Public Finance

They are all lying.

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I’ve tried to think about anything but the coming economic calamity but this column from the Daily Telegraph is too perceptive to ignore. Of course, the liars include most of the US media, press and TV. We have to get our news from the British media about American politics. The US media has become an arm of the Democratic party.

Must we assume now that no party that speaks the truth about the economic future has a chance of winning power in a national election? With the results of presidential contests in the United States and France as evidence, this would seem to be the only possible conclusion. Any political leader prepared to deceive the electorate into believing that government spending, and the vast system of services that it provides, can go on as before or that they will be able to resume as soon as this momentary emergency is over was propelled into office virtually by acclamation.
So universal has this rule turned out to be that parties and leaders who know better whose economic literacy is beyond question are now afraid even to hint at the fact which must eventually be faced. The promises that governments are making to their electorates are not just misleading: they are unforgivably dishonest.

I have not believed that Romney’s problem was one of poor communication or salesmanship. Certainly, the turnout numbers show that Obama’s organization made the most of a very intrusive data mining system. The possibility that the system of the campaign will become part of the political party’s permanent infrastructure is worrisome. I don’t want to be an alarmist but one feature of totalitarian governments, after the French Revolution, was the intrusion into daily life.

Of course, once in power all governments must deal with reality even if they have been elected on a systematic lie. As one ex-minister famously put it when he was released from the burden of office: “There’s no money left.” So that challenge must be met. How do you propose to go on providing the entitlements that you have sworn never to end, without any money? The victorious political parties of the Left have a ready answer to that one. They will raise taxes on the “rich”. In France and the United States, this is the formula that is being presented not only as an economic solution but also as a just social settlement, since the “rich” are inherently wicked and must have acquired their wealth by confiscating it from the poor.

I see no sign of any recognition of reality yet by Obama or his government. The “fiscal cliff” negotiations, if they can be called that, have been a farce. The Republicans have allowed themselves to be maneuvered into secret negotiations which have been demagogued and which have set them up for blame for what is coming. They would have been far better advised to insist on open negotiations, on C-SPAN if necessary.

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DC Zoning and Government Growth

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Chicagoboyz community member Robert Schwartz emails:

I read an article today that really set me to thinking. Here are the title and a brief clip:
 
“Is It Time for D.C. to Grow Up?: Growth Prompts a Rethinking of Law That Limits Washington Building Heights” by Eliot Brown in The Wall Street Journal on May 26, 2012 at page A3:
 

This dwindling supply of space in central Washington comes amid growth in the office sector over the years and a population that is back on the rise after decades of decline. Washington’s population has grown 8% since 2000 to more than 600,000, adding an estimated 46,000 residents, as young people in particular have flocked to live there.

 
The article discusses proposed changes to the DC zoning ordinances so that more office space and high-rise condos could be added to the area north of the Mall and between the White House and the Capitol.
 
I devoted a few seconds of rumination to the architectural issue, before it hit me. What the article says is that all of the country’s wealth and power are being concentrated in the Imperial Capital. The real problem is not building heights, it is the concentration of political power. I think we need a meme or slogan to carry us through to November, and through the subsequent campaign to re-establish constitutional government in the United States. So here is my suggestion:
 
Vote Republican — Send the Recession to Washington
 
Your thoughts are welcome. So are bumper sticker designs.

Quote of the Day

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Richard Epstein:

So what next? The best first step is to free up labor markets world wide. Specifically, we need policies that take aim at the unbearable political forces that seek to tighten the regulatory noose on voluntary labor markets.
 
Unfortunately, the dominant attitude of macroeconomists is to assume that nothing that takes place within the labor market (of which Krugman never speaks) is large enough to influence the large macro trends to which they attribute today’s high employment rates.
 
The blunt truth is exactly the opposite. The calcification of labor markets is the primary impediment to economic recovery. The direct effects of government regulation of labor can matter far more than the indirect effects of macroeconomic policy, whether Keynesian or austerity-based. Neither austerity nor lavish public expenditures will improve the overall situation, which is why the massive increase in American public debt has not nudged unemployment rates down. The only workable solution has to stress job creation, not by misdirected subsidies, but by dismantling the government obstacles to market exchange.

Wall Street and its Clients

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Ann Althouse has a good post today. I can’t get through her Captcha system so I thought I would post a few comments here. This NY Times op-ed piece is the source for her observations. It is behind the Times’ idiotic payment wall so go to her blog for the link.

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

That certainly states the issue clearly. What does he complain about ?

I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

What specifically is the problem ?

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“You may ask yourself, well, how did I get here?”

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Commenter Lynn Wheeler writes at zenpundit:

“….Boyd would comment in the 80s that the approach was having significant downside on American corporations as former WW2 officers climbed the corporate ladder, creating similar massive, rigid, top-down command&control infrastructures (along with little agility to adapt to changing conditions, US auto industry being one such poster child).”

Wheeler’s comment reminded me of the following post that I had meant to blog earlier:

One occasion in particular in the late 1970s brought this home to me. McNamara had come to one of our staff meetings in the Western Africa Region of the World Bank, where I was a young manager, and he had said he would be ready to answer any questions.
 
I felt fairly secure as an up-and-coming division chief and a risk-taking kind of guy. So I decided to ask McNamara the question that was on everyone’s lips in the corridors at the time, namely, whether he perceived any tension between his hard-driving policy of pushing out an ever-increasing volume of development loans and improving the quality of the projects that were being financed by the loans. In effect, was there a tension between quantity and quality?
 
When the time came for questions, I spoke first at the meeting and posed the question.
 
His reply to me was chilling.
 
He said that people who asked that kind of question didn’t understand our obligation to do both—we had to do more loans and we had to have higher quality—there was no tension. People who didn’t see that didn’t belong in the World Bank.

– Steve Denning

This too from a speech by Robert McNamara, “Security in the Contemporary World”:

The rub comes in this: We do not always grasp the meaning of the word “security” in this context. In a modernizing society, security means development.
 

Security is not military hardware, though it may include it. Security is not military force, though it may involve it. Security is not traditional military activity, though it may encompass it. Security is development. Without development, there can be no security. A developing nation that does not in fact develop simply cannot remain “secure.” It cannot remain secure for the intractable reason that its own citizenry cannot shed its human nature.
 

If security implies anything, it implies a minimal measure of order and stability. Without internal development of at least a minimal degree, order and stability are simply not possible. They are not possible because human nature cannot be frustrated beyond intrinsic limits. It reacts because it must.
[break]
Development means economic, social, and political progress. It means a reasonable standard of living, and the word “reasonable” in this context requires continual redefinition. What is “reasonable” in an earlier stage of development will become “unreasonable” in a later stage.
 

As development progresses, security progresses. And when the people of a nation have organized their own human and natural resources to provide themselves with what they need and expect out of life and have learned to compromise peacefully among competing demands in the larger national interest then their resistance to disorder and violence will be enormously increased.

Think about this in terms of the “armed nation building” of the past decade or so and in terms of successive Clinton, Bush, and Obama administration policies. Really not that much difference if you look at it in terms of securing stability through development – armed or otherwise. Not a novel observation in any way, but bears in mind repeating as the 2012 Presidential campaign continues its “running in place” trajectory….

Update:“Running in place” and “trajectory” don’t really go together, do they? Oh well. You all know what I mean….