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Wednesday, December 31, 2008

ENPR: Blagojevich Causes Headaches for Democrats

This week's Evans-Novak Political Report discusses the trouble caused for Democrats by arrested Illinois governor Rod Blagojevich. Also: the recount in Minnesota and more. Read it here.

Sunday, December 28, 2008

Ghosts of Auto Bailouts Past

My Christmas column in the Washington Examiner discusses the long history of Uncle Sam playing Father Christmas to General Motors.
So, as consumers and taxpayers, we start another year serving as Santa’s slave-elves involuntarily working to load up GM’s stocking. Let’s face Detroit and say, “bah humbug.”
Read the whole thing here, and Merry Christmas.

Monday, December 22, 2008

Who the Heck is Keynes, and Why Is he Being Resurrected Now?

One trillion dollars in stimulus spending. Bailout after bailout. Democrats and Republicans alike tout government spending as the solution to our economic woes. The old lament or cheer goes "we are all Keynesians now."

Who the heck was Keynes? What did he prescribe. That's what I address in this week's Heck-o-nomics?
So, this is the sort of man Keynes was. He was very bright and very confident that smart enough people of good will could solve the world’s problems as long as they were able to dismantle the prejudices of culture and control the behavior of the unwashed. And today we’re told that he is making a comeback, and that we are all Keynesians now. What the heck could that mean?

Read the whole thing here, at Culture11.

Saturday, December 20, 2008

Heckomics: John Maynard Keynes

From Culture11

Heckonomics: John Maynard Keynes

Who the heck was he, and why is he being resurrected now?

By Timothy P. Carney, December 21, 2008

If you follow the headlines about Washington’s response to our current economic hardships, you’ve probably come across the adjective “Keynesian” in the past couple of weeks.

From context, or if you remember a little bit of economics, you probably know that this has something to do with government spending getting us out of a recession. Or maybe you don’t know that, but you’ve heard people repeating, ironically or sincerely, the mantra “we’re all Keynesians now.”

In any event, you should know who Keynes was and what “Keynesianism” is, because we’re being fed it by the shovelful.

The man

John Maynard Keynes (pronounced like “canes,” those things they use for corporal punishment in Singapore) lived from 1883 to 1946 amid the elite of British society. He went to Eton prep school and then Cambridge University. He hung around Virginia Woolf and her friends, reportedly dabbling in homosexuality and eugenics before settling down with a ballerina and economics.

Keynes’s formative professional years were optimistic times, and despite the Great War’s not visibly having ended all wars, liberal intellectuals believed in their ability to fix the world. John Dewey was going to create an educational program that would eliminate ignorance and religious belief, Margaret Sanger was going to create the pills and social policies that would eliminate poverty and disability, and John Maynard Keynes was going to create the economic framework that would eliminate recessions. He believed “the economic problem may be solved,” meaning we could forever shed the curses of periodic busts and persistent poverty.

So, this is the sort of man Keynes was. He was very bright and very confident that smart enough people of good will could solve the world’s problems as long as they were able to dismantle the prejudices of culture and control the behavior of the unwashed. And today we’re told that he is making a comeback, and that we are all Keynesians now. What the heck could that mean?

The -ism

“Keynesiansm” is an overused and misused term, which is inevitable, considering that the public learns this term from journalists, a class for which economics is not a forte. To some extent, it’s pointless to argue about “what Keynesianism really means,” because, like it or not, words mean what people understand them to mean.

So, in the broadest sense of the word — the one most political journalists use these days — Keynesianism is the idea that we need to increase government in order to emerge from our economic slump.

In the narrowest sense of the word — obviously capturing only one element of Keynes’s doctrines, and not at all explaining its context — Keynesianism is the notion that government ought to run budget deficits in order to stimulate the economy out of a slump, and also should run surpluses during boom times. In practice — in the New Deal, the 1970s, and today — this means that government should increase spending in order to stimulate the economy.

Any conservative, though, has an instant response: government doesn’t create wealth, it taxes wealth. As writer Russell Roberts puts it, taxing and spending our way to prosperity makes as much sense as the belief that “moving water from the deep end to the shallow end actually leads to making the water deeper.”

Keynesians reply that government does more good with the money than the market would. First — and this is the favorite of populist politicians — poor people actually spend money while wealthy people only save it. Second, if government borrows the money, it borrows it at lower costs than any market participant, meaning government can stimulate far more cheaply than can companies or individuals. Third, by picking the right projects, bureaucrats can ensure that they spend the money in a way that creates a “multiplier effect.”

Public works provide jobs, they say, which means more people getting paid, which puts money in the pockets of consumers, increasing demand for consumer goods, which then creates supply.

Armed with this theoretical justification to spend more than they bring in, government types look for what sort of spending will be the most stimulating. Transportation infrastructure is a perennial favorite, because of the belief that building roads, bridges, and airports “creates jobs,” and makes the economy more fluid.

This will be the debate in coming weeks: what is the most efficient way for government to stimulate the economy? The premise of this debate is Keynes’s notion that recession calls for deficit spending. Austrian economists, supply-siders, and other free-market types reject this premise, but everyone in politics embraces it. A similar situation is what caused Richard Nixon to say, “we are all Keynesians now,” a saying which gets trotted out quite a bit these days.

While it has a bias towards spending, Keynesian thought professes that deficits per se — even if brought about by tax cuts — are good because getting money into the hands of consumers “primes the pump” of the economy.

What the heck is “priming the pump”?

Until this week, every time I heard someone talk about government spending “priming the pump,” I envisioned the primer button on my parents’ lawnmower, which I pumped a couple of times to get gasoline into the engine. But that’s “pumping the primer” or “priming the engine,” not “priming the pump.”

“Priming the pump” has to do with pumps — like water pumps. The metaphor is pretty opaque to the modern eye, once you start thinking about it. How does one prime a pump, and why?

I’ve never done it, and neither has my dad, who may be the oldest guy on the planet. I poked around a bit, and came up with this explanation for “priming the pump”:

Think of a pump coming up out of a well. It works by suction. If air gets in the pipe, then it may be nearly impossible to get water out of it. “Priming the pump” appears to be pouring water down the pipe to flush out the air. This makes the pump actually work.

So, returning to the analogy: maybe the economy is weak, and so people’s labors (pumping the handle) aren’t generating wealth (water). Only by taking some wealth (water) that’s sitting around, and injecting it back into the economy (pouring it down the pipes) in the form of government spending, can you make labor (pumping) productive.

Sounds kind of nice, doesn’t it? We need to sacrifice a little bit now, to make labor more productive in the future, right?

“In the long run we are all dead”

The problem with the prime-the-pump metaphor is that it reflects the opposite of Keynes’s philosophy. Rather than believing in delayed gratification, Keynes believed that through government action, we could avert the boom-bust cycle by maintaining a permanent boom.

Editing Thomas E. Woods’ forthcoming Regnery book Meltdown, I was treated to this revealing Keynes gem in his book General Theory: “The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and keeping us permanently in a quasi-boom.”

Again, Keynes believed that if enough smart people of good intentions had enough power, they could create heaven on Earth. What stood in the way was excessive concern about tomorrow. When people saved too much, they were making us poorer by leaving resources idle. One pernicious effect of religion was making people concerned about eternity rather than about the near future.

Most importantly, through central management and constant inflation, we could achieve permanent boom. If Ludwig von Mises argued that such behavior would make the long-term collapse even that much more painful, Keynes responded, “In the long run we are all dead.”

This is the heart of Keynes’s thought, and it is relevant in two ways. First, you don’t need to worry about a hangover if you keep drinking your Red Bull and vodka and never go to sleep. Second, suffering through short-term evils for the sake of the long run is folly. All problems should be, and can be solved — often, in practice, by government.

Why he’s coming back

Just as there are no atheists in a fox hole, there are no free-market politicians in an economic downturn. Politicians have to do something. Whether it’s Bush’s weird stimulus tax cuts in the form of checks from the IRS, or Obama’s planned trillion-dollar stimulus spending on infrastructure, all politicians become Keynesians when the economy turns down.

The alternative — doing nothing, or even getting government out of the way, and waiting for the invisible hand to correct things — is not a viable option, lest you be called a modern Herbert Hoover, standing idly while the economy burns (a completely false depiction of the very interventionist Hoover, as you know if you read my prize-winning 2006 book, The Big Ripoff).

Did Keynes’s arguments really convince FDR, Richard Nixon, George W. Bush, and Barack Obama? Maybe subtly, but Dan Mitchell of the Cato Institute has the best explanation for the persistence of Keynes’s approach:

“Politicians just love to spend other people’s money, and Keynesianism is a convenient rationale.”

Friday, December 19, 2008

Obama Taps Another Corporate Welfare King in Vilsack

My Examiner column today discusses Obama Agriculture Department pick Tom Vilsack, he and Obama's long affair with ethanol, prospects for ethanol reform, and the general theme of corporate welfare in the growing Obama administration.

Wednesday, December 17, 2008

Big Elmo Loves Big Government

Culture11 today carries a great piece on the toy industry's lobbying in the light of last year's lead-in-toys upheaval.
Not surprisingly, lobbying disclosure reports indicate that Mattel and Hasbro massively increased their lobbying budgets in the months after the scandal broke, with Mattel’s lobbying expenditures (to be distinguished from campaign contributions) increasing from $60,000 in the first half of 2007 to $480,000 in the second half. This pace continued through at least the first three quarters of 2008.

Much more surprising, at least at first glance, is the position these companies took with respect to this legislation. For instance, in hearing testimony on November 6, 2007, Kathrin Belliveau of Hasbro and Joseph McGuire of the big-business dominated National Association of Manufacturers testified before Congress that they supported this legislation, with only minor modifications requested. Importantly, both testified that they supported the testing requirements that will likely be particularly devastating to small and medium-sized businesses and domestic manufacturers.

Let's just say I'm not surprised.

ENPR: Illinois, Colorado, and New York Senate Vacancies Kick off 2010 Race

This week's Evans-Novak Political Report is up, with analyses of the Illinois mess, the Minnesota mess, the open Senate seat in Colorado, and the Detroit bailout. Read it here.

Will Senators Recall Richardson's Scandalous Cabinet Record?

Today, Human Events runs my article on some of Bill Richardson's failures as Energy secretary. The highlight:
After skipping the June 14 hearing, Richardson did appear before the Intelligence Committee, at which point Byrd castigated him: “You will never again receive the support of the Senate of the United States for any office to which you might be appointed,” said Byrd. “It’s gone. You’ve squandered your treasure, and I’m sorry.”

Read the whole thing here.

Friday, December 12, 2008

Blagojevich Shakedown Is Standard Government Practice

As I read the indictment of Illinois Gov. Rod Blagojevich this week, my first thought was, isn't this what government does? My Examiner column today discusses this point, and asks, "Does the FBI have enough wiretaps to go around?"

Blagojevich offered a bailout to the Tribune Company, which owns both the Chicago Cubs and the Chicago Tribune. Allegedly, he made it clear that the company would only get the bailout cash if it would fire deputy editorial page editor John McCormick, a leading Blagojevich critic.

Only in Chicago? Don’t speak too soon. General Electric, the company that spends more than any other lobbying, is getting special access to credit insurance from the Federal Deposit Insurance Corporation, which used to be available only to banks. The insurance is $139 billion in GE debt.

GE also owns NBC, MSNBC, and CNBC (which aggressively supported the Wall Street bailout). So, the U.S. government is in the business of bailing out a major media corporation.

Read the whole thing here.

Thursday, December 11, 2008

I Can't Wait for January

Sometime next month, we'll get campaign finance data and lobbying disclosure filings from the fourth quarter of 2008--also known as the quarter corporate socialism finally won complete victory.

I can't wait. Watch this space for all the goodies.

Wednesday, December 10, 2008

Blagojevich Arrest Causes Headaches for Obama

This week's Evans-Novak Political Report lays out the ramifications of Rod Blagojevich's arrest and studies the causes of the Republican upset in New Orleans.

Tuesday, December 9, 2008

When You Empower Government, You Empower Lobbyists

The Washington Post carries a piece online today titled "Lobbyists Converge on Washington for Piece of Stimulus, Auto Aid." This is at least the third piece I've seen in the mainstream press recently on this theme: bailouts generate a lobbying bonanza.

But that's a narrow slice of the broader truth: increased government control over the economy gives more clout to lobbyists--and thus more power to whoever can afford the best lobbyist. Who do you think has the best lobbyists? It's not Mom 'n' Pop.

This is just one more reason--and a very relevant one these days--why increasing the size and power and government always has the effect of helping the biggest, most connected corporations at the expense of consumers, competitors, and taxpayers.

We saw a similar lobbying boom from hedge funds long before this meltdown, because Congress was promising an overhaul of hedge fund taxation and regulation. We saw a huge lobbying boom from Microsoft after Bill Gates realized he couldn't just make software and be left alone.

This lobbying won't end after a bailout vote. There will be lobbying on followup bills, lobbying the agencies that administer the funds, lobbying for and against the stipulations that become attached to the money, and then lobbying for turning those stipulations into economy-wide regulation. Should be good for DC property values, at least.

The Auto Bailout and the Socialist Vicious Circle

Clusterstock's* Joe Weisenthal points out that the leverage this auto bailout gives Congress extends much farther than just leaning on the auto industry. Because Chrysler is owned largely by a private equity firm called Cerberus, Congress feels it has the right to tell Cerberus what to do with the rest of its investments.

As NYTimes' Dealbook tells it:
Steve Kagen, a Democrat lawmaker from Wisconsin, said on Monday that he would not support any taxpayer money for Chrysler until two paper mills in his state are re-opened. The mills are owned by NewPage, which is controlled by Cerberus, the same investment firm that controls Chrysler and GMAC, the financing arm of General Motors.
This is why the bailout mania we're undergoing now will utterly transform our economy forever. Now that Congress is paying the piper (with my money), Congress is calling the tunes. It will only get more severe, and there's only so much objecting a free-market advocate can make to these conditions.

Are we really going to argue that unconditional bailouts are superior? Do we really think these companies should be able to do with our money whatever the heck they want?

Of course, Cerberus would lose money if they reopened the uneconomical plants Rep. Kagen wants them to reopen. Well, then they just need more bailouts.

You see where this is heading.

*Clusterstock managing editor John Carney is my brother.

Monday, December 8, 2008

Interview with The University Bookman

The Russell Kirk Center publishes a quarterly literary journal called The University Bookman. Their editors interview me this month about my 2006 book The Big Ripoff, which last month won the Templeton Enterprise Award.

You can read the Bookman interview, "Behind the Big Ripoff" here.

A highlight:
University Bookman: Conservatives often speak of “capitalism” or “the free market”; have conservatives bought into the illusion that big business means capitalism is working?

Tim Carney: Many have. It’s an easy illusion to fall for. We know Ralph Nader hates GM, and we know Ralph Nader is a socialist. So it’s easy to assume defending GM is the same as defending the free market.

But, as I discuss in The Big Ripoff, “capitalism” has two meanings. First, it can be a synonym for the free market. But in other contexts it describes a sort of economy in which there is much debt and well-ordered capital markets with much investing. Alexander Hamilton knew these two—free markets and robust stock markets—might be at odds. He favored stock markets over free markets. He won.

Sunday, December 7, 2008

Heckonomics: Bankruptcy

Ever wonder just what "bankruptcy" entails, how bankrupt companies continue to exist, and what it would mean if GM went bankrupt?

I explain it all at Culture11 today, in my Heckonomics column, "Bankrupt! What the heck is bankruptcy, and should GM get it."

New Website

Welcome to my new website. Here you can find links to past and current articles, and information about my award-winning 2006 book, The Big Ripoff: How Big Business and Big Government Steal Your Money (Wiley).

I am still rebuilding the site, so check back soon for improvements.