Johan Norberg on Bubbles Yet to Come

Cato senior fellow Johan Norberg, author of In Defense of Global Capitalism and Financial Fiasco, has the cover story in this week's issue of The Spectator, the eminent 182-year-old British weekly. Titled "The great debt bubble of 2011," it warns that governments are repeating their mistakes of the past decade:
There is a broad consensus that the financial crisis of 2007 was at least in part a result of record-low interest rates, huge deficits and large-scale credit-financed consumption. Today, governments across the world are trying to solve the crisis — by means of record-low interest rates, huge deficits and large-scale credit-financed consumption. This time, they are also using more novel means of creating easy money: bank bailouts, stimulus packages and quantitative easing.
After discussing the soaring debt burdens of European countries, Norberg writes:
At this point, it is traditional to say: thank God for those roaring economics in East Asia, India and Brazil. But how real is their remarkable growth? Look closely, and even this may be in part a result of artificial stimulus. India’s and Brazil’s growth is financed by short-term capital from abroad: money that could disappear overnight. Easy money always ends up somewhere. The last time it was in property, this time it is in emerging markets (and often in the property markets of emerging markets).... Aside from the foreign capital inflows, China had its own stimulus package, as big as America’s. Beijing has printed yuan and pushed banks and local governments to spend like drunken Keynesians. Absurdly, China’s money supply is now larger than America’s, even though its economy is a third of the size. We can see the results of this stimulus in stock market prices and in new roads, bridges and housing complexes all over the country.
Happy New Year! And watch for more on incipient bubbles in the January-February issue of Cato Policy Report.

Posted on December 30, 2010  Posted to Cato@Liberty

Is Chuck Hagel a Republican?

On Fox News's Special Report tonight, discussing potential new Cabinet members for President Obama, Weekly Standard senior writer Stephen Hayes dismissed former senator Chuck Hagel as "an anti-Republican Republican -- somebody who's officially a Republican but in fact isn't all that Republican." Really? It's true that Hagel didn't always march in lockstep with the Bush-Cheney administration, whose loyal amanuensis Hayes has been. But is this really an "anti-Republican" record?
  • Voted for the Iraq war
  • Voted for the Patriot Act
  • Voted for the 2001 and 2003 tax cuts
  • Voted against No Child Left Behind
  • Voted against Bush's Medicare prescription drug bill
  • Voted against McCain-Feingold
That's not a down-the-line Bush-McCain record. But would Hayes say it's not a Republican voting record? Hagel had a lifetime rating of 84 percent from the American Conservative Union and consistent A and B grades from the National Taxpayers Union. He did emerge in 2006 as a critic of the Iraq war. And his wife endorsed Obama in 2008. I never really bought the "epistemic closure" charge against movement conservatism. But if a leading conservative TV commentator can call Chuck Hagel an "anti-Republican Republican" when his actual record is more traditionally Republican than the policies of the Bush-Cheney administration, then there's an odd sort of blacklisting going on.

Posted on December 27, 2010  Posted to Cato@Liberty

Are Republicans to the Right of Pat Robertson?

On his "700 Club" program this week, Christian Coalition founder Pat Robertson endorsed the decriminalization of marijuana. He says, "We’ve got to take a look at what we’re considering crimes. I’m not exactly for the use of drugs, don’t get me wrong, but I just believe that criminalizing marijuana, criminalizing the possession of a few ounces of pot, that kinda thing it’s just, it’s costing us a fortune and it’s ruining young people. Young people go into prisons, they go in as youths and come out as hardened criminals. That’s not a good thing.” Check out the video:
Robertson's comments come a few days after other conservatives, including Ed Meese and Gov. Rick Perry, have joined to encourage new conservative thinking about who should go to jail. Now far be it from me to recommend any policy on the grounds that it's endorsed by Pat Robertson. But I do have this question for Republican members of Congress: Do you really want to be to the right of Pat Robertson on the issue of marijuana prohibition? Related: For an interesting look at how socially and economically conservative different Republican presidential candidates are, check out this graphic by Ben Adler at Newsweek. There's actually some surprising consistency. Mike Huckabee is the least libertarian candidate on economic issues, and exceeded only by Rick Santorum in his un-libertarianism on social issues. Gary Johnson and Ron Paul are most libertarian on both economic and social issues.

Posted on December 23, 2010  Posted to Cato@Liberty

The Incredible Expanding Afghan War

This simple chart dramatizes something that I don't think most Americans realize: the tripling of U.S. troops in Afghanistan by President Obama.
U.S. Troops in Afghanistan
Now it's true that when candidate Barack Obama vowed, "I will bring this war to an end in 2009," he was talking about Iraq. In July 2008 he suggested that he would send two more brigades -- about 8000 troops -- to Afghanistan. He has far exceeded that, and we can only wonder whether the voters who responded to his antiwar message anticipated that he would increase the number of troops in Afghanistan by almost as much as he reduced the number in Iraq.

Posted on December 21, 2010  Posted to Cato@Liberty

Mega-Consumers against Consumerism

Adjacent articles in the latest New Yorker deplore "consumerism" among the American revolutionaries and the modern Chinese. You wonder how a magazine so concerned about manifestations of consumer desire would support itself. Surely it struggles along on a shoestring, preaching the message of austerity and simplicity to sincere but poor readers. In fact, however, these laments about consumerism in societies vastly poorer than our own are sandwiched between lush full-page advertisements for Chanel watches, Samsung home entertainment centers, single malt Scotch, Grey Goose vodka, Cristal champagne, David Yurman jewelry, German automobiles, and Norwegian Cruise Lines. The articles themselves appear on pages lined with small, elegant ads for Jay-Z's book-ebook-app, tours of Wales, monogram rings, Aeron chairs, European berets, cashmere caps, and a remarkable number of expensive psychiatric facilities, perhaps specializing in the treatment of cognitive dissonance.

Posted on December 21, 2010  Posted to Cato@Liberty

Earmarks, Spending, and the Scope of the Federal Government

The Washington Post reported yesterday that Republican senators were turning their back on a massive spending bill stuffed full of their own earmarks. Those earmarks, the Post noted, included quite a few to benefit Mississippi, the home state of Senators Roger Wicker and Thad Cochran:
Wicker, along with Cochran, had by then already sponsored earmarks in the spending bill that would fund an airport expansion in Tunica ($1.75 million), new riverwalk lights in Columbus ($300,000), improvements to a hiking and biking trail in Hattiesburg ($700,000) and improvements to an assortment of bridges, highways, trails, railways and streets across Mississippi.
A burgeoning Tea Party revolt against earmarks caused the bill to be withdrawn. Senate Majority Leader Harry Reid held a press conference to defend earmarks as the constitutional duty of the people's elected representatives. (And, as many of our friends have emailed to tell us, held up a copy of the Cato pocket Constitution — 10 for $10 this Christmas season! — to make his point. Ah, well.) But the real problem here is not earmarks. The underlying issue is not whether members of Congress or unelected bureaucrats spend the money that Congress appropriates for highways and the like. The real question is, why are local roads and bridges and hiking trails and riverwalk lights being paid for by taxpayers across the country? If the people of Columbus, Mississippi, want new lights on their riverwalk, why are they asking the families of New Hampshire and Indiana and Oregon to pay for them? Shouldn't they pay for their own lights, and let the people of Hattiesburg pay for their own hiking trails, and let the people of Oregon pay for any roads, bridges, or hiking trails that they value? The fundamental problem is not earmarks. It is that the federal government is paying for clearly local and state responsibilities. Opponents of excessive spending should not stop at an earmark ban. They should insist that the federal government pay for national needs and leave state and local projects to the states and towns that want them.

Posted on December 17, 2010  Posted to Cato@Liberty

Selective Deficit Outrage

Sen. Mark Udall made the national news today with his excoriation of the Senate bill for not raising taxes. "A ticking time bomb," he said:
"Just over one week ago, the Democratic and Republican chairmen of President Obama's deficit commission called our national debt a 'cancer' that is threatening our country from within.  They are right.  A massive budget deficit and a crippling national debt are perhaps the most difficult challenges our government faces.  As Coloradans know, our national security depends on our economic security - and each is threatened by skyrocketing debt and irresponsible budgeting," Udall said. "Days after the most substantive national conversation we've had about addressing the debt, the debate suddenly has turned to extending tax breaks for millionaires and billionaires that - alone - will cost $700 billion over the next decade.  That's $700 billion in additional debt that the United States will owe to China and our other creditors around the world - debt that our children and grandchildren will be forced to pay.  It's a ticking time-bomb that needs to be defused."
Senator Udall has apparently had a Road to Damascus experience on the national debt. After all, he voted for the $787 billion stimulus bill. He voted for the incalculably expensive health care overhaul. He gets an F from the National Taxpayers Union every year, voting only 8 percent of the time in the last session for fiscal restraint. He sponsored bills during the 110th Congress to raise spending by $75 billion a year. Either he's only just discovered the national debt problem in the past few weeks, or he thinks spending is not the problem -- only a bill to not raise taxes is a "cancer" and "a ticking time-bomb."

Posted on December 13, 2010  Posted to Cato@Liberty

President Obama, Overreacher-in-Chief

At the Britannica blog, some thoughts on President Obama, the overreacher-in-chief, at the halfway point of his administration:
In a way, you have to give President Obama credit. In the face of manifest public opposition to most of his high-profile policies -- the health-care bill, the automobile company takeovers, cap-and-trade, higher government spending -- he pressed on and passed much of his ambitious, unpopular agenda. He said he’d rather be a “really good one-term president” than a “mediocre two-term president.” He may still escape that choice. But he certainly demonstrated that he was willing to sacrifice dozens of Democratic congressional seats in order to get a permanently larger federal government.... As David Paul Kuhn wrote at RealClearPolitics, Obama’s activist agenda “has revived the enduring American challenge to the state.” Some of us hope that that revival of the small-government impulse in American politics -- after the desert of the Bush years -- will be President Obama’s most lasting legacy.
More Britannica bloggers on the first two years here.

Posted on December 13, 2010  Posted to Cato@Liberty

The ‘Consumer Spending’ Myth

Journalists talk endlessly these days about the need for more consumer spending to revive the economy, and for government programs to juice consumer spending. Economist Steven Horwitz takes on the assumption that spending is the key to economic activity:
One of the most pernicious and widespread economic fallacies is the belief that consumption is the key to a healthy economy.  We hear this idea all the time in the popular press and casual conversation, particularly during economic downturns.  People say things like, “Well, if folks would just start buying things again, the economy would pick up” or “If we could only get more money in the hands of consumers, we’d get out of this recession.”  This belief in the power of consumption is also what has guided much of economic policy in the last couple of years, with its endless stream of stimulus packages. This belief is an inheritance of misguided Keynesian thinking. Production, not consumption, is the source of wealth.  If we want a healthy economy, we need to create the conditions under which producers can get on with the process of creating wealth for others to consume, and under which households and firms can engage in thesaving necessary to finance that production.... Putting more resources in the hands of consumers through a government stimulus package fails precisely because the wealth so transferred ultimately has to come from producers.  This is obvious when the spending is financed by taxation, but it’s equally true for deficit spending and inflation.  With deficit spending the wealth comes from producers’ purchases of government bonds.  With inflation it comes proportionately from holders of dollars (obtained through acts of production) whose purchasing power is weakened by the excess supply of money.  In neither case does government create wealth. Nor does consumption.  The new ability to consume still originates in prior acts of production.  If we want real stimulus, we need to free up producers by creating a more hospitable environment for production and not penalize the saving that finances them.

Posted on December 13, 2010  Posted to Cato@Liberty

The Smoking Police Go after Obama and Boehner

Tom Brokaw, former NBC News anchor and advocate of tolerance and cross-cultural appreciation, lowers the boom on President Obama and Speaker-to-be John Boehner:
In Washington and across the country there's understandably a great deal of speculation on whether President Obama and the incoming speaker of the House, John Boehner, can work together and on what issues. Here's a suggestion on where to start. Stop. Stop smoking.
Yeah, that's what the country needs to achieve cooperation in Washington and peace in the world:  tense and jittery leaders with a jones for a smoke. Really, why is it any of Tom Brokaw's business if the president has a cigarette? Brokaw goes on to quote the dubious recent claims of Surgeon General Regina Benjamin:
"Tobacco smoke damages almost every organ in your body. One cigarette can cause a heart attack" in smokers with underlying heart disease.
Maybe it can. But if Boehner smokes a pack a day, I calculate he's smoked 292,000 cigarettes in the past 40 years. I guess he hasn't smoked that one bad one. Brokaw also mentions a study on the costs to society of smoking, a claim that other studies have rejected. There are plenty of reasons to criticize Obama and Boehner. But can't we leave their private habits alone? And then maybe in return they could stop nagging and legislating about our private habits.

Posted on December 12, 2010  Posted to Cato@Liberty

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