Why Economics Should Frighten You

I just finished reading Bruce Bartlett’s The New American Economy: The Failure of Reaganomics and a New Way Forward. As a non-economist casually reading Bartlett’s book, I can appreciate the criticism I sometimes receive from my non-lawyer readers. Bartlett’s is still an accessible book, but it does come right out of the gate assuming the reader understands certain macro-economic terms—i.e., supply-sider economics, monetarism, discount rates, etc.

One of the interesting points Bartlett makes concerns John Maynard Keynes. The most famous idea attributes to Keynes is, of course, that deficits are useful as a means of increasing the money supply and thus spurring growth. Nonetheless, Bartlett points out, Keynes was also eventually impressed with F. A. Hayek and advocated a return to classical economics. In this regard, Bartlett quotes Keynes as follows:

I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance, which we are liable today to overlook because we associate them with other doctrines which we cannot now accept without much qualification. There are in these matters deep undercurrents at work, natural forces, one can call them, or even the invisible hand, which are operating toward equilibrium. If it were not, we could not have got on even so well as we have for many decades past.

Bartlett responds to this seeming contradiction accordingly:

Through the years, many economists have puzzled over the contradictions in Keynes’s work. But there is one thing that ties it all together: his intense desire to influence public policy. As Keynes biographer Robert Skidelsky put it, “He invented theory to justify what he wanted to do.” If one goes through the 30 volumes of his collected works, the vast bulk of the material is not technical economics, but articles for newspapers and popular magazines, as well as memoranda and policy papers for government officials. “He was an opportunist who reacted to events immediately and directly, and his reaction was to produce an answer, to write a memorandum, and to publish at once, economist Elizabeth Johnson explains.

Bartlett goes on:

It is clear that Keynes would often put forward proposals because he thought they would be helpful at a particular moment in time, knowing full well that it would be highly undesirable for them to be maintained for the long term. . . .

Keynes had enormous confidence in his ability to manipulate public opinion and this had a great deal of impact on the nature of his work. For one thing, it obviated any necessity for consistency; he would say what needed to be said one day and if it needed to be changed the next day, then he would simply make it happen.

Now, when this attitude is embodied in a Supreme Court justice, we call it “living constitutionalism.” However, we can probably cede it is more appropriate in the context of economic policy. On the other hand, to read the account of this political insider/economist, one gets the impression that economists view economic actors—i.e., us—as subjects in a science experiment. For example, Bartlett describes how a certain economic theory will work for a time, but will later cease to be effective because, among other things, people learn and adapt to the government’s policies. This causes the policies to lose the stimulative, artificial effect that the policy makers intended. As Bartlett puts it:

As builders and suppliers for public works become accustomed to the government enacting countercyclical programs, they tend to under-invest during upturns, thus adding to inflation and the cost of public works.

. . . .

Economists associated with the rational expectations school played a part as well in undermining the foundations of Keynesian economics. From the point of view of supply-siders, a key element of their critique related to econometric models. They argued that people learn from policy changes and thus change their behavior accordingly. People may react to a policy one way the first time and differently the second time.

There is something that sounds insidious about this insight—as if, though it may be true, it is unsavory that economists and politicians would bank on it. Are economists really like shepherds, and the rest of us like sheep, as Bartlett makes it sound? Are they out there somewhere poking and prodding the citizenry to modify behavior and thereby manipulate the economy? And is it really true their policies only work so long as we can’t quite get a read on what they’re up to?

I am skeptical that there can be no static formula on which our economy can operate. We require a “fluid” economic policy only because we insist on engaging the federal government to assist the economy in reaching such a magnitude that any fluctuations result in disaster—thus necessitating national legislative action with the help of economic policy advisers. That is, without the government as such a central component in our economy, we might not have as much growth, but we also might not have such disastrous bubbles and recessions, either.

Meanwhile, the economists run their experiments on us. They observe our behavior and devise theories to explain why we do the things we do. They then advise policy makers to get us to do more of some things and less of others. They then test those policies and see what works and what didn’t. Then when they overuse the policies that worked before such that we “see it coming” the next time and thus muck up their lab results, they have to try something new. Eventually, they overuse the corrected theory and self-correct, and so on and so forth. This process of macro-economic policy making, which already works at an incredibly high level, thus begins to give rise to yet another, higher level of observation, a “meta” macro-economics. That is, the development of a theory that explains why macro-economists do what they do.

It seems to me things can tend to spin out of control. We already talk about folks like Ben Bernanke and how lucky we were to have him at the Fed when the bottom was falling out, and what might have happened without him. Bartlett himself says this in his book. Is this what it’s come to? Is our economic system so impenetrable that there is just one fellow on God’s green earth who knows how to calm it down when it gets cranky? Economic policy making seems like just bunch of wet thumbs in the wind.

Great Video About American Muslims

My friend sent me this terrific video.  Please watch.

California’s Next AG Needs to Understand the Constitution, Not Just the Penal Code

According to LegalNewsline.com, the liberal Sacramento Bee editorial board endorsed Steve Cooley, on the apparent basis that his challenger, John Eastman, has never prosecuted a criminal case. This spurious criticism of Eastman ignores that the Attorney General is a supervisor of the state’s prosecutors—and indeed, the Bee is not particularly known for having voiced any opposition to Jerry Brown for his lack of prosecutorial experience, or any other legal experience for that matter (he apparently hadn’t practiced law before seeking the attorney general position since 1969, after about four years of private practice). But more importantly, the Attorney General represents the state and the people of California before the appellate courts—both state and federal—in major constitutional cases.

Thus, a more apt critique would be, how many constitutional appeals has Steve Cooley argued, or been involved in? Eastman is a nationally recognized constitutional law attorney. Eastman would be infinitely better equipped than Cooley in arguing the constitutionality of Obama’s health care mandate before the Supreme Court. While Cooley’s relatively narrow litigation experience in criminal prosecutions is certainly valuable, it does nothing to suggest his acumen in understanding and arguing constitutional law matters. And, as I explained in a recent Sacramento Bee op-ed, many of California’s wounds are self-inflicted (such as our unfunded pension liability) and require an Attorney General who is expert in the constitution—not just the penal code—to help redress them.

In this regard, it should be noted that it would be highly unlikely that Cooley would even bring a challenge to the constitutionality of the crippling retroactive pension increases paid to public employee unions. That is because Steve Cooley himself negotiated to receive one of lavish illegal retroactive pension packages. John Eastman, who helped launch the Orange County litigation challenging those illegal benefits, is not only the best candidate, but the only one without a clear conflict of interest in taking on the retroactive pension issue.

Conservatives vs. Progressives

Here are some interesting observations about Conservatives versus Progressives.  Just taking this list on its own, one would be led to believe that members of these two camps don’t really have any coherent ideology, they just pick and choose big-sounding ideas (i.e., big government vs. free market, paternalism vs. individual choice, traditionalism vs. modernism) when it suits their needs.  I don’t think that is the case for Conservatives, however.  At least, not as far as my own Conservatism goes.  A hint as you review this list: consider not what each side is after so much as how they mean to achieve it.

• Conservatives talk of the unsustainability of our economic and social welfare policies, and that our political systems will be crushed under their enormous weight.  Progressives talk of the unsustainability of our environmental policies and that our ecosystem will soon be crushed under the weight of the trillions of pounds of human flesh we’ve irresponsibly allowed to proliferate.  Conservatives and Progressives both chuckle at each other as being hot-headed alarmists.
• Conservatives complain of government growing too heavy-handed in domestic affairs.  Progressives can’t seem to fathom this gripe, while they complain the government is too heavy-handed in foreign affairs. They both accuse each other of being shills for a form of governmental Leviathan.
• Conservatives wince at land use planners roping off our free choices concerning where we can live and work and what we can build, even if this means the slow decay of the traditional city.  Progressives long for the hey-day of the early 20th century, which defined the ideal planning model of “walkable” cities and thriving smaller towns, even if this means middle- or lower-income families will be foreclosed from the opportunity to live in spacious houses with their own yards.
• Conservatives tout economic liberty and strong property rights, but are accused of not similarly championing  privacy and personal liberty.  Progressives take up these latter liberties, but think little of the individual’s right in his property or in his economic decisions.
• Conservatives fear big government because of its power to deprive individuals of life, liberty, and property, because that power is of necessity wielded by men, and because, despite the best efforts of our Framers, its machinations are largely opaque.  Progressives instead fear big corporations and insist that the market is not a suitable alternative reservoir for social control, for the curious reason that corporations are in cahoots with big government.
• Conservatives tout the free, unregulated market, but sometimes struggle to explain the crash of 1929.  Progressives tout a tightly controlled economy that they say led to the boom of the middle class in the 1940s to around 1980, but at the same time complain that this profligate growth led to the sacking of traditional cities and the ghastly phenomenon of “suburban sprawl.”

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Obama’s Trail of Tears

Here’s a helpful list of broken promises thus far. Some of my favorites:

HEALTH-CARE NEGOTIATIONS ON C-SPAN

STATEMENT: “These negotiations will be on C-SPAN, and so the public will be part of the conversation and will see the decisions that are being made.” January 20, 2008, and seven other times.

EXPIRATION DATE: Throughout the summer, fall, and winter of 2009 and 2010; when John McCain asked about it during the health-care summit February 26, Obama dismissed the issue by declaring, “the campaign is over, John.”

RAISING TAXES

STATEMENT: “No family making less than $250,000 will see any form of tax increase.” (multiple times on the campaign trail) [TK: I was particularly fond of the “not one dime” refrain.]

EXPIRATION DATE: Broken multiple times, including the raised taxes on tobacco, a new tax on indoor tanning salons, but most prominently on February 11, 2010: “President Barack Obama said he is ‘agnostic’ about raising taxes on households making less than $250,000 as part of a broad effort to rein in the budget deficit.”  [See more here.  From Bloomberg: “The whole point of it is to make sure that all ideas are on the table,” the president said in the interview with Bloomberg BusinessWeek, which will appear on newsstands Friday. “So what I want to do is to be completely agnostic, in terms of solutions.”. . . “What I can’t do is to set the thing up where a whole bunch of things are off the table,” Obama said. “Some would say we can’t look at entitlements. There are going to be some that say we can’t look at taxes, and pretty soon, you just can’t solve the problem.”]

. . . .

9. “Instead of allowing lobbyists to slip big corporate tax breaks into bills during the dead of night, we will make sure every single tax break and earmark is available to every American online.”

. . . .

17. “Obama will not sign any non-emergency bill without giving the American public an opportunity to review and comment on the White House website for five days.” Obama is 1-for-11 on this promise so far.

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