Telling the truth to one’s superiors is hard. Especially when the stakes are high. Christina Romer comes to mind. Brilliant economist. She’s done excellent work on the role of monetary policy during the Great Depression.
A partisan Democrat, she was summoned to Washington soon after President Obama’s election to advise him. All of a sudden she endorsed the Bush-Obama views on stimulus. This is a 180 degree turn from her previous views. Romer’s own academic research shows that fiscal stimulus’ effects are too small to do measurable good.
Romer the economist believes that most business cycles have monetary causes. Not fiscal. Monetary. Romer the economist had been very consistent in expressing that view. But that view changed as soon as she arrived in Washington and became Romer the economist transformed into Romer the political advisor. Suspicious.
This is not a new phenomenon. Politicians from both parties have been using economists for as long as economists have let themselves be so used. Politicians love the air of legitimacy that pointy-headed academics can give to their proposals. And economists love the sudden rush of attention and name recognition — and the professional prestige that will long outlast the current administration. They are happy to sell out. Or is it buying in?
That thought was sparked by reading about F.A. Hayek mourning the death of some of his colleagues’ integrity back during the Reagan years:
“You can either be an economist or a policy advisor.
I have seen in some of my closest friends… how a few years in government corrupted them intellectually and made them unable to think straight.”
Through June, the government spent about $620 billion of stimulus money. The Obama administration claims that the spending has saved or created 2.3 to 2.8 million jobs.
For the sake of argument, let’s assume those job creation numbers are true. In fact, let’s pick the rosiest number — 2.8 million jobs.
At a price of $620 billion, that comes out to $221,428.57 per job. Startlingly inefficient.
Now consider that that $620 billion had to come from somewhere else. Some of that money came from taxes. That leaves less money left over for consumers and businesses to spend. Some of the stimulus money was borrowed. That leaves less capital for private companies borrow.
The private sector tends to spend less than the government to create a job. Since stimulus spending is spending more money to create fewer jobs than the private sector, it is actually causing net harm to the job market.
In place of the spending stimulus, I humbly offer a deregulatory stimulus. CEI VP Wayne Crews and I offer some specific proposals here.
A man collected 12 years of salary and benefits from his government job in Norfolk, Virginia. Nothing unusual about that… except that he “had not reported to work in years.”
Yes, this is an outrage. But maybe the world would be a better place if more government employees took that approach to their jobs.
In New York State, sliced bagels cost 8 cents more than unsliced bagels. It’s not because they’re more expensive. The marginal cost in labor and equipment is practically nil. Nor is it because bagel shop owners are greedy. Shops in Connecticut and New Jersey don’t charge more for sliced bagels. And there’s nothing about New York consumers that makes them more susceptible to predatory bagel pricing. The reason is government.
Albany’s legislators are in quite the fiscal mess right now. Short of cutting spending, they’re trying everything they can to plug their $8.5 billion budget deficit. The Wall Street Journal explains how this affects bagels:
“In New York, the sale of whole bagels isn’t subject to sales tax. But the tax does apply to “sliced or prepared bagels (with cream cheese or other toppings),” according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it’s never been touched by a knife, it’s also taxed.”
So there you have it. Bruegger’s, a New York bagel chain, put signs in its stores telling customers that “We apologize for this change and share in your frustration on this additional tax.”
Bruegger’s shouldn’t be apologizing to its customers. The state legislature should be apologizing to theirs. If they had been able to keep state spending in check, there would be no need for the tax.
Despite my pessimism (realism?) about politics, ever since reading Julian Simon, I have been an optimist when it comes to progress and the human condition. Since the industrial revolution, each generation has lived longer and better than the last. By that measure, the last decade was the best in human history.
This despite the last decade being an unmitigated political disaster, at least in America. President Bush grew government faster than any president since Lyndon Johnson. Between new health care entitlements, massive energy and farm bills, two wars, and more than 30,000 new regulations, the Bush administration was no friend of limited government.
President Obama has so far been no better. If anything, his policies are George W. Bush’s on steroids.
Fortunately, the institutional foundations of the market economy are stronger than any bumbling politician. Wherever there is peace, stability, tolerably low corruption, and secure property rights, people will make their lives better over time, despite meddlesome regulators getting in the way. The pattern is global.
Via Ronald Bailey, a brilliant article in Foreign Policy reinforces that point. Things really are getting better. The last decade was the best in human history. Read the whole thing. If you’re despairing over the state of the world, the data are a wonderful cure for pessimism. Here’s a taste:
Consider that in 1990, roughly half the global population lived on less than $1 a day; by 2007, the proportion had shrunk to 28 percent — and it will be lower still by the close of 2010. That’s because, though the financial crisis briefly stalled progress on income growth, it was just a hiccup in the decade’s relentless GDP climb.
Stimulus backers claim that the project created 1.9 jobs. That’s $78,971.05 per job created. That’s not a very good deal. Especially considering that no jobs were created on net, because that $150,000 was taken away from somewhere else in the economy.
Without the stimulus, that money would have been spent in other ways. Given that most jobs cost less than $78,971 to create, it may well be that the bridge restoration project meant fewer jobs were created than if the government had just left the money where it was originally — your pocket.
People who want government to redistribute income want to take it from the rich and give it to the poor. And there are programs that do that. But in practice most programs actually work in the opposite direction. More often than not, government is Robin Hood in reverse.
Via Patri Friedman, here’s a video of Milton Friedman explaining why that’s so.
This graph from just-released Federal Reserve data caught my eye. It shows government layoffs and discharges from late 2000 through June of this year (raw data set downloadable here). Government jobs are remarkably stable. According to this BLS chart,government workers enjoy roughly three times the job security of private sector jobs. Government workers also compensated more than twice as well as the people who pay their salaries.
For most of the last decade, government workers had as small as a 1-in-200 chance of getting fired or laid off in a given month. This stability mostly held up even during recessions, which are marked as the shaded areas in the graph.
But notice the big spike that happened this June. The economy is out of recession. But times are still tough. And government deficits are at record highs. Is the sudden jump in layoffs and discharges due to government cutting spending to avoid fiscal disaster?
I’d guess not. June was when large numbers of temporary census workers finished their jobs. Still, for one shining second, I thought that Washington had come to its senses.
There are a lot of stories that can explain this graph that Eli Dourado created from BEA data. But not all of them are true. Eli, a fine economist who I went to grad school with, shows why one of them is not true.
Over at the Daily Caller, I explain why newly-minted Justice Kagan should be a judicial activist — but not in the way most people use the term. True judicial activism doesn’t mean legislating from the bench. It means standing up to the executive and legislature and striking down unconstitutional laws. Unfortunately, Justice Kagan seems like she would rather defer to the branches that gave her her new job:
There is a reason why the Supreme Court is filled with Justices eager to defer to the political branches. It’s because the political branches get to pick who sits on the bench. No president would nominate a judge who might nullify his administration’s signature achievements. No Senator would vote to confirm a judge who might strike down an important bill that she wrote. There is a selection bias favoring judicial passivists.
But there is light at the end of the tunnel:
Justice Kagan was nominated and confirmed because of her judicial passivism. But now that she’s in, she’s in for life. She can stand up for the judicial branch if she wants to. If a case comes before her involving a law that is clearly unconstitutional, her rightful duty is to strike it down.
Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute in Washington, DC. All opinions herein are mine, and not necessarily CEI's.
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