Monday, January 31, 2011

Green Un-Jobs, Right Here in Virginia

Sorry, Thomas, Your Invention Was Too Useful and Cost-Effective

You've probably heard proponents of "green" policies claim that such initiatives create "green jobs" and that the creation of such jobs can justify such programs. These same individuals are silent, however, about Green Unjobs --- that is, jobs lost because of "green" initiatives. According to the Washington Examiner, a classic example will soon occur right here in Virginia, when General Electric closes down it last remaining factory that manufacturers incandescent light bulbs, invented by Thomas Edison, pictured above. (According to the Post, the factory employs 200 workers.) You see, the National Government has, by enacting the 2007 Energy Indepence and Security Act, decided that such light bulbs use too much energy and thus should be replaced by mercury-laden bulbs manufactured in China. (See this article by the Times of London, reporting that hundreds of Chinese workers suffered mercury poisoning while manufacturing such light bulbs.) To be more precise, the law imposes hefty civil penalties on firms that manufacture light bulbs that are insufficiently efficient, thereby dooming the traditional incandescent bulb, which Americans would otherwise prefer to purchase over the more expensive mercury-laden options. It's not clear how this requirement will enhance our energy independence or security, given that 99 percent of America's electricity is generated via coal (a fuel we export), nuclear power, natural gas, hydro-electric power, and renewable sources of energy. (Note that, while the United States is a net importer of natural gas, we are also the largest producer of natural gas in the world, export the fuel to Japan, Mexico and South Korea and receive the vast majority of our imports (including 99 percent of our pipeline imports) from our neighbor and close ally, Canada.)

Of course, the mere fact that a new regulation eliminates jobs does not ipso facto require rejection of the regulation on policy grounds. Then again, the fact that regulation will create jobs does not necessarily recommend it, either. If a mercury factory repeatedly spills its output in local streams, thereby poisoning those who live nearby, closing the factory would be warranted, even though doing so would eliminate jobs. At the same time, a law the required all citizens suddenly to paint their houses purple would create jobs in the purple paint industry and, of course, ensure full employment for painters. This would not, however, establish the law's wisdom. Perhaps the best question to ask instead is whether the law bans conduct that produces more harms than benefits. If "energy security and independence" is the true point of the de facto ban on Mr. Edison's invention, the answer seems plainly "no."

Friday, January 21, 2011

Is The Onion Channeling J.M. Keynes???

The Onion "reports" that a "Revamped WPA will Create 50,000 New Jobs by Disassembling, Reassembling the Hoover Dam." The story also reports that other "public works" projects are on the way, including:

"the bulldozing of libraries, the burning of national forests, and the defacing of public murals, which will be followed by a massive plan to rebuild libraries, revive national forests, and repaint public murals."

While styled as a spoof, the piece captures the essence of Keynesian stimulus theory. That is, when the economy is operating significantly below full employment because private consumption and investment are lagging, the government should borrow from its citizens and spend the proceeds by buying goods and services in the domestic market. Under this approach, it does not matter WHAT government buys; so long as the government purchases something it will stimulate aggregate demand and thus Gross Domestic Product, so long as the nation's aggregate supply curve displays some elasticity. (Technically, macro-economists would model this impact by shifting the aggregate demand curve up and to the right.) Thus, Keynes himself argued that the State could stimulate the economy by paying its citizens to dig holes in the ground and retrieve objects buried there:

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. "

Of course, many Americans would criticize the sort of spending that Keynes identified as wasteful. However, let's assume for the sake of argument that this sort of spending would stimulate the economy when unemployment is high, as Keynes argued. Would such an expected effect justify such spending as a matter of policy? Probably not --- even for Keynes. For, as Keynes himself says in the language quoted, there would be more sensible means of spending the money in question, that could have the same stimulative effect. One could, for instance, spend the money on infrastructure projects --- roads, ports, bridges, airports and the like ---that enhanced that nation's productivity. Even Adam Smith recognized that spending on infrastructure was an appropriate role of the state. As he put it:

"The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain."

One could also spend such money on research and development, for instance, producing the sort of basic knowledge that the private market might not otherwise produce, because certain types of discoveries are (properly) not patentable under federal law. If focused on the right projects and research, such spending could increase the potential output of the overall economy, a result that economists would model via a shift in the long run aggregate supply curve to the right.

Of course, the argument and rationale for spending on public works and research and development applies regardless whether the nation is in a recession. However, the argument might be stronger in a recession because: (1) such expenditures might help stimulate aggregate demand, as explained above and (2) the cost of such projects will likely be lower during a recession, as labor and capital stand idle because of reduced economic activity.

In short, while borrowing and spending on any number of activities might stimulate the economy in the short run, spending such money on projects that build infrastructure and create knowledge can enhance the nation's prospects for long term economic growth. In other words, as previously discussed on this blog, not all stimulus spending is created equal.

Wednesday, January 19, 2011

The Original 11 States of America....

Failed to Carry Rhode Island and North Carolina in 1788?

So here's a quiz:

During President Washington's first term, the United States consisted of how many states?

1) 12

2) 11

3) 13

4) 14

5) 15

6) All of the above.

The answer is: 6, all of the above. How can this be, you ask? Here goes. Article VII of the Constitution proposed by the Philadelphia Convention provided that ratification by nine states would bring the Constitution into effect. New Hampshire ratified the document on June 21st, 1788, the 9th state to do so. Virginia followed suit a few days later, and New York ratified the document in July. The nation's first presidential election took place between December, 1788 and January 1789, and George Washington was innaugurated in April, 1789.

Article VII also provided that the Constitution only applied to those states that had actually ratified it. Hence, ratification by New Hampshire, though it brought the Constitution to life, did not annex states that had, to that point anyway, not ratified it. North Carolina did not ratify until November 21, 1789. Rhode Island held out until May 29, 1790. Thus, George Washington initially presided over a nation of 11 states, then 12, then, halfway through his term, the original 13 colonies. (Note also that Washington only carried 10 of these 11, because New York did not cast its votes.)

Thus, from June 21, 1788 until May 29, 1790, Rhode Island, for instance, was a sovereign nation, as was North Carolina, from June 21, 1788 until November 21, 1789.

But that's not all.

Vermont ratified the Constitution on March 4, 1791 and was admitted to the Union as the 14th state, having function as an independent republic, minting its own coins.

Kentucky then ratified the Constitution on June 1, 1792, becoming the 15th state.

Thus, by the end of his term, Washington, who began as President of a United 11 States, was President of a union of 15.

Do Powerful Unions Enhance Job Growth? Of Course Not!


In a perplexing analysis in today's New York Times, entitled "In Wreckage of Lost Jobs, Lost Power," David Leonhardt manages to turn both microeconomics and macroeconomics on its head, claiming, as he does, that stronger unions would somehow result in faster job growth and faster economic recovery. In so doing, he channels some of the discredited arguments that FDR and others made in favor of state-backed cartelization, including cartelization of labor, during the 1930s. Here are some excerpts of Leonhardt's analysis.

"But beyond these immediate causes, the basic structure of the American economy also seems to be an important factor. This jobless recovery, after all, is the third straight recovery since 1991 to begin with months and months of little job growth. . . . .

Why? One obvious possibility is the balance of power between employers and employees."

Later in the piece Leonhardt claims that:

"Study after study has shown that unions usually do benefit workers."


"For all their shortcomings, unions remain many workers’ best hope for some bargaining power."

Leonhardt does not explain how stronger unions and resulting "bargaining power" would speed job growth. "Union bargaining power" is simply a synonym for market power over the price of a very important input --- labor. Presumably unions would use such power to increase wages and/or foist other unwanted conditions of employment on employers. Because there are substitutes for American labor --- capital, foreign labor, or both, policies that raise the price of American labor will predictably cause firms to purchase less of it, either by substituting capital for such labor or exporting jobs to countries where wages are lower. (Moreover, foreign investors may choose not to invest here in the first place.) This is just basic microeconomic price theory, and Leonhardt offers no argument or evidence that the basic rules of price theory do not apply in this context. While unions may benefit workers who retain their jobs despite the wage-raising exercise of bargaining power, such a conclusion does not suggest that unions increase employment. Quite the contrary. The very exercise of bargaining power that raises wages and makes some employees better off also makes labor more expensive and causes firms to purchase less of it.

It should be noted that America experimented with the sort of policies Leonhardt advocates in the early 1930s. In 1933, Congress passed and FDR signed the National Industrial Recovery Act. The NIRA allowed firms, via trade associations, to adopt so-called "Codes of Fair Competition," and the NIRA required such codes to include provisions raising wages above the competitive level, as a means of stimulating the "purchasing power" of workers and thus jumpstarting recovery. However, none other than John Maynard Keynes suggested, in an open letter to President Roosevelt in the New York Times, that the N.I.R.A. "probably impede[d] recovery" by artificially raising wages and prices. According to Keynes, policies that stimulated aggregate demand would raise wages and prices, and not the other way around. Over a decade ago your not-so-humble blogger argued that the N.I.R.A. and other policies that raised wages and prices slowed the recovery from the Great Depression. See Alan J. Meese, Will, Judgment and Economic Liberty: Mr. Justice Souter and the Mistranslation of the Due Process Clause, 41 W. & M. L. Rev. 3, 48-49 (1999) (contending that the N.I.R.A.’s wage and price fixing likely exacerbated the Depression and slowed economic recovery).

Modern economists agree with Lord Keynes that the N.I.R.A.'s state-enforced cartelization of industry and labor impeded recovery. Thus, Christina Romer, immediate past Chair of President Obama's Council of Economic advisors, conluded that the NIRA "prevented the economy’s self-correction mechanism from working." See Christina D. Romer, Why Did Prices Rise in the 1930s?, 59 J. Econ. Hist. 167, 197 (1999). Moreover, writing in the Journal of Political Economy, economists Harold Cole and Lee Ohanian conclude that the N.I.R.A. and other New Deal policies, including the National Labor Relations Act passed in 1935, substantially prolonged recovery and inflated unemployment. See 112 J. Pol. Econ. 779 (2004) (For a prior version of the paper, go here.) Indeed, the article expressly identifies labor union "bargaining power" and resulting high wages as a culprit holding back recovery.

FDR, of course, did not have the benefit of the Cole/Ohanian/Romer analysis, thereby mitigating somewhat his responsibility for the unemployment and slow recovery that his policies wrought. Modern commentators who advocate such policies have no similar excuse.

Friday, January 7, 2011

House Right to Read the Actual Constitution

Criticized for Reading Actual Constitution

Read Section 1 of the 14th Amendment
In an essay in Slate magazine Dahlia Lithwick has chastised the House of Representatives for reading the actual Constitution yesterday. (Congressman Robert Goodlatte, R-Virginia pictured above supervised the reading.) Apparently she would have had the House read the original document, including repealed provisions, and then various amendents to it seriatim. Lithwick argues that superceded provisions of the Constitution are still somehow part of the Supreme Law, because copies of the Constitution that she has read include the original language, as well as subsequent amendments. Indeed, she quotes Professor Akhil Amar for the proposition that:

"The Constitution is a thread. Nothing is ever erased and nothing can be omitted. Nothing tells us specifically what it repeals."

In the view of this Blogger, both Lithwick and Professor Amar are incorrect.

1) Thir argument proves too much. If they are correct, then the House should also have read the entire Articles of Confederation, which, after all, the Constitution did not expressly repeal. And, for that matter, why not also read each of the state constitutions extant between the Declaration of Independence and the adoption of the Articles, as well as the Northwest Ordinance (and changes thereto), which governed the territories of the United States both before and after the Constitution was ratified?
2) The Constitution does, in some cases, expressly repeal prior provisions. The 21st Amendment begins with the following language: "The eighteenth article of amendment to the Constitution is hereby repealed." What could be more clear? Also, Section 1 of the 14th Amendment, read by Congressman Mel Watt (D-NC) (pictured above) provides that all persons born in the United States are citizens, and Section 2 provides that "representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State, excluding Indians not taxed" thereby superceding (quite obviously) the prior provision in Article I, Section 2 whereby slaves were not counted fully for purposes of apportioning representatives among the states. The 14th Amendment's failure expressly to reference Article I, Section 2 does not change this result one wit. The plain language of the 14th Amendment leaves no doubt of its meaning in this context and thus no doubt about the content of the actual Constitution. The Constitution does not, John Marshall said, partake of the prolixity of a legal code or, as Justice Scalia has said, bristle with supras and infras.
3) More fundamentally, a "Constitution" is by definition a framework --- written or unwritten --- for actual governing that both empowers and limits governmental actors. Thus, the actual American Constitution includes the 14th Amendment and the 21st Amendment. It does not include the 18th Amendment or the provisions of Article I, Section 2 that the 14th Amendment repealed, for instance, any more than it includes a random provision selected from whatever constitution was in force in Vermont in 1896. A federal prosecutor who sought an indictment based on the 18th Amendment would be laughed out of court --- and subjected to sanctions --- and properly so.
4) Finally, it may well be that "constitutions" that Lithwick has read include provisions that have been repealed. However, the editorial choices of publishers cannot change the actual content of our fundamental law. Presumably original language is included in such publications as a matter of historical interest and to provide context for the amendments. (For instance, the 21st Amendment's reference to repeal of the 18th makes more sense if the text of the 18th is handy to the reader.) But language included for sake of convenience or historical exposition does not thereby become, by some form of legal alchemy, part of the actual Constitution of the United States.

* * * * *

While Lithwick's recommendation would make for an interesting and important history lesson, the House of Representatives is not, thankfully, a history department. Presumably the point of reading the Constitution yesterday was to impress upon members of the House both the source and the limits of their authority over their fellow citizens. Judged by this standard, the House properly read the actual Constitution that binds us and not those parts that We The People have discarded.

Thursday, January 6, 2011

Will Baby Boomers Bankrupt America?

Role Model for Fiscal Courage?

In "Don't Spare the Boomers," Robert Samuelson decries the growing cost of entitlements, particularly expenditures on programs like Medicare and Social Security that benefit so-called "baby boomers," including Samuelson himself. (Once source defines the "baby boom" as referring to the significant uptick in births in the United States and some other Western-style democracies between the end of World War II and the mid-1950s). According to Samuelson, the Federal Government will have to raise taxes by about 50 percent of current levels over the next 15-20 years "to cover expanding old-age subsidies and existing government programs." Or, he says, the nation can continue to run huge budget deficits, piling up debt in a way that could trigger a(nother?) financial crisis.
Not surprisingly, Samuleson finds neither option --- taxes or even more deby --- palatable. Each, he says, could stultify economic growth. (And, of course, lower growth would only further reduce tax revenues, thereby making it even more difficult to find the money necessary to fund such programs.) Thus, he suggests a third approach, that is, dramatic cuts in entitlement spending. Here is a summary of his proposals:

"Social Security's eligibility ages (66 now for full benefits and 62 for reduced benefits) could be gradually raised. Benefits could be cut for wealthier retirees. At 65, new Medicare beneficiaries could pay some or all of their insurance costs until they reached eligibility for full Social Security benefits. Even then, better-off recipients could pay higher premiums. These and other changes should start soon -- in a few years once the recovery strengthens."

As Samuleson notes, Congress has already taken some baby steps in this direction, for instance, raising medicare premiums for senior citizens that earn $85,000 per year ($170,000 per year for couples), or about 5 percent of seniors. Still, he fears that political opposition by groups such as the AARP will thwart efforts to take the sort of additional steps necessary to prevent the feared explosion in entitlement spending. (Others, it should be noted, might object to such cuts for more nuanced reasons. For instance, further reducing benefits for seniors who are better off could reduce political support for such programs, thereby ultimately harming seniors of more modest means.)

Samuelson notes that such measures might seem "unfair" to senior citizens, some of whom, anyway, have planned for their retirement on the assumption that benefits would remain at their current level. (It should be noted, however, that phasing in any reforms could ameliorate any such unfairness, giving citizens in their middle age time to adjust their savings patterns, for instance, to prepare for somewhat reduced retirement benefits.) However, as Samuelson notes, fairness can be a two way street. What might seem extremely fair to senior citizens may simultaneously seem quite unfair to younger citizens who will have to "foot the bill" if entitlement programs remain unreformed. For instance, a young struggling family might justly ask why it must pay taxes or suffer the consequences of public debt to pay for health care for affluent seniors. (Note, however, that young families might feel differently about the question if, as in the 1960s, the economy was growing rapidly and thus creating economic opportunity for themselves and their children.)
Here are some additional thoughts on the very real problem Samuelson has identified.
1) The problem may be even worse than Samuelson lets on. Samuelson, after all, focuses on national entitlements; he does not discuss the exploding obligations of states, particularly the unfunded pension liabilities previously discussed on this blog.
2) There are other possible ways to deal with the problem Samuelson identifies that might not entail the sort of deep cuts that he proposes. For instance, Congress could take steps, previously identified on this blog, to reduce the underlying cost of medical care, thereby lowering the prices that doctors, hospitals and other providers charge for health care services and thus reducing Medicare expenditures. Moreover, Congress could alter immigration policy, to increase the number of productive citizens who lawfully immigrate to the United States each year, thereby increasing the taxbase.
3) Finally, it should be noted that other nations are taking some of the steps that Samuelson is advocating. For instance, President Sarkozy of France, pictured above, stood down massive protests and strikes over his plan to raise the retirement age from 60-62, and the age for full benefits from 65-67, bringing France more in line with the United States, pushing the plan through the French legislature and signing the bill into law. In 2007, Germany raised its retirement age to 67 and Greece, Britain and Portugal are also raising theirs.

Hopefully America's political leaders will show the same courage as those in Europe (!).

Wednesday, January 5, 2011

Should Congress Ignore The Constitution?

The Constitution is for Congress, Too!

In an otherwise interesting and thought-provoking essay, Peter Beinart of the Daily Beast repeats a common misconception about the relationship between Congress, the Supreme Court, and the Constitution. Beinart asserts that Congress should ignore constitutional considerations when considering legislation, leaving the question of a statute’s constitutionality to the Supreme Court. Relying on this logic, he criticizes the Republican leadership in the House of Representatives for requiring members who submit proposed legislation to identify the source of Constitutional authority for the legislation in question.

"Now the Republicans running the House, under pressure from the Tea Party are requiring that every time a member of Congress introduces legislation he or she must certify that it is constitutional. Makes you wonder why conservatives care so much who sits on the Supreme Court—since they seem determined to usurp its job."

Contrary to Beinart's assumption, the Supreme Court is not the only branch of government with an obligation to enforce the Constitution. Simply put, Congress may not punt its responsibility to adhere to the document from which it derives its authority. No language in the Constitution grants courts a monopoly on the duty to adhere to our fundamental law. By its terms, the Constitution is the "Supreme Law of the Land" and thus, it seems, binding on all governmental actors, and not merely those who wear robes. Indeed, the First Congress debated the constitutionality of the proposed National Bank and the scope of the President's authority to remove Officers of the United States. Such debates were a waste of time if, as Beinart suggests, constitutional interpretation is the exclusive job of courts. Moreover, when justifying the institution of judicial review at the Pennsylvania Ratifying Convention, James Wilson, later a Supreme Court Justice, argued that a President could decline to enforce a law he believed to be unconstitutional and that, in the same way, judges could decline to enforce unconstitutional laws that came before them. It would be odd indeed if the President and the Courts where charged with adhering to the Constitution, while Congress was free to ignore it.

Also, as a practical matter, not all legislation comes before courts or, if it does, it does so decades after its enactment. The 20-year charter of the First National Bank expired before there was any judicial review of the Bank's Constitutionality. The Court only reached the question after Congress re-authorized the Bank. In such circumstances, failure by Congress to consider the constitutionality of the proposed legislation would have left the constitutional question to the President alone, who could veto or decline to enforce the statute on constitutional grounds. Finally, an expectation that Congress (and the President) will consider the constitutionality of legislation before passing, signing or enforcing it reinforces the liberty-enhancing aspect of the Separation of Powers, by ensuring that all three branches, elected or appointed in a different manner, agree that an law is constitutional before an individual is deprived of his or her liberty or property pursuant to the enactment.

Ironicially courts, the supposed repository of interpretive monopoly Beinart proposes, themselves have rejected this monopoly. The Supreme Court begins its judicial review of statutes passed by Congress by presuming such statutes Constitutional. As Justice Bushrod Washington (pictured above) put it in Ogden v. Saunders, 25 U.S. 213 (1827).

"It is but a decent respect due to the wisdom, the integrity, and the patriotism of the legislative body by which any law is passed to presume in favor of its validity until its violation of the Constitution is proved beyond all reasonable doubt. This has always been the language of this Court when that subject has called for its decision, and I know that it expresses the honest sentiments of each and every member of this bench."

Such a presumption only makes sense on the assumption that Congress considers the constitutionality of legislation before acting on it. Thus, Congress's failure to pass legislation because its members believe a proposed enactment to be unconstitutional is in no way a "usurpation" of the appropriate role of the Supreme Court in our constitutional system.

Despite this oversight, Beinart's essay is well worth reading. Among other things he challenges members of the "Tea Party" to reconcile their commitment to limited government with the sort of muscular foreign policy endorsed by modern conservatives, a foreign policy that consumes billions of dollars per year in discretionary spending on military operations in Iraq and Afghanistan, for instance, thereby increasing the deficit against which Tea Partiers inveigh. Beinart suggests that true concern for limited government should cause members of the Tea Party to rethink their acquiescence in the sort of foreign policy currently endorsed by the Republican Party.

William and Mary Griffin License Plates Now Available

You know you have arrived when Virginia's Department of Motor Vehicles offers to inscribe your likeness on a license plate (for a small fee of course). Juudged by this standard, William and Mary's new Griffin mascot, shown above with your humble blogger, has hit the big time! You can order the new Griffin plate here for a mere $25 premium over and above the ordinary cost of such a plate. The Griffin plates qualify as "revenue sharing plates." Thus, after the first 1,000 plates are sold, 60 percent of the $25 fee is allocated to William and Mary to support scholarships for Virginia residents. As a result, the DMV opines that a portion of the fee "may be tax deductible." (Consult your personal tax advisor for details.)
Not only is the Griffin a great mascot, he/she/it might also help reduce your tax liability! What more could anyone ask!