Reason Magazine - Topics > Economics

Everything New Democrat Is Old Again

tcavanaugh@reason.com (Tim Cavanaugh) — Thu, 28 Aug 2008 17:30:00 EDT

"The extreme philosophy that has defined his party for more than 25 years, a philosophy we never had a real chance to see in action until 2001, when the Republicans finally gained control of both the White House and Congress. Then we saw what would happen to America if the policies they had talked about for decades were implemented."

That was former President Bill Clinton speaking to the Democratic National Convention last night, condemning John McCain, but also curiously turning his back on his own glory days, when Clinton himself succeeded by embracing more than a few elements of that extreme philosophy.

For those of us who look back fondly on the economic vigor of the Clinton era, the change is jarring. How does supportive husband Clinton now define the triumph of the kind of fiscal conservatism President Clinton once mastered? Read on:

"They took us from record surpluses to an exploding national debt; from over 22 million new jobs down to 5 million; from an increase in working family incomes of $7,500 to a decline of more than $2,000; from almost 8 million Americans moving out of poverty to more than 5 and a half million falling into poverty—and millions losing their health insurance."

Standard convention boilerplate, but it carries a strong message: If even Bill Clinton, the gold standard of "third way" politicians, is trading in classic Democratic Party populism, it really is over for the what used to be called New Democrats.

To get a sense of how things have changed since the New Democrats charged into the 1990s promising to ditch the party's economic-interventionist baggage, here's an interesting convention factoid. The New Democratic Network, a "moderate" group started by Simon Rosenberg and sporadically affiliated with Howard Dean's "Democratic wing of the Democratic Party," has held six high-profile events, on topics ranging from "new politics" to climate change to "true patriotism." By comparison, the Democratic Leadership Council, the leading New Democrat think tank of the Clinton era, hosted one—and that was on rebuilding infrastructure, a classic big-government interest.

Now the New Democratic Network isn't calling for wage and price controls, nor did the DLC in its heyday show any real interest in weaning the party from its dependence on labor and regulation. (Libertarians with long memories may also shudder to remember Clinton's decidedly old-school views on the Fourth Amendment, the drug war, and the death penalty.) And you can't blame the Democrats for trying to cash in on President Bush's mid-20 percent approval rating. The Democratic Party these days is not in the hands of left-leaning ideologues but left-leaning utilitarians.

But there's a palpable sense of relief in the air in Denver this week. Finally, proof of what we knew all along: The free market really doesn't work! What joy and excitement the convention has generated has rested largely on three points: the need to replace Bush's foreign policy with "cooperation" and "good judgment"; Barack Obama's inspiring biography; and the nation's purported loss of faith in deregulation and open markets.

For all the vacuousness of Hillary Clinton's references to "green collar jobs," "universal, high-quality, affordable health care," an end to "dead-end jobs" and so on, her speech was a reminder that the Clintons never abandoned their commitment to interventionist government (and a reason to be glad she didn't get the nomination).

There are other reasons to worry about utilitarians. Two executives in the state of California, one Democratic and one Republican, reveal the limits of post-ideological politics. Gov. Arnold Schwarzenegger rode into office on promises of performance review, zero-base budgeting, and the like, but he is now pretty much guaranteed to leave behind a legacy of new regulations and a massive health care overhaul that failed as spectacularly as Hillary Clinton and Ira Magaziner's universal health care plan in the 1990s. In Los Angeles, Mayor Antonio Villaraigosa brought his own raft of nuts-and-bolts ideas into office (repairing 35,000 potholes, expanding gang prevention, and most amusingly, planting a million trees in the bone-dry city), but his agenda too has gotten lost in a thicket of union strong-arming and his own personal vapidity.

Still, none of these people are running for president. Barack Obama is, and one of the things to watch for in his acceptance speech this evening will be how much lip service he pays to unfettered liberty in economic, political, and personal life. It would be foolish to hope for much, but don't underestimate Obama's Zelig-like ability to reflect back the image the viewer wants to see.

That is to say, expect any calls for re-regulation to be preceded by lip service about the power and benefits of trade and markets. It may not be sincerely meant, but it's nice that the Democrats feel compelled to offer it. Obama's rhetoric about fiscal responsibility and making the rich pay their fair share has been balanced by a reality about how an economy works. During an endorsement interview I attended early this year, he spoke about how his path had brought him into circles of wealthy people, and acknowledged that overburdening the rich diminishes opportunities for the poor.

The New Democrats are finished. In their place there appears to be a new breed of Democrat, less driven by a vision of dumping leftist junk from the party's agenda, but benefiting from a nearly two-decade period in which the benefits of free markets have become conventional wisdom. That's a change, but it will take more than a good speech to make it one we can all believe in.

Now Playing at Reason.tv: Starbucks vs. the Little Guy—Is the corporate coffee behemoth really unstoppable?

Thu, 28 Aug 2008 15:00:00 EDT

Starbucks CEO Howard Schultz recently announced that the company would close 600 of its approximately 12,000 American stores in the coming year, sending 12,000 managers and baristas to the unemployment line.

But as Starbucks contracts, many independent coffee shops are growing, beating the coffee giant in an upscale market it helped to create.

As anti-corporate crusaders are now discovering, instead of advocating for legal prohibitions on chain stores or attempting to zone the offending businesses off of Main Street USA, mom-and-pop shops can successfully combat the coffee behemoth by using old-fashioned market competition.

reason.tv's Michael C. Moynihan and Dan Hayes investigate. Click below to watch.

For more articles and links, and to embed this video on your website, go here.

Banking on Big Changes

info@reason.com (Jeff Taylor) — Thu, 28 Aug 2008 13:00:00 EDT

Democrats in Denver are droning on about the harm done to the middle class by the current financial system pullback. The Federal Deposit Insurance Corporation (FDIC) is adding banks to its "watch list"—now at 117—and warning that it may not have enough money to insure all depositors. The FDIC seized another bank last week, the ninth such action this year.

Given all this attention, not to mention hourly stock market gyrations based on home sale and price data, you might think the American banking system must be fairly well understood, especially what brought us to the present meltdown. But this doesn't seem to be the case.

The present situation is portrayed overwhelmingly as an economic story when, in fact, it is primarily about regulation and public policy—the past 30 years of bipartisan, nearly universally-praised policy to be specific. And it is probably that universality of opinion that keeps misconstruing what is really happening.

The history of the FDIC illustrates what has transpired. Born out of Great Depression economic turmoil, the FDIC was created to ensure the safety and soundness of bank deposits, hence the deposit insurance bit. In the face of bank runs, the feds stepped in to say, "Not to fear, your money is not going anywhere. Uncle Sam has you covered."

Yet that is not what the FDIC is now doing. Its mission has changed. As it tries to clean up California's Indy Mac Bank, for example, its first order of business is avoiding foreclosure on bad loans the bank made to homeowners. An analyst with Barclays Capital called this approach "dangerous" because it gives investors in mortgage-backed securities a reason to run for the exits if the FDIC does not care about recovering their money. In effect, the policy shorthand has changed to read, "Not to fear, you are not going anywhere. Uncle Sam will pay your mortgage." This is very different thing from its original mission, but perfectly consistent with the public policy trend which began in the 1970s and accelerated with the Community Reinvestment Act (CRA). The goal was to make banks agents of social change.

The federal government, Democrat and Republican, wanted trillions of dollars of credit extended to private borrowers. This was primarily done via the active secondary mortgage market participation of government-backed Fannie Mae and Freddie Mac, but also through leverage the CRA provided by requiring expanding banks to explicitly promise to lend money to higher risk borrowers. And incidentally, the overwhelming beneficiaries of that flow of credit was America's supposedly beatdown middle class, which took the money and ran to buy not just homes, but cars, boats, college educations, diamonds, furs, boobs, computers, widescreens, flatscreens, and then second homes.

So then, the policy worked? Yep, private investors created ever more complex ways of leveraging capital into ever more lendable money. They took the federal directive to spread the wealth around (quite literally) to the point where risk was no longer a negative aspect of the credit calculus. In fact, by the dawn of the 21st century, risk was courted by banks because it was more profitable in the short-term. Federal regulators, who in decades before might have been aghast at such practices, applauded because the larger goal of extending credit to every corner of the American landscape was advanced.

But with risk out of the picture it was only a matter of time before the entire enterprise became over-extended. The oil shock of $4 gas, Fed missteps, wild speculation in condo markets, or maybe the moon cycle provided nudges over the past few quarters. No matter the short-term cause, the foundation was rotten and a great de-leveraging is underway. Capital is scarce and lending nonexistent in some sectors. Now what?

How about a little honesty? Fannie and Freddie are in the process of being de facto nationalized by the Treasury. The implicit federal guarantee of their solvency is being made explicit and may hit $50 billion over time. But this may be just the start.

In a memo to clients and the president-elect, Chris Whalen of Institutional Risk Analytics suggested that the bailout of the government-sponsored enterprises (GSEs) Fannie and Freddie is part of a larger picture. Whalen explains:

Since last summer, the various parts of the securitization market have been slowly imploding, right on up the food chain from subprime [collateralized debt obligations, or] CDOs to the AAA-rated GSEs. The only way to staunch the bleeding and begin the process of restoring confidence in all manner of securitizations is to take the GSEs off the table as a concern for investors. When and only when the GSEs are affirmed as affiliates of the U.S. Treasury will yield spreads on GSE debt start to fall, ending the immediate crisis.

Once the GSEs are safely under a conservatorship, with a program in place to slowly run-off the retained portfolios as the debt supporting them matures, then we can start focusing on the next task, namely fixing the securitization markets and recapitalizing the commercial banks.

Whalen also adds the important insight that banks are government sponsored enterprises too, just more competitive and charged with providing capital to the private economy in ways federal regulators and politicians desire. If that is the case, and the past 30 years certainly suggests it is, then recapitalizing the banks is going to take money from the Treasury. Lots of it.

The alternative is to permit market forces to allocate capital from private sources without direction from officials Washington or New York. Not very likely, especially in an election year.

Jeff Taylor writes from North Carolina.

Obama and Big Government

schapman@tribune.com (Steve Chapman) — Thu, 28 Aug 2008 07:00:00 EDT

There are no disciples of small government in the Democratic Party, and Barack Obama fits right in. His economic program is based on the assumption that the economy is to the president what a marionette is to a puppeteer, requiring his direction and responding to his every wish.

Anyone partial to free markets, restrained government, fiscal discipline and light taxation approaches a Democratic nominee's economic platform with trepidation, expecting one fright after another. Obama does not disappoint.

He offers a long list of things the federal government should be doing to rearrange the nation's productive sector—paying U.S. automakers to build fuel-efficient vehicles, confiscating allegedly excessive oil profits, and spending hundreds of billions to create jobs in environmental and infrastructure industries. Democrats have not given up their basic faith that the market, while useful, is always in need of Washington's whip hand.

In his windfall profits tax plan, Obama puts aside the troublesome fact that the last time we tried it, at the behest of President Carter, the tax yielded far less revenue than projected while reducing domestic energy production. And if Detroit didn't bother to invest in fuel-efficient cars when Honda and Toyota did, why should it get a $4 billion reward for its failure?

But saying a Democrat believes in big government is like saying that Chicago winters are cold—true, but inadequate. Some winters are more bone-chilling than others, and some Democrats are worse than others. There are grounds for gloom with Obama, as there would be with anyone nominated by the party of FDR and LBJ. But there are some reasons to hope he will be less bad than most:

—He's liberal, but not that liberal. Contrary to the famous National Journal ranking that put him most leftward in the entire Senate, another study found he is really the 11th-most liberal. In the primaries, when Democratic candidates are under the most pressure to veer left, he insisted on hewing closer to the economic center than Hillary Clinton or John Edwards—even when it exposed him to charges that he didn't support the holy grail of universal health care.

Obama did pander to the left's phobia about globalization by villainizing the North American Free Trade Agreement. But as soon as he had the nomination locked up, he confessed to Fortune magazine that his NAFTA rhetoric had been "overheated and amplified."

Organized labor howled about "corporate influence" when Obama hired Jason Furman as his chief economic adviser. Among Furman's sins is his longtime association with Clinton Treasury Secretary Robert Rubin, who pushed President Clinton to emphasize deficit reduction rather than big new spending programs.

—He's open to evidence. The New York Times recently reported that Obama "likes experts, and his choice of advisers stems in part from his interest in empirical research." Nobel laureate economist James Heckman of the University of Chicago, who was asked for input on education policy by Obama's advisers, told the Times, "I've never worked with a campaign that was more interested in what the research shows."

That would be a change not only from more doctrinaire liberals but also from the Bush administration, which has never been exactly obsessed with real-world data. If Obama were a true believer, he wouldn't care so much about evidence.

Boston College political scientist Alan Wolfe says, "Ideologues don't need that information, or want it, because they know what they want to do." Ask yourself: Is there any conceivable evidence that would cause George W. Bush to question the wisdom of tax cuts?

—He's not enchanted with the big-government model. On health care, Obama opposed Clinton's proposal to require every American to buy health insurance, preferring to offer subsidies and then let individuals decide. He balked when she said all adjustable mortgage rates should be frozen for five years—with Obama's campaign quoting an expert who said, accurately, that it would be "disastrous."

He's far less suspicious of the operations of markets than most people in his party. And when was the last time a Democratic nominee openly worried about corporate tax burdens? Furman has said that if some loopholes can be closed, Obama "would like to cut the corporate tax rate."

Those who favor a less expensive and less expansive federal government will find plenty to complain about should Obama become president. For consolation, they can try chanting this mantra: It could be worse.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

Save Oil Speculation Now!

kmw@reason.com (Katherine Mangu-Ward) — Fri, 22 Aug 2008 15:55:00 EDT

I wasn't alone in my impotent ink-stained fury over the Stop Oil Speculation Now! website. Normally when an industry creates a write-your-congressman-today rent-seeking front group, they usually try play down their own self-interested agenda, or at least conceal their role in funding the campaign. Oddly, the airlines slapped their names all over the bid to stop everyone else from speculating on the price of oil, even as they carried on with their own fuel hedges.

A competing site has sprung up tearing down the airlines' spin on the oil speculation issue. It's called, with a certain literalmindedness these kinds of sites tend to have in common: The Airline Oil Spin.

While airlines rail against the negative impact of speculating commodity traders on oil prices, it is often overlooked that airlines themselves engage in a form of oil speculation that has been vital to their survival: fuel hedging.

By speculating on the future cost of jet fuel, some airlines have managed to save billions of dollars in potential fuel costs. It seems that airlines are now trying to have it both ways, by condemning the “bad” speculators (the commodity traders) and ignoring the “good” speculators (themselves).

This site has its own non sequitur agenda as well, something about passengers' and workers' rights, which pops up when you click a link that somewhat deceptively suggests that you'll be emailing your congressman in defense of speculators. But at least on the speculation issue, their grasp of economics is slightly better than the gang at Stop Oil Speculation Now!

Economic History Lesson

info@reason.com (Damon W. Root) — Tue, 19 Aug 2008 11:58:00 EDT

Amity Shlaes, author of the superb book, The Forgotten Man: A New History of the Great Depression, had a very sharp piece in yesterday's Washington Post on the "five non-monetary missteps" that hindered recovery and helped make the Great Depression worse. As Shlaes notes, these mistakes are as relevant today as they ever were. Here's one:

Assuming bigger government will bring back growth. There's a sense today that Washington has retreated too much from daily lives. Wall Streeters mutter that "the system" (the financial markets) doesn't work anymore. In the 1930s, people didn't just mutter that—they believed it. Public-sector expansion seemed the only way to sustain America's promise. New Deal programs did much to alleviate the pain month to month—many found dignity in six months of work at the Works Progress Administration, the Public Works Administration or the Civilian Conservation Corps. But economics is a competition for scarce capital. Such state solutions tended to suppress the creation of long-term private-sector jobs, as did the aggressive Wagner Act for organized labor. The National Recovery Administration, the New Deal's centerpiece, favored large businesses at the expense of small fry. The new Tennessee Valley Authority and Roosevelt's repressive Public Utility Holding Company Act combined to crowd out private utilities that hoped to light up the South. As for Wall Street, those New Yorker magazine cartoons were accurate: Wall Streeters retreated into their martinis and country houses rather than rebuild. This yielded the "Depression within the Depression" of 1937.

Whole thing here. In our January issue, Nick Gillespie talked with Shlaes about FDR, big government, and the death of classical liberalism. Back in 2004, I looked at how the New Deal made life worse for African Americans.

O Cruel Economy That Makes Schoolchildren Suffer!

gillespie@reason.com (Nick Gillespie) — Mon, 18 Aug 2008 11:43:00 EDT

The AP reports that "Shaky economy hits kids," meaning the following hardships will be visited upon the K-12 population like frogs falling from the sky:

Children will walk farther to the bus stop, pay more for lunch, study from old textbooks and wear last year's clothes. Field trips? Forget about it....
In rural Minnesota, one district is skipping classes every Monday to save fuel. On the other days, classes will be about 10 minutes longer....
Kids will have to stay awake and alert later in the day, and some parents will need to find day care on Mondays. But it's a small district, with 700 kids, and many parents are self-employed with jobs in farming or construction....
Teachers once asked for hand sanitizer and tissue; now they want copy paper. Lenelle Cruse, the state PTA president in Florida, said last year's budget was so tight, Jacksonville schools actually had a toilet paper drive....
In Waterford, Conn., parents might have to pay for annual trips to New York or Boston. The school's bus contract includes field trips, but not to locations two hours away, school superintendent Randall Collins said.
Now, instead of visiting Revolutionary War landmarks in each city, students will probably visit nearby Hartford to see the Connecticut Capitol or the Mark Twain house.....
Montgomery County, Md., is cutting funds for its award-winning mathematics team. The district will still pay the coach's stipend, but parents will have to step in....
In Montgomery County and elsewhere, they are holding off on ordering new textbooks....
In Oxford, Ala., the bus has always made stops at every house. But this year, kids in fifth grade through 12th grade will have to walk to neighborhood bus stops.
Smaller, more rural districts require smaller measures: Paw Paw, Mich., is moving to all-day kindergarten, eliminating eight bus runs in the middle of the day.
Schools are also getting creative with computerized bus routes and heating and cooling systems. Montgomery County, the sprawling district that serves the suburbs of Washington, D.C., has a master control room straight out of NASA that lets one person regulate the temperature in every single classroom....

Jesus Christ, is this the worst of it? If so, please just stop. As someone who had kids in the Maryland's Montgomery County schools for a couple of years, I can guarantee you that they could choose to cut something other than funds for "an award-winning" math team with ease. Indeed, the district seemed hellbent on calling three-day weekends whenever snow was forecast for a Friday morning. And where are the calls to make administrators ride their bikes or carpool to school?

I feel genuinely rotten for kids whose school lunch programs might get dinged on this (again, money is fungible and you'll note that you don't hear about schools cutting football expenses) and stuff like that, but most schools are run so poorly from a money-management positon that tales of tight finances just don't cue the waterworks in me. Schools will use any pretense to a) keep doing things some old and inefficient way and b) so they need to getting more money from every possible source, whether public or private. Per-pupil spending is up over 300 percent in constant dollars since the early 1960s. You'd think somewhere in that increase, schools would figure out how to fund meaningful stuff and drop crap.

More tales of woe here.

And about that "shaky economy" here.

Forget the Olympics—China's Victory Starts Next Year

gillespie@reason.com (Nick Gillespie) — Mon, 11 Aug 2008 11:28:00 EDT

China is set to overtake the US next year as the world's largest producer of manufactured goods, four years earlier than expected, as a result of the rapidly weakening US economy.
The great leap is revealed in forecasts for the Financial Times by Global Insight, a US economics consultancy. According to the estimates, next year China will account for 17 per cent of manufacturing value-added output of $11,783bn and the US will make 16 per cent.
Last year the US was still easily in the top slot and accounted for a fifth of the total. China was second with 13.2 per cent.

More here.

What say you, Hit & Runners? Does it matter?

Meanwhile, at the Olympics.

Just Think How Much Stimulation We'll Need If the Economy Ever Stops Growing!

matt.welch@reason.com (Matt Welch) — Mon, 11 Aug 2008 11:16:00 EDT

You don't need a weatherman (or a Weatherman) to know which way a Washington Post op-ed entitled "A Moment for Fiscal Courage" is gonna blow in these re-regulatory, sky-done-falled-already times. But Sebastian Mallaby earns extra credit for his sheer audacity in deploying proof-less axioms in the cause of having the government spend more money:

The upshot is that things are desperate. The unemployment rate in the headlines (which understates the real number) is heading toward 6 percent; home prices are falling hard; and the two forces that have averted outright recession − a timely fiscal stimulus and strong growth abroad − are fading. The Fed has cut interest rates as much as possible given the worry about inflation. Foreign central banks are similarly boxed in. With the world's inability to agree on anything, there's no prospect of a coordinated global response − witness the breakdown in trade talks. And so the United States must act using the only tool it has: It is time for a second stimulus.

I'm old enough to remember when "unemployment heading toward 6 percent" was a scare phrase when said rate was heading downward, because the Phillips Curve-quoting consensus was that anything lower than 6 percent would trigger automatic inflation. Yet for the past 167 months, unemployment has indeed been lower than 6 percent for all but a seven-month stretch in 2003, during a time when total nonfarm employment increased from 115.2 million to 137.6 million, according to the Bureau of Labor Statistics. Things are desperate!

But wait, home prices are falling hard, right? Yes! All the way down to ... 2004 levels. Which were still nearly double 1997 levels in real terms.

As for "outright recession," yes indeedy that has been averted, to the tune of 1.9% GDP growth in the second quarter. And much as I hate to see global trade talks break down, a "coordinated global response" to allegedly "desperate" economic situations worldwide (think: the 1997-98 Asian flu, or the peso crisis not long before that), are about the collective actions of central bankers, not trade negotiaters. And fer cryin' out loud, how come it's only spending more guvmint money that indicates "courage," rather than performing the much-rarer feat of spending less?

Am I the only one who feels like we're in for a long silly season of economic journalism?

We took a survey of leading economic grumpiness in our June issue.

The Power of O

jwalker@reason.com (Jesse Walker) — Wed, 06 Aug 2008 09:18:00 EDT

A pair of economics students probe the Oprah Effect:

Our results suggest that Oprah Winfrey's endorsement of Barack Obama prior to the 2008 Democratic Presidential Primary generated a statistically and qualitatively significant increase in the number of votes Obama received as well as in the total number of votes cast. For example, a 10 percent change in the county-level circulation of Oprah Magazine is associated with an increased vote share for Obama of approximately 0.2 percentage points. This estimated effect was higher in areas holding caucuses rather than primary elections. In terms of voter participation, a 10 percent change in circulation is associated with a 0.06 percentage point increase in turnout. Similar effects from the endorsement were found in areas with differentially high sales of books included in Oprah's Book Club. In total, we estimate that the endorsement was responsible for 1,015,559 votes for Obama. The 95 percent confidence interval around this estimate is higher than the difference in votes between Obama and Hillary Clinton in our sample. This suggests that Winfrey's endorsement was responsible for the difference in the popular vote in our sample.

I'm not sure book and magazine sales are a perfect proxy for Oprah's influence. But I hope the meme catches on, just so Obama can make a Kennedy/Romney-style speech swearing that he won't be a mindless puppet of the Church of Oprah that elected him.

It's Now Officially a Recession or, The Hamburglar Has Finally Won

gillespie@reason.com (Nick Gillespie) — Tue, 05 Aug 2008 07:57:00 EDT

My arteries cheer this news even as my wallet weeps:

While consumers have seen the prices of milk and meat products rise in the supermarket aisles for months, fast-food chains have stood against wider trends. But McDonald's today said that higher wholesale prices are forcing the fast-food chain to change its menu, meaning customers may soon get less for a buck....
For McDonald's, the biggest change surrounds the star of its dollar menu, the double cheeseburger. Some franchises are now selling it with one slice of cheese instead of two. Others are raising the price by as much as 19 cents, taking it off the dollar menu altogether.
"The life of the double cheeseburger remains to be seen," Jeffery Bernstein, Lehman Brothers analyst, said. "They'll still sell it, but you might not be seeing it for a dollar for much longer."

The dollar menu accounts for 14 percent of McD's receipts and has been widely hailed as a success in generating foot traffic that ultimately leads to higher sales overall (one reason why the double cheeseburger is routinely sold for less than its single counterpart). But it now appears that instead of washing down a dollar item with more expensive fare, customers are sticking to the cheap stuff.

More here.

Hat tip: Michael C. Moynihan.

How Hospital Costs Ran Amok

jbutley@earthlink.net (Jon Basil Utley) — Mon, 04 Aug 2008 12:00:00 EDT

Hospital costs for uninsured Americans are ruinous, like nowhere else in the world. The Wall Street Journal recently pointed to a major reason: Hospitals gain a "charity" tax deduction for the difference between what they collect and their "list" prices. If they can actually collect the money, which they often do by threatening collection lawsuits, they make a tremendous profit. If not, then they deduct from taxable income their phantom "losses" from patients who don't pay.

So, for example, an ambulance ride with a "list cost" of $1000 could bring in $1000 from a patient who pays or a tax deduction of $1,000 from the patient who doesn't, which then can be deducted against other income. Furthermore, the "list" prices inflate other medical costs. The uninsured today are a major source of hospital profits, as detailed in J. Patrick Rooney and Dan Perrin's America's Health Care Crisis Solved. The book describes how a Denver hospital patient tracked down the charges for his treatment paid by medicare and health insurance companies, which totaled $6,000, compared to the $67,000 the hospital demanded.

How did this happen? The system evolved over recent years as collection methods improved and credit ratings became important for most Americans. The well-meaning tax deduction was legislated when hospitals could not collect from many uninsured patients. Now, however, aggressive pursuit and greater difficulty in declaring personal bankruptcy under new bankruptcy reform laws have made it far easier for hospitals to enforce collections. Now imagine the plight of uninsured poor and middle class Americans with an injured child. They face the choice between no medical care or possibly losing their savings, home, and credit rating. Medical costs are the reason for about half of personal bankruptcy filings. Equally, heirs suffer as the estates of their aged relatives—who sometimes die without sufficient insurance—and are also subject to the ravenous hospital charges that can deplete expected inheritances.

Health insurance costs are now so awesome that they are even wrecking large businesses—American auto manufacturers, for example. Health insurance costs also drive businesses overseas, they absorb much of the surplus from rising wages, and have increasingly made many Americans eager for a socialized system such as that offered in Europe and Canada.

Almost no other business in America has such abusive pricing power, including the power to keep charges secret from customers until they get their bills. The Wall Street Journal described how "non-profit" hospitals have accumulated billions of dollars of untaxed profits on the theory that they are providing a public service. The Journal pointed out that many of them provide very little actual care to the uninsured, while many of their CEO's earn salaries in the millions. Equally, they have little incentive or competitive pressure to be competent or cost effective.

The "solution" is either socialized medicine (with government control over costs and availability) or competition and transparency. The latter should be the American solution. However, federal and state governments often make competition very difficult. Still, it is slowly appearing. New services advertise basic heart and blood tests for about $200, as compared to more than $2,000 in most hospitals. A new system of "Minute Clinics" are appearing in some CVS drug stores for $59 per visit, and Wal-Mart is starting up similar clinics with $4 generic medicines. These clinics are staffed by nurses and backed up by doctors and databases. They can handle some 80% of common ailments. However, many states restrict them and the American Medical Association is now attacking them. Such systems could provide major savings for many children's sicknesses and save parents immense amounts of time spent waiting for doctor's appointments.

Individual health savings accounts offer an alternative for some, but groups are not large enough to really challenge hospital costs, especially for emergencies. Generic medicines are being used more often. But doctors often benefit from prescribing costly medicines. Databases now make it possible for pharmaceutical companies to track how often local doctors prescribe their most costly medicines. Then the companies often award them vacations, lecture fees, research grants, and consulting contracts. A major reform would allow health insurance companies to operate nationally across state lines and offer selective coverage, for example excluding certain very costly and unlikely diseases. In fact, Florida just passed a new law allowing health insurance choice. A surplus government insurance for rare illnesses would reduce insurance costs enormously and cost far less than our current system.

The costs described above are for private care. Medicare fraud is another immense waste. The Washington Post recently detailed a report where just one thief with a laptop computer succeeded in stealing $105 million. The Post report showed that fraud costs taxpayers some $60 billion yearly as medicare pays most doctor bills without review. The New York Times recently reported how doctors have incentives to buy expensive equipment and then charge Medicare even more for often-unnecessary tests or procedures. Even without fraud, the system encourages older patients to seek out specialists for every ache and prompts doctors to order masses of costly tests to shield themselves from lawyers. Many operations are also considered unnecessary, with numbers varying tremendously all over the country for the same ailments. Medicaid is another multi-billion dollar scandal of waste and fraud.

So why isn't all this being debated in the presidential campaign? For one, some of the richest and most powerful lobbies in Washington are run by the medical and pharmaceutical establishments. They don't want a competitive system. Democrats do propose forcing everyone to "buy" high-cost insurance, while continuing with the current system, and then have taxpayers subsidize premiums for the poor. But they also oppose tort reform which would hurt their trial lawyer political allies. Many Republican congressmen, meanwhile, also benefit from the lobbies and don't want to rock the boat. After eight years in power, they don't want to take criticism for having made little reform.

Medical cost reform is just one of many areas where Washington is corrupt and paralyzed, in particular because of the gerrymandered power structure, whereby sitting congressmen are almost invulnerable to defeat. They then legally collect millions in "campaign contributions" from the lobbies. Reform will only come about if Americans become better informed, yet most of the media is ignorant about health costs. Reform depends also upon major corporations attacking the current system, such as Wal-Mart has started to do with its in-store clinics. But most companies are silent and afraid to tackle the medical power structure. The Chamber of Commerce and National Federation of Independent Businesses seem reluctant to challenge both the monopolies and the current system. Lessons from the experiences of other nations are certainly available, but most Americans are ignorant of them and still believe claims that "our system is the best." It may be "best" for Medicare, some Medicaid recipients, congressmen, state and federal government employees, and the military, but then they already have "socialized" medicine; they just don't pay most of the costs.

This could be a big election issue for libertarians. Polling indicates that health costs are often the third most important issue expressed by voters. Neither major party wants major change in the current system, but the topic could get TV time for Bob Barr and other libertarians. Promoting competition and explaining to Americans how choice and disclosure will lower costs and provide greater accessibility, especially for the uninsured, is a vote-getting issue. Current medical costs already absorb twice the percentage of gross domestic product as in Europe. They are helping to bankrupt America.

Jon Basil Utley is associate publisher of The American Conservative. He is a former insurance executive with AIG and a former South American correspondent for Knight Ridder.

Luxury Spending Hits the Skids

gillespie@reason.com (Nick Gillespie) — Mon, 04 Aug 2008 07:39:00 EDT

The AP reports "Rich begin feeling the pain in down economy":

Unity Marketing, a Stevens, Pa.-based firm whose clients include retailers in the more than $322 billion U.S. luxury goods market, said its latest poll of affluent people nationwide found a 20 percent decline in spending on luxury goods in this year's second quarter, and the lowest luxury consumer confidence level in the nearly five years the survey has been conducted.
Just over half of the 1,024 respondents earning an average income of $204,800 predicted they would spend less on luxury in the coming 12 months than they did a year ago.
Luxury spending fell 4 percent last year, and this year's decline is expected to be steeper, particularly for luxury handbags and clothing that don't hold value, Unity Marketing President Pam Danziger said.
"We face a very different environment for luxury indulgence in 2008 as compared to 2007," said Danziger, who predicts "a very difficult marketplace for luxury goods over the next five years."

More here.

reason's Kerry Howley wrote about luxury spending and "Vuitton values" here.

Rx for Economic Pain

schapman@tribune.com (Steve Chapman) — Mon, 04 Aug 2008 07:00:00 EDT

Former Texas Sen. Phil Gramm got in trouble when he said Americans are mired not in an economic contraction, but a "mental recession." He soon had to step down as co-chairman of John McCain's campaign for committing the ultimate political sin: telling the truth about a misperception that happens to be very popular. In politics, after all, it doesn't matter who's right—it only matters who has the most votes.

Americans feel as though the economy is in a recession and want the government to do something about it. In reality, it is expanding. In the second quarter, it grew at a respectable inflation-adjusted rate of 1.9 percent, double the pace of the first quarter. Unemployment was up, but it's still a pretty mild 5.7 percent.

The recession cures being bandied about by the presidential candidates and others miss the real source of our current pain and what can be done about it—which is not much.

"There's a great misunderstanding of what's happened," says economist Allan Meltzer. The main trouble, in his view, is not that Americans are suffering from weak or negative economic growth. It's that they have suffered a loss of wealth, a very different ailment.

Meltzer, a professor at Carnegie Mellon University and a scholar at the American Enterprise Institute, explains that the loss stems from two major factors. The first is high oil prices, which are the equivalent of a huge tax increase. The second is the housing bust, which has vaporized more than a trillion dollars worth of assets.

What does all this mean? Our standard of living has declined. Or to put it bluntly, as Meltzer does, "We're poorer than we were, and it's unpleasant, but it's a fact." We can no longer afford all the things we used to, because so much of our income is now going to pay for gasoline.

In the past, we might have cashed in our rising home equity to keep consuming at the same rate as before, but you can't do that when your home equity is shrinking. Plus, we are under pressure to save more, since we can't count on real estate profits to finance a comfortable retirement.

When the economy contracts, the government may use sound monetary and fiscal policy to help revive growth. But when wealth goes up in smoke, the government can't necessarily bring it back. If it tries, the effect is likely to resemble what happens when you give a recovering alcoholic a drink: deceptively pleasant at first, but ultimately calamitous.

In the 1970s, the Federal Reserve reacted to soaring oil prices by creating more money and spreading it around. When you have more money, it doesn't hurt so much to fill your tank. But when everyone suddenly finds themselves with more money, the consequence is inflation. In the 1970s, instead of seeing just the price of gas climb, we saw the price of everything climb.

Today's Fed faces the same temptation. It could ease today's discomfort by rapidly expanding the money supply, and some experts (including Meltzer) think it has already made that mistake. This course is particularly tempting because it could also keep home prices from falling further.

But the remedy is illusory. Homes are not worth what they used to be, and for the Fed to attempt to disguise the fact would create even more uncertainty in a turbulent market. That, in turn, would merely postpone the day when prices hit the inevitable bottom.

When you have a loss of wealth, the best way to cope is to accept it and adapt to a lower standard of living, sooner rather than later. Sending out rebates, eliminating gas taxes, bailing out homeowners and accelerating monetary growth, among the proposed remedies, do exactly the opposite. They spare us the obligation of dealing with reality by making us feel richer so we can keep on as we were before.

But they don't change the stark fact that we are poorer now and will remain that way for some time. And they ultimately backfire by wasting money, igniting inflation or both.

In the long run, we will adapt to the new realities, the economic impact will moderate, and the pain will fade. Till then, our least destructive option is to do something no politician would dare suggest: Suck it up.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

Can Organic Eggs Be Unscrambled?

kmw@reason.com (Katherine Mangu-Ward) — Wed, 30 Jul 2008 15:03:00 EDT

The phrase trust-busting always conjures sepia-toned images of pince-nez, Rough Riders, and bushy mustaches to me. But it's actually is alive and well: Yesterday, Whole Foods—apparently the Standard Oil of the 21st century—was hauled back out on the Federal Trade Commission's chopping block.

In early 2007, Whole Foods merged with another organic grocery chain, Wild Oats. The FTC decided that this looked like a trust that needed busting, arguing that "core" organic consumers would be stuck with only the Whole Food/Wild Oats hybrid for their shopping. We're talking about the people who need quinoa like turn-of-the-century householders needed their lamp oil.

A fast track decision let the merger continue, accepting Whole Food's argument that Wal-Mart and other traditional grocery stores have greatly expanded their organic offerings, and that even after the merger the chain has plenty of competition. But now an appeals court has revived the case by bouncing it back down to the lower court, crying out: Think of the tempeh eaters!

Whole Foods has already closed four Wild Oats stores, and 27 have become Whole Foods locations. The transition continues during this round of the appeal—the company says it will go ahead with "business as usual," and the markets seem to believe them, since Whole Foods stock closed up 1.6 percent yesterday. Or as Richard E. Donovan, co-chairman of the antitrust practice at Kelley Drye & Warren in New York put it to The New York Times:

“The eggs are already scrambled. What are you going to do?”

Cage-free, organic eggs, one assumes.

More on Whole Foods and reason donor John Mackey here and here.

The Unfortunate Case of Herbert Spencer

info@reason.com (Damon W. Root) — Tue, 29 Jul 2008 13:00:00 EDT

In 1944, historian Richard Hofstadter published Social Darwinism in American Thought, an aggressive and widely influential critique of the libertarian philosopher Herbert Spencer (1820-1903) and his impact on American intellectual life. In Hofstadter's telling, Spencer was the driving force behind "social Darwinism," the pseudo-scientific use of evolution to justify economic and social inequality. According to Hofstadter, Spencer was little more than an apologist for extreme conservatism, a figure who told "the guardians of American society what they wanted to hear." The eugenics movement, Hofstadter maintained, which held that humanity could improve its stock via selective breeding and forced sterilization, "has proved to be the most enduring aspect" of Spencer's "tooth and claw natural selection."

A hit upon publication, the book helped make Hofstadter's name, doing much to secure him his prominent perch at Columbia University, where he taught until his death in 1970. But there's a problem with Hofstadter's celebrated work: His claims bear almost no resemblance to the real Herbert Spencer. In fact, as Princeton University economist Tim Leonard argues in a provocative new article titled "Origins of the Myth of Social Darwinism," [pdf] which is forthcoming from the Journal of Economic Behavior and Organization, Hofstadter is guilty of both distorting Spencer's free market views and smearing them with the taint of racist Darwinian collectivism.

So what happened? As Leonard notes, Hofstadter was no neutral observer. Rather, he "wrote as an opponent of laissez-faire, and also as a champion of what he took to be its rightful successor, expert-led reform." A one-time member of the Communist party, Hofstadter himself later admitted that the book "was naturally influenced by the political and moral controversy of the New Deal era."

At the heart of Hofstadter's case is the following passage from Spencer's famous first book, Social Statics (1851): "If they are sufficiently complete to live, they do live, and it is well they should live. If they are not sufficiently complete to live, they die, and it is best they should die."

That certainly sounds rough, but as it turns out, Hofstadter failed to mention the first sentence of Spencer's next paragraph, which reads, "Of course, in so far as the severity of this process is mitigated by the spontaneous sympathy of men for each other, it is proper that it should be mitigated." As philosophy professor Roderick Long has remarked, "The upshot of the entire section, then, is that while the operation of natural selection is beneficial, its mitigation by human benevolence is even more beneficial." This is a far cry from Hofstadter's summary of the text, which has Spencer advocating that the "unfit...should be eliminated."

Similarly, Hofstadter repeatedly points to Spencer's famous phrase, "survival of the fittest," a line that Charles Darwin added to the fifth edition of Origin of Species. But by fit, Spencer meant something very different from brute force. In his view, human society had evolved from a "militant" state, which was characterized by violence and force, to an "industrial" one, characterized by trade and voluntary cooperation. Thus Spencer the "extreme conservative" supported labor unions (so long as they were voluntary) as a way to mitigate and reform the "harsh and cruel conduct" of employers.

In fact, far from being the proto-eugenicist of Hofstadter's account, Spencer was an early feminist, advocating the complete legal and social equality of the sexes (and he did so, it's worth noting, nearly two decades before John Stuart Mill's famous On the Subjection of Women first appeared). He was also an anti-imperialist, attacking European colonialists for their "deeds of blood and rapine" against "subjugated races." To put it another way, Spencer was a thoroughgoing classical liberal, a principled champion of individual rights in all spheres of human life. Eugenics, which was based on racism, coercion, and collectivism, was alien to everything that Spencer believed.

The same can't be said, however, for the progressive reformers who lined up against him. Take University of Wisconsin economist John R. Commons, one of the crusading figures that Hofstadter praised for opposing laissez-faire and sharing "a common consciousness of society as a collective whole rather than a congeries of individual atoms." In his book Races and Immigrants in America (1907), Commons described African Americans as "indolent and fickle" and endorsed protectionist labor laws since "competition has no respect for the superior races."

Similarly, progressive darling Theodore Roosevelt held that the 15th Amendment, which gave African-American men the right to vote, was "a mistake," since the black race was "two hundred thousand years behind" the white. Yet despite these and countless other examples of racist pseudo-science being used by leading progressives, Leonard reports that Hofstadter "never applied the epithet ‘social Darwinist' to a progressive, a practice that continues to this day."

And that's the trouble. Once Hofstadter's smear took hold, it was an uphill battle to set the record straight. Unfortunately, Leonard's persuasive and compelling article alone won't do the trick. But as an explanation of what really happened to Spencer's reputation and as a resource for those who'd like to learn more about his ideas, it's a great place to start.

Damon W. Root is an associate editor of reason.

Give Me a Shovel and Man, I'll Plant 'Em

jwalker@reason.com (Jesse Walker) — Sat, 26 Jul 2008 17:30:00 EDT

Further tales of crashing banks and federal intervention:

The 28 branches of 1st National Bank of Nevada and First Heritage Bank [N.A.], operating in Nevada, Arizona and California, were closed Friday by federal regulators.

The banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said.

The FDIC said the takeover of the failed banks was the least costly resolution and all depositors -- including those with funds in excess of FDIC insurance limits -- will switch to Mutual of Omaha with "the full amount of their deposits."

On the larger topic of bubbles and bailouts: I don't have time to find the link right now, but the conservative writer Patrick Deneen -- not ordinarily a free-market guy -- made a good point a few months back about the notion that some institutions are "too big to fail." On top of the other moral hazards involved, he pointed out, the idea creates an incentive to become...well, too big.

Update: Here's that Deneen link. Thanks to Joe Leibrandt for passing it along.

The Boy Who Cried Moment

matt.welch@reason.com (Matt Welch) — Thu, 24 Jul 2008 16:05:00 EDT

Watching Barack Obama's ich bin ein internationalist speech I found myself in constant, low-level irritation at what one might call the Audacity of Now. Which is to say, the man can't stop telling us that "this is the moment" when we "must" do this, that, and the other.

Not to be too curmudgeonly about it, but what's so special about this moment (as opposed to this moment), aside from the fact that a guy with a furrowed eyebrow and enviable teeth is running for president? Did Communism just collapse? Are we in some kind of hinge moment, a fork in the road between darkness and light? Yet count the ways in which Obama is sure that THIS IS THE MOMENT....

when our nations − and all nations − must summon that spirit [of the Berlin airlift] anew.
when we must defeat terror and dry up the well of extremism that supports it.
when we must renew our resolve to rout the terrorists who threaten our security in Afghanistan, and the traffickers who sell drugs on your streets.
when we must renew the goal of a world without nuclear weapons.
to begin the work of seeking the peace of a world without nuclear weapons.
when every nation in Europe must have the chance to choose its own tomorrow free from the shadows of yesterday.
when we must build on the wealth that open markets have created, and share its benefits more equitably.
for trade that is free and fair for all.
we must help answer the call for a new dawn in the Middle East.
when the world should support the millions of Iraqis who seek to rebuild their lives, even as we pass responsibility to the Iraqi government and finally bring this war to a close.
when we must come together to save this planet.
to give our children back their future.
to stand as one.
when we must give hope to those left behind in a globalized world.

That's 14 freaking Moments, some of them as perennial and/or totally '80s as Vanity Fair Kennedy covers (save the planet? believe that children are our future? stand together as one?); some of them sorta nonsensical (uh, Europeans can freely choose their future these days); some of them code phrases meaning practically the opposite of their rhetorical content (free and fair trade for all!).

I'm an anti-must guy from way back, but what struck me watching was more the implication that all these things are boiling to a head right now because Barack Obama's running for president. I don't often agree with Charles Krauthammer but, well, I pretty much agree with Charles Krauthammer.

And this paragraph in particular gives me chills about Obama's apparently deeply felt belief about how to "give hope to those left behind in a globalized world":

This is the moment when we must build on the wealth that open markets have created, and share its benefits more equitably. Trade has been a cornerstone of our growth and global development. But we will not be able to sustain this growth if it favors the few, and not the many. Together, we must forge trade that truly rewards the work that creates wealth, with meaningful protections for our people and our planet. This is the moment for trade that is free and fair for all.

This, Mr. Hopey, is the moment where the two greatest anti-poverty policies known to mankind − immigration and free trade − are under constant attack in the rich West, precisely from the type of hope-floating politicians who would blame global warming on the Chinese, talk '70s-era bollocks about economic "sustainability," and use the kind of labor vs. capital rhetoric that fell out of fashion long before the kind of people cheering you back home today were jeering Ronnie Ray-gun for asking Gorby to "tear down this wall" two decades ago.

Rescue Me

matt.welch@reason.com (Matt Welch) — Thu, 24 Jul 2008 10:02:00 EDT

Now that President George Bush has dropped his veto threat, the gargantuan housing bailout is on the verge of becoming law, pending passage in the Senate. Thus, a housing bubble that has long been artificially inflated by the ever-growing presence of the government (and quasi-government) in the lending market, especially the lower-income segments; will now be artificially re-inflated, especially in the lower-income segments, by a government doubling down on its bad bets. Since Fannie Mae and Freddie Mac already have their federally guaranteed fingers in about half of all U.S. mortgages, what will be their market share at the end of this downturn/re-regulation process? Sixty percent? Eighty?

To see one reason why we got so quickly to this point, look no further than this objective news lede in the Washington Post.

The House yesterday easily approved legislation that seeks to slow the steepest slide in house prices in a generation, rescue hundreds of thousands of homeowners at risk of foreclosure and reassure global markets that mortgage-finance giants Fannie Mae and Freddie Mac will not be allowed to fail.

In other news, Jesus yesterday easily approved legislation that seeks to turn water into wine.

"They Think Foot Massage Must Be Something To Do With Sex"

kmw@reason.com (Katherine Mangu-Ward) — Mon, 21 Jul 2008 17:30:00 EDT

A crackdown on Chinese foot massage parlors is underway in Los Angeles: "Authorities have raided about a dozen foot massage parlors in recent months, from San Gabriel to Rowland Heights, charging operators and masseuses with fines of up to $1,000."

Which is weird really, because if you think about it, who needs a cheap foot massage more than a jackbooted thug?

An attorney representing a new association of foot massage parlor owners has argued that the industry employs more than 1,000 people—many of the poorest Chinese emigres hoping to establish a foothold in the United States.

So is it protectionism? Or prudery?

"They think foot massage must be something to do with sex," [shop owner Ching] Lau said. "They don't understand how popular this is in Asia. It's part of Chinese culture."

More on the thuggery of cosmetologists here and here.

Via Virginia Postrel's Dynamist blog.

Apocalypse Forever

matt.welch@reason.com (Matt Welch) — Mon, 21 Jul 2008 09:30:00 EDT

Convinced America is going into the shitter? Tempted to buy into the recent rise of rise-and-fallism? Make sure you first read this great little World Affairs Journal survey by Georgetown professor Robert Lieber of retrospectively inaccurate and sometimes comical American "declinism." A sample:

It was in the 1970s that declinism began to take on its modern features, following America's buffeting by oil shocks and deep recessions, a humiliating withdrawal from Vietnam, victories by Soviet-backed regimes or insurgent movements in Africa, Central America, and Southeast Asia, and revolution in Iran along with the seizure of the U.S. embassy there. A 1970 book by Andrew Hacker also announced The End of the American Era. At the end of the decade, Jimmy Carter seemed to give a presidential stamp of approval to Hacker's diagnosis when he used concerns about a flagging American economy, inflation, recession, and unemployment as talking points in his famous "malaise" speech calling for diminished national expectations.

By the early 1980s, declinism had become a form of historical chic. In 1987, David Calleo's Beyond American Hegemony summoned the U.S. to come to terms with a more pluralistic world. In the same year, Paul Kennedy published what at the time was greeted as the summa theologica of the declinist movement-The Rise and Fall of the Great Powers, in which the author implied that the cycle of rise and decline experienced in the past by the empires of Spain and Great Britain could now be discerned in the "imperial overstretch" of the United States. But Kennedy had bought in at the top: within two years of his pessimistic prediction, the Cold War ended with the Soviet Union in collapse, the Japanese economic miracle entering a trough of its own, and U.S. competitiveness and job creation far outpacing its European and Asian competitors.

Link via Opinion L.A.

What's the Matter With the What's the Matter With Kansas Guy Busting Phil Gramm's Chops for Valorizing the Common Midwest Man Years Before Coining "Nation of Whiners"?

matt.welch@reason.com (Matt Welch) — Thu, 17 Jul 2008 18:47:00 EDT

Tim Cavanaugh spells it out, using the old-timey tactic of reporting, over at the not-downsized-yet Opinion L.A. blog.

Ann Coulter on the Roots of the Financial "Meltdown": "Former frat boys and pinko professors"

gillespie@reason.com (Nick Gillespie) — Thu, 17 Jul 2008 10:45:00 EDT

Alan Vanneman blogs a Human Events-related sales pitch from truthteller Ann Coulter:

"If you've been wondering why the financial industry has been in meltdown—and taking your 401(k) or investment portfolio down with it—now you know.

Let's face it: The former frat boys who populate Wall Street today understand economics about as well as the pinko professors whose courses they snored through.

That's why betting their entire industry on "subprime" loans to people with no jobs and no collateral made sense to them—and why betting the entire U.S. economy on the likes of Hillary and Obama makes sense to them now.

These jokers don't even know what's in their own self-interest, much less yours. Trusting them with your money is like trusting Bill Clinton to babysit your underage niece."

More here.

I'm not sure I understand, much less agree with, Coulter on financial markets, but is it wrong of me to want her to replace Ben Bernanke at the Fed?

Jesus Christ's Savior Role Spurs Questions of Overreach

matt.welch@reason.com (Matt Welch) — Thu, 17 Jul 2008 10:01:00 EDT

In a front-pager with the promising headline of "Fed's Crisis Role Spurs Questions of Overreach," the Washington Post casually tosses off this paragraph-two axiom:

In the past few months, Fed Chairman Ben S. Bernanke has burst through long-standing boundaries on what the Fed does. Bernanke's actions − many taken reluctantly − have repeatedly pulled the world from the brink of financial catastrophe[.]

Really? Bernanke has saved not just the United States but the world from multiple financial catastrophes? I wonder which ones in particular, and how a newspaper goes about confirming such a thing as incontrovertible fact?

When Bernanke took the reins at the Fed, Senior Editor Brian Doherty assembled a team of worthies to ask: Can we bank on the Federal Reserve?

Rough Ridin' on Economic Policy

matt.welch@reason.com (Matt Welch) — Thu, 17 Jul 2008 09:49:00 EDT

Over at the National Review, historian Michael Knox Beran offers a tart rejoinder to those contemporary politicians who would offer Teddy Roosevelt as their role model. Some snippets:

The Hepburn Act of 1906, for which he worked lustily, strengthened the Interstate Commerce Commission's grip on the railways − a step that led eventually to the dilapidation of the railroads and to Amtrak.

As for the 1906 Food and Drug Act, which established the FDA, its principal beneficiaries (so Milton and Rose Friedman contend in Free to Choose) were the meat-packers, who were glad to have taxpayer-subsidized help in ensuring the quality of their cattle.

Roosevelt's dance with the command economy culminated in his "New Nationalism" manifesto. In the suitably visionary precincts of the John Brown Cemetery in Osawatomie, Kansas, on a hot day in August 1910, the ex-president mounted the tripod and lamented, in lugubrious and apocalyptic tones, the "absence of effective state" in America. He called for a paternalist form of government that would "control the mighty commercial forces" of the Republic. [...]
Roosevelt argued that laissez-faire economics had been superseded by a new, more efficient gospel of administrative supremacy. Edmund Morris, who in Theodore Rex was manifestly hypnotized by his hero's sound and fury, argued that "the outdated system of laissez-faire ... was accelerating out of control." So, at any rate, Roosevelt believed. Rather than use government to promote freer, more competitive markets, he used it to promote government itself. The state, not the market place, was his ideal.

Five years ago in reason, Michael McMenamin made the case for T.R.'s foreign policy record being one of admirable restraint.