Category Archives: Uncategorized

Fivers

George Will recommends a path toward a balanced budget amendment to the Constitution. Using Article 5, the states can make this happen even if the Congress refuses to act.

Congress, which relishes deficit spending, would not, unilaterally and unpressured, send this amendment to the states for ratification. Hence theGoldwater Institute’s recourse to Article V.

It provides, in the same sentence, two amendment procedures, one of which has never been used — the calling of a convention by two-thirds of the state legislatures. Many prudent people — remembering that the 1787 Constitutional Convention’s original purpose was merely to “remedy defects” of the Articles of Confederation — recoil from the possibility of a runaway convention and the certainty that James Madison would not be there to make it turn out well. The compact, however, would closely confine a convention: State legislatures can form a compact — a cooperative agreement — to call a convention for the codified, one-item agenda of ratifying the balanced-budget amendment precisely stipulated in advance.

Supreme Court Restores Free Speech, in Pieces

Today the Supreme Court ruled to overturn a bit more of the labyrinthine regulations on Americans’ right to free speech. This subject is often accompanied by loud gnashing of teeth, but today’s ruling (McCuthcheon v FEC) is actually a tiny step. In fact, the 5-4 decision pulled its punch, meaning that fully free speech is still illegal in the United States, and what a shame that is.  Let’s remember that it was once the ACLU that was defending the freedom of a small group of Americans who ran a newspaper advertisement against Richard’s Nixon’s bombing of Cambodia. The ACLU (back when it care about free speech) said that so-called campaign finance “reforms” were a euphemism for speech control.

Let’s dispense with the usual misleading claims:

1. Campaign Finance rulings give a partisan advantage. Protesters think this a Republican versus Democrat issue.  It’s not.  The campaign finance laws are fundamentally about politics works mechanically, and both parties get equal treatment regardless of the Supreme Court decision. What’ in tension is whether the two major political parties have monopolistic control over campaign dollars. They both prefer such control, but this comes at the expense of outside voices (Tea Party as well as Green) and at the expense of entrepreneurial candidates. Today’s ruling is a small victory against the big parties.

2. Money is not speech. Okay then, the control money crowd says that they reject the very idea of money as speech. They say money is de facto corrupting.  This latter point is what gets them into constitutional hot water because it is baseless, presuming guilt before innocence. The “appearance of corruption” standard is no better than incriminating a young girl for prostitution because of the clothing she wears. Do we put people in jail for the “appearance of prostitution” or the “appearance of manslaughter?” To say this is a superficial standard is so accurate that it insults common sense. And as you might expect, the net result after decades of superficial control of politics is our modern, very superficial politics.

To continue the illogic of the critics, let’s think about the speech standard as applied to the New York Times.  The campaign finance dinosaurs hold that 100 pages of a newspaper cannot be regulated because that is free speech, but a 1/16th page advertisement in that same paper is subject to superficial standards, intrusive regulation, and outright banishment. So if a rich Saudi wants to publish and distribute a newspaper in the U.S. calling for jihad, he is free to say what he wants, but if an American wants to pay for a small “Vote for Kane” ad in the Washington Post, that is a thought crime! This is madness.

3. The open door will become a floodgate.  The bogeyman of money buying politics has been a staple of media reports about U.S. politics forever. Even now, Senator Harry Reid is using the Senate to attack individual Americans by name who dare to give money to his opponents. Yet the supposed “flood” of corporate money after the 2010 Citizens United case failed to, you know, flood. Where’s the story about Exxon or KFC dollars gushing into candidate or PAC accounts?  It never happened.  Instead, the angst is all about the Koch brothers or George Soros. Individuals. Not corporations. The reality is the individual right has never been subject to control by the FEC, and so there’s nothing new with Koch or Soros giving.

Why don’t for-profit corporations flood in?  Because it never really made business sense for public corporations to buy politicians, and so it, contrary to the hopes and dreams of professional angry anti-speech activists, just didn’t happen even after Citizens United allowed it.  Look up the 2012 donation records: no flood.  Non-profit giving is a different story, but that wasn’t torrential and besides, it’s hard to demonize.

Of course, that doesn’t stop the myth of the corporate flood from being repeated. Consider this line, common everywhere, but frustrating to see on the ultra-mainstream CNN today, in this lead story “SKY’S THE LIMIT” :

The Citizens United ruling helped open the floodgates to massive corporate spending in the 2012 elections.

Ultimately, McCutcheon is not nearly as important as Citizens United was, nor does it resolve the biggest restriction on political freedom, which is the freedom of individual candidates to raise unlimited sums from individual donors.  That restriciton, known as “base limits”, continues to hamstring political entrepreneurs.  Mr. McCutcheon, for example, has a base limit of $2600 maximum that can be given to an individual candidate, as well as an aggregate limit of $123,200 per cycle.

To be sure, incumbents can raise unlimited money because they are expert at direct mailing tens of millions of small donors, working back-scratching PAC networks, and milking their big party patrons. An entrepreneur has limited resources, but may have the backing of a visionary investor. But one or two high-net-worth donors cannot, still, give a big check to candidate X. Why? Hamstringing the entrepreneur remains.

At first, I thought SCOTUS had split the baby by just removing the aggregate limit but leaving the base limit in place. To my relief, Justice Roberts explained in his opinion that

This case does not involve any challenge to the base limits, which we have previously upheld as serving the permissible objective of combatting corruption.

That base limit case will come, but it cannot come soon enough.

Overtime, rooted in the LOL fallacy

If you can stomach a brazenly left-biased economics news article from the Washington Post, check out this coverage of the overtime trial balloon that the White House is floating:

White House officials declined to describe the proposal in detail, suggesting only that they were contemplating a change in the salary threshold that determines whether an employee receives overtime pay for working more than 40 hours a week.

These authors tend to describe liberal points as things “economists” say, but that counter arguments are things “critics” say.  Nice skew!  Examples: “[E]conomists say federal rules … have failed to keep pace with the growing cost of goods and services” and “Economists argue that the declining value of the minimum wage has also contributed to lagging wages.” Um, no they don’t.  Liberal economists might make those arguments, but the majority don’t say such things.

Fact is that this overtime effort is deeply flawed according to mainstream economics. It is based in a theory of human labor as a muscle commodity, which was relevant in, economists say, 1861.  This notion that raising the overtime threshold will create jobs is so wrong that it has a nickname among economists.  It’s called the “Lump of Labor Fallacy” and even has a Wikipedia entry. Look it up! and for that matter, LOL also has a 2003 essay in the New York Times dedicated to trashing partisans who advocated restricting work hours as a policy to boost employment:

Economists call it the ”lump of labor fallacy.” It’s the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950′s that automation would lead to mass unemployment.) As the derisive name suggests, it’s an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.

Say who?  Yeah, um, that was Paul Krugman.

 

 

Politics Trumps Policy: Ezekiel Emanuel

This  essay by Ezekiel Emanuel Obama, an administration health insider who helped craft the ACA, explains how corrupting politics can be:

Economists—liberal and conservative alike—overwhelmingly denounce the tax exclusion. It drives costs higher while keeping wages down, it is regressive, and it is a major drag on the federal budget—lowering revenue by a whopping $250 billion a year.

During the 2008 presidential campaign, Senator John McCain proposed eliminating the exclusion and replacing it with a $5,000 tax credit to help families buy health insurance. The Obama campaign ran more than $100 million worth of ads pounding McCain, accusing the GOP nominee of “taxing health benefits for the first time ever.”

Once Obama was in office, his advisers split on the issue. The economists wanted to limit the exclusion, but the political team didn’t want to touch it. David Axelrod, the president’s political guru, even showed us a montage of Obama’s campaign commercials to remind the economic team of his stated position.

Emanuel (yes, Rahm’s brother) says that Obama ultimately did the right thing by adding a tax on Cadillac plans that will begin, wait for it, in 2018. Not only is the timing of the reform questionable, but it is delusional to think of this as real reform.

The reality is that Obama was devastating against John McCain using a very insincere, populist attack when it was McCain who was offering up a good policy proposal, a proposal that Emanuel himself calls a good, consensus, bipartisan idea. Politics won. The nation lost. End of story.

UPDATE: I spelled Emanuel’s name incorrectly in the original title. Now corrected.  Thanks to a reader for pointing this out.

Monopoly on the Left

Glenn and I argue in our book that the political system has become a monopolistic competition. A good book on the subject is this one from the Hoover Press by James Miller. It’s nice to see that idea confirmed by self-critical thinkers, and here is a very thoughtful essay out just today on race in SLATE by Tanner Colby:

The left has been ceded a monopoly on caring about black people, and monopolies are dangerous. They create ossified institutions, paralyzed by groupthink and incapable of self-reflection. To the extent that liberals are willing to be self-critical, it’s generally to flagellate themselves for not being liberal enough, for failing to stand fast with the old, accepted orthodoxies. Monopolies also lead to arrogance and entitlement, and the left is nothing if not arrogant when it comes to constantly and loudly asserting its place as the One True Friend of Black America. And yet, as good as liberal policies on race sound in speeches, many of them don’t hold up in the real world.

The good news is that this initial essay, excellent throughout, is the first in a series.

Freedom of Choice versus the Gender Pay Gap Theory

Thanks to Christina Hoff Sommers, I finally understand the often-repeated gender pay gap issue (see Sommers’ Daily Best essay here).  Actually, one of my econ grad school  professors (a female) discussed this, but it faded from my memory until President Obama made a big claim about it during his State of the Union Speech:

President Obama repeated the spurious gender wage gap statistic in his State of the Union address. “Today,” he said, “women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.”

What is wrong and embarrassing is the President of the United States reciting a massively discredited factoid. The 23-cent gender pay gap is simply the difference between the average earnings of all men and women working full-time. It does not account for differences in occupations, positions, education, job tenure, or hours worked per week. When all these relevant factors are taken into consideration, the wage gap narrows to about five cents.

All evidence suggests that though young women have the talent for engineering and computer science, their interest tends to lie elsewhere. To say that these women remain helplessly in thrall to sexist stereotypes, and manipulated into life choices by forces beyond their control, is divorced from reality—and demeaning to boot.  If a woman wants to be a teacher rather than a miner, or a veterinarian rather than a petroleum engineer, more power to her.

The White House should stop using women’s choices to construct a false claim about social inequality that is poisoning our gender debates. And if the President is truly persuaded that statistical pay disparities indicate invidious discrimination, then he should address the wage gap in his own backyard. Female staff at the White House earn 88 cents on the dollar compared to men. Is there a White House war on women?

Pro-slavery Progressives

I would like to think that our modern democracy has moved beyond the ignorant beliefs of bigoted, uneducated times of a bygone era. Instead, essays such as this one by Princeton economist Uwe Reinhardt confirm a sad fact that people forget first principles all too conveniently.

Reinhardt makes a carefully-reasoned argument that the voluntary nature of military service in the U.S. is dangerous and altogether bad because it (1) allows risk-avoiding, war-mongering elites to send the lower classes into combat, and (2) allows college students to cheer on war without having to face the consequences, and just for spite (3) attracts the dregs of society into uniform. That third point is bracing in its offensiveness, but Reinhardt can get away with it because his own son is a Marine, wounded after multiple combat tours. Well, I’m still offended, almost as much by Reinhardt’s bad economic logic as by his contempt for my service in uniform, my dad’s service, and the freedom all veterans have defended.

In his own words:

[W]ith a hypothetical supply-of-soldiers curve such as the solid, upward-sloping line in the chart below … under an all-voluntary armed force, only individuals on line segment AB would join the armed forces, sparing the individuals located on segment BC the duty to fight and sacrifice for their country.

… I know from personal experience that, before the invasion of Iraq and thereafter, this welfare-economic analysis of the military draft was music to the ears of the many undergraduates who enthusiastically cheered on that invasion and the subsequent dangerous occupation of Iraq, leaving the fighting, the bleeding and the dying to someone else, …

… Clearly this is a classic case of moral hazard. It raises the probability of a nation going to war, especially if huge profits can be made off a war by those bearing little personal risk in that war but with powerful sway over government. (emphasis added)

All of these claims are wrong.  His subsequent moralizing is just as bad.

First, the supply curve analysis Reinhardt attempts is too simple. He must know this, yet he keeps making this argument that people with higher opportunity costs (“individuals located on segment BC”) would never join the military. This is belied by his own son, Mark Reinhardt, Princeton class of 2001 and proud but lonely member of the ROTC unit there. If Uwe Reinhardt had any sincerity, he’d do some real research on the topic instead of make this stuff up. What he would find is that low-skill youth (the roughly bottom 20 percent of Americans who score in the lowest “Category 5″ group on aptitude tests), are not welcome in the military today. They cannot volunteer even if they want to. My own research into the demographics of modern military enlistment found that volunteers disproportionately come from higher-income neighborhoods. But don’t let facts ruin a good story, Uwe!

Second, the professor says that the freedom to enlist or not was “music to the ears” of his undergraduates, but only those who cheered on the war. What a rude assertion. His whole chickenhawk critique, thick with insinuations of class divisions, is silly. Any polling to back this up?  No, of course not.

Third, he claims the all-volunteer force creates a moral hazard that raises the probability (not possibility, mind you) of going to war. Really?  Here are the U.S. wars fought under conscription: Civil, WW1, WW2, Korea, Vietnam (to name a few) which were in the 1860s, 1910s, 1940s, 1950s, 1960-70s. You call that rare? Then conscription ended in 1973 (more on that later), and the number of wars dropped dramatically. Better logic reveals that wars fought with volunteers are less deadly. Seriously, do the math, and the empirics back this up big time. Volunteer troops are more valuable: there’s an economic principle for you. (Or see this BBC report “Wars less frequent, less deadly“).

I find it bemusing how modern progressives tend to have a self-image as protectors of the downtrodden. You often hear them mock conservatives as racists, fascists, or other reprehensible things. Oddly though, the modern political party that is more conservative, the Republican party, was born expressly to oppose slavery. Likewise, people forget that Nazi, the movement of uber-fascist Adolf Hitler, was a shorthand for the National Socialist party. The Nazis, like the modern Democratic Party, stood quite firmly for bigger government. And nothing is bigger in principle than a government that can enslave its own people.

So why is Uwe Reinhardt in favor of that?

Naturally, Reinhardt and others say that what they favor is being mis-characterized. What they favor is “national service” a euphemistic, poll-tested, re-branding of what real liberals opposed in the 1960s when it was known as conscription, a.k.a. the draft. Coercing young people to fight in the Army was the norm in the U.S. until (surprise) Richard Nixon campaigned against the draft in 1968 and (avert your self-image, modern progressives) actually ended it  in 1973, despite howls of protest from many in the Pentagon and many Senators as well (here’s to you, Ted Kennedy).

I truly wish Reinhardt would open his heart and realize that slavery is wrong in all of its forms, private and public. He can call it national service all he wants, but coercing work from others against their will is wrong. It’s counter to my value system as a veteran of our military, and it is counter to the values of almost every teenager I know. So why is the idea of conscripting young men so popular with older men? I suspect it wouldn’t be such a hot idea if pressing people into service was limited to Ivy League professors – no that just wouldn’t do. But who has more brainpower that could be harnessed for the public good? What harm could two or three years of involuntary service do to those tenured geniuses?

Here’s a counterpoint. If the voluntary nature of labor markets creates moral hazard, does that mean you are more likely to abuse maids and trash collectors? Are we more likely to overuse services which we don’t have to provide? Are we likely to be inconsiderate to people in those jobs? Reinhardt logic says yes. It also says that a job lottery to fill dangerous jobs would be a Pareto improvement over a free country. Want to take a low-paying job working in a park? Too bad, you’ve been tapped to fight crime with the Chicago police. Want to design new medicines to fight cancer? Too bad, go dig a tunnel (it’s a public good you know).

Again, if Uwe Reinhardt was serious in his critique of the moral hazard of a voluntary military, he would do some actual research on the matter. He might even ask the troops who volunteer. Do the men and women who enlist today prefer to serve with conscripted soldiers? I know the answer because I’ve asked these questions. It turns out that nearly 90 percent of the officers I surveyed oppose efforts to reintroduce the draft. In my book Bleeding Talent I show that what’s really wrong with the military is that it hasn’t gone far enough in stomping out the remnants of coercion in how soldiers are treated. What America needs is a Total Volunteer Force that will add flexibility to the ranks and improve the way service members are treated. The troops know this, but Reinhardt and modern progressive elites are lost.

Unemployment versus Labor Force

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Here’s an update from my last post, this time contrasting Labor Force Participation with Unemployment. Both have U.S. population as a denominator.  Make sure to check out National Journal’s Major Garrett on the topic:

But is this a harbinger of a new, gruesome economic normal of laid-off workers who can’t find work, young Americans clinging to college and post-graduate work—adrift in a jobless future, piling up debt? Or is it a statistic that looks alarming but is really benign—a statistical brew of trends in aging, schooling, retraining, and life choices that’s frothy and mysterious but no more distasteful than Guinness served too cold?

 

 

The U.S. Labor Market Is Abnormally Broken

As the U.S. economy completes another year of non-recovery, I have become increasingly convinced the policy environment is harmful to the labor market. Congress enacted a sharp increase in the minimum wage at the beginning of the recession (41%) and also made unprecedented increases in the duration of jobless benefits, essentially quadrupling them. These distortions to work incentives are just two easily identifiable changes. The myriad pressures from new laws and regulations, notably ACA, are also negative but will be difficult for economists to quantify.  The resulting distortions are easy to see, however.

First, recent movements in the unemployment rate are now well-known to be false signals of recovery.  The U-3 rate does not count discouraged workers and others who have dropped out of the labor force. In the charts below, I show a snapshot of the relationship between the U-3 unemployment rate and the demographically neutral Employment-population ratio. I’ll save further commentary until after the charts.  Notice that the relationship, shown in a 2-axis scatter, varies as demography shifts from the 1950s to the 1970s (first chart). However, in later decades, the relationship is remarkably stable, until the 2009 “recovery” shown in the final chart.

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The scatter points in the last chart do move along the traditional line that was steady for 25 years. And then in late 2009, the scatter points get stuck in a cluster for a year or more with unemployment at 9.5 to 10, alongside the E-pop ratio at 58.5. After mid-2010, the old normal melts down, as unemployment begins to decline while E-pop holds firm. I find it amazing.  And the meltdown is ongoing.

Every month in which the unemployment declines while the E-pop ratio stagnates indicates a further breakdown in normal work patterns. I have to wonder if what these pictures reveal is an erosion of culture, for lack of a better term.

Four things to read about Ryan-Murray

1. A simple summary. This is a good start before reading the opinion pieces.

2. Congressman Paul Ryan at National Review.

3. Megan McArdle says it is a better deal for Republicans than Democrats. I agree.

4. Kevin Hassett‘s 5 reasons a Republican would support this deal:

First, the deal is microscopic, so small as to amount to economic rounding error. Second, it reduces government pensions by changing an indexing formula, a method that might have a better chance of sticking than more straightforward reductions, making these future cuts more certain than most. And if the new indexing continues forever, then spending will drop in the long run by much more than it will increase over the next two years. Third, if House Republicans pass this, it will reduce uncertainty and help the economy. Fourth (though this weakens the previous point some), the deal appears not to lift the debt limit, so they can play that game again if they want to. Finally, assuming that the debt-limit increase is not going to lead to another showdown next year, this deal allows Republicans to talk about Obamacare all next year.

I have a longer piece with my thoughts on Ryan-Murray coming soon to National Review online, by my own political take (not from the NRO piece) is that getting the budget deal off the table will be helpful in 2014. The debt limit fight is still on for February, and getting the discretionary budget resolved now will make that a very clean debate about reforming entitlements. Second, Obamacare goes back to the front burner for the next 2 months, which is vital to making it right, let’s say.