Coyote Blog

Governments have spent so much, to so little effect, to try to stimulate the current economy, I wonder where they will find the resources to spend more the next time?  Because you can be sure that despite the fact that we are likely near the top of a weak cycle, no one is paying back what was spent in the last recession or proposing to reduce central bank balance sheets.

This is a couple of years old, but tells the story pretty well:

The financial crisis that began in late 2007, with its mix of liquidity crunch, decreased tax revenues, huge economic stimulus programs, recapitalizations of banks and so on and so forth, led to a dramatic increase in the public debt for most advanced economies. Public debt as a percent of GDP in OECD countries as a whole went from hovering around 70% throughout the 1990s to almost 110% in 2012. It is now projected to grow to 112.5% of GDP by 2014, possibly rising even higher in the following years. This trend is visible not only in countries with a history of debt problems - such as Japan, Italy, Belgium and Greece - but also in countries where it was relatively low before the crisis - such as the US, UK, France, Portugal and Ireland.

So over a third of the debt that has been built up in all of history by Western nations was added in just a few years from 2007-2012.  At the same time, the central banks of these countries were adding to their balance sheets like crazy, essentially printing money in addition to this deficit spending.  In the US, the Fed's balance sheet as a percent of GDP hovered around 6% until the second half of 2008.   That had tripled to over 18% in 2012 (source).  At the same time, European central bank assets grew from about 7% to over 16% of GDP.

James Taranto has a regular feature named after a reporter named Fox Butterfield.  The feature takes statements such as "Despite Mary getting a PhD in Peruvian gender studies from Harvard, she has struggled to find a job" and argues that the "despite" should be replaced by "because".

This is certainly true of the statement that "despite record stimulus and Fed balance sheet expansion, the economy has remained sluggish".  That "despite" should be "because of".  The government continues to distort the allocation of capital and wonders why investment is sluggish and tends towards bubbles in certain assets.  Japan has stimulated for 25 years to absurd levels of debt and has gotten 25 years of sluggishness in return.

All this reminds me of a story in one of my favorite business books, "Barbarians at the Gate."  Back in the day, tobacco companies had a practice of jamming inventory into the channel just ahead of the semi-annual price increase.   They called this "loading."  The channel liked it because they got cheap product to sell at the new higher prices.  The tobacco companies liked it because it boosted quarterly revenues at the end of the quarter.  But that boost only happens once.  To show growth the next quarter, one must load even more.  Over time, they were jamming huge amounts of inventory into the channel.  I have never been a smoker, but apparently freshness is an issue with cigarettes and they can go stale.  Eventually, the company was loading so much their sales started to drop because everyone was buying stale cigarettes.

In find this a powerful metaphor for government interventions in the economy today.

Postscript:  I will give another example.  In Arizona, we are on a July-June fiscal year.  Years ago, some government yahoo had the bright idea to close a budget hole by passing a law that all businesses had to pre-pay their estimate of sales taxes due in July a month earlier in June.  For that one glorious year, politicians had 13 months of revenue to spend rather than 12.

But to set things aright the next year, they would have to live with just 11 months of revenue.  No way they were going to do that!  So they did the pull-forward thing again to get a full 12 months.  And they have done it every year since.  It has become an institution.  All this costs a ton of money to process, as the state must essentially process a 13th return each year, presumably paying overtime and temp costs to do it.  All for the benefit of one year where they got the use of one month of revenue early, we have been stuck with higher state operating costs forever.

I wrote the other day about how Kevin Drum was confused at why broadband stocks might be rising in the wake of news that the government would regulate broadband companies as utilities.  I argued the reason was likely because investors know that such regulation blocks most innovation-based competition and tends to guarantee companies a minimum profit -- nothing to sneeze at in the Internet world where previous giants like AOL, Earthlink, and Mindspring are mostly toast.

James Taranto pointed today to an interesting Richard Eptstein quote along the same lines (though he was referring to hospitals under Obamacare):

Traditional public utility regulation applies to such services as gas, electric and water, which were supplied by natural monopolists. Left unregulated, they could charge excessive or discriminatory prices. The constitutional art of rate regulation sought to keep monopolists at competitive rates of return.

To control against the risk of confiscatory rates, the Supreme Court also required the state regulator to allow each firm to obtain a market rate of return on its invested capital, taking into account the inherent riskiness of the venture.

This week's episode:  Spending enormous resources on a program to reduce X, and then not tracking (or even putting in place a mechanism to track) whether X was reduced as promised.   James Taranto quoting the National Journal quoting Administration officials:

The Congressional Budget Office estimates that the health care law will reduce the number of uninsured people by about 24 million over the next few years, and that about 6 million previously uninsured people will gain coverage through the law's exchanges this year. So, is enrollment on track to meet that goal? Overall enrollment is looking pretty decent, but how many of the people who have signed up were previously uninsured?

"That's not a data point that we are really collecting in any sort of systematic way," Cohen told the insurance-industry crowd on Thursday when asked how many of the roughly 4 million enrollees were previously uninsured.

Nicely done.  The PPACA was passed first and foremost to bring insurance to the uninsured.  I always thought that the Left misunderstood (accidentally or on purpose, I do not know) the nature of the uninsured and thus overestimated what impact the PPACA would have in this regard.  But one way or another, you would track the impact, right?  I can just imagine trying to explain to my old boss Chuck Knight why we spent billions to gain new customers for a product but didn't track how many new customers we gained.

Postscript:  Here is my prediction -- The Administration will declare that no one had "real" insurance (as they define it) so everyone in the exchange was previously uninsured.

So can I assume from all the angst over this that no scientist who is a strong proponent of anthropomorphic global warming has ever accepted money or an honorarium for their research or publication?  May I assume that no environmental group has ever screened who they were going to give research grants to based on the scientist's prior writings and outlook on the topic?

No?   I can't assume those things?  Then what the hell is all the fuss about?  Paraphrasing Casablanca, its like being shocked  (shocked!)  that planned parenthood gives most of their political money to Democrats.  Science today runs on money.  Ask a professor.  It is no longer "publish or perish" it's "get grant money or perish."  Isn't this whole brouhaha really a subset of the free speech debates that are going on today?  In the latter, folks of one ilk or another argue that some speech or position (e.g. holocaust denial) is so outrageous as not to be covered by free speech rights.  Isn't that what this whole debate is about -- ie, are we going to label global warming skepticism as so outrageous and untenable that we are not going to allow money to be spent or speech to be allowed from its proponents?

In that light, it sure raises the stakes on trying to hold onto political power, if politicians are allowed to define what speech, and scientific inquiry, is allowed.

Update:  Whoops, I just saw this.  I think I am on to something.  James Taranto quotes the Boston Globe's Ellen Goodman:

I would like to say we're at a point where global warming is impossible to deny. Let's just say that global warming deniers are now on a par with Holocaust deniers, though one denies the past and the other denies the present and future.

A while back, I observed that liberal statists and technocrats were upset that conservative statists were using the machinery of big government they created for the "wrong" ends:

I am reminded of all this because the technocrats that built our
regulatory state are starting to see the danger of what they created.
A public school system was great as long as it was teaching the right
things and its indoctrinational excesses were in a leftish direction.
Now, however, we can see the panic.  The left is freaked that some red
state school districts may start teaching creationism or intelligent
design.  And you can hear the lament - how did we let Bush and these
conservative idiots take control of the beautiful machine we built?  My
answer is that you shouldn't have built the machine in the first place
- it always falls into the wrong hands.  Maybe its time for me to again invite the left to reconsider school choice.

Today, via Instapundit, comes this story about the GAO audit of the decision by the FDA to not allow the plan B morning after pill to be sold over the counter.
And, knock me over with a feather, it appears that the decision was
political, based on a conservative administration's opposition to
abortion.  And again the technocrats on the left are freaked.  Well,
what did you expect?  You applauded the Clinton FDA's politically
motivated ban on breast implants as a sop to NOW and the trial
lawyers.  In
establishing the FDA, it was you on the left that established the
principal, contradictory to the left's own stand on abortion, that the
government does indeed trump the individual on decision making for
their own body  (other thoughts here).
Again we hear the lament that the game was great until these
conservative yahoos took over.  No, it wasn't.  It was unjust to scheme
to control other people's lives, and just plain stupid to expect that
the machinery of control you created would never fall into your
political enemy's hands.

Suprisingly, James Taranto in Best of the Web, who I sometimes find too partisan and socially conservative for my tastes, makes a similar point:

Liberal Democrats take credit for creating an enormous government, which, according to them, doesn't work--but would work just fine if only the populace were smart enough to elect liberal Democrats.

In sum: Republicans favor small government but embrace big government when they have the power to control it. Democrats favor big government but insist that it can work only when they have the power to control it. Politicians in both parties, then, seem to see government as a means to the same end: their own political power. Little wonder that voters are suspicious of government.

Progressives often wrap themselves up in a lot of libertarian-sounding jargon.  But when push comes to shove, progressives are more comfortable with coercion than free association.  James Taranto links this piece in his Friday Best of the Web:

A longtime singer and guitarist with the Zucchini Brothers and a substitute teaching assistant for Washington-Saratoga-Warren-Hamilton-Essex BOCES [school board], Powell has lived frugally for years. He works about three days a week as a sub, earning about $70 a day, with no benefits. From March to October, he rides his bike 20 miles to work when work is available....

Part of that survival--or so he thought--included shopping at Wal-Mart to take advantage of cheaper prices for himself, his partner and her two children. Then his discussions about Wal-Mart with Sandra Carner-Shafran, a teaching assistant at BOCES and a member of the Board of Directors of New York State United Teachers, started churning inside him. . . .

"I don't like what Wal-Mart stands for," Powell said, noting the mega-chain's scanty health insurance for staffers. "Because of all those things they can lower the prices."

He and his partner agreed to go on food stamps for their family rather than shop at Wal-Mart any longer.

Please observe the moral choice he made that is being applauded by those on the left:  Rather than get low cost food from Wal-mart, which generally* transacts with its suppliers, employers, and customers through mutual self-interest and the consent of all parties in each transaction, he has decided it is MORE MORAL to get his food expropriated from the American taxpayer without their consent.  Lovely.  By the way, it is ironic that he is mad that Wal-mart employees accepts jobs with no health benefits when he in fact has made the same choice himself.

More on what makes progressives tick here.

*The exception being that Wal-Mart does use the force of government via imminent domain to obtain land where the free will of landowners would not cooperate and to get special tax credits from local governments to get area citizenry to subsidize its business.  If Mr. Powell were to protest these practices, I would be all for it, but my guess is that he is not protesting government handouts to Walmart by signing up for... government handouts for himself.

I generally don't get worked up by the memes that fly back and forth between various political blogs.  However, one of late is starting to irritate me.  I have seen it all over the place on conservative blogs, but I will quote from James Taranto because I saw it on Best of the Web most recently:

Related to the terrorism-is-no-big-threat claim is the argument that American lives are less important than the civil liberties of terrorists.

Its not the lives vs. liberties part that works me up -- there probably is a real trade-off in there somewhere.  What irks me is portraying concerns about the Patriot Act, indefinite detentions without trial, and eavesdropping outside of the normal separation of powers checks and balances as "concern for the civil liberties of terrorists".

I am sure that there is a name for this kind of semantic trick, though I can't remember it, but I will say its bush league, right out of high school debate.  You could just as easily stump for repeal of the fourth amendment because it is only concerned with the "civil liberties of criminals".

No one except a few crazies cares much for the civil rights of convicted criminals and terrorists.  After all, what could be more of a violation of their civil rights than incarcerating them, but I have seldom seen a bond issue for more prisons that people won't vote for.

No, the problem is with the civil rights of the rest of us who are innocent.  We don't want our email read just in case we are terrorists.  We don't want our houses broken into at night just in case we are drug dealers.  And if we find ourselves in police custody, we want our habeas corpus rights respected and we want to get our due process or be released.

You see, that's the nagging little problem.  Because the people the administration and their law enforcement arms are detaining and eavesdropping on are only "suspected terrorists", or I will even grant you "strongly suspected terrorists".  And there is a whole great world of difference between even a strongly suspected terrorist and a convicted terrorist.  That is what due process and the presumption of innocence is all about.  We have a legal term for a person "suspected" by the police of crime or terrorism:  Innocent citizen.

Yes, I understand that for the police to do their business, they need to be able to investigate suspected criminals.  As I wrote here, we have a process for that - the legislature sets the rules for investigations and searches, the Supreme Court tests the rules against the Constitution, the administrative branches follow the rules, and the courts have various review roles, from approving wiretaps and search warrants to being a source of appeal for habeas corpus violations.  That is why I stated that though I opposed provisions of the Patriot Act, at least it followed this separation-of-powers script.  It is when the administration claims new powers for itself without legislative authority or judicial review that really gives me the willies.

And yes, I know that the counter-argument is that we are at war and the administration and the President as commander-in-chief have the abilities under their powers to do, uh, whatever it takes I guess to prosecute a war.  After all, you can't run to Congress for a vote every time you want to move the troops in a war, can you?

There is a major problem with this argument.  To the extent that the President has all this extra wartime power, the founding fathers put in a very sensible Constitutional provision that the Senate must make a declaration of war before the President has these wartime powers.  And you know what -- the Senate of this country has not declared war since about 1941 on anyone.  Even if I give GWB credit for all the best motives in the world, we cannot have a government where the President can assume all kinds of magic wartime powers AND unilaterally declare war himself (and no, the Senate authorization for military action in Afghanistan was not a declaration of war, at least in this sense).  Effectively the Administration is asking us to a) allow the Administration to define when and who we are at war against; b) allow the Administration to identify, without outside review, who the combatants are in this war; and c) allow the Administration to search or indefinitely detain these combatants that they identified, indefinitely and without review outside of Administration-controlled organizations.

No way.  And I don't think a President has these powers to arbitrarily name who is a threat and detain them without due process even in a declared war - I mean, does anyone remember the embarrassing Japanese internments in WWII?  Were the Japanese internments any different, except in scale, from the powers the administration is claiming today?

Supporters of the war in Iraq have defended that Iraq is better off despite the high ongoing civilian death toll from terrorist acts.  They argue that the people of Iraq are willing to pay the price of dealing with these terrorist attacks in order to gain the status of a free and open state.  I would ask, then, aren't we in the US just as willing to deal with some increased risk of terrorism in order to maintain a free and open state?

I don't consider myself a tinfoil hat guy.  I think many of the security concerns behind the administration's actions can be addressed with some respect to separation of powers, if the administration was just willing to try.  However, it is my observation that the administration gave up trying to work with Congress about 2 years into his first term.  GWB hasn't tried to push any kind of legislative agenda.  He hasn't tried to bring any adult supervision to the gross display of spending excess going on.  He hasn't even used his veto pen once.  It strikes me that the Bush administration decided in about 2002 that Congress wasn't serious (I can sympathize with that) and that they were going to go off on their own and run things by themselves.  Sorry, but no matter how good your intentions, it does not work that way.