Showing posts with label Statism. Show all posts
Showing posts with label Statism. Show all posts
Sunday, March 4, 2012
Ranking Freedom in the 50 States
Sunday, November 27, 2011
$60 Billion School Bailout; Another Bad Idea From Bama?
"The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Left to their own devises, most organizations, be they of the public or private sector, will only embark on serious reform when they face a fiscal crisis. So, while the Obama Administration's bailout may help spare these districts short term pain, it has allowed them to avoid undertaking needed reforms to create fiscally sustainable policies. Efforts to create a leaner, more effective school systems will be put off and most perversely, the Obama Administration will be hailed by the economically illiterate as having saved or even created new jobs.
Wednesday, December 15, 2010
Big Business and Big Government
Far too many conservatives and progressives have adopted the narrative of large, uber capitalist corporations that opposed big government and regulation, when quite often the truth is more complex. A careful look at history and current events shows that many larger corporations are avid supporters of the interventionist state, because they seek to use subsidies and even regulations as means of limiting competition and maintaining their market monopolies. And not surprisingly, as the state has increased its influence in the workings of big business, big business has increased its influence in the state.
July 21, 2006
Big Business and Big Government
by Timothy P. Carney
Big business has too much power in Washington, according to 90 percent of Americans in a December 2005 poll.
Every week, headlines reveal some scandal involving politicians, lobbyists, corporate cash, and allegations of bribes. CEOs get face time with senators, cabinet secretaries, and presidents. Lawmakers and bureaucrats take laps through the revolving door between government and corporate lobbying. Whatever goes on behind closed doors between the CEOs and the senators can't be good or the doors would not be closed.
Just what is big business doing with all this influence? There are many assumptions about big business's agenda in Washington. In 2003 one author asserted, "When corporations lobby governments, their usual goal is to avoid regulation."
That statement reflects the conventional wisdom that government action protects ordinary people by restraining big business, which, in turn, wants to be left alone. Historian Arthur Schlesinger articulated a similar point: "Liberalism in America [the progression of the welfare state and government intervention in the economy] has been ordinarily the movement on the part of the other sections of society to restrain the power of the business community." The facts point in an entirely different direction:
Enron was a tireless advocate of strict global energy regulations supported by environmentalists. Enron also used its influence in Washington to keep laissez-faire bureaucrats off the federal commissions that regulate the energy industry.
Philip Morris has aggressively supported heightened federal regulation of tobacco and tobacco advertising. Meanwhile, the state governments that sued Big Tobacco are now working to protect those same large cigarette companies from competition and lawsuits.
A recent tax increase in Virginia passed because of the tireless support of the state's business leaders, and big business has a long history of supporting tax hikes.
General Motors provided critical support for new stricter clean air rules that boosted the company's bottom line.
The Big Myth
The myth is widespread and deeply rooted that big business and big government are rivals—that big business wants small government.
A 1935 Chicago Daily Tribune column argued that voting against Franklin D. Roosevelt was voting for big business. "Led by the President," the columnist wrote, "New Dealers have accepted the challenge, confident the people will repudiate organized business and give the Roosevelt program a new lease on life." However, three days earlier, the president of the Chamber of Commerce and a group of other business leaders met with FDR to support expanding the New Deal.
Almost 70 years later New York Times columnist Paul Krugman assailed the George W. Bush administration: "The new guys in town are knee-jerk conservatives; they view too much government as the root of all evil, believe that what's good for big business is always good for America and think that the answer to every problem is to cut taxes and allow more pollution." At the same time, "big business" just across the river in Virginia was ramping up its campaign for a tax increase, and Enron was lobbying Bush's closest advisers to support the Kyoto Protocol on climate change.
Months later, when Enron collapsed, writers attributed the company's corruption and obscene profits to "anarchic capitalism" and asserted that "the Enron scandal makes it clear that the unfettered free market does not work." In fact, Enron thrived in a world of complex regulations and begged for government handouts at every turn.
When commentators do notice business looking for more federal regulation, they mark it up as an aberration.
When a Washington Post reporter noted in 1987 that airlines were asking Congress for help, she commented, "Last month, when the airline industry found itself pursued by state regulators seeking to police airline advertising, it looked for help in an unlikely place—Washington." In truth, airline executives had been behind federal regulation of their industry for decades and had aggressively opposed deregulation.
In fact, for the past century and more big business has often relied on big government for support.
The History of Big Business Is the History of Big Government
As the federal government has progressively become larger over the decades, every significant introduction of government regulation, taxation, and spending has been to the benefit of some big business. Start with perhaps the most misunderstood period of government intervention, the Progressive Era from the late 19th century until the beginning of World War I.
President Theodore Roosevelt is usually depicted as the hero of this episode in American history, and his "trust busting" as the central action of the plot. The history books teach that Teddy empowered the federal government and the White House in a crusade to curb the big business excesses of the "Gilded Age."
A close study of Roosevelt's legacy and that of Progressive legislation and regulation, however, yields a far different understanding and shows that the experience with meat—big business calling in big government for protection—was a recurring theme. Roosevelt expanded Washington's power often with the aim and the effect of helping the fattest of the fat cats.
Today's history books credit muckraking novelist Upton Sinclair with the reforms in meatpacking. Sinclair, however, deflected the praise. "The Federal inspection of meat was, historically, established at the packers' request," he wrote in a 1906 magazine article. "It is maintained and paid for by the people of the United States for the benefit of the packers."
Gabriel Kolko, historian of the era, concurs. "The reality of the matter, of course, is that the big packers were warm friends of regulation, especially when it primarily affected their innumerable small competitors." Sure enough, Thomas E. Wilson, speaking for the same big packers Sinclair had targeted, testified to a congressional committee that summer, "We are now and have always been in favor of the extension of the inspection, also of the adoption of the sanitary regulations that will insure the very best possible conditions." Small packers, it turned out, would feel the regulatory burden more than large packers would.
Consider the story of one of the most famous "trusts" in American folklore: U.S. Steel.
In the 1880s and 1890s, rapid steel mergers created the mammoth U.S. Steel out of what had been 138 steel companies. In the early years of the new century, however, U.S. Steel saw its profits falling. That insecurity brought about a momentous meeting.
On November 21, 1907, in New York's posh Waldorf-Astoria, 49 chiefs of the leading steel companies met for dinner. The host was U.S. Steel chairman Judge Elbert Gary. The gathering, the first of the "Gary Dinners," hoped to yield "gentlemen's agreements" against cutting steel prices. At the second meeting, a few weeks later, "every manufacturer present gave the opinion that no necessity or reason exists for the reduction of prices at the present time," Gary reported.
The big guys were meeting openly— with Teddy Roosevelt's Justice Department officials present, in fact—to set prices.
But it did not work. "By May, 1908," Kolko writes, "breaks again began appearing in the united steel front." Some manufacturers were undercutting the agreement by dropping prices. "After June, 1908, the Gary agreement was nominal rather than real. Smaller steel companies began cutting prices." U.S. Steel lost market share during this time, which Kolko blames on "its technological conservatism and its lack of flexible leadership." In fact, according to Kolko, "U.S. Steel never had any particular technological advantage, as was often true of the largest firm in other industries."
In this way, the free market acts as an equalizer. While economies of scale allow corporate giants more flexible financing and can drive down costs, massive size usually also creates inertia and inflexibility. U.S. Steel saw itself as a vulnerable giant threatened by the boisterous free market, and Gary's failed efforts at rationalizing the industry left only one line of defense. "Having failed in the realm of economics," Kolko writes, "the efforts of the United States Steel group were to be shifted to politics."
Sure enough, on February 15, 1909, steel magnate Andrew Carnegie wrote a letter to the New York Times favoring "government control" of the steel industry. Two years later, Gary echoed this sentiment before a congressional committee: "I believe we must come to enforced publicity and governmental control . . . even as to prices."
When it came to railroad regulation by the Interstate Commerce Commission, the railroads themselves were among the leading advocates. The editors of the Wall Street Journal wondered at this development and editorialized on December 28, 1904:
Nothing is more noteworthy than the fact that President Roosevelt's recommendation recommendation in favor of government regulation of railroad rates and[Corporation] Commissioner [James R.] Garfield's recommendation in favor of federal control of interstate companies have met with so much favor among managers of railroad and industrial companies.
Once again, big business favored government curbs on business, and once again, journalists were surprised.
To cast it in the analogy of Baptists and Bootleggers, the muckrakers such as Sinclair were the "Baptists," holding up altruistic moral reasons for government control, and the big meatpackers, railroads, and steel companies were the "Bootleggers," trying to get rich from government restrictions on their business. Roosevelt was allied to the "bootleggers," the big meatpackers in this case. To get federal regulation, he found Sinclair a handy temporary ally. Roosevelt had little good to say about Sinclair and his ilk; he called Sinclair a "crackpot."
This preponderance of evidence drove Kolko, no knee-jerk opponent of government intervention, to conclude, "The dominant fact of American political life at the beginning of [the 20th] century was that big business led the struggle for the federal regulation of the economy." With World War I around the corner, this "dominant fact" was not about to change.
The men who gathered at the Department of War on December 6, 1916, struck a startling contrast. Labor leader Samuel Gompers sat at the table with President Woodrow Wilson and five members of his cabinet.
Joining Gompers and those Democratic politicians were Daniel Willard, president of the Baltimore and Ohio Railroad; Howard Coffin, president of Hudson Motor Corporation; Wall Street financier Bernard Baruch; Julius Rosenwald, president of Sears, Roebuck; and a few others. This extraordinary gathering was the first meeting of the Council of National Defense, formed by Congress and President Wilson as a means for organizing "the whole industrial mechanism . . . in the most effective way."
The businessmen at this 1916 meeting had dreams for the CND that went far beyond America's imminent involvement in the Great War, both in breadth and in duration. "It is our hope," Coffin had written in a letter to the DuPonts days before the meeting, "that we may lay the foundation for that closely knit structure, industrial, civil, and military, which every thinking American has come to realize is vital to the future life of this country, in peace and in commerce, no less than in possible war."
The CND, after beginning the project of government control over industry, handed much of its responsibility to the new War Industries Board (WIB) by July of 1917. That coalition of industry and government leaders increasingly took control of all aspects of the economy. War Industries Board member and historian Grosvenor Clarkson stated that the WIB strived for "concentration of commerce, industry, and all the powers of government." Clarkson exulted that "the War Industries Board extended its antennae into the innermost recesses of industry. . . . Never was there such an approach to omniscience in the business affairs of a continent."
Business's aims in the WIB were much higher than government contracts, and certainly business did not lobby for laissez faire. As Clarkson puts it, "Business willed its own domination, forged its bonds, and policed its own subjection." Business, in effect, shouted to Washington, "Regulate me!" Business called on government to control workers' hours and wages as well as the details of production.
A decade later Herbert Hoover practiced more of the same. Hoover's record was one not of leaving big business alone but of making government an active member of the team. As commerce secretary in the 1920s, he helped form cartels in many U.S. industries, including coffee and rubber. In the name of conservation, Hoover "worked in collaboration with a growing majority of the oil industry in behalf of restrictions on oil production," according to economic historian Murray Rothbard.
In the White House (where history books portray him as a callous and clueless practitioner of laissez faire), Hoover reacted to the onset of the Great Depression by pressuring big business to lead the way on a wage freeze, preventing the drop in pay that earlier depressions had brought about. Henry Ford, Pierre DuPont, Julius Rosenwald, General Motors president Alfred Sloan, Standard Oil president Walter Teagle, and General Electric president Owen D. Young all embraced the policy of keeping wages high as the economy went south.
Hoover praised their cooperation as an "advance in the whole conception of the relationship of business to public welfare . . . a far cry from the arbitrary and dog-eat-dog attitude of . . . the business world of some thirty or forty years ago."
Before FDR, Hoover got the ball rolling for the New Deal with his Reconstruction Finance Corporation. The RFC extended government loans to banks and railroads. The RFC's chairman was Eugene Meyer, also chairman of the Federal Reserve. Meyer's brother-in-law was George Blumenthal, an officer of J.P. Morgan & Co., which had heavy railroad holdings.
The New Deal and Beyond
After the groundwork laid by the Progressives, Wilson, and Hoover, the alliance of big business and big government continued throughout the 20th century.
Franklin D. Roosevelt implemented the same sort of government controls on the economy during World War II that Wilson had put in place during World War I, complete with rationing and price controls. Big business profited from the controlled economy in much the same ways that it had under Wilson.
President Harry Truman wanted his secretary of state's June 5, 1947, speech to Harvard's commencement to be a quiet one about the rebuilding of Europe. He didn't get his wish. The New York Times and the Washington Post both reported the story on the front pages. Within a day, the whole world knew about the Marshall Plan. But very few knew that a clique of mostly business leaders, called "The President's Committee on Foreign Aid," drafted the idea. Secretary of Commerce W. Averell Harriman, son of railroad magnate E. H. Harriman and former chairman of both Union Pacific Railroad and Illinois Central Railroad, ran the committee. Nine other businessmen joined him. "Throughout, business members—particularly Harriman— set the agenda and the tone for the group's work," historian Kim McQuaid writes. "Without the corporate politicians, Truman's effort would have failed. Men like [cotton baron Will] Clayton and Harriman arrayed foreign aid in procapitalist, anticommunist attire."
On Sunday night, August 15, 1971, millions of Americans watched President Richard Nixon lay out his New Economic Policy. Nixon had a reputation as a staunch conservative, but his New Economic Policy (a phrase borrowed, bizarrely, from Vladimir Lenin) showed Nixon to be a changed man. The federal government would prohibit any increase in wages, prices, or rents for 90 days. After that a "wage and price council" would dictate to businesses when and how much they could increase wages, salaries, and prices. The next day W. P. Gullander, president of the National Association of Manufacturers, declared that "the bold move taken by the President to strengthen the American economy deserves the support and cooperation of all groups." That reaction was typical among big businesspeople. The New York Times reported on August 17, 1971, "Business leaders applauded yesterday, with varying degrees of enthusiasm, the sweeping proposals announced by President Nixon Sunday night."
George W. Bush, in the name of "compassionate conservatism," has handed big business big favors in the form of a prescription drug benefit from Medicare, an energy bill full of brand new special tax credits and subsidies to energy companies, and a record loan guarantee to facilitate business with known nuclear proliferators in China. A report by the directors of the Health Reform Program at Boston University's School of Public Health found, "An estimated 61.1 percent of the Medicare dollars that will be spent to buy more prescriptions will remain in the hands of drug makers as added profits. This windfall means an estimated $139 billion in increased profits over eight years for the world's most profitable industry."
"The greatest trick the devil ever pulled," said Kaiser Soze in the film The Usual Suspects, "was convincing the world he didn't exist." In a similar way, big business and big government prosper from the perception that they are rivals instead of partners (in plunder). The history of big business is one of cooperation with big government. Most noteworthy expansions of government power are to the liking of, and at the request of, big business.
If this sounds like an attack on big business, it is not intended to be. It is an attack on certain practices of big business. When business plays by the crooked rules of politics, average citizens get ripped off. The blame lies with those who wrote the rules. In the parlance of hip-hop, "don't hate the player, hate the game."
This article originally appeared in the July/August 2006 edition of Cato Policy Report
http://www.cato.org/research/articles/cpr28n4-1.html
Monday, June 7, 2010
Progressive Tenets of Economics & Governance.
I came across an interesting article that outlines some core progressive tenets of economics and governance. Unlike socialists, most progressives do not call for the outright government ownership of businesses, but in their vision the government has a major role in regulating, coordinating and controlling larger economic forces. The movement of capital is not left to "wild market forces," but rather to the social and economic calculations of "wise planners" in the form of subsidies for favorable enterprises and penalties for unfavorable enterprises. And in order to achieve positive social and economic ends, the progressive state increasingly directs the more minute practices of private companies, from who they hire and how they fire them, to the extent of compensation, to the manner of production and even the cost of their products. Some of the goals that drive modern planners are: ensuring that private and public institutions are representative of our increasing diversity, income distribution is fair, vital goods and services are affordable and production is green. In addition, some seek to promote less tangible goods, like greater compassion. From era to era the goals and the titles of dirigistes may change, but their underlying principles do not: economic and social life should be driven more by public minded central planners and less by private initiative and impersonal market forces.
"Economic initiatives cannot be left to the arbitrary decisions of private, individual interests. Open competition, if not wisely directed and restricted (regulated), actually destroys wealth instead of creating it...The proper function of the state...is that of supervising, regulating and arbitrating the relationship of capital and labor, employers and employees, individuals and associations, private interests and national interests...More important than the production of wealth is its right distribution, distribution which must benefit in the best possible ways all the classes of the nation, hence the nation itself. Private wealth belongs not only to the individual, but , in a symbolic sense, to the state as well..."
Now, guess were I found this progressive gem?
It's from Mario Palmieri's The Philosophy of Fascism (1936).
No, I am not saying that progressives are fascists (sorry Glenn Beck); most are supporters of civil liberties. Most have positive ends. After all, who does not want a greener, more equitable society, free from scarcity and poverty? But, progressives must be aware of the risks and limitations inherent in the means that they seek to employ. Although they are quite distinct fascism and progressivism has common corporatist roots. In the formal corporatist model, the state is focused less on the individual and more on corporate groups and interests. It's important to note that corporate does not only denote corporations, it also includes other social and economic bodies (corporis in Latin), be they social, ethnic or economic. The state is granted greater power in coordinating and enforcing social contracts between corporate groups, such as labor, business and bureaucratic interests. A recent example is seen in the push for health care reform in which the Obama Administration sought to negotiate (and later impose) health care mandates between entire industries and organizations, such as insurance firms, pharmaceuticals, businesses, bureaucracies and unions. Many conservatives look at these developments with alarm, not because they oppose Obama's goals, but rather because they are aware of the history of corporatism. More specifically, they like the founding fathers are aware of the dangers that corporatism poses to social and economic liberty, as well as long term prosperity.
http://en.wikipedia.org/wiki/Dirigisme
http://en.wikipedia.org/wiki/Corporatism
Sunday, May 2, 2010
Reflections on West Rogers Park
Growing up in Chicago's West Rogers Park neighborhood, I saw individuals of every race, religion, culture and class live, work, shop and study together in peace. With little outward conflict, Jews, Moslems, Hindus, Christians and Sikhs shared the same neighborhood.Kosher Delis thrived next to Pakistani Kabob houses and the Croatian Culture Center brushed up against a Yeshiva and everyone shopped on Devon Street. Individuals from groups with millenia of hatred and bloodshed at the worst were indifferent to each and at the best formed lasting friendships. There are many lessons we can learn from studying the success of West Rogers Park as well as the failure of most other nations in maintaining peaceful relations between diverse populations. Whereas the diverse empires and autocratic states of the past and present maintained order through the heavy hand of the state, the United States did so while expanding social and economic liberty. In order to meet this challenge, the United States must reflect on these historical lessons with the utmost candor and intellectual honesty.
From my experiences in West Rogers Park, I am confident that individuals of every race, religion, culture and class can get along, provided that certain political, economic and cultural structures are maintained. However, as a student of history, I am extremely skeptical about the capacity of diverse groups to peacefully co-exist. A brief survey of history (and current events) shows that racial, religious and cultural diversity has led to endless conflicts both within and between nations. The extent and persistence of inter-communal conflict leads me to believe that it is an innate, evolutionary based defect in human beings. Regardless of the cause, conflict has been the rule, rather than the exception. In no way am I saying that human beings should accept the spiritual sickness of racism and ethnic conflict. We must strive to eliminate conflict and violence with the utmost idealism, however when formulating viable paths and policies we must work with the facts on the ground and not the world as we wish it to be.
In an ethnic spoils system, wealth and employment is seized and redistributed wealth across ethnic, cultural and religious lines. Ethnic disparities in wealth have always been an area of contention in diverse societies, however when the state rather than the market determines economic outcomes, a greater potential for inter-communal violence exists. In the Kenyan elections of 2007 - 2008, the ethnic Kikuyu supporters of incumbent president Mwai Kibaki engaged in violent clashes with the ethnic Luos and Kalenjin supporters of presidential challenger Raila Odinga. Both sides new that if their ethno-political representative won, their people would receive the spoils: government jobs, contracts and even cash. In nations where the rule of law is better established, outright seizures of wealth are rare, however ethnicity plays a major role in the assignment of public employment and educational opportunities. For example, in Malaysia, after winning the elections, Malaysian dominated politically parties instituted aggressive affirmative action programs that assigned great public employment and educational opportunities to the politically dominant (but poorer) Malay majority, as the expense of the economically dominant Chinese minority. Not surprisingly, this contributed to violent inter-communal clashes of 1969. Before we examine the growth and evolution of the ethno-political spoils system in the United States, it's necessary to outline the republican (philosophy and not party) ideals that dominated American political and social life.
Although the United States has fallen short of many of its republican ideals, it has come closer than any nation in achieving them. Unlike corporate systems that approach its citizenry as groups (class, race, ethnicity) the American Republican ideal is to approach its citizens as equal individuals governed by uniform laws. Needless to say, the original definition of a citizen (white, male landowner) was painfully exclusive, but it continuously expanded to include all native born and naturalized American citizens. And in contrast to the ethnic spoils system, the republican ideal involves the social, political and economic engagement of diverse individuals, rather than groups. In no means does this imply that citizens should act as isolated individuals, but as individuals cooperating with like minded citizens for the pursuit of their vision of the common good. The ideal is that one would focus on the broad welfare of their fellow Americans, rather than act as partisans for the narrow interests of their ethno-religious communities. The focus would be to foster the common pursuit of individuals bound by common social and political values, rather than bound by blood. At times this pursuit is more geographically based, as seen when members of a neighborhood work together to improve the quality of their local schools, parks and political discourse. And a less geographically centered example is seen when individuals work together to protect endangered species, the environment or advance the principles of economic freedom. Conflicts of competing values and visions inevitably emerge, however the risk of accute conflict and violence is far less than with ethno-political conflicts.
In no way does the classical vision of American Republican rejects having the members of an ethno-religious community work together to improve the economic and social lives of their compatriots. The American past and present is filled with endless examples of mutual aid societies formed by immigrant groups to address the challenges that their people faced. And groups such as the NAACP strove to help African-Americans advance in the face of virulent racism and crushing poverty. However, fundamental difference exist between mutual aid societies and the ethno-political movements that have risen in importance. Mutual aid societies represent the best of free association and civil society, whereas most ethno-political organizations are implicit advocates of a coercive ethnic spoils system.Whereas mutual aid societies are largely self financing, ethno-political parties generally rely on public funds. For example, members of a mutual aid societies voluntarily pool their resources together to provide scholarships for the members of their community. In contrast, ethno-political partisans demand that the government set aside X number of university admission slots and scholarships to members of their community. Whereas mutual aid societies seek to foment the creation of wealth, by provide credit to the entrepreneurs of their community, ethno-political partisans generally focus their efforts on redistributing wealth via the expansion of entitlement programs, which are often community specific. One example being Chicago's Hispanic Housing Development Corporation. Lastly, whereas mutual aid societies promote equality under the law for its members, ethno-political partisans often lobby for legal privileges or excemptions from the law for its members. On Devon Street most of the hard working immigrants understand that their wealth and welfare is the product of their individual labor, so their is little motivation to compete as groups in the political arena. Accordingly, elections may end in disappointment, but never in bloodshed.
Unfortunately, American politics has shifting in that direction, as we see when Congressman Gutierrez (D-IL) demands that Obama enact immigration reform because of the support that Latinos offered to him in the presidential election. And former mayor of New York City, Ed Koch displays similar sentiments when he stated "supporters of Israel who gave their votes to candidate Obama -78 percent of the Jewish community did - believing he would provide the same support as John McCain, this is the time to speak out and tell the President of your disappointment in him." The key point is that the said politicians did not argue that their said positions should be pursued because they were conducive to the welfare of all Americans, but rather that they were owed to the members of their ethnic compatriots based on the support that they offered Obama during the election. Liberal supporters of an ethnic spoils system will respond that having the president pursue the pet policies of each member of a coalition of diverse ethnic and economic interests is equivalent to the pursuit of broad, national interests. I strongly disagree with this, because no government will ever have sufficient resources to satisfy the narrow interests of every special interest and any attempt to do so will end in conflict and / or a massive national debt. We are witnessing the latter and once our creditors force us to cut our expenditures, we will witness the former. Peace and prosperity can only be maintained by the promotion of common interests, founded on the rule of law.
Most left wing narratives present the hegemony of one group or culture as the source of conflict in diverse states. From this worldview they call for the elimination of the hegemonic dominance of Anglo-Saxon Protestant culture in the United States, an end to the ethos of assimilation and the fostering of multi-culturalism. The key word is assimilation because even as the demographic dominance of Anglo-Saxons receded, diverse immigrant groups largely assimilated to the values and visions of the American Republic, which at their core reflected an Anglo-Saxon ethos. Catholic Irish and Italians, Greeks, Jews and Japanese, (just to name a few) may have maintained many of their religious, cultural and culinary traditions, but by the second generation, the vast majority had adopted core American values and visions and held a love for the United States that was equal to or greater than that of their Anglo-Saxon neighbors. This assimilationist ethos clearly was a major factor in the success of the American Republic in maintaining peace and prosperity among extremely diverse populations. And conversely, history shows that as hegemonic rule is challenged and disparate identities are emphasized, conflict will almost certainly erupt. This is seen in Iraq, were the fall of secular, sunni dominated, ba'athist rule heralded bloody inter-communal clashes between Shi'a, Sunni, Kurds, Christians and Turkmen. And it would appear that peace will only occur once another group asserts hegemonic control, or Iraq splits into several ethno-religious states.
To fully understand this topic we must touch upon the essential, yet deeply controversial topic of demographics. More specifically, as the demographic and geographic concentration of a group increases, the extent to which it assimilates and the manner in which it relates to the larger society dramatically changes. Since it is considered taboo to critique other ethnic groups, I will use my own people, Jews to demonstrate some fairly universal principles. Recently I read an article that discussed Jews who immigrated to small southern towns. The reason why their stories are not more widely known is because owing to their relatively minor demographic presence and geographic concentration they assimilated and intermarried to the point were they ceased to be a distinct group. In areas in which the presence of Jews were greater, they could continue their existence as a distinct group, yet most assimilated to the dominant norms and behaviors. This is even seen with Orthodox Jews in West Rogers Park who in spite of their distinctive garb, traditions and insular nature, conform to the laws, language and norms of the land. They realize that if they do not learn and master the economic and social environment they quite simply will not be able to put food on the table. But, as the demographic concentration increases, groups are increasingly able to avoid assimilation, gain excemptions from laws of the land and in some cases gain special legal and economic privileges. This is seen in Israel, where the Ultra Orthodox were able to gain an excemption from mandatory military training, lavish welfare benefits and generous subsidies. In effect they are able to use their political power to redistribute wealth from the more productive, secular society. And as demographic concentration reaches a critical point, some groups begin to use their growing political power to impose their will on the larger society. In Israel, Ultra-Orthodox political parties are aggressively pushing to ban driving and flying on Shabbat for all Israelis. We can assume that once this was accomplished, they would impose their dress and dietary codes on the general public. This explains why in contrast to their Israeli counterparts, few secular American Jews harbor animosity towards the Orthodox.
In light of the paramount role that demographics play in political and social life, we must breach the great taboo and discuss the unprecedented demographic shift that the United States is experiencing. Specifically, some demographers anticipate that the by 2050 the United States will become a majority-minority nation, in which no one ethnic group predominates. Before we do so, I must emphasize that in itself the demographic shift is not troubling, because the author strongly affirms the equality of all races and creeds. But, in the context of the decline of the assimilationist ethos, the growth of ethno-identity-politics and the redistributionist state that we previously discussed, we must ask ourselves if this shift will increase the risk of inter-communal conflict that is present in most diverse nations.
Many will respond that this is unduly alarmist because prior immigration waves were just as large as our current one. But, when one looks carefully at the numbers, one will find some significant differences. The first thing we notice is that prior immigration waves were more diverse, in the sense that no one country of origin predominated. In 1950, the largest groups were from the British Isles (15.12%), Italy (12.6%), Germany (11.32%) & Poland (8.89%). In contrast, our current immigration wave is dominated by Hispanics, so much so that between 1980 to 2010, Latinos grew from 6.4% to 15.5% of the population. Hispanics are no less able to assimilate than prior immigrant groups, however as previously discussed, demographic concentration of any ethnic group limits their capacity or desire to socially and economically assimilate. This is especially true, because the destination points of prior waves were more geographically disbursed, whereas the present wave is concentrated in the southwest of the United States, as well as a few major metropolises. Secondly, addition, prior waves were separated from their nations of origin by an ocean and by costly transportation, which facilitated assimilation. In contrast, the present wave lives adjacent to and can easily travel to their nations of origin. Thirdly, in prior waves upwards of 50% of immigrants returned to their nations of origin, with those who were most able to economically and socially integrate remaining. In contrast the expanded welfare state allows those who are unable to assimilate to remain. And lastly, prior waves were followed by immigration time-outs or 30 years or more, which helped facilitate the assimilation of individuals and groups that were already here. Even in the face of a major economic downturn, no such time-out has been called in the United States. Many will point to the universal fluency in English of the second generation, as well as the consumption of pop culture as evidence that assimilation is occurring as as rapidly and profoundly as with prior waves. However, when we look at a notable divergence in educational and economic outcomes, as well as political orientation, we must call this into question.
The blame for faltering assimilation and increased inter-communal does not lie with any ethnic group; immigrants respond to the cultural ethos and policies presented to them by their new nations. In prior generations, immigrants encountered an America that was confident in its values, visions, institutions and identity and accordingly parents encouraged their children to assimilate. With no uncertainty, the schools were expected to teach their children what it means to be American, while they the parents would teach their children about their faith and traditions. So, clearly the blame lies with the members of America's educational, economic and political elites who woefully ignore the ample lessons that the history of the American Republic and other diverse societies has to offer. Rather than foster the robust participation of individuals in a vibrant civil society, they have encouraged groups to compete in ethno-identity-politics infused with a sense of resentment. Rather than encourage individuals to participate in a free market that abounds with opportunity, groups are encouraged to compete in a spoils system fuelled by a boundless sense of entitlement. The politicians nad educators that are undermining many of the fundamental principles of the American Republic should take note that peace and prosperity found on Devon Avenue and the United States is the exception and not the rule of diverse societies.
http://en.wikipedia.org/wiki/Spoils_system
http://en.wikipedia.org/wiki/2007%E2%80%932008_Kenyan_crisis
http://en.wikipedia.org/wiki/Affirmative_action
http://en.wikipedia.org/wiki/United_States_immigration_statistics
http://www.census.gov/population/www/socdemo/hispanic/files/Internet_Hispanic_in_US_2006.pdf
http://www.cbsnews.com/stories/2010/03/10/national/main6284387.shtml
Sunday, April 25, 2010
John Maynard Keynes on FDR (and Obama)
In a letter written to the New York Times, published in December 31, 1933, the liberal and generally statist economist John Maynard Keynes presented a critique of Franklin Delano Roosevelt's National Industrial Recovery Act (N.I.R.A) that describes some of the fundamental problems with the Obama Administration:
"I cannot detect any material aid to recovery in N.I.R.A., which heralded vast economic reforms and public works programs), though its social gains have been large. The driving force which has been put behind the vast administrative task set by the Act has seemed to represent a wrong choice in the order of urgencies...That is my first reflection - that N.I.R.A, which is essentially Reform and probably impedes Recovery, has been put across too hastily, in the false guise of being part of the technique of Recovery."
One could argue that the Obama Administration's policies, from the stimulus plan, to health care reform and cap-and-trade may be needed reforms, however they do very little to move the United States closer to true economic recovery. In fact, it could be argued that they, just like FDR's policies, have impeded recovery. By pursuing policies that raised the cost of labor and production, both FDR and Obama decreased the demand for labor, which is incredibly unwise to do in the face of high unemployment. By his own accounts, FDR aggressively pursued policies that increased wages and the rate of unionization, which was highly favorable for those with secure employment, but helped increase the already dangerously high level of unemployment. In addition he established price controls that actually sought to prevent the prices of goods and services from falling, which decreased aggregate demand and the purchasing power of the public, which further slowed recovery. And lastly, he dramatically raised taxes, which limited the ability and incentives of employers to create new jobs via expanded investment and production.
In the case of Obama, mandates for companies to provide health insurance to their workers may be noble, however it raises the cost of and lowers the demand for labor, which will ensure that fewer jobs are created. And although I am sympathetic to cap-and-trade and other environmental policies, they will raise the cost of production and decrease aggregate demand, which will certainly impede economic recovery. And needless to say, the explosion in spending we have witnessed will be followed by increased taxes, which coupled with an increased regulatory burden will impede long term economic health.
The fundamental problem we encounter is one of order. History shows that bold reforms and regulations are almost always pursued during times of economic distress. Such policies place greater burden on businesses and consumers, when economic activity and investments are most badly needed. A wise course of action would be to loosen the economic reigns placed on entrepreneurs during economic downturns and pursue social and economic reforms during economic booms, when businesses can bear their costs. Unfortunately few Americans, including Obama, have drawn the right lessons from the Great Depression and accordingly are pursuing many of the failed policies that deepened and extended it by many years. In the past it took a world war, massive deficit spending and the ensuing devastation of our economic competitors to pull us out of the depression. Unfortunately, we do not have those luxuries: we are already at war, we are already engaged in unsustainable spending and our economic competitors are booming.
http://en.wikipedia.org/wiki/National_Industrial_Recovery_Act
Sunday, February 21, 2010
Don't Blame the Helmsman
A core tenant of progressives and many conservatives (but not necessarily republicans) is a rejection of what has been popularly dubbed as "corporate welfare"and "crony capitalism." Or, more specifically a rejection of the regimen of subsidies, tax breaks and favorable treatment of politically connected corporations and industries. Most anathema to progressives are the billions of dollars in tax breaks that the oil and coal industries enjoy. And conservatives tend to focus their ire on the farm subsidies which redistributes billions of dollars of public funds primarily towards large agro-corporations, like Monsanto. And even those who accepted the bank bailouts as needed, emergency measures are troubled by the extent to which the distribution of funds reflect political considerations and connections, rather than economic logic.
Beyond these shared reservations, most progressives and conservatives sharply diverge on what they attribute as the source of and solution to corporate welfare. Implied in the progressive position is that the problem lies in the helmsman and not the ship. In other words, the problem is the direction in which "incompetent and corrupt politicians" steer the federal government's redistributionist bodies. Many lamented, "If only we had a wise and honest helmsman, the federal government could direct capital towards good people, good companies and good industries." But, much to their dismay they see that President Obama has continued most of the policies of his predecessor.
In contrast, most conservatives believe that the problem does not lie in the helmsman, but in the ship itself. Rather than view unwise subsidies as an aberration, they view them as the predictable, if not inevitable outcome of the redistributionist state. In a republic in which lobbyists increasingly hold sway over elected officials, is it not to be expected that powerful interests and industries will greatly influence redistributionist policies to their own benefit? Even a "wise and incorruptible administration," like Obama's will act in the interests of the individuals and interests who made their ascension possible via their generous campaign contributions. And unfortunately with the recent ruling of the Supreme Court in regards to corporate campaign contributions, we can expect the influence that moneyed interests hold over the formation and execution of government policies to only grow.
The same principles hold true for the fiscally destructive policies we have witnessed under the Bush and Obama Administrations. Most people lay the blame of our massive deficit spending on the foolishness of the said leaders. However, I and many other libertarians believe that the problem lies in the interventionist ship and not the helmsman. In a society beset by an inflated sense of entitlement, is it not the surest strategy of attaining and maintaining power for a politician to maximize the number of groups and interests that they cater to? A successful politician will dare not challenge the subsidies that diverse groups enjoy, from the elderly, to oilmen, from farmers to homeowners and many more. And any politician who seriously sought to pay down our national debt by increasing taxes and reducing entitlement spending would simultaneous lose (so called) conservative and liberal votes and have a very short political career. So, with few exceptions politicians will increase spending, while lowering taxes, the end result being a national debt that has spiralled out of control.
The more I study the constitution and the words of the founding fathers, the more I am certain that they were very deeply skeptical about the good will of politicians and the wisdom of the public. Much of the checks and balances and limits on the power of the federal government present in the constitution were done so precisely to guard against the foolishness of politicians and the public that we are now witnessing. They foresaw that without clear limitations on the size and scope of the federal government, most politicians would not be able to resist the temptation of utilizing the state for the benefits of powerful individuals and interests. And without a clearly circumscribed government, much of the public would not be able to resist calling on their politicians to do (and spend) more and more for them. In other words, corporate welfare and massive deficit spending would not be possible without the continuous erosion of constitutionally mandated limits on the size and scope of the federal government.
The founding fathers understood that the expanded government power that could be positively wielded by a wise leader would one day be abused by a despotic or incompetent leader. So, it is sheer folly for progressives and conservatives alike to hope for the coming of an enlightened helmsman. But, we cannot simply blame politicians, because alas they are catering to the desires of the electorate. And the first lesson of economics is that while human desire knows no end, resources are painfully finite. So, the inevitable outcome of the democratic entitlement state is for politicians to steer the country into bankruptcy. But, don't blame the helmsman; for a captain can not be wiser than the ship of fools that he pilots.
Monday, January 25, 2010
Too Stupid To Be True?
Pictured Above: Two of Chicago's leading policy makers.
The first path is alluring because it offers almost instant benefits to its recipients, whereas the second path is pursued by few politicians, because it is slow, laborious and requires a populace that is committed to self improvement.
Surveying the successes and failures of diverse nations, I am certain that the latter path is the only one that provides a firm foundation for long term wealth, peace and prosperity, as best seen in South Korea, Taiwan and Israel. Conversely, socialist nations that pursued the path of redistribution, condemned the majority of its people to squalor and deprivation.
Unfortunately the political establishment of Chicago shows a greater inclination towards the failed path of redistribution. When faced with the reality that a comparatively low number of
African-Americans and Latinos were passing the police entrance examination, the city declared its intention to toss out the examination entirely.
I can think of no better example of lowering standards in the name of equality and diversity. The end result of engineering equal outcomes at the expense of merit is an increase in the cost of and a reduction in the quality of city services. To do so in a slothful city bureaucracy is foolish, but to do so with civil servants who are vital to the safety and welfare of Chicagoans constitutes criminal neglect. And ironically, the cost of lowering the quality of policemen will be most heavily born by African-Americans and Latinos who disproportionately are the victims of crime.
An administration committed to building human capital would strive to help foster educational & professional development in African-American and Latino communities. Rather than lower standards of excellence, they would help more people achieve those standards. And instead of offering jobs to the less qualified, they would work to address the underlying factors which have led to a lower presence of qualified individuals in certain communities.
First and foremost they would work to improve Chicago Public Schools and increase
opportunities for individuals of marginalized communities to attend quality private schools. Secondly, they would seek to address the underlying cultural factors that have slowed the development of human capital in diverse communities.
Unfortunately this is highly unlikely, because few politicians are willing to take on the administrators and teacher's unions that for the most part defend the status quo.
And even fewer are willing to candidly speak to African-Americans and Latinos as capable adults who, like all human beings, hold the key to their own self improvement. Rather, these politicians
sell cheap narratives of victimology that may earn them votes, but have yet to improve the quality of a single classroom or police officer.
Police may scrap entrance exam
'OPEN UP THE PROCESS' Union chief: It's 'too stupid to be true'
January 6, 2010
BY FRAN SPIELMAN AND FRANK MAIN Staff Reporters
The Chicago Police Department is seriously considering scrapping the police entrance exam to bolster minority hiring, save millions on test preparation and avert costly legal battles that have dogged the exam process for decades, City Hall sources said Tuesday.
If the process is opened to everyone who applies and meets the minimum education and residency requirements, Chicago would be virtually alone among major cities. Most cities have police entrance exams -- and for good reason, experts say.
"A background check and a psych [exam] alone will not eliminate some people who should not be there," said Brad Woods, who ran the Personnel Division under former Chicago Police Superintendents Phil Cline and Terry Hillard.
Calling an application-only process a "step backward" and the "wrong way to go," Woods said, "When you lower your quality, you will get poor police service and more complaints. ... Whenever you make it easier to be the police, you're doing the citizens and the Police Department a disservice."
Charlie Roberts, who ran the training division from 1995 to 1999, noted that there are "eleven tracks" recruits must go through in the police academy, including the law and the municipal code.
"If you don't give someone at least a reading comprehension test, can you just put them in and risk the possibility of having so many of them fail? That could get quite expensive," Roberts said.
"We were getting people with 60 hours of college credit who were reading at a third-grade level. What do you think you'll get if you have no screening process?"
Human Resources Department spokesperson Connie Buscemi acknowledged Tuesday that the Daley administration has been exploring other "options" since last fall, when a "request-for-proposals" for companies interested in preparing an on-line police entrance exam was cancelled.
The last police entrance exam was held on Nov. 5, 2006.
"We wanted to try to develop something on-line to allow the city to accommodate members of the U.S. military who are on active duty. But, we didn't get any responses that met our needs. No one said they could administer an on-line exam" and guarantee its integrity, Buscemi said.
"We're [now] reviewing our options on how to administer the police application process."
Other sources confirmed that the police entrance exam could be scrapped altogether "to open up the process to as many people as possible." A final decision could be made later this week.
Fraternal Order of Police President Mark Donahue said the idea "sounds too stupid to be true."
"You need a testing process. ... You need to be very concerned about the very limited information you would get from just a screening and application process," Donahue said.
Hiring and promotions in the Police and Fire Departments have generated controversy in Chicago for as long as anyone can remember.
The criticism reached a crescendo in 1994 after a sergeants exam produced just five minority promotions out of 114.
The test was the first to be administered by the city after "race-norming" -- the practice of adjusting scores on the basis of race -- was ruled unconstitutional.
In November 2005, City Hall announced plans to offer the police entrance exam a record four times the following year -- and for the first time on the Internet -- after an unprecedented outreach campaign that bolstered the number of minority applicants to 34 percent black, 24 percent Hispanic and 26 percent women.
More than two years later, black ministers told newly-appointed Police Supt. Jody Weis that, if he was serious about re-establishing trust between police and the black community, he should start by hiring and promoting more African Americans.
The Police Department is currently operating at least 2,000 officers-a-day short of authorized strength, counting vacancies, medical leave and limited duty.
Mayor Daley's 2010 budget uses federal stimulus funds to add just 86 officers, 30 of them for the CTA.
That's nowhere near enough hiring to solve a manpower shortage that, Weis fears, will get dramatically worse when as many as 1,000 more officers retire later this year.
http://www.suntimes.com/news/cityhall/1975918,CST-NWS-policeexam06web.article
Monday, December 14, 2009
On Entitlements (part IV)
In the last post I laid down some general principles of balancing the benefits of social mandates with their economic costs. In order to understand my opposition even to some relatively reasonable policies of the Obama Administration we need to explore the "dayenu principle."
"Deyenu" is a Hebrew term and title of a Passover song which translates into "it would have been enough for us." This refers to the multiple miracles that G-d performed for the Jewish people during the Exodus from Egypt. If G-d had simply performed one of the miracles, such as the parting of the red sea, it would have been enough for the Jewish people, but the multiple miracles demonstrates his overflowing magnanimity.
In the context of the Obama Administration, "dayenu" takes on a negative connotation. We can debate the benefits of each initiative, but not the fact that each one imposed a fiscal burden on the American public. Perhaps more importantly, each one consumed a little more of the American public's dwindling faith and Obama's dwindling political capital. So, if it had just been the bailouts, "dayenu" and if it had just been the stimulus plan, "dayenu" and if it had just been the expanded war in Afghanistan, "dayenu," but taken together all of this "change" is too much for the American public to bear.
So, by the time we arrived at Obama's push for health care reform, cap-and-trade, many Americans who would otherwise have supported these initiatives are weary and skeptical of the wisdom of further ballooning our national debt. If Obama had presented the American public a choice between directing our limited resources towards cap-and-trade or expanding health care coverage to millions of Americans or escalating the war in Afghanistan, I may not have agreed with him, but I would have respected his candor and fiscal responsibility. But to simultaneously pursue all three is an irresponsible attempt to please multiple constituencies that may earn him political points among the fiscally illiterate, but will surely leave our country bankrupt, exhausted and unable to deal with the challenges that the future holds. Mr. Obama please heed our cry "Day Dayenu!"
http://en.wikipedia.org/wiki/Dayenu
Saturday, November 28, 2009
Cash For Clunkers: It Gets Worse
One for the watercooler
By Leslie Moore Mira
September 1, 2009
For doubting Thomases of Cash for Clunkers handouts, here's more fodder for skepticism in the face of what proved blowout media coverage: according to a University of California-Davis study, the federal government's Cash for Clunkers program is expected to have paid "at least 10 times the 'sticker price' to reduce emissions of the greenhouse gas carbon dioxide."
"While carbon credits are projected to sell in the U.S. for about $28 per ton (today's price in Europe was $20), even the best-case calculation of the cost of the clunkers rebate is $237 per ton," the university said, citing a report by UC Davis transportation economist Christopher Knittel.
"When burned, a gallon of gasoline creates roughly 20 pounds of carbon dioxide. I combined that known value with an average rebate of $4,200 and a range of assumptions about the fuel economy of the new vehicles purchased and how long the clunkers would have been on the road if not for the program," Knittel said through the statement. "I even assumed drivers didn't change their habits, although some analysts have suggested that the owners of new vehicles will drive more than they would have with their old cars."
"In the end, the lowest cost to remove one ton of carbon from the environment was $237. More likely scenarios produced a cost of more than $500 per ton, even when we accounted for reductions in pollutants other than greenhouse gases," he said. "That suggests the Cash for Clunkers program is an expensive way to reduce carbon."
Knittel's study did not analyze the program's other goals of stimulating the economy and providing relief for automobile manufacturers, the university said. Knittel's analysis, titled "The Implied Cost of Carbon Dioxide Under the Cash for Clunkers Program," was published online by the University of California Energy Institute and was funded by the Energy Institute and the Institute of Transportation Studies.
http://www.platts.com/weblog/oilblog/2009/09/01/one_for_the_wat.html
Arigato Obama San!
I am sure that the President of Japan was thanking Obama for Cash For Clunkers, because in effect it served as a stimulus plan for foreign auto makers, as demonstrated by the statistics presented in the following article:
Cash-for-Clunkers = Cash-for-Foreign Automakers?
By Alan Tonelson
Sunday, September 13, 2009
U.S. AUTO INDUSTRY TRENDS
U.S. auto sales during first month of Cash for Clunkers program* (June-July, 2009): +16.02%
U.S. auto imports since Cash for Clunkers bill introduced** : +27.62%
U.S. auto parts imports since Cash for Clunkers bill introduced: +4.06%
U.S. auto trade deficit since Cash for Clunkers bill introduced: +56.10%
U.S. auto parts trade deficit since Cash for Clunkers bill introduced: +16.23%
Overall U.S. automotive trade deficit since Cash for Clunkers bill introduced: +43.36%
Overall U.S. trade deficit since Cash for Clunkers bill introduced: +9.71%
U.S. manufacturing trade deficit since Cash for Clunkers bill introduced: +26.36%
*change from June-July, 2009**March 17, 2009
http://www.americaneconomicalert.org/view_art.asp?Prod_ID=3296
The California Paradigm
"Progressives" used to brag that California was 10 years ahead of the rest of the country. This statement is correct, but not in the sense that its authors intended. Given our current economic and political policies, the paradigm of high taxes and poor services brought on by California's "progressive" policies will increasingly be seen on a national level. With its massive deficit, deteriorating public services, flight of the middle class and growing economic inequality, California offers valuable lessons on what fiscal, social and immigration policies to not pursue.
The Big-Spending, High-Taxing, Lousy-Services Paradigm
California taxpayers don’t get much bang for their bucks.
By William Voegeli
In 1956, the economist Charles Tiebout provided the framework that best explains why people vote with their feet. The “consumer-voter,” as Tiebout called him, challenges government officials to “ascertain his wants for public goods and tax him accordingly.” Each jurisdiction offers its own package of public goods, along with a particular tax burden needed to pay for those goods. As a result, “the consumer-voter moves to that community whose local government best satisfies his set of preferences.” In selecting a jurisdiction, the mobile consumer-voter is, in effect, choosing a club to join based on the benefits that it offers and the dues that it charges.
America’s federal system allows, at the state level, for 50 different clubs to join. At first glance, the states seem to differ between those that bundle numerous high-quality public benefits with high taxes and those that offer packages of low benefits and low taxes. These alternatives, of course, define the basic argument between liberals and conservatives over the ideal size and scope of government. Except for Oregon, John McCain carried every one of the 17 states with the lowest tax levels in the 2008 presidential election, while Barack Obama won every one of the 17 at the top of the list except for Wyoming and Alaska.
It’s not surprising, then, that an intense debate rages over which model is more satisfactory and sustainable. What is surprising is the growing evidence that the low-benefit, low-tax alternative succeeds not only on its own terms but also according to the criteria used by defenders of high benefits and high taxes. Whatever theoretical claims are made for imposing high taxes to provide generous government benefits, the practical reality is that these public goods are, increasingly, neither public nor good: their beneficiaries are mostly the service providers themselves, and their quality is poor. For evidence, look to the two largest states in the nation, which are fine representatives of the liberal and conservative alternatives.
One out of every five Americans is either a Californian or a Texan. California became the nation’s most populous state in 1962; Texas climbed into second place in 1994. They are broadly similar: populous Sunbelt states with large metropolitan areas, diverse economies, and borders with Mexico producing comparable demographic mixes. Both are “majority-minority” states, where non-Hispanic whites make up just under half of the population and Latinos just over a third.
According to the most recent data available from the Census Bureau, for the fiscal year ending in 2006, Americans paid an average of $4,001 per person in state and local taxes. But Californians paid $4,517 per person, well above that national average, while Texans paid $3,235. It’s worth noting, by the way, that while state and local governments in both California and Texas get most of their revenue from taxes, the revenue is augmented by subsidies from the federal government and by fees charged for governmental services and facilities, such as trash collection, airports, public university tuition, and mass transit. California had total revenues of $11,160 per capita, more than every state but Alaska, Wyoming, and New York, while Texas placed a distant 44th on this scale, with revenues of all governmental entities totaling $7,558 per person.
What might interest Tiebout is that while California and Texas are comparable in terms of sheer numbers, their demographic paths are diverging. Before 1990, both states grew much faster than the rest of the country. Since then, only Texas has continued to do so. While its share of the nation’s population has steadily increased, from 6.8 percent in 1990 to 7.9 percent in 2007, California’s has barely budged, from 12 percent to 12.1 percent.
Unpacking the numbers is even more revealing—and, for California, disturbing. The biggest contrast between the two states shows up in “net internal migration,” the demographer’s term for the difference between the number of Americans who move into a state from another and the number who move out of it to another. Between April 1, 2000, and June 30, 2007, an average of 3,247 more Americans moved out of California than into it every week, according to the Census Bureau. Over the same period, Texas saw a net gain, in an average week, of 1,544 people. Aside from Louisiana and Mississippi, which lost population to other states because of Hurricane Katrina, California is the only Sunbelt state that had negative net internal migration after 2000. All the other states that lost population to internal migration were Rust Belt basket cases, including New York, Illinois, New Jersey, Michigan, and Ohio.
As Tiebout might have guessed, this outmigration has to do with taxes. Besides Mississippi, every one of the 17 states with the lowest state and local tax levels had positive net internal migration from 2000 to 2007. Except for Wyoming, Maine, and Delaware, every one of the 17 highest-tax states had negative net internal migration over the same period. Conservative researchers’ technical explanation for this phenomenon is: “Well, duh.” Or, as Arthur Laffer and Stephen Moore wrote in the Wall Street Journal earlier this year: “People, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.”
Summarizing the findings of a report they wrote for the American Legislative Exchange Council, Laffer and Moore pointed out that between 1998 and 2007, the states without an individual income tax “created 89 percent more jobs and had 32 percent faster personal income growth” than the states with the highest individual income-tax rates. California’s tax and regulatory policies, the report predicts, “will continue to sap its economic vitality,” while Texas’s “pro-growth” policies will help it “maintain its superior economic performance well into the future.” The clear implication is that California should become more like Texas.
At this point, defenders of the high-benefit, high-tax paradigm push back. Remember the other half of Tiebout’s equation, they say. There’s no need for a state to be like Texas if its high taxes and extensive regulations are part of a package deal that yields more and better public goods and an attractive quality of life.
But that, it turns out, is a big “if.” It’s true that many people are less sensitive to taxes and more concerned about public goods, and these consumer-voters will congregate in places with extensive services. But it’s also true, all things being equal, that everyone would rather pay lower than higher taxes. The high-benefit, high-tax model can work, but only if the high taxes actually purchase high benefits—that is, public goods that far surpass the quality of those available to people who pay low taxes.
And here, California is decidedly lacking. The biggest factor accounting for California’s loss of population to the other 49 states, bond ratings that would embarrass Chrysler or GM, and state politics contentious and feckless enough to shame a banana republic, has to be its public sector’s diminishing willingness and capacity to fulfill its promises to taxpayers. “Twenty years ago, you could go to Texas, where they had very low taxes, and you would see the difference between there and California,” Joel Kotkin, executive editor of NewGeography.com and a presidential fellow at Chapman University in Southern California, told the Los Angeles Times this past March. “Today, you go to Texas, the roads are no worse, the public schools are not great but are better than or equal to ours, and their universities are good. The bargain between California’s government and the middle class is constantly being renegotiated to the disadvantage of the middle class.”
Similarly, the CEO of a manufacturing company in suburban Los Angeles told a Times reporter that his business suffered less from California’s high taxes than from its ineffectual services. As a result, the company pays “a fortune” to educate its employees, many of whom graduated from California public schools, “on basic things like writing and math skills.” According to a report issued earlier this year by McKinsey & Company, Texas students “are, on average, one to two years of learning ahead of California students of the same age,” though expenditures per public school student are 12 percent higher in California.
State and local government expenditures as a whole were 46.8 percent higher in California than in Texas in 2005–06—$10,070 per person compared with $6,858. And Texas not only spends its citizens’ dollars more effectively; it emphasizes priorities that are more broadly beneficial. In 2005–06, per-capita spending on transportation was 5.9 percent lower in California than in Texas, and highway expenditures in particular were 9.5 percent lower, a discovery both plausible and infuriating to any Los Angeles commuter losing the will to live while sitting in yet another freeway traffic jam. With tax revenues scarce and voters strongly opposed to surrendering more of their income, Texas officials devote a large share of their expenditures to basic services that benefit the most people. In California, by contrast, more and more spending consists of either transfer payments to government dependents (as in welfare, health, housing, and community development programs) or generous payments to government employees and contractors (reflected in administrative costs, pensions, and general expenditures). Both kinds of spending weaken California’s appeal to consumer-voters, the first because redistributive transfer payments are the least publicly beneficial type of public good, and the second because the dues paid to Club California purchase benefits that, increasingly, are enjoyed by the staff instead of the members.
Californians have the best possible reason to believe that the state’s public sector is not holding up its end of the bargain: clear evidence that it used to do a better job. Bill Watkins, executive director of the Economic Forecast Project at the University of California at Santa Barbara, has calculated that once you adjust for population growth and inflation, the state government spent 26 percent more in 2007–08 than in 1997–98. Back then, “California had teachers. Prisoners were in jail. Health care was provided for those with the least resources.” Today, Watkins asks, “Are the roads 26 percent better? Are schools 26 percent better? What is 26 percent better?”
The steady deterioration of California’s public services hasn’t gone unnoticed. Shortly after his stunning ascension to the governor’s office in 2003, Arnold Schwarzenegger established an advisory commission, the California Performance Review (CPR), to recommend ways to make governance in California smarter, cheaper, and better. The commission labored through 2004 before delivering a doorstop report with more than 1,200 recommendations for streamlining this and consolidating that, along with an assessment that implementing the full list of changes could save California $32 billion over the first five years.
And then . . . nothing, really. The 2,500-page report was “dead on arrival,” according to Bill Whalen of the Hoover Institution, “because it was too complicated for voters to rally behind and legislators didn’t want to see it enacted.” Citizen Schwarzenegger may have assumed that his personal star power and the CPR recommendations’ plodding good sense would make a politically irresistible combination. Such reckoning failed to account for the formidable ability of even the most obscure and otiose governmental body to hunker down, defend its turf, and outlast mere politicians.
The CPR, for example, recommended abolishing dozens of California’s commissions and advisory boards, either outright or by folding their activities into a simpler and more rational organizational structure. Five years later, few of these vestigial organs have been removed. The many that remain include the Commission on Aging, whose lead accomplishment for 2009 is getting the legislature to declare a Fall Prevention Week (which began on the first day of autumn, naturally); the Apprenticeship Council, “which has been in place since the 1930s,” according to the CPR, and “is no longer needed to perform regulatory and advisory responsibilities”; the Board of Barbering and Cosmetology; the Court Reporters Board; and the Hearing Aid Dispensers Bureau.
The point is not that turning a flamethrower on every item in the Museum of Governmental Anachronisms would have saved California a great deal of money. It is, rather, that abolishing these boards and commissions, whose names are talk-radio punch lines, would have been the easy calls, the obvious first steps toward giving California’s taxpayers a decent return on their surrendered dollars. Yet even the low-hanging fruit proved out of reach. The path of least resistance was to do the same old thing, not the sensible thing.
The resistance comes from the blob of interest groups, inside and outside government, that like California’s public sector just fine the way it is and see reform as a threat to their comfortable, lucrative arrangements. It turns out, for example, that all the pointless boards and commissions are bulletproof because they provide golden parachutes to politicians turned out of the state legislature by California’s strict term limits. In the middle of the state’s most recent budget crisis, State Senator Tony Strickland proposed a bill to eliminate salaries paid to members of boards and commissions who, despite holding fewer than two formal hearings or official meetings per month, had received annual compensation in excess of $100,000. The bill died in committee.
James Madison would have to revise—or possibly burn—Federalist No. 10 if he were forced to account for the new phenomenon of the government itself becoming the faction decisively shaping its own policy and conduct. (See “Madison’s Nightmare” in City Journal’s 2009 special issue, “New York’s Tomorrow.”) This faction dominates because it’s playing a much longer game than the politicians who come and go, not to mention the citizens who rarely read the enormous owner’s manual for the Rube Goldberg machine they feed with their dollars. They rarely stay outraged long enough to make a difference.
Take entitlements and public-employee pensions, which are, Watkins says, “the real source of the state’s fiscal distress.” A 2005 study by the Legislative Analyst’s Office (California’s version of the Congressional Budget Office) found that pensions for California’s government employees “surpassed the other states—often significantly—at all retirement ages.” California government workers retiring at age 55 received larger pensions than their counterparts in any other state (leaving aside the many states where retirement as early as 55 isn’t even possible). The California Foundation for Fiscal Responsibility periodically posts a list of retired city managers, state administrators, public university deans, and police chiefs who receive pensions of at least $100,000 per year. The latest report shows 5,115 lucky members in this six-figure club. The state’s annual bill for polishing their gold watches is $610 million.
Again, the most vivid part of the problem is not the most important. California would move only slightly closer to regaining fiscal health if it scraped the gilding off the pensions and health benefits of its most lucratively retired employees. But when even a flagrant example of a government’s serving its workforce better than its citizens is politically unassailable, it’s hard to be hopeful about the mundane reforms needed to change the rest of the economically debilitating public-employee retirement system. The California Performance Review suggested the sensible thing: gradually substituting defined-contribution for defined-benefit pension plans. (According to a report by the Pew Center on the States, just 20 percent of the nation’s private-sector employees are enrolled in a defined-benefit pension plan, compared with 90 percent of public-sector employees.) To no one’s shock, the state legislature has rejected all proposals to curb the state’s financial obligations to its retired and retiring employees.
If California doesn’t want to be Texas, it must find a way to be a better California. The easy thing about being Texas is that the government has a great deal of control over the part of its package deal that attracts consumer-voters—it must merely keep taxes low. California, on the other hand, must deliver on the high benefits promised in its sales pitch. It won’t be enough for its state and local governments to spend a lot of money; they have to spend it efficiently and effectively.
The optimistic assessment is that things are going to get worse in California before they get better. The pessimistic assessment is that they’re going to get worse before they get much worse. As is often the case, hanging around with the pessimists is less fun but more instructive. The current recession has driven California’s state government into what amounts to a five-month budget cycle, according to Dan Walters of the Sacramento Bee. He estimates that the budget deal tortuously wrought in July should start falling apart in October, because it was predicated on pie-in-the-sky revenue estimates and because so many of its spending cuts are being challenged, often successfully, in the courts.
The recession will eventually end and California’s finances will improve, say the optimists. Given the state’s pervasive political bias against efficient and effective public services, however, the question is whether its finances will ever get truly well. States that have grown accustomed to thinking of the engine that drives their economies as an inexhaustible resource—whether it’s Michigan and the auto industry, New York and Wall Street, or California and the vision of the sunlit good life that used to attract new residents—find it tough to compete again for what they thought would be theirs forever, and to plan budgets for lean years that turn into lean decades. Instead, they invest their hopes in a deus ex machina that will rescue them from the hard choices they dread.
For California’s governmental-industrial complex, a new liberal administration and Congress in Washington offer plausible hope for a happy Hollywood ending. Federal aid will replace the dollars that California’s taxpayers, fed up with the state’s lousy benefits and high taxes, refuse to provide. Americans will continue to vote with their feet, either by leaving California or disdaining relocation there, but their votes won’t matter, at least in the short term. Under the coming bailout, the new 49ers—Americans in the other 49 states, that is—will be extended the privilege of paying California’s taxes. At least they won’t have to put up with its public services.
William Voegeli is a contributing editor of The Claremont Review of Books and a visiting scholar at Claremont McKenna College’s Salvatori Center. His book on the American welfare state will be published by Encounter in 2010.
http://www.city-journal.org/2009/19_4_california.html
Wednesday, September 16, 2009
Adam Smith on Chicago
Implicit in the "progressive" narrative is the belief that the public needs to be protected from hostile free markets by a benevolent state. We are told that without rent controls and subsidies "affordable housing" will be beyond the reach of most Chicagoans. The great economist Adam Smith, author of the Wealth of Nations, would have sharply disagreed with this. A brief analysis of recent changes in rents and taxes in Chicago will validate Mr. Smith's belief that competitive markets as usually more benign that coercive state intervention.
In the last year, rents have significantly fallen in Chicago. In some cases apartments that rented for $1,500 last year have fallen by 20% to $1,200. It's important to note that this "increase in affordable housing" occurred without a single government mandate or pressure from a community organization. Rather, acting independently via a free market, individual landlords responded to market signals that indicated a drop in demand by lowering the cost of their goods and services. Or, to put it simply, landlords lowered rents as a response to the declining capacity of consumers to pay high(er) rents via the current economic downturn.
On the other hand, Cook County has decided to raise property taxes, even as many families face grave economic difficulties, which will certainly increase the number of foreclosures.
We see here that the main differences between the state and competitive markets, is that providers of goods and services have to respond to the needs of the public or they will quickly go out of business. In this case, if a landlord chooses to not lower his rent to meet the capacity of consumers, they will surely choose a landlord or location with more affordable apartments. Or, they could choose a more affordable option like a smaller and / or less updated apartment or they could take advantage of the economy of scale by pairing up with roommates or additional family members and renting a larger apartment.
In contrast, most governments are far less responsive to the needs of the public. Cook County can get away with raising taxes beyond the capacity of its residents, because it is impervious to dynamic market signals that indicate the financial capacity of the public. And relative to free markets, governments face little competitive pressure that force them to lower costs and raise the quality of their services. But, increasingly that is changing with the exodus of residents from Cook County to neighboring counties and states that offer lower levels of taxation.
After contemplating this example, the following quotes of Adam Smith should make sense, even to die hard "progressives."
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." and "I have never known much good done by those who affected to trade for the public good."
http://en.wikipedia.org/wiki/Adam_Smith
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