Tag Archives: politico

Broken Window Fallacy: Hurricane Irene Edition

Huricane Irene largely spared the East coast’s larger cities from the worst of its wrath. It still cut off power to about 4 million people. And it cost 25 lives. But there is a sunny side to the billions of dollars of destruction! Politico’s Josh Boak quotes the University of Maryland’s Peter Morici:

Morici said there could be some economic growth at the end of this year and the beginning of next year, because with the rebuilding, “largely what we’re going to get is a private-sector stimulus package.”

Morici fell for the broken window fallacy; if a kid (or a hurricane) breaks a window, it creates a job for the repairman. He then spends his wages on other things, and the economy gets a boost. Why not break every window in the entire country, then? Think how much wealthier everyone would be if only a hurricane would come along and level the entire nation!

Morici could well be right that Irene could cause a small GDP boost. But that doesn’t mean that America is richer for having endured a natural disaster; hurricanes are not stimulus packages. St. Lawrence University economist Steve Horwitz draws a useful dichotomy that can help us understand what’s going on here:

GDP measures a flow of activity, not a stock of wealth. Destroying things and then rebuilding them might increase economic activity in the area affected (by drawing resources from elsewhere), but leaves us with less wealth than we would have had without the disaster. That is the real meaning of the Broken Window Fallacy.

Irene destroyed billions of dollars of America’s stock of wealth. Getting back to where we were before the hurricane will probably give a boost to GDP. But we aren’t wealthier for it, even if GDP does look better. If nothing had been destroyed, all the time, energy, and materials put into playing catch-up would have been put into making something new.

More Corporate Welfare on the Way?

Politico headline from today: “Qualcomm exec calls for small-business research funding.”

Alternative headline: “Businessman asks government to give money to businesses.”

Government should not give money to private businesses, period. Businesses should compete in the marketplace, not Washington. There is a lot of money to be made by selling people things they want. Companies that do a good job of that deserve every cent they earn.

Subsidies are not earned. Nor are they given to companies make things people want. Companies already doing that don’t need handouts. In short, corporate welfare is allocated by politics instead of economics.

What Mr. Jacobs is asking for would be a boon for lobbyists and politically favored businesses. But it would be a drag on everyone else. And not only because they would be paying for the handouts. Lost innovations are part of the price. The money spent on corporate welfare is money not spent on more worthy projects.

See also Wayne Crews and I on corporate welfare in the new edition of CEI’s Agenda for Congress.

The Washington Version of Spending Cuts

Here’s a letter I sent to Politico:

Editor, Politico:

The title of your November 10 article, “Panel leaders propose Social Security cuts,” is inaccurate. A cut is when spending goes down. Social Security spending will go up if Erskine Bowles and Alan Simpson’s recommendations are enacted. They would increase spending at a slower rate than under current policy. But it would still increase.

An increase is not a cut. Not even in Washington.

Ryan Young
Fellow in Regulatory Studies
Competitive Enterprise Institute

Voting the Bums Back In

Many people think change is in the air. Voters are angry. And they want to throw the bums out. That’s the dominant narrative this election cycle. But at least during primary season, that narrative is fitting poorly with actual election results. Politico reports:

Six incumbents have lost this season: Sens. Arlen Specter (D-Pa.) and Bob Bennett (R-Utah) and Reps. Alan Mollohan (D-W.Va.), Bob Inglis (R-S.C.), Carolyn Kilpatrick (D-Mich.) and Parker Griffith (R-Ala.). Larry Sabato, a political scientist at the University of Virginia, pointed out in Arena that factoring for those losses translated into a 98.3 percent win rate for incumbents so far in 2010.

That 98.3 percent win rate will drop on Election Day. But probably not by much. Not even if one or both chambers switch parties. In 2008, incumbents running for re-election had a 94.9 percent success rate. In 2006, when Congress changed parties, the re-election rate was still right around 94 percent. The last time re-election rates went as low as 90 percent was in 1992 — nearly two decades ago.

The sad truth is that incumbents are safe. It doesn’t matter that Congress’ approval ratings are in the low teens. Voters just aren’t going to throw out very many bums. Voters may despise Congress as an institution, but most people have positive opinions of their own representative.

That’s why the average tenure in the House is more than 14 years, or seven terms. And most turnover isn’t from losing elections. It’s from retirement or running for other office, or death; for many, politics is literally a lifelong career.

So expect a lot of familiar faces to be sworn in when the 112th Congress convenes in January, even if power changes hands.

Though I will, of course, be very happy if events prove me wrong.

Regulation of the Day 88: College Football’s Playoff System

College football is bringing big bucks to K Street as lawmakers take aim at dismantling the Bowl Championship Series,” says a recent story in Politico.

A six-figure sum is being spent lobbying what really shouldn’t be a government issue. Millions more are being spent on other issues affecting college sports.

There’s even a PlayOff PAC that gives money to politicians who take an active stance on college football playoff reform.

True, the BCS playoff system could definitely use an overhaul. But that’s a job for the NCAA. Not Congress.

On the other hand, legislators do considerably less harm when they spend their time on college football instead of, say, health care or fiscal stimulus.

Poll: Used Car Salesmen More Ethical than Congress

According to a new poll, “Congressmen were rated as having a “low/very low” ethical standards by 55 percent of 1,017 adults across the nation.”

The same poll found that 45% of 1,017 adults across the nation had either never heard of Congress, or are big believers in grade inflation.

The shocking part is that used car salesmen only out-performed Congress by four points.

Regulation of the Day 55: Home Environmental Inspections

In today’s Politico, I take a look at one of the 397 new regulations in the House version of cap and trade legislation. If the bill passes, almost all homes for sale would be required to undergo an environmental inspection. The home cannot be sold until it is up to code.

One unintended consequence could be the end of fixer-upper homes.

Another would be lower home ownership rates. Which, of course, directly contradicts of decades of federal policy.

UPDATE: A coworker informs me that Fox News is linking to the article in the opinion section of their website.