Coyote Blog

The Left continues to push the myth that government "austerity"  (defined as still running a massive deficit but running a slightly smaller massive deficit) is somehow pushing Europe into a depression.  Well, this myth-making worked with Hoover, who is generally thought to have worsened the Depression through austerity despite the reality that he substantially increased government spending.

It is almost impossible to spot this mythical austerity beast in action in these European countries.  Sure, they talk about austerity, and deficit reduction, and spending increases, but if such talk were reality we would have a balanced budget in this country.  If one looks at actual government spending in European nations, its impossible to find a substantial decline.  Perhaps they are talking about tax increases, which I would oppose and have been occurring, but I doubt the Left is complaining about tax increases.

Seriously, I would post the chart showing the spending declines but I can't because I keep following links and have yet to find one.  I keep seeing quotes about "commitment" to austerity, but no actual evidence of such.

Let's take Britain.  Paul Krugman specifically lashed out at "austerity" programs there are undermining the British and European economy.  So, from this source, here is actual and budgeted British government spending by year, in billions of pounds:

2007: 544.0

2008: 575.7

2009: 621.5

2010:  660.6

2011:  683.4

2012:  703.4

2013: 722.2

Seriously, I will believe the so-called austerity when someone shows it to me.  And this is not even to mention the irresponsibility of demanding more deficit spending without even acknowledging the fact that whole countries already have so much debt they are teetering on the edge of bankruptcy.

Here is the European problem -- they are pouring hundreds of billions of Euro into bailing out failed banks and governments.  They are effectively taking massive amounts of available resources out of productive hands and pouring it into failed institutions.   Had they (or we) let these institutions crash four years ago, Europe would be seeing a recovery today.  The hundreds of billions of Euros used to keep banks on life support could have instead been used to mitigate the short term effects of bigger financial crash.

Neither Medicare nor Social Security should be government programs.  The government essentially takes on two roles in these two insurance programs:  1) To subsidize the premiums of low income Americans; and 2) To use its power of coercion to force everyone to participate.  I have no stomach for the latter role and the former could be much more cheaply achieved with some sort of voucher or credit program.

But these programs are not going away.  While both need reform, it may turn out to be politically impossible to even reform them.

But if we take off the table for a moment their existence and their basic structure, there is still an enormous problem we might fix:  pricing.  There is absolutely nothing more deadly to an economy than a false or corrupted pricing signal.  But that is clearly what we have with these two programs.  The Medicare "premium" (tax) taken out of every paycheck is clearly way too small to cover true actuarial costs of this program.  And while Social Security rates may have been set right if the premiums were really being kept in escrow for the future, the fact is that the so-called trust fund has been raided into oblivion by past government spending programs  -- Social Security taxes need to be reset to reflect that fact.

The result, of course, will be a substantial increase in both payroll taxes.  I am not a big fan of tax increases, and find taxes on labor to be among the worst.  But as long as we hold on to the collective notion that these are insurance programs and the taxes we pay are premiums, its time to stop fooling Americans into thinking that the premiums they are paying are truly sufficient to fund their benefits.  Maybe after we reprice the "premiums" to their true actuarial value, we can then have a real debate about the structure and existence of these programs.

I get grief in hard core libertarian circles for supporting a basic, no-frills government safety net.  However, in watching Europe right now, I may change my opinion.  Folks in this country use the European rioting as a sort of threat to warn us that we need to continue to be profligate in government spending or else face the same kind of riots here.  I come to the opposite conclusion -- if people are going to riot when the charity they receive has to be reduced, isn't that a reason not to get them hooked on the charity in the first place?

Does anyone else find it funny that after being the butt of Congressional and Administration demagoguery, trying to lay blame for the financial crisis on them for applying AAA ratings to risky debt, that S&P's first visible step to correct such overly-optimistic ratings is to downgrade US debt -- based mainly on the fiscal management failures of Congress and the Administration.

By the way, many observers seem to be declaring this a punishment for not raising taxes.  The lack of accountability inherent in the government's spending like a drunken sailor, and then using such reckless and profligate spending as an excuse to raise taxes, just makes me want to scream.

This is right on the mark

His description of what Keynesians believe is correct. It's why Keynesians, including the President, thought that government spending would stimulate the economy. As Klein points out, "Obama didn't just have a team of Keynesians. He had the Keynesian all-star team."

Right, but then Klein gets it wrong: "The idea [behind Keynesian economics], in other words, is not about whether the government spends money better than individuals."

Yes it is! Obama and Klein think that during a recession, "the financial system scares business and consumers so badly that they hoard money, which worsens the damage to the system." Therefore, the government must take money away from individuals, and spend it elsewhere. Eric Cantor correctly pointed out that the theory is: "government can be counted on to spend more wisely than the people."

Part of the problem here is in nomenclature.  People don't think of saving as spending.  So I will shift a word a bit.  The idea of Keynesian economics is that the government can deploy your money better than individuals can.

The cause of the asset bubble for this argument is almost irrelevant.  Households, finding themselves over-leveraged, want to deleverage by buying fewer things and saving more money.  The Keynesians explicitly wanted to prevent this by taking the money that would have been saved and spending it.  This destroys value in two ways.  As Stossel points out, it shifts money from being deployed with an eye on productivity to being deployed with an eye on politics.  From a value-creation standpoint, this has to destroy value.  In addition, by slowing the process of deleveraging, it slows the recovery, unless individuals in the mean time can be convinced that they really don't need to deleverage.  And is that really the post-bubble message we should be sending out?

Democrats are labeling any plans that would cut or even flatten Federal spending as the "austerity" option.  They use the word austerity to imply an unusual and radical reduction in spending which evokes proposed plans in places like Greece that has all the government workers marching in the street.

But Greece is trying to find a way to move to a fiscal regime they have never even experienced, not in any of our lifetimes and maybe never.  In contrast, the US merely needs to move to a place it was way back in about 2006.  Yes, that's right, "austerity" is returning to the level of government spending we had five years ago.  And we all remember what a blighted time that was, a veritable Mad Max desolation relieved only by Obama arriving like the Postman from the David Brin novel (or the execrable Costner movie, if you prefer).

Via Cato:

Several times in the past I have posited that folks in power simply hate buses.  How else to explain light rail and high speed rail projects that are both substantially more expensive and substantially less flexible than buses.  Some of the reasons for this include:

• Politicians like rail better because it is sexier.  Period.   They are trying to spend taxpayer money to support their own re-election talking points.
• Unions and city workers like rail because it is more expensive.  More money gets spent, either creating more union jobs or giving transit leaders bigger budgets which translate into higher salaries and more prestige for themselves.  And the lack of flexibility is good for them because it makes their job immune to budget cutting.  Just too many sunk costs.
• Middle and upper-middle class folks in the public have a deep disdain for buses, which they associate with poverty and blue collar labor.  Riding buses hurts their self image, even if the service is no worse than trains.  Rail is the Louis Vuitton handbag of transit.

In Phoenix, light rail requires a subsidy of $3.82 center per mile (that is the government spending above and beyond the fare), which is nearly 10x what we spend on buses.  And light rail uses more energy per passenger mile here than driving.

Anyway, this story from Iowa seems to support my point -- the government is proposing to spend tens of millions of dollars to create a rail service that is slower and more costly than existing private bus service.

The latest in lunacy in high-speed rail lunacy: at Joel Kotkin’s newgeography.com Wendell Cox reports that the U.S. Transportation Department is dangling money before the government of Iowa seeking matching funds from the state for a high-speed rail line from Iowa City to Chicago. The “high-speed” trains would average 45 miles per hour and take five hours to reach Chicago from Iowa City. One might wonder how big the market for this service is, since Iowa City and Johnson County have only 130,882 people; add in adjoining Linn County (Cedar Rapids) and you’re only up to 342,108—not really enough, one would think, to supply enough riders to cover operating costs much less construction costs.

Oh, one other thing. Cox reports that there is already luxury bus service, with plus for laptops and wireless Internet, from Iowa City to Chicago. It’s part of a larger trend for private companies to offer convenient and inexpensive bus service. A one-way ticket on the bus costs $18, compared to a likely train fare of more than $50. And the bus takes only three hours and 50 minutes to get from Iowa City to Chicago. That’s one hour and 10 minutes faster than the “high-speed” train.

Last year, there were about 3.2 trillion passenger miles driven by urban drivers in cars in the US.  My point about light rail is that we can barely afford it for just a few people, given that we spent $1.3 billion to build a rail line for just 17,000 daily round trip riders in Phoenix.  If it were truly a sustainable technology, it could be applied to all commuters.  But at a national average taxpayer subsidy per light rail passenger mile of about $2**, this means that to roll light rail out to every urban commuter would cost $6.4 trillion a year in government spending, almost half our annual GDP.  If it required the subsidy rates we have in Phoenix per passenger-mile, such a system would cost over $12 trillion  year.  In fact, the numbers would likely be even higher in reality, because light rail in most cities is almost certainly built on the highest populated corridors with the most bang for the buck (though some of the diminishing returns would be offset by network effects).

Light rail only works today because we drain resources from millions of taxpayers to benefit just a few generally middle class commuters.    This is not a model that will scale.

** This includes both service on the debt, which is payment for the original construction costs, as well as annual operating losses.  This subsidy is required essentially forever.  After 20-30 years when the original bonds are paid off, by that time systems generally have to be rebuilt in their entirety   (as folks in places like Washington DC are learning).  There are probably only 5-6 cities in this country that have the urban population densities to make rail systems come even in the ballpark of working financially, and places like Phoenix, Seattle, Houston, Portland and LA are NOT among them.

Sorry for the feed spam.  A few of you may be using legacy feed addresses that I will have working by the end of the day.  Of course, as I write this I realize that if you are in this situation, you won't be getting this post.  Wow, maybe I should work for the government - spending time and money on public service messages guaranteed not to reach those who might benefit from them.

For the record, the best feed address is always http://feeds.feedburner.com/coyoteblog, which if I have set things up right should be the feed you get when you click the orange feed icon up in the address bar of most browsers.

Why is it that taxpayers seem to be the one group that never has standing?  No one wants the milch cow mouthing off, I suppose.  How about we change the law to say that any taxpayer has standing in court on any issue that affects government spending.  Too broad?  Well, I'll narrow that when they narrow their interpretation of the commerce clause.

Please stop talking about there being a fiscal crisis or a government debt crisis.  All this does is give Democrats the opening next year to raise taxes.  "See," they will say, "we care about reducing the deficit."

What we have currently is a government spending crisis.   And the only way to solve it is with less spending.

Thanks, and we now return you to your regular programming.

In my Forbes column this week, I discuss the incredible similarity between the computer models that are used to justify the Obama stimulus and the climate models that form the basis for the proposition that manmade CO2 is causing most of the world's warming.

The climate modeling approach is so similar to that used by the CEA to score the stimulus that there is even a climate equivalent to the multiplier found in macro-economic models. In climate models, small amounts of warming from man-made CO2 are multiplied many-fold to catastrophic levels by hypothetical positive feedbacks, in the same way that the first-order effects of government spending are multiplied in Keynesian economic models. In both cases, while these multipliers are the single most important drivers of the models' results, they also tend to be the most controversial assumptions. In an odd parallel, you can find both stimulus and climate debates arguing whether their multiplier is above or below one.

Here is as good a reason as any why many businesses (like mine) are currently reluctant to invest:

I've noted any number of times that government taxes comprise 14% of the national income and government spending is at 25% of the national income.

OK, so politicians have two alternatives -- they can make tough choices to reduce spending and reduce their own power, or they can just take more money from taxpayers and in so doing increase their personal power.  Gee, I wonder which will occur?

Combine this is a health care bill no one understands but everyone suspects will raise the price of labor and a climate bill that won't quite die that will raise the price of energy and therefore most other inputs, and is it any wonder that businesses are reluctant to invest when their three highest costs (taxes, labor, energy) are going up by some undetermined amount?

For years in Arizona we have been told by the state government that we need to subsidize science.  I have never really figured out why my life would be better if scientists lived in Arizona instead of California, but apparently when governors get together and compare their states' penis lengths, this is one of the key topics that come up.  Why we need to subsidize, for example, bio-science in Arizona to keep up with California but folks in Kansas don't need to subsidize, say, awesome golf resorts to keep up with Arizona has always escaped me.  I have always felt that if we just keep taxes low and wait long enough, California is going to blow up and we will collect a lot of the best and brightest with no extra effort.

Well, I am starting to understand why we needed to subsidize bio-science with our Arizona taxes.  We apparently need to do so to ... attract large grants for Federal tax money.  So by subsidizing this sector locally, we built it up enough to attract Federal subsidies.  Great.  Actually we probably did not build up the sector per se, we just built a quality private bureaucracy that had the skills and incentives to write lots of successful grant applications.  Apparently there is still work left to do, though, as other states have invested in even larger grant-magnets:

States with strong science bases such as California, Massachusetts and New York, each landed more than 1,000 grants.

Twenty states secured fewer grants than Arizona's haul of 101 awards.

Arizona scientists will study things such as predicting asthma in babies, prostate cancer and the behavioral responses of kissing bugs, which are blood-sucking insects linked to a blood-borne disease that afflicts 11 million to 13 million people in Mexico and Latin America.

Arizona scientists say the batch of stimulus dollars through the NIH is a welcome change from years of stagnant federal funding for scientific research.

"There was no increase in federal funding for cancer research for five years - that was devastating," said Dr. David Alberts, director of the Arizona Cancer Center in Tucson. "Now, I'm encouraged."

Wow - thus we see why government spending grows so much faster than inflation.  Flat spending = devastating.

If I were in academia, the study I would like to do is to try to assess the total value destroyed by state and local governments merely in trying to move businesses and facilities from one part of the country to another.

There are a lot of problems with the health care bills in Congress.  At the end of the day, I will endure most of them, as I have every other indignity thrown at me by the Feds.  If they charge me 8% of my company's payroll as a health care tax, well, we can probably raise prices, particularly in the inflationary spiral the Fed has set us up for.  I will be sad to see the most successful in this country punished with high new taxes, but these taxes mostly won't apply to our family.  And I will find some way to get my family the health care it needs, even if we have to fly to India to do it.

But my biggest fear is for individual liberties, with the effect I have called "the health care Trojan Horse for fascism."  We all know that the government has developed a taste for meddling in the smallest details of our lives.  But as more of the nation's health care spending flows though government hands, nearly every decision you make will suddenly affect the government's budget.  What you eat, how heavy you are, whether you smoke, whether you play an athletic sport where you can get hurt, whether you pursue dangerous hobbies like rock climbing or skiing, whether you wear a bike or motorcycle helmet, whether you have a seat belt on, whether you drink alcohol, whether you like to use dangerous power tools -- all these become direct inputs into government spending via medical bills the government is paying.  And if you think that Congress will avoid legislating on these activities once it inevitably gets in financial trouble with health care, you have not studied much history.

And all this avoids discussion of other powerful individual liberty-related topics, such as the ability to get the end of life care you want or whether the government will even allow you to go "off plan" with your own money if you disagree with its Commissar's rulings on what care you should and should not receive.

It's fascinating for me to watch all these children of the sixties in the Democratic Party, most of whom screamed (rightly) at George Bush continuing to implement new plans where we give up individual liberties for security.  But here come those exact same people, with the exact same message - because this is what health care reform is about, at its core - giving up individual liberties in exchange for a (perceived) increase in security.

During and after the Obama proposal for lots more government spending on long-distance rail lines no one will ride, there was a lot of discussion about how European railroads make money with high speed lines.  This sounded like BS to me, from my experience.  Years ago I consulted briefly with the SNCF, the state railroad of France.  Just as one example, we found they had something like 100,000 freight cars and 125,000 freight car mechanics.  I tongue-in-cheek suggested they could assign each guy his own car to ride with full time and fix if necessary and still cut staff by 20%.

Anyway, it turns out the profitability claim is BS.  The Antiplanner links to this study by the Amtrak inspector general.   Here is the key chart, with the green the "reported" profits.  But it turns out they book subsidies as revenue.  The subsidies (including indirect subsidies like taking railroad pensions into the national system and off the railroad's books) are in red.

Postscript: I have always been amazed that greens get all misty-eyed at European rail.  Sure, its cool to ride a fast train, but the cost of having an extensive passenger rail system is that most of Europe's freight pounds along highways, rather than via rail.  In the US, the mix is opposite, with few passengers on trains but much more of our freight moving by rail.  I would have thought that preferentially moving freight over rail rather than passengers was a much greener approach.

The CBO is out with its scoring of the stimulus bill (pdf).  Kevin Drum seems to think it refutes my statement that it would be impossible to have any kind of real infrastructure impact in the next 1-2 years.  Drum says:

Specifically, they estimate that in the spending portion of the bill, $477 billion out of $604 billion would be disbursed either this fiscal year or in the next two fiscal years. That's 79% of the total.

I guess opinions can vary on this, but that strikes me as pretty good. What's more, most of the spending that comes in FY2012 or later is either for projects that simply take more than two years to complete (highways, school repairs) or infrastructure improvements that have long-term paybacks (renewable energy programs). There are a few other items in the out years that are more arguable, but they add up to a pretty small portion of the bill.

This is correct on its face.  But here is the issue, and what drives me crazy about politicians and their enablers like Drum.  This is being sold as an infrastructure bill.  And even by Drum's admission, all the infrastructure spending is in the out years, well beyond any reasonable time frame for the recession.

Picking through the report, the "spending"  (I object to calling tax cuts "spending") in the next two years, the recession window, is mainly in these categories ( I get slightly different numbers than Drum)

• Tax cuts of $223.2 billion (lost revenue + outlays)
• Transfer payments $202.2 billion
  • Unemployment & Child Support:  $42.2 billion
  • Health Insurance Assistance:  $36.6 billion (lost revenue + outlays)
  • Medicaid: $76.9 billion
  • Food Assistance:  $10.8 billion
  • Health and Human Services (unspecified):  $14.9 billion
  • Employment and job training:  $2.9 billion
  • School/College loans:  $14.7 billion
  • Housing assistance:  $3.2 billion
• State government "stabilization":  $31.4 billion
• Defense:  $6.2 billion
• Other: $62.5 billion
  • Increase in department budgets  $28.4 billion (estimated, may be low)
  • Real infrastructure spending (mainly schools, federal buildings, highways, and other transit)  $26.7 billion (at most!)
  • Green energy / energy programs  $7.4 billion (at most!)

So do you see my point. The reason so much of this infrastructure bill can be spent in the next two years is that there is no infrastructure in it, at least in the first two years!  42% of the deficit impact in 2009/2010 is tax cuts, another 44% is in transfer payments to individuals and state governments.  1% is defense.  At least 5% seems to be just pumping up a number of budgets with no infrastructure impact (such as at Homeland Security).  And at most 6% is infrastructure and green energy.  I say at most because it is unclear if this stuff is really incremental, and much of this budget may be for planners and government departments rather than actual facilities on the ground.

So don't call this an infrastructure bill.  This is a tax cut and welfare bill, at least in 2010 and 2011.   I guess I can understand a rush to do things like the welfare pieces, but that would argue for splitting the bill, into an emergency transfer payment appropriation and a infrastructure appropriation that can be studied and debated in more depth.

But that is never going to happen, because what we see is a unique kind of political synergy.  The bundling of these two very difference spending streams gives yields two political advantages:

1. The infrastructure piece, despite being less than 10% of the bill, allows politicians to call this "investment" and "green energy" and "infrastructure" which sell better with sections of the public than "welfare" and "transfer payments."  The minority infrastructure pieces allow Congress and Obama to call the bill new and forward looking, rather than the imitation of 1970s legislation that it really is.
2. The emergency pieces of the bill allow politicians to stuff numerous bureaucracy increases and pork spending into the bill that would not stand up to scrutiny.  Despite the fact that much of this spending will not occur for years, they can keep saying "rush, emergency, hurry" to deflect scrutiny and criticism.

Update: The National Review has a lot more detail here.

The New York Times editorial board had one of the most jaw-dropping pieces I have read in a long time.  In it, they are absolutely unapologetic in saying that they think the government can spend your money better than you can -- and the larger the government take, the happier we all will be.

The munificence of American corporate titans warms the heart, sort of.
The Chronicle of Philanthropy reports that the top 50 donors gave $7.3
billion to charity last year "” about $150 million per head....

Yet we'd be so much happier about all the good things America's
moneyed elite pay for if the government made needed public investments.

The flip side of American private largess is the stinginess of
the public sector. Philanthropic contributions in the United States "”
about $300 billion in 2006 "” probably exceed those of any other
country. By contrast, America's tax take is nearly the lowest in the
industrial world.

Oh my God, does anyone actually believe that Congress does a better job spending your money than you do?  Apparently they do:

Critics of government spending argue that America's private sector does
a better job making socially necessary investments. But it doesn't.
Public spending is allocated democratically among competing demands.
Rich benefactors can spend on anything they want, and they tend to
spend on projects close to their hearts.

LOLOLOL.  Has anyone looked at the last highway bill?  How many tens of thousands of politically motivated earmarks were there?   

Philanthropic contributions are usually tax-free. They directly reduce
the government's ability to engage in public spending. Perhaps the
government should demand a role in charities' allocation of resources
in exchange for the tax deduction. Or maybe the deduction should go
altogether. Experts estimate that tax breaks motivate 25 percent to 30
percent of contributions.

At the end of the day, this is not about a better prioritization process for spending -- this is about the NY Times getting a bigger say for itself in said spending.  They know that Warren Buffet couldn't give a rat's behind what the NY Times thinks about how he spends his money, but Congressmen trying to get reelected do care.  The NY Times wields a lot of political, but little private, influence, so they want to see as much spending as possible shift to political hands where the Times wields clout.

Postscript: Boy, here is some quality journalism:

Federal, state and local tax collections amount to just more than 25.5
percent of the nation's economic output. The Finnish government
collects 48.8 percent. As a result, the United States spends less on
social programs than virtually every other rich industrial country,
according to the Organization for Economic Cooperation and Development.
The Finnish government probably has money to build children's health
clinics.

"Probably has money?"  What does that mean?  Do they have government-funded children's health clinics or not?  The Times couldn't work up enough energy to fact-check that?  And by the way, who, other than the NY Times, declared that the best marginal use of additional public funds is for children's health clinics?

Postscript #2: Many of the very rich have been funding schools that are competitive with government-monopoly schools.  In this and many other cases, wealthy people fund programs that work better and cheaper than government alternatives.  I am sure that not only would the feds be happy to have this money to spend themselves (on some fat earmarks for key donors, most likely) but they would additionally be thrilled to get rid of the competition.

Update:  I must be going senile.  I missed the most obvious logical fallacy of all.  The NY Times says that our democratic government is the best possible mechanism for allocating funds.  But doesn't that also mean its the best possible mechanism for setting spending levels?  How can it complain that our democratic government is doing a bad job in setting total spending levels but does a great job in allocating that spending?

I have been calling it "the health care Trojan horse for fascism."  It is the phenomenon where government funding of health care is used as an excuse to micro-regulate individual behaviors.  Apparently, the economic term is "government financing externalities."

These kinds of "government financing exernalities" are commonly used
to justify government regulations that restrict individual freedom.
Liberals use these arguments to justify such regulations as mandatory
seat belt laws, smoking bans (because government may end up subsidizing
smokers' medical treatment if they get lung cancer), and most recently
restrictions on morgage terms (because the government may bail out
people who end up defaulting). Conservatives have their own favorite
government financing externality arguments. For example, many argue
that we should restrict immigration because otherwise the immigrants
might collect welfare benefits that are paid for by taxpayers.
Obviously, the greater the role of government in financing a wide range
of activities, the greater the number of potential government financing
externalities. The expansion of government spending facilitates the
expansion of government regulation intended to curb the negative
effects of the spending.

Government financing externality arguments generate their appeal
from the fact that they seem not to be paternalistic. We are willing to
let you hurt yourself, advocates implicitly suggest, but we can't let
your bad behavior hurt the taxpayers.

The libertarian solution to this problem is to eliminate the
government financing that created the "externality" in the first place.
I

The WSJ ($) has an article on California showing the growth of expenditures and the budget deficit.  I took the expenditures numbers and converted them to 2007 dollars and put them on a dollar per state resident basis, to correct both for growing population and inflation.  Here are California government general fund expenditures on a 2007 dollar per person basis:

1990-1991: $2,755
1995-1996: $2,470
2000-2001: $3,558
2005-2006: $3,416
2007-2008: $3,767

From these figures, we can learn a couple of things.  First and foremost, the state of California demonstrates itself to be just as financially incompetent as any condo-flipping doctor who now finds himself stuck with a bunch of mortgages he can't pay.  Lured by the false prosperity of the Internet bubble, California increased real government spending per resident by nearly 50% in the latter half of the nineties, and has done nothing to reign this spending in (thus the deficits).  The only place where the analogy with the person caught short by the housing bust falls apart is that the person with expensive mortgages is probably not out buying a new Mercedes and big screen TV, whereas that is exactly what California is doing, passing a $14 billion a year health care plan that will whose price tag can only rise.

No state shall ... deny to any person within its jurisdiction the
equal protection of the laws  - 14th Amendment

The Arizona Republic had an article in the lead position on the business page that really got me fuming.  Here is the headline:

Bioscience push paying off.  But analysis says Arizona must do more

Apparently the Arizona and Phoenix governments decided several years ago it was their job to preferentially invest in getting biotech companies to move to Arizona.  And this article was about a consulting study the government engaged to see how they were doing against this original plan. 

Arizona's lucrative bet on the biosciences is yielding more high-wage
jobs, federal research dollars and new buildings that are expected to
birth scientific breakthroughs for decades to come.

But the state needs to accomplish a lot more to establish a thriving
research-based economy, particularly providing enough money, lab space
and support that will allow small research companies to grow and
prosper.

The study can be summarized as "The government spent lots of money.  Biotech jobs increased in Arizona, though we can't establish a link between the government spending and the job growth.  The government needs to spend even more money in the future."  These conclusions are from Battelle, a technology consulting company whose fortunes depend almost entirely on government spending for technology projects, and, magically, they came to the conclusion that government needs to spend a lot on technology projects.

Equal Protection

I seldom hear this argument about corporate welfare, but what the hell ever happened to the equal protection clause?  From the perspective of an Arizona corporation, my government is taxing me and every other business and handing our money over to businesses that call themselves "biotech."  What suddenly gives these other businesses such favored status?  Why is biotech somehow more desirable such that they are more equal under the law?   Or, for those of you on the Left who don't think businesses have equal protection rights, what about Arizona workers?  Why are workers in every other industry taxed so biotech workers can have more secure, higher paying jobs? 

The Worst Investor

Government is the worst investor.  I won't go into how bad they are historically at picking winners, but will make a different point this time.  Consider this hypothetical: 

You have some money to invest in real estate, and engage a consultant to invest your money for you.  The consultant comes back and says that he chose to invest in the most sought-after single property in town, where hundreds of other people were bidding against you for the project, but eventually you outbid them all and got it. 

What would be your reaction?  Mine would be rage and horror.  Why the hell did my consultant choose the project with the most competition, so prices were bid up into the sky?  How am I ever going to get a good return from that?  (Ask yourself what return the Japanese got for their high-profile real estate purchases of the eighties and nineties).

But this is exactly what Arizona has done.  They picked the sector to subsidize and fight for corporate relocations - biotech - that every other state and municipality in the US has also chosen as their highest priority.  They even admit this in their report:

Battelle representatives said Arizona's challenge is that bioscience is
an ultracompetitive field, and states across the nation are pursuing
initiatives to bring the good-paying jobs that the sector promises.

In business school, I would get an "F" for this.  Choosing to subsidize biotech means that for every potential company relocation, Arizona and Phoenix are up against ten other cities and states also throwing subsidy and tax abatement packages out there.  Stupid.

Circle Jerk

It just symbolized for me how stupid all this is when I saw that the big payoff of this state government spending was to attract ... federal government spending:

National Institutes of Health grants issued to Arizona-based
institutions jumped 30 percent from 2002 through 2005. That funding
growth outpaced the nation's top 10 research states.

No Linkage of "Investment" to "Returns"

When private firms make investments, they carefully track the returns from this investment to see if it was worth it.  However, when government makes what it calls "investments", this is impossible.  The study claims that biotech jobs in Arizona have risen faster than the national average, but shows no link to the government spending that had taken place.  Probably because there was little relation.  The fact is that just about any job sector you can name in Phoenix -- from electronics to garbage sorting -- has grown faster than the national average because Phoenix as a whole has grown faster than the national average.  Taking credit for the rising tide is a classic politician behavior.  Companies and individuals are moving to Phoenix because they like the climate and relatively low taxes and regulation, of which the latter are only hurt by corporate welfare programs for favored few.

Prisoner's Dilemma

I have written before how much the government subsidization of corporate relocations looks like a prisoner's dilemma game. 

I hope you can see the parallel to subsidizing business relocations
(replace prisoner with "governor" and confess with "subsidize").  In a
libertarian world where politicians all just say no to subsidizing
businesses, then businesses would end up reasonably evenly distributed
across the country (due to labor markets, distribution requirements,
etc.) and taxpayers would not be paying any subsidies.  However,
because politicians fear that their community will lose if they don't
play the subsidy game like everyone else (the equivalent of staying
silent while your partner is ratting you out in prison) what we end up
with is still having businesses reasonably evenly distributed across
the country, but with massive subsidies in place.

The practice of state governments spending massive amounts of tax money to move a few jobs over the state line, and then having other state governments spend even more money to move the jobs back, is a war of escalation that leaves everyone worse off except a few players with political pull or who work in a fair-haired favored industry.

It's all About the Sex Appeal

Here is the bottom line:  Programs like this are for politicians.
Period.  They benefit politicians by giving them things they can say in
elections, like "I brought biotech jobs to Arizona,"  which sounds
better than "I brought garbage-sorting jobs to Arizona."  This in
effect answers the equal protection question of "why biotech?"  The
answer is that biotech is currently sexy, and politicians in their focus
groups have found that tbiotech resonates the best among voters.  All of
which makes for a really crappy approach to "investing."

You know those towns along the highway where people joke "don't blink, or you'll miss it?"  Well, apparently I blinked and missed this story.  If the ice in a climatologist's bourbon & water melts faster than she expected, it gets a three-day spread in the New York Times, but this environmental good-new story (surely an oxymoron to most editors) seems to have been pushed to the back page last September:

The long-term health and environmental impacts of the 1986
accident at the Chernobyl nuclear power plant in Ukraine, while severe,
were far less catastrophic than feared, according to a major new report
by eight U.N. agencies.

The governments of Ukraine,
Belarus and Russia, the three countries most affected by radioactive
fallout from Chernobyl, should strive to end the "paralyzing fatalism"
of tens of thousands of their citizens who wrongly believe they are
still at risk of an early death, according to the study released Monday.

The 600-page report found that as of the middle of this year, the
accident had caused fewer than 50 deaths directly attributable to
radiation, most of them among emergency workers who died in the first
months after the accident.

In fact, even the "while severe" added into the first paragraph seems to be the last gasp of an editor unwilling to accept any environmental good news, since nowhere in the article is there any evidence published of any negative long-term effect at all except that caused to the mental well-being of local citizenry by the continual onslaught of media and governmental horror-predictions.

In fact, the article goes on to say:

Over the next four years, a massive cleanup operation
involving 240,000 workers ensued, and there were fears that many of
these workers, called "liquidators," would suffer in subsequent years.
But most emergency workers and people living in contaminated areas
"received relatively low whole radiation doses, comparable to natural
background levels," a report summary noted. "No evidence or likelihood
of decreased fertility among the affected population has been found,
nor has there been any evidence of congenital malformations."

In
fact, the report said, apart from radiation-induced deaths, the
"largest public health problem created by the accident" was its effect
on the mental health of residents who were traumatized by their rapid
relocation and the fear, still lingering, that they would almost
certainly contract terminal cancer. The report said that lifestyle
diseases, such as alcoholism, among affected residents posed a much
greater threat than radiation exposure.

The other major "fallout" seems to be massively wasted government spending:

Officials said that the continued intense medical monitoring of tens of
thousands of people in Ukraine, Russia and Belarus is no longer a smart
use of limited resources and is, in fact, contributing to mental health
problems among many residents nearly 20 years later. In Belarus and
Ukraine, 5 percent to 7 percent of government spending is consumed by
benefits and programs for Chernobyl victims. And in the three
countries, as many as 7 million people are receiving Chernobyl-related
social benefits.

Sounds like post-Katrina proposals.  We have already seen more level-headed analysis debunk similar horror stories (remember "toxic soup") in New Orleans.  I wonder what a sober analysis of the real long-term health effects around the PG&E site that Erin Brockovitch made her name on would reveal?  When I lived in St. Louis, we had a local meteorologist we used to joke had "accurately predicted twelve of the last three blizzards".  Environmentalists who perplexedly scratch their heads as to why everyone does not yet fully buy into global warming should move past their "everyone is in the pay of the oil companies" explanation and maybe consider for a minute that their panicked prediction of twelve of the last three environmental disasters may be part of the explanation as well.

By the way, what really killed nuclear power was the costliness of the ridiculous regulatory regime.  In a prior post, I suggested an alternative regulatory regime, copied from airlines (see, we libertarians can sometimes hold our nose and actually make a regulatory reform proposal short of "throw it all out").  Reason's Hit and Run points to an example of those on the left reconsidering nuclear power.

I was gearing up to write a response to the Florida Supreme Court decision that strikes down a school choice plan as unconstitutional, but Baseball Crank did such a nice job, I will refer you to him.  The plan as crafted allowed students in low-performance schools to opt out with  a voucher for another public or private school.  The justices struck down the law because they felt that the Florida Constitution which requires a "uniform, efficient, safe, secure, and high quality system" of education thereby necessitates schools run by the government only.  Their "logic" was that using a public voucher at a private school thwarted the "uniform" part.

But here is the scary part of their interpretation of "uniform".  Most reasonable people would read the Constitution as meaning "uniform in quality".  But the voucher law as written almost by definition increases the uniformity of quality.  The vouchers were offered only to students at low performing schools.  The recipients of the vouchers could then stay at the same school or use the voucher to go to another school.  Since a voucher holder will only go to a different school if they perceive that school to be better than the school they are leaving, the law increases the net quality of education received (at least in the eyes of parents, though perhaps not in the eyes of the NEA or the education intelligentsia).  By any reasonable definition, improving the education of the kids receiving the worst education as determined by consistent standards should actually improve uniformity of quality, not reduce it.  From a quality standpoint, I would argue it is unconstitutional in Florida NOT to have this school choice plan.

So if it is not uniformity of quality that is being discussed, it must be uniformity of something else.  As Baseball Crank points out, what is left is a strongly Maoist overtone of uniformity of thought -- that everyone is receiving the same state programming.  This ability to opt out of state programming has always been at least as powerful of a driver for private and home schooling as bad quality.  While public education has been controlled mostly by the left, the right has been the main group "opting-out".  However, as the right takes over the left's cherished institutions, I made a plea a while back to the left to reconsider school choice:

At the end of the day, one-size-fits-all public schools are never
going to be able to satisfy everyone on this type thing, as it is
impossible to educate kids in a values-neutral way.  Statist parents
object to too much positive material on the founding fathers and the
Constitution.  Secular parents object to mentions of God and
overly-positive descriptions of religion in history.  Religious parents
object to secularized science and sex education.  Free market parents
object to enforced environmental activism and statist economics.   Some
parents want no grades and an emphasis on feeling good and self-esteem,
while others want tough grading and tough feedback when kids aren't
learning what they are supposed to.

I have always thought that these "softer" issues, rather than just
test scores and class sizes, were the real "killer-app" that might one
day drive acceptance of school choice in this country.  Certainly
increases in home-schooling rates have been driven as much by these
softer values-related issues (mainly to date from the Right) than by
just the three R's.

So here is my invitation to the Left: come over to the dark side.
Reconsider your historic opposition to school choice.  I'm not talking
about rolling back government spending or government commitment to
funding education for all.  I am talking about allowing parents to use
that money that government spends on their behalf at the school of
their choice.  Parents want their kids to learn creationism - fine,
they can find a school for that.  Parents want a strict, secular focus
on basic skills - fine, another school for that.  Parents want their
kids to spend time learning the three R's while also learning to love
nature and protect the environment - fine, do it...

The Club for Growth has identified one of the most ridiculous pieces of government spending I have seen so far. 

So, you landed a big king salmon this summer? It can't
compare to the colossal king Alaska Airlines plans to land this morning in
Anchorage.

The Seattle-based carrier has painted nearly the full
length of a Boeing 737-400 passenger jet as a wild Alaska king, or chinook,
salmon. The airline has dubbed its flying fish the "Salmon-Thirty-Salmon."

It's a bold promotional move to celebrate wild Alaska
seafood and also the carrier's role in hauling millions of pounds of fresh
salmon, halibut, crab, shrimp and other seafood out of the state each year.

The plane is kind of cool looking, in a creepy sort of way:

But here is what was buried deep in the article on the "bold" plan:

A local nonprofit agency, the Alaska Fisheries Marketing
Board, gave Alaska Airlines a $500,000 grant to paint the jet. The money came
out of about $29 million in federal funding U.S. Sen. Ted Stevens of Alaska and
his congressional colleagues have appropriated to the marketing board, created
in 2003, to promote and enhance the value of Alaska seafood. The senator's son,
state Sen. Ben Stevens, is chairman of the agency's board of directors.

Maybe they can use the plane to fly the route to New Orleans.  The scary part is the article plays this whole project straight up, as if it is perfectly normal and natural, even bold and innovative.

Spending other people's money, taken from them by force, on projects they don't necessarily support, does not make you bold, or compassionate, or caring, or innovative.  It just makes you a politician.

Here is a copy of the letter I sent to my representative John Shadegg as part of the PorkBusters campaign:

Representative
John Shadegg
Arizona
3^rd District

306
Cannon H. O. B.

Washington,
DC  20515

Congressman
Shadegg:

I
am a blogger who lives and runs a business in your district.  I know
that you were one of only 8 people in Congress to vote against the
recent pork-laden highway bill, something I congratulated you for on
my blog.  I now want to encourage you to continue fighting to reign
in government spending.  I am frankly flabbergasted to see the
current Republican leadership in Congress working so hard to resist
fiscal sanity, and am amazed that the Republican Party could have
drifted so far from its philosophical roots.

I
know that there are tremendous pressures on you to play the game with
everyone else in Congress, and bring home your share of pork to your
district.  Often those in your district will root for you to cut
other people's pork but not their own.  Let me say that I am totally
supportive of your cutting our 3^rd district pork first, as
a message that everyone needs to contribute to the spending cuts the
President has called for to pay for Katrina-related expenses.  You
are probably aware that many of us in the blogging world have banded
together in the "Porkbusters" effort to signal our desire to cut
pork by identifying our own local earmarks for cuts first.

Technorati tag:  porkbusters.