What is older than the idea that some exalted elite know what is good for us better than we know ourselves?
Insurance is an institution for dealing with risks. It is a costly and counterproductive way to pay for things that are not risks […] Your annual checkup does not cost any less because it is covered by insurance.
Sowell also points out that Obamacare was initially supported by the idea to help the minority of people lacking health insurance. But instead of directly helping those people, the new health care policy now affects everyone.
Since there has never been a society of human beings without at least some segment with some problem, this is a formula for a never-ending expansion of government power.
Government wants you to play a role in the ‘shutdown’ of the federal government. Your role is to panic.
If the public starts noticing that life goes on as usual without all 3.4 million federal workers, we might get dangerous ideas, like doing without so much government. Politicians don’t want that.
The U.S. faces yet another stalemate because the government ran out of money. Back in 2011, I wrote a comment (link) on this and it turns out things have not changed much after all. Only the numbers may need an update:
With all the fuss about the U.S. debt problem, here’s one proposal: Go back to the spending level of 2009. That year was not austerity. Not by a mile. But going back to that spending level, the budget for 2014 would be balanced instantly.
More than four years have passed since President Obama signed into law the American Recovery and Reinvestment Act (ARRA) of 2009. The stimulus package came at a cost of more than $830 billion, or about 22 percent of annual federal spending. It was supported by many Keynesian economists although criticized for being ‘too small’.
Although it seems unpopular to look back and ask whether policies of the past have actually worked, let us have look at the effects of the ARRA.
In a 2010 study, John Cogan and John Taylor have found little evidence in favor of the stimulus package:
The implication is not that ARRA has been too small, but rather that it failed to increase government consumption expenditures and infrastructure spending as many had predicted from such a large package. A consideration of the counterfactual event that there had not been an ARRA supports the hypothesis that state and local government borrowing would have been higher and purchases would have been about the same in the absence of ARRA.
Atif Mian and Amir Sufi have published another study in the prestigious Quarterly Journal of Economics in 2012. They estimate the effect of the Cash for Clunkers Program and exploit variation across U.S. cities in exposure to the program. They conclude:
We find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
James Feyrer and Bruce Sacerdote also examine the effect of the ARRA in their 2011 NBER Working Paper. They use state and county level variation and find that each job created came at a humongous cost:
A cross state analysis suggests that one additional job was created by each $170,000 in stimulus spending. Time series analysis at the state level suggests a smaller response with a per job cost of about $400,000.
This finding is in line with a paper by Daniel Wilson published in the American Economic Journal in 2012:
Cross-state IV results indicate that ARRA spending in its first year yielded about eight jobs per million dollars spent, or $125,000 per job.
It is also in line with much of the previous research, as documented by Valerie Ramey in a meta study published in the Journal of Economic Literature in 2011:
I assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate: a temporary, deficit-financed increase in government purchases. I conclude that the multiplier for this type of spending is probably between 0.8 and 1.5.
This would translate into something like $120’000 to $200’000 per job created.
By the way, these figures are not surprising since most economists estimated the ARRA to ‘save’ about three million jobs at most. At a cost of $831 billion, this suggests about $300’000 per job. I wonder whether the public support would have been large had Obama sold the program with this price tag.
Greg Mankiw has also been following the so-called recovery ever since the financial crisis. Instead of focusing on unemployment his focus is on the share of the population which is working. This takes into account that some people have simply stopped looking for work. During Bush’s presidency, the employment-population ratio increased slowly from 62 to 63 percent. In the recession of 2008-09, this ratio dropped to 58.5 percent. And ever since then, it has stagnated at this low level. (see figure here)
Finally, it is also worthwhile to reconsider Econ Stories’ 2011 video featuring Keynes and Hayek:
Spending is not free, that is the heart of the matter. Too much is wasted as cronies get fatter. The economy is not a car, there is no engine to start. No expert can fix it, there is no ‘it’ at all.
The question, I ponder, is who plans for who. Do I plan for myself or do I leave it to you? I want plans by the many, not by the few.
About a year ago, Dr. Thomas Sowell discussed the role of the Tea Party. In this interview he also talked about his book ‘Basic Economics‘ and the economics profession:
One of the sad things about the economics profession is that you have excellent people at the top but very little of that ever gets down to the actual public. Or even to the politicians, not that they would care that much.
In the second part of the interview, he dissects the impact of stimulus spending:
I am amazed that no one looks at the track record of what actually happens if you do nothing as compared to when the government intervenes.
Since 1995, from time to time the Pew Research Center has asked the American public whether they regard the government as a threat to freedom. While the wording has been changed slightly over time, the question is something like “Do you think the federal government threatens your own personal rights and freedoms, or not?”. The share of people who answered yes increased between 1995 and 2000, then dropped in the aftermath of 9/11, but has now reached an all-time high with 53 percent.
As Barack Obama begins his second term in office, trust in the federal government remains mired near a historic low, while frustration with government remains high. And for the first time, a majority of the public says that the federal government threatens their personal rights and freedoms.
The finding reminds me of a famous quote by Thomas Jefferson (actually by John Basil Barnhill):
When governments fear the people, there is liberty.
When the people fear the government, there is tyranny.
When all is said and done, the Constitution of the United States is a set of words on pieces of paper. The only way the Constitution can protect us is if we protect the Constitution. If we rise up and revolt, if we vote out of office people who violate the Constitution, then of course it will mean something. However, if people can do this – say a few pretty words and we say ‘Oh well’ – then the Constitution will erode over time to the point where it will mean absolutely nothing. There will be nice words on paper but people with power will just do what they like.
John Stossel is not an economist. He studied psychology at Princeton and has been a journalist for the last forty years. But throughout his career, he has done what an economist could not do better: trace and analyze the impact of government intervention.
His discussion with Peter Robinson from Uncommon Knowledge took place about a year ago. Stossel reminds me of my recent post on Jeremy Clarkson, which makes the video all the more worth watching:
The economy is not like an orchestra that a conductor to has to start or a car that needs jump-starting. An economy is people with needs and if you leave them alone they will do amazing, wonderful things to meet those needs. And we take it for granted that a supermarket has thirty thousand products, and they are all cheap, and it is open 24/7, and they rarely poison us.
Robert Hicks said ‘war is the friend of the state’. Well, so is crisis and fear.
Two days remain for President Obama “to save the world”, as Germany’s largest newspaper recently put it. Meanwhile the Huffington Post suggests to stockpile frozen pizza because from January 1st, the Food and Drug Administration and the Department of Agriculture’s Food Safety and Inspection Service might see some budget costs.
Put aside such utter nonsense and let us focus on some key facts.
First, we should not forget the difference between tax rates and tax revenue, as I wrote some months ago.
Next, Thomas Sowell writes in his “Fiscal Cliff Notes” for the Jewish World Review:
All the political angst and moral melodrama about getting “the rich” to pay “their fair share” is part of a big charade. This is not about economics, it is about politics. Taxing “the rich” will produce a drop in the bucket when compared to the staggering and unprecedented deficits of the Obama administration.
The very catchwords and phrases used by the Obama administration betray how phony this all is. For example, “We are just asking the rich to pay a little more.” This is an insult to our intelligence. The government doesn’t “ask” anybody to pay anything. It orders you to pay the taxes they impose and you can go to prison if you don’t.
It is also true that the fiscal deficit declined after the so-called Bush tax cuts. You get this information from the “Economic Report of the President 2012” (page 411).
Investor’s Business Daily has put these numbers into some figures:
While President Obama insists the Bush tax cuts caused the recession and record deficits, his own economists say otherwise. He might want to consult their data for the truth.
Some days ago, I presented a bunch of quotations on gun control. Over Christmas, however, I found a whole article to summarize much of what I thought. The article argues in favor of locally chosen (instead of federal-level) responses to school shootings. It can be found in the Voluntaryist Reader:
As a result of the increased numbers of options in a free society, it would not take long to see which strategies actually produce results. Perhaps regional gun-restriction is the best policy and results in the fewest number of shootings; but perhaps when shootings do occur an attacker may be able to kill large numbers of people virtually unopposed, leading to large death counts. Perhaps the second scenario of not restricting guns in society but having armed, on-site security leads to more frequent shootings but far lower numbers of students actually being killed when they do occur.
How can we tell which would be most effective, unless the various policies are allowed to exist, undiluted, amongst those whom would pursue them?
The ability to rapidly iterate, to take multiple approaches to any problem, and for solutions to then rapidly spread through a society, is one of the greatest strengths in theory of a free society, marked by organizational individualism.
The truth few want to admit is that such attacks may not be entirely preventable at all. […] But politicians cannot admit this truth, cannot throw their hands up and say there’s basically nothing they can do. Because if they do so, people will vote for the other candidates that will claim they can do something.
Swiss Economist 