the public from violence and criminality, and ordinary people must be allowed to protect themselves.

 

 

 

 

Extra - Why Warren Buffett Is Wrong

There’s been a lot of buzz the last few days about an another article from Warren Buffett in favor of higher taxes on the wealthy.  I was going to send out a WSJ editorial on the topic, but I liked this article from CATO better, as it is the best rebuttal I’ve come across.  I recommend reading the whole article, but, as always, a few portions are excerpted below.

Why Warren Buffett Is Wrong

The first problem with Buffett's view is that the number of super-rich is too small for higher rates to make much difference to our budget problems.

In 2009, the income earned by the 236,833 taxpayers with more than $1 million in adjusted gross income was about $727 billion. Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue — only about 2% of federal spending.  [And note, the current one-year budget deficit is about 1.4 trillion, with a “T”.  So a 100% tax rate on these folks still wouldn’t close the deficit.]

Focusing on the super-rich also fosters a counterproductive attitude toward material success… Most importantly, singling out the super-rich distracts from the real problem: the myriad policies that make no sense in the first place because they inhibit economic growth and that simultaneously redistribute from low-income households to the middle and upper classes.

Numerous loopholes for favored industries in the corporate tax code distort the market's investment decisions and reward the well-funded and politically connected.

Excessive licensing requirements, permitting fees, restrictive examinations and other barriers to entry into medicine, law, plumbing, hair styling and many other professions are bad for economic productivity because they artificially restrict the supply of these services. And these barriers redistribute income perve rsely by raising incomes for those protected and raising prices for everyone.

Crony capitalism — the special treatment of favored industries like autos — runs counter to economic efficiency because it protects businesses that would otherwise fail, and it maintains high incomes for executives and shareholders.

In contrast to these and other policies, the one Buffett criticizes — low tax rates on capital income — is beneficial for the economy, including lower-income households.

Economists agree broadly that an efficient tax system should avoid taxi ng income, dividends and capital gains to promote savings, investment and growth. Tax rates on capital income should therefore be low or even zero. The U.S. is far from this ideal, especially given the high tax rate on corporate income and the additional taxation at the personal level.  [double taxation rate of about 45%]

Buffett errs, most fundamentally, by focusing on outcomes rather than policies. The right question is which policies promote differences in incomes that reflect hard work, energy, innovation and creativity, rather than reward the unethical, the politically connected and the tax-savvy.

In economics, as in sports, we should adopt good rules and insist that everyone play by them. Then we should s tand back and applaud the winners.

 

If you’d also like to read the aforementioned WSJ article, here’s the link:

WSJ.com - Opinion: Warren Buffett's Tax Dodge

 

 

 

WSJ.com - Religion and the Cult of Tolerance

WSJ.com - Opinion: Religion and the Cult of Tolerance

 

Earlier this summer, the chief rabbi for Great Britain warned about a new intolerance being imposed in the name of tolerance.

"I share a real concern that the attempt to impose the current prevailing template of equality and discrimination on religious organizations is an erosion of religious liberty," Lord Sacks told a House of Commons committee in June. "We are beginning to move back to where we came in in the 17th century—a whole lot of people on the Mayflower leaving to find religious freedom elsewhere."

Though not as pronounced on this side of the Atlantic, we can see the same trend that so worries Lord Sacks.  Here too the imposition comes in the guise of nondiscrimination laws and codes. Here too the result is the same: Faith organizations are told whom they must employ and what they must assent to, or face being shoved off the public square.

At the core of their concern is just this: the politically correct rewriting of the First Amendment. Post-1791, what made America's religious freedom truly radical was not simply that it allowed people to worship (or not to worship) as they saw fit. The radical part was the guarantee it gave to corporate freedoms: to hold property together, to own newspapers, to run schools, to open hospitals and clinics, etc.  That understanding is now up for grabs.

These are not cases of people trying to impose their beliefs on the rest of us. Instead they involve the question whether faith communities are free to live their own beliefs in their own institutions. Somehow the more "tolerant" we become, the more difficult that becomes.

In the debates over same-sex marriage, for example, the question is often asked of opponents: What can it possibly mean to you if two people of the same sex have their commitment to each other recognized as marriage? We're now finding out. To give but one example, in Washington, D.C., it means that Catholic Charities no longer qualifies to do adoptions and foster care because it will not place children with or extend health benefits to gay couples.

So much for live and let live.

 

 

 

WSJ.com - A New Strategy for Economic Growth

 

WSJ.com - Opinion: A New Strategy for Economic Growth*

 

U.S. economic policy is sorely lacking an effective grand strategy, and we are likely to endure high unemployment, weak economic performance and trying financial markets until such a strategy is articulated and pursued.

So, what should be the economic grand strategy? In a word: growth.

The grand strategy is sector-neutral. It doesn't have favored industries or political parties. It does not seek to curry favor with special interests. The grand strategy fights statism everywhere.

The grand strategy goes out of its way to ensure that big companies are not advantaged at the expense of smaller, entrepreneurial competitors. If banks are "too big to fail," they are too big. They must be allowed to succeed or fail on their own merit, without any hint of government support.

A pro-growth strategy is decidedly long term in orientation. It aims for higher standards of living five, 10 and 20 years out, long past the next election cycle. It replaces the false promise made to the next generation of entitlement-program recipients with a solvent, dependable model that encourages work and savings.

An effective growth strategy confronts tough challenges before they become intractable.  Fundamental tax reform—dramatically lowering tax rates for individuals and companies while eliminating loopholes, deductions and credits—is critical to economic growth.

Achieving strong growth requires the free flow of capital, goods and ideas. We have world-class products and services to sell to the growing middle class in emerging markets. We must find our voice to resist the rising tide of economic protectionism…

The growth strategy also demands an abiding respect for the rule of law, and stable, cost-effective rules of the road from regulators.

 

 

 

WSJ.com - How Big Government Hurts the Average Joe

 

WSJ.com - Opinion: How Big Government Hurts the Average Joe

 

During the debt-ceiling debate, President Obama characterized his push for higher taxes and less aggressive budget cuts as being helpful to the middle class. The claim was that failing to raise taxes on high-income earners would place a disproportionate share of the pain on the rest. But it is our record-high government spending, not the failure to raise taxes on the rich, that is the typical American's largest long-term problem.

Workers do well only when the economy grows at a healthy and consistent pace. The biggest threat to long-term economic growth is government growth of the magnitude that characterized the past two years and that is forecast for our future.

Our current problems are not a result of acts of nature. They stem from policy choices that dramatically increased the size of the government. In the past two years, the federal budget has grown by a whopping 16%.

The budget for Health and Human Services, for example, home to Medicare and Medicaid, rose a hefty 22%, as compared with 12% for Defense.  The sum of 11 other agencies experienced an increase of more than 50% over the two-year period. Some of the budget increases should disappear when the economy rebounds, but much of the addition is permanent and is reflected in the president's projected future budget numbers.

The price of the stimulus is what appears to be a permanent increase in the size of government that will continue to slow economic growth. Most economists believe that high debt and high taxes each contributes to slow economic growth, which hurts workers both in the short and long run.

In the short run, job growth is very closely linked to GDP growth. If the economy is not growing, then jobs are not being added.

In the long run, wage growth suffers when GDP growth is weak. Labor productivity grows when technology advances as a result of capital investment, human or physical. But high taxes and the increased interest rates caused by high government debt reduce investment, which in turn impedes growth in labor productivity.

 

 

 

WSJ.com - The Global Rout

 

WSJ.com - Opinion: The Global Rout

 

They say there's always a silver lining. Yesterday there wasn't. Markets around the globe sold off in a chaotic day. The Dow Jones Industrial Average's hair-raising ride ended the day down 512 points. The discernible theme among the wreckage was a generalized loss of confidence in the policy-making role of governments, here and in Europe.

The economies of Europe and the United States have arrived at the moment when they no longer have any conceivable hope of being able to pay for the huge public commitments they've amassed the past 40 years. This year's "debt crisis" has been building for decades.

In the wake of the debt deal, liberal economists are now complaining that the downward pressure on spending violates the Keynesian commandment to flood a faltering economy with government outlays.

We've done that. From the first months of the Obama Presidency, billions of stimulus have been injected into the economy, budgeted federal spending has grown toward 25% of GDP and the Federal Reserve has poured oceans of cash into the markets.

The Keynesians have fired all their ammo, and here we are, going south. Maybe now President Obama should consider everything he's done to revive the American economy—and do the opposite.

 

 

 

WSJ.com - A Debt Deal The Founders Could Love

 

WSJ.com - Opinion: A Debt Deal The Founders Could Love

 

The debt-ceiling crisis has prompted predictable media laments about how partisan and dysfunct ional our political system has become. But if the process leading to the current deal was a "spectacle" and a "three-ring circus," the show's impresarios are none other than James Madison and Alexander Hamilton. Our messy political system is working exactly the way our Founders intended it to.

To the extent House members were the most intransigent during the process—a matter of opinion, in any case—they were meant to be. The House of Representatives is the "popular branch," as described in The Federalist Papers, and was intended to "have an immediate dependence on, and an intimate sympathy with, the people." Many people, especially those who elected tea party candidates last November, passionately believe that the federal government has gone off the rails. They think that Washington has been spending like a dru nken sailor since President Obama took office, and that this profligacy must end.

By contrast, the Framers conceived the Senate as a body of graybeards (or, at the very least, as modestly mature individuals who have reached the age of 30). It was meant to represent the interests of the states and to serve as a check on "the impulse of sudden and violent passions," or the danger of "factious leaders" offering "intemperate and pernicious resolutions" that might in time characterize the lower house. If the Senate has been less willing than the House to call an immediate halt to federal borrowing and to seek a more gradual return to fiscal responsibility, this too is exactly what it is supposed to do.

The result was a compromise, as it has nearly always been throughout our history.

 

 

 

WSJ.com - Poverty in America

There are poor in this country, but government-defined-poverty does not equal real-poverty.  The government does a disservice to the truly poor with their definitions and statistics.

 

WSJ.com - Opinion: Notable & Quotable

 

The Census Bureau reported last fall that 43 million Americans—one in seven of us—were poor. But what is poverty in America today? The most recent government data show that more than half of the families defined as poor by the Census Bureau have a computer in the home. More than three of every four poor families have air conditioning, almost two-thirds have cable or satellite television, and 92% have microwaves. . . . The typical poor family has at least two color TVs, a VCR, and a DVD player. One-third have a wide-screen, plasma, or LCD TV. And the typical poor family with children has a video-game system such as Xbox or PlayStation. . . .

The poor are r arely overcrowded. In fact, the average poor American has more living space than the average non-poor European. How about hunger? Activists proclaim, "At the end of the day, 17 million children go to bed hungry." TV news reports wail that America faces a "hunger crisis" in which "nearly one in four kids" is hungry.

But the U.S. Department of Agriculture, which conducts the nation's food-consumption and hunger survey, says otherwise. The USDA reports that 988,000 children (or 1.3% of all American children) personally experienced very low food security—which means "reduced food intake and disrupted eating patterns"—at any point in 2009. During the full course of the year, only one child in 67 was reported "hungry," even temporarily, because the family couldn't afford enough food. Ninety-nine percent of children did not skip a single meal during 2009 because of lack of financial resources.

 

 

 

WSJ.com - The Road to a Downgrade

A brief history of how the entitlement state started and grew into the problem we face today.

 

WSJ.com - Opinion: The Road to a Downgrade

 

Even without a debt default, it looks increasingly possible that the world's credit rating agencies will soon downgrade U.S. debt from the AAA standing it has enjoyed for decades.

President Obama will deserve much of the blame for the spending blowout of his first two years (see the nearby chart). But the origins of this downgrade go back decades, and so this is a good time to review the policies that brought us to this sad chapter and $14.3 trillion of debt.

****

The looming debt downgrade only confirms what everyone knows: Congress has made so many promises to so many Americans that there is no conceivable way those promises can be kept. Tax rates might have to rise to 60%, 70%, even 80% to raise the revenues to finance these promises, but that would be economically ruinous.

Yet Mr. Obama and most Democrats still oppose any serious reform of Medicare, Medicaid and Social Security. This insistence on no reform reinforces the notion that our entitlement state is too big to afford but also too big to change politically. This is how a AAA country becomes AA, the first step on the march to Greece.