Earlier today, the Department of Labor’s Bureau of Labor Statistics (BLS) released its May 2012 unemployment report (AKA its “Employment Situation Summary”, available at http://www.bls.gov/news.release/empsit.nr0.htm). The news (net job creation of only 69,000 jobs) was very disappointing and came in far below economists’ expectations. According to the BLS, the January-April monthly average rate of net job creation was 188,500 jobs per month, so the May report represents a more than 60 percent drop in the rate of job creation. Putting this into a broader perspective, it takes 130,000 new jobs per month just to keep the unemployment rate at its current (historically high) 8.2% rate, assuming that the labor force participation rate remains constant and that the US population prospectively continues to grow 1% per year (see http://bit.ly/LPEVOM).
Category Archives: Public Policy
Today's unemployment report…
Earlier today, the Department of Labor’s Bureau of Labor Statistics (BLS) released its May 2012 unemployment report (AKA its “Employment Situation Summary”, available at http://www.bls.gov/news.release/empsit.nr0.htm). The news (net job creation of only 69,000 jobs) was very disappointing and came in far below economists’ expectations. According to the BLS, the January-April monthly average rate of net job creation was 188,500 jobs per month, so the May report represents a more than 60 percent drop in the rate of job creation. Putting this into a broader perspective, it takes 130,000 new jobs per month just to keep the unemployment rate at its current (historically high) 8.2% rate, assuming that the labor force participation rate remains constant and that the US population prospectively continues to grow 1% per year (see http://bit.ly/LPEVOM).
Free to Choose
One of the first books that I ever read on the topic of economics was “Free to Choose: A Personal Statement“, published in 1980 by Milton and Rose Friedman. As the Free to Choose Wikipedia article notes, “This book maintains that the free market works best for all members of a society, provides examples of how the free market engenders prosperity, and maintains that it can solve problems where other approaches have failed.” Anyway, Free to Choose deeply influenced me when I read it as a beginning graduate student, and I am delighted to see that a Values & Capitalism blogger named Kurt Jaros is “walking” his readers through the entire book. Here’s a list of blog postings that he has contributed so far, along with brief summaries provided by Mr. Jaros (source: http://valuesandcapitalism.com/authors/t-kurt-jaros):
“Free to Choose
This Christmas I asked for and received Free to Choose by Milton and Rose Friedman. I’ve been a big fan of Milton for a while now, be it reading some articles online or watching YouTube videos of him.
The Power of the Market: Part 1
A couple weeks ago I wrote about the introduction to Free to Choose by Milton and Rose Friedman. In this post, I will explore some of the points from the first chapter, “The Power of the Market.” Friedman begins the chapter by explaining the difference between a command and a voluntary economy.
The Power of the Market: Part 2
Some people think the free market is full of greedy men who respond to monetary stimuli. But this isn’t the essence of a market (despite some types of those men acting within the free market).
The Tyranny of Controls
In the second chapter, Friedman writes on the role of government as it relates to trade. He makes a strong case for free trade, and specifically focuses on international trade. However, the same principles ought to be applied to domestic trade.
The Tyranny of Controls: Part 2
In my previous post I explained why the government should not regulate tariffs due to their harmful consequences toward consumers and innovation. This is part five of a book series on Free to Choose by Milton Friedman.
The Anatomy of Crisis
In my previous post, I shared Milton Friedman’s thoughts on why international trade is bad for an economy. This is part six of the series on “Free to Choose” by Milton Friedman. Often times in our political discussions with friends and colleagues we want to play the role of doctor and figure out what the source of pain is. We can both agree on what the symptoms are, but we may have different answers for the cause.
Cradle to Grave
In my previous post, I summarized Friedman’s beliefs about the Federal Reserve, its proper role, and how its failure is what leads us to economic problems (not capitalism). In his following chapter, “Cradle to Grave,” Friedman explains how the welfare state began to take off during the FDR administration.
Cradle to Grave: Part 2
In my previous post I began to discuss the shift of public perception about the role of government in America from one that merely protects the individuals to one that also provides for the individuals. Although he does not use the term, Friedman considers Social Security to be a Ponzi scheme.”
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.”
On the “mandate” to purchase health insurance under the Affordable Care Act
An academic colleague of mine raised an interesting question the other day concerning the constitutionality of the so-called “mandate” to purchase health insurance under the Affordable Care Act (ACA, otherwise known as “Obamacare”). Specifically, since the federal government has the power to compel U.S. citizens to pay into Social Security, why doesn’t it also have the power to compel U.S. citizens to purchase health insurance? For what it’s worth, here’s my understanding of the answer to this question.
The reason why the Social Security “mandate” is constitutional is because it is legally set up as a tax paid to government (i.e., the so-called Federal Insurance Contributions Act (FICA) tax), and under Article I, Section 8, Clause 1 of the Constitution (AKA the “Taxing and Spending Clause”), “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises”. Furthermore, Social Security does not involve any private sector intermediation; FICA taxes are formally entrusted to various “funds” that are administered by the Social Security Administration. As Dan Henninger points out in his recent WSJ article, an important problem with the Affordable Care Act “mandate” is that purchasing insurance is defined by that law as a “required contribution”” and not a tax per se. Furthermore, while ACA conveys a tremendous amount of discretion to the federal government (particularly the Secretary of the Department of Health and Human Services) in terms of the way that it regulates health insurance contracts and institutions, the contracts that are entered into under ACA are mostly with private sector institutions as opposed to public sector institutions. So it seems that the constitutional challenge created by Obamacare is whether the federal government has the power to coerce citizens into purchasing goods and services from private sector institutions. This is a right that state governments clearly have (e.g., most states have mandates requiring drivers to purchase auto insurance), but not the federal government. Ironically, a so-called “single payer” approach such as Canada and the UK have would not have any constitutional issues for the same reasons that Social Security is constitutional, since under single payer, taxes would be collected and entrusted to some type of federally administered trust fund. However, “single payer” is a political non-starter (at least at this point in time).
On the "mandate" to purchase health insurance under the Affordable Care Act
An academic colleague of mine raised an interesting question the other day concerning the constitutionality of the so-called “mandate” to purchase health insurance under the Affordable Care Act (ACA, otherwise known as “Obamacare”). Specifically, since the federal government has the power to compel U.S. citizens to pay into Social Security, why doesn’t it also have the power to compel U.S. citizens to purchase health insurance? For what it’s worth, here’s my understanding of the answer to this question.
The reason why the Social Security “mandate” is constitutional is because it is legally set up as a tax paid to government (i.e., the so-called Federal Insurance Contributions Act (FICA) tax), and under Article I, Section 8, Clause 1 of the Constitution (AKA the “Taxing and Spending Clause”), “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises”. Furthermore, Social Security does not involve any private sector intermediation; FICA taxes are formally entrusted to various “funds” that are administered by the Social Security Administration. As Dan Henninger points out in his recent WSJ article, an important problem with the Affordable Care Act “mandate” is that purchasing insurance is defined by that law as a “required contribution”” and not a tax per se. Furthermore, while ACA conveys a tremendous amount of discretion to the federal government (particularly the Secretary of the Department of Health and Human Services) in terms of the way that it regulates health insurance contracts and institutions, the contracts that are entered into under ACA are mostly with private sector institutions as opposed to public sector institutions. So it seems that the constitutional challenge created by Obamacare is whether the federal government has the power to coerce citizens into purchasing goods and services from private sector institutions. This is a right that state governments clearly have (e.g., most states have mandates requiring drivers to purchase auto insurance), but not the federal government. Ironically, a so-called “single payer” approach such as Canada and the UK have would not have any constitutional issues for the same reasons that Social Security is constitutional, since under single payer, taxes would be collected and entrusted to some type of federally administered trust fund. However, “single payer” is a political non-starter (at least at this point in time).
]]>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”
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 Center for Public Integrity's "State Integrity Investigation"