New School Politics

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Arnold Kling of EconLog writes:

From my point of view, the first-best world is one with (i) open borders and (ii) limited government. One argument against (i) is that it would eventually undermine (ii)…

However, I can think of a number of reasons that the correlation between (i) and (ii) could be positive rather than negative. For tyrants, open borders would offer a powerful check on power. Robert Mugabe would have a harder time exploiting his people if they all just got up and left. Our own government would be smaller if we said that its job did not include interfering with peaceful transactions between American employers and non-American-born employees…

Kling offers a stance on immigration that both parties in America are currently sidestepping. On one hand the GOP would never think of providing (illegal) immigrants with entitlements, but they also want to retard immigration and criminalize all undocumented immigrants. On the other hand the Democrats want liberalized immigration but they are also more than willing to give social services to all kinds of immigrants at the same time. At the same time neither party offers a true free market solution.

The free market solution to immigration should encompass (a) liberalized immigration restrictions and (b) no welfare benefits for undocumented immigrants. I have no problem with “illegals”. Their added labor puts more muscle power as well as mind power into the system, while–as long as (b) holds true, and they do not receive vast amounts of social welfare–they drain nothing from it.

Open borders are a pure sign of freedom, so it is troubling that there is currently such ill-will in America towards it. As Kling implies, it is indicative of a dictator to close borders to keep people in (i.e. Soviet Union), but it is also authoritarian to close borders to keep them out. In a free country people should be able to move freely not just within its borders but across them too.

Some may warn, that if we allow too many of a certain demographic (in our case Hispanics) to come, they could eventually sway the policies of our country in the direction of their native governments (i.e. bigger). There are two ways of preventing that–and it certainly must be prevented. (A) Don’t give many of them citizenship. Just because they should be able to come here freely doesn’t mean that we should sacrifice to accommodate them. They can stay here but they need not be citizens; this way they can neither vote nor collect public welfare benefits. (B) There should be provisions written into the law to prevent the government from becoming to big. Perhaps the founders would have been upset with how far their successors have stretched the elastic clause, but the fact of the matter is that there could be greater specifications limiting the size of our government. (For instance: “The Federal Budget may not grow above 15% of GDP…” etc.)

Additionally, open borders provide capital mobility, which is of great benefit to the market. If we can have mobility of inanimate capital (in the form of imports, exports, outsourcing, insourcing, etc.), we should have mobile human capital. Free trade and free markets should include freer immigration, shouldn’t it? As I see it, it would only make our economy stronger.

Popularity: 66% [?]

Here is a cool article on Senator Tom Coburn from Oklahoma who is the most steadfast of small government advocates in the Senate. I dont agree with him on many issues due to his Christian Conservative proclivity, however you’ve gotta love his conviction, his refusal to compromise, and especially the fact that he drives most of his colleagues nuts.  

Popularity: 44% [?]

In the past week the Federal reserve has inflated the money supply first by injecting more liquidity into the system through Open Market Opperations and then by cutting the discount rate on Friday. Many also expect Bernake to cut the Federal Funds Rate when the Fed meets next month by one, maybe even two, base points. Not surprisingly this move was applauded by many, especially Wall Street which rallied over 2% on Friday.

Recent Fed policy worries me however. While Bernake’s most recent reactions have been masqueraded as remedial they are truly just more of the poisen that is causing the market readjustment that we are currently experiencing. The problem currently being experienced has arrised from overly exuberant investments, especially in Real Estate, that have been spurred by very low interest rates. Currenly many of those investments are being back-tracked as companies realized that they were overly risky and too costly to be supported by the economy’s time preferences.

As I have said before, for interest rates to be as low as they have been capital accumulation should have been equally as impressive. To the contrary, savings have been very low meaning that a shortage of loanable funds is currently being realized on Wall Street. Loose monetary policy from the Fed is not the solution to the problem; it is the problem. 

Popularity: 23% [?]

From the AP:

Addressing a town-hall meeting in Iowa, the former New York mayor was asked whether he considered himself a “traditional, practicing Roman Catholic.” An audience member also called on Giuliani to discuss the role his faith played in making decisions on issues such as abortion.

“My religious affiliation, my religious practices and the degree to which I am a good or not so good Catholic, I prefer to leave to the priests,” Giuliani said. “That would be a much better way to discuss it. That’s a personal discussion and they have a much better sense of how good a Catholic I am or how bad a Catholic I am.”

In a political realm where religion is becoming increasingly important to voters, the fact that a major candidate is declining to inject his religious leanings into the debate is encouraging. The rise of religion in politics has greatly affected government, and its influence has become so immense that even the Democrats find themselves pandering to religious voters. Additionally, the rise of evangelical conservatism has corresponded with the rise of big government conservatism which has been a large contributor to the increase in the size of government since the ’80s (and especially under President Bush). It was exactly the religion factor that led Senator Barry Goldwater, Mr. Conservative himself, to become so disenchanted with the Republican Party in his later years.

The problems with religion in politics are manifold and those problems will persist whether or not we go to the particular extreme of establishing a state religion. However the root of those problems can be summed up in the fact that reason is always a better tool for solving such existential problems like issues of government policy that affect hundreds of millions–if not, billions–of people.

Quite frankly, I cannot understand anyone’s rationale for worrying about a candidate’s religious affiliation. Do voters such as the one in Iowa really think that God will favor America more if we elect a President of a certain denomination? The bottom line is that faith and politics make for a dangerous combo while secular politics have proven to result in far greater freedom over the course of history. It is a pleasure to see that at least one candidate for leader of the free world is not trying to prove that he (or she) is the “Jesus candidate”.   

Popularity: 41% [?]

Often we hear populist politicians complaining about both the trade deficit as well as the outsourcing of jobs. They say that both are problems that face the American economy, but can that be true? The trade deficit signifies an inflow of capital–from foreign markets to the domestic market–while (a net rate of) outsourcing signifies an outflow of human capital.  If there was an inflow of capital in general, wouldn’t there most likely be an inflow of human capital as well? (Overall the insourcing/outsourcing of jobs is very hard to assess and should certainly not be trivialized politically. Here and here data suggests that jobs are being insourced to the US at a higher rate than are outsourced.)

Subsequently, these politicians offer various policy measures to curtail outsourcing as well as narrow the trade deficit. But wouldn’t such policies contradict each other as one pulls for an inflow of resources while the other pushes for a net outflow? And even if these policies achieved there individual and exclusive ends, would they not cause a glut of human capital in the American economy?

I think the answers are pretty clear and that for the sake of balance and equilibrium it is best when market tendencies are determined by the market, not by sensationalist pols.

Popularity: 30% [?]

In last night’s Democratic Presidential debate, Hillary provided one of those lines that’s enough to make any reasonable economist cringe:

CLINTON: … But this issue of energy and global warming has the promise of creating millions of new jobs in America … So it can be a win-win, if we do it right.

Things not seen:

1. The fact that there is only a limited amount of resources in an economy at any given point in time and these “new” jobs would only be coming at the expense of diverting economic resources from other industries to “alternative energies”. Hence these new jobs would be coming at the expense of (a) other jobs that would necessarily be lost in other sectors as well as (b) productivity–because this investment is not warranted by the incentives of the private market but rather from politically manufactured incentives.

2. Intelligent economic commentary from Sen. Clinton.

Popularity: 54% [?]

In an editorial today, the Times criticized Bush administration policies for worsening the state of American savings as well as the dollar:

Over the last several years, America’s imbalances in trade and other global transactions have worsened dramatically, requiring the United States to borrow billions of dollars a day from abroad just to balance its books.

The only lasting way to fix the imbalances — and reduce that borrowing — is to increase America’s savings. But the administration has steadfastly rejected that responsible approach since it would require rolling back excessive tax cuts and engaging in government-led health care reform to rein in looming crushing costs — both, anathema to President Bush. It would also require revamping the nation’s tax incentives so that they create new savings by typical families, instead of new shelters for the existing wealth of affluent families — another nonstarter for this White House.

Stymied by what it won’t do, the administration has gone for a quicker fix — letting the dollar slide. A weaker dollar helps to ease the nation’s imbalances by making American exports more affordable, thus narrowing the trade deficit….

In the absence of leadership from the White House, the presidential candidates could elevate the issue, outlining their own plans to boost savings. But until the administration — either this one or the next — is willing to acknowledge the source of the economy’s imbalances, and starts addressing them seriously, the dollar is likely to remain weak.

Greg Mankiw, the Harvard economist, offers an intelligent critique on his blog.

First of all, I agree with the Times that policies need to be adjusted to account for America’s dismal savings rate. Such reforms should include tax reforms that shift taxation to consumption rather than income, so that greater savings is encouraged, as well as spending cuts–especially entitlements which account for a large portion of the budget, not including the fact that their costs will grow further out of hand.

However, what the Times failed to acknowledge is that an increase in national savings will only make the dollar weaker by virtue of the fact that greater savings means lower interest rates which corresponds to lower exchange rates. Thusly, the inflationary worries associated with a week dollar–that the editorial was worried about–would persist.

But, greater savings putting downward pressure on interest and exchange rates is completely natural and nothing to worry about. While there are certainly imbalances that we need be worried about in our economy, they are not the ones that the Time mentions. Rather the concerning fact is that interest rates are so low and the dollar is weak at the same time that savings is also low. That is truly an imbalance and something to be seriously worried about.

Popularity: 28% [?]

California Senator Dianne Feinstein recently sponsored an amendment to the 2008 Defense Authorization Bill which would close down the Defense Department’s detention center in Guantanamo Bay and prohibit the practice of rendition, in which prisoners are shipped to states whose interrogation techniques are more, well, direct. The effect of the Feinstein Amendment would be to integrate jihadist detainees into the federal prison system where they would receive further legal protections. Presumably, the good folks at the American Bar Association would rush to the defense of these misunderstood individuals and put up a spirited legal defense in the name of the rule of law.

What in fact the Feinstein Amendment shows is that a significant portion of the American legislative community is dangerously ignorant to even the most fundamental aspects of counter-insurgency warfare. If the Feinstein Amendment passes—which, fortunately, it likely will not—al Qaeda and other jihadist groups would be irreparably strengthened in what would be a cataclysmic abdication of all semblance of rational policy.

Reasonable minds can differ on subjects such as Guantanamo Bay and the legal status of jihadist detainees. The legal community, while misguided, can be patriotic while insisting that greater access to legal resources be provided to detainees. What is not patriotic, nor rational, is granting al Qaeda unhindered access to the ideal recruitment demographic on a permanent basis. The unwavering lesson of every insurgency in history is that prison is the ideal recruitment ground for insurgent factions. Prisoners are necessarily in constant communication with each other, and all it takes is one radical to evangelize the message of radicalism amongst a population which is already at odds with the government.

Simply put, there is no better recruiting ground than prison. Every insurgency—from the IRA famously training and conducting exercises behind British prison bars in full defiance of powerless guards, to the terrible school of French Indo-China, to the FLN radicalizing common Algerian criminals against the French, has directly utilized the unparalleled access that prison provides to convert and radicalize its target demographic. If you put members of terrorist cells in standard prisons, they will recruit more followers. There’s no gray area here: either we want to contribute further to the propagation of jihadist ideology or we wish to isolate the Islamist prophets of doom from the general population—especially the segments which would most receptive to these ideas.

The genius of Guantanamo Bay is that it segregates insurgents from the rest of prison population. Individuals in Guantanamo (with the few inevitable exceptions) are already radicalized and consequently no harm is done in detaining them. However, the minute that radical population is mixed with common inmates, the jihadists will have scored a tremendous victory on a scale far greater than September 11^th ever was. If one purposely set out to loose a counter-insurgency, the absolute first thing one would do would be to provide guerrillas the human resources that are the sinews of any insurgency. Senator Feinstein, has, unwittingly, proposed this very thing.

Popularity: 37% [?]

Ht: Barry Day for his comment on “Is Ron Paul Worthy?”

Ron Paul took the liberty to defend his earmarking binge thusly:

Because earmarks are funded from spending levels that have been determined before a single earmark is agreed to, with or without earmarks the spending levels remain the same. Eliminating earmarks designated by Members of Congress would simply transfer the funding decision process to federal bureaucrats rather then elected representatives.

…

The real problem, and one that was unfortunately not addressed in last week’s earmark dispute, is the size of the federal government and the amount of money we are spending in these appropriations bills. Even cutting a few thousand or even a million dollars from a multi-hundred billion dollar appropriation bill will not really shrink the size of government.

Dr. Paul is correct on his second point. The bigger problem is the size of the total budget–mainly entitlements–of which earmarks are a relatively small portion.

His first point, however, is wrong. While it is correct that funding is appropriated before they are earmarked, it is incorrect to suppose that more requests for funds does not contribute to the growth of government.

If fewer congressmen (like Dr. Paul) requested earmarks, and less money, on the whole, was spent on earmarks than was appropriated for them, that money would go idle. Consequently, it would go towards financing other parts of the federal budget, over $200 billion of which is unfunded this year. Therefore, by reducing earmarks we could reduce the federal deficit, which reduces the size of government by reducing the amount of money the government needs to borrow from the private sector.

Also, if fewer congressmen requested earmarks, that would lower the demand for discretionary spending. If that happened, the next year’s amount of funds appropriated for earmarks would be reduced because of the fall in demand. When basic supply and demand is applied to the earmarking process it shows that if Congressmen would restrain their corrupt urges to appease special interests through pork barreling, it would reduce the impetus for earmarking in the future.

Popularity: 60% [?]

Two opinion pieces today, one in the Wall Street Journal and one in the Dallas Morning News, shed some negative light on the libertarian Congressman.

First, a revelation from the WSJ editorial entitled “Ron Paul’s Earmarks” (just the title could strike fear into the heart of any Ron Paul admirer):

After reporters started asking questions, the Congressman disclosed his requests this year for about $400 million worth of federal funding for no fewer than 65 earmarks. They include such national wartime priorities as an $8 million request for the marketing of wild American shrimp and $2.3 to fund shrimp-fishing.

When we called Mr. Paul’s office for an explanation, his spokesperson offered up something worthy of pork legends Tom Delay or Senator Robert C. Byrd: “Reducing earmarks does not reduce government spending, and it does not prohibit spending upon those things that are earmarked,” the spokesperson said. “What people who push earmark reform are doing is they are particularly misleading the public–and I have to presume it’s not by accident.”

On the other hand, good libertarians should want to start cutting somewhere. The problem with earmarking is that each year the habit grows by leaps and bounds so that it now represents real money. It is also a gateway to political corruption–a la Duke Cunningham, and other Congressmen currently under investigation for trading favors for earmarks.

Mr. Paul is one of Congress’ better fiscal conservatives. So the fact that even he feel obliged to grab multiple earmarks is all the more reason to keep fighting for transparency in the earmark process, as well as for the line-item veto, which would give Presidents a chance to impose some spending discipline from outside Congress.

Mr. Paul’s defense is in vain. This does not change the fact that Mr. Paul’s request increases the demand for government appropriation of private funds. The $400 million in frivolous projects proposed by the Texas Congressman is money that is taken from private producers and out of the private market and does nothing more than further erode the private citizens’ economic liberty. 

While Congressman Paul still stands as most in favor of individual liberty on the domestic front among presidential candidates, this development is, at least, troubling. Keep in mind that $400 million is a lot of money, and the day that we all start saying that it is not a large sum, we know that the size of our government has gotten out of hand. If all 535 congressmen got $400 in earmarks for their own constituencies–like Dr. Paul desired–that would amount to a total of over $200 billion in earmarks. I wonder if the Congressman would be in favor of that?

The second editorial mention of Ron Paul was by Mark Davis of the Dallas Morning News:  

File all that under disturbing quirkiness. But it is the Ron Paul take on fighting terror that makes him unfit for even the briefest consideration for the presidency.

In the now-famous May 15 GOP debate in South Carolina, he stood out among the crowded field by blaming America for 9/11. “We’ve been over there,” he lectured. “We’ve been bombing Iraq for 10 years. … What would we say here if China was doing this in our country?”

That phony equivalency rises to the level of sheer moral idiocy, and it doesn’t stop there. Dr. Paul’s longstanding unfortunate tendency is to rope Jesus into his war objections. Today, the notion of going to war to actually prevent additional terrorism strikes him as antithetical to the concept of a “Prince of Peace.”

We should expect sixth-graders to recognize that peace is not the mere cessation of hostilities. Peace is what you get when the good guys win.

Joined by a host of Democrats who clearly do not view America as “the good guys,” Ron Paul has shown he is one of many otherwise respectable Americans wholly unworthy of the White House.

As I have said many times, I have plenty of problems with Dr. Paul’s foreign policy and I think that Davis lists some of them here in an entertaining manner. For one, the origin of hatred for America in the Islamic world is ideological and it goes far deeper than something as nominal as American foreign policy in the post-Cold War era. Try the fact that Islamist believe that God–through his prophet Mohammed–wants Muslims to wage a jihad against all cultures and peoples that do not conform all aspects of their lives to Islam.

The second troubling fact is that he uses–as Davis says–Jesus to justify his foreign policy. My question is, what major war in America’s history could General Christ have won?

Popularity: 75% [?]