The following article from the Cato Institute does a good job explaining why interest rates should, and at some point must, go up.
The Federal Reserve's Flawed Approach to Monetary Policy
August 29, 2011
August 25, 2011
Unpatriotic Obama
There's no longer any doubt about it. Obama is not a patriot.
This isn't my assessment. It's his. In 2008 he accused Bush of being unpatriotic for raising the nation's debt by $4 trillion over 8 years.
Surely, then, when Obama has raised the debt by $4 trillion (and still rising) in only 2 1/2 years, he must be even more unpatriotic. Right? Anyone disagree?
Obama in 2008: "Adding $4 Trillion to National Debt is Unpatriotic"
This isn't my assessment. It's his. In 2008 he accused Bush of being unpatriotic for raising the nation's debt by $4 trillion over 8 years.
Surely, then, when Obama has raised the debt by $4 trillion (and still rising) in only 2 1/2 years, he must be even more unpatriotic. Right? Anyone disagree?
Obama in 2008: "Adding $4 Trillion to National Debt is Unpatriotic"
August 23, 2011
Clinton's Surpluses
It's common knowledge that in the last few years of the Clinton administration, the budget was not just balanced, we actually had surpluses. Bill Clinton has claimed that he reduced the national debt by $360 billion in his last three years. But is it true?
Figures from the U.S. Treasury on total debt for fiscal years 1998-2001 are as follows (bear in mind that Clinton's last budget ended on 9/30/2001):
Fiscal Yr. Year ending National debt Deficit
Figures from the U.S. Treasury on total debt for fiscal years 1998-2001 are as follows (bear in mind that Clinton's last budget ended on 9/30/2001):
Fiscal Yr. Year ending National debt Deficit
| FY1998 | 09/30/1998 | $5.526193 trillion | $113.05 billion |
| FY1999 | 09/30/1999 | $5.656270 trillion | $130.08 billion |
| FY2000 | 09/29/2000 | $5.674178 trillion | $17.91 billion |
| FY2001 | 09/28/2001 | $5.807463 trillion | $133.29 billion |
As one can see, the debt went up each year, and there were deficits each year. Each year of the Clinton administration saw deficits and rising debt. And Clinton clearly did not turn surpluses over to Bush, which he then squandered, as the conventional wisdom says. So how did this myth arise?
According to an article I recently read, the answer lies in the distinction between public debt and intragovernmental debt. Public debt is (you guessed it) debt held by the public. T-bills, bonds, what have you. Intragovernmental debt occurs when the government borrows money from itself, mostly from Social Security. Add the two together and you get total national debt.
What Clinton did over the last few years of his administration was pay down public debt. But he did this by borrowing more in the form of intragovernmental debt, again, mostly from Social Security.
From U.S. Treasury data:
| Fiscal Year | End Date | Claimed Surplus | Public Debt | Intra-gov Holdings | Total National Debt |
| FY1997 | 09/30/1997 | $3.789667T | $1.623478T | $5.413146T | |
| FY1998 | 09/30/1998 | $69.2B | $3.733864T  $55.8B | $1.792328T  $168.9B | $5.526193T $113B |
| FY1999 | 09/30/1999 | $122.7B | $3.636104T $97.8B | $2.020166T $227.8B | $5.656270T $130.1B |
| FY2000 | 09/29/2000 | $230.0B | $3.405303T $230.8B | $2.268874T $248.7B | $5.674178T $17.9B |
| FY2001 | 09/28/2001 | $3.339310T $66.0B | $2.468153T $199.3B | $5.807463T $133.3B |
As one can see, over the years in question, public debt went down, but intragovernmental holdings and total national debt went up.
To be fair to Clinton, it's unlikely that this was his plan. By law, the Social Security Administration is required to take its surpluses and buy U.S Government securities, which are then sold and which then immediately become part of the national debt. During the dot-com boom of the late 1990's, payments to social security unexpectedly went way up. This may explain why the Clinton administration predicted in 1996 large deficits as far as the eye could see, and suddenly a couple of years later we have supposed "surpluses". The administration must have been shocked to see all this extra dough available, and, to his credit, he did pay down public debt. But the only way this can be characterized as surpluses is if one ignores the other element of the total national debt.
Thanks to political spin, a compliant media, and lack of awareness by the public of the arcane accounting methods of Washington, the myth of the Clinton surpluses was born and survives today.
None of this is meant to defend George Bush. But I think it's important to realize that when people say we should return to the tax rates of the Clinton years because, after all, we had surpluses then, that assertion is simply false. I also find it very interesting when I discover that what we have been told, ad nauseum, for several years, just ain't so.
It would appear that high unemployment is not just painful for the unemployed. With fewer FICA taxes coming into the government, it has less money to hide what it's been doing over the past few decades. If corporate CEO's pulled this kind of stuff, they'd go to jail.
August 22, 2011
August 21, 2011
Eating Paul Krugman
I have long been on record as being highly skeptical of global warming alarmism. But when new information comes to light, I'm not afraid to admit that I may have been mistaken.
It turns out that if we don't stop CO2 emissions, aliens from outer space may decide to kill us. According to a joint study by Penn State and the NASA Planetary Science Division, one possible scenario is that extraterrestrials may decide that we are a threat to the intergalactic ecosystem and should therefore be destroyed.
The study says that extraterrestrial intelligence (ETI) "could attack and kill us, enslave us, or potentially even eat us. ETI could attack us out of selfishness or out of a more altruistic desire to protect the galaxy from us. We might be a threat to the galaxy just as we are a threat to our home planet."
This frightening scenario comes on the heels of New York Times writer Paul Krugman suggesting that if we were attacked by space aliens, it could be helpful to the economy.
This is a bit confusing. Attacked and eaten if we don't stop global warming, or attacked but it'll be good for the economy. Or maybe they attack but just eat Paul Krugman, which would make them vomit and they'd go look for food on some other planet.
It turns out that if we don't stop CO2 emissions, aliens from outer space may decide to kill us. According to a joint study by Penn State and the NASA Planetary Science Division, one possible scenario is that extraterrestrials may decide that we are a threat to the intergalactic ecosystem and should therefore be destroyed.
The study says that extraterrestrial intelligence (ETI) "could attack and kill us, enslave us, or potentially even eat us. ETI could attack us out of selfishness or out of a more altruistic desire to protect the galaxy from us. We might be a threat to the galaxy just as we are a threat to our home planet."
This frightening scenario comes on the heels of New York Times writer Paul Krugman suggesting that if we were attacked by space aliens, it could be helpful to the economy.
This is a bit confusing. Attacked and eaten if we don't stop global warming, or attacked but it'll be good for the economy. Or maybe they attack but just eat Paul Krugman, which would make them vomit and they'd go look for food on some other planet.
I don't know how this is going to turn out, but just in case I think we'd better stop any activity that creates CO2 (except for breathing) and return to a prehistoric lifestyle. It won't be pleasant, but it beats being an entree for a Martian.
August 19, 2011
Green Jobs
Last year the mayor of Seattle, Mike McGinn, announced that the city had won a $20 million federal grant to "weatherize" homes. Specifically, the grant was supposed to create 2,000 jobs to retrofit 2,000 homes in poor neighborhoods. McGinn flew to D.C. where Joe Biden characterized the program as a "promise to boost the economy, reduce consumer bills and lower greenhouse gas emissions...a triple win." What's not to like? A government "investment" that creates jobs, reduces energy bills and saves the planet, all in one little grant.
So, over a year later, how is the program going?
As of last week, 3 homes have been weatherized and 14 jobs have been created. According to Michael Woo, director of a community organizing group called Got Green which promotes the environment and social justice, "The jobs haven't surfaced yet." No kidding.
The good news is that some non-residential buildings have been weatherized - the Washington Athletic Club, which presumably caters to people who can afford to join, and a few hospitals. Nice, but these aren't homes in poor neighborhoods. Howard Greenwich is a director with Puget Sound Sage, an economic justice group. He says "Who's benefiting from this program right now – it doesn't square with what the aspiration was." No kidding.
I pass this along as a cautionary tale. When you hear politicians tout the wonders of green jobs, it might be a good idea to be skeptical. Government inefficiency knows no bounds.
August 12, 2011
10,000 Cocksure Moralists
Came across a quote attributed to H.L. Mencken, early 20th century journalist who wrote for the Baltimore Sun...
“One man who minds his own business is more valuable to the world than 10,000 cocksure moralists.”
Just so.
“One man who minds his own business is more valuable to the world than 10,000 cocksure moralists.”
Just so.
August 11, 2011
Ann Coulter on Britain
Love her or hate her, she does have a way with words.
THE SUN NEVER SETS ON THE BRITISH WELFARE SYSTEM
August 10, 2011
Those of you following the barbaric rioting in Britain will not have failed to notice that a sizable proportion of the thugs are white, something not often seen in this country.
Not only that, but in a triumph of feminism, a lot of them are girls. Even the "disabled" (according to the British benefits system) seem to have miraculously overcome their infirmities to dash out and steal a few TVs.
Congratulations, Britain! You've barbarized your citizenry, without regard to race, gender or physical handicap!
With a welfare system far more advanced than the United States, the British have achieved the remarkable result of turning entire communities of ancestral British people into tattooed, drunken brutes.
I guess we now have the proof of what conservatives have been saying since forever: Looting is a result of liberal welfare policies. And Britain is in the end stages of the welfare state.
In 2008, a 9-year-old British girl, Shannon Matthews, disappeared on her way home from a school trip. The media leapt on the case -- only to discover that Shannon was one of seven children her mother, Karen, had produced with five different men.
The first of these serial sperm-donors explained: "Karen just goes from one bloke to the next, uses them to have a kid, grabs all the child benefits and moves on."
Poor little Shannon eventually turned up at the home of one of her many step-uncles -- whose ex-wife, by the way, was the mother of six children with three different fathers.
(Is Father's Day celebrated in England? If so, how?)
The Daily Mail (London) traced the family's proud Anglo ancestry of stable families back hundreds of years. The Nazi war machine couldn't break the British, but the modern welfare state has.
A year earlier, in 2007, another product of the new order, Fiona MacKeown, took seven of her eight children (by five different fathers) and her then-boyfriend, on a drug-fueled, six-month vacation to the Indian island of Goa. The trip was paid for -- like everything else in her life -- with government benefits.
(When was the last time you had a free, six-month vacation? I'm drawing a blank, too.)
While in Goa, Fiona took her entourage on a side-trip, leaving her 15-year-old daughter, Scarlett Keeling, in the capable hands of a 25-year-old local whom Scarlett had begun sleeping with, perhaps hoping to get a head-start on her own government benefits. A few weeks later, Scarlett turned up dead, full of drugs, raped and murdered.
Scarlett's estranged stepfather later drank himself to death, while her brother Silas announced on his social networking page: "My name is Si, n I spend most my life either out wit mates get drunk or at partys, playing rugby or going to da beach (pretty s**t really)."
It's a wonder that someone like Silas, who has never worked, and belongs to a family in which no one has ever worked, can afford a cellphone for social networking. No, actually, it's not.
Britain has a far more redistributive welfare system than France, which is why France's crime problem is mostly a matter of Muslim immigrants, not French nationals. Meanwhile, England's welfare state is fast returning the native population to its violent 18th-century highwaymen roots.
Needless to say, Britain leads Europe in the proportion of single mothers and, as a consequence, also leads or co-leads the European Union in violent crime, alcohol and drug abuse, obesity and sexually transmitted diseases.
But liberal elites here and in Britain will blame anything but the welfare state they adore. They drone on about the strict British class system or the lack of jobs or the nation's history of racism.
None of that explains the sad lives of young Shannon Matthews and Scarlett Keeling, with their long English ancestry and perfect Anglo features.
Democrats would be delighted if violent mobs like those in Britain arose here -- perhaps in Wisconsin! That would allow them to introduce yet more government programs staffed by unionized public employees, as happened after the 1992 L.A. riots and the 1960s race riots, following the recommendations of the Kerner Commission.
MSNBC might even do the unthinkable and offer Al Sharpton his own TV show. (Excuse me -- someone's trying to get my attention ... WHAT?)
Inciting violent mobs is the essence of the left's agenda: Promote class warfare, illegitimate children and an utterly debased citizenry.
Like the British riot girls interviewed by the BBC, the Democrats tell us "all of this happened because of the rich people."
We're beginning to see the final result of that idea in Britain. The welfare state creates a society of beasts. Meanwhile, nonjudgmental elites don't dare condemn the animals their programs have created.
Rioters in England are burning century-old family businesses to the ground, stealing from injured children lying on the sidewalks and forcing Britons to strip to their underwear on the street.
I keep reading that it's because they don't have jobs -- which they're obviously anxious to hold. Or someone called them a "kaffir." Or their social services have been reduced. Or their Blackberries made them do it. Or they disapprove of a referee's call in a Manchester United game.
A few well-placed rifle rounds, and the rioting would end in an instant. A more sustained attack on the rampaging mob might save England from itself, finally removing shaved-head, drunken parasites from the benefits rolls that Britain can't find the will to abolish on moral or utilitarian grounds. We can be sure there's no danger of killing off the next Winston Churchill or Edmund Burke in these crowds.
But like Louis XVI, British authorities are paralyzed by their indifference to their own civilization. A half-century of berating themselves for the crime of being British has left them morally defenseless. They see nothing about England worth saving, certainly not worth fighting for -- which is fortunate since most of their cops don't have guns.
This is how civilizations die. It can happen overnight, as it did in Revolutionary France. If Britain of 1939 were composed of the current British population, the entirety of Europe would today be doing the "Heil Hitler" salute and singing the "Horst Wessel Song."
August 10, 2011
Those of you following the barbaric rioting in Britain will not have failed to notice that a sizable proportion of the thugs are white, something not often seen in this country.
Not only that, but in a triumph of feminism, a lot of them are girls. Even the "disabled" (according to the British benefits system) seem to have miraculously overcome their infirmities to dash out and steal a few TVs.
Congratulations, Britain! You've barbarized your citizenry, without regard to race, gender or physical handicap!
With a welfare system far more advanced than the United States, the British have achieved the remarkable result of turning entire communities of ancestral British people into tattooed, drunken brutes.
I guess we now have the proof of what conservatives have been saying since forever: Looting is a result of liberal welfare policies. And Britain is in the end stages of the welfare state.
In 2008, a 9-year-old British girl, Shannon Matthews, disappeared on her way home from a school trip. The media leapt on the case -- only to discover that Shannon was one of seven children her mother, Karen, had produced with five different men.
The first of these serial sperm-donors explained: "Karen just goes from one bloke to the next, uses them to have a kid, grabs all the child benefits and moves on."
Poor little Shannon eventually turned up at the home of one of her many step-uncles -- whose ex-wife, by the way, was the mother of six children with three different fathers.
(Is Father's Day celebrated in England? If so, how?)
The Daily Mail (London) traced the family's proud Anglo ancestry of stable families back hundreds of years. The Nazi war machine couldn't break the British, but the modern welfare state has.
A year earlier, in 2007, another product of the new order, Fiona MacKeown, took seven of her eight children (by five different fathers) and her then-boyfriend, on a drug-fueled, six-month vacation to the Indian island of Goa. The trip was paid for -- like everything else in her life -- with government benefits.
(When was the last time you had a free, six-month vacation? I'm drawing a blank, too.)
While in Goa, Fiona took her entourage on a side-trip, leaving her 15-year-old daughter, Scarlett Keeling, in the capable hands of a 25-year-old local whom Scarlett had begun sleeping with, perhaps hoping to get a head-start on her own government benefits. A few weeks later, Scarlett turned up dead, full of drugs, raped and murdered.
Scarlett's estranged stepfather later drank himself to death, while her brother Silas announced on his social networking page: "My name is Si, n I spend most my life either out wit mates get drunk or at partys, playing rugby or going to da beach (pretty s**t really)."
It's a wonder that someone like Silas, who has never worked, and belongs to a family in which no one has ever worked, can afford a cellphone for social networking. No, actually, it's not.
Britain has a far more redistributive welfare system than France, which is why France's crime problem is mostly a matter of Muslim immigrants, not French nationals. Meanwhile, England's welfare state is fast returning the native population to its violent 18th-century highwaymen roots.
Needless to say, Britain leads Europe in the proportion of single mothers and, as a consequence, also leads or co-leads the European Union in violent crime, alcohol and drug abuse, obesity and sexually transmitted diseases.
But liberal elites here and in Britain will blame anything but the welfare state they adore. They drone on about the strict British class system or the lack of jobs or the nation's history of racism.
None of that explains the sad lives of young Shannon Matthews and Scarlett Keeling, with their long English ancestry and perfect Anglo features.
Democrats would be delighted if violent mobs like those in Britain arose here -- perhaps in Wisconsin! That would allow them to introduce yet more government programs staffed by unionized public employees, as happened after the 1992 L.A. riots and the 1960s race riots, following the recommendations of the Kerner Commission.
MSNBC might even do the unthinkable and offer Al Sharpton his own TV show. (Excuse me -- someone's trying to get my attention ... WHAT?)
Inciting violent mobs is the essence of the left's agenda: Promote class warfare, illegitimate children and an utterly debased citizenry.
Like the British riot girls interviewed by the BBC, the Democrats tell us "all of this happened because of the rich people."
We're beginning to see the final result of that idea in Britain. The welfare state creates a society of beasts. Meanwhile, nonjudgmental elites don't dare condemn the animals their programs have created.
Rioters in England are burning century-old family businesses to the ground, stealing from injured children lying on the sidewalks and forcing Britons to strip to their underwear on the street.
I keep reading that it's because they don't have jobs -- which they're obviously anxious to hold. Or someone called them a "kaffir." Or their social services have been reduced. Or their Blackberries made them do it. Or they disapprove of a referee's call in a Manchester United game.
A few well-placed rifle rounds, and the rioting would end in an instant. A more sustained attack on the rampaging mob might save England from itself, finally removing shaved-head, drunken parasites from the benefits rolls that Britain can't find the will to abolish on moral or utilitarian grounds. We can be sure there's no danger of killing off the next Winston Churchill or Edmund Burke in these crowds.
But like Louis XVI, British authorities are paralyzed by their indifference to their own civilization. A half-century of berating themselves for the crime of being British has left them morally defenseless. They see nothing about England worth saving, certainly not worth fighting for -- which is fortunate since most of their cops don't have guns.
This is how civilizations die. It can happen overnight, as it did in Revolutionary France. If Britain of 1939 were composed of the current British population, the entirety of Europe would today be doing the "Heil Hitler" salute and singing the "Horst Wessel Song."
August 8, 2011
Bush Tax Cuts
I don't normally defend George W. Bush on his economic policies. He spent way too much. But one of the canards that has become an article of faith among democrats needs to be exposed, namely that the Bush tax cuts are mostly (or completely, for some) responsible for the mess we're in now. Nonsense.
Bush inherited an economy that was coming back to earth from the dot-com bubble, resulting in a recession from March-November of 2001. As one would expect after a recession, income tax receipts fell from 2001 to 2002, by about 13%, and fell again in 2003, by about 7.5%. But from 2003, when the tax cuts were fully implemented, to 2007, an interesting thing happened. Income tax receipts rose from about $794 billion to $1.16 trillion. This is an increase of 46%. Income tax revenues fell by only about 1.3% in 2008, at which point the Great Recession hit, leading to decreased federal revenues. Of course, the recession was caused by the implosion of the housing bubble, not the tax cuts.
The obvious conclusion is that Bush's tax cuts did not cause a revenue problem for the government. They certainly did not cause the recession. They spurred economic growth, which led to significantly increased revenues. Bush had a spending problem. Unfortunately, Obama has a much bigger spending problem.
Bush inherited an economy that was coming back to earth from the dot-com bubble, resulting in a recession from March-November of 2001. As one would expect after a recession, income tax receipts fell from 2001 to 2002, by about 13%, and fell again in 2003, by about 7.5%. But from 2003, when the tax cuts were fully implemented, to 2007, an interesting thing happened. Income tax receipts rose from about $794 billion to $1.16 trillion. This is an increase of 46%. Income tax revenues fell by only about 1.3% in 2008, at which point the Great Recession hit, leading to decreased federal revenues. Of course, the recession was caused by the implosion of the housing bubble, not the tax cuts.
The obvious conclusion is that Bush's tax cuts did not cause a revenue problem for the government. They certainly did not cause the recession. They spurred economic growth, which led to significantly increased revenues. Bush had a spending problem. Unfortunately, Obama has a much bigger spending problem.
At any rate, I pass this along so that the next time you hear some fool blame the Bush tax cuts for our current dilemma, you'll know that he or she is full of it.
Source of data: Office of Management and Budget
August 4, 2011
Failed Policies
Following is a pretty concise explanation of why Obama's policies are causing problems with the economy...
Punishing Success: Why Obama's Economy Won't Improve
Punishing Success: Why Obama's Economy Won't Improve
August 2, 2011
How We Got to This Point
From the Wall Street Journal. The question is: will we ever learn?
The Road to a Downgrade: A Short History of the Entitlement State
The Road to a Downgrade: A Short History of the Entitlement State
August 1, 2011
No Easy Answers
Below is an article which explains nicely why we should eschew central planning and the allure of easy answers to economic problems.
NOT SO SIMPLE
By Donald Boudreaux
July 27, 2011
Harry Truman famously longed for a one-armed economist. Our 33rd president was tired of his economic advisers qualifying their counsel by saying "but on the other hand."
Reality is like that. It's complex. The economy is especially so.
In the U.S. alone, hundreds of millions of consumers daily make choices, often different from the choices made yesterday. Millions of entrepreneurs daily anticipate what consumers want -- and try to outguess each other in the competition to anticipate correctly. Countless investors, business executives, labor-union officials -- just like consumers and entrepreneurs -- attempt to promote their self-interest in a world of innovation, change and, hence, uncertainty.
Mixed in with all these private-sector activities are the actions and reactions of politicians, government administrators, judges and jurors, each of whom -- sometimes individually, more commonly in groups -- can alter the rules that govern private-sector economic activities.
Over the past two-plus centuries, economists have made real progress in the quest to explain economic activity in ways that meet scientific standards and to enhance our understanding of the economy. But this real progress does not mean that economists can make predictions as precise as those made by, say, astronomers.
The zillions of decisions made daily by the billions of people in today's global economy simply cannot be predicted -- and the detailed consequences of these decisions cannot be predicted -- with the kind of precision that we take for granted in many of the natural sciences. So any economist worth his or her salary will qualify any prediction of the future -- and qualify any explanation of the past -- with the recognition that other predictions and explanations also have potential merit.
Economists cannot avoid the large amounts of uncertainty and imprecision that make economics unsatisfying to people, such as Truman, who demand simple and unambiguous answers.
But because there's a large demand -- especially among politicians -- for simple and unambiguous answers, there's no shortage of people willing to supply such answers.
Consider the history of tariffs in America. Protectionists today are fond of pointing out that U.S. tariffs in the 19th century were high by modern standards, and that economic growth during that century was also impressively robust. From these two facts, protectionists dive confidently into the conclusion that America's 19th-century economic growth was promoted by tariffs. These protectionists then assert that if we would raise tariffs to heights not seen in generations, today's economic troubles would be diminished.
Reality, though, allows no such simplistic conclusions.
Nineteenth-century America was full of policies nonexistent -- or much modified -- in 20th- and 21st-century America. For example, women weren't allowed to vote in national elections in the 19th century. Should we therefore conclude that the prohibition on women voting during America's first full century caused the impressive amount of economic growth during that century? Should we disenfranchise women today as a means of reinvigorating the economy?
Although anyone with a decent amount of creativity could concoct a logically coherent "theory" to explain just how the prohibition on women voting led to economic growth, almost everyone would reject that "theory." And rightly so.
The implausibility of economic growth being fueled by keeping women from casting ballots is so great, especially in light of many other things that we know about the 19th-century American economy, that we sensibly reject that "theory" out of hand.
What are some of the other things that we know about the 19th-century U.S. economy? For starters, it was a giant free-trade zone. From Miami to Seattle, from San Diego to Caribou, Maine, men and women traded freely with each other. States -- tempted as governments always are to shield producers within their jurisdictions from competition -- were stopped from engaging in such protectionism by strict application of the Constitution's Commerce Clause.
If free trade discourages economic development, it's difficult to explain the economic growth that took place in the 19th century among the tariffless U.S. states spanning a huge continent. Does anyone believe that Californians and Pennsylvanians would be even richer today had states been allowed to impose tariffs on each others' products?
We know also that, apart from imposing tariffs and handing out some subsidies, Uncle Sam in the 19th century followed a comparatively laissez-faire policy. Now there's a plausible source of economic growth, one that is consistent with the facts -- including the fact that the economy is astonishingly complex.
The more complex the economy, after all, the more we must rely upon localized individual decision-makers and less on centralized, collective plans to keep it going and growing. Such plans, relative to the economy, are always simplistic -- and, hence, dangerously alluring to minds that seek simple answers.
NOT SO SIMPLE
By Donald Boudreaux
July 27, 2011
Harry Truman famously longed for a one-armed economist. Our 33rd president was tired of his economic advisers qualifying their counsel by saying "but on the other hand."
Reality is like that. It's complex. The economy is especially so.
In the U.S. alone, hundreds of millions of consumers daily make choices, often different from the choices made yesterday. Millions of entrepreneurs daily anticipate what consumers want -- and try to outguess each other in the competition to anticipate correctly. Countless investors, business executives, labor-union officials -- just like consumers and entrepreneurs -- attempt to promote their self-interest in a world of innovation, change and, hence, uncertainty.
Mixed in with all these private-sector activities are the actions and reactions of politicians, government administrators, judges and jurors, each of whom -- sometimes individually, more commonly in groups -- can alter the rules that govern private-sector economic activities.
Over the past two-plus centuries, economists have made real progress in the quest to explain economic activity in ways that meet scientific standards and to enhance our understanding of the economy. But this real progress does not mean that economists can make predictions as precise as those made by, say, astronomers.
The zillions of decisions made daily by the billions of people in today's global economy simply cannot be predicted -- and the detailed consequences of these decisions cannot be predicted -- with the kind of precision that we take for granted in many of the natural sciences. So any economist worth his or her salary will qualify any prediction of the future -- and qualify any explanation of the past -- with the recognition that other predictions and explanations also have potential merit.
Economists cannot avoid the large amounts of uncertainty and imprecision that make economics unsatisfying to people, such as Truman, who demand simple and unambiguous answers.
But because there's a large demand -- especially among politicians -- for simple and unambiguous answers, there's no shortage of people willing to supply such answers.
Consider the history of tariffs in America. Protectionists today are fond of pointing out that U.S. tariffs in the 19th century were high by modern standards, and that economic growth during that century was also impressively robust. From these two facts, protectionists dive confidently into the conclusion that America's 19th-century economic growth was promoted by tariffs. These protectionists then assert that if we would raise tariffs to heights not seen in generations, today's economic troubles would be diminished.
Reality, though, allows no such simplistic conclusions.
Nineteenth-century America was full of policies nonexistent -- or much modified -- in 20th- and 21st-century America. For example, women weren't allowed to vote in national elections in the 19th century. Should we therefore conclude that the prohibition on women voting during America's first full century caused the impressive amount of economic growth during that century? Should we disenfranchise women today as a means of reinvigorating the economy?
Although anyone with a decent amount of creativity could concoct a logically coherent "theory" to explain just how the prohibition on women voting led to economic growth, almost everyone would reject that "theory." And rightly so.
The implausibility of economic growth being fueled by keeping women from casting ballots is so great, especially in light of many other things that we know about the 19th-century American economy, that we sensibly reject that "theory" out of hand.
What are some of the other things that we know about the 19th-century U.S. economy? For starters, it was a giant free-trade zone. From Miami to Seattle, from San Diego to Caribou, Maine, men and women traded freely with each other. States -- tempted as governments always are to shield producers within their jurisdictions from competition -- were stopped from engaging in such protectionism by strict application of the Constitution's Commerce Clause.
If free trade discourages economic development, it's difficult to explain the economic growth that took place in the 19th century among the tariffless U.S. states spanning a huge continent. Does anyone believe that Californians and Pennsylvanians would be even richer today had states been allowed to impose tariffs on each others' products?
We know also that, apart from imposing tariffs and handing out some subsidies, Uncle Sam in the 19th century followed a comparatively laissez-faire policy. Now there's a plausible source of economic growth, one that is consistent with the facts -- including the fact that the economy is astonishingly complex.
The more complex the economy, after all, the more we must rely upon localized individual decision-makers and less on centralized, collective plans to keep it going and growing. Such plans, relative to the economy, are always simplistic -- and, hence, dangerously alluring to minds that seek simple answers.
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