Lefty Relics Gathering Dust

So the Associate Publisher of The Nation sends me an email asking me, "Have any lefty relics gathering dust in your closet?" They're having a fundraising auction. As it happens, I do have some lefty relics I'd like to get rid of. I have:
  • Keynesianism
  • Wilsonianism
  • Nationalized health care
  • Government Motors
  • The idea that the Constitution grants "plenary" powers to the federal government
  • The War on Poverty
  • Racial preferences
And by the way, when National Review asks me for conservative relics, I'll have a list for them, too.

Posted on October 28, 2011  Posted to Cato@Liberty

Engineering the Financial Crisis: Systemic Risk and the Failure of Regulation

Posted on October 27, 2011  Posted to Cato@Liberty

The Objective Insider

This is a reminiscence of Bill Niskanen by his former student and colleague Benjamin Zycher: The late Herbert Stein, former Chairman of the Council of Economic Advisers, and a genuinely wise man---in the true rather than the Beltway sense---once described Bill Niskanen as “a member of that rare species, the objective insider.” I knew Bill for almost forty years, as his student at the public policy school at Berkeley, as his colleague at the Council of Economic Advisers, and as a dear friend.  Bill introduced me to the newly emerging field of public choice economics.  Bill sharpened my still-meager skills in economic analysis.  Bill improved my econometric modeling.  I cannot count the number of errors from which Bill, exhibiting the patience of Job, diverted me.  Bill above all was a friend, a real friend, always willing to help, always willing to listen, always willing to be honest when called for, in a manner simultaneously uncompromising and kind. And yet: Those nine simple words from Herb Stein capture Bill far better than I have ever been able to do.  Absolute honesty, absolute integrity, absolute devotion to principle, immune to the petty pressures of others: Bill was a mensch.  Even more than his prodigious contributions to economic and public policy analysis, those attributes will remain synonymous with his name.  Kathy and Lea and Pamela and Jaime: May you be comforted with the knowledge that his name, and yours, will evoke tremendous respect for many lifetimes to come. May Bill rest in peace.

Posted on October 27, 2011  Posted to Cato@Liberty

The Euro Crisis in Prose and Poetry

The European debt crisis is inspiring public radio to literary analysis. Last week NPR's Planet Money put the French-German relationship into a "threepenny opera":
All Everyone is counting on you You've got the money We've got the debt (Oh yes, we've got a lot of debt!) And do we need a bailout—you bet Germany Zat's it, I've had enough Looks like it's time now for me to leave... France Oh? Germany Vhy is ze door locked? You must let me out. France Dear when the times are tough It's better to give zan to receive
Then Monday Marketplace Radio turned to classics professor Emily Allen Hornblower and economist Bill Lastrapes to discuss Greek debt as classical tragedy—Oedipus? The ant and the grasshopper? Loyal Cato readers will recognize Bill Lastrapes as the coauthor of the much-discussed Cato Working Paper "Has the Fed Been a Failure?" And then, if you prefer prose and sober analysis to literary analogies, let me recommend Holman Jenkins's perceptive column on why Europe hasn't solved its crisis yet, which unfortunately appeared in the less-read Saturday edition of the Wall Street Journal. (OK, not less read than Cato-at-Liberty, but probably less read than the weekday Journal.)
Neither leader has an incentive to sacrifice what have become vital and divergent interests to produce a credible bailout plan for Europe. To simplify, German voters don't want to bail out French banks, and the French government can't afford to bail out French banks, when and if the long-awaited Greek default is allowed to happen.... There is another savior in the wings, of course, the European Central Bank. But the ECB has no incentive to betray in advance its willingness to get France and Germany off the hook by printing money to keep Europe's heavily indebted governments afloat. Yet all know this is the outcome politicians are stalling for. This is the outcome markets are relying on, and why they haven't crashed. All are waiting for some market ruction hairy enough that the central bank will cast aside every political and legal restraint in order to save the euro.... And then the crisis will be over? Not by a long shot. All these "solvent" countries and their banks will be dependent on the ECB to keep them "solvent," a reality that can only lead to entrenched inflation across the European economy. That is, unless these governments undertake heroic reforms quickly to restore themselves to the good graces of the global bond market so they can stand up again without the ECB's visible help. It's just conceivable that this might happen—that countries on the ECB life-support might put their nose to the grindstone to make good on their debts, held by ECB and others. Or they might just resume the game of chicken with German taxpayers, albeit in a new form, implicitly demanding that Germany bail out the ECB before the bank is forced thoroughly to debauch the continent's common currency, the euro.

Posted on October 25, 2011  Posted to Cato@Liberty

Living in the Past

A year after Kate Zernike wrote in the New York Times that Tea Partiers were "resurrect[ing] once-obscure texts by dead writers"---such as F. A. Hayek, who won the Nobel Prize in 1974 and died in 1992---the New Yorker's cover depicts Wall Streeters in top hats and bushy mustaches. That's an image from, what, the 1930s? Or maybe the 1870s? Who's "reach[ing] back to dusty bookshelves for long-dormant ideas" now?

Posted on October 21, 2011  Posted to Cato@Liberty

James Madison

Posted on October 19, 2011  Posted to Cato@Liberty

The Biggest Budget in History

The Wall Street Journal notes today that the federal government spent more money in the just-concluded 2011 fiscal year than in any year in history, and no one noticed. What happened to all that austerity and all those spending cuts that we heard about all year? Well, some of us warned over the past year that they were all smoke and mirrors. Now that the year's over, you can see in this chart from the Journal that the federal government spent more and borrowed more in 2011 than in any previous year—$900 billion more than just four years ago, and $150 billion more than last year:

Posted on October 18, 2011  Posted to Cato@Liberty

Insider Trading and the Rajaratnam Case

Alexander R. Cohen of the Business Rights Center at the Atlas Society is sharply critical of the 11-year sentence given Raj Rajaratnam for alleged insider trading. Cohen notes:
And as long as the sentence is—and it is much longer than is typical in insider-trading cases—it’s less than half the maximum the government wanted, 24.5 years. Looking at that number, Rajaratnam’s lawyers offered, as points of comparison, the average sentences for other crimes in 2010: For sexual abuse, 109 months—nearly two years less than Rajaratnam got. For arson, 79 months—more than four years less. For manslaughter, 73 months. That’s right: People who killed people got sentences more than four years shorter than Rajaratnam’s. (They did get longer sentences than his if their crimes rose to the level of murder—though even the average sentence for murder was less than the 24.5 years the government wanted to impose on Rajaratnam.) [emphasis added]
I do wonder how the U.S. attorney would explain those respective sentences. The prosecutor did face a challenge in explaining just how Rajaratnam had harmed people. Cohen isn't impressed with his answer:
But even the prosecutors admitted that it was hard to identify victims or measure their losses directly. So they argued that the stock-market is a zero-sum game, and that however much profit Rajaratnam made, he took from someone else. This is nonsense. First of all, the stock market is not a zero-sum game. If a stock becomes more valuable, perhaps because the issuing company became more productive, it does not somehow take away money from everyone who doesn’t own that stock. It means they’ll have to pay more if they want to buy it—but (unless they’ve sold short) they do not have to buy it. It’s true that people who don’t own a stock when it goes up are missing an opportunity, but missing an opportunity is not the same thing as losing money. Second, the previous owners of stocks Rajaratnam bought on inside information never owned the profits they would have made had they kept the stock. They only had the right to those profits if they chose to keep the stock long enough for its price to go up, then sell it before it went down. They chose not to keep it. Therefore, they never had the right to the money that Rajaratnam made.
Cato's Doug Bandow argued in Barron's at the beginning of the Rajaratnam case that insider trading shouldn't be a crime. And way back in 1985 Henry G. Manne, one of the pioneering scholars in the field of insider trading, argued that "the economic, moral and legal arguments are very strong against the SEC’s stand on insider trading" in the Cato Journal.

Posted on October 17, 2011  Posted to Cato@Liberty

The Hoover Myth Marches On

In the New York Times today,  columnist Joseph Nocera quotes a book published in 1940 on Herbert Hoover and the Great Depression:
Herbert Hoover was “leery of any direct governmental offensive against the Depression,” writes Allen. “So he stood aside and waited for the healing process to assert itself, as according to the hallowed principles of laissez-faire economics it should.”
OK, let's go to the tape. In a new Cato study economist Steve Horwitz notes what Hoover really did:
  • He almost doubled federal spending from 1929 to 1933.
  • He expanded public works projects to "create jobs."
  • He pressured businesses not to cut wages, even in the face of deflation.
  • He signed the Davis-Bacon Act and the Norris-LaGuardia acts to prop up unions.
  • He signed the Smoot-Hawley tariff.
  • He created the Reconstruction Finance Corporation.
  • He proposed and signed the largest peacetime tax increase in American history.
And that's why FDR brains-trusters Rexford Guy Tugwell and Raymond Moley acknowledged later that Hoover "really invented" all the devices of the New Deal. Frederick Lewis Allen might not have recognized that in 1940, but Joseph Nocera should. And if we don't want to relive the Great Depression, as Nocera worries, then we'd better learn what didn't work in 1929-33 any better than it worked in 1933-39.

Posted on October 15, 2011  Posted to Cato@Liberty

Solyndra: Peeling Back the Layers

As I noted previously, the story of the taxpayers' failed $535 million subsidy to the Solyndra company just keeps building as reporters keep digging. When the Democrats on the House and Energy Commerce Committee released selected emails from the Obama administration, I asked one reporter: If OMB and Obama's California campaign co-chair, the former California state treasurer, were trying to put the brakes on the Solyndra enthusiasm, who had his foot on the gas? Could the answer have been merely Steven J. Spinner, "a senior Energy Department adviser ... a major fundraiser for President Obama and a Silicon Valley investor tasked with helping the government invest in clean-technology companies [who] had an ethical conflict: His wife worked for Wilson Sonsini, a California law firm that represented Solyndra, the solar-panel maker, in its applications for the government loan"? Spinner is now a senior fellow at the Obama-adjunct Center for American Progress, where as recently as July he was writing, "Even the most controversial loan guarantee recipient—Solyndra, a solar manufacturer—is seeing an operational turnaround" in an article pushing for continued funding of the Department of Energy’s Loan Guarantee Program. But he's not the sole source of the enthusiasm for "green energy" and stimulus spending, which obviously went to the top of the administration. Some have tried to dismiss the Solyndra story. Private investors make plenty of mistakes, too, they point out. Companies fail, sometimes through no fault of their own. But this story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance — at least — of favors for political supporters, and the kind of promiscuous spending that has delivered us $14 trillion in national debt. It may end up being a case study in political economy. Here's an updated rundown of how the first rough draft of Solyndra history is playing out before our eyes: Read more...

Posted on October 12, 2011  Posted to Cato@Liberty

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