Freedom Line Blog

Following our recent blog symposium on Mitt Romney’s shortcomings as an effective defender of market economics, this clip from his appearance yesterday on the Today Show is worth watching:

The problem with Romney’s “envy” approach is that it’s a mirror image of precisely the kind of class warfare he’s (rightly) accusing President Obama of. It’s just not going to hold water in a time of economic distress for any Republican — let alone a fantastically wealthy ex-businessman — to attempt to swat away his opponents by claiming they resent his wealth and that of those similarly situated. Romney should instead be making the case for broad-based prosperity — the sort of democratic capitalism Ashton advocated yesterday. Attacking the motives of his opponents instead of rebutting their assertions makes him seem both aloof and unprepared for the debate to come.

With the end of the year only about a month away, Republicans on Capitol Hill are stuck in a bit of a quandary. Under current law, the dawning of 2012 will bring with it the expiration of the payroll tax cuts passed last year, which dropped employee rates from 6.2 to 4.2 percent.

As I’ve written before, the payroll tax cuts get you less bang for your buck than virtually any alternative. The  savings for an average American are about $40 per paycheck — not nothing, but certainly not enough for even the most dyed-in-the-wool Keynesian to think aggregate demand will shift, particularly because the program’s temporary nature means that it is not altering long-term plans. Also, remember that the payroll tax is there to finance Social Security and Medicare, so pulling money out of those accounts only hastens the day of fiscal reckoning for both of those programs. Finally, there’s the fact that there’s only a cut to the employee’s chunk of the payroll tax, not the employer’s. That means it does absolutely nothing to galvanize hiring.

Savvy congressional Republicans have made these points, but voting to end the break would put them in the unusual position of defending an increase in taxes at a time of extreme economic weakness. While the payroll rate will eventually have to return to the status quo, the GOP is thus stuck looking for something to plug the hole in in the interim.

Kudos, then, to the Republican leadership, who, according to Politico, are looking to pay for the continued tax break by extending a salary freeze for federal employees and lawmakers, a move that would save about $100 billion. While the country’s biggest economic need is a wholesale overhaul of tax policy and regulatory policy combined with a dramatic reduction in federal spending, that won’t happen in the current atmosphere of political polarization in Washington. If we have to muddle through in the interim, this is a fairly reasonable way to do it — don’t increase the debt and let the Washington crowd foot the bill for the everyday Americans they’ve so badly misserved.

I’ve posted before on the difficulty that Texas Congressman Ron Paul’s presidential candidacy presents: while Paul is utterly at sea on foreign policy issues and too philosophically pure to countenance the type of compromise that real political progress requires, his libertarian beliefs also make him one of the best candidates in the Republican race on economic issues. Thankfully, Paul has no hope of being the nominee, but let’s hope that his “Restore America” economic plan, unveiled earlier today, has an influence on the GOP field. This is solid stuff, as the Wall Street Journal’s Washington Wire blog reports:

Mr. Paul does get specific when he calls for a 10% reduction in the federal work force, while pledging to limit his presidential salary to $39,336, which his campaign says is “approximately equal to the median personal income of the American worker.”  The current pay rate for commander in chief is $400,000 a year.

The Paul plan would also lower the corporate tax rate to 15% from 35%, though it is silent on personal income tax rates, which Mr. Paul would like to abolish. The congressman would end taxes on personal savings and extend “all Bush tax cuts…”

While promising to cut $1 trillion in spending during his first year, Mr. Paul would eliminate the Departments of Education, Commerce, Energy, Interior and Housing and Urban Development…

Mr. Paul would also push for the repeal of the new health-care law, last year’s Wall Street regulations law and the Sarbanes-Oxley Act, the 2002 corporate governance law passed in response to a number of corporate scandals, including Enron.

What’s most remarkable is that Paul — long considered an ideological outlier — is now in line with the majority of the Republican establishment (the movement was on their end, not his). With the exception of his call to abolish the federal income tax and a few of his cabinet department eliminations, these are all priorities that a Republican congress could support coming from a GOP president. That man won’t be Ron Paul … but let’s hope he’s read his plan.

It was less than a month ago that the Federal Reserve wrapped up its annual economic symposium in Jackson Hole, Wyoming with all signs pointing to the prospect that the nation’s central bank was going to cool it on the “quantitative easing” (dumping new currency into the markets) for a while. Though the insanity has (at least temporarily) abated, the central bank is still making mischief.

As Politico reports:

The nation’s central bankers dusted off a 1960s-era plan in hopes of rousing the sluggish economy Wednesday, taking the unusual step of shifting $400 billion into longer-term bonds in hopes of slashing interest rates further.

The Federal Reserve’s Open Market Committee voted 7-3 to embark on what’s informally called “Operation Twist,” a move first used during the heyday of Chubby Checker and named for his song of the same name.

The policy is mostly inert, as it won’t actually result in a monetary injection ala quantitative easing. The early consensus is that it won’t have much effect one way or the other. But the possible rationale, if true, is revolting:

Exerting political pressure on Bernanke may have rallied the Fed to act, since the committee likely found “this political meddling repugnant,” wrote JPMorgan Chase economist Michael Feroli in a client note.

Let’s be clear about this: the Fed already operates independent of “political meddling.” Various members of Congress and candidates for president may have been carping about Bernanke’s leadership (a point on which they’re certainly justified), but their influence was limited to the range of their voices. Nothing they said could actually effect policy.

If something so immaterial to the Fed’s work could drive monetary decisions, then this may be the most petulant institution in the federal government. At a time when the economy teeters on the brink of another devastating downturn, making market decisions in response to slights real and imagined shows a staggering lack of seriousness. If this is Mr. Bernanke’s swipe at Governor Perry, he should note that he’s only strengthening the governor’s argument.

We’ve long known that Pat Sajak counts himself a resident of the political right. Now, thanks to this new video from Chuck Woolery, it looks like we may be able to go so far as to carve out a game show host exception to the otherwise ironclad rule of Hollywood leftism. No word yet on Alex Trebek, but don’t hold your breath … he’s Canadian.

Larry Summers, the economist whose resume includes helping create the kind of mortgage default swaps that crashed the financial system, being fired as President of Harvard for sexist remarks about female scientists, and resigning in disgrace as his infrastructure-heavy stimulus package failed, is back with a plan only a Soviet central planner could love.

Writing for Newsweek (itself an entity that’s seen better days), Summers tells his former boss, “Mr. President, We Need a 10 Year Plan.” Give Summers credit for brashness; in Soviet Russia the Communist Party considered it a success if it could make good on any of its 5 year plans.  (It never did.)

I’ll use Summers’ piece as an excuse to do something otherwise thought impossible: praise President Barack Obama for firing at least one bad economist.

It’s not about central planning, Larry; it’s about incentives.  Reform the tax code and streamline regulations with incentives for hiring and producing, and the economy will grow.

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

Republican control of the House of Representatives may have stifled the Obama Administration’s grand statist designs in Congress, but the White House continues to push costly, job-killing regulation through the rulemaking power of the administrative state. Because new regulations enjoy nowhere near the media scrutiny of new legislation, however, the public often remains unaware of their role as silent predators on America’s economy. That’s why credit is due to House Speaker John Boehner for calling Obama to account for this economic poison. From Politico:

In a letter that will be sent to President Barack Obama on Friday, House Speaker John Boehner charges that planned regulations have jumped nearly 15 percent over the past year and he calls on the administration to calculate and publicize their economic impact.

“This year, the administration’s current regulatory agenda identifies 219 planned new regulations that have estimated annual costs in excess of $100 million each. That’s almost a 15 percent increase over last year and appears to contradict public suggestions by the administration this week that the regulatory burden on American job creators is being scaled back,” Boehner wrote.

“I was startled to learn that the EPA estimates that at least one of its proposed rules will cost our economy as much as $90 billion per year. The administration has not disclosed how many of the other 218 planned rules will cost more than $1 billion, nor identified these rules,” he noted.

If Obama is serious about “pivoting to jobs” (a promise we seem to hear on a quarterly basis), there’s no way he can ignore the costs of federal regulations, which are de facto tax increases. According to the Small Business Administration, the annual cost of federal regulation alone amounts to $1.75 trillion dollars. That’s nearly 12 percent of America’s GDP gone every year because of the Washington bureaucracy.

A failure to repeal many of these draconian monstrosities is economic malpractice. But a failure to simply reveal their costs is a dereliction of duty.

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

In case you missed it, Stephen Moore of the Wall Street Journal explains “Why Americans Hate Economics” with two wonderfully clear paragraphs.

The first explains where economics as a discipline went wrong:

How did modern economics fly off the rails? The answer is that the “invisible hand” of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new “macroeconomics,” a witchcraft that began to flourish in the 1930s during the rise of Keynes. Macroeconomics simply took basic laws of economics we know to be true for the firm or family—i.e., that demand curves are downward sloping; that when you tax something, you get less of it; that debts have to be repaid—and turned them on their head as national policy.

The second shows where Keynesians err:

The grand pursuit of economics is to overcome scarcity and increase the production of goods and services. Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. “All economic problems are about removing impediments to supply, not demand,” Arthur Laffer reminds us.

Knowledge becomes inaccessible only when an influential group decides that reality doesn’t fit their ideal.  The Keynesians have had their day.  It’s time for the proponents of sound money and economic growth to have their turn.

For the past two and a half years, it’s been the exclusive provenance of the right to point out that President Obama often seems overmatched by his job. But after this weekend’s latest round of debt ceiling negotiations — where a newly irascible President Obama was nowhere to be seen amidst the congressional horse-trading — it’s becoming clear that Democrats on the hill are starting to think the same thing. The ugly details are fleshed out by Craig Crawford, writing in the Huffington Post:

While the GOP obviously would savor a solution to the debt-ceiling crisis that gives Obama no credit, why are Democratic leaders so willing to cut him out?

The answer might be found in growing concerns among veteran Capitol Hill Democrats that their president is a lousy negotiator.

Although they see him as a talented public communicator, his short time as a senator and painfully slow learning curve as president leads congressional Democrats to think it best to take over and provide cover for him once the deal is done.

“A talented public communicator” who can’t negotiate? The Democrats are essentially saying that the president is really good at talking about his job, just weak when it comes to actually doing it. This, my friends, is what the wag who coined the phrase “damning with faint praise” had in mind.

The Daily Express reports from the U.K. today that the BBC is taking a new approach to climate change skeptics: ignoring them outright. Here’s how the paper has it:

THE BBC was criticised by climate change sceptics yesterday after it emerged that their views will get less coverage because they differ from mainline scientific opinion.

In a report by its governing body, the BBC Trust, the corporation was urged to focus less on opponents of the “majority consensus” in its programmes.

It said coverage should not be tailored to represent a “false balance” of opinion if one side came from a minority group.

… Although he found no evidence of bias in BBC output, he suggested where there is a “scientific consensus” it should not hunt out opponents purely to balance the story.

Needless to say, the BBC’s decision strikes at the heart of both scientific and journalistic integrity. These are two fields where it should be universally recognized that truth is not whatever the majority says it is. As long as the BBC is going to be playing this game, however, let’s make it a fair fight. 

Clearly, we should not expect to hear minority points of view on the following propositions, all of which are supported by the vast majority of economists: Free trade is beneficial, the minimum wage is a job-killer, and outsourcing is a positive good. Since the experts have weighed in, we’re confident that the BBC will now get to work suppressing dissenters as a matter of civic hygiene. We look forward to their objectivity.

Michael Barone is one of those rare Washington pundits who thinks facts are more important than feelings. That means that when he makes sweeping claims, he’ll always have the data to back them up. And he’ll do so in the dispassionate fashion of a doctor reading an X-ray. That’s part of what makes his new column on the debt ceiling so chilling. In it, he writes:

The bedrock issue is whether we should have a larger and more expensive federal government. Over many years, federal spending has averaged about 20 percent of gross domestic product.

The Obama Democrats have raised that to 24 or 25 percent. And the president’s budget projects that that percentage will stay the same or increase far into the future.

In the process, the national debt as a percentage of gross domestic product has increased from a manageable 40 percent in 2008 to 62 percent this year and an estimated 72 percent in 2012. And it’s headed to the 90 percent level that economists Kenneth Rogoff and Carmen Reinhart have identified as the danger point, when governments face fiscal collapse.

Barone’s words are a bracing reminder of the stakes in this fight. Virtually all Democrats — and even many Republicans — would have us believe that this is a moment defined by pure political philosophy; that it’s simply a question of whether you balance the books through tax increases, spending cuts, or some combination thereof. But it’s more than just principles that hang in the balance. It’s the fate of a nation.

The incomparable Veronique de Rugy (Reason columnist and economist at the Mercatus Center) was recently a guest on Bloomberg TV, where she was tasked with rebutting the faulty economics behind the gigantic economic stimulus program that’s still holding back the American economy. As the video below shows, it was child’s play for this intellectually rigorous defender of free markets:

It’s as clear a statement of what works (and what doesn’t) in providing economic growth and well-being as you’ll find. It’s a guide to not only the rightness but the utility of freedom. And it can be viewed in the time it takes to wait for a stoplight to change. It’s the new video from the good folks (yes, we’re not afraid to say it) at the Charles Koch Foundation. The only thing wrong with this project? That there aren’t more videos like this one:

I’m going to have to make some concessions to Tim, which means I may start drinking before I’m finished writing this post (just kidding, Tim is consistently on point … and I started drinking long before I started drafting).

The source of this doff of the cap is the performance of one Tim Pawlenty, who Mr. Lee took to this blog to defend when I lamented the state of the Republican presidential field upon Mitch Daniels’ non-entry.

As the invisible primary picks up steam, Pawlenty is showing some real grit (he opposed ethanol mandates despite the importance of Iowa to his electoral strategy, for instance) and consistently sharpening his message. Giving a major economic address in Chicago today, the former Minnesota governor brilliantly characterized his formula for reducing government:

“We can start by applying what I call ‘The Google Test,’ Pawlenty said Tuesday. “If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it.”

Pundits on the left are already hitting Pawlenty for being reductionist. There may be some ever-so-slight truth to that. You can find health care services online, but that doesn’t mean it’s unreasonable for the government to provide funding for the poorest among us. Still, having the government provide it? I’d have to say the Pawlenty formula is right about 98 percent of the time.

This morning, the Labor Department announced that the U.S. unemployment rate climbed again to 9.1% this month, up from 9.0% in April.  Just as alarmingly, the net number of jobs created was only 54,000, down from 232,000 in April.  In addition to deteriorating from the previous month, both numbers fell well below the expectations of economists, who had anticipated a decline in the unemployment rate to 8.9%, and 160,000 net new jobs.  This also means that in the 27 months since Obama signed his unprecedented government spending “stimulus,” unemployment has only climbed from 8.2% to 9.1%, even though the Administration projected that he would have it down to 6.5% by now.  By way of comparison, in the same 27 months following the effective date of President Reagan’s tax cuts in January 1983, unemployment plummeted from 10.4% to 7.3%.  The facts speak volumes.

Believe it or not, they occur once in a blue moon. The AP reports:

Oil spill prevention requirements will no longer apply to spilled milk. Gasoline pumps wouldn’t need devices for trapping vapor pollutants, and there would be fewer bureaucratic hurdles for doctors who want to dispense medical advice to a distant patient.

These were among hundreds of existing regulations that the Obama administration said Thursday it wants to revamp or eliminate in a government-wide effort to ease burdens on business. Overall, the drive would save hundreds of millions of dollars annually for companies, governments and individuals and eliminate millions of hours of paperwork while maintaining health and safety protections for Americans, White House officials said.

No jokes. No irony. Just a thanks to the folks at the White House behind this initiative. And a question: can we have some more please?

This morning, the Labor Department announced that first-time unemployment claims rose again, from 414,000 last week to 424,000 this week.

As demonstrated by this Labor Department graph, weekly unemployment claims average approximately 300,000 during periods of economic normalcy.  One year ago, the number stood at 463,000 when the Obama Administration proclaimed the arrival of the “Recovery Summer,” yet it never dipped below 400,000 for the remainder of 2010.  We finally dipped into the high 300,000 range in February of this year – still an elevated level – but the number climbed back to 478,000 last month.

This is the Obama “stimulus,” over two years and $1 trillion of government spending later.

In an email regarding yesterday’s post, reader Eric Coykendall sent this helpful article from Foreign Policy explaining why a European traditionally heads the International Monetary Fund (IMF): a so-called “gentlemen’s agreement” brokered by economist John Maynard Keynes.

The origins of the gentlemen’s agreement date back to shortly after the Bretton Woods conference in 1944, which established both the IMF and World Bank. According to Miles Kahler’s history, Leadership Selection in the Major Multilaterals, Bretton Woods architect John Maynard Keynes had assumed that his main collaborator at the conference, Treasury Department official Harry Dexter White, would run the IMF. U.S. President Harry Truman also supported White’s choice. However, Treasury Secretary Frederick Vinson, with strong backing from Wall Street, argued that an American should run the World Bank — Washington Post publisher Eugene Meyer got that job in 1946 — and that it wouldn’t be proper for the United States to run both of the world’s major financial institutions. White’s possible communist sympathies — he’s widely suspected today of having been a Soviet agent — may also have played a role in the decision. In the end, Belgium’s Camille Gutt was eventually appointed to run the IMF.

In the wake of scandal engulfing the recently resigned Dominique Strauss-Kahn from France, developing nations like Brazil and South Africa are pushing for a non-European to manage the world’s leading investment/bailout bank.  In the article sent by Coykendall,  FP makes this keen observation about the European double-standard likely to decide the outcome.

The question of nationality is sure to come up again if Strauss-Kahn steps down, but Europeans will not be eager to part with the position. Some, such as German government spokesman Christoph Steegmans, argue that owing to the IMF’s critical role in stemming Europe’s current financial crisis, the managing director should be someone who is familiar with “Europe’s particularities, the currency questions and also the political circumstances here.” Strangely, when the IMF was primarily giving loans to countries in Africa and Latin America, local knowledge didn’t seem to be quite as much of a factor.