Freedom Line Blog

Courtesy of a story from UK Reuters:

President Hugo Chavez blamed “criminal” capitalism on Sunday for global climate phenomena including incessant rains that have brought chaos to Venezuela, killing 32 people and leaving 70,000 homeless.

Worst hit is the coastal area of the South American OPEC member nation where millions live in precarious hillside shantytowns and mudslides have been toppling rickety houses.

Hmmm, an oil-rich nation with millions living in shantytowns? How often do you think that happens in capitalist societies, Senor Chavez?

As the lame duck Congress prepares to take up the issue of what to do about the expiring Bush tax cuts, liberal pundits are busy proving to the American people that no journalism school in America provides economics education. A few points to make with your liberal friends as you argue economics the next time you join them for a non-fat soy latte made from fair trade ingredients:

• Extending the Bush Tax Cuts Won’t “Cost” Anything — Liberals can’t stop carping about the $700 billion “cost” of extending tax cuts for Americans making over $250,000 a year. This is preposterous. The absence of tax increases isn’t a cost to the federal government. If it was, then every dollar kept in private hands instead of transferred to Washington would be a cost. Private businesses don’t account for imaginary revenues as costs, and there’s no reason for government to either. This is just an excuse for not bringing expenditures into line with “revenues” (i.e. money confiscated from you).

• A Shortage of Tax Revenue Isn’t the Root of America’s Fiscal Problems — The class warfare rhetoric at the heart of the tax fight is a red herring for the real issue at hand. Virtually all taxes kill economic activity. Of course, some tax revenue will always be necessary to finance the basic functions of government, but beyond that baseline taxes are actively destructive. Thus the real choice when it comes to upper-level earners’ tax rates isn’t whether they should be soaked or not. It’s whether you think the federal government is doing too little (in which case taxes need to increase and more private economic activity should be killed) or too much (in which case spending needs to decrease).

• Income Inequality is a Meaningless Metric — Proponents of aggressively progressive taxation who are prone to ideological rather than practical justifications of their beliefs have increasingly been leaning on an argument that America suffers from growing income inequality. This is specious for two reasons. First, it presumes that there is an ideal distribution of wealth that exists free of merit. The more free an economy is, however, the more income is a function of how much value one creates in the marketplace. So do we want a nation of C students (socialized mediocrity) or a nation where the highest achievers get A’s and the lowest ones are held back a year (with generous welfare benefits, we should add)? Also, these numbers are absolutely useless from a statistical perspective. Samples of income tiers measure groups, not individuals. So when we say that the rich are richer and the poor are poorer than 20 years ago, we ignore the dynamism of the American economy — and the resulting fact that many individuals who were on the lower rungs of the economic ladder two decades ago have moved up, and many at the top have moved down. This interpretation also ignores the fact that the gap is less important than the actual numbers. If you have $200 and I have $100, are incomes are closer to parity than if you have $1 billion and I have $1 million. But in the latter scenario, we’re both better off individually and society (if it consists of just you and I) is better off as a whole. Now imagine extrapolating that analysis to an entire nation

• Virtually Every Number You See About Poverty in America is a Lie — For one simple reason: government calculations of poverty do NOT factor in benefits conveyed by government. To prove the point using an unrealistic example, a family of four making $40,000 a year but receiving $60,000 in government assistance, would still be captured in government statistics as making $40,000 a year, even though their actual income would be $100,000.

• Unemployment Benefits are NOT a Form of Economic Stimulus — From Nancy Pelosi to Nicolas Kristof, every empty head on the left seems to have the idea that unemployment benefits are a form of economic stimulus rattling around inside it. The idea is that because the poor have the greatest need for liquidity (and will thus spend the cash the quickest) unemployment greases the wheels of commerce. This is a basic Keynesian fallacy: thinking of the economy only in terms of consumption. But if this is true, why wouldn’t the road to recovery be paved with every American emptying out their bank account for a trip to Nordstrom’s? Maximum economic efficiency is achieved by putting money to the use that provides the greatest benefit relative to the cost to the individual. In some cases, this will be consumption. But in others it will be investment or savings. Unemployment benefits can be justified on humanitarian grounds, but not on mechanical economic ones (indeed, excess unemployment benefits drive up unemployment — not a surprise if you remember that you always get more of what you subsidize). Paychecks generally provide the basis for a sounder economy than food stamps.

Regular readers know that Paul Krugman, Tom Friedman, and Joe Klein regularly jockey for the status of political pundit I most despise. Well, Dr. Krugman pulled into the lead with his stunning endorsement of “death panels” as the royal road to America’s fiscal health on yesterday’s edition of “This Week with Christiane Amanpour”:

H/T: NewsBusters

The Wall Street Journal is among the news sources carrying coverage of the preliminary recommendations being produced by President Obama’s much-feted debt reduction panel. According to the Journal’s synopsis:

Among the controversial proposals, the plan in its current form would end or cap a wide range of breaks relied on by the middle class, including the deduction for home-mortgage interest. It would tax capital gains and dividends at the higher rates now levied on wage income. To compensate, one version of the plan would dramatically lower and simplify individual rates, to 9%, 15% and 24%.

For businesses, the plan would significantly lower the corporate tax rate—from a current top rate of 35% to as low as 26%—but also eliminate a number of deductions. It would make permanent the research and development tax credit. Overall, the plan would cut the federal deficit by $3.8 trillion by 2020.

… On Social Security, the plan would gradually raise the retirement age to 68 around 2050 and 69 by 2075. It would combine a cut in benefits with a rise in taxes on wealthier people’s incomes. It would also seek to rein in federal spending on health care beyond what’s called for in the recently passed health-care overhaul. This would be achieved by introducing further changes, including reform of medical-malpractice law, and by seeking to slow the growth of the Medicare program.

The plan would make significant cuts on spending over which Congress has direct control, beyond entitlements such as Medicare. It identifies $410 billion in discretionary spending cuts by 2015. It proposes cutting the federal work force 10%, at a further savings of $13.2 billion by 2015.

Congressional earmarks—provisions inserted into legislation for lawmakers’ pet projects—would be banned permanently, saving $16 billion.

This a surprisingly market-friendly recommendation, much of which — though politically very tough — is admirable. Hopefully, low-tax advocates will train their fire on the unnecessary increases in capital gains and dividend rates, as well as what looks to be a proposed increase on Social Security and Medicare taxes for the wealthy. While we don’t know what deductions are on the chopping block, if the home mortgage example is representative there’s actually a strong free-market case to be made in favor of the eliminations. By giving economic preference to activities like home purchases, these deductions lead to economic inefficiency (they either direct consumers to make choices that wouldn’t be rational without the deduction or subsidize purchases that would have been made regardless).

Elsewhere in the WSJ piece, the authors refer to the fact that the current recommendations rely about 75 percent on spending cuts and 25 percent on tax increases. Good, but not great. A recognition that taxes always hamper economic activity means that tax increases should never be considered instead of spending cuts unless (A) government is only doing the things that are its rightful responsibility and (b) it is doing all those things at maximum efficiency. At some point, the exigencies of politics may require compromising short of that ideal, but I’d like to see a comprehensive examination of spending in the executive branch before tax hikes are even considered.

Let’s consider the cabinet departments. The Departments of Justice, Defense, Treasury, and State are the originals and unquestionably justified under our scheme of federal government. There are others that have probably grown into necessary organs in years since. We’ll need Health and Human Services as long as we have a federal welfare state, Interior as long as we have public lands and a National Park system, Transportation at least for the interstate highway system and air travel and, though its probably in need of some pruning, Homeland Security. Veterans Affairs seems like it could be folded into either Defense or HHS. As for the Departments of Education, Housing & Urban Development, Energy, Agriculture, Commerce, and Labor (apart from its statistical work), I’m at a loss for what useful purpose (or more importantly, results) justifies their existence. I’d be more than willing to scrap each of them, keep the few parts we still need, and re-check the ledger before considering higher taxes for even a single American.

Alex Pollock’s contribution in The American, a publication for the American Enterprise Institute (AEI), is much needed medicine for the regulatory fever about to be unleashed when the Dodd-Frank “financial reform” bill is implemented.

The key to understanding boom-and-bust cycles, according to Pollock, is realizing the limits of a mathematical model’s ability to predict the future.  To quote Pollock quoting a colleague, “The model works until it doesn’t.”  That is, until someone falsifies the model by acting in a way contrary to the model’s assumptions.  Then everybody who uses the model is out a lot of money.

So, if profit-hungry businesses can’t figure out a way to avoid losing money, what in the world makes the denizens on Capitol Hill think they can create a federal agency with such powers?

Hubris and stupidity.  Political cultivation of those qualities is a science unto itself.

Weekend Bonus Link: For another theory of the business cycle, click here.

Last month, we profiled how federalism is alive and well in economic policy — as exemplified most explicitly in the sharp contrast between California and Texas (a topic we’ve been exploring for nearly a year).

As John Steele Gordon points out in the Contentions blog over at Commentary’s website:

It is often pointed out that the states make great laboratories for political-science experiments. And an experiment has been underway for quite a while testing the liberal model — high taxes, extensive regulation, many government-provided social services, union-friendly laws — against the conservative model — low taxes, limited regulation and social services, right-to-work laws. The results are increasingly in. As Rich Lowry reports in National Review Online, the differences between California and Texas are striking. Between August 2009 and August 2010, the nation created a net of 214,000 jobs. Texas created more than half of them, 119,000. California lost 112,000 jobs in that period.

California has always prided itself on being a leading indicator for the rest of the nation. We’ll see how well they like that designation when it turns out to mean being the canary in the coal mine.

The Los Angeles Times — that bastion of journalistic daring do — has discovered that recessions cause job losses. Don’t laugh — they will probably submit this to the Pulitzer people.

What really steams the Times’ clams, however, is that manual labor is being replaced by mechanical automation. Writing in this morning’s edition of the paper, reporter Alana Semuels notes:

Forced to cut costs during the recession, employers across the country are looking at ways to avoid hiring. They’ve accelerated use of computers and technology, replacing administrative assistants with software, cashiers with self-service kiosks and laborers with machines.

These structural changes mean some jobs that disappeared during the recession may never come back. Productivity gains are good for company profits and help the economy grow over the long run. But in the short term, the shift is exacerbating America’s jobless recovery.

Kudos to Semuels for at least noting the importance of productivity gains, but there’s a still something of a misdirect here. It’s probably an overstatement to say that employers “are looking at ways to avoid hiring” (my money is on the fact that most employers would love to be in a financial position to consider new employees). While there are many instances where shifting to automation is inherently superior to relying on labor, the scales are tilted by government intervention. Consider this passage from elsewhere in the article:

“Labor is so expensive,” said [farmer Mike] Young, whose great-grandfather started farming row crops in Kern County in 1910. “There’s their wages, truck, insurance, workers’ comp and the safety regulations. We went to a high-value crop that needed less labor input.”

Notice a trend? With the single exemption of trucks (and even that’s debatable given California’s automotive taxes), these are all factors created or exacerbated by government. California has one of the highest minimum wages in the nation, a heavily regulated insurance sector, and excessive workers’ comp and safety regulations. Technology may have an inherent economic appeal, but the challenge it presents to labor is only compounded by state government’s attempts to “help” the working man.

Apart from government distortions of the market, however, there is a bigger point to be made here. Technology’s displacements of the labor force may be jarring, but they lead to a stronger economy (the capital savings can be directed towards more productive investments) and an infinitely better life for all Americans. After all, we could have attempted to protect the horse-drawn carriage industry by suppressing the development of the automobile, subsidized makers of candlesticks and gas lamps by impeding the development of the light bulb, and employed many more bank tellers by standing athwart the ATM. But we’d live in a society that had made decisively less progress from 100 years ago than the one we currently inhabit.

This principle was captured brilliantly by the French political economist Frederic Bastiat in a satirical letter that he wrote to the French Parliament under the aegis of seeking “protection” for his nation’s candlestick makers:

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.

When you’re 150 years behind the French on economics, you know you’re in trouble. Or that you work for the Los Angeles Times.

Today’s quote of the day comes from former Clinton Labor Secretary Robert Reich, who — in a remarkably dishonest attack on conservative economics at the Huffington Post — pulls out one of the oldest rhetorical tricks in the book, making a prediction he’ll never be held accountable for:

Look, I used to be a trustee of the Social Security trust fund. Believe me when I tell you Social Security is basically okay. It may need a little fine tuning but I guarantee you’ll receive your Social Security check by the time you retire even if that’s forty years from now.

Put aside that the substance of Reich’s argument is “trust me”. The 64-year old Reich is writing a check that his actuarial table can’t cash. May Secretary Reich live to be 104. That’s a good age for humility to kick in.

If America continues to be a sober nation, there will be a time a few decades from now when Paul Krugman’s economic hypochondria will be viewed with the same sneering contempt as Paul Ehrlich’s crazed claims that hundreds of millions would die from famine in the 1970s and 1980s or the fears of the rise of Japan that dominated public discourse in the late 1980s and early 1990s (the old empire’s economic lost decade intervened).

On his blog at the New York Times today, Krugman frets aloud (his muscle memory prevents him from doing otherwise) that Americans may tank the economy by attempting to pay down their unsustainable levels of debt (further proof that Keynesianism is the economist’s version of a drunken weekend in Vegas). But the big story here is buried in the complaint that undergirds his thesis:

So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.

Hang on a tick. World War II? Hasn’t Krugman spent the past two years using every inch of column space available to him to advocate that President Obama embrace aggressive neo-Rooseveltism? But now it’s the war — not the New Deal — that ended the Depression? We know that Krugman is a specialist in non-falsifiable theories (if only the stimulus had been bigger …), but if the eight years that FDR had set aside for “bold, persistent experimentation” prior to Pearl Harbor weren’t sufficient to heal the nation’s markets, maybe that was a sign that the problem was strategic and not tactical. Maybe the Sage of Hyde Park should have taken some pointers from the benighted Warren Harding.

This is all a bit shocking coming from a Nobel Laureate. After all, if Paul Krugman doesn’t speak with authority on economics … then maybe Barack Obama doesn’t speak with authority about peace.

Remember how two years ago, Barack Obama was the most exciting, intellectually inventive president since John F. Kennedy? Maybe it’s time for 44 to compare his tax policies to 35:

It gets a little tiresome having to read columnist Fareed Zakaria’s senate floor speeches masquerading as opinion pieces in Newsweek every seven days. Dr. Z has a tendency to write columns with grandiose titles such as “How to Salvage Afghanistan” and “Defusing the Debt Bomb”.  While it’s admirable that he’s at least trying to offer solutions, most of Zakaria’s bigthink is pretty small — conventional Washington wisdom masquerading as divine revelation.

Zakaria’s gift for analysis is not nearly as deep as he thinks and nothing proves it more than his new piece in Newsweek, entitled “Raise My Taxes, Mr. President”. Taking a page out of the Obama playbook and fashioning himself a centrist who can rise above the fray, Zakaria writes:

[The Bush tax] cuts are set to expire this year. The Republicans say they want to keep them all, even for those making more than $250,000 a year (less than 3 percent of Americans). They say that higher taxes will hurt the recovery. But for months now they have been arguing that the chief threat to the economy is our gargantuan debt and deficit. That’s what’s scaring consumers, creditors, and businesses. Given a chance to address those fears by getting serious about deficit reduction, though, they run away.

Fareed is making a mistake that should be recognizable to anybody who’s ever watched an episode of “House”. He’s making a diagnosis based on symptoms rather than an underlying cause. Yes, America’s debt is horrible. But let’s keep one of Milton Friedman’s key insights in mind: all spending is a form of taxation — it has to be paid for sooner or later, one way or another.

Balancing the budget through tax increases only moves the government’s burden on the private sector from debt to taxation. Think of it this way: if you want to get your personal finances in order, does it make more sense to simply pay for your reckless spending with cash instead of a credit card or to actually buckle down and stop spending as much? If you realize that the first can save you a few bucks here and there, but only the second can provide financial salvation, you’re on the right track. You’re also smarter than Fareed Zakaria.

For an easy-to-understand introduction (or refresher) on the two economic theories competing for the hearts and minds of Western government policymakers, check out the first two-thirds of this article from investment advisor Przemyslaw Radomski.

Though it might be tempting to think of Keynesians as big spending Democrats and Austrians as limited government (or none at all) Republicans, it’s better to think of Keynesians as economists who work in government and academia, while Austrians are economists who make their money betting against Keynesian policies.  After meeting several Austrian investment advisors at last week’s Freedom Fest convention, I can tell you that Austrians are making very good money in this recession.

I link, you decide.

The first step to recovery is admitting that you have a problem. Here it goes: my name is Troy and I geek out at the intersection of sports and economics.

Today’s example — catnip for conservatives — comes from NBA superstar LeBron James’s much-anticipated announcement of where he’ll be playing next season now that he’s a free agent.

Apart from the option of staying in Cleveland (which won’t be habitable until the folks at Reason are through with it), Lebron’s two most prominent options look to be the New York Knicks or the Miami Heat. But even if both teams offer him identical contracts, his take-home pay will look dramatically different. As a New York Post blog posting notes:

If LeBron James goes to the Miami Heat instead of the Knicks, blame our dysfunctional lawmakers in Albany, who have saddled top-earning New Yorkers with the highest state and city income taxes in the nation, soon to be 12.85 percent on top of the IRS bite. There is no state income tax in Florida.

Total state taxes on a 5-year, $96 million contract? $12.34 million in New York; $0 in Florida.

If LeBron ends up in Miami (and the influence of joining Dwyane Wade and Chris Bosh in the Heat’s starting lineup shouldn’t be underemphasized), this blogger may be one of the only sports fans in America who traces the development to a rather obscure, short-lived economist from the Eisenhower era.

Charles Tiebout’s greatest contributions to economics was the “Tiebout Hypothesis” — which in essence stated that federalism matters because citizens vote with their feet. If a state wants productive people (and make no mistake, LeBron is an economic dynamo), they create the conditions that will bring them there. Thus, Florida has a recipe for fostering entrepreneurship, while New York has a recipe for disaster.

Of course, there are mitigating factors. Kobe Bryant stays in Los Angeles despite California’s confiscatory tax rates because of the prestige of playing with a successful legacy franchise like the Lakers. But for those of us with a more conventional cut to our jibs, the calculation is simpler.

If you have a business you can run from anywhere, would you rather do it at New York’ s 12.85% rate or for free in one of the nine states that don’t have income taxes (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — just in case you’re looking to flee blue state insanity).

By the way, take a look at the business climates in these states and you’ll notice which model works and which model doesn’t.

… can be found in the pages of today’s USA Today. Behold four of the clearest, most incontrovertible, and most horrifying paragraphs you’ll ever read in print:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says.

Let’s review: you cannot have a welfare state without a private sector vibrant enough to fund it. You cannot have a private sector vibrant enough to fund it unless government allows the market to function relatively unimpeded. And the market can’t function relatively unimpeded unless the welfare state stays modest in scope. What exactly don’t the folks in Washington, Sacramento, and Athens understand?

It is bad enough that President Obama has already been criticized by French President Nicolas Sarkozy for being insufficiently hawkish abroad (“weak, inexperienced, and badly briefed” was the New York Times’ memorable formulation of Sarko’s critique).

Now the president of the country that pioneered the 35-hour work week and eight weeks of annual vacation is giving Obama notes on the importance of economic freedom.

Asked about allegations that a contract for U.S. Air Force supply tankers was rigged to favor an American company, Sarkozy was characteristically direct:

“I did not appreciate this decision … This is not the right way to behave,” Sarkozy said.

“Such methods by the United States are not good for its European allies, and such methods are not good for the United States, a great, leading nation with which we are on close and friendly terms,” he said.

“If they want to be heard in the fight against protectionism, they should not set the example of protectionism.”

As I mention in my column this week, one of Obama’s biggest foreign policy mistakes has been undermining international trade while trying to rhetorically support it.

At this rate, France is going to be heroically saving the United States in World War III.

During today’s health care summit at Blair House, Wyoming Republican Senator John Barrasso (an orthopedic surgeon by trade) dropped the jaws of Democrats in attendance by declaring that individuals who only have “catastrophic care” health insurance (which Democrats had been spent all day citing as a moral failure) often make better medical decisions than people with more comprehensive plans. Barasso’s reason was simple — these consumers actually have to consider the cost of their treatments.

Though President Obama and Congressman Henry Waxman were quick to ridicule Barasso, he got to a truth that is at the very root of meaningful health care reform: the system can’t work as long as consumers are being insulated from costs.

Two economic maxims suffice to make the point: (1) “If you’re paying, I’ll have the steak” — There is no incentive to keep your spending under control when someone else is footing the bill (2) “No one washes a rental car” — Ownership is the best motivation for vigilance, because if something goes wrong, you’ll be the one eating the costs. Having someone else shield you from health care expenditures only weakens your incentive to be vigilant in regard to your own well-being

Earlier in the day’s proceedings, Obama and Democratic Senator Dick Durbin of Illinois rained on the tort reform parade by claiming that the $5 billion a year that could be saved by reforming the malpractice system would be a drop in the $2 trillion health care bucket (as an aside, I’ve always thought this is a bizarre rationale — how can anyone expect to realize large savings if they ignore all the incremental savings that will get them there?). Yet if tort reform was too picayune, why are Democrats ignoring Barrasso’s point, which got to the heart of what drives health care costs through the roof?

The problem with modern health care is that is built on a triangular model. In most cases, one person pays for the care (an employer), one person consumes the care (the patient) and one person provides the care (the doctor). This is a recipe for unhappiness and inflation, because the person who consumes is unaccountable to the person that pays, and the person that provides is unaccountable to the person they provide for (Harvard’s Regina Herzlinger has been invaluable on this point).

The Republican talking point is that health care needs to be reformed in small, incremental chunks. That may be a sound legislative strategy, but it’s not true as a matter of policy. The system needs to be fundamentally reformed and placed on a consumer-driven basis (and yes, conservatives, you can learn from Europe — Switzerland has a pretty good model. If you’re really in the mood for right-wing apostasy take a gander at Whole Foods’ ideas too). Subsidies are always going to be necessary for the indigent, but more far-reaching government control is not the answer. Comprehensive reform that makes health care market-driven is.

With five Republicans voting for cloture in the Senate– Olympia Snowe, Susan Collins, Kit Bond, George Voinovich, and (surprise!) Scott Brown — we should expect the Congress to pass its new “jobs bill” this week (in reality, this is like a 100-calorie pack version of the stimulus).

It’s not surprising that some Republicans are feeling the pressure to get behind this legislation. The perennial temptation in times of economic crisis is to get behind anything that seems like it could make a difference. This is not that piece of legislation.

Let’s start with the basics: At $15 billion, this package could be financed with what’s between the cushions of the sofas in the Oval Office. But that’s still $15 billion in new debt that can’t be justified without a commensurate kick to the economy. This package can’t deliver that kick.

The big hooks for Republicans are going to be the exemption from payroll taxes for new employees through the rest of the year and the $1,000 tax credit for new employees who are retained for a year. These provisions will have positive economic effects, but they will be very subtle. Because this bill only aims to jumpstart the employment side of the market without addressing broader economic conditions, it will make it slightly cheaper to hire new employees, but won’t create enough economic activity to justify employers adding many new hires to their payrolls. As with the similar plan that was tried during the Carter years, this most likely means that the majority of the benefits will go to hires that would have been made with or without the package. Given the limited time horizon of the bill, we should also expect its net effects to be similar to “Cash for Clunkers” — that is, just moving up hiring decisions instead of changing the fundamentals behind them.

The other provisions are no more impressive. This package will subsidize further borrowing by local and state governments, which only continues the sugar-high spending that simply can’t be sustained even in the best of economic times. And while infrastructure spending is certainly a legitimate function of government, it’s hard to sell as a strategy for increasing employment. After all, the mark of good infrastructure development — quick, efficient construction — is fundamentally at odds with the idea of creating jobs that are meant to endure for the long-term.

This certainly isn’t the worst piece of legislation to come out of the Age of Obama, but it also isn’t much more than a placebo. Until Washington begins to focus on shrinking the size of government, however, we shouldn’t expect the prescription to change much.

…so go aslyums masquerading as state governments throughout the nation. Despite the fact that the Golden State is staring a $20 billion budget deficit in the face (and facing the prospect of cutting off much of the revenue they’ll need to get out of the hole thanks to a Byzantine global warming law), policy entreprenuership is alive and well in Sacramento. The latest big idea:

California is going to be first state in the nation to monitor cow gas emission. The state plans to install a network of computerized devices to measure methane gas emissions in places where there are lots of dairy ranches and landfills.

Sounds like the state’s bureaucrats are competing with the bovines to see who can produce the most … waste.

There are plenty of jokes about lawyers.  Entire websites are devoted to lampooning one of the most hated professions in America.  For example, when lawyers die, why don’t vultures eat them?  Even a vulture has taste. Ha!

Well, according to one lawyer who resides in the nation’s capital, the legal profession is dying.  Writing in the Los Angeles Times, Mark Greenbaum argues that the current legal environment is over-saturated with new attorneys, leading to the high unemployment rate for incoming bloodsuckers lawyers.

Greenbaum’s solution is to turn an already regulated market over to the federal government to limit the supply of lawyers entering the field.  For Greenbaum, only politicians can stop the bleeding for those poor souls.

Mr. Greenbaum’s treatise on nationalizing the supply of labor is yet another reason why lawyers shouldn’t run the show in Washington, D.C.  If economics teaches anything, it’s that the market determines supply and demand.  Granted, the legal industry is already highly regulated and massive federal subsidies allow for affordable interest free loans.  But, these distortions only enhance the desire for some students to be the next Perry Mason, or the next Jack Abramoff.

Unlike journalists, chefs, florists or most other professions one can imagine, the only barrier to success is the ability to generate capital, usually through the sale of goods or services.  In the U.S., everyone virtually has a constitutional right (though not explicitly) to practice any vocation.  The legal and medical worlds throw in a few hurdles like extra schooling, dues and passing state-approved exams.

If Mr. Greenbaum really wanted to control the supply of lawyers to ensure that unemployment remains low and wages continue to rise, he would advocate for less government involvement.  Let students pay what law school actually costs without massive subsidies from the federal government.  Let markets determine “acceptable” supplies of labor.  Once students realize that a law degree is no longer an easy path to millions, they’ll stop forking over $100,000 for three years of misery inside a law school classroom.  Trust me.

The markets are doing a fine job of determining my access to food, clothing, computers and fantasy baseball.   I wonder if Mr. Greenbaum, an attorney, would approve of state regulation of leather shoes, European cars or arrogance.

Strangely, Mr. Greenbaum probably wouldn’t have written this article five years ago when associate salaries were climbing, the unemployment rate was low and lawyers were still a reviled profession.  In the midst of a recession, however, all of a sudden the supply of lawyers must be controlled by committees on Capitol Hill.

Nonsense.  If it were that easy to right all wrongs in the world, why not have the federal government control the supply of all professions in the United States?  Wait, best to not give them any ideas.

By the way, how can you tell when a lawyer is lying?  His lips are moving.  (Does this joke apply to politicians as well?)

About a year ago, in the waning days of the Bush Administration, the White House staff was engaged in a massive bout of what are known as “departure photos”, where staff members bring family members to the White House for an opportunity to meet the President before departing 1600 Pennsylvania Avenue. When President Bush learned that my parents were small business owners in California, he teasingly replied “so how long have you been thinking about moving to Texas?”

In a post on the American Enterprise Institute’s “The Enterprise Blog”, Ryan Streeter looks at the salient differences between the economic climates in California and Texas, and discovers what has been increasingly obvious in recent years — The Lone Star State is built for performance; The Golden State is built to fail.

For a detailed side-by-side comparison that shows how Texas is pulling ahead, see this recent report from the American Legislative Exchange Council and this editorial from The Economist (if you’re a subscriber). For a thorough dissection of California’s failures, see my piece from the fall issue of National Affairs.