David Boaz

New York governor David Paterson’s top aide, Charles J. O’Byrne, has been forced to resign after revelations that he failed to pay his federal and state income taxes for five years. He owed some $300,000.

His attorney, Richard Kestenbaum, explained that O’Byrne suffered from “non-filer syndrome,” which “causes them not to be able to file their tax returns.” A spokesman for the governor, however, said he has not actually been diagnosed with what she called “late-filers syndrome.”

We often note that you could have read it in Cato Institute publications before it hit the mainstream media. In this case, we hate to think that O’Byrne and his lawyer might have gotten the idea from us. But in fact you can find it in law journals as far back as 1994.

If this syndrome ever gets listed in the Diagnostic and Statistical Manual of Mental Disorders, it’s going to be more popular than ADD.

According to the New York Times, Sen. John McCain

stepped up his criticism of the Bush administration by pounding the lectern and demanding that the government support his plan to buy troubled mortgages from homeowners. “And why isn’t the Treasury secretary ordering them to do that?” Mr. McCain asked.

And then he went on:

“We finally learned what Senator Obama’s economic goal is. As he told Joe the Plumber in Ohio, he wants to, quote, ‘spread the wealth around.’ He believes in redistributing the wealth, not in policies that grow our economy and create jobs and opportunities for all Americans. Senator Obama is more interested in controlling who gets your piece of the pie than he is in growing the pie.”

“Socialist!” someone in the crowd yelled.

Presumably the listener yelled “Socialist!” after McCain’s gibe at Obama’s “spread the wealth” plan, but it’s possible that the writing was a little sloppy and the charge actually came in response to McCain’s demand that the federal government buy up mortgages.

Robert Zoellick tells the presidential candidates to aspire to be “a 21st-century FDR” because “A World in Crisis Means A Chance for Greatness.” A new New Deal, a new Bretton Woods, a new multilateralism–holy cow, the president has it in his power to make the world over again. Poor Bill Clinton, who reportedly told friends after 9/11 that he was frustrated that he never got such a great defining crisis to deal with. Now another president is going to get a chance to knock some heads together and have historians call him great.

But what is Zoellick thinking, urging Barack Obama and John McCain to reach for greatness? Aren’t these two candidates megalomaniacal enough? McCain, who thinks that only corruption could explain anyone disagreeing with his position at any given moment, was a childhood admirer of Napoleon and now names the imperialist, meddlesome Teddy Roosevelt as his presidential model. And Obama of course said on the day he secured the Democratic nomination for president

that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on earth. This was the moment—this was the time—when we came together to remake this great nation.

Don’t give these guys any more ambition than they have now. The cult of the presidency is quite enough already.

The New York City Council has gone along with Mayor Michael Bloomberg’s urgent and high-pressured request that it overrule two votes of the people and allow him to serve another term. The council’s joint project with the mayor to ignore the will of the people puts me in mind of Bertolt Brecht’s famous poem on the East German government, The Solution: 

After the uprising of the 17th June
The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts. Would it not be easier
In that case for the government
To dissolve the people
And elect another?

Citizens for Responsible Politics are wringing their hands over the fact that Americans may spend $5.3 billion on political campaigns this year. (And it’s not all the Obama campaign!) $5.3 billion.

So let’s see . . . the federal government just spent $700 billion on a bailout of Wall Street. Or maybe it’s $2.25 trillion, or $3 trillion, in the eventual total cost of the financial bailouts. And we’ve spent $600 billion–or maybe a trillion, or maybe $4 trillion–on the Iraq war. And so little things like a $25 billion bailout for the automobile industry become accounting errors. Meanwhile, under President Bush annual federal spending has soared past $2 trillion and past $3 trillion.

And with all this money available in Washington, people have only spent $5.3 billion this year to get a piece of it? What’s wrong with them? Political scientists from Gordon Tullock to Stephen Ansolabehere have pondered this question. Tim Harford says it’s not easy to get politicians to do what you want even when you spend money on them, and that’s why people spend so little.

But $5.3 billion to elect a president and 468 members of Congress? That’s less than we’ll spend on potato chips this year.

NPR reports this morning that the FBI is trying to find out whether the cause of the financial crisis was “simply greed, or whether laws were broken.”

Perhaps both institutions are just not attuned to the problem of misguided laws and bad institutions.

At the Guardian I point out that “Liberal journalists are combing the back roads of America looking for evidence of the resurgent racism being generated by the prospect of a black man becoming president. The striking thing is how little they’ve turned up.” Despite headlines like “Ugly reception for Obama” and “Racist attacks on Obama growing more heated,” the journalists have had to go to Danville, Va., and the Arkansas-Missouri border to find a few individual instances of racist attacks. Nothing like what the Catholic JFK faced in 1960.

New York mayor Michael Bloomberg, who spent $158 million on his two elections, now thinks he should stay in office despite the city’s two-term limit. So far it’s much cheaper–he’s just pressuring all the civic groups and charities in town that have received donations from him, or from the taxpayers, to get themselves down to City Hall and testify to his indispensability in a time of financial crisis. The voters have twice endorsed term limits, but the mayor doesn’t see any need to ask them again; he wants the City Council to overrule the voters.

Of course, as Nicole Gelinas of the Manhattan Institute has shown, New York’s revenues have risen 41 percent under Bloomberg, while he has jacked up spending even faster, so it’s not clear why he’s the man you need in a financial crisis.

But the striking thing about the plutocrat mayor is the way he’s using his personal wealth–and the city’s tax dollars–to pressure people to support his bid to stay in office. The New York Times reports:

The mayor and his top aides have asked leaders of organizations that receive his largess to express their support for his third-term bid by testifying during public hearings and by personally appealing to undecided members of the City Council. …

The requests have put the groups in an unusual and uncomfortable position, several employees of the groups said. City Hall has not made any explicit threats, they said, but city officials have extraordinary leverage over the groups’ finances. Many have received hundreds of thousands of dollars from Mr. Bloomberg’s philanthropic giving and millions of dollars from city contracts overseen by his staff.

Sounds like a lot of overlap between his personal philanthropy and the city’s own spending, and the Times doesn’t seem to find anything odd about that aspect of the story. And then the New York Post found that the mayor’s tax-funded “slush fund” was being enlisted in the campaign, too:

Read more…

That seems to be the question on the cover of every magazine this week. It’s also the headline of the lead editorial in today’s Washington Post. But the subhead might surprise you.

Is Capitalism Dead?
The market that failed was not exactly free.

The editors begin:

As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush’s ideology. But this is wrong in two ways. The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

And they go on to note:

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.

Government support for housing was well-intentioned: Homeownership is a worthy goal. But when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance. Congress did not apply this sound principle to Fannie Mae and Freddie Mac; they were allowed to engage in profitable but increasingly risky activities with an implicit government guarantee. The result was that taxpayers had to assume more than $5 trillion of their obligations. Contrast U.S. experience with that of Canada, where there is no mortgage interest deduction and the law requires insurance on any mortgage over 80 percent of a home’s purchase price. Delinquency rates at Canada’s seven largest banks are near historic lows.

The new capitalist model that emerges from this crisis must operate according to more consistent principles. The Fed should set interest rates with the long-run value of the dollar in mind. Government must be more selective about manipulating markets; over the long term, business works best when it is subject to market discipline alone. In those cases — and there will and should be some — in which government intervenes on behalf of social goals, its support must be counterbalanced with taxpayer protections and regulation. Government-sponsored, upside-only capitalism is the kind that’s in crisis today, and we say: Good riddance.

That’s not quite what I’d have written. But the ending does remind me of the conclusion of my blog post a week ago:

…if this crisis leads us to question “American-style capitalism” — the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans — well, it might be a good thing to reconsider that “American-style capitalism.”

Dropping in the polls and running out of time, John McCain has finally gone on the offensive against Barack Obama on core Republican values that appeal to libertarians, conservatives, and Reagan Democrats. In his Saturday radio address he seized on Joe the Plumber’s question to candidate Obama:

My opponent’s answer showed that economic recovery isn’t even his top priority. His goal, as Senator Obama put it, is to “spread the wealth around.”

You see, he believes in redistributing wealth, not in policies that help us all make more of it. Joe, in his plainspoken way, said this sounded a lot like socialism. And a lot of Americans are thinking along those same lines. In the best case, “spreading the wealth around” is a familiar idea from the American left. And that kind of class warfare sure doesn’t sound like a “new kind of politics.”

This would also explain some big problems with my opponent’s claim that he will cut income taxes for 95 percent of Americans. You might ask: How do you cut income taxes for 95 percent of Americans, when more than 40 percent pay no income taxes right now? How do you reduce the number zero?

Well, that’s the key to Barack Obama’s whole plan: Since you can’t reduce taxes on those who pay zero, the government will write them all checks called a tax credit. And the Treasury will cover those checks by taxing other people, including a lot of folks just like Joe.

In other words, Barack Obama’s tax plan would convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington. I suppose when you’ve voted against lowering taxes 94 times, as Senator Obama has done, a new definition of the term “tax credit” comes in handy.

At least in Europe, the Socialist leaders who so admire my opponent are upfront about their objectives. They use real numbers and honest language. And we should demand equal candor from Senator Obama. Raising taxes on some in order to give checks to others is not a tax cut it’s just another government giveaway.

That just might remind lots of voters why they don’t like to elect Democrats. Of course, it might work better if the Republicans hadn’t raised spending more than a trillion dollars. And if the current Republican administration hadn’t just nationalized the banks. And if McCain himself didn’t have a health care “tax credit” that also means that “the government will write them all checks.”