The legal way to rig elections

I previously blogged about gerrymandering here.

Recommended reading

• Kim Strassel lists the biggest myths surrounding the 2010 elections and John Judis gives four myths about the Tea Party. 

• An interesting look at taxes and the Rolling Stones. 

• Tad DeHaven exposes one of Joe Biden's tall tales about government.

• Mark Perry looks at the connection between health insurance coverage and life expectancy. 

• Charles Lane on President Obama's electric car cult. The science and facts simply do not justify the obsession so many people have for this program. 

• Russ Roberts explains how to make the world a better place. Nice piece.

• David Boaz compares Hayek and Keynes.

Stewart/Colbert rally

Yeah, I went -- for about 15 minutes. It was insanely crowded and I couldn't really see or hear anything. Plus I had more important things to attend to. It was pretty much as I expected, with most people not overtly political, and signs split between the "I disagree with you, but I'm pretty sure you're not Hitler" variety and leftist messages criticizing Fox News, "teabaggers", etc., with a bit more of the former than the latter.

Here are some of the pics I took:

Gross.

The Rhythm Worker's Union -- this is the third time I have run into these guys!

Anti-Fox News sentiment

Typical scene

Another anti-Fox News sign. The reverse side suggested that people who don't like government should move to Somalia.

It was crowded. Typical scene.

One of the more clever signs I saw. The guy actually was dressed like Hitler.

Tea Party has no brains, Republicans have no heart and...Democrats lack courage? Oh come on, they fell on their swords for Obamacare.

Pre-election thoughts

I remember watching the pummeling of Republicans in the 2006 mid-terms and, as this blog post can attest, not really feeling much of anything. They got what they deserved. Two years ago I was depressed by the overwhelmingly Democratic victory, but not saddened in the least by John McCain's loss. Indeed, on occasion I remind myself that as bad as Obama is, McCain wouldn't have been a big improvement.

This year, however, I am all in for the Republicans and hope that Tuesday's victory is absolutely overwhelming, with every Democrat from Senator to dog catcher getting the boot. The hard-left approach taken over the last two years -- massive Keynesian-style stimulus spending, a massive expansion of government control over health care and a more general growth of government -- must be emphatically rejected.

Signs appear to suggest that we are headed for such an outcome. Indeed, the victory on Tuesday will likely at least equal those of 1994, which was itself a political earthquake (this is perhaps the first election that I have really distinct memories of, and can still recall the incredulousness of TV news anchors as the returns came in). In 1994 Republicans picked up 54 seats in the House and 8 in the Senate. This year those two numbers appear to be the minimum gains Republicans can expect (all the more remarkable given the unfriendly terrain faced by the GOP in the Senate as explained by Sean Trende here).

That said, while a GOP victory will be deeply satisfying as a rejection of leftist policy, the feeling will prove ephemeral. There is little about the Republican leadership itself that should excite anyone. While a Republican House will serve as a much-needed check on the worst instintcs of the Obama administration, it is highly doubtful they will attempt to roll back government in any meaningful way.

Indeed, faced with a budget deficit that exceeds $1 trillion, the Republicans haven't offered much beyond cuts to whaling subsidies and John Boehner is apparently rather animated about restoring Medicare funding. Then there's this gem from Senate Minority Leader Mitch McConnell:

“The single most important thing we want to achieve is for President Obama to be a one-term president.”

Really? The country is faced with an insane level of debt, high unemployment, government control run amok, and your biggest priority is limiting the political fortunes of President Obama? McConnell is a prototypical establishment Republican, concerned far more about maintaining his grip on power and settling scores with rivals than the best interests of the country. Let's recall that McConnell refrained from taking a neutral stance in the Kentucky Senate primary, endorsing fellow establishment member Trey Greyson rather than the more libertarian-minded Rand Paul. There's a reason for that.

How the next two years will play out is anyone's guess. On the one hand we have an ideologically rigid president who demonstrates little in the way of Clintonian instincts or desire to engage in triangulation, and on the other is a Republican party that remains, at best, partially reformed and faced with a civil war within its ranks. Unlike 1994 when House Republicans arrived in Washington behind a leader, Newt Gringrich, who professed to share their commitment to limited government, it is by no means certain that next year's incoming freshman and the leadership will be on the same page.

What to do? Simple, keep up the pressure. A Republican Congress needs to have its feet held to the fire on spending and the size of government. The Tea Party must defy its critics and demonstrate that the commitment to such issues is not simply a reaction to the advent of a Democratic Congress and White House. If spending is not cut by at least several hundred billion dollars and a measure to repeal Obamacare has not even been brought up for a vote by the end of next summer then the marches on Washington and protests across the country must continue. It can't be stopped until they get the message.

Update: Leading Tea Party figure says that incoming GOP freshmen will be "on probation."

Parallels between today and the Great Depression

Elections as stimulus

I don't know how to say this nicely so I'm just going to say it: Daniel Gross is perhaps the worst, most misinformed economics commentator in the country. While his awfulness has been long documented on this blog, Gross still managed to bowl me over with his latest column, the thesis of which is that election spending is such a great economic stimulant that we should have them more often. I kid you not.

Every four years, when Michael Bloomberg runs for Mayor, the Big Apple is transformed into a winter wonderland where it's Christmas all year round — at least for the consultants, ad salespeople, canvassers, caterers, and hangers-on whom the mayor employs. In 2009, Bloomberg injected $102 million into the city's economy in order to win a third four-year term for a job that pays him only $1 per year.

No wonder the city's leaders decided to overturn the law limiting a mayor to two terms. Having Bloomberg run for re-election is like staging a Super Bowl, NBA All-Star game, and World Series.

...And so as Congress dithers over the prospect of further fiscal stimulus, the political industry is doing its part. Opensecrets, an invaluable resource for campaign spending data, has a widget on its site that tallies the total spending on campaigns by candidates, parties, and issue groups. As of Monday morning, the total was $3.6 billion for all midterm-related expenditures.

Sure, all that campaign spending can be annoying. Thanks to Linda McMahon and her competitors, the streets of my town have been planted with thickets of unsightly yard signs, the radio stations seem to have gone to an all-political-ad format, and my mail is clogged with glossy junk mail. But this spending has a few things to recommend to it. I work in the beleaguered media industry, and elections are great for media companies — they boost advertising, readership, and viewership. But this isn't just about me. There are sound macroeconomic reasons to get behind quantitative electioneering.

Campaign cash is spent quickly, and with a sense of urgency. And it pretty much all has to be spent domestically. The goods and services you buy when you're running for offices — real estate, yard signs, mailers, consultants, advertisements — are all produced locally.

I hesitate to do so, but the data lead me to think we should have elections ever year, or maybe twice a year — at least until the economy is growing at a pace where it creates enough jobs to bring down the unemployment rate.

It's hard to know where to begin. Quite simply, political spending is not a wealth-generating activity. As Gross himself notes, the actual output of elections are literally junk -- yard signs, mailers and related paraphernalia which quickly end up populating the country's landfills. In fact, it actually impoverishes us, as it is an activity which we undertake only as a necessary evil to improve the quality of government.

If elections took place less often, or not at all, it would free up money to be directed towards other purposes. Money used to fund campaigns could be instead used to purchase goods or invested. That money has alternative uses is completely elementary, and it is shocking that Gross fails to grasp such an essential concept.

Here's an actual example of this dynamic: earlier this year I considered purchasing flowers for a certain right-winger who is near and dear to my heart. Instead of buying an arrangement, however, I donated the money to the Club for Growth. The Club for Growth no doubt used it to purchase TV advertising, direct mail and the like. Instead of the world having a few more flowers, it had more political advertising.

Yet in the world Gross inhabits we would be faced with such trade-offs twice as often -- and this is an improvement? It is a failure of the common sense test.

I'll further note that Gross engages in some gratuitous economic idiocy by his noting that political products are produced locally. This is a de facto endorsement of retrograde economic protectionism and another policy which promotes inefficiency and thus impoverishment.

It's maddening and baffling that anyone listens to this man, or gives him a high-profile platform from which to promote his views.

Getting business off the ground

Pic of the day

Details here.

Chart of the day

This chart comes courtesy of the Kauffman Foundation, which surveyed a group of economic bloggers on their thoughts about the US economy (report here). It's worth noting that this group of bloggers included perspectives from both the political right and left, and registered Democrats outnumbered registered Republicans by a margin of 21 percent to 9 percent.

Other highlights:

• The top policy recommendation (selected from a small set of choices) is for the government to “approve trade agreements with South Korea, Colombia, and Panama,” with 97 percent support.

• The reduction of "regulatory burdens and fees on new firm formation” was favored by 82 percent of respondents.

Of course, the Obama administration has made zero effort to pass any of the bilateral trade agreements and has increased, rather than reduced, the amount of regulation on business.

Recommended reading

• Did government war-related spending end the Great Depression?

• Matt Welch on President Obama's government-centric view of the world.

• Mario Rizzo discusses what macroeconomics looked like before Keynes.

• Great stuff from Mark Perry: the need for more unethical businesses (sort of), the biases of bureaucrats and the UK government is selling its forests to help cut the deficit (I'll also note that New Zealand privatized its forests during the 1980s).

Word cloud

The National Republican Congressional Committee polled respondents on the following question: What would give you the biggest hesitation in voting to elect a Democratic candidate?

Here is a word cloud generated based on the responses:

Via The Fix.

Hurry up and wait

The New York Times:

Public housing is falling apart around the country, as federal money has been unable to keep up with the repair needs of buildings more than half a century old.

Over the last 15 years, 150,000 of the nation’s public housing units have been lost, officials said, as agencies have sold or torn down decrepit properties. An additional 5,700 units are pending removal from federal public housing programs.

In New York City, which has a three-year backlog of repair requests, the effects can be seen in places like Aixa Torres’s apartment on the Lower East Side.

The paint chips were the first to be dislodged, drifting like snowflakes from her kitchen ceiling. When water began dripping through the ceiling, forming a hole sometime this spring, she called her landlord, the city’s public housing authority.

A maintenance worker showed up to take a look, and repairs were scheduled.

A plasterer would come to fix the hole in May 2011. A painter would come to cover up the plasterer’s work in May 2012.

The drip has yet to be fixed.

In a world with limited resources, outsourcing some task to the government and making it "free" does not ensure that everyone's needs will be met. In fact, government responsibility is a virtual guarantee that distribution of that good will be made more inefficiently than would otherwise be the case and less will be made available. Given that money is not infinite, consumers must sacrifice another limited resources to obtain what they want -- in this instance, time.

Either way the piper must be paid, and that's true whether the government is distributing home repairs, cars or health care.

Recommended reading

• John Stossel says that the notion of Democrats as pro-choice is a myth.

• ObamaCare: The head of the CBO says that health care reform will lead to lower labor force participation in the economy while this business owner says he is going to stop offering insurance to his employees. I doubt he's the only one.

• Mark Perry looks at income inequality.

• Peter Suderman wonders whether Republicans will cut military spending. We'll never have a serious discussion about deficit reduction until the Pentagon is on the table.

UK austerity

While at least some on the political right celebrate the austerity measures being imposed by the UK government, I'm not sure it is time to uncork the champagne. Reductions in public spending, while laudable, need to be paired with structural reforms and liberalization measures to help dull the pain and provide the economy with new opportunities for growth. A spoonful of sugar to make the medicine go down if you will.

The Wall Street Journal seems to be of a similar mind based on this editorial:

If a government is going to move people from welfare to work, it's also going to have to offer a pro-growth agenda that permits businesses to create jobs. And here is where Mr. Cameron's austerity blueprint falls short. Mr. Osborne this week has promised that he would soon introduce the "maximum sustainable" tax on banks, calling into question the future attractiveness of London as a global financial capital. The government had already announced a 2.5-percentage-point rise in the VAT, to 20%, an increase in capital gains tax to 28% from 18%, and it has no plans to bring the top marginal income tax rate down from its current 50%.

Nor does it help for the government to continue to fund fashionable environmental boondoggles, such as £1 billion "commercial scale carbon capture and storage demonstration project," or the £200 million it means to spend for wind-power generation.

If Mr. Cameron's government wants economic growth, it will have to move in the opposite direction, especially on taxes; a diet of budget cuts alone won't do it. It will also leave his government politically vulnerable to the charge that mediocre economic results are the result of insufficient spending. The truth is that government can neither spend nor cut its way to national prosperity. Its role is to create the conditions in which businesses and entrepreneurs can do it themselves.

That last sentence is key. Business and commerce thrives when there are fewer obstacles to engaging in them. The more we can do to expand economic freedom, the more economic growth we will see. While I am not familiar enough with the UK to recommend measures for its government to undertake, in the US there is no shortage of measures which could improve the economy and increase our growth potential.

This would include revenue-neutral tax reform which eliminates deductions in exchange for lower rates, passage of free trade agreements, deregulation in the airline and sea transport industries, abolishing the minimum wage, increasing the number of H-1B visas for talented and entrepreneurial foreigners, ending the Cuba trade embargo, going through the Federal Register and subjecting regulations to cost-benefit analysis just to name a few.

At the end of the day the approach taken by government should roughly be, "What are the obstacles to doing business and do they make sense?" Suffice to say there are many that do not.

There is much that can be done, and it goes far beyond taxes.

Opinion round-up

Excerpts from some excellent opinion columns I have come across. First up is Jay Ambrose on the seductive power of big government:

Lots of pundits are trying to figure out why President Obama is facing disaster this midterm election, but few have said it better than Michael Oakeshott despite his disadvantage of having been dead for 20 years.

Oakeshott was an English philosopher whose specialty was politics and disposition was to prefer "fact to mystery," and "present laughter to Utopian bliss." He said all this in an essay titled, "On Being Conservative," in which he also trenchantly described politicians of the opposite sort, what I would call the Obama sort.

Such people, he said, see government "as a vast reservoir of power," and that power "inspires them to dream," to come up with "favorite projects" that "they sincerely believe are for the benefit of mankind." So they grab for the power, maybe increase it, and then use it to impose these projects on everyone else. To them, government is "an instrument of passion" and "the art of politics is to inflame and direct desire."

Absolutely dead on. To the extent the left admits imperfections and flaw with government, their cause is usually said to be poor management (typically by Republicans) rather than anything systemic, which only the election of intelligent leftists can correct. Government in the right hands and a sufficient amount of power, they believe, can work vast wonders. It's a massive and misplaced conceit.

Kyle Wingfield, meanwhile, notes a new study from the Heritage Foundation which highlights the country's growing dependence on government:

Heritage has compiled federal data on public spending dating back to 1962 on housing, health and welfare, retirement, education, and rural and agricultural services. The stalwart conservative institution then indexed them through the 2009 fiscal year.

The not-so-surprising result: Americans’ dependence on government is higher than ever.

One in five Americans — 64.3 million people — relies on government handouts to fulfill basic needs for housing, food and/or health care. That’s double the proportion before Lyndon B. Johnson’s “Great Society,” and it doesn’t even include corporate welfare. Add the number of public workers, and almost three in 10 of us get our livelihood from government.

At the same time, two in five Americans in 2008 — 132.5 million people — did not pay federal income taxes and were not claimed as dependents by anyone who did. The percentage of nontaxpayers has nearly tripled since 1984.

Of course, in the eyes of some people this increased reliance on government, rather than self-sufficiency or civil society, is a good thing.

Speaking of people dependent on government, Jonah Goldberg notes recent events in Europe and asks a few questions:

As far as I am aware, no one has asked President Obama a simple question: If your philosophy is so great, how come the countries that have embraced it for generations are so much poorer than we are?

Nor have they asked: If guaranteed health care for everyone will make us so much more "competitive," how come we've been doing so much better than our "competitors" who already have socialized medicine, high tax rates, and lavish pensions?

Nor has the president been queried about the incongruity of saying his policies have laid a "new foundation" for economic growth and job creation when the countries he's trying to emulate are trying to dismantle the very same foundations in order to survive.

...The contrast with Europe is stunning. The streets there are clogging with protestors who desperately want to keep perks and pensions that are driving their countries into insolvency, while responsible leaders do everything they can to impose fiscal sanity before everything comes crashing down. In America, protesters (a.k.a the Tea Parties) have taken to the streets to keep our irresponsible leaders from going in the same direction. In response, Obama says America's irrational fear has made voters stupid.

But what's irrational about saying that we shouldn't be rushing into a condemned building everyone else in the developed world is rushing out of?

Following in Europe's footsteps is the definition of insanity.

Protests in the UK, riots in France

I guess the welfare state really does foster a sense of community and brings people together:

Looking at the pictures, and the cries of anguish over being forced to work until 62 or having welfare benefits cut, I am reminded of Bastiat's quote that "Government is the great fiction through which everybody endeavors to live at the expense of everybody else."

Capitalism vs. Communism

Halle, East Germany, 1991

12 years later.

Many more such comparisons here. HT: Club for Growth

Recommended reading

• Katherine Mangu-Ward explains how government regulation is killing free checking accounts. By the way, who do you think free checking benefits more: the poor or the rich? Government in action.

• Two CEOs of tech companies say that up to a trillion dollars could be brought back to the US if we could just get our tax policy right.

• David Harsanyi pretty well captures my own sentiments about tea party candidates in this election. 

• Politicians looking to bribe kids and bribe seniors. Something for everyone!

• Coyote Blog notes Sopranos-style politics in the golden state.

Cartoon of the day

HT: Taxing Tennessee

Charts of the day: Texas edition

The source for both charts is the Texanomics blog. I'll note that Texas is ranked by the Mercatus Center at #7 in economic freedom among the 50 states.

Recommended reading

• Dan Mitchell notes a British marketing campaign against high taxes.

• The New York Times reports that scholars are taking a renewed look at the culture of poverty. (BTW, the study mentioned in the article about stamped envelopes makes this story an interesting contrast)

• Rich Lowry examines why Texas is responsible for half of the net new jobs created in the entire country over the past year.

• Boeing is the latest company to claim that its health care coverage will become less generous thanks to Obamacare.

• A look at Lisa Murkowski and Eskimo renting.

Politics laid bare

The New Yorker has a profile of Harry Reid which provides a vivid illustration of just how dirty the business of politics and government is. Eyebrows are first raised in the article when it is revealed that "most establishment Republicans in Nevada [are] backing Reid over Sharron Angle." Well why would that be? This anecdote probably provides a clue:

CityCenter, a vast new casino and shopping complex on the Strip, is the largest private building project in the history of North America. In 2007, its primary owner, MGM Mirage, took on Dubai World as a partner. With construction well under way and five billion dollars already sunk into CityCenter, the crash of September, 2008, hit. Dubai World sued MGM, and then the banks collectively announced that because Dubai World had sued they no longer had to honor their own obligations.

Harry Reid called Jim Murren, the chief executive of MGM, to offer his help. “I asked him to call Ken Lewis of Bank of America, Jamie Dimon of J. P. Morgan, John Mack of Morgan Stanley, and I’m sure he did,” Murren told me. “Everybody in the Nevada delegation called, but there’s only one Senate Majority Leader. That’s the call that got returned.” When a contractor needed a two-hundred-million-dollar payment in order to continue construction, “Reid called, the banks released the money, and we kept constructing.”

Murren, a Republican, appeared in the first television ad the Reid campaign ran this year, saying that Reid had saved twenty-two thousand jobs in Nevada with his calls to the banks. MGM is not just Nevada’s largest employer and taxpayer; it is proportionally among the largest single taxpayers in any state, supplying eleven per cent of the budget of Nevada’s government. Murren told me that Sharron Angle has never tried to meet him. She has said that she would not have made the calls that Reid made on CityCenter’s behalf.

Now, how do you think that phone call from Harry Reid to the banks went? Did they release the money because Reid asked nicely and used the word "please"? Or was it that -- just maybe -- he used his position as an extremely powerful politician to threaten and cajole the banks, promising swift retribution (and perhaps rewards as well) if they played ball? Which is the more likely scenario?

Meanwhile, did the banks initially withhold the money because they enjoy being mean and wreaking destruction upon the land? Or was it a business decision (i.e. economically logical and sound)? If it was a business decision, then why should we think that Harry Reid has a greater level of business acumen than those who actually operate the business? But of course business sense had nothing to do with it, it was all about making the politically expedient move that will play well with campaign contributors and the voters.

While I have my doubts whether Sharon Angle would have actually refused the make a similar call -- she is still a politician after all and faces a politician's incentive structure -- at least her sentiment is admirable. The more I learn about this woman the more I like her. If a high regard for the Constitution, free market and refusal to cater to the establishment makes her a circus sideshow, hey, bring on the freaks.

Tax morality

Jonathan Cohn attempts to make the more case for soaking the rich:

According to the Republicans and many of their supporters, allowing tax rates on upper incomes to rise would punish the rich for their success, taking away money that the rich have earned. But this argument suffers from two key flaws.

One is that it fails to account for the power of luck. Almost by definition, people who are successful have benefited from some measure of good fortune. That fortune can take the form of obvious, material advantages--like access to advanced technology and good schools. Or it can take the form of more subtle, but still important, assets for moving forward in life--like good health or loving parents.

Yes, a good work ethic will take you far. And I know many well-educated professionals convinced that nobody works as hard as they do. (I’ve been known to indulge the thought myself.) But I’ve met many people at the bottom of the income ladder who work just as hard, for far less reward. Between 1980 and 2005, the richest 1 percent of Americans got more than four-fifths of the country's income gains. Does anybody seriously believe that the other 99 percent didn't deserve to take home a much larger share?

The other, albeit related, flaw in the conservative argument is that it fails to acknowledge the debt wealthy people owe to society. As Gar Alperovitz and Lew Daly argue in their 2008 book, Unjust Desserts, the proverbial self-made man is not exactly self-made. He (or she) is benefiting from the accomplishments of past generations, not to mention the support of public institutions (like the National Science Foundation) and services (like schools) that foster innovation and lead to greater productivity.

Let's leave aside how much the rich benefit from luck and how much of a debt they owe to society, and for the sake of argument assume that both are true and play a hugely significant role in separating the rich from the rest. There are still at least two significant flaws with Cohn's argument.

First, to the extent the rich owe anything to society, it has already been repaid through the actions that led to them getting rich. While obvious exceptions exist, the vast majority of people who have become rich did so by providing goods and services that society found valuable. Steve Jobs, for example, played a key role in organizing the thousands of people and many millions of dollars that were required for the computer I am typing on to be produced. He has provided incredible benefits to society both through the products he created, technology he has helped foster and people he has helped provide direct employment to. Whatever debt he owed has surely already been repaid many times over.

Second, why should taxation be regarded as a means of providing assistance or compensation to the rest of society? Taxation funds government, which in turn uses the money on -- among other things -- schools that are consistently sub-par, social welfare schemes that have proven disastrous, vanity projects for politicians, a drug war that has produced untold misery, armies of bureaucrats that cook up new regulations to harass the country's citizens and businesses, etc. That's not to say that all government is bad, of course. Courthouses, police, fire departments, and basic infrastructure all readily spring to mind as vital government functions. But they also don't require confiscatory tax rates to fund.

Further, every dollar taken from a rich person to fund some government function is one less dollar that person has to spend. That spending, be it in the form of consumption or investment, means one less dollar that is helping to employ someone or is being invested in the economy. Unless one believes the dollar would be spent to a more productive end by the government, that's not a good way of helping or compensating the less well-off.

Lastly, it's hard to think of any good public policy that has ever been borne out of a desire to punish a certain segment of the population.

US and European productivty

The McKinsey Global Institute has released a new study which examines the gap in productivity between the US and Europe, 70 percent of which it says can be attributed to European underperformance in the service sector. While productivity may sound like a dry economic concept, it is perhaps the most important single metric for evaluating economic health, as production dictates consumption and standard of living (one can't consume more than what one produces). 

As shown by this graph, the difference between U.S. and European productivity levels is pronounced -- and widening:

I'll note that there is reason to think that this graph may actually understate the difference in productivity levels. In The Power of Productivity -- a book I can't recommend enough -- author William Lewis, a former director of the McKinsey Global Institute, noted that labor restrictions in some European countries discourage the hiring of low productivity workers, such as grocery store baggers, which are common in the US. Thus, because Europe has fewer such workers, it skews the productivity numbers upwards. 

In any case, if Europe is to move closer to US productivity levels the McKinsey report says that it must pursue an agenda of deregulation and market liberalization:

Injecting competition

The liberalization of monopolistic industries in Europe has consistently led to dramatic increases in productivity. Coupled with standardization, regulation to heighten competition has made a success story of telecommunications, for example. GSM—the Global System for Mobile Communications—was initially deployed in seven European countries, in 1992; today the system has more than four billion users worldwide. In the road freight industry, the relaxation of price controls and the removal of barriers to cross-border trade led to a 15 to 25 percent drop in tariffs and 5 percent-plus annual productivity gains throughout the 1990s in France and Germany.

Despite such examples, many other service industries, including postal services, rail transport, and professional services (such as law and accounting), continue to receive regulatory protection from competition. Entry barriers are still common. Many European countries limit the number of pharmacies, for instance, in effect creating regional monopolies on retail sales of medicinal products. 

Some European countries set price ceilings or floors—for architects and lawyers in Italy and Germany, among others. France and Spain prohibit advertising for notaries. Some countries have abolished such advertising and price restrictions in recent years, apparently without damaging these markets. But regulation remains high overall. In professional services, the 2008 product market regulation index of the Organisation for Economic Co-operation and Development (OECD) is nearly twice as high for Europe as for the United States.

Deregulation

Regulation not only hinders competition in Europe’s service sectors but can also compromise the efficiency of operations. Retailing, for instance, still suffers from restrictive land and product regulations. Zoning laws that limit the size and density of stores put bigger, more efficient formats like hypermarkets at a competitive disadvantage: in France, the introduction of more restrictive rules on the size of retail outlets during the 1990s halted the sector’s productivity growth—opening new stores larger than 6,000 square meters became virtually impossible—and the restrictions eventually had to be eased. In the United Kingdom, the number of new stores opening has slowed because of insufficient reform to planning laws. In the Netherlands, individual municipalities have the power to prevent retailers from selling televisions in furniture stores.

Strict labor laws, which often encourage informality, are another barrier to productivity. Businesses have an incentive to stay smaller to avoid a higher level of regulatory scrutiny, and this stratagem prevents companies from achieving scale in fragmented industries, including construction. (In Portugal, informal labor accounts for more than a quarter of the hours worked in residential construction.) In retailing, Dutch labor legislation typically requires stores to pay their employees 30 percent more for evening work.

This is something to keep in mind as our elected leaders continue to warn against the alleged evils of deregulation and many on the left urge further moves towards the European model. It may sound attractive in the abstract until one fully grasps what it means: reduced prosperity.

Quotes of the day

From Jay Cost:

"I want to warn you about something...Right now the same special interests who would profit from the other side's agenda - they're fighting back. The empire is striking back. To win this election, they are plowing ten's of millions of dollars into front groups. They are running misleading negative ads all across the country...This isn't just a threat to Democrats, this is a threat to our democracy!"

-Barack Obama, October 17, 2010

"On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord. On this day, we have come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics."

-Barack Obama, January 20, 2009

Change.

The new Republicans

Today's Wall Street Journal takes a look at some of the Republican candidates for Senate:

Senate Republican candidates have converged around a set of conservative positions.

Eighteen have expressed some support for either a single, flat-rate income tax or a national sales tax that would replace an income tax.

Sixteen have expressed a willingness to allow some Social Security taxes to be diverted to private investment accounts. Eleven have expressed interest in turning Medicare into a voucher program that young people can elect to join upon retirement.

Ten have broached eliminating or scaling back the Department of Education.

Four have talked of eliminating or lowering the federal minimum wage.

John Raese, the Republican nominee for Senate in West Virginia, suggested that the minimum wage, which he termed "price controls," contributed to high unemployment among young workers. "The highest amount of unemployment we have is youth, isn't it? Entry-level jobs, where we have, probably, what—minimum wage," Mr. Raese told the Charleston Daily Mail editorial board last week.

While just a start, it's a far cry from the days of Bob Dole. Let's hope for more like this in 2012.

Confronting Robert Frank

Writing in today's New York Times, economist Robert Frank attempts to make the case that income inequality should be regarded as a grave public policy problem. Like Steven Pearlstein before him, Frank's logic is baffling and unconvincing, essentially arguing that inequality to leads to everything from financial distress to long commute times and low public support for government spending on essential infrastructure. Here are some highlights from the meandering mess:

People do not exist in a social vacuum. Community norms define clear expectations about what people should spend on interview suits and birthday parties. Rising inequality has thus spawned a multitude of “expenditure cascades,” whose first step is increased spending by top earners.

The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.

In a recent working paper based on census data for the 100 most populous counties in the United States, Adam Seth Levine (a postdoctoral researcher in political science at Vanderbilt University), Oege Dijk (an economics Ph.D. student at the European University Institute) and I found that the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress.

First off, the last sentence in the second paragraph is not true. Spending cascades do not make it more expensive to achieve basic financial goals. Basic financial goals, such as a comfortable retirement and purchasing a house, are entirely dependent upon one's income and ability to save and invest. Saving and investing are not dependent upon the actions of others, but rather one's own choices. What other people are doing is irrelevant.

As for the rest of it, I have no idea if people are actually shifting their consumption pattern upwards in an effort to "keep up with the Joneses" or those in the socioeconomic class just above them. I suppose it is plausible, as I have known plenty of people who appear to live beyond their means. But so what? Should the rich be punished because of the inability of others to make sound financial decisions? I'll also note that the underlying logic here is that people are stupid, can't be trusted to make their own decisions and smart people like Frank should set public policy so that temptation is removed from them, even if it comes at a cost to someone else.

Frank then trots out this argument:

Another footprint of financial distress is long commute times, because families who are short on cash often try to make ends meet by moving to where housing is cheaper — in many cases, farther from work. The counties where long commute times had grown the most were again those with the largest increases in inequality.

It's difficult to even know where to start with this one. First off, commutes are not entirely a product of housing prices. Plenty of people in the Washington DC metro area, for example, could afford houses in the city but choose to live in the suburbs and commute to the city because of the difference in public school quality, and thus endure longer commutes. Second, areas of more affordable housing in the city often suffer from high crime rates, which also pushes workers further out into the suburbs.

Third, and perhaps most significant, increasing the supply of housing (and thus reducing prices) in the city is no easy feat thanks to heavy regulation such as zoning, density limits, affordable housing mandates, historic designations which limit development and height restrictions. Indeed, compare cities with the longest commute times to those with the shortest and some patterns emerge. The cities with the longest commutes are all found on the East and West coasts in "blue" states that likely favor heavy government regulation, while those with the easiest commutes are in "red" states where land is plentiful and almost assuredly subject to fewer restrictions on its use.

All three factors have nothing to do with income inequality and everything to do with poor public policy.

This brings us to Frank's final, and possibly most bizarre, argument:

The middle-class squeeze has also reduced voters’ willingness to support even basic public services. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and cargo containers that enter our ports without scrutiny. And many Americans live in the shadow of poorly maintained dams that could collapse at any moment.

Huh? Seriously, who is out there railing about government spending on crumbling roads and bridges? (Please don't conflate criticism of the stimulus package as an argument against infrastructure. The stimulus was criticized because the emphasis was on spending the money as quickly as possible, likely funding plenty of unnecessary pork-barrel projects. No one is against repairing a teetering bridge.) Where is the evidence to support this assertion? Further, despite this alleged reduced willingness to support spending on infrastructure we certainly haven't seen a decline in government expenditures on transportation at the federal level:

Whatever the government is hurting for, a lack of money isn't it with a budget over $3 trillion. This extends to the Department of Transportation, whose budget increased in constant dollars from around $35 billion in 1975 to over $65 billion 30 years later. That's about an 86 percent increase at a time when the country's population increased by around 37 percent. And does anyone think that state level spending on infrastructure declined during that time? If our roads are in poor condition it is plainly due to an inefficient bureaucracy, not a lack of money.

To address Frank's other worries about rail and container security, I should also add that our deregulated cargo railroads are among the best in the world while the past decade saw the establishment of a new government program to address security as the nation's ports (whether it is effective I do not know, but its establishment would seem to suggest that money is being devoted to the effort).

If this is the best that inequality worriers such as Pearlstein and Frank can offer up, I remain convinced that the issue is a non-problem being ginned up simply to raise support for higher taxes and more government meddling.

Angle-Reid debate

I didn't watch the Angle-Reid debate the other night, but this is rather striking:

Reid: Mitch, insurance companies. Insurance companies don’t do things out of the goodness of their hearts, they do it out of a profit motive and they have almost destroyed our economy. Twenty percent of all costs, prior to our passing our health insurance reform, was because of health care costs. If we didn’t do something to change it, it would go up by, in less than 15 years, to 36 cents of every dollar. It would break us.

We need them to be forced to do mammograms. That’s why you see breast cancer awareness month, you see the baseball players wearing pink shoes and you see the football players having pink helmets. It’s because people dread breast cancer and you don’t get breast cancer, you correct breast cancer, you detect it, if you do mammograms.

Colonoscopies – if you do colonoscopies, colon cancer does not come cause you snip off the things they find when they go up and – no more. And we need to have the insurance companies do this, it’ll save money in the long run to do this.

Fox: Thank you. Mrs. Angle, thirty seconds.

Angle: Well pink ribbons are not going to make people have a better insurance plan. What makes people have better insurance plans is competition. And that’s what I’ve been saying all along is that we need more competition so that they will cover the things that we need them to cover, because that’s the things that we want to buy.

That’s how the free market works, that’s why our solutions reside in the free market and when we talk about what has destroyed this economy, Obamacare is destroying out economy, I know a company that has laid off five people because of Obamacare.

Harry Reid, the majority leader in the United States Senate, thinks that profits and businesses are destroying the economy. Angle thinks that competition is the best form of consumer protection. That kind of says it all.

Recommended reading

• A co-founder of Home Depot tells President Obama to stop beating up on businesses. It's sad that he even has to say this. 

• The New York Times has a very interesting article on the economic mess in Greece. It's basically a story of government regulation run amok. 

• Dan Mitchell wonders why so many on the political right are in thrall with Indiana Gov. Mitch Daniels. I have to say, the more I learn about Daniels the less I like him. But I guess you could say that about most politicians. 

• Tad DeHaven says it's a good time to cut farm subsidies. When isn't it a good time?

The most important race?

Ted and Lisa

While most of the coverage surrounding the mid-term Senate elections has focused on places like Nevada and West Virginia due to their tight races, or the freak show factor of Delaware, I'm increasingly convinced that the most important contest might be one that few others are talking about: Alaska. Mostly ignored because it is almost assured of remaining in Republican hands, the race could go a long way towards clarifying what exactly Americans believe in.

On the one hand we have Joe Miller, whose about as red-blooded a conservative as you will find. He favors repealing ObamaCare, a federal hiring freeze and -- get this -- limiting federal actions to those explicitly authorized by the Constitution.

Then there is Lisa Murkowski. Appointed to the job by her father, Murkowski is the prototypical politician who has run her office like a favor factory in order to maintain power. Indeed, nine federal contractors are so scared of losing her as a conduit to Washington pork they've given a combined $805,000 to the Murkowski campaign. And now she is releasing a new ad that plays up her connection to the late Sen. Ted Stevens, a legendary pork-barrel politician who brought home billions to the state. The subtext is hard to miss. Vote for Lisa and she'll keep the gravy train on track -- nevermind that the country is facing a 2011 deficit now projected at $1.4 trillion.

Alaskans face a pretty stark choice: they can keep going with the same people who treat the federal treasury as a big piñata and helped get us in the current fiscal mess, or elect a genuine conservative who will try to straighten matters out but won't act as a Santa Claus in politician's clothing.

The race is quite close, and some current and former Murkowski staffers I am friends with are outwardly confident about the senator's chances. If she prevails it will cast quite a pall over the entire election. This is gut check time for Alaskans and the country.

Recommended reading

• Daniel Henninger says that innovation spurred by capitalism saved the trapped Chilean miners. I was literally just talking to a coworker of mine about this, and the amazing technology that made this rescue possible. Not that long ago these guys would have perished.

• Reason magazine publishes some great examples of radical government downsizings. My favorite might be New Zealand's forest privatization initiative (!) which reduced the number of employees in the Forestry Ministry from 17,000 to 17.

• Adam Schaeffer notes a number of high-profile progressive bloggers who appear to be on the verge of being mugged by reality. The collision of left-wing ideas with reality typically mirrors that of a Trabant with a brick wall.

• Greg Mankiw, meanwhile, notes President Obama's own run-in with reality.

• Should we dissolve the Fed?

US price controls

The New York Times relays some of the latest directives from Gosplan the Obama Administration:

The Obama administration, aiming to encourage health insurance companies to offer child-only policies, said Wednesday that they could charge higher premiums for coverage of children with serious medical problems, if state law allowed it.

...Insurers “can adjust their rates based on health status until 2014, to the extent state law allows,” said Jay Angoff, director of the Office of Consumer Information and Insurance Oversight at the Department of Health and Human Services.

Think about that: companies, that are not part of a monopoly mind you, must look to the government for permission to set their own prices. And this is taking place in what is allegedly the world's greatest bastion of free market capitalism.

In addition, check out this statement from HHS Kommissar Secretary Kathleen Sebelius:

“Nothing in the Affordable Care Act, or any other existing federal law, allows us to require insurance companies to offer a particular type of policy at this time.”

Those last three words really indicate the statement's tone -- the disappointment is palpable.

Rhee resigns

Source: Nate Beeler

My post on Waiting for Superman here.

Window into the White House

If true this is pretty revealing:

Former White House Chief of Staff Rahm Emanuel isn't known for mincing words, and in a conversation with a CEO of a large company last month, he lived up to his reputation. "How come," he demanded to know, according to a person with direct knowledge of the conversation, "you guys aren't hiring more?"

The CEO's answer, the person says, went something like this: "I know you're paid to do the president's bidding, but I'm paid to answer to shareholders and a board of directors and your health-care plan is costing me $1.5 billion, your tax increases another $1 billion, and regulation another half a billion. So I might have to lay off people rather than hire them."

The CEO's response was eminently predictable to anyone with any kind of grasp of business and economics. That this should be a surprise or some kind of revelation to Emanuel speaks volumes about the thinking that goes on inside the White House.

Recommended reading

• Mark Perry notes that Cuba is literally being held together with super glue. But their health care is awesome! Or something.

• Coyote Blog on commerce clause insanity.

• California: Stephen Moore on the state's green nightmare while Mark Perry notes that scores of companies are packing up for greener pastures. I'm not sure the two are unrelated.

• Richard Rahn on what the US can learn from Australia.

• Alex Tabarrok explores economic misconceptions among college students. Depressing stuff.

• John Stossel has a very simple and elegant message: freer is better!

• Radney Balko explains what's wrong with Woodrow Wilson.

Boondoggle in the Motor City

The most illuminating part of this video is the interview with the politician, who both relishes the opportunity to taxpayer dollars and is apparently unfamiliar with the concept of limited resources. At the 1:43 mark she says:

"When we have the opportunity to rebuild an entire urban center -- which for me, as a person with a master's degree in landscaping, architecture and regional planning -- that is truly exciting."

Oh, I bet. Edifice complex anyone? This is the intersection of arrogance and the power to spend other people's money. Kind of reminds me of Joe Biden.

Then we get this (3:28):

Obviously [the idea that there is a limited amount of money] is not true. If that was the case then if we wanted to build a new school in Royal Oak for instance we'd say, 'We cannot build another school in Royal Oak because we only have so much money.'"

This woman obviously has a bright future at the federal level.

Big government word cloud

Gallup recently polled Americans on what words come to mind when they think of the federal government. Here's how they responded:

More details here.

Recommended reading

• Obamacare updates and commentary here, here, here, here and here.

• The Wall Street Journal reports that a number of Congressional staffers are making out pretty well in the stock market. I seem to recall US Senators being particularly savvy players in the market too.

• Americans don't seem too keen on farm work.

• Here is an interesting look at Federalist 62, uncertainty and the economy. It's a reminder of both the intelligence and perspicacity of the founding fathers and that many of the problems we currently face aren't new.

• Are global trade imbalances, the source of much hand-wringing among some economists, being overstated?