Central Banks Cannot Easily Maintain their Independence by Gary Becker

Today’s article of the day comes from the Becker-Posner blog:

Most richer nations nowadays, and many developing nations, have “independent” central banks, such as the European Central Bank and the Federal Reserve Bank. “Independence” cannot be precisely defined, but it is supposed to indicate that the central bank of a country has the freedom to make decisions which the government, represented by the Treasury in the United States, does not like. The purpose of independence is to allow monetary policy to be decided independently of fiscal policy, although obviously even independent banks and governments may respond in consistent ways to broad economic events, such as the present recession.

The motivation for having an independent central bank is the many occasions in the past when subservient central banks accommodated the government’s desire to spend more without raising additional taxes. Central banks accommodate fiscal authorities essentially by buying government securities that help finance government spending. In return for receiving government debt, a central bank would either directly print additional currency that governments can spend, or it would create reserves in commercial banks that lead to an expansion of bank deposits and monetary aggregates, such as M1. Either way, inflation would result from this monetization of the government debt, often severe inflation and even hyperinflation. Hostility to rapid inflation led to the political support behind giving central banks much greater independence from fiscal authorities.

The history of the Federal Reserve’s transition in and out of independence is illuminating (see Allan Meltzer’s book, A History of the Federal Reserve, 2003). The Fed fully and enthusiastically compromised its independence from the Treasury during World War II. It bought large quantities of government debt to help the government finance the large wartime deficit. Inflation from the resulting big expansion of the money supply was suppressed through wage and price controls. This inflation became open after removal of these controls at the end of the war.

For a half dozen years after that war was over, President Truman and the Treasury pressured then much more reluctant Fed officials into maintaining the Fed’s subservience. Eventually, however, the Fed regained its independence in the famous Accord reached in March 1951. Nevertheless, the Vietnam War, the Great Society Program, and the reinstitution of wage and price controls by Richard Nixon in the early 1970s led to later erosions of the Fed’s independence.
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How are Libertarians different?

Many people never even hear of Libertarianism. I came from a small town in central Virginia, where when someone told me that Fairfax has a large libertarian movement I said that I do not know what that is but I am a conservative. Yes, I am a recovering conservative. The purpose of this post is what is the differences between a conservative or a liberal versus a libertarian? Most people would say that a libertarian is someone who agrees with liberals on social issues and conservatives on fiscal issues, even with outline the blurred lines we see today. This though is too simple of a throwaway definition.

The different between libertarians and other ideologies (including liberal, conservative, and socialist) is much wider than first thought. A libertarian is someone who does not have any desire to exert any control over you unless you mess with their stuff without permission. A libertarian is someone who when they derive what they think their rights are, it does not include messing with yours. Conservatives mess with your lifestyle and liberals mess with you money. Of course, the lines have blurred and the very difference between libertarian and the other ideologies should shine a light upon this problem.

The reason why the lines can become blurred is because whether you are controlling someone’s lifestyle or their money, you are still giving yourself the right to control something. This is why it does not take much for a conservative to wear the coat of a liberal. If a libertarian attempted to wear a coat of a liberal or conservative they would be thrown out faster than Arlen Specter could say “I’m a Democrat now.” This is because the opposite of libertarian is socialist, not liberal or conservative. Socialists are just people who believe it is not only their right, but their duty to control you.

This brings up the next term “nanny-state.” When someone is told that they support a nanny-state that implies that they themselves are not apt to make a decision for themselves. This is what conservatives, liberals, and socialists all think. Libertarians do not care if you can make a decision for yourself as long as that decision is not infringing upon me. They lay upon the foundation of Adam Smith and how every person who acts in their own self-interest will generate positive results for the entire populous. Liberals want no one to be self-interest and conservatives want to fight that.

The point is that libertarianism is a completely new mind set. When I was a conservative who was finding myself sliding into the libertarian boat, I tried hard to cast it off. To cast off the tool of control changes your life forever. When I was conservative, I truly thought we were just playing a game of what we should control and it never popped in my mind nothing. The status quo is always something and therefore it becomes ingrained in our minds.

Many times we do not do things because we think to ourselves how horrible it would be if a person did that to us. Liberals and conservatives should think about control in this same way. If one side wants to win and prevent themselves from being controlled at all then the better way to do that is to stop legitimizing any kind of control.

~PCCapitalist

Published in: on April 30, 2009 at 12:36 pm  Leave a Comment  
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Make-believe world of cap and trade by Vincent Carroll

Today’s article of the day comes from the Denver Post:

Don’t worry, this shouldn’t hurt. In fact, you won’t feel a thing. So goes the refrain of those pushing for passage of a climate bill regulating greenhouse gas emissions. Just what do they think we’re smoking?

A crackdown on greenhouse gases should involve “no cost to the consumer,” declared House Speaker Nancy Pelosi the other day — this from a leading supporter of the legislation. As if one fanciful pledge weren’t enough, the California Democrat also insisted that it would be wrong to pass a bill “that was a penalty to some states.”

Meanwhile, Energy Secretary Steven Chu told a congressional hearing that “in today’s economic climate, it would be completely unwise to want to increase the price of gasoline.” Trouble is, Chu is a climate-bill enthusiast, too — and the purpose of the cap-and-trade legislation that he and his boss, President Obama, favor is to raise the price of fossil fuels. Refiners will be one of the hardest-hit segments of manufacturing.

Two years ago, the Congressional Budget Office forecast that if climate legislation were enacted, low-income households would experience a 3.3 percent drop in income from higher prices associated with a 15 percent cut in carbon dioxide emissions, with middle-income households losing 2.8 percent. (The Waxman-Markey climate bill calls for cutting greenhouse-gas emissions by 20 percent by 2020.)

More recently, the CBO estimated that “the price increases resulting from a 15 percent cut in CO2 emissions could cost the average household roughly $1,600 (in 2006 dollars),” with the greatest impact “relative to income, on lower-income households.”

To be sure, the Environmental Protection Agency recently weighed in with an estimate of $98 to $140 per household annually after factoring in consumer rebates that the agency assumes will occur. But the EPA’s analysis is curious in several respects. As University of Colorado Professor Roger Pielke Jr. pointed out on his Prometheus science policy blog, the agency assumed the economy would grow by 2.5 percent from 2010 to 2019 — well below the administration’s estimate of 3.3 percent growth in its budget projections. The result: $1.22 trillion disappears from the economy, or about $11,000 per household. “A lower GDP means fewer emissions,” Pielke explained. “It also means that needed efficiency gains are smaller to meet the same targets.”

Meanwhile, Pielke noted, “The EPA analysis of the Waxman-Markey bill shows clearly that the bill increases the costs of gasoline … . So if Chu really believes that it would be unwise to raise the price of gasoline, then he is not a fan of cap and trade.”

How could a hurried-up makeover of the energy economy not significantly hike consumer prices or penalize some states compared to others? If cap and trade doesn’t do those things, in fact, it’s hard to see the point. Isn’t the program supposed to prod consumers and industry to alter their use of energy, as well as spur innovation? Admittedly, that prospect involves what Robert Samuelson calls “much economic make-believe” — the conviction, for example, that “new supplies of ‘clean energy’ magically materialize” as needed.

Cheerleaders of climate legislation know they’re playing with fire. Who knows how voters will react if they’re told the truth? The last thing politicians want is for Americans to read articles whose opening lines are like those that appeared in last Thursday’s New York Times: “With climate legislation knocking at the door, American factory workers have every right to be shaking in their work boots . . . . A price on carbon would put even more pressure on manufacturers, some of the biggest energy users in the country.”

The article explained how a coalition of “industry, union and environmentalist stakeholders” propose to save industrial jobs by offering manufacturers (in steel, paper and chemicals, for example) free emission permits until they can “devise new technologies” that would allow them to compete with their global rivals.

More economic make-believe? Don’t dare say it. After all, this is cost-free legislation.

E-mail Vincent Carroll at vcarroll@denverpost.com.

Published in: on April 29, 2009 at 8:05 pm  Leave a Comment  
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Should the GOP give up it’s Corporate Affairs?

GOP Senator Jim DeMint wrote and article for the Washington Times saying that the Republican party should end it’s affairs with corporate elites. Here are a few portions from this piece:

“Earlier this month, the United States Chamber of Commerce handed out its annual “Spirit of Enterprise” awards to those members of Congress who voted with the Chamber 70 percent of the time on its most important legislative initiatives of 2008. The only four Republican senators who did not receive the award were Jon Kyl, Jeff Sessions, Jim Inhofe and me – four of the most conservative members of the Senate.

What were the conservative offenses? We opposed the failed bailouts and stimulus. Which explains why many liberal Democrats scored higher, including Barack Obama and Hillary Rodham Clinton.

The Republican who scored lowest of all – that is, the Republican lawmaker supposedly least aligned with the nation’s business community – was Ron Paul, a strong constitutionalist famous for his strict adherence to a free- enterprise libertarian philosophy.”

Which brings us to the title of this post. Should the Republican Party give up it’s Corporate Affairs? Ethically, this would be yes. It is obvious that DeMint is right and that the politicians are being rewarded for handing out taxpayer money. This is known in Public Choice Economics as rent-seeking, defined as when a politician hands out benefits to a small group while dispersing the costs upon the whole.

As this sounds like a good idea, is it practical? No. Politicians get elected by maximizing votes. They maximize votes by handing out favors to special interests. Corporations are special interest. The politicians will not get elected if they continually hold back from receiving legalized bribes and handing out favors. This may seem nuts to most people but it is not. These politicians and corporations are simply reacting to the incentives that they are faced with.

What politician doesn’t want to get elected? I haven’t met one. They are simply using the most efficient way to get elected in a political market. What special interest does not want to recieve money? I do not know of any. They are simply using the most efficient way to get money. As DeMint’s rhetoric sounds nice and he is rousing people like us, he will not beable to gain a large amount of followers who’s seats will not be put in jeopardy by such a move.

The rest is here.

~PCCapitalist

“The night of the living government,” coming to a tax-increase near you! by Roger Kimball

Today’s article of the day comes from Pajama’s Media:

My PJM colleague Andrew Klavan has just delivered a brilliant performance on PJTV. (What, you’ve not subscribed? Do it now!) “Night of the Living Government” is at once the most rousing, the funniest, and the scariest reflection on big government’s depredations since Ronald Reagan took to the campaign trail. Our government, Klavan says, has become like the zombies out of a horror movie:

[Government] doesn’t start businesses, it doesn’t create wealth, it doesn’t invent anything. It just devours all the stuff that you make. You bar the door against property tax, they come in through a sales tax, you board the windows against income taxes, they reach in through an energy tax.

But surely there are important differences between creatures from the “Night of the Living Dead” and the actions of the U.S. government. Of course there are! In the movie, Klavan observes,

zombies didn’t try to tell their victims being devoured was good for them. They didn’t say: “Let me devour your flesh, it’s patriotic.” Or, “Let me devour your flesh because we all have to make sacrifices.” Or — my favorite — “Let me devour your flesh because I know how to use it better than you do.” Also, when you try to stop the government zombies, when you say “No, zombie, No! Don’t devour my flesh,” they get pissy. “Well, that’s very selfish. You’re being greedy. You’re acting out of self interest.”

This brings us to my favorite part of Klavan’s skit. I like the pallor of Nancy Pelosi and Harry Reid: they’re every bit as creepy as the Hollywood monsters with which they share the screen. And what about that malodorous atmosphere of liberal guilt? What do you do when your liberal friends decry the “greed of Wall Street,” the “selfishness of Republicans”? You’re supposed to feel guilty. Do you? Klavan can help:

Now it always makes me feel really bad when a politician tells me I’m acting out of self-interest because everyone knows that politicians act out of a radiant love for all mankind. Or wait, maybe it’s an insatiable hunger for power! . . .

And now for the denouement:

Power is what this is all about. Power and Freedom. Every dollar the government takes is one less dollar of freedom for you and one more dollar of power for them. It’s your freedom to choose what you do with the fruits of your labor, whether you buy a TV or donate to charity or build your business or pay down your mortgage. It’s their power to finance make-work jobs and incompetent projects and corrupt programs which they can distribute as they will in order to buy votes and influence. And of course every citizen who feeds on those jobs and projects and programs, who doesn’t pay the taxes but benefits from the taxes paid by others becomes a zombie just like their government masters. Part of the the army of the unproductive undead that’s coming after you.

Klavan’s performance is half dramatic oratory, half Hayekian common sense. It is one hundred percent accurate in its description of what Chief Justice John Marshall warned about when he observed that “the power to tax is the power to destroy.” The moral? There are two: 1. Be afraid, be very afraid. 2. Get mad, then stand up for yourself, and join one of those tea-parties that U.S. Rep. Jan Schakowsky described as “descpicable and shameful.”

Published in: on April 28, 2009 at 6:00 pm  Leave a Comment  
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What Earth Day means to me by Don Boudreaux

The article of the day comes from Cafe Hayek:

My son, Thomas (a sixth grader), has a homework assignment today: write an essay entitled “What Earth Day Means to Me.”  I will help him out with my own essay.

Earth Day, to me, means an opportunity to express thanks for all the ways that capitalism makes our lives and environment cleaner and healthier.

I’m thankful for the automobile, which has cleaned our streets and highways of animal feces, which is both foul and filthy itself, and that attracts flies that spread it into our homes and workplaces.

I’m thankful for the automobile also because it allows us to travel in a cleaner environment than we had when we traveled on horseback or in buggies.  Modern automobiles cool or heat the air immediately surrounding their passengers, making these passengers comfortable and, in summer, less sweaty and stinky.

I’m thankful for air-conditioning that keeps our interior environments not only comfortable but more healthy, as it allows us to better keep insects out of our homes, shops, factories, and offices — and also, in humid places, to dramatically reduce the growth of mold and mildew in our homes.

I’m thankful for indoor plumbing.  (The anti-polluting properties here are too obvious to spell out.  Ditto for disposable diapers — yet another product for which I’m most grateful.)

I’m thankful for the inexpensive soaps, shampoos, toothpastes, dental floss, toilet tissue, and plastic bandages and other first-aid items that make it possible for us to de-pollute our persons regularly.

I’m thankful for electronic appliances, such as those that (along with modern detergents – for which I’m also thankful) allow us to clean our used clothing and dirty dishes — clean these more deeply and more thoroughly than was possible in the past without spending multiples of the time on such tasks that we spend on these tasks today.  These appliances enable us to recycle our clothing and our dishes for many reuses.

(more…)

Published in: on April 24, 2009 at 6:39 pm  Leave a Comment  
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We may need Cuba’s Old Cars

wright

~PCCapitalist

Published in: on April 24, 2009 at 12:36 pm  Comments (1)  
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Think first, recycle second by Anonymous

Today’s article of the day comes from yesterday’s Union Leader in New Hampshire on Earth Day:

Today is Earth Day, the fake holiday on which the government attempts to guilt us into “saving the planet.” This year the guilt trip is more tedious because President Obama has made it his mission to change our energy consumption habits by force of law.

Of course, wasting energy is a dumb idea. It’s not dumb because it’s somehow harmful to Mother Nature, but because leaving the light on in the living room when you are eating dinner in the dining room wastes money. And recycling is good (as long as it’s more cost-effective than dumping) for the same reason. Throwing away something that has cash value is the same as throwing away money.

That said, Earth Day takes these common-sense behaviors to absurd levels. Reducing, reusing and recycling really are about economics, not morality. If we use more energy to recycle something than to make a new one, we’ve done more harm than good. If we install “environmentally friendly” toilets that use less water, only to have to flush twice, thus using more water, we’ve done more harm than good.

So when President Obama says we have to pay hundreds of billions of dollars to reduce carbon emissions right away, the correct response is to ask whether it is cost-effective. Burning fossil fuels emits only 3.27 percent of atmospheric carbon dioxide, according to a report by Drew Thornley of the Manhattan Institute. Is the payoff really worth the price?

Every transaction involves tradeoffs. Environmental policy is not exempt from that rule. Before cheering for certain policies just because politicians call them “green,” stop to make sure the benefits are worth the cost. Otherwise, you might hurt the environment instead of help it.

Published in: on April 23, 2009 at 6:18 pm  Comments (1)  
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The Hayekian Wikipedia

This from the Wall Street Journal:

“Regarding Gordon Crovitz’s “Wikipedia’s Old-Fashioned Revolution” (Information Age, April 6): The genesis of Wikipedia was an economics class that Jimmy Wales took when he was a student at Auburn University. Taught by Mark Thornton, much of the discussion centered around the 1945 paper by Nobel-winner F.A. Hayek titled “The Use of Knowledge in Society.”

That paper argued that socialism with its central planning simply could not keep up with the real knowledge in society because the kind of knowledge needed to power an economy is dispersed in society and cannot be brought together with central planning, with its political arrogance. Instead, it is brought together via a price system and private property, the key ingredients of a market economy.

Mr. Wales brought that concept to Wikipedia, and that is why it has flourished. The founding truth of Wikipedia also is the truth behind the reason that President Barack Obama’s attempt at a “planned economy” will fail, as all socialist or quasi-socialist “experiments” always do.”

Now I thought this was very interesting and wished that it would go into more detail about Mr. Wales. What has made Wikipedia so successful is the spontaneous nature, which has made it more accurate than other formal encyclopedias. Hayek, in other works, show that he also believes that rules that society lives by is spontaneous. For, example think of a handshake. No “one” individual planned that this is how we should greet people, but it has evolved over time as the social norm.

We should try to model more businesses and economic policies after this!

The rest link is here.

~PCCapitalist

Infrastructure Madness by Jack Shafer

Today’s article of the day comes from Slate Magazine:

Whenever the government and the construction industry start squawking to the press about the horrors of our aging, crumbling, decaying, decrepit infrastructure, and warn that we must spend hundreds of billions or even trillions of dollars on waterworks, bridges, and roads, please observe this three-step safety procedure:

1) Place your hand firmly on your wallet,
2) slip your B.S. detector over your ears and fasten tightly,
3) and read all the fine print before you take your hand off your wallet.

Why such extreme vigilance? Because it takes little to convince reporters that our infrastructure has rusted to hell and that tens of billions must be spent now on construction products lest both our economy and our bridges collapse.

The current round of infrastructure madness finds the New York Times reporting earnestly (Jan. 28) and the Los Angeles Times (Sept. 14, 2008) editorializing frightfully about the crisis contained in the fact that one-quarter of the nation’s bridges are “structurally deficient” or “functionally obsolete.” A Boston Globe editorial (Oct. 28, 2008) bemoans the fact that “150,000 US bridges [are] rated as deficient.” And Time magazine’s coverage (Nov. 4, 2008) likewise warns of “more than 150,000 structurally deficient bridges” and declares that “America’s infrastructure is broken.”

The scary-sounding phrases structurally deficient and functionally obsolete combined with those big numbers are enough to make you bite your nails bloody every time you drive over a river or beneath an underpass. Yet if any of the cited pieces paused to define either inspection term, you’d come away from the alarmist stories with a yawn. As a 2006 report by U.S. Department of Transportation’s Federal Highway Administration puts it (very large PDF):

Structural deficiencies are characterized by deteriorated conditions of significant bridge elements and reduced load carrying capacity. Functional obsolescence is a function of the geometrics of the bridge not meeting current design standards. Neither type of deficiency indicates that the bridge is unsafe. [Emphasis added.]

A “structurally deficient” bridge can safely stay in service if weight limitations are posted and observed and the bridge is monitored, inspected, and maintained. A bridge designed in the 1930s could be deemed “functionally obsolete” because it’s narrower than modern standards dictate or because its clearance over a highway isn’t up to modern snuff, not because it’s in danger of tumbling down. (The Department of Transportation’s 2004 inventory found 77,796 U.S. bridges structurally deficient and 80,632 functionally obsolete, for a totally of 158,428 deficient bridges.)

None of this is to suggest that we needn’t worry about repairing or maintaining bridges, only to observe that the state of the nation’s bridges ain’t as dire as the press makes it out. If you’ve read this far, you like the scent of my Web page or your care about infrastructure, so I’ll continue. Let’s say the federal government spends billions in stimulus cash both to bring 1930s bridges up to 2009 standards and to rescue other bridges from their deficiencies. What are the chances that the states that handle some that money will spend it in an accountable fashion? Not good.

In a Nov. 17, 2007, memorandum, Inspector General Calvin L. Scovel III of the Department of Transportation wrote that the Federal Highway Administration “is unable to determine how much of the funding provided to states is actually spent on structurally deficient bridges because its financial management system does not differentiate between spending on structurally deficient bridges and other bridge-related expenditures.”

So credulous is press coverage that reporters almost never ask whether some Rust Belt bridges might be redundant or economically superfluous because industry and population have moved on. And just because a bridge occupied a place on the traffic grid once shouldn’t give it a right to eternal service.

As Tom G. Palmer wrote in the February 1983 Inquiry magazine (disclosure: I worked there), “it is no accident that while the rhetoric is repair, the reality is new construction.” He continues:

Highway-improvement politics differs little from military hardware procurement. Rather than keeping old systems in good repair, money flows into flashy new structures where millions can be lavished on consultants, research, and planning.

Big construction projects deliver political rewards, not well-executed maintenance projects, Palmer holds. “Nobody ever held a ribbon cutting-ceremony for the painting of a bridge,” he observes this week.

For those of us who track infrastructure madness in the press, the current round is mighty familiar. As deplorable as our bridges may be, they’re better than they were a generation ago. Today, the government classifies about 25 percent of U.S. bridges as structurally deficient or functionally obsolete. An April 18, 1982, New York Times article headlined “Alarm Rise Over Decay in U.S. Public Works” cites government statistics that classify 45 percent of U.S. bridges deficient or obsolete.

Infrastructure madness has already spread from the bridges to America’s waterworks, where the New York Times pegged an April 18 story about the fragility of America’s water system to the fact that the town of Chelan, Wash., still has some wood pipes. Not until you reach the story’s end do you learn that Chelan is a resort town (summer population 3,860) and that its remaining wood pipes are not an infrastructure problem. Chelan’s director of public works is replacing the last 500-foot section before it fails because repairing wood pipe requires expertise he doesn’t have.

Jack Shafer is Slate‘s editor at large.

Published in: on April 22, 2009 at 6:31 pm  Leave a Comment  
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