Tag: government

The Paradox of Government

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Today I read Paul Krugman writing about t he paradox of thrift. As is often the case, I found it interesting to read and to notice the assumptions that Krugman bases his positions on. While anyone can go read what he wrote I’ll give a quick overview of the paradox of thrift – increases in personal savings can have an adverse effect on the economy causing a net decrease in actual savings overall.

The first assumption made by Krugman is that savings come in the form of currency with an assigned value but with no real intrinsic value – paper money. If savings come in the form of debt reduction or in acquiring real goods for future use then a bad economy increases the value of the savings rather than decreasing that value.

The second assumption made by Krugman is that government should be a significant force and substantial contributor to the economy. This is a man who argued that the government was doing the wrong thing and not enough of it when Obama got his stimulus bill passed (ARRA). While I often disagree with his assumptions I absolutely trust Krugman to be able to read the numbers and do his math so I won’t attempt to do my own numbers. I will link to the source of his numbers and then play with his graph to show how things look under new assumptions.

Tags economics, Elevated, government, national debt, Paul Krugman, reactions, savings

General

Economic Contradiction

Paul Krugman and I agree on little politically (I have at times agreed with him when he was arguing that TARP was a bad idea – although we disagreed on the reasons why) and despite the fact that my assumptions about the nature of sound economics differ from his most of the time I recognize that he has a lot of expertise in the field that I can learn from. For example, I have not known enough about economics to be aware of the Setser point that he is looking at. For those like me who are new to the term, the idea is this:

high government borrowing is more than offset by net negative borrowing from the private sector

As far as I can tell, Krugman is among those who believe that the flow of money defines the health of the economy – the more the money moves (borrowing, spending, and creating) the healthier the economy. Krugman and those who believe like him will doubtless argue that when the private sector borrowing declines governments must borrow more to keep the economy healthy. In other words, lower private sector borrowing causes (or rather necessitates) higher government borrowing. Unfortunately for them the numbers appear to paint a different story. If the cause and effect relationship is not simply the reverse of that assertion then the relationship is at least symbiotic with governments trying to manage or compensate for the actions of the private sector causing an opposite, but more than equal, reaction as the private sector tries to outguess the government.

On the other hand, I believe that people in the aggregate (meaning many individuals over a sustained period of time) make economically beneficial decisions (not always the best decisions necessarily, but better than rolling government loaded dice).

What the Setser point tells me is that government borrowing drags the economy down because of the opposite but more than equal principle noted by Sester and Krugman and it prolongs the agony when those in the private sector – for whatever reason – determine that we need to slow the borrowing to set the economy back on a fundamentally sound foundation.

Tags economics, free markets, government, money, New York Times, Paul Krugman

National

Banks Giving Back

While it is good news that 10 banks will be allowed to repay billions in bailout funds I would be much more excited if I didn’t already know what was likely to happen as a result.

The banks were deemed strong enough to leave the Troubled Asset Relief Program, or TARP, after months of lobbying and strong performances on recent stress tests. The banks are expected to return about $68.3 billion to the Treasury Department, more than double the administration’s initial estimate of about $25 billion in funds to be returned this year. The timetable is also earlier than government officials originally intended.

. . .

The $68.3 billion represents about a quarter of the TARP money given to banks.

That last figure tells me that we still have over $200 billion illegally given by our government to our banking system.

My lack of enthusiasm for this news comes from two concerns. First, the administration will use this news as evidence that the bailouts are working better/faster than expected. The truth is that the banks have been working furiously to find a way to get rid of that money ever since they read the regulations that came with it. Second, having that money will be used as a way to help fund other illegal activities by the federal government such as propping up the UAW by buying GM (the money being returned covers everything we’ve put into GM so far) and even worse than that is the possibility that some smart government people might take the news as an excuse to say, “hey, we have $68 billion more than we expected,” and then go on to fund another $58 billion in projects that they did not dare to fund previously. That’s like buying a $500 LCD monitor when you can only afford $100 and then buying an $80 printer when the $100 rebate arrives early.

So the banks are giving back more and earlier – that’s good for them (and “good for them” is what they are paid to do) but that does not mean there’s a chance that the government will start giving back or being financially responsible in any way.

Update @1:20pm: Here are a few words from the president today confirming my claim that the administration would use this to show that the bailouts are working better than planned:

Several financial institutions are set to pay back $68 billion to taxpayers. And while we know that we will not escape the worst financial crisis in decades without some losses to taxpayers, it’s worth noting that in the first round of repayments from these companies the government has actually turned a profit.

. . . We’re restoring funds to the Treasury where they’ll be available to safeguard against continuing risks to financial stability. And as this money is returned, we’ll see our national debt lessened by $68 billion — billions of dollars that this generation will not have to borrow and future generations will not have to repay.

He says that the money is being returned to the treasury, but I’m confident it will find a way to sneak out again like a good rebellious teenager despite the president’s best efforts to keep it at home where it belongs. 😉

Tags bailout, deficits, government, New York Times

National

GM Surprise (or not)

Back at the end of March David Brooks made a prediction for GM in the New York Times that came due today. I have been waiting to check in on that. He started with this background of the situation as it stood that day:

The Bush advisers decided in December that bankruptcy without preparation would be a disaster. They decided what all administrations decide — that the best time for a bankruptcy filing is a few months from now, and it always will be. In the meantime, restructuring would continue, federally subsidized.

Today, G.M. and Chrysler have once again come up with restructuring plans. By an amazing coincidence, the plans are again insufficient. In an extremely precedented move, the Obama administration has decided that the best time for possible bankruptcy is — a few months from now. The restructuring will continue.

But this, President Obama declares, is G.M.’s last chance. Honestly. Really.

No kidding.

With that background, Mr. Brooks’ reactions was this:

The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever.

Looking at the relevant news today (also from the New York Times) we find that the result is a restructuring plan with court involvement and long-term government intervention including continuing subsidies – initially at least the subsidies are anything but backdoor.

American taxpayers will invest an additional $30 billion in the company, atop $20 billion already spent just to keep it solvent as the company bled cash as quickly as Washington could inject it.

The imagery is all too apropos – like Fannie, Freddie, AIG, and the economy in general GM is and has been addicted to shooting up with public money to feel like a real free-market enterprise. Conveniently too many of our elected leaders are equally addicted to intervening in the markets in order to feel like they are performing a real job for the American tax payer.

Mr. Brooks called the President the “Car Dealer in Chief” in his predictive essay, and now that is more true than before:

Mr. Obama is taking several risks under the plan. None may be bigger than the decision that the United States government will take a 60 percent share of the stock in a new G.M., leaving taxpayers vulnerable if the overhaul is not successful. (Canada, for its part, is taking a 12 percent stake.)

“We don’t think that after this next $30 billion, they will need more money,” one senior administration official said. “But the fact is there are things you don’t know — like when the car market will come back, and how much Toyota and Honda and Volkswagen will benefit from the chaos.”

This is G.M.’s last chance. Honestly. Really. We hope.

Tags bailout, economics, government, money, New York Times, Obama, unconstitutional

culture

Use the Proper Tool

I have written before about our national propensity to use government when it is not the proper tool for the job. Scott summed my point up very succinctly in a recent post:

There is a proper tool for every job. Use of the wrong tool often produces substandard results. Sometimes it is necessary to make do with what you have. That’s called innovation. But regularly using the wrong tool when the right tool is available is just plain stupid.

One of the basic tenets of classical liberalism is to regard government as a tool to be used only where it is most appropriate; the chief role of government being to safeguard and expand liberty. Many people (from all over the political spectrum) view government as a big stick to be employed in forcing others to conform to their particular view of good.

Government is not the only tool that we often use inappropriately, and sometimes the wrong tool is employed not because it is the tool of choice, but because we refuse to use the proper tool. Such is the often the case with regard to schools disciplining children.

A large number of schools use potentially dangerous methods to discipline children, particularly those with disabilities in special education classes, a report from Congress’ investigative arm finds.

In some cases, the Government Accountability Office report notes, children have died or been injured when they have been tied, taped, handcuffed or pinned down by adults or locked in secluded rooms, often to be left for hours at a time.

Some people would be quick to blame the authoritarian, impersonal schools for their outrageous methods of discipline and while I am far from a believer in the infallibility of schools I think that such blame is misplaced in the vast majority of cases.

The real blame lies in the fact that many parents fail to enforce discipline in their homes and even among those who do enforce discipline in their homes all too many make themselves unavailable to take on that responsibility when their children require more discipline than can reasonably be applied by a teacher in charge of more than a dozen students. What’s worse, is that we cannot even safely place the blame fully on the shoulders of the individual parents. Too many of them are forced into situations where they cannot devote themselves to parenting full-time. (Sometimes they just feel forced into those situations.)

As a society we have set too low a value on the role of parenting – placing it completely secondary to economic productivity. We have set expectations too high for our material and economic standard of living – where the luxuries of yesterday must necessarily be necessities today. Consider cell phones for every family member over the age of 10, cars for everyone over 16, cable TV, computers, game consoles, television sets in every room, dance-lessons, sports, and hobbies for each day of the week.

None of these things is intrinsically bad, but together they form unreasonable and unsustainable expectations and they destroy the possibility for most stable families to keep at least one parent available to take care of their children when needs arise.

Not only that, but we expect the schools to provide many of those hobbies through requiring gym, art, and music classes as well as extracurricular sports. The result is that even where there are parents at home and available the children often spend too many hours under the care of their teachers and not enough under the influence of their parents. This serves to lessen the parental influence and offers incentive for parents who would otherwise be available to commit themselves to other activities lest they feel they are wasting their time.

The problems are complex and interwoven so that any hope of identifying the solutions is dependent on our recognition of how and when any given tool can be used and insisting on using each tool in its proper place rather than finding favorite tools and trying to make this reduced tool set suitable for all our needs.

Tags children, connections, Education, Elevated, family, government, ideal, NPR

culture

Federal-Sighted

Most people have probably heard of the two basic classes of vision problems, far-sightedness and near-sightedness. For those who are not clear on the differences, far-sightedness is characterized by the eye being able to focus on objects at a distance while objects up close are blurry. Conversely, near-sightedness is characterized by the eye being able to focus on objects in close proximity while objects further away are unclear.

I have come to the conclusion that as a society we generally suffer from a political far-sightedness that I call federal-sightedness – that is, we focus on issues at a federal or national level while allowing local and state issues to become excessively fuzzy. Just as with personal vision problems that develop slowly and without our notice, our first reaction is to compensate in subtle ways. We step back from near issues and view them from a federal perspective. Rather than tackling problems close up we attempt to fix them from an arms-length away.

The problems associated with this perspective were illustrated to me from a recent comment stating that, “By definition you can’t have individual liberty while at the same enforcing your preferred level of societal morality.” This statement assumes a situation where there is a single layer to government and social order.

The comments were following a golf course analogy at the time so lets follow through with that imagery to show what I mean. If the governing body of golf were the only source of rules the statement would be true. The reality of the situation is that the governing authority should be promoting individual liberty by only mandating a minimal set of rules defining what makes an acceptable golf course. This would include basic rules regarding how the game of golf is played. It would include rules such as mandating that an official golf course must have 18 holes, that each hole must have a par rating between 3 and 5, that the entire course must have a par total between 69 and 73, and the rules for determining the par rating for a hole. On the other hand, the governing body should avoid making rules such as requiring that the third hole on each course must be a par-5 hole.

While the governing body lays out the general rules of golf the owners and operators of each golf course can determine the design of their own course, their hours of operation, their standards for membership etc. We need not conclude that the governing body is shirking its responsibility to promote individual liberty simply because some golf courses (or even a majority) have closed membership policies.

The antidote for federal-sightedness is local activism. Local activism helps us to focus on those things which are within our locus of control thus making for a much more functional society. This was brought to my attention with the news today of a group that stopped waiting for federal funds before fixing a bridge that had been destroyed in a flood. Although they had as much claim on federal disaster relief funds as New Orleans after Katrina or Minneapolis after the collapse of the I-35 bridge they changed their focus from waiting for help to making a difference with what they had. The end result, their bridge is fixed sooner and without costing $4 million.

I have seen much evidence of federal-sightedness among those who are politically active online – in fact I have suffered from this malady myself. Thankfully I am coming to my senses and trying to be more involved in finding solutions that are closer to home. It is a move that was recently demonstrated by Rob Miller as he decided to shift his political activity from the state party level to the county party level. Obviously we need people involved at all levels but I am left wondering how many of our federal problems would evaporate or whither away to manageable levels if we were more busy as a society focusing on the issues directly around us and spending less time waiting for help from a larger society.

Our propensity for federal-sightedness has been assisted by newspapers focusing on larger and larger issues at the expense of focusing locally. The newspapers are suffering from that ill-considered shift and so is society. Hopefully if we shift our focus back closer to home we will experience a social renaissance in which our problems become manageable – just as I noted that newspapers with a local focus are surviving better than national papers.

There is an opposite to federal-sightedness which is local-sightedness. This condition ignores the larger society and holds dangers of its own. Thankfully it is a much more rare condition today than federal-sightedness.

Tags civic participation, discourse, Elevated, government

General National

Federalist No. 66

Federalist No. 66 has me seeking opinions on a few questions. Specifically it got me asking which of the four elements of our federal government (the Executive, the Judicial, the Senate, and the House) is the most powerful? Which Should be the most powerful? The founders clearly had some idea about which they thought should be the most powerful:

that the most POPULAR branch of every government, partaking of the republican genius, by being generally the favorite of the people, will be as generally a full match, if not an overmatch, for every other member of the Government. (emphasis original)

Their expectation was for the House to exert the most influence, but to be sufficiently checked to prevent it from becoming a law unto itself.

The wording of the above quote also got me thinking about two other questions. In this day of low approval ratings (not as low now as they were six months ago), which of the four is the most popular? Is that most popular one the most powerful?

I suspect that the most popular of them is the Executive branch now – last year it might well have been the Judicial branch. I am fairly confident that one of those two branches is generally the most powerful, although I’m not sure that it is always the same one of those who that holds the upper hand.

Tags checks and balances, documents, federalist, government, history

National

Internal Dissent/Debate

I can’t decide whether it was beyond the scope of what Cameron wanted to write or whether he thinks that the discussion and dissent among the Democratic base really are less prevalent among Republicans. Regardless of which of those options is more accurate, as I read his post I was struck with how I see the exact same kinds of dissent among rank-and-file Republicans that he was describing among Democrats. I see it at the local and national levels and I have seen it in various forms for years.

While I don’t think that I could specify the line between healthy debate and destructive agitation I am confident that a lack of debate is anything but healthy in all or nearly all circumstances. I hope that over time the Republican party coalesces around those positions that I think are the most conducive to good government and good society, but I do not hope that the debate should ever die. I think that when people silence their honest differenced of opinion they open the door for destructive dictatorial types to have undue influence within the political process within the party and within the actual government.

Tags connections, government, parties, Republican

National

New Government Website

In keeping with his propensity to launch new .gov websites (e.g. change.gov, recovery.gov, sigtarp.gov) President Obama has launched a new website where he can share some ideas that he knows won’t pass any Congress (Democrat or Republican) no matter how sound those ideas might be. It’s called AprilFools.gov. He includes ideas that are possible but not very likely, such as nominating cabinet picks without tax problems but the really depressing list is found among the ideas listed under “Impossible” –

The Senate refusing to confirm cabinet nominees because of tax (or similar) problems. (Note that those nominees who were not confirmed all withdrew before a vote was ever taken.)
Balancing the budget for one month.
Ending government waste.
Lowering real taxes on the middle class. (He’s proposed it, but he seems to know and accept that it won’t survive the Congerssional budgeting process.)

Tags government, money, Obama, technology

National

Looking Back

It was interesting to read what Glen Warchol relates today about the first anniverarly of the Texas FLDS raid. Glen gives us the statistics one year later and it is almost identical to what what known weeks before any of the children were returned to their homes. I hope we don’t see such a massive injustice being carried out by the police again – but we probably will even if the FLDS are not the target.

Tags FLDS, government, history, rights, Texas, unconstitutional