Public Finance

Perry Can’t Claim All the Credit

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It is very strange as a Texan to read people in other states lecturing us about how Texas’s supposed good economy is all a mirage.

I mean, I’m right here in Texas and I know what both a good economy and bad economy look like in Texas. Being told by people out of state that Texas doesn’t have a good economy right now is akin to someone on the Internet claiming that it’s raining cats and dogs in Austin when I can look out my window and see sunshine and clear blue skies.

Most of these weird arguments are coming from leftists whistling past the graveyard. Texas governor Rick Perry is basing his presidential aspirations on Texas’s relatively sound economy, so that has brought a lot of delusional people out of the woodwork, all desperately trying to sell the idea that the Texas economy actually sucks. Well, it doesn’t.

In reality, the strongest argument against Perry is that Texas has the weakest governor of any of the states, so he can’t claim the primary credit for Texas’s performance as he might in other states.

Most other state constitutions concentrate significant power in the office of the governor and the governors often have near sole control over the executive branch. The Texas constitution divides executive power over several state offices.  The Texas governor must share power with the lieutenant governor, the speaker and the state comptroller. All state senior executives are elected in their own right as are many of the state boards. So, the executive branch’s contribution to economically sound government in Texas is the result of a broad political culture of responsibility that elects a lot of good people to many offices, instead of being the result of a single insightful leader (e.g., Christie in New Jersey).

Texas is sound today because of the actual depression we struggled through alone during the period from 1984-1994 as a result of the oil bust. We jettisoned a century of southern-populist quasi-socialism because we ran out of other people’s money and were forced by circumstance to adopt a free-market approach. An entire generation of future politicians and voters got a hard lesson in the dangers of high government spending 20 years before the rest of the nation did. We learned to keep government small and business-friendly because we had to in order to survive.

Since we learned our lesson, the people of Texas have repeatedly elected pro-economic-creative, pro-growth and small-government politicians to all offices across the state. Perry deserves some credit for our sound economy because he has been one of the principle political leaders of the last decade but, frankly, if it hadn’t been Perry it would have been someone else just like him, because that is what the political culture of Texas demands. Perry is a cork bobbing in a torrent of responsible Texans en masse.

In the end, it is not political leadership but the wisdom and discipline of the people that counts in America. Texas is better off than the rest of America because our depression taught us all that it is economic-creatives that generate a sound economy and not government. If the rest of the country doesn’t learn that lesson, it won’t matter if Perry or another responsible candidate is President or not.

Niall Ferguson on Debt and US Empire

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Via Mike Hiteshew, this is a long and quite good talk from last year on the international ramifications of continued expansion of US govt debt:


We can stimulate the economy without extra debt or inflation

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How to stimulate the economy without inflating the currency or borrowing any more money.

Step 1:
Assemble all requests for federal permits.

Step 2:
Sign them for final approval (as in if they’re interim permits, they are approved for final status as if all other interim applications had been filed and been approved as well). Use auto pens if needed.

That’s it, no step 3 required.

There is now, and always is, a backlog of projects that have funding, are ready to go, and only wait the approval of the various administrative arms that they have complied with this or that regulation. If those projects go forward, the economy will be in better shape. So why not just sign the permits, let construction proceed, and mitigate the bad decisions on the back end when the economy has recovered?

Edit:
Just to make things clear, there are 51 executives in the USA who can do this. The President would likely have the biggest effect but certainly governors would be able to do this on their own as well.

Why I like Coolidge and why we are not recovering.

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I spent the past six months reading about Calvin Coolidge. I was interested in why the 1920s were a period of great prosperity and why the severe recession/ depression of 1920-1921 was so short. At its peak, there was 25% unemployment. Gross domestic product dropped by 6.9% in one report.

The recession of 192021 was characterized by extreme deflation — the largest one-year percentage decline in around 140 years of data.[2] The Department of Commerce estimates 18% deflation, Balke and Gordon estimate 13% deflation, and Romer estimates 14.8% deflation. The drop in wholesale prices was even more severe, falling by 36.8%, the most severe drop since the American Revolutionary War. This is worse than any year during the Great Depression (adding all the years of the Great Depression together, however, yields more severe deflation). The deflation of 192021 was extreme in absolute terms, and also unusually extreme given the relatively small decline in gross domestic product.[2]

The Harding-Coolidge administration took office in March 1921 and the recession was over in months. Why ? Governments were smaller then and had less influence on the economy. The Wilson Administration has been widely described as the equivalent of a fascist regime with its war time controls and economic meddling. Again from the Wikipedia article:

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Transparency and the Public Sector

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One reason I believe that the US government has grown so large and has been able to rack up so much debt is because of a general belief (especially among young people that)

– Government is fair, transparent and effective
– the private sector is scheming and opaque

The general public didn’t always feel this way. Back when the “Reagan Revolution” swept through he made the famous crack that we should always fear the comment “We are from the government, and we are here to help you”. There was a widespread belief that the private sector should lead the way and that government should play a supporting role, running things like the military and infrastructure spending, but not to generally take over key functions of the economy.

Younger people, in order to get into any sort of exclusive college, need to “volunteer”. In past years’ in the US volunteering typically meant joining a constructive organization or working with your church, but now there are a wide array of programs that students filter through in order to have a convincing resume to apply to these selective schools, and likely putting down church activities doesn’t help much at all. I think that people are confusing these sorts of volunteer organizations with the reality of how governments actually work, which is quite different, since government organizations have an innate tendency to 1) propagate 2) expand their domain 3) put themselves first in terms of salaries and benefits rather than focusing on value to the taxpayer. These sorts of behaviors also occur amongst volunteer organizations but not to the same degree.

People also have a more trusting belief that the government role is actually EFFECTIVE. In reality, government is usually a bystander when events occur. For instance Sarbanes-Oxley was invented in the wake of Enron to prevent financial scandal through making companies’ financials more transparent and other “reforms”. However, these “reforms” did nothing to prevent the 2007-9 meltdown where major companies went from financially sound and a clean audit opinion to utterly bankrupt in a matter of months, often for opaque balance sheet related items that were conceptually similar to the Enron-esque accounting items that Sar-box supposedly fixed. And as far as the BP spill; government employees by the thousand supposedly had oversight of that sort of behavior and yet were in fact ineffective in preventing the events in the gulf. The SEC did nothing to catch or track Madoff despite many warnings due to institutional bias and failure; even now they are trying to catch up to Wall Street, despite having a huge budget and thousands of staffers.

I recently received this summary of Exxon’s compensation policies since I am a shareholder. While Exxon is universally maligned among the left in fact their behavior is completely optimal as far as incentives for executives, and transparent. From the document:

The compensation program supports the retention of these and all other executives by holding back and putting at risk a large percentage of annual compensation until retirement and later.

Other practices include 1) no employment contracts 2) no payments or benefits are triggered by a change in control 3) no severance programs. In addition all of their US executives participate in the same programs so that they are aligned.

The government, on the other hand, despises transparency and accountability, along with their related organizations. The Chicago Tribune had an excellent article titled “Stimulus funds wasted in national home weatherizing program, critics say“. The article discusses one of the many “stimulus projects” that the government created as part of the massive effort to prop up the economy; all taxpayers will be paying for this for years to come in the form of repayment on our Federal debt.

The money spent… is a tiny fraction of the $90.5 million federal and state officials are pouring into the nonprofit CEDA to weatherize homes for the poor, but hundreds of jobs have been plagued by workmanship problems, according to state and federal records. As CEDA’s part in the federal stimulus program heads into its final months, contractors continue to fail 1 in 7 inspections, and a federal plan to fix mistakes revealed in a blistering audit last year still hasn’t been completed, federal officials said.

And not only is the program not working as intended, the government and their partners in the non-profit sector (that sprang up to eat at the trough of the stimulus funds) is extremely reticent to provide information to the journalists at the Chicago Tribune, which seems at odds with their public mission (although predictable to anyone that has a basic understanding of how governments actually function).

And by the state doling out money to a nonprofit, which is not subject to open-records laws, officials have kept from the public how millions of taxpayer dollars are spent. CEDA refused to provide information about its contractors, some of which have lengthy records of complaints, the Tribune found.

As the government moves into a larger sector of the economy, paid for with taxes taking from businesses in the private sector and their employees, you should expect grudging transparency at best, muted and confusing responses when problems occur, and no accountability among government officials for failures and outright lies. For instance no one would be fired related to the mis-management of this program, for example.

We need for people to understand how the “dead hand” of bureaucrats will strangle the country and that problems and denials should be expected as the norm and not an exception when these sorts of programs run amok.