Friday, December 30, 2011

2012 Bailout-Free Ford F-150 Named Motor Trend Truck of the Year

Motor Trend Magazine has named the 2012 Ford F-150 truck of the year.  Motor Trend calls the recently redesigned F-150 "a Truck for all reasons."  Motor Trend was particularly impressed by Ford's "Ecoboost" V-6 engine (new in 2011 models), which boasts both improved gas mileage (22 MPG on the highway), 365 Horsepower and 420 foot pounds of torque.  For a photo of the Ecoboost, go here.  No wonder the Ford F-150 maintains is position as the best-selling vehicle in the United States, despite ill-advised federal bailouts of rivals Chevrolet and Chrysler.   Quality, it seems, still matters.

Thursday, December 29, 2011

Bill Gates' Quest For Profit Might Help China Turn Green

Greedy Planet Savior?

As previously explained on this blog, China is the world's largest emitter of greenhouse gasses, even though its overall GDP is half or less than that of the USA.  As also explained in that post, some project that China's production of greenhouse gasses will double by 2030.   Almost a year ago this blog also called attention to China's under-reliance on nuclear power for electricity generation.  As explained then, coal-fired plants account for a disproportionate share of China's electricity compared to various Western nations and Japan.  Indeed, as also reported then, China, with the second largest economy in the world, ranks 9th in nuclear generation of electricity, behind such nations as Canada, Ukraine and South Korea. At the same, the post reported, China enthusiastically embraces nuclear power for military purposes, e.g., the propulsion of submarines. The post concluded as follows:

"If China is truly serious about moving to a clean energy economy, it should get with the (nuclear) program."

Recent reports suggest that China may in fact be getting more serious about civilian uses of nuclear power. In particular, Bill Gates and a start-up company, Terrapower, are developing a new line of nuclear reactors, called "travelling wave reactors," that will run mainly on spent uranium. (For a description of how such a reactor would work, go here.)   According to a recent report in the South China Morning Post, Gates and Terrapower are in talks with the Chinese government about jointly developing the reactor in cooperation with the Chinese National Nuclear Corporation.  Put another way, a profit-oriented entrepreneur is helping a Statist nation turn green in a way that could perhaps prevent undue damage to the climate.  Of course, even if Gates is successful, some will still scrutinze whether he gives enough to charity!

Tuesday, December 27, 2011

Lower Tax Brazil Overtakes Higher Tax Britain

Now Number Six

Brazil has apparently passed Great Britain to become the sixth largest economy in the world measured by GDP, according to this article in the UK Guardian.  (The United States is first, followed by China, Japan, Germany and France.)  Of course, Brazil's population of 203 million is more than three times that of Britain, with the result that Britain's per capita GDP is more than triple that of Brazil.  The Guardian article mentions several factors that it says account from Brazil's strong GDP growth relative to that of Britain.  For instance, Brazil has been exporting heavily to China, itself a rapidly growing economy.  Moreover, the banking and credit crisis in Britain, Europe and the United States has slowed the British economy as well as that of some of its trading partners.

The Guardian story leaves out another possible explanation for the divergence between British and Brazilian growth rates, namely, tax policy.  For, as previously reported on this blog, Brazil's top income tax rate is less than 30 percent, compared to a top rate of 50 percent in Great Britain.  (The top British rate, it should be noted, is the fourth highest in Europe, behind only Sweden, Denmark and the Netherlands.  In 2009, by contrast, Britain had the 13th highest rate in Europe.)  While Brazil has relatively high payroll taxes, one source reports that its tax to GDP ratio is nonetheless significantly lower than that of Britain's.  According to a previous article in the Guardian, some economists in Britain have contended that Britain's high tax rates are rendering the country less competitive internationally and slowing its growth.  Brazil's most recent triumph may be "exhibit A" supporting this assertion.  Nations rarely tax their way to prosperity.

Higher Minimum Wages Won't Stimulate the Economy

Ptolomey:  Thought Sun Revolved Around the Earth

CNN Money: Thinks Higher Minimum Wages Increase GDP

A recent story on CNN Money reports that several states are about to raise their minimum wages.  The story repeats as "news" (and not opinion) the oft-made claim that raising the minimum wage will stimulate the economy and thus increase Gross Domestic Product.

According to the story:

"What's more, the increases could be a mini-boost for the economy.  The expected rise in consumer spending as a result of the wage increases would add $366 million to the nation's gross domestic product and lead to the creation of more than 3,000 full-time jobs."


"Increasing minimum wage is a key form of local stimulus," said Paul Sonn, legal co-director at NELP. "It helps front-line workers whose wages have been stagnant and falling by putting more money into the pockets of low income families who then spend the money at local businesses."

Both economic theory and empirical evidence have long falsified such claims.  Take theory first.  Yes, raising wages by coercive fiat will increase the income of some workers.  At the same time, such increases will reduce the income of other workers to zero, by inducing firms to eliminate their jobs and also to hire fewer workers in the future.  Wages, after all, are the price of a particular input --- labor --- and increasing the price of one input, whether that input is steel, labor or electricity, will cause firms to substitute to other inputs and thus reduce their purchases of the now more expensive input.  Moreover, to the extent that firms continue to employ some of the more expensive input, their costs will rise, thereby reducing their output, further reducing their use of the input in question.  Thus, raising the minimum wage above market levels will cause firms to employ less labor, by reducing their output and using less labor per unit of remaining output than before the increase.

Now consider the empirics.  As a nation, we have already experimented with using artificially-inflated wages  as a tool for increasing GDP and thus stabilizing the macroeconomy.   As previously explained on this blog (go here and here), legislation passed during the New Deal artificially raised wages, purportedly as a method of enhancing the "purchasing power" of employees and thus stimulating the macroeconomy.  The legislation did not, however, have its intended effect.  Instead, artificially high wages choked off economic recovery by increasing firms' costs, reducing their output and fostering unemployment, as workers expended resources searching for those scarce jobs that remained.  Indeed, according to one study, reported here, New Deal policies that artificially raised wages deepened the Depression and prolonged it by seven years.

The story also helps illustrate the downside of over-reaching Federal regulation.   As the story notes, there is also a federal minimum wage, currently equal to $7.25 per hour.  (There is an exception for the first 90 days of employment for juveniles --- $4.25 per hour --- so long as employment of the juvenile does not displace an adult worker.)    That wage edict applies to any employee working in interstate commerce or working for a firm, no matter how local, with $500,000 in gross sales.   Thus, federal law creates a wage floor, even in those states (and there are five) with no minimum wage whatsoever or those with minimum wages lower than that set by the national government.   As a result, states that wish to compete with other states for labor and capital by eliminating their minimum wages or, for instance, adopting differential wages for youth greater than 90 days, will find such a policy thwarted by the "one-size fits all" federal floor on wages, a floor that applies equally in Manhattan, New York and Moscow, Idaho.  Competitive federalism suffers when the national government asserts a regulatory monopoly over matters properly left to the states.

Saturday, December 24, 2011

Christmas Story Marathon in Less than 16 Hours!

A New Furnace ........
Tomorrow TBS will renew one of this nation's most important Christmas traditions --- its 24 hour Christmas Story Marathon.  For the schedule see the TBS Christmas Story website.

In honor of the upcoming marathon, here are the ten best lines from the movie, in this blogger's estimation.

1. You used up all the glue on purpose!  (Mr. Parker)

2.  Nottafinga!   (Mr. Parker)

3.  Some men are Baptists, others Catholics; my father was an Oldsmobile man.  (Ralphie as an adult) (Narrating)

 4.  Fra-gee-lay. That must be Italian.  (Mr. Parker)

5.  Uh, I think that says FRAGILE, dear.  (Mrs. Parker)

6.  My father's spare tires were only tires on the academic sense. They were round,and had once been made of rubber.  (Ralphie as an adult) (Narrating)

7.  My old man was one of the most feared furnace fighters in Northern Indiana.  (Ralphie as an adult) (Narrating)

8.  In the heat of battle my father wove a tapestry of obscenities that as far as we know is still hanging in space over Lake Michigan.  (Ralphie as an adult) (Narrating)

9.  My mother was trying to insinuate herself between us and the statue.  (Ralphie as an adult) (Narrating)

10.  Hey Dad! I bet you never guess what I got you for Christmas! (Ralphie)
       A new furnace?  (Mr. Parker)

       He he, that's a good one Dad!  (Ralphie).


Friday, December 23, 2011

Competitive Federalism Punishing California

Economic Dynamo
Not So Much
A recent Op-ed by George Will adduces additional evidence vindicating a fundamental choice by those who framed and ratified the Constitution, namely, the decision to limit the power of the National Government and thus to divide regulatory authority between the National Government and the States.  According to James Madison's Federalist 51, this division of power between the central and various state governments, along with the separation of powers between judicial, executive and legislative branches at the national level, ensures that a "double security arises for the rights of the people."  Madison apparently recognized that competition between states for productive citizens and capital would deter a state from infringing on the rights of its citizens who, if dissatisfied with their state's laws, could move to other states.  Thus arose a system of competitive federalism, whereby each state can attempt to attract labor and capital by offering regulatory regimes and thus institutional frameworks most conducive to free market wealth creation and job creation. 

California has not been doing well in this competitive struggle as of late.  Once considered a land of opportunity, the state experienced a net outflow of citizens in 2008.  The state's unemployment rate currently stands at over 11 percent, one of the highest in the nation.  Will's Op-ed calls attention to part of California's problem, namely, a plethora of unduly burdensome regulations that inhibit the creation and expansion of businesses and thus job creation.  Will focuses on the plight of CKE, Inc., which owns the Hardees and Carl's Jr. fast food chains.  Each such restaurant creates 25 jobs, Will reports.  According to Will, these and other "California restaurants are governed by 57 categories of regulations."  Moreover, Will goes on to explain that:

"CKE has about 720 California restaurants, in which 84 percent of the managers are minorities and 67 percent are women. CKE has, however, all but stopped building restaurants in this state because approvals and permits for establishing them can take up to two years, compared to as little as six weeks in Texas, and the cost to build one is $100,000 more than in Texas, where CKE is planning to open 300 new restaurants this decade."

Simply put, California has apparently made it all but impossible to open a new restaurant, while Texas facilitates the creation of these businesses and the jobs they bring.  That is to say, California stands in the way of voluntary arrangements that improve the welfare of consumers who would voluntarily patronize new restaurants and the employees who would work there.  If California were to replicate similar regulatory strategies with respect to other industries, many California residents would have little choice but to move elsewhere to locate employment, and residents of other states would decline to immigrate to California in the first place.  It's not much of a stretch to surmise that a portion of California's high unemployment rate results from these sorts of regulations.

Of course, some regulation is critical to a well-functioning free market and the welfare of a polity's citizens.   No state would or should win the struggle for labor and capital contemplated by our constitutional design  by embracing the state of nature as its regulatory philosophy.  Even the most ardent libertarians properly endorse "police power" regulation that implements the ancient principle "Sic utere tuo ut alienum non laedas," viz. "use what is yours so as not to injure another's."  States that leave their citizens at the mercy of predatory commercial tactics, such as the sale of impure food or fraud will lose citizens and investment just as surely as those that impose unduly burdensome regulations that prevent market entry or otherwise interfere with bona fide economic liberty.  There is, however, no indication that, say, delaying market entry by two years is necessary to protect the public from such predatory behavior.  Instead, such permit requirements function as a barrier to entry, plain and simple, protecting incumbent firms and limiting consumer choice.

Unfortunately, the system of competitive federalism that is punishing California and rewarding Texas is not self-enforcing but is instead constantly under attack.  As federal regulatory power expands, the space for competition between states contracts, rendering such regulatory competition a less effective tool for enhancing the welfare of citizens.  If, say, the central government imposes one model of "health insurance reform," on every citizen in the nation, then states cannot compete with each other to provide reforms that meet the needs of their own citizens.  Moreover, if the national solution is suboptimal, citizens can only avoid the resulting reform by emigrating to another country, hardly a plausible option for most people.  Unfortunately, proponents of the most recent "health care reform," overlooked this downside of  a "one-sized fits all" centralized plan.

William and Mary Announces 2012 Football Schedule

Can William and Mary Keep the Cup?

William and Mary has announced its football schedule for the fall of 2012.  The Tribe will play the usual list of CAA opponents, including James Madison, Delaware, New Hampshire, Villanova, Old Dominion and Maine.  The Tribe will also play the Penn Quakers for the sixth time ever (the Tribe leads the series 4-1) and the first time since 1995, when the Tribe defeated a # 22 Penn team 48-34 at Zable stadium.  (This blogger was in attendance; the game, as I recall, was punctuated by rain showers.)  As always, the Tribe will end the season playing for the Capital Cup, pictured above, against intra-state and CAA rival the University of Richmond.  This is the oldest rivalry in the South; the teams first played in 1898 and have played each year except 1900, 1902 and 1943, for a total of 119 games.  The Tribe leads the series 61-55-5 and has won the last two outings.   (See here for a description of the rivalry and a summary of the scores from each game over the years.)

Other highlights include the opening game, against ACC powerhouse Maryland   This blogger was in attendance when the Terps defeated the Tribe 27-14 in 2006, Maryland's first win in the series.  (William and Mary had prevailed in the teams' two previous meetings.)  The last time William and Mary defeated an FBS opponent was in September, 2009, when, as previoulsy described on this blog (this blogger was in attendance) the Tribe bested UVA, in Charlottesville, 26-14.

Here is the schedule.  All games take place on Saturday; game times will be announced as the season approaches.  Games marked by an asterisk are against CAA conference opponents.

Sept. 1  at Maryland

Sept. 8 Lafayette

Sept. 15 at Towson *

Sept. 22 Delaware *

Sept. 29 Georgia State (Family Weekend) *

Oct. 6 at Penn

Oct. 13 at James Madison *

Oct. 27 Maine (Homecoming) *

Nov. 3 at New Hampshire *

Nov. 10 at Old Dominion *

Nov. 17 Richmond *

Wednesday, December 21, 2011

Subsidy For Chevy Volt Keeps Growing


As previously reported on this blog, President Obama justified the ill-advised bailout of General Motors and Chrysler by claiming that the debt-financed federal ownership of these two companies would encourage the production of "green" automobiles, like the electric-powered Chevrolet Volt pictured above. (Whether such cars really are that green is a separate question; as explained previously the manufacture of batteries for such vehicles exhibits a large carbon footprint.)

A recent study described here suggests that the bailout is just the tip of the subsidy iceburg.  The study emphasizes that state-ownership of General Motors did not, in fact, suffice to encourage production of cars like the Volt. Instead, in addition to the cost of the GM bail out itself ($14 Billion), various government agencies have showered GM with Volt-related subsidies that equal between $50,000 to $250,000 per car produced. (The exact figure will depend upon whether GM satisfies certain performance criteria attached to some of the subsidies.)  Even taking the more conservative estimate, i.e., $50,000 per car, the Volt, with a sticker price of $40,000, costs a total of $90,000 per car, compared to a mere $82,000 for the "Car designed by Homer Simpson," pictured above, featured in "Oh Brother Where Art Though," episode 15 of Season 2.  (The episode and the car Homer designed insightfully illustrated the consequences of ignoring scarcity when making important economic decisions.  The car flopped and the company making it failed.  Apparently the writers did not imagine a bailout.)   It seems unlikely that the benefits of the Chevy Volt justify these costs.

Monday, December 19, 2011

Saab Files for Banktruptcy

What, No Bailout?

The Chicago Tribune reports that SAAB has filed for bankruptcy. As previously reported on this Blog, General Motors sold its stake in SAAB to Spyker, a manufacturer of high-end sports cars, for $74 million, in 2010. (GM had paid $725 million to buy a partial and then complete interest in SAAB and then ran the company into the ground. What a terrific return in investment!) Unfortunately, SAAB was not able to recover from GM's "stewardship" of its classic brand. Moreover, unlike GM, which received an ill-advised bailout, SAAB will apparently receive no such taxpayer handout. In fact, as reported on this Blog at the time, Sweden rejected calls for such a bailout the last time SAAB was in trouble.

Wednesday, December 14, 2011

If This is Fairness ......

In a CNN Op-ed, Professor Julian Zelizer urges the Democratic Party to make economic fairness to the middle class the centerpiece of its political agenda as the 2012 election approaches. Zelizer sees an analogy to his own characterization of the party's strategy during the 1930s. Quoting another historian, Zelizer claims:

"This is a familiar strategy for the Democratic Party. During the 1930s, according to the historian Lizabeth Cohen, the Democratic Party fought for a vision of moral capitalism whereby government and other institutions, such as unions, would lessen some of the suffering that could be inflicted in the free-market economy."

Zelizer's history is a little out of date. Despite the rhetoric, 1930s Democrats in fact fought for a vision of state-enforced cartelization, including the cartelization of labor, that, when implemented, both deepened and lengthend the Depression. (Many 1930s Democrats also fought to defend Segregation, hardly an example of "fairness to the middle class." Though it should also be noted that, during post-New Deal World War II, FDR issued executive orders banning racial discrimination in factories making weapons and ammunition for the military.) That vision first came to fruition in the 1933 National Industrial Recovery Act ("NIRA"), the centerpiece of FDR's New Deal. The NIRA encouraged industries to proposed so-called "Codes of Fair Competition," which, if approved by the President, would have the binding force of law. Such codes imposed express price fixing, output limitations, barriers to entry and/or various practices that facilitated anticompetitive collusion. Moreover, industries could only obtain approval of such codes if they agreed to pay minimum wages and allowed their employees to join unions --- labor cartels --- that then bargained for higher wages.

Of course, the Supreme Court unanimously invalidated the NIRA in Schechter Poultry Corp. et al. v. United States, reversing the criminal conviction of a small corporation and several of its middle class owners. (The Roosevelt Administration had indicted the defendants on 60 counts of violating an NIRA code. Violations included failure to pay minimum wages (that is, employing too many workers) and --- get this --- allowing customers to select individual chickens for purchase, contrary to the code requirement that the defendants and their rivals sell chickens in blocks.) Ironically, the Supreme Court would later declare so-called "block booking" (requiring customers to purchase an entire package of movies, for instance, unlawful per se under Section 1 of the Sherman Act.) The Court unanimously held that the Act was an unconstitutional delegation of authority to the Executive Branch and that application of the statute to the defendants exceeded the scope of Congress's power under the Commerce Clause. After the decision, Justice Brandeis sought out a lawyer from the Department of Justice and asked him to convey a message to FDR:

“This is the end of this business of centralization, and I want you to go back and tell the president that we're not going to let this government centralize everything."

Congress responded to Schechter by passing the National Labor Relations Act, which empowered individual employees to form unions --- labor cartels --- and thereby drive wages above free market levels.

Of course, proponents of centralization (both then and now) claim that expanding the power of the National Government will somehow encourage economic recovery and thus full employment. But the data show otherwise. For instance, President Obama's first Chair of the Council of Economic Advisors, Christina Romer, concluded that the NIRA raised prices and wages and thus slowed economic recovery. See Christina D. Romer, Why Did Prices Rise in the 1930s?, 59 J. Econ. Hist. 167, 187-93, 197 (1999). More recently, two UCLA economists, Harold Cole and Lee Ohanian, concluded that various New Deal policies, particularly those that artificially raised wages, both deepened and lengthened the Great Depression. Indeed, these scholars conclude that FDR's New Deal prolonged the Depression by seven years. Finally, in 1999, this blogger argued that 1930s state and federal policies that raised wages likely exacerbated the Depression, by thwarting the process of ordinary macro-economic adjustment. See Alan J. Meese, Will, Judgment and Economic Liberty: Mr. Justice Souter and the Mistranslation of Liberty, 41 William and Mary L. Rev. 3, 48-49 (1999). (I hasten to add that unlike Drs. Romer, Cole and Ohanian, this blogger's arguments were purely theoretical and did not rest upon the sort of sophisticated econometric analysis deployed by these economists.) That is to say, FDR's policies deprived millions of middle class or potentially middle class Americans access to employment, hardly a "fair" result or exemplar of "moral capitalism." Indeed, the NIRA, with its coercive limits on price, wages and output was hardly capitalism, moral or otherwise

To be sure, some New Deal policies ameliorated the plight of unemployed Americans. For instance, the Work Progress Administration ("WPA") provided jobs for millions working on parks and various forms of public infrastructure. Ironically, many who took such jobs were unemployed because other New Deal policies, such as the NIRA and NLRA, eliminated jobs these individuals might otherwise have obtained. As Richard Epstein has observed, coercive interference with free labor markets and resulting unemployment often gives rise to offsetting policies designed to ameliorate the human cost of such misguided policies. Speaking of the New Deal, Epstein has observed:

"[I]n 1935, American labor law created a system of collective bargaining whereby employees bargain with a single voice. That system allows unions to seek, and often obtain, monopoly profits for their members. That system in turn reduces the number of workers hired by the unionized firms. So what is to be done with the excess workers? They should be shepherded into job-training programs, funded by the public, which would allow them to reenter the labor force with other jobs."

The WPA, of course, was an example of such a countervailing program only made necessary by antecedent and unjustified interference with free markets that destroyed middle class private sector jobs.

Hopefully today's Democrats have a different conception of "fairness to the middle class" that that which apparently animated the NIRA, NLRA and similar New Deal policies.

Sunday, December 11, 2011

Does Tenure Increase The Cost of Higher Education?

A recent essay in the New York Times entitled "The End of Tenure" reviews two books critical of modern higher education. The complaints summarized by the review are familiar, and they include:

1) Higher education costs too much, and tuition keeps rising faster than inflation.

2) Tenured faculty at some elite universities do not teach enough, leaving much of the teaching to be done by adjuncts and other faculty who are not on the tenure track.

3) Student debt is rising by leaps and bounds and is unsustainable.

4) Faculty conduct research that is of little practical relevance, a claim that, if true, implies that the social cost of additional teaching by such faculty members is relatively low.

No doubt at least some of these claims are exaggerated. For instance, recent data also published in the Times suggests that horror stories about students graduating with, say, $100,000 in debt are few and far between. Indeed, these data show that 90 percent of students who borrowed to obtain their bachelor's degree graduated with less than $40,000 in debt. Moreover, some of those individuals who emerged with more than $40,000 in debt presumably chose to attend private universities instead of less expensive public institutions, thus undermining somewhat any complaint about resulting debt burdens. (A North Carolina resident who could have attended UNC Chapel Hill but matriculates at Wake Forest or Duke instead should not be heard to complain about his or her resulting debt burden.) Also, the tuition announced by a college or university is merely a sticker price and does not reflect financial aid that schools provide in the form of discounts for students who demonstrate financial need and/or academic merit.

What though about the claim, implied by the very title of the essay, that the institution of academic tenure is partly responsible for these woes? This is not a new claim --- earlier this year a legal academic argued that proponents of academic tenure for law school faculty were insufficiently sensitive to the fact that the institution of tenure increases the cost of law school. Does the institution of academic tenure make college more expensive, reduce access to higher education and pump up student debt?

Certainly not. After all, eliminating tenure and the job security that tenure brings would make academic positions less attractive than before, with the result that schools would have to raise salaries to attract high quality faculty. Moreover, if eliminating tenure led to greater faculty turnover, schools would presumably incur additional costs searching for and replacing departing faculty. In short, other things being equal, eliminating tenure would increase college tuition, reduce access to college and further add to student indebtedness.

While the institution of academic tenure might have some shortcomings, any propensity to raise the cost of higher education is not one of them.

Saturday, December 10, 2011

More Evidence that Compelled Support for Unions Thwarts Job Creation

Not so friendly to job creation and wages

Mr. Republican. Fought Trade Union Excesses and Bolstered Competitive Federalism

A recent study by the National Institute for Labor Research concludes that Right-to-Work states experience higher employment growth, enhanced economic growth and enhanced wages compared to those states that allow unionized firms to require all their employees to pay union dues, even if the employee declines to join a union. As previously explained on this blog, the Taft-Hartley Act of 1947 empowers states to become Right-to-Work states, thereby opting out of provisions in the 1935 National Labor Relations Act that originally allowed firms to compel employees, under threat of termination, to pay such dues against their wishes. Thus, the Act helps facilitate competitive federalism, whereby states offer different menus of background regulatory and tax policy in their efforts to woo industry that is free to locate in any of 50 states and numerous foreign countries. Co-authored by Ohio Senator Robert Taft (also known as "Mr. Republican"), pictured above, the statute followed a Republican landslide in 1948. Strangely, many of the Law's opponents referred to it as the "slave labor law," a bizarre appellation given the Act's effort to enhance the autonomy of individual employees and protect all employees against union excesses.   Maybe "Johnny Friendly," the fictional leader of a corrupt union, portrayed in "On the Waterfront" by Lee Cobb (pictured above) would have characterized the law in this way!

In particular, the study finds that:

1) Between 2000 and 2010, private sector employmnt in Right-to-Work states rose .3 percent, while it fell by over 5 percent in other states.

2) During the same period, real manufacturing GDP grew over 18 percent in Right-to-Work states but just over 8 percent in other states.

3) During the same period, the compensation of employees in the private sector rose 11.3 percent in Right-to-Work states, while compensation of employees in other states rose only 0.7 percent.

Of course, the study does not by itself establish that a state's embrace of Right-to-Work status will thereby, other things being equal, enhance economic growth and job creation. For one thing, right to work status may correlate with other variables that encourage economic growth, such as a political culture within a state hostile to over-regulation and burdensome taxation. (Indeed, the study finds that the average "tax freedom day" in Right-to-Work states is April 6, compared to April 14 in other states.) If so, then superior economic growth may be the result of an overall regulatory and tax environment conducive to economic growth, of which Right-to-Work status is merely one element. Moreover, large economic events unrelated to labor regulation and trade unionism that affect a few states who happen to fall into one category or the other could produce employment effects that coincidentally correlate with Right-to-Work status. The results are nonetheless interesting and reflect the sort of empirical work necessary to test competing hypotheses about the impact of Right-to-Work status.

Saturday, December 3, 2011

Do Health Care Systems Determine Life Expectancy? Of Course Not!

Would Americans Be Healthier in Greece?

England's Daily Mail has produced a misleading attack on the U.S. Healthcare system, blaming the "system" for Americans' relatively low life expectancy. The article, based on a study from the Organization for Economic Cooperation and Development, reports that the USA ranks 28th in life expectancy, because Americans live on average "only" to age 78.2, behind countries such as Chile and Greece (the home of the hooliganism pictured above), with Japan, Spain and Switzerland taking first through third place respectively. The article attributes the gap between the US and other developed nations to a comparatively poor US health care system. The article also notes that the US spends more per person on health care than any other nation. This line of criticism is not new; at least one University maintains a website making a similar claim.

The article's argument falls wide of its intended mark. In any society, longevity depends upon any number of factors, of which the quality of health care is but one. Such factors include the prevalence of accidental death and homicide, the prevalence of unhealthy habits like smoking and excessive drinking, and cultural norms regarding diet and exercise. Indeed, according to one source, the 2008 homicide rate in the United States, 5.22/100,000, was more than ten times higher than that in Japan (.45/100,000), more than five times higher than in Spain (.91/100,000), and more than seven times higher than in Switzerland (.72/100,000). According to another source, America's per capita rate of death from automobile accidents is more than twice that of Japan and Spain and also larger than that of Switzerland as well. If, as seems likely, most victims of homicides and automobile accidents are significantly younger than the nation's average life expectancy, then such differences explain at least part of the gap between life expectancy in the United States and that in other countries. Any comparison of the outcomes produced by different health care systems would have to control for the numerous other independent variables that impact life expectancy.

Moreover, differences in accidental deaths and homicides also highlight another fallacy in the Daily Mail's argument, namely, the treatment of health care expenditures as an exogenous variable that "causes" death at particular ages. In fact, such causation may in many cases flow in the opposite direction. After all, many homicides and accidental deaths themselves result in significant health care expenditures. So do accidents and/or shootings and stabbings that do NOT result in death. Thus, any analysis seeking to isolate the impact of health care expenditures upon longevity, other things being equal, would have to treat health care expenditures as a variable driven in part by other independent variables. For all we know, such an analysis could conclude that the US Health Care System is more efficient than suggested by the Daily Mail's simplistic analysis.

Tuesday, November 29, 2011

Should Billionaires Like Steve Jobs "Give Back?"

Insufficiently Generous?

Writing in the New York Times shortly before the death of Steve Jobs, Andrew Sorkin asked whether Jobs was a generous philanthropist and, if not, why not. (The essay, entitled "The Mystery of Jobs' Public Giving" can be found here.) As the essay points out, Jobs had a personal fortune over $8 Billion. Moreover, he declined to sign the so-called "giving pledge," orchestrated by Warren Buffet and Bill Gates, whereby signatories pledge to donate a majority of their wealth to charity. Sorkin also claimed that there is little evidence that, pledges aside, Jobs actually gave a significant share of his large personal fortune to charity. Finally, Sorkin asserted that Apple itself is less charitable than many Fortune 500 companies, "despite its nearly $14 Billion in profits last year," and that Jobs closed down the company's philanthropic programs in 1997.

Sorkin finds Jobs' failure to give more to charity "surprising," and also suggests that Jobs has received a sort of free pass not granted other super-rich individuals with meager giving records. As Sorkin puts it:

"But the lack of public philanthropy by Mr. Jobs --- long whispered about, but never said aloud raises some important questions about the way the public views business and business people at a time when some 'millionaires and billionaires' are criticized for not giving back enough while Mr. Jobs is lionized."

Sorkin points to Bill Gates, Warren Buffet and Sam Walton as billionaires who, unlike Jobs, have been criticized for not "giving back" significant parts of their personal fortune to society by making philanthropy a high priority.

Here are some thoughts on Sorkin's essay:

1. Sorkin does us a useful service by pointing out the double standard applied to billionaires on the question of philanthropy. Why criticize Warren Buffet or Sam Walton for miserly giving records, while leaving Jobs unscathed? Moreover, this blogger agrees with Sorkin that there IS such a double standard, that is, that some individuals, such as Jobs, somehow avoid public criticism for a perceived lack of charity while others with similar records come under fire.

2. However, identifying a double standard and thus concluding that the same standard should apply to all simply begs the following question: what should the standard be? Should billionaires feel obliged (albeit in some unenforceable way) to "give back" a large fraction of their after-tax wealth to charity? Is criticism directed at other billionaires fair? It's reasonably clear what Sorkin thinks, namely, that all billionaires, including Jobs, should feel some sense of obligation to "give back" significant portions of their personal fortunes to the rest of society, presumably in a way that benefits individuals with more modest financial means. At the same time, Sorkin does not expend much effort arguing this case, but instead seems to take as a given that such an obligation exists.

3. Do all billionaires necessarily possess such an obligation to "give back" to society? This blogger doubts it. For one thing, the characterization of charitable donations by billionaires as "giving back," while common, is morally problematic in a free society. Mr. Jobs (and, for that matter, Mr. Gates and Mr. Walton) did not "take" their wealth from society. Nor did society "give" them that wealth or gratuitously shower it upon them. Instead, they earned that wealth, by cooperating with others to create products and services that individuals voluntarily purchased in free markets. It thus makes no sense to refer to charitable donations by such billionaires as "giving back," as though they are returning something they have passively received. The mere fact that individuals possess wealth does not thereby oblige them to give it away, though many do. Such donations are giving, plain and simple.

4. To be sure, society creates and enforces various background institutions and rules that help facilitate the creation and retention of wealth. Without property law and police protection, for instance, Sam Walton's Wal-Mart could not earn a profit buying and reselling products manufactured by others. Without the protection of copyright law, a form of property, Microsoft could not make several billion dollars per year selling its Windows operating system. As Nobel Laureates Ronald Coase and Friedrich Hayek both recognized, the "free market" in fact depends upon institutions of private property and contract law, both institutions backed by state force.

Still, while various forms of state action might be necessary to make the free enterprise system function, this does not mean that successful entrepreneurs or the companies they create owe some special obligation to share their wealth with others. After all, when it creates and supports various market-supporting institutions, the State is merely satisfying its most basic obligation under the social contract. Under that contract, individuals leave the state of nature and grant a portion of their natural liberty to the larger community. In return, the State creates and enforces property rights and rights in personal security, sometimes interfering with the liberty and property of those who would invade such property or security in the process. Such interference can include taxation that is necessary to support legitimate government activities, such as police forces, courts and the like, activities that facilitate the creation and operation of free markets and the wealth they produce. As James Madison explained in Federalist 10, government exists to protect liberty and property:

"The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately result[.]."

In a free society premised on a Madisonian social contract, economic success does not oblige one to turn over a portion of one's wealth to the larger community. Wealthy individuals discharge their obligations to the State when they abide by general laws, including laws requiring the payment of taxes. Indeed, billionaires such as Mr. Jobs presumably paid far more to the State in taxes than the state expended to protect their property and personal security. Neither the State nor the larger community may invoke the satisfaction of its pre-existing obligation to protect liberty and property as justification for demanding even more.

5. Assertions that these billionaires have not done enough for society ignore the enormous contributions they have already made. Mr. Jobs did not find $8 billion in his backyard. Instead, he created and led a company that created numerous products that individuals chose to purchase voluntarily. No one was forced to purchase an I-Pad or I-Phone. Moreover, the $8 billion that Mr. Jobs amassed represents only a fraction of the value that Apple's products conferred on those who purchased them. (Because demand curves are downward sloping, we can assume that most individuals would have been willing to pay more than the market price for Apple's products.) Moreover, as already mentioned above, billionaires like Mr. Jobs and the companies they run pay far more in taxes than the State pays back to them; presumably the State redistributes what is left over to others. Admonishing individuals like Mr. Jobs to give even more to others almost seems like "piling on."

6. None of this is to say that NO billionaire owes a duty to "give back" a portion of his or her fortune to the rest of the community. Some may have obtained their fortunes unjustly, as when the State grants a firm a monopoly and thus the power to gouge consumers. Others may have religious beliefs that require them to share the wealth they have created with others. Finally, some may believe that a free society flourishes when institutions that are independent of government take on charitable responsibilities that government would otherwise assume. Indeed, as explained previously on this blog, some believe that a decentralized system of higher education, independent of the State, is essential for a free society to flourish. Such individuals may feel bound to create or support private charitable institutions. None of these considerations, however, establishes that billionaires have an obligation to "give back" simply because they have amassed a large fortune.

Tuesday, August 23, 2011

Earthquake Hits Virginia, 5.8 on Richter Scale

An Earthquake has struck, reportedly near Mineral, Virginia, registering 5.8 on the Richter Scale. Your humble blogger felt the quake here at the Law School in Williamsburg, where the building swayed a little. It felt as though a large truck was driving in the roof.


Friends report that the quake was also felt in Arlington, Virginia and Middleburg, Virginia.

Update number 2:

The Wall Street Journal reports that the quake was felt in Manhattan, New York.

Update number 3:

The U.S. Geological Survey reports that the quake registered 5.9, not 5.8 as initially reported. The quake was centered 4 miles SW of Mineral, Virginia, 4 miles SSE of Louisa, Virginia, and 41 miles NW of Richmond.

Update number 4:

CBS News reports that the White House and the Pentagon have been evacuated.

Update number 5:

The Chicago Tribune reports that the earthquake was felt in Toronto and Boston.

Sunday, August 21, 2011

Amicus Brief of Antitrust Professors in Hosana Tabor v. Equal Opportunity Commission

This blogger has signed an Amicus Brief in a case pending before the Supreme Court of the United States. The case is Hosana Tabor v. Equal Opportunity Commission, (For a summary of the case, including a link to the various briefs, including amicus briefs, in the case, go here. The opinion in the 6th Circuit that the petitioner is asking the Supreme Court to reverse, can be found here.) Professors Barak Richman of Duke Law School and Harry First of NYU, both leading scholars of antitrust law, co-authored the brief.

The petitioner in the case is a Lutheran church and elementary school that dismissed an employee who taught music and other secular subjects but who also taught daily religion classes, was a commissioned minister and also regularly led her class in prayer. The dismissed teacher claimed that the dismissal violated the Americans with Disabilities Act, and the EEOC intervened in support of the teacher. The 6th Circuit Court of Appeals held that the so-called ministerial exception did not apply, with the result that the plaintiff's suit could go forward on the merits. In particular, the court found it noteworthy that the teacher spent most of her workday teaching secular subjects from secular materials and could not recall bringing religious themes into her secular classes more than twice during her tenure. The court remanded the case to the district court for a determination of whether, in fact, the school had violated the ADA., and the petitioner sought review in the Supreme Court.

The Supreme Court granted certiorari to answer following question:

"Whether the ministerial exception, which prohibits most employment-related lawsuits against religious organizations by employees performing religious functions, applies to a teacher at a religious elementary school who teaches the full secular curriculum, but also teaches daily religion classes, is a commissioned minister, and regularly leads student in prayer and worship."

The amicus brief advises the Court not to expand the scope of the ministerial exception in a way that would provide immunity to professional associations of clergy who engage in concerted action of the sort that produces monopoly or its consequences and is thus unreasonable and unlawful under Section 1 of the Sherman Act. Indeed, at least one professional association of clergy has claimed that horizontal concerted action by the association's members falls within the ministerial exception and is exempt from the Sherman Act. (Professor Richman summarizes the policies of this association, the Rabbinical Assembly, and why they are problematic under the Sherman Act here.) As the brief explains, such concerted action among rivals can reduce competition among clergy for particular positions and also limit the number of clergy whom individual congregations can interview and offer positions, thereby increasing the bargaining leverage of such clergy. Moreover, such conduct does not fall within the contours or rationale of the ministerial exception, which applies in the context of employer-employee relationships between, say, a church or synagogue and its minister or rabbi. Indeed, as the brief explains, limiting the exception to cases involving the employer/employee relationship would not prejudice the petitioner's case at all and would instead protect the ability of other congregations to search for and hire clergy of their choice without interference from unlawful concerted action.

Saturday, August 20, 2011

William and Mary 2011 Football Schedule and Game Times

William and Mary has announced the game times for the upcoming football season here. The full schedule, including game times and locations, appears at the bottom of this post. Note that September 23-25 is "Family Weekend" at William and Mary. Moreover, the November 19 match-up with Richmond will be the 121st meeting between the two teams, the first having occured in 1896. The teams play for the Capital Cup. The game was once known as the "I-64 Bowl," after Interstate 64, which links Richmond and Williamsburg. (Williamsburg was the capital of Virginia before the capital moved to Richmond.) The William and Mary v. Richmond match-up is the oldest rivalry in the South, and only three other rivalries have resulted in more games. (Lehigh v. Lafayette, Yale v. Princeton, and Yale v. Harvard).

The Tribe, ranked 3rd in the "FCS Preseason Poll" is looking to build on last year's strong season. Returning starters include running back Jonathan Grimes, who is on the pre-season Payton award watch list, as well as Dante Cook (LB) and Alex Gottlieb (TE), who, with Grimes, made the The Sports Network's pre-season First Team FCS All America Team.

Finally, note that the first game will take place against the University of Virginia, in Charlottesville. Your humble blogger was in attendance at the last meeting of the two teams, which resulting in a convincing 26-14 victory for the Tribe. Go here for a post about that game. Tribe fans are hoping for another upset!

Here is the schedule:

September 4, 6:00 PM @ University of Virginia

Septmber 10, 1:30 PM @ VMI

September 17, 7:00 vs New Haven

September 24, 7:00 PM vs James Madison

October 1, 6:00 PM vs Delaware

October 15 12:00 PM vs New Hampshire

October 22 3:30 PM vs Towson

November 5 1:00 PM @ Rhode Island

November 12 12:00 PM vs Old Dominion

November 19 12:00 PM @ Richmond

Go Tribe!

Thursday, August 4, 2011

Should Misleading Charts Accompany All Discussions of the Debt Ceiling?

Probably Not "Incoherent"

Useless Visual Aid

In a recent blog post, James Fallows, national correspondent for the Atlantic Monthly, asserts that one cannot both be concerned with structural budget deficits and simultaneously support the across the board tax cuts that President Bush convinced Congress to adopt early in his Administration. Fallows' main argument is a picture --- a chart, reproduced above, which originated in a recent opinion piece in the New York Times. The chart purports to quantify how various policy changes supported by Presidents Bush and Obama, respectively, have increased spending by the National Government and/or deprived the National Government of revenue it supposedly would have received. Among other things, Fallows claims that the chart "demonstrates the utter incoherence of being very concerned about the structural federal deficit but ruling out of consideration the policy that was the single largest contributor to that deficit, namely the Bush-era tax cuts." (emphasis in the original).

Fallows' assertion is unconvincing, to say the least. Here's why.

1. The chart inexplicably omits over $500 Billion --- the forgone revenue attributable to the two year extension of the Bush tax cuts to which President Obama agreed after the 2008 mid-term elections. (See this story.) Indeed, President Obama's own former director of the Office and Management and Budget, Peter Orzag, advocated such an extension shortly after he left the Administration. Fallows does not explain why we should ignore this forgone revenue.

2. The chart is also misleading in a more fundamental sense. In short, the chart is a gerrymandered portrayal of factors that drive spending, revenue and thus the deficit and resulting debt. In particular, the chart focuses exclusively on the fiscal impact of new programs adopted during the Bush and Obama administrations, respectively. Thus, the chart entirely ignores the cost of existing programs, adopted during previous administrations which, taken together, cost far more than the various programs and tax cuts portrayed in the chart. Indeed, according to one source, the National Government spent $28 Trillion in 2002-2010 alone. During 2002-2009, Fallows claims, the Bush tax cuts deprived the National Government of $1.8 Trillion in revenue, a figure that rises to about $2 Trillion if one includes the forgone revenue attributable to the cuts which Congress extended, with President Obama's agreement, after the 2010 mid-term elections. Thus, the Bush tax cuts equal a whopping 7.1 percent of the expenditures by the National Government during the period in question and are hardly the driving force in the current budget deficit, projected to reach $1.5 Trillion, or 10 percent of GDP, in 2011.

3. The chart ignores all sorts of tax deductions and loopholes, adopted before 2002, that, like the Bush-era tax cuts, deprive the National Government of revenue. Examples include the home mortgage interest deduction (including the deduction for second homes) and the tax exemption for employer-provided health insurance. (The former reduces annual tax revenue by $100 Billion per year.) Inclusion of these potential sources of revenue in the Fallows/New York Times Chart would reduce even further the apparent contribution of the Bush-era tax cuts to the deficit.

4. Finally, the chart and any arguments based upon it ignore entirely the long run link between structural deficits and economic growth (or lack thereof), a link emphasized by John F. Kennedy in his 1962 speech to the Economic Club of New York. As explained in an earlier post on this blog, JFK argued that across the board tax cuts during an economic downturn were the best way to encourage investment, work effort and economic growth and thereby, in the longer run, reduce the budget deficit. In JFK's own words:

"The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring about a budget surplus."

Of course, JFK did not believe that tax cuts alone would ultimately lead to a budget surplus. He also advocated spending restraint, arguing that reliance on government expenditures to stimulate the economy would "demoralize our government and the economy" and that government should not "spend more than can be justified on grounds of national need or spent with maximum efficiency."

In short, like Ronald Reagan two decades later, JFK believed that low tax rates were a precondition for economic growth and that tax cuts and spending increases had quite different impacts on the deficit over the longer run. Moreover, both Presidents advocated policies that helped innaugurate lengthy economic expansions and economic growth. Most Americans would gladly embrace the sort of "incoherence" that resulted in such strong and sustained economic growth and resulting job creation and economic opportunity.

Thursday, July 28, 2011

Conflicting Views at CNN Money About The Impact of the Debt Ceiling Deadlock on Interest Rates

Yesterday this blog took issue with the claim, made by President Obama and others, that failure to raise the debt ceiling will raise interest rates that ordinary Americans pay for things like car loans, home loans, and credit cards. (See this post). Unfortunately, a story on CNN Money earlier today continues to repeat some of the unpersuasive arguments this blog rebutted yesterday. Among other things, this new story quotes market "experts" to support the claim that a downgrade in the credit rating of the United States will somehow cause lenders to raise the interest rates charged to Americans whose creditworthiness has not changed. To be more precise, the article repeats the claim that, despite a downgrade, lenders will still treat US debt as the safest investment in the credit markets and thus the rates on such debt as the "baseline" for other rates, even if there are other investments that present lower risks.

As I explained yesterday, this argument assumes that lenders are irrational and ignores the fact that less borrowing by the United States will reduce the demand for credit and thus lower the price of credit, namely, interest rates. Imagine, for instance, that the rating agencies downgraded US debt to a CCC+ rating, driving rates on Treasury Bonds to 25 percent. Would lenders really charge individuals and businesses with AAA credit ratings MORE than 25 percent? Of course not, and lenders who tried such an approach would quickly lose business to those who charged rates that reflected the creditworthiness of individual borrowers.

However, it appears that reason is starting to prevail at CNN Money. Earlier today Chris Isidore weighed in on the question, in this article. Among other things, Isidore explains that failure to raise the debt ceiling could actually lower the interest rates on US Debt because less borrowing by the United States would reduce the supply of bonds, raise their price, and thus lower rates. (This is simply the flip side of the argument that less borrowing by the United States means less demand for credit and thus lower interest rates.) Isidore also argues that uncertainty created by the deadlock over the debt will actually cause investors to flock to Treasury Bonds, particularly insofar as the government will continue to raise sufficient revenue to pay the interest and principal on the debt, because such bonds are perceived as a sure bet. Finally, Isidore offers some modest evidence to support his argument, pointing out that the most recent auction of 7 year treasury notes produced a yield of 2.25 percent, the lowest on such notes since November. Of course, there are various determinants of such rates; low rates may simply signal that investors believe the economy and thus the demand for credit is weak. Still, such low yields seem inconsistent with an assertion that failure to break the debt ceiling deadlock by August 2 will produce an economic cataclysm.

Perhaps those who claim that the rate on US Debt is the benchmark for rates on private credit will now argue that the debt ceiling deadlock will REDUCE rates for private borrowing!!!

Tuesday, July 26, 2011

Will a (Very Unlikely) US Default Raise Interest Rates Paid by You and Me?

Needs a Crash Course on How Credit Markets Work

Might Become a Safer Bet Than The USA

President Obama and others are arguing that failure to raise the debt ceiling will raise the interest rates that Americans pay for mortgage loans, automobile loans and unsecured credit obtained via credit cards. (The President made the claim in his July 26, 2011 speech on the debt ceiling.) This argument is perplexing to say the least. If anything, failure to raise the debt ceiling will reduce interest rates applicable to private borrowing, whether or not that failure leads to default. Moreover, if the United States does default, rational self-interested creditors will continue to evaluate potential debtors in the same way --- by assessing the possibility of repayment --- and set interest rates accordingly.

Here's why.

1. It bears repeating that failure to raise the debt ceiling need not lead to default. The United States collects far more tax revenue each month than needed to pay the interest on the national debt. Thus, even if the debt ceiling remains fixed, the Department of the Treasury can prevent default by paying bondholders before making other expenditures. (See the following Op-ed in today's Philadelphia Inquirer by John Lott, explaining how the risk of default has been exaggerated.)

2. But let us assume that, contrary to logic and common sense, failure to raise the debt ceiling somehow leads the United States to default on its debt obligations. Certainly such a default will reduce the creditworthiness of the government of the United States and thereby reduce creditor confidence in US debt. Ratings agencies like Moodys and Standard and Poors would downgrade their rating of US Debt Securities. As a result, the national government would have to pay higher interest rates on any new debt it might issue if Congress were to subsequently increase the debt ceiling.

However, such a default will have no impact on the creditworthiness of individual Americans seeking to borrow money to purchase a home or car, for instance. (Why would your credit score fall if the United States defaults?) In fact, a failure to increase the debt ceiling and a resulting default by the United States might actually reduce the interest rates that ordinary Americans pay for credit. The interest rate, after all, is the price of credit, that is, the price of renting someone else's money. Like other prices, this price is determined by supply and demand. If Congress refuses to increase the debt ceiling, the United States will reduce its borrowing and thus its demand for credit, thereby reducing the interest rates paid by those entities (households, businesses, states and other countries) that continue to borrow. Even if Congress does eventually raise the debt ceiling and thereby authorize new borrowing by the United States, individuals, firms and states might still pay lower rates than before, as some creditors prefer lending to such entities over the United States.

3. Nonetheless, some news outlets continue to push the idea also advanced by the President that a default would raise interest rates paid for private credit. These outlets argue that banks and other financial institutions tie the interest rates on some loans to the interest rates on US Government Debt. If those rates rise, the story goes, so will rates on purportedly less secure debt incurred by private individuals.

Thus, according to one story on MSN Money:

"Treasury bonds provide the floor for other lending --- car and home loans, credit card debt and student loans, for instance. And because those loans are seen as more risky, the interest charged on them is higher and could rise faster than the increase in the rate on US Securities.

This prediction does not withstand scrutiny. Less charitably, the statement is economic balderdash. Certainly Treasury Bonds currently provide the floor for other lending, for the simple reason that such securities are perceived as safer bets than all other investments, whether AAA-rated state bonds, unsecured credit card loans or car loans. However, if the United States government defaults, creditors, as rational actors, will no longer treat such bonds as the safest possible investment, with the result that US Government debt will, by definition, lose its status as the "floor for other lending." Instead, creditors will presumably identify a different debt security as the safest bet and thus the "floor for other lending." For instance, creditors might choose the debt of states like Virginia, which currently enjoys a $300 million budget surplus and a long-standing AAA bond rating, as a benchmark. Or, creditors could choose a "market basket" of the debt of several states and/or well-managed private firms. In any event, if the United States government defaults, profit-seeking creditors, who operate in a competive capital market, will continue to judge other debtors the old fashioned way, that is, by assessing the prospect that such borrowers will pay back the loan in question. Those who do not, that is, who charge rates higher than justified by the risk presented, will rapidly lose business to those who do. Moreover, those borrowers who, like the Commonwealth of Virginia and millions of ordinary Americans, manage their affairs wisely will be rewarded.

UPDATE (6:30 PM Thursday, July 28): An hour or so ago CNN Money published a story repeating some of the arguments rebutted here. I discuss that story, as well as a better-reasoned story on CNN Money, in a subsequent post --- here.

Sunday, July 3, 2011

Another Founding Father For Abolition

American Aristides and Abolitionist

The Economist magazine has waded into the controversy, born as a dispute between ABC's George Stephanopolous and presidential candidate Michele Bachmann, over the extent to which the American Founders worked to end slavery. As many know, Stephanopolous argued that the Founders did not work to end slavery, while Congresswoman Bachmann claimed they did, citing only John Quincy Adams, a young boy at the time of the Revolution, as an example.

In a piece entitled "John Jay Saves the Day," The Economist has offered some support for Congresswoman Bachmann's assertion, contending that: "[p]lenty of founders did fight hard to end slavery." At the same time, the essay asserts that "the really good guys on slavery were not" Washington, Jefferson and Madison, but instead "less venerated big government Yankee founders who sped the abolition of slavery in the North." As examples, the essay cites Alexander Hamilton and John Jay of New York and Gouverneur Morris of New Jersey. The piece praises Jay, himself a slave owner, for purchasing slaves and then granting them freedom after what Jay deemed a reasonable period of time. The piece also praises Jay for signing a 1799 New York "Act for the Gradual Abolition of Slavery." The Act provided that, beginning on July 4 of that year, all children born to slave parents in New York would be free. The Act also prohibited the export of slaves from New York.

The Economist is certainly right to praise Jay, Hamilton, and Morris for their opposition to slavery and their efforts to combat it. Hopefully Congresswoman Bachmann and George Stephanopolous will "stand corrected" and give these gentlemen their due. However, the Economist errs when it suggests that only northern Founders fought to end slavery, failing, as it does to mention George Wythe of Virginia, a prominent Founder and Abolitionist.

Wythe is perhaps best known as the first Professor of Law and Police ("policy") at the William and Mary Law School, founded as the nation's first law school in 1779. (Wythe served in this capacity until he resigned in 1789.) Less well-known is his role in the American Independence Movement and adoption of the U.S. Constitution. He drafted the Virginia Legislature's Resolution in Remonstrance, protesting the Stamp Act, in 1764. Elected to the Continental Congress in 1775, Wythe voted for the Resolution of Independence, moved by fellow Virginian Richard Henry Lee, and signed the Declaration of Independence drafted by Jefferson. He then served as Speaker of Virginia's House of Delegates from 1777-78. He was a member of the Virginia Court of Chancery for more than two decades. In the so-called "Case of the Prisoners" (Commonwealth v. Caton, 1782) Wythe issued an opinion claiming the power to invalidate unconstitutional statutes, thereby presaging the doctrine of judicial review articulated by his student, John Marshall, in Marbury v. Madison, 5 U.S. 137 (1803).

Wythe also attended the Philadelphia Convention that drafted and proposed the U.S. Constitution. George Washington, who presided, appointed Wythe, along with Hamilton and Charles Pickney, to a committee charged with developing procedures to govern the Convention. However, he left the convention early and did not sign the document. He did, however, participate as an elected member of the Virginia Convention that voted to ratify the proposed Constitution.

Like the northern Founders extolled by the Economist, Wythe was an abolitionist. He freed his own slaves and provided for their support, teaching Ancient Greek to one former slave who continued to live with Wythe in Richmond. Moreover, as a Judge in the District Court of Chancery in Richmond, Wythe ruled that the Virginia Declaration of Rights created a presumption that all men were free, regardless of their race. (Unfortunately, an appellate court reversed this portion of Wythe's opinion.) No doubt Wythe's example helped inspire the other Virginians who freed their slaves in the post-Revolutionary period. Perhaps Wythe's example also inspired his successor at William and Mary, St. George Tucker, to craft his "Plan for the Gradual Abolition of Slavery" published in the mid-1790s.

It is little wonder that Wythe's biographer called him the "American Aristides," a reference to the Athenian leader whose moderate assessment of tribute owed by members of the Delian League helped earn him the title of "the Just."

Hopefully the Economist, George Stephanopolous and Congresswoman Bachmann will "correct the record" and recognize Wythe's role in helping eradicate human slavery in the United States. July 4th would be a perfect day to start!

Wednesday, June 29, 2011

Should We Tax Our Way To Prosperity?

Writing today on the Washington Post's Post-Partisan Blog, E.J. Dionne takes issue with Mitt Romney's effort to analogize President Obama poor economic record to that of the British Labour Party in the 1970s. At issue is Romney's adaptation of a campaign poster employed by Margaret Thatcher during the late 1970s, calling attention to the failure of the Labour Party's economic policies. These policies, of course, helped produce high unemployment, high inflation and economic stagnation, all leading to a 1976 IMF bailout orchestrated by the Ford Administration. Like Thatcher's poster, which asserted (correctly) that "Labour's Not Working," Romney's new poster asserts "Obama's Not Working."

Dionne does not dispute that economic conditions in the United States are in some ways analogous to those in Britain in the 1970s, e.g., unemployment is high and debt is rising. (At the same time, inflation is still at bay here, partly because unions exert far less influence than they did in Britain in the 1970s.) Still, he claims there is a key difference between 1970s Britain and the current environment that deprives Romney's analogy of much force. According to Dionne:

"[T]he big difference is that the economic mess Obama inherited was the creation of some of the very policies that Romney now endorses, including low taxes on the wealthy and deregulation."

Apparently Dionne, like Labour in the 1970s, believes that we can tax and regulate our way to prosperity.


Unfortunately, Dionne does not explain how higher taxes on those citizens who create the most wealth, and already pay most federal income taxes, a cornerstone of Labour's policies in the 1970s, would have prevented the current downturn or otherwise stimulate the economy. Perhaps he should review the economic records of Ronald Reagan, John F. Kennedy and Lady Thatcher herself, all of whom cut taxes "across the board," including on the "wealthy," to get the economy moving again. As Lady Thatcher's predecessor Winston Churchill colorfully put it: "[F]or a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Nor does Dionne specify which "deregulation" led to the current economic downturn or, for that matter, document his claim that Romney, who was not a public official at the time, supported such deregulation. Finally, he does not mention that deregulation in both Britain and the United States in the early 1980s apparently helped produce sustained periods of economic growth in both countries or that President Obama's administration has sought to expand the power of cartelistic labor unions in so as to increase the cost of doing business in the United States and interfere with the process of competitive federalism.

This blogger suspects that Romney's message will have more resonance than Dionne cares to admit.