Public Finance – Chicago Boyz

2024 Election Plus/Delta

November 9, 2024 by Jay Manifold

Pluses: admittedly much the shorter list, but we did resolve a few things.

Thanks mainly to vote shifts in California and New York, the popular vote outcome was not at variance with the Electoral College vote, and it wasn’t particularly close (over 4-1/2 million votes).
Largely as a result, the losing side, and VP Harris herself, have indicated cooperation with formal certification and transition processes.
Harris is gone. She’ll get a chunk of money for a book and retire to the lecture circuit.
Walz, same, and given the likelihood that he would have been a 21st-century version of Henry Wallace, with Chinese instead of Soviet agents in his inner circle, that might be more important than getting rid of Harris.
Taking a somewhat longer view, Trump is gone too (perhaps not a much longer view; see the final Delta item below).
By extension, there is some chance that ’28 will not have the electorate choosing between a crook and an idiot for President.
Whatever one may think of prediction markets, and there are arguments on both sides regarding their functionality, the biggest prediction market of all, the US stock market, was forecasting a Trump victory all year (not coincidentally, the same thing happened in 2016).
By the way, the media will actually report negative economic news now.
I could have put this in either category, but I’ll leave it here: your Cluebat of the Day is a reminder that Trump is as old as Biden was in ’20, and notwithstanding some of my more apprehensive items below, to expect anything much of him is a waste of time.
Likely continuation of relatively good space-industry policy across Administrations, which should be the only thing that matters several decades from now.

The ancient Greeks gave us “democracy,” a set of rules for candidates to compete for the right to rule. They also gave us the Olympics, a set of rules for individuals, teams and ultimately countries to compete in athletic events. The Olympics outlawed certain drugs, standardized the technology and separated males from females (historically) due to genetic differences, but otherwise there is no favoritism due to race, ethnicity, family history, country of origin, etc. Medals are awarded only to the top performers, gold/silver/bronze (all formerly used for money). Capitalism is a comparable set of rules for competition among individuals, teams and countries. Technology and management differences are allowed, even encouraged, as all contestants share in it over time. Similarly, capitalist competition is the source of virtually all human improvement for winners and losers alike. The US Constitution uniquely established rules for a competitive democracy and competitive market economy, historically the source of US economic growth.

The Olympics is a big business, with a history of scandals relating to kickbacks to judges, host country officials or Olympic Committee Members that corrupts the competition. Similarly, politicians who make the rules for a market economy that show favoritism to particular industries, firms or people, i.e., crony capitalism, is the corrupt antithesis of competitive market capitalism.

Competing with Olympic coverage in France, ironically under the French banner of “equality,” is the current political competition for the US presidency, which both sides agree is “pivotal” for democracy’s future, but the democracy spectrum runs from a limited government representative republic on the right to a majoritarian “peoples democracy” on the left. Each campaign accuses the other of hate, fear mongering, political pandering and the usual lies and misinformation (political spin). So far it has been an entertaining tag team mud wrestling match (even these have rules and limits).

But for over a century the fundamental economic choice has been between competitive market capitalism and egalitarian socialism, growth versus stagnation. The divide has never been more clear, although the Democratic Party eschews the socialist label. In 2020, when openly socialist Democratic candidate Bernie Sanders appeared a certain victor, the Party pulled the candidate, but adopted his “democratic socialism” platform. Current candidate Harris, similarly anointed, has either agreed with or been to the left of that platform on every issue, recent flip/flops notwithstanding. Their radical distributional “democratic socialism” goes beyond “to each according to his needs” to require “to each equally.” Their production ideology, eschewing state ownership, calls for a fair degree of state control.

“A Disease of the Public Mind”

July 15, 2024 by Kevin Villani

A Disease of the Public Mind

That is the title of a book about the first US Civil War that resulted in the assassination of President Lincoln. The soldiers in the South hated those in the North and vice versa. Northern soldiers have since been credited with undeserved virtue while Southern rebels were labeled racist enemies of the state, a moniker that still survives in the present day. But neither side was fighting over the abolition of slavery.

Trump’s opponents claim he will re-institute Jim Crow oppression, put black people back in chains, end democracy and put people in Hitler’s concentration camps. The continuous character assassinations, legal persecutions, numerous impeachments, unfounded accusations and insinuation caused what has been called Trump Derangement Syndrome (TDS), a disease of the public mind resulting in a recent assassination attempt.

Follow the Money

The Constitution the North and South agreed upon in 1788 enshrined the economic principles of Adam Smith’s Wealth of Nations, fostering equality under the law, individual sovereignty and limited government. Slavery was still too contentious an issue to settle. Starting in the next century the British led a moral crusade to eliminate slavery globally. While politically virtuous, Britain could afford to pay off slave owners and generally didn’t face the the vexing question for US plantation owners of whether freed slaves could support themselves and, if not, whether this would lead to murderous riots as had happened elsewhere. Abolition was a contentious issue everywhere slavery was practiced, typically with long drawn out steps to complete. But the long simmering political dispute that came to a head in 1860 wasn’t about abolition, but money. The federal government relied almost exclusively on tariffs raised in Southern ports – most of which went to northern states – on imports financed with the fruits of slavery, cotton exports.

Since the Civil War, limited government has given way to big government. The Democratic Party has created many dependent constituencies whose continued prosperity depends upon continuing Democratic power and largess: the bureaucracy, the government at all levels, teachers, labor leaders, academic educators and administrators, trial lawyers, government contractors, social security recipients and what are still euphemistically called journalists, among many others. The current Civil War is also about money. Trump has been in both political parties, fits in neither. But ”you are fired” represents an existential threat to Party members.

For contemporary Democratic politicians, almost all trained as lawyers, money beyond what is available by taxing the rich exists in banks, especially the Federal Reserve Banks, to be distributed according to the spoils system. For Republican politicians (but not RINOs), mostly former businessmen, prosperity comes from productive work and from savings productively invested. For those businesses and workers who are not on the receiving end of the spoils system, whose taxes pay for political largess, limited government is the only solution. There is very little middle ground.

What Happened to Serious Economic Policy Debates?

July 7, 2024 by Kevin Villani

Economic policy determines whether economies, and hence citizen real income grows nationally and how that income is distributed. The invisible hand of a market economy guides investment to its most profitable, hence most productive uses. Not so for the heavy hand of the state. The Soviet Union saved and invested five to six times as much as the US, but productivity lagged and the economy eventually collapsed. Taxpayers have some control over “public” investment performance at, e.g., the small private level (condo, coop) but voter influence declines as the distance and size of the governing body increases. Making national investment policy even more difficult is the fact that even highly productive public investment may not pay off until well into the future. While rational economic policy would devolve decision-making and funding to the lowest possible level, the federal government’s lack of a hard budget constraint allows it to fund without accountability. The Constitution’s enumerated powers has proven an insufficient constraint on this perverse political incentive.

During President Trump’s term, pre-pandemic, real wages rose steadily at about 2% reflecting the steady real economic growth, but fell under Biden by over 2% due to inflation. Black unemployment and poverty fell under Trump, and continued to fall under Biden. While Trump proposed deep budget cuts, the Congress passed essentially the Democrats’ budget under both Ryan and Pelosi. Trump passed what in the ’60s under Kennedy was called a Keynesian tax cut, now called a “voodoo economics” supply-side tax cut for the rich to spur business investment, that worked essentially as planned.

Trump takes undue credit for the good performance during his term, for which the main stream media (MSM) accuse him of lying. Biden does the same, for which the MSM cheers. Independent voters favor Trump over Biden by 45% to 34% on the management of the economy. Numerous Democratic commentators have speculated that voter mistrust of Biden reflects FOX fake news popping up on TV sets uninvited to brainwash unsuspecting viewers.

The Political Economy of Environmentalism

October 7, 2021October 2, 2021 by Kevin Villani

“People, like any creature with no natural predator, will continue to spread beyond the capacity of their environment.”

Should I live to 80, the global population will have increased fourfold in my lifetime, more than double the population when the Club of Rome called for zero growth in 1972. For the average non environmental scientist, it is easier to divide the environment into the original Greek elements: fire, water, earth and air. Fires are currently raging, considered (unscientifically) as evidence of “global warming,” modified to “climate change” when the planet started cooling. Land use is also a serious global problem as the run-off into rivers and oceans is unbounded.

People respond to visual cues: when the Cuyahoga River burned in downtown Cleveland for weeks, America cleaned up its rivers. When scientists vividly described a hole in the ozone layer, consumers replaced chlorofluorocarbons in cars and refrigerators in 1987 as part of the Montreal Protocol.

Unlike the Cuyahoga River fire, environmentalism today is rather like the US debt, another intergenerational transfer that also reflects human nature. Current sacrifices can potentially reduce the projected magnitude of sacrifices forced upon future generations, but some economists argue based on UN income forecasts that future generations will be so wealthy that the high costs we would bear today will be relatively painless in the future, the environmental equivalent of “growing out of the debt problem.”