David Boaz

Cato senior fellow Gerald P. O'Driscoll Jr. has some advice for the Fed in today's Wall Street Journal:

Quantitative easing is the Fed's version of "stimulus," the complement to fiscal stimulus. The trouble with all forms of temporary spending is that they have no permanent effects. They delay needed adjustments in the economy. Today's state and local governments are a case in point. Municipal and state spending was propped up by federal transfers of many billions of dollars in the president's 2009 stimulus package. But as this federal money has dried up, public payrolls are declining, ironically enough for this administration, close to the presidential election. President Obama received bad advice when he was told that government spending would prime the pump of the economy. Instead it had the effect of temporarily transferring resources from the productive private sector to a bloated public sector. The Fed's version of temporary stimulus will likely involve purchasing government bonds. If past is prologue, this will act as a sugar rush to financial markets. There will be equity- and bond-market rallies. Wall Street will rejoice, but none of this will translate into "substantial and sustainable" economic growth, the FOMC's stated goal.... What would stir the spirits of investors and employers would be some policy certainty, reining-in of out-of-control government spending, stopping ill-advised regulations, and clearing the air of antibusiness rhetoric. No repeat of a one-off round of bond buying by the Fed substitutes for the fundamental and permanent changes needed.

Read it all. And while you're there, don't miss Seth Lipsky on "The Gold Standard Goes Mainstream."

Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his new book, After the Welfare State, published through the efforts of Students for Liberty and the Atlas Economic Research Foundation. Check out this 57-second video introduction: The book is directed at young people, and Students for Liberty is distributing 125,000 copies on college campuses. Tom's introduction begins:

Young people today are being robbed. Of their rights.  Of their freedom.  Of their dignity.  Of their futures.  The culprits?  My generation and our predecessors, who either created or failed to stop the world-straddling engine of theft, degradation, manipulation, and social control we call the welfare state.

Contributors to the volume include experts from Great Britain, Sweden, Italy, and Greece, as well as Cato's own Palmer and Michael Tanner. Learn more about After the Welfare State---and download a free PDF immediately--here.

Sunday's New York Times magazine included an article by Adam Davidson of NPR, "Prime Time for Paul Ryan’s Guru (the One Who’s Not Ayn Rand)." I thought when I read it that if you're going to call an economist "largely ignored," you should at least mention that he won a Nobel Prize so readers could judge your claim. But incredibly, Davidson left that fact out. Now Richard Epstein has taken him to task at greater length and explains how much more sophisticated Hayek's understanding of markets was than those of his contemporaries. Epstein writes:

But it is utterly inexcusable to overlook, as Davidson does, Hayek’s enduring influence.  A year after the Road to Serfdom came out, Hayek published his 1945 masterpiece in the American Economics Review, “The Use of Knowledge in Society,” which has been cited over 8,600 times. In this short essay, Hayek explained how the price system allows widely dispersed individuals with different agendas and preferences to coordinate their behaviors in ways that move various goods and services to higher value uses. Alas, Davidson’s dismissive account of Hayek does not mention even one of Hayek’s major contributions to weaning the United States and Great Britain from the vices of centralized planning. Thus Hayek’s 1940 contribution to the “Socialist Calculation” debate debunked the then-fashionable notion that master planners could achieve the economic nirvana of running a centralized economy in which they obtain whatever distribution of income they choose while simultaneously making sound allocations of both labor and capital, just like in Soviet Russia. Hayek exposed this fool’s mission by stressing how no given individual or group could obtain and organize the needed information about supply and demand conditions throughout the economy.

Epstein goes on to examine the contributions that Hayek made to economists' -- and policymakers' -- understanding of planning, contracts, and competition. Too bad his article didn't appear in the New York Times. More on the Times's misunderstandings of Hayek here and here. More on Epstein -- plus George Soros and Bruce Caldwell -- on Hayek here.

Jennifer Rubin, seeking to dispel "myths about conservatives," takes on the idea that "the GOP doesn't believe in community:

President Obama likes to say that Republicans want everyone to be “on his own.” In fact, conservatives, as Romney put it in a speech at Liberty University this year, believe family, communities, churches and other civil institutions are critical building blocks in society. They favor investing authority in the level of government closest to the people (locales and states), which they believe is most responsive and governs best.

That's a nice theory, and it's one that keeps many libertarians voting Republican. But in practice Republicans show less respect for state and local powers than you might think. Republicans, including Mitt Romney and Paul Ryan, supported—and still support—President Bush's proposals for federal takeovers of education and marriage law. And I've never heard them question the Bush administration's defense and vigorous prosecution of federal marijuana prohibition in the face of state efforts at reform. Would that we had a Republican party that actually favored "investing authority in the level of government closest to the people."

The Washington Post reports today:

Most Americans in a new Washington Post-ABC News poll want a shrunken federal government, and most believe Romney wants that too. ...Support for “smaller government” is up significantly in recent years, and marks a pivotal issue where voters view Obama as far out of step with public opinion.

Here's a graph of what registered voters told the Post: The striking thing, of course, is that voters think Romney supports smaller government. It's not a conclusion they could draw from his fiscal record as governor, or from his Massachusetts health care plan, or from his current position on budget cuts, or even from his running mate's budget proposal. I think you have to conclude that voters believe Mitt Romney wants smaller government because President Obama keeps telling them so. Voters have a better sense of Obama's own preferences: 73 percent say he wants larger government. You've got to wonder about the 15 percent who think he wants smaller government, though. Which words in that simple question do they not understand? Meanwhile, I’ve always thought the “smaller government” question is incomplete. It offers respondents a benefit of larger government – "more services" – but it doesn’t mention that the cost of “larger government with more services” is higher taxes. The question ought to give both the cost and the benefit for each option. The Rasmussen poll does often ask the question that way. In fall 2010, when the Post poll showed 56 percent support for smaller government, a Rasmussen poll with the more balanced question found that 68 percent of voters said that they prefer smaller government with fewer services and lower taxes, while only 24 percent would rather see a more active government with more services and higher taxes. Along with other contemporaneous comparisons, it’s reasonable to conclude that if you remind respondents that “more services” means higher taxes, the margin by which people prefer smaller government rises by about 9 to 12 points.  And remember, swing voters support smaller government by even higher percentages.  

Four years ago the Onion offered a lyrical farewell to the Ron Paul campaign:

WASHINGTON—After piling the last of his Campaign for Liberty signs in the back of a beat-up Ford truck Thursday, Rep. Ron Paul (R-TX) once again abandoned his candidacy for president and rode on out toward the low western sun, but not before vowing to come back to Washington “when [the country] is ready.” “When the river swirls and the wind blows, and when uncontrollable inflation forces us to revert to the gold standard, and the Federal Reserve bank is exposed as the unconstitutional, neofascist cabal it really is, you’ll see me coming over that hill,” said Paul, leaving a dusty cowboy hat and a stack of “no” votes on his seat in the House of Representatives. “But don’t you fret, America. If you ever feel like your government is getting too big or too intrusive, just give a little whistle, and there I’ll be. I’ll be there quicker’n you can spit.” Although no one has seen or heard from the Texas congressman since Thursday, sources report the Ron Paul for President campaign has gained an additional $2.3 million in contributions since his disappearance.

As it turned out, it wasn't long until America did begin to "feel like your government is getting too big or too intrusive," and Paul came back with his message of smaller government, sound money, constitutionalism, and an end to endless debt and endless war. And the voters were a lot more receptive than they had been four years earlier. The Republican platform will reflect the efforts of Ron Paul and his movement. Back in 2008 I heard the echoes of Tom Joad in that “final speech,” and I noticed that in fact Ron Paul had been all over the airwaves as practically the only congressional critic of the bailout and the policies that led to it. So I got to musing about another working-class icon, Joe Hill, and wrote some new words to his tune. Now that Ron Paul is ending another presidential campaign, and his career in Congress, they're as relevant as ever:

I dreamed I saw Ron Paul last night, Still running on TV. Says I “But Ron, you lost ‘em all” “I’ll never quit” said he, “I’ll never quit” said he. “The Money Power beat you, Ron, They beat you, Ron,” says I. “Takes more than Fox to beat ideas,” Says Ron “I didn’t quit” Says Ron “I didn’t quit.” “In South Carolina, Ron,” says I, “You stood up to the war. Then Rudy knocked you back again.” Says Ron, “But I was right.” Says Ron, “But I was right.” From Baghdad back to Main Street, In every funeral hall Where grieving moms inter their sons, it’s there you find Ron Paul, it’s there you find Ron Paul! And taking on the Fed Reserve and smiling with his eyes, Says Ron, “The bailout cannot work, It’s time to privatize. It’s time to privatize.” From Texas up to Washington, in every lecture hall, Where working men defend their gold, it’s there you find Ron Paul, it’s there you find Ron Paul! I dreamed I saw Ron Paul last night, Still running on TV. Says I “But Ron, you lost ‘em all.” “I’ll never quit” says he, “I’ll never quit” says he.

Looks like Roger Pilon and I have different perspectives on whether the television networks should broadcast hours and hours of packaged convention coverage rather than broadcasting what viewers want to watch. Here's how I responded to  Politico's question,

Are convention TV cuts a bad idea?

Are you kidding? Why should the networks provide hours of coverage for lavishly produced infomercials for the two government-supported parties? Conventions used to be news events. I'd love to see the television coverage of the 103-ballot 1924 Democratic convention. Or of Everett Dirksen pointing his finger in 1952 at Eisenhower's floor lieutenant, Thomas Dewey and shouting, "We followed you before and you took us down the road to defeat." But the last time there was any news or suspense at a convention was probably 1976, when Ronald Reagan's supporters thought - probably wrongly - that the nomination was still barely within their grasp, and there was a real floor fight over a motion designed to flush out hidden Reagan supporters in Ford delegations.  Let Ron Paul be nominated, and let his supporters do a traditional floor demonstration. The networks would cover that, because it would be news. But if there's no news, then the networks are just providing the two old parties with free publicity. And speaking of "government-supported parties" - this year the taxpayers will give each party $18 million to produce these infomercials. That should stop. The parties both have plenty of money. And in a year when 57 percent of Americans tell Pew that there should be a third major party, why are those people being taxed to shore up the existing parties with which people are dissatisfied?

A new poll from the Washington Post and the Kaiser Family Foundation looks at independent voters, the voters who presumably will decide this year's election. The poll finds that about a third of all voters call themselves independents. But "nearly two-thirds of Americans who describe themselves as independents act very much like partisan Republicans or partisan Democrats." Another quarter are "detached," with a low interest in politics and unlikely to vote. Which leaves 13 percent of the independents, or about five percent of the total electorate, to be designated by the Post's Jon Cohen and Dan Balz as "Deliberators," people genuinely open to candidates of both parties. And the following figure reveals some pretty interesting things about them. They're virtually all registered to vote, they insist that they really do vote for candidates of both parties, and only about 60 percent currently plan to vote for either Obama or Romney. They're highly dissatisfied with today's political system.  And look at the next  two lines under "Issues": 64 percent support "smaller government with fewer services," and 63 percent favor gay marriage. The former position, of course, puts them closer to Republicans, and the latter closer to Democrats. These are the true swing voters, and they might well be described as fiscally conservative and socially liberal.

 

  Note: This chart was extracted by Carlos Goes from a larger one published on page 16 of the August 21 Washington Post, but apparently not published online. For more on fiscally conservative, socially liberal voters, check here and here. And see Cato's original study "The Libertarian Vote" from 2006.

In today's Washington Post Lawrence Summers demonstrates with mathematics that you can't shrink the federal government -- as long as (he doesn't say) you don't change the tasks you assign to it. True enough, if the government is still going to engage in "sustained deployments" of our military across the globe, and provide retirement income and health care to tens of millions of people, then the size of government isn't going to shrink. But surely those are the issues we should be debating. Michael Cannon below notes another key point in Summers's argument:

[I]ncreases in the price of what the federal government buys relative to what the private sector buys will inevitably raise the cost of state involvement in the economy. Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing, and more than a hundredfold relative to the price of televisions.

I would elaborate on Michael's response. The fact that "the price of hospital care and higher education" has risen much faster than the cost of other goods is not an exogenous variable. Why do those costs rise so much faster? Because the government purchases them, reducing or eliminating the normal effects of supply, demand, and competition. I wrote about this in a 1994 article reprinted in my book The Politics of Freedom responding to an argument made by the economist William Baumol and the scholar-statesman Daniel Patrick Moynihan:

Moynihan identifies a number of services afflicted with Baumol's disease: "The services in question, which I call The Stagnant Services, included, most notably, health care, education, legal services, welfare programs for the poor, postal service, police protection, sanitation services, repair services . . . and others." He points out that many of those are provided by government and posits that "activities with cost disease migrate to the public sector." But maybe he has it backwards. Maybe activities that migrate to the public sector become afflicted with cost disease. The conservative magazine National Review, which, surprisingly, seems to accept Moynihan's thesis, has inadvertently supplied us with some evidence on this point. Ed Rubinstein, National Review's economic analyst, writes, "For more than three decades health-care spending has grown faster than national income. . . . The trend in health-care costs is no different from that of other services." He cites education and auto repair as examples. However, the numbers Rubinstein provides don't support his--or Moynihan's--point. Look at the accompanying figure. The cost of auto repair, a service provided almost entirely in the private sector, has barely outpaced inflation. The cost of medical care increased twice as fast as inflation. Government's share of medical spending increased from 33 percent in 1960, when the chart begins, to 53 percent in 1990. Meanwhile, the cost of education, almost entirely provided by government, increased three times as fast as inflation--despite the constant complaints about underfunded schools. The lesson is clear: Services provided by government are afflicted with Baumol's disease in spades. Services provided in the private sector, where people spend their own money, are much less likely to soar in cost. Medical care is a good area in which to test this theory because over the past 30 years it has been paid for in three different ways: out-of-pocket spending by consumers; insurance payments, mostly provided by employers; and government payments. As out-of-pocket spending declines in importance, medical inflation heats up. And private-sector spending on medical care rose only 1.3 percent a year between 1960 and 1990, while government spending rose more than three times as fast--4.3 percent a year. When services are provided privately, and consumers can decide whether to purchase them, or choose another provider, or do without, there's a powerful incentive to improve productivity and keep costs down. Stagnant productivity in government-run services reflects not so much Baumol's disease as what we might call Clinton's disease, the notion—even now, in 1994—that government can provide services more efficiently and cost-effectively than can the marketplace.

Now, I think Larry Summers knows this. He knows that when consumers don't face full costs for services, they tend to consume more of them without worrying about the cost. So he knows that these costs could come down, if only we moved these services into the market, or at least found ways to get consumers directly concerned with costs. He should rethink his claims about the inevitability of more expensive government. These realities are in fact choices, decisions that voters and taxpayers can change.

A front-page story in Saturday's Washington Post carries the headline, "Ryan's funding requests blur image as deficit hawk" (different online). That is, Rep. Paul Ryan has sought federal funding for projects in his district, even when he has voted against the relevant spending program, such as President Obama's $787 billion "stimulus" bill. But I don't think that's the best way to judge a congressman's fiscal conservatism. The question is, did he vote against excessive spending? Did he work in committee, with his colleagues, and in the national debate to end programs and cut spending? Sure, it might be best if fiscal conservatives crossed their arms and refused to participate in the standard congressional practice of seeking federal funds for one's own district or state. But that's not likely to happen in a political world where members of Congress assume that "bringing home the bacon" is essential to reelection. (Political scientist James L. Payne argued in his book The Culture of Spending that in fact members don't have to do that to get reelected, and he pointed to people like Sen. William Proxmire [D-WI], author of the book Uncle Sam: The Last of the Bigtime Spenders, who made their careers as opponents of pork and waste. But most political consultants would reject such advice.) I recall Sen. Phil Gramm, who actually switched parties and resigned from Congress (and then successfully got his seat back as a Republican) in the pursuit of spending restraint. He said, "If we should vote next week on whether to begin producing cheese in a factory on the moon, I almost certainly would oppose it...On the other hand, if the government decided to institute the policy, it would be my objective to see that a Texas contractor builds this celestial cheese plant, that the milk comes from Texas cows, and that the Earth distribution center is located in Texas." Not exactly a candidate for the next edition of Profiles in Courage, but I understand the realpolitik calculation. Ron Paul puts earmarks for his district in spending bills, then votes against the bills, which nevertheless pass overwhelmingly. Again, not exactly worth a gold star, but he does consistently vote against spending bills. So Paul Ryan voted against the stimulus bill and then sought stimulus funds for his Wisconsin district. I think the more important thing is that he voted, worked, spoke out, and campaigned against a bill that he called a “wasteful spending spree.” Even though he'd have fought Phil Gramm tenaciously about where the milk for that cheese factory on the moon should come from. As I say, the test for a fiscal conservative is how he votes on budget-busting bills. And there, Paul Ryan has a real problem. Consider his votes during his 14 years in Congress and particularly during the 8 years of the Bush administration:

FOR the No Child Left Behind Act (2001) FOR the Iraq war (2002) FOR the Medicare prescription drug entitlement (2003) FOR Head Start reauthorization (2007) FOR Economic Stimulus Act (January 2008) FOR extending unemployment benefits (2008) FOR TARP (2008) FOR GM/Chrysler bailout (2008) FOR $192 billion anti-recession spending bill (2009)

That is the record that could "blur [his] image as deficit hawk." Fiscal conservatives in Congress really ought to refuse to participate in the pork process. But members who have passed one of the few congressional acts to actually push back against spending, used their presidential campaigns to push the Republican party toward fiscal conservatism and inspired the rise of the tea party, or developed a budget plan that would arguably bring the rate of spending increase down from stratospheric to merely exorbitant should get some credit for that.