A Healthy Serving of Skepticism in the Obesity Debate

As the rising rate of obesity has cost the nation billions in added health care costs, much needed discussions about healthy eating have become more prevalent. The dominant narrative is that a host of external causes, like "food deserts," "aggressive advertising" and the "high cost of healthy food" are responsible for the widespread and detrimental consumption of junk food. But, unfortunately few Americans, even in the educated classes have approached the official narrative with even a modicum of skepticism and sough to verify its claims. Research have emerged that have cast doubt on many of the claims put forth by government and media figures. For example, in most cases, proximity to a grocery store did not increase consumption of healthy foods and in most consumers can purchase healthy fruits and vegetables at a lower cost than junk food. Anecdotal evidence seems to support the researcher's conclusions, because on every occasion that I visit my neighborhood grocery store, I witness consumers choosing unhealthy, processed foods, over healthy, affordable staples (like lentils, broccoli and tilapia). This is not simply an empty academic debate, because the flawed narrative will lead to flawed policies that will do little to stem the rising tide of obesity.

5 Myths About Healthy Eating

A helping of skepticism about the causes of Americans’ poor eating habits—and the effectiveness of political fixes

Katherine Mangu-Ward | October 21, 2011

New Jersey Gov. Chris Christie’s decision to stay out of the Republican presidential race means that the American people will be spared months of discussion about his ample waistline and the bad example it sets. Nonetheless, with first lady Michelle Obama urging everyone to get moving, obesity remains a political hot potato, or maybe a tater tot. Below, a helping of skepticism about the causes of Americans’ poor eating habits—and the effectiveness of political fixes.


1.  People in poor neighborhoods lack access to fresh fruits and vegetables.

 Walk into nearly any supermarket in the United States, and you are immediately confronted with abundance—bok choy, mangos, melons and avocados from across the globe—where a couple of varieties of apples and carrots once struggled to fill shelf space.

But not everyone has easy access to this fruity phantasmagoria. If you’re picking up ingredients for dinner at a gas station or a convenience store, you probably live in what eggheads have taken to calling a “food desert”—an ill-defined concept with powerful policy implications. A commonly cited 2009 statistic from the U.S. Department of Agriculture has 23.5 million Americans living in poor urban and rural areas with limited access to fresh food.

Making those food deserts bloom is a centerpiece of Michelle Obama’s anti-obesity agenda. This January found the first lady smiling for the cameras with Wal-Mart executives in Southeast Washington and declaring herself “more hopeful than ever” as she tours the nation’s produce sections.

But the prevalence of food deserts is almost certainly overstated. Not having a supermarket in your Zip code isn’t the last word in access to healthy food. According to the USDA, 93 percent of “desert” dwellers have access to a car. And farmers markets, often overlooked in surveys of rich and poor neighborhoods alike, have tripled since 1994.

Still, it does seem reasonable that making it easier to buy fresh food would improve what people eat. However, a study published this year in the Archives of Internal Medicine, the first to measure the impact of access to fresh food on diet, followed 5,000 people for over 15 years and found something surprising: Proximity to a grocery store or supermarket doesn’t increase consumption of healthy food. That suggests that a lack of convenient leafy greens isn’t the problem. Dinner menus are the product of subtle and pervasive food cultures, which can’t be tweaked from the East Wing.

The primary beneficiaries of tax incentives and other nudges aimed at abolishing food deserts are big grocery chains, not poor shoppers.

2. Advertising forces people to make unhealthy choices.

Television-bound children, their eyes awhirl with images of Tony the Tiger and his high-fructose friends, haunt the debate about junk-food advertising. And any parent who has ever experienced a 2-year-old’s grocery store meltdown would certainly like to have someone to blame. But the Institute of Medicine, an arm of the National Academy of Sciences, has concluded that “current evidence is not sufficient to arrive at any finding about a causal relationship from television advertising to adiposity [excess weight] among children and youth.” Similar findings hold true for adults.

We don’t need advertisers to tell us that candy is delicious. Humans were big fans of fat and sugar long before the idiot box was invented. We’re programmed to go for the good (bad) stuff. Sure, Kellogg’s and General Mills have big advertising budgets, but they’re nowhere near as powerful as Darwin. Cracking down on advertisers gives politicians a scapegoat, but it doesn’t make kids, or their parents, healthier.

3.  Eating healthy is too expensive.

 A dinner of hot dogs and Devil Dogs is undeniably cheap. But a bowl of beans and rice with a banana on the side is cheaper. A survey by the USDA found that, by weight, bottled watek is cheaper than high-fat, and whole fruit is cheaper than processed sweet snacks. Preparing a big pot of lentils for the week may be not be glamorous, but it’s much cheaper and not much more time-consuming than cooking up frozen pizza or mac and cheese.

The New York Times’ Mark Bittman—no fan of Frito-Lay—writes that the idea that junk food is cheaper than real food is “just plain wrong” and that blaming unhealthy habits on cost is incorrect. People who eat lots of unhealthy food aren’t doing so because they lack cheap, healthy options. Instead, it’s because they like junk food. Making junk food comparatively more pricey by tacking on taxes—a proposal that has been revived many times by Yale’s Kelly Brownell (and recently made into law in Denmark)—mostly means that people will pay more taxes, not eat more kale.

4.  People need more information about what they eat.

It’s hard to argue against rules that give consumers more information. Perhaps for that reason, proposals to require restaurants to jam calorie, fat and other nutrition statistics onto already crowded signs and menus pop up over and over—most recently as part of the health-care reform law—despite the fact that virtually all major fast-food chains already provide such information on handouts and online.

Knowing that a chocolate shake at Shake Shack has 740 calories doesn’t stop me—or the first lady— from ordering one occasionally. We’re not alone: Studies consistently find that menu labeling doesn’t result in healthier choices. A recent study from Ghent University in Belgium found that labels made no difference in the consumption patterns of students there, backing up a 2009 New York University study that found no improvement in poor New Yorkers’ eating habits after the introduction of mandatory menu labeling in the Big Apple.

5.  There are too many fast-food restaurants in low-income neighborhoods.

In many urban neighborhoods, it’s easier to get permission to open a sex shop than a Taco Bell, thanks to aggressive policies by local zoning boards. But zoning out fast-food restaurants in cities is a lost cause—they are probably already too thick on the ground for new restrictions to alter the culinary mix. The same study that found no effect on diet from increased access to fruits and vegetables also found that proximity to fast-food restaurants had only a small effect, and it was limited to young, low-income men.

In a commentary accompanying the study, Jonathan E. Fielding and Paul A. Simon of the Los Angeles County Department of Public Health wrote that “policy efforts to reduce access to [junk food], though politically challenging, will likely have a greater impact on reducing the obesity epidemic than efforts focused solely on increasing access to fresh produce and other healthy options.” “Politically challenging” is code for “virtually impossible.”

And for good reason. Eliminating access to fast food and other junk food means taking away choices, something Americans don’t tend to like, even (or perhaps especially) when it’s for their own good.

Katherine Mangu-Ward is the managing editor of Reason. This article originally appeared in The Washington Post on October 14, 2011

The Obama Administration's War Against Self Governance and Freedom of Assocation

To protect the fundamental right of families and individuals to live in any home and community that they desire and can afford is an affirmation of the American Way. One of the few instances in which federal authority should trump the rights of local self governance, is when communities actively bar individuals from exercising their constitutionally guaranteed liberties. But, when the federal government mandates that local communities take actions to ensure equal demographic outcomes, rather than equal housing opportunities, it violates the rights of self government to pursue self government and individuals to exercise their freedom of association.

More than any other American government, the Obama Administration has demonstrated a troubling penchant for disregarding the letter and spirit of carefully conceived limits on federal power, regarding the aforementioned rights. This was seen was the Administration demanded that Westchester County, under threat of a long and costly lawsuit to "spend more than $50 million of its own money, in addition to other funds, to build or acquire 750 homes or apartments, 630 of which must be provided in towns and villages where black residents constitute 3 percent or less of the population and Hispanic residents make up less than 7 percent. The 120 other spaces must meet different criteria for cost and ethnic concentration." To achieve this, the county will have to force local towns to rewrite their zoning laws, none of which have been deemed illegal. According to Ron Sims, the Deputy Secretary of Housing and Urban Development, “This is consistent with the president’s desire to see a fully integrated society." 

While I share the president's belief that integration is a social good and I would not want to live in a homogeneous community, I respect the rights of others to do so, as long as they are not depriving others of the opportunity to move to their community. There is no evidence that neither county, nor city governments, not any individuals have taken discriminatory measures. The only real barrier is the high cost of housing in the more homogeneous towns of Westchester and for the time being there does not exist a constitutional right to rent or purchase a home that exceeds your means. So, in effect, the federal government is pursuing social engineering to ensure equal outcomes, against the will of the local communities. And in effect this also intrudes on the freedom of individuals to enjoy the fruits of their labor, for most individuals have worked hard to be able to afford to live in desirable communities. Interestingly, upwardly mobile African-Americans are often the most critical of forced economic integration, because they worked the hardest to move into or build communities not beset by the problems that public housing often brings. 

An important aspect of this story is the flawed, underlying beliefs that drives the Obama Administration's efforts at social engineering, the first being that most African-Americans and Latinos want to live in majority white communities. Even in liberal, integrated high schools and universities, with no history of racial animosity, the majority of students self self segregate at lunch time and in their social activities. And when friendships form across racial lines, the individuals are almost always of a similar class and cultural background, so the chance of real social integration occurring through the government's efforts to import low income residents, is slim to none. 


More troubling, the actions of the Obama Administration implies that in order to thrive, African-Americans, unlike any other group, need to reside among other groups. A reader posted a response to this article that addresses this very point: "As a black American, I find this insulting...it sends a message that African-Americans need to be surrounded by rich white families to be happy and successful. Young black student's don't need to sit next to a white student to do good in school - we can do it on our own." You are correct; neither through "osmosis," nor through the mandates of the state can we as individuals and communities achieve happiness and good fortune. And real, enduring integration will never emerge through coercive social engineering, but through an affirmation of the principles of individual liberty (not group rights) and freedom of association.


On a side note, this affair begs the questions: Why should we view homogeneous white communities as being any more offensive than (let's say) equally exclusive Jewish, Chinese or Mexican-American neighborhoods? Why doesn't the federal government seek to diversify the said communities? Is there any real moral or legal difference between Americans of European descent seeking to congregate with their cultural compatriots, than (let's say) Arab Americans doing the same? Perhaps when European-Americans constituted the overwhelming majority of the nation, such behaviors could have been viewed as objectionable, but given that they now constitute a minority in a growing number of cities and states, there is no rational reason to single out their expressions of communal self interest. We cannot simultaneously encourage every group to promote their narrow ethno-political interests, while reprimanding the few European-Americans who do the same. Personally, I would like to see us travel in exactly the opposite direction and have all Americans promote the broad interests of their country and communities, rather than continue down the tried and failed path of balkanization.

The Unintended Consequences of the Chicago Residential Landlord And Tenant Ordinance

Pictured Above: The Author Of The RLTO

Like many unduly heavy handed government regulation, the Residential Landlord And Tenant Ordinance of Chicago produces unintended consequences that harm the very group they were purportedly designed to help. This ever expanding set of codes is heavily biased against landlords and enables tenants and lawyers looking to gain a quick buck from frivolous lawsuits. As I will demonstrate, the end results are diminished housing opportunities, especially for families of modest means.

 The most egregious aspect of the ordinance are the heavy fines mandated for clerical errors such as not maintaining security deposits in separate, interest bearing, escrow account. I personally know an honest landlord who returned the full deposit plus interest in a timely fashion, but was fined twice the amount of the deposit plus the tenant's legal fees! In this case, a $1,000 deposit generated a $3,000 fine, much of which went to the tenant's parasitic attorney! It gets worse; there are lawyers who contact tenants engaged in eviction proceedings and offer them "free" legal assistance, but only if they provided the landlord a security deposit. The unscrupulous attorney then attempts to turn the tables by counter-suing the landlord for any failure to comply with the regulatory minutia governing the deposit. Thus the said landlord can potentially face thousands of dollars in lost rent, fines and legal fees from his own attorney as well as the derelict tenant's attorney! Even if he is not subject to a counter-suit, if a tenant is well versed in the law, it can potentially take 3 or 4 months to evict him. Given that very few landlords immediately begin the eviction process, most spend a month or more hanging onto the broken promises of deceitful tenants, they can potentially face 5 or 6 months of lost revenue. And if the judge rules in the landlord's favor, the chances of collecting the lost revenue is slim at best. Does this sound like equal protection under the law?

Understandably, a growing number of landlords have decided to waive the requirement for a security deposit. Even landlords who have not decided to take this course of action have gotten much stricter on their credit requirements for prospective tenants. Most landlords would be willing to "lend a hand" and "give working families a chance," but given the increasingly costly and time consuming nature of evictions, most would rather maintain their apartments empty than run the said risks. What this means is that a lot of good, hard working families are having even more trouble finding quality, affordable housing in decent neighborhoods. To make matters worse, the growing risks and regulatory burdens that landlords face in Chicago are causing fewer individuals to purchase  property, especially in the blighted neighborhoods that are most in need of investment. And the landlords who remain will direct more of their resources towards regulatory compliance and keeping up with surging property taxes, than the upkeep and improvement of their property.

Obama And The College Question

President Obama has expressed his belief that the United States must increase the number of college graduates if we are to improve our economic competitiveness. Mr. Obama is mistaken; at least from an economic perspective, our focus should be on the quality rather than the quantity of degrees.

To start off with, the emphasis on quantity has led to significant degree inflation, in other words, the cost of obtaining a liberal arts degree has significantly increased, while the employment opportunities that such a degree offers have declined. The unintended consequence of this quantitative (but not qualitative) increase is that a host of employers now seek degree holders for low paying administrative and service industry positions. This has led to a massive increase in student debt and loan defaults. Those unable or unwilling to incur such debt will face diminishing job opportunities, which will lead to decreased economic and social mobility within the United States. This has also encouraged more graduates to seek their fortunes in an already bloated public sector and the near bankruptcy of federal, state and local governments means that fewer individuals will be able to pursue this option.

If Obama were to think outside of the quantitative box, he would focus on increasing the number of Americans obtaining degrees that are vital to economic competitiveness, such as mathematics, engineering & physics. He would ask questions like why so few native born Americans pursue their studies in these fields, as demonstrated by the increasing number of foreign born doctors, engineers & scientists. I must emphasize I am in no way attacking these economically vital immigrants, rather I am troubled by the cultural factors that I believe had lead fewer Americans to pursue an education in engineering and the sciences.

Economic reason dictates that rather than redistribute wealth (via expanding federal entitlements) towards the surplus of low skilled workers, we should focus our efforts on shifting workers to fields that face real labor shortages, such as engineering. And those who are not willing or able to pursue this path should be encouraged to seek employment in relatively high paying blue collar jobs that do not require a 4 year degree, such as plumbing and carpentry. For this to occur, Mr. Obama and his team of "experts" will have to undergo significant changes (that we could believe) in the way they envision the causes of and solutions to the educational and economic challenges that we face.

How to Reform Reform

In hindsight, ill conceived reforms, from the Patriot Act to bank bailouts and Obamacare, share several fundamental characteristics. They are a contradictory mix of needed reforms, questionable choices and appalling concessions to special interests. This occurs because politicians inevitably seize the opportunity to mine 1,000 page bills with earmarks that cater to powerful lobbyist. This is made possible because in the time allotted to consider a bill, legislators, let alone the general public, cannot read and fully comprehend the details of such massive bills. And even when the more abominable terms come to light, few are willing to challenge them, because doing so would result in other legislators dropping their support for the bill. After investing their political capital in promoting a bill, few are wiling to "kill the dog to get rid of the fleas."

In order to improve on legislation, it's essential to: slow it down and break it up. No matter how pressing the crisis appears to be, legislators and the public must resist efforts to quickly ram a bill through  Congress. It is better to measure twice and thrice than to recklessly raise an edifice that will vex future generations. If the great  behemoth of Health Care reform were broken up into a dozen separate bills, the legislative process would have been more transparent and the finished product would been less distasteful to the public. For example, why could we not have debated and voted on a bill that solely addressed the issue of pre-existing care? The vast majority of the public would have supported such a bill. Why not debate the (many) merits of promoting greater access to mental health services? And most importantly, why not submit the noxious and unconstitutional mandate to purchase health insurance to the vote? The bottom line is that it's unthinkable to let good policies get buried in a bad bill or bad policies fester in an otherwise good bill.
These principles clearly apply to efforts to tackle our out of control national debt. Rather than push through a budget whose sheer size overwhelm our analytical capacities, we must tackle each issue separately. Without sound reform of entitlements (that comprise 60% of the budget), even the most aggressive cuts to discretionary spending would do little to curb debt and much to hobble an already ineffective and sclerotic federal government. Social Security and Medicare and Medicaid each warrant separate debates and separate reform bills. Efforts to address the flaws in these (currently) fiscally unsustainable entitlements would be incredibly contentious, but certainly merit fact (not feeling) driven debate, followed by a decisive vote. And the inescapable fact is that with nearly $100 trillion in unfunded liabilities, unless we undertake serious reforms, we will face impending bankruptcy and the virtual elimination of a safety net for the poor.

Afterwards, we must engage in a serious debate on our our imperial foreign policy, which drives the size and scope of our defense expenditures. Until we seriously weigh the costs and benefits of our role as the great nation builder and globo-cop, we will never achieve sustainable defense spending. And to further challenge our constitutionally illiterate politicians, it wouldn't hurt to have a healthy debate on the 10th Amendment, or specifically what roles and responsibilities does the constitution assign the federal and state governments. As a native of Illinois I can attest to the fact that state governments can be as bad or worse than the federal government, but their fiscal licentiousness is held in check by their inability to print money.

Unlike some of my more short sighted conservative brethren, I recognize that taxes will have to rise. However, if we increase revenue without first curbing spending, we will encourage politicians to further put off unpopular entitlement reform. Raising tax rates must be discussed as but one aspect of badly needed tax reforms. Our outmoded tax codes are riddled with numerous problems, including an internationally uncompetitive corporate tax rate, gaping loopholes and economically irrational subsidies. Together, they have exacerbated deficits, encouraged the flight of industry, discouraged the creation of new jobs, distorted the tax burden and augmented corporate lobbying.

Of course, tackling all of these daunting issues separately will greatly increase the duration of the reform process. But, this is a small price to pay for the promotion of greater transparency, serious debate and well thought out policies that will ensure the long term fiscal health of our nation. But to do so, voters must start punishing rather than rewarding politicians who promise the impossible: more warfare, more welfare and even lower taxes. Vote Ron Paul 2012!

Product of Incest

Supporters of the GM Bailout are celebrating the supposed payback of the funds to the government (will be discussed in a later post). But, a closer look at the deal reveals unsettling details, like a tax break that may go as high as $45 billion. When the federal government and politically connected corporations form "strategic public-private partnerships," their inbred progeny are usually quite costly to American Tax Payers.

NOVEMBER 3, 2010.

GM Could Be Free of Taxes for Years


General Motors Co. will drive away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion.

.GM, which plans to begin promoting its relisting on the stock exchange to investors this week, wiped out billions of dollars in debt, laid off thousands of employees and jettisoned money-losing brands during its U.S.-funded reorganization last year.

Now it turns out, according to documents filed with federal regulators, the revamping left the car maker with another boost as it prepares to return to the stock market. It won't have to pay $45.4 billion in taxes on future profits.

The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy.
Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.
But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.
Neal Boudette discusses GM's IPO plans, which will raise up to $10 billion and cut the government's stake to below 50%.

."The Internal Revenue Service has decided that the government's involvement with these companies, both its acquisitions plus its disposals of their stock, means they should be exempt" from the rule, said Robert Willens, a New York tax consultant who advises investment banks and hedge funds.
The government's rationale, said people familiar with the situation, is that the profit-shielding tax credit makes the bailed-out companies more attractive to investors, and that the value of the benefit is greater than the lost tax payments, especially since the tax payments would not exist if the companies fail.
GM declined to comment.

The $45.4 billion in future tax savings consist of $18.9 billion in carry-forwards based on past losses, according to GM's pre-IPO public disclosure. The other tax savings are related to costs such as pensions and other post-retirement benefits, and property, plants and equipment.
GM may avoid paying up to $45 billion in taxes for up to 20 years, according to people familiar with the situation. Above,GM's Cadillac logo is displayed on the grill of a Cadillac SRX.

.The losses were incurred by "Old GM," the company that remained in bankruptcy after the current "New GM" resulted from the reorganization last June.

.Investors typically view tax-loss carry-forwards losses as important assets in bolstering a company's balance sheet.

GM's chief domestic rival, Ford Motor Co., last year adopted a plan to preserve deferred "tax assets" which stood at $17 billion at the end of 2009. Ford can use the tax attributes in certain circumstances to reduce its federal tax liability. Ford declined to comment on the GM tax ruling.
Write to Randall Smith at randall.smith@wsj.com and Sharon Terlep at sharon.terlep@wsj.com

http://online.wsj.com/article/SB10001424052748704462704575590642149103202.html

Regulating Shoe Bombers & Financial Institutions

Flying has become more tedious and time consuming since passengers to remove their shoes as part of airport security. As most people are aware, this policy was put into place after Richard Reid, an amateur terrorist tried to set off a shoe bomb in an airplane. This highlights some fundamental problems with government regulation that are applicable to financial regulations. While the goals of terrorists are almost always irrational, their methods are not. When planning attacks, they take existing security measures into account, which means that the chances that they will utilize are shoe bombs are slim to none. Aspiring terrorist will now seek other means to terrorize air travellers or they will seek softer targets like sports stadiums and museums. And while intelligence operatives may be swift and effective, bureaucrats never move and change as fast as the individuals and organizations that they seek to regulate. By the time they have planned and implemented a new regulation, such as airport shoe checks, that regulation has already become outdated. And hence its only achievement will be to make air travel slower and more costly for airlines and travellers alike.

On a deeper level this represents the distinctly American obsession of seeking to eliminate uncertainty and risk by continuously expanding laws and regulation. In some instances these endeavors are successful, but a great many social and economic phenomena are by their nature in a constant state of flux and are beyond the control of static rules and regulations. In these cases, our focus should be on covert enforcement based on sound intelligence gathering. In other words, rather than burden all travellers with ineffective, security pantomimes, we should focus our monitoring and disrupting terrorist networks. And we must focus limited attention and resources on individuals who statistically pose a greater risk. This does not mean we should harass all Muslims; frisking an Elderly, Iranian Woman, just because she wears a hijab would be a waste of resources, because on three counts (age, national origin & gender) she does not pose a statistical risk. However, young men, like Richard Reid who attended radical mosques and madrases in London and Lahore fit the profile to a tee.

How do these principles apply to financial institutions? Take the real estate crash; by the time regulators made the mortgage market more "safe & secure," fraudulent or reckless investors had moved on to "softer targets." Crooks and excessive risk takers know that utilizing mortgages to realize illicit, high return gains is equivalent to a terrorist using a shoe bomb after the Richard Reid incident. In both cases, regulators are focusing their attention on preventing a specific set of behaviors. Knowing this, terrorists and financial criminals will seek new means or entirely new targets, leaving a rattled public to bear the costs of new regulations. While they may be warranted, such regulations will not protect the public from the next bomb or financial bubble. And if anything, in response to the financial meltdown, most banks are now erring on the side of caution, to the detriment of the general economy.

Numerous commentators cited the Bernie Madoff scandal as proof positive that we desperately needed more regulation of financial institutions. But, a closer look at the Madoff story shows that the problem was not a lack of laws, but failure to enforce existing laws. According to Wikipedia:

"Concerns about Madoff's business surfaced as early as 1999, when financial analyst Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, he knew within five minutes that Madoff's numbers didn't add up, and it took four hours of failed attempts to replicate them to conclude Madoff was a fraud.[81] He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. He has since published a book, No One Would Listen, about the frustrating efforts he and his team made over a ten-year period to alert the government, the industry, and the press about the Madoff fraud."

Rather than subject travellers and financial consumers, to new and more onerous laws, there are three things that government can do to protect the public from criminals and terrorists, be they corporate or Islamic in nature:

1) Profile: a business, such as Madoff's that consistently produced unsustainable rates of growth, over extended periods of times warranted a serious federal probe. To those who looked, the red flags abounded, much like they did with the shoe bomber.

2) More Responsive Investigators: If the SEC had responded to Mr. Markopolos's concerns in 1999, the Madoff scandal could have been avoided and investors may have exercised greater caution. We can assume that a combination of institutional sloth and a cosy relationship with investors contributed to the SEC's ineffectiveness. The same can be said of British Intelligence; why did they not better monitor Richard Reid and the other alienated young men who attended the Finsbury Mosque and later radical madrases in Pakistan?

3) Punishment: Corporate fraud and white collar crimes should be treated as harsh, if not harsher than less destructive street crime. The same should be done for any individual or organizations preaching violence in the name of Islam.

Of course we must always strive to put wise regulations into practice, to minimize risk and protect the public. But, we must avoid illusions that we can maintain safety and security by imposing undue burdens on the general public. Our efforts must be focused on intelligence gathering and targeted enforcement and avoid needlessly multiplying the number of regulations and bureaucracies that govern American life.

http://en.wikipedia.org/wiki/Richard_Reid_(shoe_bomber) http://en.wikipedia.org/wiki/Bernard_Madoff

The Petitionary State

For much of history, governments existed as a Petitionary State. Subjects would petition their sovereign for privileges, rights and favors. The king or the duke would either grant a right or lift a burden. For example, Joseph Nasi was granted the wine trade monopoly with Moldavia by the Ottoman State. And through petitions and bribes, Jewish and Christian communities were temporarily relieved of Islamic prohibitions against building new (non-Muslim) houses of worship. The petitionary state increased the wealth and loyalty that the sovereign commanded and the dependency of their subjects. The most troubling aspect of this system was its arbitrary nature and incompatibility with the rule of law. Rather than depend on clear rules that applied to all subjects, at all times, the state functioned according to the whims of the ruler(s). And to a large degree, the generation of wealth depended more on the good graces of the ruler(s) and less on the ability of an individual to competitively provide goods and services. Needless to say, this retarded the economic development and creation of wealth in the Ottoman Empire and other petitionary states.

The founding father did more that any other rulers, via the establishment of limited, constitutional government to limit the petitionary elements of the state. Although corruption and favoritism in the application of the law certainly did exist, a regimen of official favors, privileges and penalties did not. And the limited size and scope of the American Government limited the incentives and capacity of citizens and rulers to engage in petitionary activities. So, while some groups and individuals did grow wealthy through their ties to rulers, the majority of individuals thrived or languished through their own efforts. This is a major factor in the legal and economic development of the United State.
Over time the American Government has increasingly become a Petitionary State. An increasing number of individuals, groups and special interests petition the state for economic and social intervention on their behalf. Politicians have increased their power and popularity by promising individuals health care, housing, education and a host of other goods and services. Special interests are promised subsidies. And ethno-political groups seek special privileges, such as educational and contract set asides via the petitionary state. In general, Democrats are more inclined to promote this vision of the state. In practice, select subsidies can benefit the general public, but in realitylobbying play a huge role in determining which industries and companies receive the good graces of the state.

In a less direct fashion, many Republicans have depended on the petitionary state to increase their power and popularity. The expanding regimen of favors and entitlements naturally imposes a large fiscal and regulatory burden on productive individuals and companies. No good or service is free, you cannot give to one without taking from another. But, rather than fight the petitionary state, most Republicans have opted to grant selective exemptions to politically connected groups, individuals and industries. A prime example is seen in tax breaks granted to the oil and coal industries. And a more populist and democratic version of this policy is seen in the broad tax breaks that Republicans have promoted, even in the face of spiralling debt.

In order to avoid Glenn Beckian histrionics, I will admit that the modern version of the petitionary state is vastly more benign and democratic than its earlier incarnations. But, it has led to aberrations like corporate welfare and unsustainable spending. In the context of highly competitive political races, Democrats have continuously increased the size of entitlements, while Republicans have simultaneously lowered taxes. With neither side willing to alienate the electorate by seriously curbing spending or raising taxes, the predictable result is a national debt that is spiralling out of control. Eventually entitlements will contract, while taxes will surge, leaving sovereigns unable to fulfill the petitions of their enfeebled, entitled and dependent subjects.

http://en.wikipedia.org/wiki/Joseph_Nasi

http://en.wikipedia.org/wiki/Dhimmi

http://online.wsj.com/article/SB10001424052748704107204575039200881610236.html

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

Where are the Pakistani Kings (part III)?

In our previous posts we discussed the effect of an individual immigrant's education level in determining their economic and social output. The good news is that poverty and prosperity levels of immigrants and native born Americans alike are virtually identical once we factor in their educational levels. The bad news is that an increasingly large number of immigrants possess educational levels far below the national mean. So, when we look beyond romantic rhetoric and analyze the raw numbers, it becomes clear that we are importing poverty in general and increasing Hispanic poverty in particular, both in absolute numbers and as a percentage. Here are a few statistics that highlight this reality:

According to Robert J. Samuelson, "from 1990 to 2006, the number of poor Hispanics increased 3.2 million, from 6 million to 9.2 million. Meanwhile, the number of non-Hispanic whites in poverty fell from 16.6 million (poverty rate: 8.8 percent) in 1990 to 16 million (8.2 percent) in 2006. Among blacks, there was a decline from 9.8 million in 1990 (poverty rate: 31.9 percent) to 9 million (24.3 percent) in 2006. White and black poverty has risen somewhat since 2000 but is down over longer periods."

One important factor that explains how Hispanic poverty could grown during a prolonged economic boom is that the increase in the supply of labor (via high levels of immigration) was concentrated in fields which Hispanic immigrants predominate, such as construction. And if Hispanic poverty rose during an economic boom, I dread to think what this sharp economic downturn will mean for Latinos.

Most troubling is the fact that this phenomena is most strongly felt among children. And among the children of Hispanic immigrants the poverty rate is 32.9%, which is nearly 3 times the national average. The end result is that although children in first-generation His­panic immigrant families comprised 11.0 percent of all children in the U.S., they were 20.4 percent of all poor chil­dren. And drop out rates for Hispanics are double the national average.

These statistics are troubling for progressives and conservatives alike, but where they diverge is their interpretation of and solutions to the growing socio-economic gap between European and Asian Americans on one hand and Hispanics and African Americans on the other hand. Progressives narratives focus on on external factors, such as: racism, discrimination and "economic injustice" as the causes of this gap. So, they are likely to look at the growing level of Latino poverty as an avoidable that can be remedied through government intervention.

On the other hand, conservatives are far more likely to focus on internal factors, such as the level of human capital and a cultural affinity (or lack of) towards education and social mobility. So, most conservatives would view the surge in Hispanic poverty as the predictable outcome of immigration policies that paid little heed to the educational level of immigrants.

Based on their world view, most progressives look at this socio-economic gap as an opportunity to expand the size and scope of government. To bridge the socio-economic gap, numerous programs have been implemented from: educational programs specifically geared towards raising academic performance of (non-Asian) minorities, affirmative action and expanded health and housing entitlements. On an even broader level, the gap affirms the needs of progressives to implement "redistributive justice" via increased government intervention in economic and social spheres of American life.

To this, most conservatives affirm the need to focus on the facts on the ground. In other words, it would be wonderful if progressive programs could remedy troubling socio-economic gaps, but realism dictates that we must base our immigration policies on the assumption that they won't. Policies must be based on the assumption that given our continued shift towards an economy that offers decreasing returns for low skilled workers, the socio-economic output of uneducated immigrants and their descendants will not significantly improve. Accordingly, the only logical response to the growth in Hispanic poverty is to shift our immigration policies away from the importation of low skill labor, towards one that is focused on importing highly skilled and highly educated workers, regardless of race.

In the mind of many, such talk would come dangerously close to violating the three great progressives commandments: thou shall not discriminate, thou shall not disparage diversity and thou shall not blame blame the victims. Unfortunately, noble intentions do not address social and economic ills and many self proclaimed "pro-immigrants" pursue policies that have and will continue to increase poverty among immigrants and their descendants.

http://www.prb.org/Articles/2008/uschildpovertyrates.aspx

http://www.heritage.org/Research/Reports/2006/10/Importing-Poverty-Immigration-and-Poverty-in-the-United-States-A-Book-of-Charts

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.

Something Nasty is Brewing..

Something nasty is brewing in Nancy Pelosi's (D-CA) and Dick Durbin's (D-IL) cauldron. Whether you agree with the Obama Administration's desire to to "promote the development of new media outlets for expression of diverse viewpoints..." history shows that increased government intervention in the media is a dangerous path that will lead away from free and democratic discourse. And of course it's quite obvious that the Fairness Doctrine and all it's foul reincarnations are thinly veiled attacks against the only branch of the media in which conservative thought predominates - talk radio. Regardless of your opinion of the merits of talk radio, it thrives due to its ability to give voice to popular sentiments not expressed in moribund newspapers. And in the face of the miserable failure of "progressive" talk radio, the left predictably responds by seeking to subsidize failed enterprises and punish successful ones.

When Durbin attempted to downplay the ideological drive behind this measure, he revealed even more disturbing marxist impulses. Durbin stated “When we talk about diversity in media ownership, it relates primarily to gender, race and other characteristics of that nature." So, apparently he supports a redistribution of radio time based on race and gender.

My opinion of Pelosi and Durbin would not be so harsh if they pursued "balance and diversity of opinion" in NPR and other media outlets that are heavily biased towards the left. So, clearly the driving force of their efforts is their desire to dominate public discourse and stifle expressions of growing discontent against the "change" that they are imposing on the American people.

Green Subsidies

The public bearing the burden of green subsidies.

I recommend that my readers check out the economist Max Schulz's article on the Obama administration's costly push for "green jobs."

The author doesn't doubt the need to address global warming, but he is skeptical of Obama's claims that government subsidized "green industries" will be a net producer of jobs.

He points out that in 2008 the government subsidized solar energy at $24.34 per megawatt-hour (mw/hr) and wind power at $23.37. Whereas natural gas generates energy at $ 0.25 mw/hr, coal at $0.44 and hydroelectricity at $0.67. Given the relatively low energy output of renewable energy sources, they currently provide 0.5% of our nation's energy needs. The economic implications of this are:

1. Barring aside exponential increases in energy output via wind and solar power, a government mandated shift towards renewable energy sources will dramatically raise the cost of production through higher energy costs.

2. Or, if the government makes the widespread use of renewable energy sources feasible through heavy subsidies, these subsidies will result in a higher tax burden of productive industries, which also will raise the cost of production.

3. Any economist will tell you that raising the cost of production will result in a loss of jobs. And the author does not believe that the loss in private sector industrial jobs will be offset by gains in heavily subsidized "green jobs."

4. The author correctly points out that locals with higher energy costs (such as California) drive out jobs to areas with lower energy costs (such as North Carolina) and even straight out of the country.

And I would like to ad that the history of government subsidies shows that:

1. Inevitably the prime determinant of which companies (in any given field) are the recipients of government subsidies are not which are the most innovation. Rather, political connections and influence via lobbying determines who receives public funds.

2. Government subsidies limit market competition and market entry for new companies. And in the case of agricultural subsidies we see that public funds are often used by large, corporate recipients to buy out their smaller competitors.

3. By reducing market competition, subsidies reduce incentives to innovate or become more cost and energy effective.

4. Government mandated social goals (minority ownership etc.) that usually accompany government subsidies further erodes the efficiency of subsidized industries.

5. In general, when private finance is not willing to provide capital for a company, we should be very skeptical of the soundness and sustainability of that company and its goods and services.

6. On the rare occasion in which a subsidy is wisely conceived and administered, it will inevitably outlive its economic and social usefulness. Just look at the farm subsidies that were introduced by FDR during the Great Depression to assist poor farmers - not only have they outlived their usefulness by over 60 years, they have continued to grow and skew towards larger agro-corporations.

So, while I see the merits of fighting environmental degradation, I am very skeptical of the power of government subsidies to produce positive economic outcomes, including the creation of jobs. Max Schulz believes that the best way to a greener and more prosperous future would be for the government to simply set goals and parameters for the private sector (such as carbon caps) and let market competition do the work. But, what can we expect from an administration that claims that birth control and bridges to nowhere are economic stimuli?

http://www.city-journal.org/2009/19_1_green-jobs.html