Post-ObamacareApocalypse: The Way Forward (UPDATED & Edited Wednesday)

Lot's of angry emails from people from whom I haven't heard in awhile. And with good reason. Never, in the history of this country, has legislation so transforming been passed with out a bi-partisan majority and against the will of the people.

Could the American people--through numerous opinion polls, the election of Scott Brown, the Tea Party movement, hundreds of thousands of emails, calls, and letters to member of Congress--have been any more clear about their opposition to, and in some instances, intense hate of, ObamaCare?

Though I plan on responding to everyone individually, I figured I'd give my opinion, in the form of what I'm reading/thinking/etc., to the question on everybody's minds: What next?

Before I even get to the practical stuff, let me remind us all (myself included) of what we are--we are Happy Warriors. Whatever else happens, it is always Morning in America. We must be positive, optimistic and upbeat as we respond to the haters on the extreme left. If there were no battles left to fight, life would be pretty boring.

First of all, here's the BookFace page of Dan Benishek, the guy who's challenging the pro-life Benedict Arnold, Bart Stupak. Join his group, donate to his campaign and do whatever else you can to help get him elected.

Also, you absolutely must get on that Twitter. Every last bit of news is broken first on Twitter. I'm not saying you have to follow me, but looking through the list of people I follow, would be a good place to start.

Yesterday, for instance, I was doing a running commentary while watching CSPAN on the interwebs. And so were lots and lots of other people.

Second, here's a few articles to educate you about our Nanny State future:

Tuesday 23 March

12:22pm BST: Jonah Goldberg on the ongoing culture war the left has wrought and will continue to bring as a result of the passage of Obamacare:

this legislation is a superconducting super collider of culture-war conflagrations. It will throw off new and unforeseen cultural spectacles for years to come (if it is not repealed). The grinding debate over the Stupak amendment was just a foretaste. The government has surged over the breakwater and is now going to flood the nooks and crannies of American life. Americans will now fight over what tax dollars should cover and not cover. Debates over "subsidizing" this "lifestyle" or that "personal choice" will erupt. And when conservatives complain, liberals will blame them for perpetuating the culture war.

Silver lining? Ross Douthat writes that now we get to see if all those crazy liberal predictions about Obamacare saving the planet, etc., will actually come true.

Amity Shlaes (one of the old man's fav columnists, BTW) writes that Democrats' math is more than just fuzzy, it's a straight up lie--or, as Douglas Holtz-Eakin put it, "fantasy in, fantasy out." (regarding those ridiculous CBO numbers)

Monday 22 March

Milton Friedman on "A Way Out of Soviet-Style Healthcare." I wish he were still around.

WSJ Op-Ed on the real question underlying the bill: 'who commands the country's medical resources--the people or the government?'

Megan McArdle on the Democrat Party's parliamentary hijinks, deception of the people, and contempt for the majority will.

Christopher DeMuth of AEI on the 'historical inevitability' of progressivism. What he doesn't point out is just how much theory today's progressives borrow from Karl Marx. Yes, that Karl Marx.

UPDATE 1:12pm BST: The NRO Symposium on What Now?

AND

'Paul Ryan is not ready to give up on the fight on health care.' Good thing.

UPDATE 2:16pm: There are a lot of things I really dislike and disagree with in this piece by David Frum, but he does make one very important point: Major legislative victory trumps legislative majority. I hope future Republican majorities take this to heart and pass conservative-transformative legislation.

In the future, we must have gamechangers. Getting the White House or a majority in Congress is worth very little if all we do is slow the increase of government and spending. Then Republicans are just Democrats-lite. Republican representatives must pass market-based reforms of all areas of government. They must do away entirely with departments like Education and above all, they must repeal Obamacare.

The guys at Power Line with their Silver Linings.

In yesterdays Washington Post, Randy Barnett, a constitutional lawyer at Georgetown, asked, "Is health care reform Constitutional?" Requiring people to purchase heath care? I don't think so.

UPDATE 2:37p: Watch Paul Ryan and Mike Pence (two potential contenders for the 2012 GOP Presidential nomination) speechify about health care and rights and freedom.

Romney's condemnation of Obamacare--"unconscionable abuse of power"

Also, there's this: Blame Bush.

UPDATE 3:22p: Greg Mankiw: "How long can the President wait before he comes clean with the American people and explains how high taxes need to rise to pay for his vision of government?"

UPDATE 4:36p: Today's WSJ Op-Ed on the passage of Obamacare:

We fought this bill so vigorously because we have studied government health care in other countries, and the results include much higher taxes, slower economic growth and worse medical care.

Some of my friends argued in favor of this bill because "finally their (fill in the blank) member of the family would be able to get care." Well, sure, if by "care" you mean that according to the bill, they can "technically" see a doctor. The reality will be much different. Just hope that your cancer ridden (fill in the blank) isn't getting on in age, because their care will be rationed.

The WSJ's Kimberley Strassel on all the threats, bribes, and kickbacks required to pass Obamacare. Are you okay with this sort of behavior?

(I'll update this post periodically throughout the day and week as I come across more stuff of note)

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Christina Romer, Tribal-Economist For President Obama, Still Blaming Bush

She doesn't name him, you see, she just uses words like "inherited."

She also still thinks Cash for Clunkers was a good idea--willful suspension of disbelief and all that.

Apart from repeating the company line about how much things sucked when Obama took office and how he's done everything humanly possible to right the ship, Romer proposes even more government intervention in the private sector. This intervention will require even more government spending, natch.

Among other things, I'm reading Rose & Milton Friedman's "Free to Choose" (incidentally, an excellent Christmas gift idea). Given the incredible increase in the money supply over the last year both through government spending and the actions of Fed Chair Ben Bernanke, Friedman's cautions regarding the dangers of inflation seem timely. Page 275:

It takes time for these reactions to occur. On the average over the past century and more in the United States, the United Kingdom, and some other Western countries, roughly six to nine months have elapsed before increased monetary growth has worked its way through the economy and produced increased economic growth and employment [ed. note: matches up well with the recent "good" news that the US economy shed only ~167k jobs last month]. Another twelve to eighteen months have elapsed before the increased monetary growth has affected the price level appreciably and inflation has occurred or speeded up. The time delays have been this long for these countries because, wartime aside, they were long spared widely varying rates of monetary growth and inflation. On the eve of World War II wholesale prices in the United Kingdom averaged roughly the same as two hundred years earlier, and in the United States, as one hundred years earlier. The post-World War II inflation is a new phenomenon in these countries.

As sure as Obama and co. will continue to propose increased government spending, inflation will come.

When it does, it will act as a tax that robs the rich and poor alike.

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Milton Friedman Fridays - On The Environment &c.

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Milton Friedman Fridays - On 3rd Party Payment In Healthcare

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'Phase 1: Elect Barack Obama; Phase 2: ?; Phase 3: Utopia!'

Bret Stephens has become a must-read columnist. (h/t Morgan H.)

This column is nearly a week old, but it's pretty timeless in the sense that Stephens applies the South Park Gnomes formula to the Obama administration. Or rather, he shows how the Obama administration is applying the South Park Gnome formula to everything they do.

"What," you're asking yourself, "is the South Park Gnomes formula?" Stephens explains:

Consider the 1998 "Gnomes" episode -- possibly surpassing Milton Friedman's "Free to Choose" as the classic defense of capitalism -- in which the children of South Park, Colo., get a lesson in how not to run an enterprise from mysterious little men who go about stealing undergarments from the unsuspecting and collecting them in a huge underground storehouse.

What's the big idea? The gnomes explain:

"Phase One: Collect underpants.

"Phase Two: ?

"Phase Three: Profit."

Lest you think there's a step missing here, that's the whole point. ("What about Phase Two?" asks one of the kids. "Well," answers a gnome, "Phase Three is profits!")

"Profits!" Seems a bit like Obama's GM & Chrysler plans, no? Can't you just feel the money rolling in?

Sorry, my mistake. That sensation you feel is your tax money going to pay back Obama's "grassroots" fundraising/election juggxrnaught, er, the UAW.

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Friedman Friday: The Power Of Choice

Given that I'll be traveling tomorrow, I figured I'd better resume the tradition of Friedman Fridays, today. This is an excerpt from his biography.

After watching this video, I'm left to wish, once again, that Milton Friedman were still alive. Does any other living economist have as much influence and gravitas?




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Reject Obama-conomics

In Thursday's Journal, Daniel Henninger recommended we all "reread the apostles and evangelists of private economic growth -- Ronald Reagan's "A Life in Letters," Milton Friedman's "Free to Choose," Henry Hazlitt's "Economics in One Lesson."

By happy coincidence, I received via mass email, one of Milton Friedman's great TV moments.

It's short; please watch.



As one of my economic heroes was fond of repeating, government is at its best (historically AND its best is not saying much) when its efforts are both simple & targeted.

There is nothing about TARP, Obama's stimulus, Obama's budget, Obama's cap-and-trade, or Obama's proposed TARP-2 that fits either of those criteria. These are all proposals from men (& a few women) who think they can manage the economy from above better than individuals can on their own.

We've been down that road before. A bunch of times. Let's not go there again.


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WWMS: What Would Milton Say?

If only Friedman were still alive and could pen a column for the Wall Street Journal on the Modern Great Depression (note: this is a parodic title). As it is, the only "influential" economist whose columns we can read are former Enron adviser, Paul Krugman's. And we already know what he's going to say: Blame Bush.

Fortunately and in an altogether different sort of way, we can also suss out what Milton Friedman might have said, were he alive. I'll leave it to his still-living colleague, Peter Robinson:

The day after Milton Friedman died in November 2006, The Wall Street Journal published an article about monetary policy that Friedman had written. Unable to recall when the article had first appeared, I asked the editor. "Today," he said. "Milton adapted it just a couple of weeks ago from a research paper he was working on."

This took a moment to sink in. Friedman, by universal consent one of the two or three most consequential economists of the 20th century, had still been performing original economic research then describing his findings for ordinary readers--at the age of 94.

What would Milton have said if he were still with us today? Friedman spent his final three decades at the Hoover Institution--my office was just two doors down the hall from his--and earlier this week I sat down with two of my Hoover colleagues, economists Thomas MaCurdy and Jay Bhattacharya, both close students of Milton, to decide what questions we would have asked him--and how he might have replied.

Would Milton have seen this crisis coming?

Of course. The moment the housing bubble burst Milton would have recognized that we were in for trouble. Why? Because as banks limited their lending, the money supply contracted. And whereas Milton believed that changes in the money supply affect only the price level over the long term, he recognized that over the short-term changes in the money supply can produce dramatic effects in the real economy.

"What would Milton have told you caused the recession in the early 1980s?" Tom asks. "[Federal ReserveChairman] Paul Volcker's reduction in the rate of growth of the money supply. And what has happened now? Another relativecontraction in the money supply. Milton would have told us we're headed right into a recession."

Whom would Milton have blamed?

For the bubble itself? Probably nobody. From the tulip mania in Holland more than three-and-a-half centuries ago to the dot-com bubble here in the U.S. less than a decade ago, wildly irrational behavior sometimes develops in markets. "Friedman never argued that markets are perfect," says Jay, "only that over the long run they're a lot more efficient than any other method of allocating resources." Sometimes, Milton recognized, bubbles just happen.

Whatever the origin of the bubble, however, Milton would have blamed Congress for making it much, much worse. Congress, after all, created Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ), institutions that spent tens of billions of dollars on subprime instruments. "Congress told Fannie and Freddie to subsidize bad loans for the purposes of social engineering," says Jay. "It was terrible, just terrible."

What would Milton have made of government efforts to address the crisis?

He would have approved of such efforts in Britain--but expressed grave reservations about those here in the U.S.

"Milton would have wanted the authorities to find very, very aggressive ways of expanding the money supply," says Tom. The Bank of England did just that, placing large deposits in banks throughout the British financial system. "What they did in England was quick, clean and direct."

Here in the U.S., by contrast, Treasury Secretary Henry Paulson's original bailout plan, under which the Treasury would have spent hundreds of billions of dollars purchasing subprime and other instruments from major banks, went at the problem backwards. "The government should take responsibility for the money supply, but not for setting prices," says Jay. "The problem with subprime assets is that nobody knows what they're worth. Friedman would have told you that bringing the government in wouldn't have helped that."

With his new plan, under which the Treasury has now taken equity stakes worth $125 billion in nine big banks, Paulson has finally begun to make sense. "Direct injections of capital into banks--Milton would have approved of that," Tom says. "But why did it take so long? Why did we have to wait for the Bank of England to set the example?"

What would Milton have seen as the principal danger to the economy that the crisis now poses?

The very same equity stakes mentioned above. It is one matter for the government to make deposits in banks, as the Fed regularly does, Milton would have held, but another for the government to purchase equity, as Paulson has just done.

"Look, if the government wraps up its equity positions and gets out of the banks quickly, then okay," says Tom. "The danger is that the government will stick around and start managing the banks, setting loan policies, establishing salary limits for the top executives and stuff like that. Friedman would have been really clear on this. Banks should be run by bankers, not politicians."

Would Milton have seen the crisis as a setback for capitalism?

Only in the short term.

"If this election goes the way it looks as though it's going to go," says Tom, "then the political system is about to get a major overcorrection to the left. And that means the American people are about to get an extreme illustration of just how badly government intervention screws stuff up."

"If Milton were here," Tom says, "he'd tell us to remember what happened during the Clinton administration. After just two years, the Republicans ended up in control of both houses of Congress."

As much as anything else about Friedman, I appreciate his eternal optimism. This is a characteristic he shared with Ronald Reagan and William F. Buckley Jr.

And why were they optimistic? Because they shared a faith in the goodness and greatness of America.

(thanks to Branden B.)


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"Climate Change" &c.

- It's important to note that we didn't say no government, we argued for and will continue to argue for less government.

Every generation of government planners thinks they are smarter than the last, that they can solve the problems their predecessors could not through better targeted planning, etc.

Of course there is a role for government involvement through regulation and oversight, we just don't think government is the answer to all problems or even most problems.

Can anyone really point at Europe and say, "success!"? Their demographics can't support their welfare states and for the last 10 years, they've been pointing towards the U.S. and mimicking our regulation reducin', tax lowerin', ways. Eastern Europe is probably the best example of this trend, though the same thing has been happening with extreme success in Ireland and nearby Scotland, with their newfound power under devolution, is moving in the same direction.

The most successful Asian tiger? Hong Kong. And does anywhere have as low of taxes and little regulation as Hong Kong?

Ah, Milton Friedman.

- Have global warmists started calling it "climate change" because they don't really know what's going to happen to the weather? If so, how does that make them any different to the weatherman who can't predict what's going to happen beyond a 4 day forecast and even then, with very little accuracy.

(no, we don't doubt climate change just because weathermen can't predict the weather)

Don't call us climate change "deniers." We're skeptics.

Philosophically and broadly, we agree with Bjørn Lomborg. His prognosis for global warming is that the drastic measures many call for would have little impact and that the resources spent trying to reduce carbon output would be better spent helping the poor in lesser developed countries. And further, that a dynamic economy, unhampered by global warming restrictions, combined with human ingenuity, would best solve any future global warming problem.

Obviously this explanation is very simplistic, so don't dismiss Lomborg based on our explanation. He just seems eminently reasonable. And it's that reasonableness that seems to be lacking among most of the global warming true believers.

- What the latest problem global warming (er, climate change) hath wrought?

In U.S.-America, food prices tied even more than usual to rising fuel costs because of government mandated ethanol production and limits on ethanol importation.

(food responds to increases in fuel prices because.... corn prices respond to demand for ethanol, corn production responds to demands for ethanol, corn replaces other crops in production reducing the supply of wheat, potatoes, etc., food prices rise, the poor suffer)

But for the wine and cheese, Prius driving, San Francisco Democrats who patted themselves on the back for their green efforts, the costs are low. As so often happens with these ill-conceived and ill-implemented government mandates, the poor in lesser developed countries pay the price. The price? Starvation.

What if there is a more invidious force at work here than the simple law of unintended consequences? What if some global warmists wanted population reduction in lesser developed countries?

If you follow the intellectual history of the extreme left of the enviro movement, this won't seem like such a farfetched idea.

We don't normally traffic in conspiracy theories, but whacko environmentalists have been calling for population limits ever since Thomas Malthus. His ideas were retreaded by Paul Ehrlich and Jared Diamond.

Remember that idiot columnist from USA Today we linked to last week? Yeah. He called for population limits as a religious/moral duty.

And did anyone catch the news about the couple in Florida who decided not to have children in order to reduce their carbon footprint? Besides our obvious delight at them self-selecting themselves out of existence, their example highlights the incongruity of the population reductionists (double meaning intended).

If they have no children, for whom, exactly, are they preserving the environment?

We only wish that all idiots would make the same, no children decision.

*UPDATE 3 May 3:47pm MST: RD properly chided Clinton and McCain for their "summer break" tax cut. However, his "kudos" to Obama was misplaced. Though he opposes the summer break tax cut on gas, he wants to impose a windfall tax on oil companies. Yeah, that's a good idea. From today's WSJ op-ed on the three Presidential candidate's populist proposals:

This tiff over gas and oil taxes only highlights the intellectual policy confusion – or perhaps we should say cynicism – of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?

Domestic drilling? In favor. ANWR drilling? Also, in favor.


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William F. Buckley Jr., RIP

William F. Buckley Jr., father of modern conservatism and another of our heroes, passed away today. We cannot do justice to Mr. Buckley's personal history and accomplishments. Our personal experience with Mr. Buckley through the written word and ideas will have to suffice.

Our first encounter with Mr. Buckley was through one of his spy novels. We can't now remember the name of the book, but it was a gift from our dad. We remember thinking that the simple cloak and dagger of Mr. Buckley's books was more entertaining than the superficiality of 007.

We also remember watching or at least being in the room when our father was watching Mr. Buckley on Firing Line, his PBS political debate show. For a long time, he was the only conservative on TV.

We grew up in a largely conservative community, but most of our politically savvy friends and teachers were Democrats. Whether it was on a debate trip or in our senior government class, we were often the only person arguing the conservative side of the debate. Looking for good material, we remember coming across a series of articles by Mr. Buckley. He and they were smart, understandable, and conservative (not Republican).

As a freshman at BYU, one of the first books we bought at the bookstore fall sale was The Right Word, by William F. Buckley Jr. We didn't actually read the book until after returning home from a 2-year church mission, but this book taught us a love for the English language. From it we learned a love of words and crafting of coherent sentences (yes, we leave something to be desired).

This November, we will have been subscribed to William F. Buckley's magazine, National Review, for four years. Mr. Buckley's sections "Notes & Asides" and "On The Right" have always been our favorite reads. His intellectual and principled approach deeply affected our approach to politics.

Mr. Buckley formed the foundation of modern conservatism. It's a lot healthier now than it was when he got his start with God and Man at Yale over 50 years ago. We and other conservatives may not always agree with Mr. Buckley, but because of the intellectual heavy lifting he has done for the movement, we must all acknowledge and refer to his conservative political doctrine.

Our final memory of Mr. Buckley is of our shared love--Alta. We happened across an account of Mr. Buckley's annual visits to Alta, Utah for a week of skiing at the center of the skiing universe. We've had a season's pass at Alta for 5 years. We worked in Alta's Alf Engen ski school. For years Mr. Buckley would take his family to ski at Alta. He would often meet another of our political intellectual heroes, Milton Friedman at Alta for a few days of skiing and Alta conviviality (link: scroll to the bottom).

We wish we could have ridden a chairlift with those two. Tomorrow, when we head to Alta, we'll be sure to ski a run or two in memory of both those great men. We feel fortunate to have something in common with Mr. Buckley--we're both conservatives who love Alta.

*UPDATE 3:55pm MST: For a collection of all the best on WFB, check out The Corner at National Review Online.

**UPDATE 10:48pm MST: A further collection of NRO reader-responses to WFB's passing.


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Outsourcing Redux

Free trade is one of those ideas that seems so great and so logical, we often forget that not everyone agrees. That is, we forget until we walk past a "fair trade" protest in Seattle or the "Fair Trade" cafe on campus at UCL. We can safely conclude that these people have never taken a basic economics course.

Today, after discussing CEO pay, Wal-Mart, free trade and other cool economic things, we did a little online research, re-watched the first volume of Milton Friedman's "Free to Choose," and found Greg Mankiw's blog. Among the many things posted was this gem, written back in 2004 about the outsourcing debate, but very readable and applicable today.

This dedication goes out to all you protectionists out there, wherever you may be. We know Valentine's Day was last week, but we hope you'll forgive our tardiness.

_____

Adam Smith on Outsourcing

By N. Greg Mankiw

If the American Economic Association were to give an award for the Most Politically Inept Paraphrasing of Adam Smith, I would be a leading candidate. But the recent furor about outsourcing, and my injudiciously worded comments about the benefits of international trade, should not eclipse the basic lessons that economists have understood for more than two centuries.

To avoid making the same mistake twice and clinching the award, I should let Mr. Smith speak for himself. Here is what he said in his 1776 classic The Wealth of Nations: “It is maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.”

This is the basic theory of international trade. Since Smith penned these words, economists have added rigor to the analysis (thank you, David Ricardo) and have conducted numerous empirical and historical studies of the effects of trade. The verdict is in: Smith was right. Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards. Smith’s insights are now standard fare in Econ 101.

Yet, whenever the economy goes through a difficult time, as it has in recent years, free trade comes under fire. Some people now fear that trade is responsible for recent weakness in U.S. labor markets. The concern is understandable, but it is simply not true. Over the past three years, job losses are more closely related to declines in domestic investment and weak exports than to import-competition. To the extent that the rest of the world threatens U.S. prosperity, the main problem is not rapid growth in China and India, but slow growth in Japan and Europe.

Of course, global competition has caused employment declines in some industries. The world trading system is changing along with technology. Goods that could once be produced only domestically can now be produced abroad and imported over fiber optic cable. The Internet and advances in telecommunications have meant that more Americans are competing with workers in other nations. Even if more competition is good for consumers, it can produce very understandable anxiety among some workers and their families.

These technological changes, however, have not rendered Smith’s insights obsolete. The same principles apply to offshore outsourcing of services as to traditional trade in goods. This has been confirmed in a recent study by the McKinsey Global Institute. McKinsey researchers tallied up the costs and benefits associated with outsourcing and found that for every dollar the United States sends abroad, we get back about $1.12, resulting in a net gain of $0.12. Smith would not have been surprised.

Some people fear that Americans cannot compete with low-wage workers abroad, or that global competition will mean that wages will “race to the bottom.” The truth is that we can prosper in a global economy because our workers are among the best in the world. Our real wages are ultimately determined by our productivity, and American productivity growth has been spectacular over the past three years.

So, if trade is not the problem ailing the U.S. economy, what is? Smith again has the answer. “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." This fits perfectly with three of the President’s priorities: defending the homeland against terrorist threats, reducing the tax burden on the American people, and reforming the tort system. (If Smith overlooked the importance of ensuring a reliable energy supply and reducing the cost of health care, we can forgive his eighteenth-century myopia.)

The President, like Smith, believes in the free enterprise system. The goal of policy should be to open up markets, not to retreat behind walls or throw rocks in our harbors. Economic growth is not zero-sum. Prosperity in one country is not a threat to prosperity in another. Free and open markets can mean better jobs both for Americans and for our trading partners around the world.

It may be a mere coincidence that Smith’s great book was published the exact same year that the Declaration of Independence was signed. But the founding fathers of the United States share an intellectual bond with the founding father of economics. They both believed that liberty and prosperity go hand in hand. Our founding fathers were well aware of Smith’s work. Benjamin Franklin knew Smith personally. When Franklin quipped that “No nation was ever ruined by trade,” he likely meant it as an understatement.

Perhaps quoting Adam Smith is risky. Smith was British, so some people may accuse me of outsourcing economic advice. But import competition is not a threat. I have great confidence that President Bush’s policies will grow the economy and create a job for every American who wants one, including his politically tone-deaf economist.

Dr. Mankiw is a professor economics at Harvard and former chairman of the Council of Economic Advisors.


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Trade Deficits: Good or Bad?

By Walter E. Williams

Two recent articles ought to give pause to current political and journalistic ignorance, perhaps demagoguery, about our international trade deficit. In a December Wall Street Journal article titled "Embrace the Deficit," Bear Stearns' chief economist David Malpass lays additional waste to predictions of gloom and doom associated with our trade deficit.

Since 2001, our economy has created 9.3 million new jobs, compared with 360,000 in Japan and 1.1 million in the euro zone (European Union countries that have adopted the euro), excluding Spain. Japan and euro zone countries had trade surpluses, while we had large and increasing trade deficits. Mr. Malpass says that both Spain and the U.K., like the U.S., ran trade deficits, but they created 3.6 and 1.3 million new jobs, respectively. Moreover, wages rose in the U.S., Spain and the U.K.

Professor Don Boudreaux, chairman of George Mason University's Economics Department, wrote "If Trade Surpluses Are So Great, the 1930s Should Have Been a Booming Decade" (www.cafehayek.com). According to data he found at the National Bureau of Economic Research's "Macrohistory Database", it turns out that the U.S. ran a trade surplus in nine of the 10 years of the Great Depression, with 1936 being the lone exception.

During those 10 years, we had a significant trade surplus, with exports totaling $26.05 billion and imports totaling only $21.13 billion. So what do trade surpluses during a depression and trade deficits during an economic boom prove, considering we've had trade deficits for most of our history? Professor Boudreaux says they prove absolutely nothing. Economies are far too complex to draw simplistic causal connections between trade deficits and surpluses and economic welfare and growth.

Despite all the criticism from abroad and the doom-mongers at home, the world finds our economy attractive. Just as we've been chomping at the bit to buy foreign goods and services, foreigners have been chomping at the bit to invest trillions of dollars in the U.S. Mr. Malpass says our 10-year government bonds yield 4.6 percent per year compared with Japan's 1.6 percent; our government debt is 38 percent of GDP versus 86 percent in Japan; and while Europe's debt to GDP ratio is not as extreme as Japan's, it's not nearly as favorable as ours.

Here's a smell test. Pretend you're a man from Mars knowing absolutely nothing about Earth and you're looking for a nice place to land. You find out that there's one country, say, country A, where earthlings from other countries voluntarily invest and entrust trillions of dollars of their hard earnings. There are other countries where they're not nearly as willing to make the same investment. Which one of those countries would you deem the most prosperous and with the greatest growth prospects? You'd pick country A, which turns out to be the United States. As such, you'd be just like most of the world's population who, if free to do so, would invest and live in the U.S.

The late Professor Milton Friedman said, "Underlying most arguments against the free market is a lack of belief in freedom itself." Some people justify their calls for protectionism by claiming that they're for free trade but fair trade. That's nonsense. Think about it: When I purchased my Lexus from a Japanese producer, through an intermediary, I received what I wanted. The Japanese producer received what he wanted. In my book, that's a fair trade.

Of course, an American auto producer, from whom I didn't purchase my car, might whine that it was unfair. He would like Congress to impose import tariffs and quotas to make Japanese-produced cars less attractive and available in the hopes that I'd buy an American-produced car. In my book, that would be unfair.

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of More Liberty Means Less Government: Our Founders Knew This Well.


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Matt Berry is a really good guy

We generally try to avoid out and out mention of our friends in our blog. This is a departure from past experience where our folksy attempts at a Top 10 list often included references to family and friends. In the recent case of Matt Berry, we simply can't help ourselves.

Consider first the "botched joke" of John Kerry. Everyone has heard about how Mr. Kerry essentially called the military dumb and poor. We wrote about it here. Congressman Charles Rangel has been making waves with his call for a draft and has been even more explicit in his contempt for the troops:

"If a young fellow has an option of having a decent career, or joining the Army to fight in Iraq, you can bet your life that he would not be in Iraq," Mr. Rangel, a Democrat representing Manhattan and Queens, said on "Fox News Sunday."

"If there's anyone who believes these youngsters want to fight, as the Pentagon and some generals have said, you can just forget about it. No bright young individual wants to fight just because of a bonus and just because of educational benefits. And most all of them come from communities of very, very high unemployment," the congressman said.

Even our moronic hometown newspaper has picked up on the theme. The liberal elitist worldview reads that only poor, uneducated--mostly minorities--serve in the military. As recent reports about the overall intelligence of our military as compared to the general populace show, this isn't true. But even if it were true, when did it become bad that people surveyed their list of choices, and then decided to join the military? They see opportunities to get ahead--just the same as someone who attends community college. It is typical of liberal condescension that they look down on those who, without a trust fund, do what they can to get educated and get ahead.

Back to Berry.

Mr. Berry's experience, highlighted wonderfully in an article in the Salt Lake Tribune by Patrick Kinahan (hat tip: Matt Lybbert), shows perfectly that even the "advantaged" are joining the military--and for purely virtuous reasons. Just because some liberals don't include patriotism in their list of priorities, doesn't make those who volunteer irrational.

The recently deceased Milton Friedman made a passionate case for an all-volunteer army. He surmised, based on economic research, that an all volunteer army would most effectively and efficiently allocate the nation's manpower. Sure, many would join because it gave them economic opportunities. So what? Others like Mr. Berry join because they are patriots. Whatever the motivation, these young men and women are hardly stupid or ignorant for joining. They aren't being duped.

Mr. Berry lists among his many accomplishments being a former BYU QB who graduated with a degree in history. He even wrote for this blog(!). He was also a co-founder of Consource where he worked with Justices Sandra Day O'Connor and others (Justice Scalia) to make primary source documents relating to the creation of the Constitution available online to everyone. After completing basic training and officer candidate's school, Mr. Berry intends to pursue a graduate degree.

And Mr. Berry is hardly an anomaly. There are others like him. When we spoke with him just before leaving for basic, he mentioned that there were several others in his induction group who had families, were older, and had degrees. These volunteers were established. They hardly fit the profile of young, ignorant, uneducated, minorities like Mr. Rangel would like you to believe.


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Milton Friedman, R.I.P.

Milton Friedman, world renowned economist and champion of political and economic freedom passed away this afternoon. He will be missed.

We never met Mr. Friedman, but we took an economics course from one of his former students while at Brigham Young University. His course was heavily influenced by the Chicago School of economic thought and many of his ideas about markets influence the editorial opinion of this blog. We are incredibly grateful to our econ professor and Mr. Friedman.

In light of the debates about redistribution of wealth we thought it would be worthwhile to reproduce selections from some of Mr. Friedman's influential contributions to economics. (hat tip: WSJ)

**Update: Scroll to the end for video footage of Milton Friedman teaching economics, and more.

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Capitalism and Freedom

[A free economy] gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color-the majority wants and then, if he is in the minority, submit.

It is this feature of the market that we refer to when we say that the market provides economic freedom. But this characteristic also has implications that go far beyond the narrowly economic. Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated -- a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

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Free to Choose
(and from the PBS series)

The two ideas of human freedom and economic freedom working together came to their greatest fruition in the United States. Those ideas are still very much with us. We are all of us imbued with them. They are part of the very fabric of our being. But we have been straying from them. We have been forgetting the basic truth that the greatest threat to human freedom is the concentration of power, whether in the hands of government or anyone else. We have persuaded ourselves that it is safe to grant power, provided it is for good reasons…

We have persuaded ourselves that it is safe to grant power, provided it is for good reasons. Fortunately, we are waking up. We are again recognizing the dangers of an overgoverned society, coming to understand that good objectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great society…

When the law contradicts what most people regard as moral and proper, they will break the law -- whether the law is enacted in the name of a noble ideal ... or in the naked interest of one group at the expense of another. Only fear of punishment, not a sense of justice and morality, will lead people to obey the law. When people start to break one set of laws, the lack of respect for the law inevitably spreads to all laws, even those that everyone regards as moral and proper - laws against violence, theft, and vandalism…

Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy -- all are pursuing their interests, as they see them, as they judge them by their own values.

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On the Bush Tax Cuts
(subscription required)

The tax cuts did favor the rich because the top 1% of taxpayers pay a disproportionate amount of taxes. You can't give tax relief to those who don't pay a lot of tax. This is not a bad thing. What in fact do the rich do with their money? They can only consume a limited amount. In practice they end up either investing it or giving it away.

Some people say that those in the middle and low tax brackets are more likely to spend any tax relief they get, giving the economy a stimulus.

Well, that's a different argument and I do not accept it. It's very dubious. The tax cut may lead people to spend more, but that is offset by those who have less to spend because they buy the bonds to finance the deficit. In my opinion, we had a mild recession not because of the tax cuts but because of the Fed. Its expansionary monetary policy is the primary reason for the shallow recession. I do not believe that fiscal policy played a big role.

My support for tax cuts is not only on the supply side. I think the real problem is government spending… Where did you get the Clinton surpluses? They were the result of less legislation and less spending. When that gridlock was broken, many items had accumulated on the agenda and were put through.

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Free Lunch

I have sometimes been associated with the aphorism "There's no such thing as a free lunch," which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city [Washington], "Nobody spends somebody else's money as carefully as he spends his own." But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposite of aphorisms. For example, "History never repeats itself," but "There's nothing new under the sun." Or "look before you leap," but "He who hesitates is lost." The opposite of "There's no such thing as a free lunch" is clearly "The best things in life are free."

And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets - a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain.

**Update: A few video links of Mr. Friedman explaining economic principles. (hat tip: Mary Katharine Ham)

Power of the Market: Parable of the Pencil
Four Ways to Spend Money

"the best case for limited government ever made" (hat tip: Allahpundit)

And finally, a link to the Milton Friedman Choir (hat tip: The American Mind)


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