“Is the free market morally superior or inferior to other economic systems? If it’s morally superior, what makes it so? If it’s morally inferior, do we need greater government control of the economy? Walter Williams, renowned Professor of Economics at George Mason University, faces these questions head on and with bracing clarity.”
Category Archives: Politics
On the current state of America's public finances…
http://www.treasurydirect.gov/NP/BPDLogin?application=np)). As bad as the US federal government debt problem is, we have a far worse entitlement problem which hardly anyone is bothering to talk about these days; indeed, I don’t recall any substantive discussion about this topic during the past several months leading up to yesterday’s election. According to an authoritative source located at http://www.pgpf.org/Special-Topics/Download-the-Citizens-Guide.aspx (see Figure 10 on page 30 of that document), in January 2009 the present value of Social Security and Medicare promises stood at $45.8 trillion; $7.7 trillion of this total was due to Social Security, and the remaining $38.1 trillion was attributable to Medicare. According to the recently published (April 2012) Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the present value of unfunded Social Security obligations now stands at $8.6 trillion, which represents an 11.7% increase over the January 2009 amount. Since I haven’t been able to locate a current estimate of the present value of unfunded Medicare promises, I’ll assume for the time being that the present value of unfunded Medicare promises has also grown 11.7% since January 2009. Thus, the January 2012 present value of Social Security and Medicare promises probably now stands at or around $45.8 trillion x 1.117 = $51.2 trillion. (If anyone knows of an authoritative, up-to-date source for the present value of Medicare promises, please let me know! :-)). This means that as a country, total indebtedness due to claims on the federal government stands at roughly $16.2 trillion plus $51.2 trillion, or $67.4 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out to a per household debt of (gulp) $573,432. If you throw in unfunded liabilities from state employee pensions (estimated by Stanford University finance professor Joshua Rauh to total roughly $4 trillion; cf. http://www.econtalk.org/archives/2012/11/joshua_rauh_on.html), this works out to an additional $34,031 for a total of $607,463 per US household. Since the average net worth per US household is roughly $80,000 (see http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth), this means that the average American household effectively has a (negative) net worth in excess of half of a million dollars…]]>
On the current state of America’s public finances…
Today, on the day after the election, US federal government debt stands at $16.2 trillion. Putting this into perspective, US federal government debt stood at $5.7 trillion on the day that George W. Bush was first inaugurated (January 20, 2001), and grew by $4.9 trillion (to $10.6 trillion) by the time of Barack Obama’s inauguration on January 20, 2009. Three years and 10 months later, US federal government debt has grown by an additional $5.6 trillion (you can verify these numbers by using the “Debt to the Penny” app located on the treasury.gov website (see http://www.treasurydirect.gov/NP/BPDLogin?application=np)).
As bad as the US federal government debt problem is, we have a far worse entitlement problem which hardly anyone is bothering to talk about these days; indeed, I don’t recall any substantive discussion about this topic during the past several months leading up to yesterday’s election. According to an authoritative source located at http://www.pgpf.org/Special-Topics/Download-the-Citizens-Guide.aspx (see Figure 10 on page 30 of that document), in January 2009 the present value of Social Security and Medicare promises stood at $45.8 trillion; $7.7 trillion of this total was due to Social Security, and the remaining $38.1 trillion was attributable to Medicare. According to the recently published (April 2012) Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the present value of unfunded Social Security obligations now stands at $8.6 trillion, which represents an 11.7% increase over the January 2009 amount. Since I haven’t been able to locate a current estimate of the present value of unfunded Medicare promises, I’ll assume for the time being that the present value of unfunded Medicare promises has also grown 11.7% since January 2009. Thus, the January 2012 present value of Social Security and Medicare promises probably now stands at or around $45.8 trillion x 1.117 = $51.2 trillion. (If anyone knows of an authoritative, up-to-date source for the present value of Medicare promises, please let me know! :-)).
This means that as a country, total indebtedness due to claims on the federal government stands at roughly $16.2 trillion plus $51.2 trillion, or $67.4 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out to a per household debt of (gulp) $573,432. If you throw in unfunded liabilities from state employee pensions (estimated by Stanford University finance professor Joshua Rauh to total roughly $4 trillion; cf. http://www.econtalk.org/archives/2012/11/joshua_rauh_on.html), this works out to an additional $34,031 for a total of $607,463 per US household. Since the average net worth per US household is roughly $80,000 (see http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth), this means that the average American household effectively has a (negative) net worth in excess of half of a million dollars…
Lone Star Discussion with Arthur Brooks
Arthur Brooks, President of the American Enterprise Institute, discusses America’s tradition of free enterprise, the moral justifications for a free society and today’s threats to liberty with the Texas Public Policy Foundation’s VP of Communications, Josh Trevino (recorded in Austin, TX on May 31). In this 63 minute video, Dr. Brooks provides an overview and synopsis of his new book entitled “The Road to Freedom”. For more information about Art Brooks and his book “The Road to Freedom”, see http://arthurbrooks.aei.org. For more information about the Texas Public Policy Foundation, see http://www.texaspolicy.com.
Is Our Adults Learning?
Yesterday, David Brooks published an interesting essay in the New York Times entitled “Is Our Adults Learning?” The basic premise behind his essay can be summarized in the following quote, “Government doesn’t profit from experience because of the way it goes about testing its policy problems. It should try learning the way businesses do.”
My purpose in posting this commentary on Brooks’ article is to challenge his presumption that it’s even remotely possible for the government to conduct itself like a business. Avinash Dixit’s 1997 American Economic Review article entitled “Power of Incentives in Private versus Public Organizations” provides the framework for my critique. In this (admittedly somewhat dated) academic journal article, professor Dixit takes on an earlier version of Brooks’ ideas as exemplified in Al Gore’s 1995 tome entitled “Common sense government”. In this book, Gore argues for “reinventing” government by measuring and rewarding “results, not red tape.” However, Dixit shows that the problem with Gore’s and Brooks’ platitudes about getting the government to act more like a business is that these “theories” fundamentally ignore the nature of government bureaucracy. Dixit argues that “a distinct feature of government bureaucracies is that they must answer to multiple principals”, and he goes on to “… develop a model of a common agency to show how the interaction among many principals results in a loss of the power of incentives.” To illustrate this, Dixit notes that in the real world, a government agency may be formally answerable only to the executive, but in practice Congress, courts, media, and organized lobbies all have a say. He notes that one way to resolve this “weak incentive” problem at the federal level is to devolve political power to states or localities, where “…agencies can be so designed that each performs fewer tasks, thus reducing the externalities among the principals affected by its actions.” So basically Dixit rigorously proves with the game theory the wisdom behind federalism!
In closing, it would seem that the least likely place for “decentralizing policy experimentation as much as possible to encourage maximum variation” to be successful would be at the level of the federal government. The weak incentive problem identified by Dixit explains why government agencies are typically focused on red tape, and not results; it’s all about process and procedure, and rarely ever about results.
Cracking Down on Oil Market Manipulation
This coming Saturday will mark the one year anniversary of the creation by the Obama administration of the “Financial Fraud Enforcement Working Group” (see the MSNBC article from 4/21/2011 entitled “Obama says new task force will examine gas prices”, available on the web at http://on.msnbc.com/JdlbDx). The article referenced below (entitled “Cracking Down on Oil Market Manipulation”) is from the White House blog and is dated 4/17/2012.
While the notion that “high” gas prices result from “price gouging” by a cadre of unsavory and greedy oil companies, energy traders, and speculators makes for a provocative political narrative, it’s really bad economics. As canards go, this one is particularly favored by politicians; indeed (as you can see from the time-date stamps of the April 2011 MSNBC and April 2012 White House blog articles), you can almost set your watch on these kinds of things.
I wrote a blog posting about the economics of “high” gas prices on April 23, 2011 (source: http://blog.garven.com/2011/04/23/is-gas-price-gouging-to-blame-for-high-gas-prices), and many, if not most of the points I raised in that article are as applicable today as they were then (now the geopolitical risk du jour is Iran; back then it was Libya)…
Cracking Down on Oil Market Manipulation | The White House
www.whitehouse.gov
“President Obama announces a new series of steps to strengthen oversight over the energy markets.”
Obama Predicts Health Law Will Survive Supreme Court Case
professional.wsj.com
Quoting from this front page Wall Street Journal article which appeared this morning, “President Barack Obama predicted that the Supreme Court will uphold his signature health-care law, saying that overturning it would be a prime example of the judicial activism that conservatives have derided.”
Where to begin? Applying President Obama’s “legal” standard would be tantamount to abolishing the separation of powers doctrine embodied by the U.S. Constitution. As I recall from my high school civics class, a primary responsibility of the Supreme Court under the separation of powers doctrine is to determine whether a law is unconstitutional; when such a determination is made regarding ANY law passed by Congress, then the Supreme Court has the power and authority under the U.S. Constitution to strike that law down. Therefore, rendering judgment upon the constitutionality of the Patient Protection and Affordable Care Act (AKA “Obamacare”) by definition cannot possibly constitute judicial activism. Judicial activism occurs when judges act like a legislature rather than like a traditional court and create new law (as opposed to judging the constitutionality of existing law); Roe v. Wade (which legalized abortion in the United States back in 1973) is a prime example of judicial activism, but I digress.
As much as I would like for the Supreme Court to 1) strike down Obamacare and 2) replace Obamacare with my own preferred health care reform plan (see http://blog.garven.com/
The Center for Public Integrity's "State Integrity Investigation"
The Center for Public Integrity’s “State Integrity Investigation”
Report: Connecticut One Of The Least Corrupt States In America
www.courant.com
“A study by the Center for Public Integrity, a nonprofit in Washington, D.C. , has found that Connecticut is one of the least corrupt states in the country.”
A tip of the hat goes to my colleague Jim Hilliard for pointing out the above referenced article this morning.
While I have never lived in CT and therefore cannot offer any personal anecdotes concerning “public integrity” in that state, I was surprised by the rankings assigned to two states where I have previously been a resident: Illinois and Louisiana. I can’t help but wonder about the integrity of any “study” that assigns my home state of Illinois a C; really? Illinois is (in)famous for its level of public corruption. A recent (12/7/11) New York Times about the sentencing of former governor Rod Blagojevich (see http://nyti.ms/u4M86J) notes that the Blagojevich jail sentencing “…delivered a warning in a state where political leaders — some aldermen, congressmen, and even the governor who immediately preceded Mr. Blagojevich, George Ryan — seemed to be headed off to jail on a regular basis.” Also Louisiana, which was highly overrated in “earning” a “C-“, has a similarly long list of politicians who are convicts; at last count, the list includes a governor, an attorney general, an elections commissioner, an agriculture commissioner, three successive insurance commissioners, a congressman, a federal judge, a State Senate president, six other state legislators, and a host of appointed officials, local sheriffs, city councilmen, and parish police jurors…
The current (12-29-2011) political prediction market probabilities…
Here are the prediction markets odds on the GOP nomination, outcome of the 2012 Iowa caucus, and the re-election prospects for Barack Obama
