SPEAKING of making versus taking, the Washington, DC metro area now
contains seven of America’s ten richest counties. Matt Yglesias of
The simple explanation is that we’ve gone corrupt and decadent,
and as the vitality of the American empire declines its capital grows more
splendid. The more sophisticated explanation, offered by David Leonhardt in
August, is that the DC area is affluent for the same reason the other affluent
parts of America are affluent—a very high share of the population has
college degrees. But that in some ways only pushes the question back a
further step. All these college graduates didn’t end up in DC by
coincidence. Rather, the national economy has transformed in such a way as to
encourage large numbers of educated people to move here in search of work or
because you accepted a job offer.
Mr. Yglesias rightly notes that the capital region’s magnetism to
the well-schooled isn’t entirely a matter of an increasingly
politicized economy. He mentions, for example, the movement of many
publications and journalists to the Washington area as an effect of the
decline of local newspapers in the internet age. But, Mr. Yglesias argues,
...it seems a little implausible to avoid the conclusion that on the
whole the American economy has gotten more deeply invested in
influence-peddling—broadly construed—and that this is driving the
Washington area to the top of the charts.
What, then, are we to make of the fact that the Washington area’s
rising affluence has resulted from an influx of highly-educated workers? If
you refuse to assume that lobbying, lawyering, and contract-seeking generally
create rather than consume wealth, it would appear that many of America’s
best-trained workers are increasingly drawn into enterprises that, on the
whole, take more than they make. Which augurs ill for America’s future.
This implies, moreover, that there is a non-silly
“maker/taker” distinction, but that Mitt Romney has it all wrong.
It’s well and good to worry about welfare dependency, but it’s
rather more important to highlight the economic drag of dependency inherent
in America’s increasingly corporatist political economy. Tim Carney of
the Washington Examiner nails it:
Romney was correct that a portion of America backs President Obama
because they “are dependent upon government” and “believe
that they are entitled.” We even know these dependents’ names:
Duke Energy CEO Jim Rogers, General Electric boss Jeff Immelt, Pfizer lobbying
chief Sally Sussman, Solyndra investor George Kaiser and millionaire lobbyist
Tony Podesta, to list a few.
In the last few years of bailouts, stimulus, Obamacare and government
expansion in general, we have seen median income fall and corporate profits
soar. Industries are consolidating as the big get bigger while the little
guys shut down.
When government controls more money, those with the best lobbyists
pocket most of it. The five largest banks hold a share of U.S. assets 30
percent larger today than in 2006. Also, as Obama has expanded export
subsidies, 75 percent of the Export-Import Bank’s loan-guarantee
dollars in the past three years have subsidized Boeing sales.
Romney, however, wasn’t talking about corporate welfare queens.
He was talking about the 47 percent of the population that pays no federal
If the taker economy has less to do with citizens receiving transfer
payments and rather more to do with crony capitalism (or
“public-private partnership”, as boosters like to put it) and a
rapidly expanding security state that is more parasitical than protective,
then it is not at all clear which major-party presidential candidate is most
on the side of the makers. My hunch is that Mr. Obama is slightly more
corporatist and slightly less militarist than Mr. Romney, but that’s no
more than a hunch. Sadly, I’m confident that the opulence of the
imperial seat will only wax, no matter who deals and doles from the west
SOMETIME in the dark
stretch of the night it happens. Perhaps it’s the chime of an incoming
text message. Or your iPhone screen lights up to alert you to a new e-mail.
Or you find yourself staring at the ceiling, replaying the day in your head.
Next thing you know, you’re out of bed and engaged with the world, once
again ignoring the often quoted fact that eight straight hours of sleep is
You’re not alone. Thanks in part to technology and its constant pinging
and chiming, roughly 41 million people in the United States — nearly a
third of all working adults — get six hours or fewer of sleep a night,
according to a recent report from the Centers for Disease Control and
Prevention. And sleep deprivation is an affliction that crosses economic
lines. About 42 percent of workers in the mining industry are sleep-deprived,
while about 27 percent of financial or insurance industry workers share the
Typically, mention of
our ever increasing sleeplessness is followed by calls for earlier bedtimes
and a longer night’s sleep. But this directive may be part of the
problem. Rather than helping us to get more rest, the tyranny of the
eight-hour block reinforces a narrow conception of sleep and how we should
approach it. Some of the time we spend tossing and turning may even result
from misconceptions about sleep and our bodily needs: in fact neither our
bodies nor our brains are built for the roughly one-third of our lives that
we spend in bed.
The idea that we should
sleep in eight-hour chunks is relatively recent. The world’s population
sleeps in various and surprising ways. Millions of Chinese workers continue
to put their heads on their desks for a nap of an hour or so after lunch, for
example, and daytime napping is common from India to Spain.
One of the first signs
that the emphasis on a straight eight-hour sleep had outlived its usefulness
arose in the early 1990s, thanks to a history professor at Virginia Tech
named A. Roger Ekirch, who spent hours investigating the history of the night
and began to notice strange references to sleep. A character in the
“Canterbury Tales,” for instance, decides to go back to bed after
her “firste sleep.” A doctor in England wrote that the time
between the “first sleep” and the “second sleep” was
the best time for study and reflection. And one 16th-century French physician
concluded that laborers were able to conceive more children because they
waited until after their “first sleep” to make love. Professor
Ekirch soon learned that he wasn’t the only one who was on to the
historical existence of alternate sleep cycles. In a fluke of history, Thomas
A. Wehr, a psychiatrist then working at the National Institute of Mental
Health in Bethesda, Md., was conducting an experiment in which subjects were
deprived of artificial light. Without the illumination and distraction from
light bulbs, televisions or computers, the subjects slept through the night, at
least at first. But, after a while, Dr. Wehr noticed that subjects began to
wake up a little after midnight, lie awake for a couple of hours, and then
drift back to sleep again, in the same pattern of segmented sleep that
Professor Ekirch saw referenced in historical records and early works of
It seemed that, given a
chance to be free of modern life, the body would naturally settle into a
split sleep schedule. Subjects grew to like experiencing nighttime in a new
way. Once they broke their conception of what form sleep should come in, they
looked forward to the time in the middle of the night as a chance for deep
thinking of all kinds, whether in the form of self-reflection, getting a jump
on the next day or amorous activity. Most of us, however, do not treat
middle-of-the-night awakenings as a sign of a normal, functioning brain.
Doctors who peddle sleep
aid products and call for more sleep may unintentionally reinforce the idea
that there is something wrong or off-kilter about interrupted sleep cycles.
Sleep anxiety is a common result: we know we should be getting a good
night’s rest but imagine we are doing something wrong if we awaken in
the middle of the night. Related worries turn many of us into insomniacs and
incite many to reach for sleeping pills or sleep aids, which reinforces a
cycle that the Harvard psychologist Daniel M. Wegner has called “the
ironic processes of mental control.”
As we lie in our beds
thinking about the sleep we’re not getting, we diminish the chances of
enjoying a peaceful night’s rest.
This, despite the fact
that a number of recent studies suggest that any deep sleep — whether
in an eight-hour block or a 30-minute nap — primes our brains to
function at a higher level, letting us come up with better ideas, find solutions
to puzzles more quickly, identify patterns faster and recall information more
accurately. In a NASA-financed study, for example, a team of researchers led
by David F. Dinges, a professor at the University of Pennsylvania, found that
letting subjects nap for as little as 24 minutes improved their cognitive
In another study
conducted by Simon Durrant, a professor at the University of Lincoln, in
England, the amount of time a subject spent in deep sleep during a nap
predicted his or her later performance at recalling a short burst of melodic
tones. And researchers at the City University of New York found that short
naps helped subjects identify more literal and figurative connections between
objects than those who simply stayed awake.
Robert Stickgold, a
professor of psychiatry at Harvard Medical School, proposes that sleep
— including short naps that include deep sleep — offers our
brains the chance to decide what new information to keep and what to toss.
That could be one reason our dreams are laden with strange plots and
characters, a result of the brain’s trying to find connections between
what it’s recently learned and what is stored in our long-term memory.
Rapid eye movement sleep — so named because researchers who discovered
this sleep stage were astonished to see the fluttering eyelids of sleeping
subjects — is the only phase of sleep during which the brain is as
active as it is when we are fully conscious, and seems to offer our brains
the best chance to come up with new ideas and hone recently acquired skills.
When we awaken, our minds are often better able to make connections that were
hidden in the jumble of information.
Gradual acceptance of
the notion that sequential sleep hours are not essential for high-level job
performance has led to increased workplace tolerance for napping and other
alternate daily schedules.
Employees at Google, for
instance, are offered the chance to nap at work because the company believes
it may increase productivity. Thomas Balkin, the head of the department of
behavioral biology at the Walter Reed Army Institute of Research, imagines a
near future in which military commanders can know how much total sleep an
individual soldier has had over a 24-hour time frame thanks to
wristwatch-size sleep monitors. After consulting computer models that predict
how decision-making abilities decline with fatigue, a soldier could then be
ordered to take a nap to prepare for an approaching mission. The cognitive
benefit of a nap could last anywhere from one to three hours, depending on
what stage of sleep a person reaches before awakening.
Most of us are not
fortunate enough to work in office environments that permit, much less smile
upon, on-the-job napping. But there are increasing suggestions that greater
tolerance for altered sleep schedules might be in our collective interest.
Researchers have observed, for example, that long-haul pilots who sleep
during flights perform better when maneuvering aircraft through the critical
stages of descent and landing.
Several Major League
Baseball teams have adapted to the demands of a long season by changing their
sleep patterns. Fernando Montes, the former strength and conditioning coach
for the Texas Rangers, counseled his players to fall asleep with the curtains
in their hotel rooms open so that they would naturally wake up at sunrise no
matter what time zone they were in — even if it meant cutting into an
eight-hour sleeping block. Once they arrived at the ballpark, Montes would
set up a quiet area where they could sleep before the game. Players said
that, thanks to this schedule, they felt great both physically and mentally
over the long haul.
Strategic napping in the
Rangers style could benefit us all. No one argues that sleep is not
essential. But freeing ourselves from needlessly rigid and quite possibly
outdated ideas about what constitutes a good night’s sleep might help
put many of us to rest, in a healthy and productive, if not eight-hour long,
David K. Randall is a
senior reporter at Reuters and the author of “Dreamland: Adventures in
the Strange Science of Sleep.”
Economic freedom in the world is near an
all-time high, but in the U.S. it’s been on the wane, according to the
Fraser Institute. What went wrong and what went right.
Good news about the
world; relatively bad news about the U.S.
The world index of
economic freedom, calculated as an average for more than 100 countries,
reached a peak in 2007, and through 2010 it remains near its all-time high.
But while the U.S. is still ranked above the world average, the 10-year trend
is down. From a 2000 peak of 8.65 it has been in free fall, reaching a 2010
low of 7.70, not far above its 1970 level of 7.60.
Economic freedom in the
U.S. may have slipped in recent years, but it’s still a key draw for
The economic freedom
index, as calculated by the British Columbia-based Fraser Institute, has a theoretical
maximum of 10. Hong Kong, consistently No. 1, scored 8.90 in 2010, according
to data released last week.
The five components of
the freedom index are size of government; the legal system and security of
property rights; sound money; freedom to trade internationally; and the level
of regulation of credit, labor and business. All five are weighted equally.
A range of academic
research has shown a connection between a country’s increase in
economic freedom and its rate of economic growth. Accordingly, in each of the
three decades from 1970 through 2000, U.S. growth averaged more than 3% a
year, when economic freedom was rising. From 2000 through 2010, when economic
freedom was falling, growth ran less than 2%, even if we factor out the hit
to growth from the ‘08-’09 recession.
The U.S. has the dubious
distinction of suffering one of the biggest declines since 2000, along with
countries that include Argentina, Iceland, and Venezuela. An approximately
similar level of economic freedom that in 1970 put the U.S. third in world
ranking, behind only Hong Kong and Singapore, leaves it 19th in the world as
of 2010. That’s down from second in 1995 and eighth in 2000 (see
chart). Countries the U.S. now trails in economic freedom include Australia,
Canada, Chile, Denmark, Finland, New Zealand, Switzerland, and the United
The biggest gainers
since 2000 include such African nations as Ghana, Malawi, and Rwanda, and
formerly Communist Albania, Bulgaria, Poland, and Romania. China is still
ranked in the lower half of nations. But the world’s most populous
country has still made a great leap forward in economic freedom since 1980,
reaching a peak in 2010. Hundreds of millions of Chinese have climbed out of
poverty over this same period.
economic freedom is not about the privileges of the few, but the
opportunities of the many. In terms of income distribution, the share of
income going to the poorest 10% bears no statistical relation to whether a
country is less free or more free. But the incomes of the poorest 10% are
exponentially higher in freer countries than in the less free. China’s
income inequality is greater than it was 40 years ago, but ordinary citizens
live far better today.
immigrants who came to the U.S. a century ago could hardly know or care
whether this country had a more unequal distribution of income than the one
they were leaving, any more than immigrants to the U..S. care about such
SURPRISING THAT the countries in the European Union whose economic freedom
has lost ground over the past 10 years include the troubled economies of
Portugal, Ireland, Italy, Greece, and Spain. But of the five, Ireland now
ranks somewhat higher than the U.S., mainly because it does better in terms
of security of property rights and freedom to trade internationally.
Denmark and Finland also
edge out the U.S. in economic freedom, and Sweden and Norway rank in the top
quartile, contrary to their image as socialist. While all four Scandinavian
countries score low in terms of size of government, all score relatively high
on the other four components of economic freedom.
What about trends in the
U.S.? From 1970 through 2000, all five components of the freedom index rose;
since 2000, all five have declined, with special weakness in the
effectiveness of the legal system and property rights. One example Fraser
analysts cite is the violation of the property rights of bondholders in the
bailout of General Motors.
The rise in economic
freedom from 1970 through 2000 was a bipartisan effort; the decline since
2000 has been equally bipartisan. Whatever the new mix of power in Washington
after November, let’s hope the furtherance of economic freedom is high
on the list of priorities.
9/20/2012: NEW: Yes, we can break public-employee pensions By
First on a series on public pensions.
The politicians in charge of “doing something” about the
ongoing California pension debacle like to play a little game. It goes like
this: They decry the high costs of pensions that have already been granted,
pretend to want to do something to rein in future pension obligations, and
then turn their hands up and shrug that there is really nothing they can do
about current pensions (including, cough cough, their own) — since,
after all, pensions are contracts, and therefore they are protected by the
But there is a problem with this self-serving assertion: Even if
politicians’ pensions are contracts protected by the Constitution, they
are still breakable. In pretending otherwise, the politicians are lying. In
other words, merely noting that pensions are contracts protected by the
Constitution is not the end of analysis, but only the beginning, for all
contracts are breakable, and all constitutional rights are subject to limits.
When, not if, state and local governments begin dishonoring the highest
public pensions, there will be, obviously, a huge blizzard of litigation. And
when those cases are heard, some of the following basic concepts of contract
law may be applicable. (Note: My purpose here is not to write a treatise on
contract law, nor to predict the course and outcome of future litigation. My
purpose is simply to show the lay person that there are several possible
theories under contract law under which governments might be able to reduce
the highest existing pensions rather than go bankrupt.).
All contracts are breakable, if you have a legally valid reason for
breaking them. For example, if a used-car salesman sells a car to a
10-year-old, the contract can be broken on the basis that the 10-year-old
didn’t have the legal capacity (age) to sign a binding contract in the
first place. And all constitutionally protected rights, including contract
rights, are nonetheless limited by finite resources. For example, your right
to a fair trial does not mean that the government has to hire the entire
Harvard Law School faculty to defend you in your shoplifting case. Society
can’t afford it.
Regarding public pensions, the best and most obvious legal ground under
contract law to get out of onerous pension obligation may be mistake of fact.
The legal rule goes like this: If you make a contract while holding a belief
that isn’t true, you can get out of the contract. For example, you make
a deal to buy a Picasso for a million dollars, but it turns out that the
painting is not a Picasso. You can get out of the deal. (Under the mistake
doctrine, both sides have to be making the same mistake. If only one side is
mistaken and the other side knows the truth, you may still be able to get out
of the contract under a different theory, such as fraud; more below.)
Regarding high public pensions, the mistake that was made was simple,
fundamental, and huge: the supersize pensions that began to appear in the
1990s were justified on the grounds that pension funds “would”
generate average annual returns of 7.5 to 8 percent or more into the future,
forever. This has turned out to be, ahem, not true.
The infamous SB 400, that then-Gov. Gray Davis signed into law in 1999,
and which gave retroactive pension raises to state employees, including
already-retired state employees, was sold by the California Public Employee
Retirement System to the Legislature with lie after lie after lie — or
“mistake” after “mistake” after
“mistake,” if you prefer. The CalPERS “analysis” that
was “presented to” (perpetrated on?) the Legislature implicitly
assumed that the Dow Jones Industrial Average would be at 25,000 by 2009, and
28,000,000 by 2099. On the morning of Sept. 20, it is at 13,556.
Proving the existence of and reliance on the mistake(s) ought to be a
lark. After all, a great deal of time, money, and work went into creating the
rosy projections that were used to bamboozle government into granting the
unsustainable pensions. Were the mistakes made regarding future stock market
returns mutual? Well, the government certainly made a mistake on behalf of
the taxpayers. How about the public employees? Who knows? However, as a
practical matter it is very hard to see how they would go in to court and
say, “We were not mistaken as to future stock market returns. We knew
full well that the projections were a joke and that CalPERS was lying.”
The second big legal ground to get out of pensions is impossibility of
performance. If events make it impossible for you to perform the contract,
then you can get out of it. For example, you contract to sell your car, but
before you deliver, it is destroyed by lightning. Regarding pensions, the
argument would be simply that the state and local governments have gone
bankrupt since the pensions were granted. In that event, the pensions could
be modified to match the ability of government to pay them.
The third possibly applicable doctrine is known in contract law as
consideration: for a contract to be legally binding, there has to be
something of value promised, on both sides. For example, if I promise to give
you a million dollars, and you promise to take three breaths between the
hours of 1:00 p.m. and 2:00 p.m. next Tuesday, there is no mutuality of
consideration, since I am giving something up and you are not. The contract
In the public pension realm, one obvious place where the consideration
doctrine would come into play would be SB 400, the 1999 retroactive pension
increase. Since some of the workers who received retroactive pension
increases were already retired, they obviously could not promise or give
anything at all in exchange for the money, and indeed they did not.
Therefore, at least in regard to these already retired workers, there was a
complete absence of consideration. (A similar argument can be made not on
contract law, but on Article 16 Section 6 of the California Constitution,
prohibiting the giving away of public funds.)
A fourth possible ground for breaking managements’ pensions is
fraud: If CalPERS or any of the other groups pushing big pensions knew that
the pensions would not be self-funding and would require massive infusions of
taxpayer cash, and they did not divulge that information, then any such
pensions obtained on the basis of such fraudulent disinformation would be
voidable. Moreover, widespread and undisclosed self-dealing might qualify as
fraud. For example, CalPERS officials, as public employees, themselves
benefitted from the huge pension increases granted in 1999, and they did not
disclose to the legislature that they would benefit.
Another contract doctrine which might be used to break onerous pensions
is “unconscionability,” which means simply that a contract is so
one-sided that it is just unfair to enforce it against the disadvantaged
party. While normally this doctrine is applied to consumer contracts, some of
the factors courts look to in weighing claims of unconscionability —
such as whether the parties had equal bargaining power, whether the contract
makes a one-sided allocation of risk (for example, where the taxpayers have
to pick up the tab, all the tab, in the event that the Dow does not hit
25,000 by 2009, ha-ha) — are applicable to public employee pensions, as
Finally, one more area of contract law might be used to break the
pensions: lack of capacity to contract. If you are drunk or insane, for
example, you cannot sign a contract to buy a house. In the public pension
context, the lack of capacity would be a little more subtle (maybe;
hopefully). For example, if you are under duress, being threatened to get you
to sign a contract, that could qualify as a lack of capacity, since you lack
Steven Greenhut and others have written recently about bullying
tactics, including the attempt to frame a city councilman for DUI, being used
in Costa Mesa to get local officials to see things the public
employees’ way. Testimony about such incidents could nullify the contracts
Similarly, if you were being bribed to sign a contract, that too would
qualify as a lack of capacity, since you would not be acting in your capacity
as a fiduciary to the public, but rather in your private capacity as a
criminal. Another way to look at it is that if you are a manager sitting at a
table “negotiating” a pension increase that will benefit not just
the parties across the table but yourself as well, you may not be acting
within the scope of your employment as a public official, but instead acting
on your own behalf. Therefore, you do not have the legal capacity to act to
bind the public to pay for your self-dealing little scheme, since you are not
at that moment acting as a public official. Needless to say, were the courts
to start taking bribery and self-dealing seriously, they could nullify a lot
To sum up: There are a great many helpful doctrines under contract law
that could be used to break onerous public pensions. These legal arguments
are strongest against the very top pensions, because they are the most
unconscionable, they are the least possible to continue to pay, and they are
the most likely to have been the result of self-dealing or bribery.
Therefore, the legal grounds for attacking the biggest pensions,
managements’ pensions, coincide nicely with the public policy grounds
of wanting to go after only the largest, most abusive pensions, and not the
pensions of the retired school teacher or janitor.
Next article in this series: A Political Path to Breaking Pensions
Mark Cabaniss is an attorney from Kelseyville. He has worked as a
prosecutor and public defender.
An airplane was in trouble; there were 5 passengers on board, but
only 4 parachutes.
The first passenger,
Sarah Palin said, “I have my own reality show and I am the smartest
woman in American history, so America’s people don’t want me to
die.” She took the first parachute pack and jumped out of the plane.
The second passenger,
John McCain, said, “I’m a United States Senator and a decorated
war hero from an elite Navy unit.” So he grabbed the second pack and
The third passenger,
Barack Obama said, “I am the President of the United States and I am
the smartest President ever in the history of our country, some even call me
the ‘One’ or the ‘Annointed One.’” So he
grabbed the pack next to him and jumped out.
The fourth passenger,
Billy Graham said to the fifth passenger, a 10-year-old schoolgirl, “I
have lived a full life and served my God the best I could. I will sacrifice
my life and let you have the last parachute.”
The little girl said,
“That’s okay Mr. Graham. There’s still a parachute left for
you... America ‘s smartest President took my schoolbag.”
9/11/2012: “Never forget” is the common reminder of
9/11. But how many people really have forgotten? How many people have forgotten that 19 Muslim
males, all between the ages of 18 and 45 (which describes 99%+ of all
terrorists) tried to fly four commercial jets into politically symbolic
targets, three successfully, and killed more than 3,000 people. So today, we
have a multi-billion dollar bureaucracy (TSA) that routinely and intrusively
searches almost everyone who boards a plane, even though the likely
terrorists (Muslim males, all between the ages of 18 and 45) are a fraction
of one percent of all airline passengers. And far too many (including the current
and former Presidents of the United States) are willing to overlook this fact
and are more concerned with not offending Muslims than protecting Americans.
How about we try something new? Liberty. Let
law-abiding Americans carry weapons on board commercial planes. 10-15 armed
citizens (with special ammunition that will not pierce the hull of the plane)
will prevent any future such hijacking and will let us get rid of tens of
thousands of the parasites working for TSA and same tens of billions of
9/11/2011: Obama is like a doctor who tells an obese patient to
eat even more to
keep up his strength. Romney is like a doctor who tells an obese patient to
just slow down the increase of his caloric intake. Gary Johnson [Libertarian
candidate for President] is the only one of the three who suggests the
patient actually lose weight.
Former president Bill
Clinton told the Democratic National Convention that Barack Obama has a plan
to rescue the economy, and only the fact that the Republicans stood in his
way has stopped him from getting the economy out of the doldrums.
From all this, and much
else that is said in the media and on the campaign trail, you might think
that the economy requires government intervention to revive and create jobs.
It is Beltway dogma that the government has to “do something.”
History tells a
different story. For the first 150 years of this country’s existence,
the federal government felt no great need to “do something” when
the economy turned down. Over that long span of time, the economic downturns
were neither as deep nor as long lasting as they have been since the federal
government decided that it had to “do something” in the wake of
the stock market crash of 1929, which set a new precedent.
One of the last of the
“do nothing” presidents was Warren G. Harding. In 1921, under
President Harding, unemployment hit 11.7 percent -- higher than it has been
under President Obama. Harding did nothing to get the economy stimulated.
Far from spending more
money to try to “jump start” the economy, President Harding
actually reduced government spending, as the tax revenues declined during the
This was not a matter of
absent-mindedly neglecting the economy. President Harding deliberately
rejected the urging of his own Secretary of Commerce, Herbert Hoover, to
The 11.7 percent
unemployment rate in 1921 fell to 6.7 percent in 1922, and then to 2.4
percent in 1923. It is hard to think of any government intervention in the
economy that produced such a sharp and swift reduction in unemployment as was
produced by just staying out of the way and letting the economy rebound on
Bill Clinton loudly
proclaimed to the delegates to the Democratic National Convention that no
president could have gotten us out of the recession in just one term.
But history shows that
the economy rebounded out of a worse unemployment situation in just two years
under Harding, who simply let the market revive on its own, as it had done
before, time and time again for more than a century.
happened under Ronald Reagan. Unemployment peaked at 9.7 percent early in the
Reagan administration. Like Harding and earlier presidents, Reagan did
nothing, despite outraged outcries in the media.
The economy once again
revived on its own. Three years later, unemployment was down to 7.2 percent
-- and it kept on falling, as the country experienced twenty years of
economic growth with low inflation and low unemployment.
The Obama party line is
that all the bad things are due to what he inherited from Bush, and the few
signs of recovery are due to Obama’s policies beginning to pay off.
But, if the economy has been rebounding on its own for more than 150 years,
the question is why it has been so slow to recover under the Obama
proliferation of anti-business interventions by government, and the sight of
more of the same coming over the horizon from Barack Obama’s appointees
in the federal bureaucracies, creates the one thing that has long stifled
economic activity in countries around the world -- uncertainty about what the
rules of the game are, and the unpredictability of how specifically those
rules will continue to change in a hostile political environment.
Both history and
contemporary data show that countries prosper more when there are stable and
dependable rules, under which people can make investments without having to
fear unpredictable new government interventions before these investments can
A great myth has grown
up that President Franklin D. Roosevelt saved the American economy with his
interventions during the Great Depression of the 1930s. But a 2004 economic
study concluded that government interventions had prolonged the Great
Depression by several years. Obama is repeating policies that failed under
Despite demands that
Mitt Romney spell out his plan for reviving the economy, we can only hope
that Governor Romney plans to stop the government from intervening in the
economy and gumming up the works, so that the economy can recover on its own.
Last Friday’s jobs
report does not tell the whole unemployment story, according to American
Enterprise Institute blogger and CNBC contributor James Pethokoukis.
He writes, “If the
labor force participation rate was the same as when Obama took office in
January 2009, the unemployment rate would be 11.2%.”
Had the participation
rate remained the same as the previous month, Pethokoukis points out,
“the unemployment rate would be 8.4 percent” — higher than
the 8.1 percent in the August report.
Those who have returned
to work amidst the meager recovery are often only finding jobs that are
part-time and pay less than what they formerly earned.
“The broader U-6
unemployment rate, which includes part-time workers who want full-time work,
is at 14.7 percent.”
Today, one in two are
considered low income or below the poverty line, according to the Census
Bureau, sparking fears of a shrinking middle class.
Record numbers of
Americans receive food stamps and Social Security disability insurance,
instead of seeking jobs that seem to be non-existent.
According to some
accounts, the true unemployment rate is just below 19 percent. Fewer people
are working today than worked in 2001.
The most recent jobs
report noted that unprecedented number of Americans “not in the
civilian labor force,” according to the U.S. Department of Labor.
simply dropped out of the labor force last month and did not even look for a
job” in August, writes CNS News. According to Reuters, the
participation rate is now at its lowest level since September 1981.
“Again, a terribly
anemic report that shows a stagnant economy — not one ready to
boom,” Pethokoukis writes.
In a telling graph,
Pethokoukis plots the unemployment projections made by the Obama
administration, both with the stimulus and without the stimulus. Real
experienced unemployment levels, however, have remained a full two percentage
points higher than projections that include the stimulus.
Despite promises that
unemployment would remain below 8 percent, unemployment has failed to fall
below this number for 43 straight months.
hour. Policy makers need to understand that the most important family
program, the most important social program and the most important economic
program in America all go by the same name: jobs,” wrote Mortimer
Zuckerman, chairman and editor in chief of U.S. News & World Report, in
the Wall Street Journal.
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When businesses feed at
the federal trough, they threaten public support for business and free markets.
build this business—somebody else did.”
So reads a sign outside
a small roadside craft store in Utah. The message is clearly tongue-in-cheek.
But if it hung next to the corporate offices of some of our nation’s
big financial institutions or auto makers, there would be no irony in the
message at all.
surprise us that the role of American business is increasingly vilified or
viewed with skepticism. In a Rasmussen poll conducted this year, 68% of
voters said they “believe government and big business work together
against the rest of us.”
Businesses have failed
to make the case that government policy—not business greed—has
caused many of our current problems. To understand the dreadful condition of
our economy, look no further than mandates such as the Fannie Mae and Freddie
Mac “affordable housing” quotas, directives such as the Community
Reinvestment Act, and the Federal Reserve’s artificial, below-market
Far too many businesses
have been all too eager to lobby for maintaining and increasing subsidies and
mandates paid by taxpayers and consumers. This growing partnership between
business and government is a destructive force, undermining not just our
economy and our political system, but the very foundations of our culture.
With partisan rhetoric
on the rise this election season, it’s important to remind ourselves of
what the role of business in a free society really is—and even more
important, what it is not.
The role of business is
to provide products and services that make people’s lives
better—while using fewer resources—and to act lawfully and with
integrity. Businesses that do this through voluntary exchanges not only
benefit through increased profits, they bring better and more competitively
priced goods and services to market. This creates a win-win situation for
customers and companies alike.
Only societies with a
system of economic freedom create widespread prosperity. Studies show that
the poorest people in the most-free societies are 10 times better off than
the poorest in the least-free. Free societies also bring about greatly
improved outcomes in life expectancy, literacy, health, the environment and
other important dimensions.
So why isn’t
economic freedom the “default setting” for our economy? What
upsets this productive state of affairs? Trouble begins whenever businesses
take their eyes off the needs and wants of consumers—and instead cast
longing glances on government and the favors it can bestow. When currying
favor with Washington is seen as a much easier way to make money, businesses
inevitably begin to compete with rivals in securing government largess,
rather than in winning customers.
We have a term for this
kind of collusion between business and government. It used to be known as
rent-seeking. Now we call it cronyism. Rampant cronyism threatens the
economic foundations that have made this the most prosperous country in the
We are on dangerous
terrain when government picks winners and losers in the economy by
subsidizing favored products and industries. There are now businesses and
entire industries that exist solely as a result of federal patronage.
Profiting from government instead of earning profits in the economy, such
businesses can continue to succeed even if they are squandering resources and
making products that people wouldn’t ordinarily buy.
Because they have the
advantage of an uneven playing field, crony businesses can drive their
legitimate competitors out of business. But in the longer run, they are
unsustainable and unable to compete internationally (unless, of course, the
government handouts are big enough). At least the Solyndra boondoggle ended
when it went out of business.
By subsidizing and
mandating politically favored products in the energy sector (solar, wind and
biofuels, some of which benefit Koch Industries), the government is pushing
up energy prices for all of us—five times as much in the case of
wind-generated electricity. And by putting resources to less-efficient use,
cronyism actually kills jobs rather than creating them. Put simply, cronyism
is remaking American business to be more like government. It is taking our
most productive sectors and making them some of our least.
The effects on
government are equally distorting—and corrupting. Instead of protecting
our liberty and property, government officials are determining where to send
resources based on the political influence of their cronies. In the process,
government gains even more power and the ranks of bureaucrats continue to
Subsidies and mandates
are just two of the privileges that government can bestow on politically
connected friends. Others include grants, loans, tax credits, favorable
regulations, bailouts, loan guarantees, targeted tax breaks and no-bid
contracts. Government can also grant monopoly status, barriers to entry and
protection from foreign competition.
Whatever form these
privileges take, Americans are rightly suspicious of the cronyism that
substitutes political influence for free markets. According to Rasmussen,
two-thirds of the electorate are convinced that crony connections explain
most government contracts—and that federal money will be wasted
“if the government provides funding for a project that private
investors refuse to back.” Some 71% think “private sector
companies and investors are better than government officials at determining
the long-term benefits and potential of new technologies.” Only 11%
believe “government officials have a better eye for future
To end cronyism we must
end government’s ability to dole out favors and rig the market. Far too
many well-connected businesses are feeding at the federal trough. By
addressing corporate welfare as well as other forms of welfare, we would add
a whole new level of understanding to the notion of entitlement reform.
re-establishes the proper role of business in society, all kinds of benefits
will accrue. Our economy will rebound. Our liberties will be restored. And
when President Obama tells an entrepreneur “You didn’t build
that,” everyone will know better.
Mr. Koch is chairman and
CEO of Koch Industries, Inc., which includes manufacturing and energy-related
Still above 8%—and closer to 19% in a
truer accounting. Here’s a plan for improvement.
Don’t be fooled by
the headline unemployment number of 8.1% announced on Friday. The reason the
number dropped to 8.1% from 8.3% in July was not because more jobs were
created, but because more people quit looking for work.
The number for August
reflects only people who have actively applied for a job in the past four
weeks, either by interview or by filling an application form. But when the
average period of unemployment is nearly 40 weeks, it is unrealistic to
expect everyone who needs a job to keep seeking work consistently for months
on end. You don’t have to be lazy to recoil from the heartbreaking futility
of knocking, week after week, on closed doors.
How many people are out
of work but not counted as unemployed because they hadn’t sought work
in the past four weeks? Eight million. This is the sort of distressing number
that turns up when you look beyond the headline number.
one: 96,000—that’s how many new jobs were added last month, well
short of the anemic 125,000 predicted by analysts, and dramatically less than
the (still paltry) 139,000 the economy had been averaging in 2012.
The alarming numbers
proliferate the deeper you look: 40.7% of the people counted as unemployed
have been out of work for 27 weeks or more—that’s 5.2 million
“long-term” unemployed. Fewer Americans are at work today than in
April 2000, even though the population since then has grown by 31 million.
We are still almost five
million payrolls shy of where we were at the end of 2007, when the recession
began. Think about that when you hear the Obama administration’s talk
of an economic recovery.
The key indicator of our
employment health, in all the statistics, is what the government calls U-6.
This is the number who have applied for work in the past six months and
includes people who are involuntary part-time workers—government-speak
for those individuals whose jobs have been cut back to two or three days a
They are working
part-time only because they’ve been unable to find full-time work. This
involuntary army of what’s called “underutilized labor” has
been hovering for months at about 15% of the workforce. Include the eight
million who have simply given up looking, and the real unemployment rate is
closer to 19%.
In short, the
president’s ill-designed stimulus program was a failure. For all our
other national concerns, and the red herrings that typically swim in
electoral waters, American voters refuse to be distracted from the No. 1
issue: the economy. And even many of those who have jobs are hurting, because
annual wage increases have dropped to an average of 1.6%, the lowest in the
past 30 years. Adjusting for inflation, wages are contracting.
The best single
indicator of how confident workers are about their jobs is reflected in how
they cling to them. The so-called quit rate has sagged to the lowest in
Older Americans can’t
afford to quit. Ironically, since the recession began, employment in the age
group of 55 and older is up 3.9 million, even as total employment is down by
five million. These citizens hope to retire with dignity, but they feel the
need to bolster savings as a salve for the stomach-churning decline in their
net worth, 75% of which has come from the fall in the value of their home
population postponing its exit from the workforce in a recession creates a
huge bottleneck that blocks youth employment. Displaced young workers now
face double-digit unemployment and more life at home with their parents.
Many young couples
decide that they can’t afford to start a family, and as a consequence
the birthrate has just hit a 25-year low of 1.87%. Nor are young
workers’ prospects very good. Layoff announcements have risen from
year-ago levels and hiring plans have dropped sharply. People are not going
to swallow talk of recovery until hiring is occurring at a pace to bring at
least 300,000 more hires per month than the economy has been averaging for
the past two years.
Furthermore, the jobs
that are available are mostly not good ones. More than 40% of the new
private-sector jobs are in low-paying categories such as health care, leisure
activities, bars and restaurants.
We are experiencing, in
effect, a modern-day depression. Consider two indicators: First, food stamps:
More than 45 million Americans are in the program! An almost incredible
record. It’s 15% of the population compared with the 7.9% participation
from 1970-2000. Food-stamp enrollment has been rising at a rate of 400,000
per month over the past four years.
Second, Social Security
disability—another record. More than 11 million Americans are
collecting federal disability checks. Half of these beneficiaries have signed
on since President Obama took office more than three years ago.
These dependent millions
are the invisible counterparts of the soup kitchens and bread lines of the
1930s, invisible because they get their checks in the mail. But it
doesn’t take away from the fact that millions of people who had good
private-sector jobs now have to rely on welfare for life support.
This shameful situation,
intolerable for a nation as wealthy as the United States, is not going to go
away on Nov. 7. No matter who wins, the next president will betray the
country if he doesn’t swiftly fashion policies to address the specific
needs of the unemployed, especially the long-term unemployed.
Five actions are
1. Find the money to
spur an expansion of public and private training programs with proven track
2. Increase access to
financing for small businesses and thus expand entrepreneurial opportunities.
3. Lower government
hurdles to the formation of new businesses.
4. Explore special subsidies
for private employers who hire the long-term unemployed.
5. Get serious about the
long decay in public works and infrastructure, which poses a dramatic
national threat. Infrastructure projects should be tolled so that the users
ultimately pay for them.
It’s zero hour.
Policy makers need to understand that the most important family program, the
most important social program and the most important economic program in
America all go by the same name: jobs.
Mr. Zuckerman is
chairman and editor in chief of U.S. News & World Report.
A version of this
article appeared September 8, 2012, on page A15 in the U.S. edition of The
Wall Street Journal, with the headline: Those Jobless Numbers Are Even Worse
Than They Look.
Yesterday I happened to
tune in on the radio to a fascinating and boring exchange between
conservative talk-show host Sean Hannity and a liberal economist named Austan
Goolsbee, who used to serve on President Obama’s Council of Economic
The exchange was boring,
for me as a libertarian, because it involved the standard solution proposed
by liberals and conservatives to America’s economic woes. At the same
time, it was fascinating because it perfectly epitomized the mindsets of
conservatives and liberals on economic matters.
The two of them were
going at it over whether a Republican or a Democrat president would be better
at managing the economy.
Hannity kept exclaiming
that Obama had broken promises that he had made while campaigning for
president four years ago, such as his promise, if elected, to cut the deficit
in half and to reduce unemployment.
repeatedly respond in the predictable fashion — that Obama could not be
held responsible for breaking his promises because he inherited a horrible
economic situation from the Bush administration.
They just kept going
back and forth with the same basic argument — that Romney would be a
better manager of the economy than Obama and vice versa.
There is no doubt that
both of them considered their exchange to be a very exciting debate and, for
all I know, your standard liberal or conservative would agree. But for me it
was tremendously boring. The only reason I kept listening was because I was
so fascinated over the fact that they obviously thought that their debate was
substantive and exciting.
What fascinated me was
how they both operated under the assumption that their mindsets were
fundamentally different, owing to the fact that each of them took opposite
positions over which presidential candidate would make a better manager of
the economy. The last thing that would ever occur to either of them was that
they actually share the same fundamental mindset when it comes to economic
What do I mean by that?
Imagine a great big box
in which everyone in society is living, including Hannity and Goolsbee.
Society inside the box consists of a massive welfare state,
government-regulated economy, and warfare state, where the president is
charged with running and managing the economy. On the outside of the box is
written “This is a statist box” but Hannity and Goolsbee
can’t see that sign because they’re inside the box. On the walls
inside the box are signs that say, “This is a free-enterprise
system.” Since Hannity and Goolsbee are born and raised within the box,
their mindsets are formed by the signs on the inside of the box, not by the
sign on the outside of the box.
So, for Hannity and
Goolsbee, the economic system under which they live is free-enterprise in
nature, one that needs to be run and managed by the head of the government
— the president. If things go wrong within the box, that’s
because the wrong man is in charge.
man,” exclaims Hannity, “and golden days will be here again
because he’s better able to manage our free-enterprise system than his
responds Goolsbee. “His man’s management of the economy would be
a disaster. Elect my man because he knows how to create jobs better than his
But within the context
of their heated exchange, notice something important here: They both operate
under the same fundamental principle — that the president of a country
should be managing the economy, including creating jobs for the populace, and
that such a system is “free enterprise” in nature.
Why do I find their
exchange so boring? Because like other libertarians, I have broken free of
the box. Unlike liberals and conservatives, whose mindsets are formed by the
“free enterprise” signs inside the box, libertarians see the sign
that appears on the outside of the box, the one that says, “This is a
In other words,
libertarians have a grip on the reality of the situation while liberals and
conservatives operate under a delusion. Ever since America adopted the
welfare-state, regulated-society, warfare-state way of life, Americans began
living within a statist box. But the statists who foisted this alien way of
life on America figured that if they could convince Americans that all this
statism wasn’t really statism at all but rather a simple reform of
America’s free-enterprise system, all would be okay.
But as any psychiatrist
will tell us, clinging to a delusion doesn’t alter reality. Just
because a person who jumps out of a 20th story window is convinced that
nothing will happen to him when he hits the ground, that’s not going to
alter the outcome when he ultimately hits the ground.
By the same token, the
welfare-state, regulated-economy, warfare-state way of life has profound economic
consequences. Over time, it reduces economic prosperity and plunges people
into lower standards of living, regardless of how convinced people are that
this is all really “free enterprise.”
When liberals and
conservatives see those bad economic conditions, it never occurs to them that
the root cause of such conditions is the system itself — the system of
welfarism, regulation, and warfarism. In their minds, the economic problems
are rooted in the fact that the wrong manager is in power. All that people
have to do, they think, is elect “better people” to public office
— i.e., government officials who are better able to manage
America’s “free enterprise” system.
Thus, if America is ever
to get back on the right track, it’s imperative that we confront reality.
The welfare state, the regulated economy, and the warfare state are not free
enterprise. They are not free market. They are not private property. They are
statism. An economic system based on free enterprise, free markets, and
private property is one in which there is the absence of a welfare state,
regulated economy, and warfare state.
Thus, Hannity and
Goolsbee have it all wrong, and their heated “debate” over which
presidential candidate would make a better manager of the economy is a total
waste of time and energy. It doesn’t make any difference whether Obama
or Romney is elected. No matter which one is elected, the economic problems
will continue because the root of the problem is the system itself —
the system of statism that statists foisted on America in the last century.
The only solution to
that problem is not finding a better manager of the statist system, as
Hannity and Goolsbee both believe, but rather to dismantle and repeal the
statist system itself.
Jacob Hornberger is
founder and president of the Future of Freedom Foundation.
Here’s a letter to
the Washington Post:
E.J. Dionne praises
Elizabeth Warren for “presenting government Wednesday not as an
officious meddler in people’s lives but as an ally of families
determined to help their children rise. Government, Warren said, ‘gave
the little guys a better chance to compete by preventing the big guys from
rigging the markets’” (“Bill Clinton’s tutorial on
the need for government,” Sept. 6).
Ignore here the
countless ways that government does meddle in people’s lives not only
officiously but also obnoxiously – actions such as rampant imprisonment
of non-violent drug ‘offenders,’ hiking the cost of food through
agricultural tariffs and other farm programs, and abuse of eminent domain to
enrich large corporations with property confiscated from middle-class
families. Focus instead on the fact that Mr. Dionne’s “Progressive”
view of government really isn’t so progressive. Its premise was known
to, and rejected by, America’s founding generation. Here’s Thomas
Paine: “Almost everything appertaining to the circumstances of a
nation, has been absorbed and confounded under the general and mysterious
word government. Though it avoids taking to its account the errors it
commits, and the mischief it occasions, it fails not to arrogate to itself
whatever has the appearance of prosperity. It robs industry of its honors, by
pedantically making itself the cause of its effects; and purloins from the
general character of man, the merits that appertain to him as a social
Thomas Paine and
America’s other founders were never so naïve about the essence of
government – nor as incognizant about the nature of society – as
are Prof. Warren and Mr. Dionne.
Sincerely, Donald J.
Professor of Economics
George Mason University
Fairfax, VA 22030
* Thomas Paine, Rights
of Man (1792), reprinted in The Essential Thomas Paine, John Dos Passos, ed.
(New York: Longmans, Green and Co., 1940 ), p. 141. Available on line
This is the shabby secret of the welfare
statists’ tirades against gold. Deficit spending is simply a scheme for
the “hidden” confiscation of wealth. Gold stands in the way of
this insidious process. It stands as a protector of property rights. If one
grasps this, one has no difficulty in understanding the statists’
antagonism toward the gold standard. — Alan Greenspan, “Gold and
Economic Freedom” 
The power of the Executive to cast a man
into prison without formulating any charge known to the law, and particularly
to deny him the judgment of his peers, is in the highest degree odious and is
the foundation of all totalitarian government whether Nazi or Communist.
— Winston Churchill
[A] socially liberal president is perfectly
capable of smashing lives and liberties in the most backwards of crusades,
even against something that was once his own beloved pastime. It might seem
very hypocritical, but the socially liberal state typically is. —
Anthony Gregory, “Social Liberalism and the Drug War” [September
Ideally, the state of
California should be a nice uncle, ready to lend a helping hand to cities.
Instead, Uncle Cal is a nutty spender who keeps robbing our piggy banks.
Uncle Cal helped lay the
groundwork for Stockton’s fiscal woes in the late 1990s by munificently
awarding certain state employees sweetened retirement benefits.
And authorizing cities
to dole them out, too.
The resultant bidding
war for employees helped ruin Stockton. Though admittedly in Stockton’s
tragedy the state played second banana to city leaders.
Uncle Cal seemed
repentant recently. He talked about pension reform. Gov. Jerry Brown even
trotted out a 12-point plan.
Manager, Bob Deis, pleaded with Brown to do this in an Aug. 15 letter.
The city is on the horns
of a pension dilemma.
On the one hand, funding
these generous pensions - unheard of in the private sector - will keep the
city under financial pressure for decades to come.
Every dollar that goes
to excessive pensions is a dollar that does not fight crime, battle fires,
spray over graffiti, fill potholes, buy library books, save city trees, and
On the other hand,
Stockton cannot be the Lone Ranger of pension reform, leaders believe.
The stone-broke city
already slashed so much from employee compensation that employees will
trample each other on the way out the door if it unilaterally cuts pensions
pension reform done statewide would ease Stockton’s fiscal bind and
help with employee retention. To say nothing of saving the state billions.
Well, on Friday, the
California Legislature approved a pension reform bill. And in true Uncle Cal
style, it is irresponsible.
First of all, the most
consequential reforms don’t apply to active employees.
This might be
unavoidable. A state Legislative Analyst’s report lamented
“decades of case law that are extremely protective of employee and
retiree pension rights. ... Pension benefit packages, once promised to an
employee, generally cannot be reduced.”
This suggests another
type of reform is necessary. Public employee pension in California needs to
be legally changed and re-categorized so it is not considered untouchable
regardless of circumstances. Pensions should have reasonable guarantees, not
The reforms raise the
minimum retirement age from 50 to 52 for most new state employees. Except
safety workers, mainly police and firefighters. Most will still be eligible
to head to the golf course as early as 50.
Among the core elements
of Brown’s plan gutted by the Legislature was the 401k, through which
employees would contribute more toward their retirement.
instead snipped some of the picayune stuff that richly deserved to die:
pension spiking, buying “airtime” credits to increase pensions,
and pensions for felons - that one took real political courage.
Union reps whined
anyway. “They are potentially subjecting a generation of workers to
retiring into poverty or working until they die,” Terry Brennand of
Service Employees International Union snuffled to one news outlet.
Another of Brown’s
proposals killed was putting two competent financial experts on the CalPERS
pension system board.
CalPERS pro-labor board
keeps deliberately over-estimating the system’s investment revenues.
Their inflated projections make pensions look more affordable.
That, in turn, gulls
cities into promising unaffordable plans. When earnings fall short, taxpayers
- not public employees - must cough up the difference.
And that will continue.
The reforms also did
nothing to address escalating health care costs in medical plans.
Stockton got the jump on
Brown there. It is eliminating a $417 million unfunded retiree medical
liability. And it is giving active employees a fixed stipend toward medical
costs from here on out.
Over several decades,
the state reform might chop $55 billion from California’s unfunded
pension liability. But pundits say the savings might amount to only 20
percent of a liability approaching half a trillion.
In exchange for this
charade, Brown is asking voters for a tax increase. Approving one would be
tantamount to approving the foolish status quo.
And how’s that
working? Well, though Stockton is in bankruptcy court, and reeling from a
frightening crime wave, the state is demanding millions more from its
redevelopment money grab to address its perpetual red ink.
Nutty Uncle Cal will
never change until voters say enough.
Contact columnist Michael Fitzgerald at (209) 546-8270 or
email@example.com. Visit his blog at recordnet.com/fitzgeraldblog.