The Obama Administration: RIP

OK, that pronouncement is a bit premature. But if the Republicans hold the House next year as seems likely, it’s a done deal. Just keeping track of all the attacks on the administration has become quite a chore. And quite a few of those attacks are coming from Obama’s base of support.

  • The press is howling about the Justice Department’s heavy-handed subpoena of journalists’ phone records. “A fishing expedition for sources and an effort to fend off whistleblowers” is how the New York Times editorial board describes it. This issue isn’t going away any time soon.
  • Then there’s Guantanamo, the closing of which was to be Obama’s first priority upon taking office in 2009. Thus New York Times commentator Joe Nocera:  “The president could have jumped through the hoops Congress now requires and continued moving prisoners out of Guantánamo. But he didn’t. Instead, he froze all transfers, including 56 men from Yemen who had been ‘cleared’ for transfer by a national security commission that Obama himself established. The government, the commission essentially said, has no national security interest in holding these men. Yet Obama continued to let them rot in that Cuban hell. And you wonder why they are on a hunger strike?”
  • Some unions are mad at Obama as Brandon Christensen pointed out on this blog, where he quotes one union’s demand: “repeal or complete reform” of Obamacare.
  • The IRS scandal may have a shorter half-life. The Times correctly points out that Presidential use of the IRS to bludgeon political enemies goes back at least to Franklin Roosevelt and Richard Nixon. Still, it’s heartening to see the Tea Party rejuvenated, with street protests and blogs pointing out that thuggish behavior is a long-standing and probably irremediable attribute of the IRS.
  • Waiting in the wings is Dodd-Frank. This financial “reform” act is mostly not yet in effect because the agencies are trying to figure out how to write the rules that will actually put into practice the clear-as-mud intent of the law. It’s a near-certainty that this law has fixed nothing and that another financial crisis will hit, possibly before Obama leaves office.  Already we see signs of bubbles in the housing and stock markets.

“This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer,” said Will Rogers. Three years of gridlock, if we’re fortunate enough to get it, should hide away the hammer, at least for a time, from both Congress and the President.

University Graduation Rates are Too High

A proposal has surfaced to “punish” California state universities, including San Jose State where I teach, if they either (1) continue to raise tuition rates or (2) fail to raise their graduation rates. The punishment would take the form of reduced state support.

First of all, we taxpayers (including me; I’m a net tax payer) should rejoice at such “punishment” as it would lessen the burden on us. Taxpayers aside, how might the state universities respond to such punishment? On the fiscal side, they could recruit more out-of-state and foreign students who pay full freight. The UC campuses are already cutting admissions of in-state students in favor of out-of-state full payers – will UC eventually become UNC – University of Non-Californians? Furloughs are unlikely; they were tried once and didn’t work. They can’t cut salaries; there’s a faculty union. They’ll never cut out administrators. No, all bureaucracies, when forced to cut expenses, make cuts that are most painful to the public. Therefore, in addition to recruiting more full payers, they will cut classes.

What about graduation rates? They can’t raise admission standards because that would be “unfair” to racial minorities who are disproportionately ill-prepared for college work. They already have programs to try to coax students to study, with marginal results, and the obligatory special privileges for students with “learning disabilities.” It’s not clear what more could be done along those lines. No, I contend that the most humane policy for state universities would be to cut graduation rates. Here’s why.

It is indeed unfortunate that so many students, more than half at SJSU and other state universities, fail to graduate within six years. Those students have paid a big price in terms of money spent, debt incurred in many cases, and foregone income, with almost nothing to show for it. A bachelor’s degree from a state university, unless it’s in engineering, is worth little enough; two or three years of class work is worth nothing. Those who do make it all the way to the sheepskin gain a marginal advantage; their degree signals a certain amount of persistence. Their value to an employer remains uncertain; many, I fear, couldn’t be trusted with such simple tasks as reading with understanding, writing, doing simple calculations or, perish the thought, critical thinking.

All too many students who enter SJSU are ill-prepared and/or poorly motivated. Large numbers must take remedial math or English because they learned nothing in their public high schools. Many have little or no idea why they are there – some seem to view college as a way to delay their entry into responsible adulthood.

A good number surely have aptitudes for jobs that may require some specialized training, but not a college degree. I’m thinking of welders, hospitality workers (wait – you can get a B.A. in hospitality!), tile setters, carpenters, electricians, roofers, beauticians, nannies; the list goes on and on. What a tragedy that such students fall into the sinkhole (for them) that is a university campus.

Since admissions standards aren’t likely to be raised, the only humane thing to do is to get these students out the door as fast as possible. I expect to give a lot more D’s and F’s in my class this semester than I normally do, not because I’m pursuing any agenda but because they won’t have learned the material. Those students will be hurt, short term, but it’s the right thing for them, long term, especially if it hastens their exit from a university where they don’t belong.

Looking Backward: A Review

My Amazon review of Beth Cody’s “Looking Backward: 2162-2012, A View From a Future Libertarian Republic”

The author’s stated goal was to write a libertarian equivalent of Edward Bellamy’s socialist utopian novel “Looking Backward.” She achieves that goal with room to spare.

If I were to judge this novel by its plot, characterization, or dialogue, I would have to knock off a couple of stars. I won’t because those elements, which are crucial to most novels, don’t matter here. The flimsy plot is quite adequate to the author’s purpose which is to portray a near-ideal libertarian society. I wouldn’t call her vision a “utopia” because at several points, Prof. Seeton, the expositor and defender of the new society, admits that it has flaws. He even says it will collapse eventually and only hopes that event will be peaceful.

I almost wished that I too could crawl into a time capsule, as her protagonist does, and go back to a time before I became a libertarian. That’s because this would be such a dandy introduction for someone new to the philosophy. A novice with an open mind would find a trove of solid arguments on nearly every aspect of human life.

Get copies of this book for the young people in your world.

Borderless Economics: Chinese Sea Turtles, Indian Fridges and the New Fruits of Global Capitalism

Robert Guest, the business editor for The Economist, has organized insights gleaned from 20 years of reporting on and analyzing events around the world into a breezy yet profound account of the flow of people and ideas across borders.

Raw immigration statistics miss the “networks of innovation,” as Guest calls them. Immigrants may find it difficult to adapt to a new land with strange customs and a new language. But in just about any American city they find a community of people like themselves who can ease the transition and help them get established. This process is good for everyone involved.

For example, Indian immigrants to America—most notably Silicon Valley engineers—are tightly networked among themselves and have contacts in India and around the world. Having made their fortunes, some then return to India to pursue business or philanthropic activities. To illustrate, Guest describes the Universal Identity program. Hundreds of millions in India have no public identity beyond their immediate communities. A team of Indian expatriates returned to India and launched a program to create a computer-based system that would allow Indians to submit to fingerprinting and retina scans and to receive a national ID number that would serve as their entrée into the modern Indian economy. Libertarians look askance at government identification numbers, but in rich countries we take for granted our ability to prove our identities. (more…)

FDR, Uncle Fred, and the NRPB

In Ayn Rand’s epic novel Atlas Shrugged, government officials regulate the economy through something called the Bureau of Economic Planning and Natural Resources. She clearly chose that name to reflect their belief that productive people were bound to produce just because of their “conditioning” and could therefore be treated pretty much like coal in the ground—as resources ripe for exploitation.

One wonders whether she had ever heard of the National Resources Planning Board (NRPB). The NRPB was a real agency, part of the kaleidoscope of bureaus that formed the New Deal. Its history is in some ways as dry as dust, but a closer look reveals some interesting and timeless insights into the planning mentality and the role of personalities in shaping history.

The philosophy underlying Roosevelt’s New Deal, if one can call it that, was to try something and if it didn’t work, try something else. In that same spirit the NRPB mission changed frequently; even its name changed four times before it was killed in 1943. It had been authorized as part of the National Industrial Recovery Act, but that program was ruled unconstitutional in 1935, leaving the National Planning Board, as it was called then, in danger of extinction. It was quickly rescued by FDR, however, and established as an independent agency. Casting about for a new name, one planner suggested “natural resources,” whereupon another commented that human beings were America’s most important resource. “National Resources” was suggested. The President chewed the phrase over a few times, then, pleased with its sound, grinned and announced, “That’s it. Get that down, boys, because that’s settled.” (more…)

Unemployment: What’s To Be Done?

In Part 1 I outlined natural unemployment, government-caused unemployment, and the attempts to measure these. We saw how ambiguous and subjective some of the concepts of unemployment are and how the government, specifically the Federal Reserve, is charged with managing it. Now we turn to current conditions and what can be done about them.

There have been huge advances in technology and substantial declines in trade barriers in recent years. While these developments have raised living standards they have been hard on people whose skills were rendered obsolete or uncompetitive. When changes evolve gradually, as when so many people left farming in the last century, the disruption is not so great. Changes are now coming faster and are extending to some high-paid professional jobs. Automated systems can now handle at least the routine aspects of some legal research and medical diagnosis.

Time and time again new doors have opened to workers as old doors closed. Machines replace workers, but they raise productivity and produce new employment opportunities. We can expect this pattern to continue for a long time to come. Still, it is within the realm of possibility that robots and computers could take over so much work that the demand for human workers would shrink drastically. But those very machines would mean higher productivity and thus higher living standards.

A great deal of work can be now be done remotely, providing an advantage to areas with low living costs. Substantial outsourcing of such jobs to foreign countries has occurred (though that trend may be reversing as low-cost areas of the United States become competitive and as customer dissatisfaction and problems with managing offshore workers come up). The benefits of outsourcing and other productivity enhancements are spread across all consumers, but the job losses are concentrated among small and sometimes vocal minorities. (more…)

Unemployment: What Is It?

Unemployment has regained center stage now that the debt crisis has receded from that position, at least for a time. Unless things change dramatically over the next year unemployment will be the number one issue in the forthcoming presidential election. Hardly any proposal will escape being labeled “job-killing” or “job-creating” or both.

To begin with some basics, what is work and what is a job? For economists, work is any activity that we would not perform without tangible compensation, usually money. In our work lives almost all of us are also motivated by nonmonetary considerations, and to the extent we diverge from the most remunerative activity available to us, we are blending work and leisure. A retired person who takes up college lecturing may do the work primarily for the satisfaction it brings. If his salary were withdrawn and he continued to teach, he would be enjoying leisure.

The goal of all economic activity is consumption, which to economists means not just mundane goods like faster cars but also “noble” ends like cathedrals. Jobs are therefore not ends in themselves, as much as public discussion would suggest otherwise. They are means to acquire income to be used for consumption and saving, in addition to personal satisfaction, learning opportunities, or socializing.

A person who lacks a job is unemployed if he or she wants work, has suitable skills, and has realistic expectations about compensation. These are vague terms; they make unemployment a murky concept. That goes double for underemployment, though both remain very real phenomena. (more…)

Rand Paul for President!

By now everyone knows about Rand Paul’s thirteen-hour filibuster on the Senate floor. He succeeded in his short-term goal, as Attorney General Holder finally produced a memo affirming that the President has no right to murder American citizens who are not engaged in hostilities against the U.S. Senator Paul drew more support from colleagues than I would have expected, including Senator Minority Leader McConnell and Democratic Senator Wyden of Oregon.

But it’s not just his short-term success that has me excited. This might just be the start of a couple of very favorable longer-term outcomes.

First is the prospect that RP may run for President in 2016. He has dropped hints to that effect. He is an attractive candidate for libertarians because of his generally solid stands for economic liberty, civil liberties and non-interventionism. OK, maybe he’s a bit more conservative than some of us would like, and he endorsed Romney last year. And by traditional standards, he’s young and inexperienced.

Yet he just might be electable. He should be able to draw on the army of Ron Paul supporters who are mostly young and energetic. By 2016 the Obama administration will be in shambles and the Democratic candidate will have to distance himself from Obama. A minority party could emerge and siphon off Democratic votes. People will be looking for a fresh face, and Rand Paul does have a boyish, fresh face which doesn’t hurt. And he’s a bit less caustic and perhaps a bit more articulate than his dad.

Best of all, he could be the catalyst for a realignment of politics in this country. One side would be centered on the libertarian principles just mentioned: economic freedom, civil liberties, international peace. The first principle would attract some fellow travelers from the right and the other two would attract some from the left. On the other side would be statists of various stripes including “progressives,” who should be classified as fascists, as well as bloodthirsty warmongers like Senator McCain.

The political realignment just outlined will be familiar to anyone acquainted with the World’s Smallest Political Quiz, formerly called the Nolan chart. Millions of people have taken the quiz, and it has gained considerable respect (“The Quiz has gained respect as a valid measure of a person’s political leanings,” says the Washington Post.)

A lot can happen between now and then. RP’s rising start could fade. He could get co-opted by the Republican establishment. We’ve been disappointed before and it could happen again. But the idea does give one hope. Rand Paul for President, Gary Johnson for Vice President?

(Footnote for anyone shocked by the f-word: There are two aspects to fascism. The economic aspect leaves ownership of the means of production under nominal private ownership but with the government calling all the shots. That describes the program of the “progressives” to a tee. The other aspect is racism or nationalism, echoes of which are seen these days in the forms of affirmative action, multiculturalism, and “diversity” programs.)

The Volcker Rule

Paul Volcker is a man of considerable stature, and not just because he’s six feet, seven inches tall. He gained a reputation for courage and plain talk as chairman of the Federal Reserve System under Presidents Carter and Reagan because he broke the back of the 1970s inflation. He did so by (mostly) sticking to a tight monetary policy even though that meant sky-high interest rates and sharp back-to-back recessions before the economy could enter its vigorous recovery. Now 84, he has enjoyed a comeback in recent years as an adviser to President Obama. His Volcker Rule, prohibiting proprietary trading by banks, was heralded as one way of preventing a repeat of the recent financial crisis, and it became part of the Dodd-Frank Act signed into law in July 2010.

Dodd-Frank’s full title, incidentally, is the Wall Street Reform and Consumer Protection Act. Like most current legislation its name reflects hoped-for outcomes, not its actual provisions. Reading the act (the PDF is available here) is not for the faint of heart. There are 16 titles consisting of 1,601 sections for a total of 848 dense pages. Only a lawyer could love sentences like this:

Any nonbank financial company supervised by the Board that engages in proprietary trading or takes or retains any equity, partnership, or other ownership interest in or sponsors a hedge fund or a private equity fund shall be subject, by rule, as provided in subsection (b)(2), to additional capital requirements for and additional quantitative limits with regards to such proprietary trading and taking or retaining any equity, partnership, or other ownership interest in or sponsorship of a hedge fund or a private equity fund, except that permitted activities as described in subsection (d) shall not be subject to the additional capital and additional quantitative limits except as provided in subsection (d)(3), as if the nonbank financial company supervised by the Board were a banking entity.

Volcker initially outlined his proposal in a three-page memorandum. It came to life as Section 619 of Dodd-Frank, expanded to 11 dense pages. This section is supposed to prevent banks from buying and selling securities for their own accounts, in contrast to brokering customer trades. It also prohibits banks from holding interests in hedge funds or private equity funds or from sponsoring such funds. These prohibitions are supposed to lessen the need for future bailouts like those that were provided to financial institutions in 2008 and 2009. (more…)

Making Whistle-Blowing Pay

The federal bureaucracies are hard at work churning out rules to implement the Dodd-Frank financial “reform” act. In May the Securities and Exchange Commission announced rules for its new whistleblower program, which rewards individuals who provide the agency with “high-quality tips that lead to successful enforcement acts.”

The minimum amount of recovered funds that can earn a reward is $1 million, but the sky’s the limit on the upside. The whistleblower gets to keep 10 to 30 percent of the amount collected, including fines, interest, and disgorgement of ill-gotten gains. We’re talking about big game here, with awards conceivably topping $100 million.

Eric Havian, an attorney with a law firm that represents whistleblowers, noted in an interview with the San Francisco Chronicle’s Kathleen Pender that the securities laws cover a “huge category of bad conduct,” such as illegal insider trading, cooking the books, market manipulation, stock option back-dating, false or misleading disclosures, and the deceptive sales of securities. Almost anything potentially can be illegal, and these vaguely defined offenses leave much room for government mischief. As for insider trading, this is a practice that does little harm and may actually provide benefits to small investors. (See my January/February 2011 Freeman article, “Inside Insider Trading.”)

If corporations felt they needed limits on insider trading or other conduct to attract shareholders, they could write prohibitions into their bylaws so that violations, if not settled internally, could be remedied under civil law. (more…)

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