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Friday, September 30, 2005


Indictment of Tom DeLay

I suspect that there will be a lot of cheering from the democrats about the indictment of Tom DeLay, but I am not one of those cheering. This isn’t because I like or respect DeLay, I certainly don’t, but I don’t feel these charges are well warranted. DeLay was indicted for criminal conspiracy in a campaign finance scheme. The case alleges that DeLay and two other political associates laundered corporate contributions to a now defunct Texas political action committee they formed, Texans for a Republican Majority PAC (TRMPAC), to benefit Texas GOP candidates, in violation of state campaign finance laws. There are two troubling issues with this indictment that I find insupportable.

First, this is a political and frivolous indictment. The crime with which he is charged is "conspiracy" to violate the Texas law regarding corporate money and political contributions. The man behind the indictment is Travis County District Attorney Ronnie Earle, who is notorious for pursuing political indictments, and has once even brought charges against himself, plead not guilty under his own prosecution, then secured himself a two hundred dollar fine for filing campaign finance reports a day late. The "crime" of conspiracy is nothing more than a tool that prosecutors use to indict and convict someone when they cannot prove that a real crime has taken place.

Second, the real issue here is that a leading Democrat in Texas is angry because the Republicans beat the Democrats in elections in that state. I believe in being consistent when it comes to matter of law, and especially criminal law. When people seek to criminalize political differences, and make no mistake, that is what has happened here then rule of law no longer exists. Even though during Earle’s tenure he prosecuted twelve Democratic officials and only four Republicans, the Democrats he had gone after were conservatives, and at the time Republicans had no power in Texas. Terry Keel, Texas State Attorney and a former employee of Earle, said this on the recent DeLay indictments: "I disagree strongly with the way he's handled these cases. I can't see how any crime has been committed. Ronnie's stance in all this has not been constructive.” Furthermore the Wall Street Journal accuses Earle of having "a history of indicting political enemies, Democrat and Republican, on flimsy evidence that didn't hold up in court." I believe the charges brought by Ronnie Earle were political in nature and do not stand up to be accountable in the rule of law.


Government Subsidizing Faith.

I came across this article and couldn’t believe what I was reading; it seemed that government wants to subsidize religious organizations.

This is what I read:
President George W. Bush's Faith-Based and Community Initiative represents a fresh start and bold new approach to government's role in helping those in need. Too often the government has ignored or impeded the efforts of faith-based and community organizations. Their compassionate efforts to improve their communities have been needlessly and improperly inhibited by bureaucratic red tape and restrictions placed on funding.
The White House Office and the Centers for the Faith-Based and Community Initiative -- located in ten Federal agencies -- are working to support the essential work of these important organizations. Their goal is to make sure that grassroots leaders can compete on an equal footing for federal dollars, receive greater private support, and face fewer bureaucratic barriers.
The Office focuses its efforts on the following populations:
At-risk youth Ex-offenders Homeless Hungry Substance abusers Those with HIV/AIDS Welfare-to-work families

I saw that the article had the words "government role" in it and I became skeptical. I had to ask myself what the article meant by faith based. I am assuming it means religious based. The first thing that came to my mind was the question; are religious organizations a public good of some sort? The answer wasn’t hard to find. Most religions have a gathering place that has doors, one can not be part of the faith if the person doesn’t believe in the religion, and most religious organizations are advertising themselves. This proves to me that the religions are both excludable and rival, which means faith, churches, and religions can not be public goods. Therefor, there must be some sort of positive externality the government is trying to fix with a subsidy. I can see how people could believe that the positive externality is the services the religious organizations provide to the at risk youth, ex- offenders, homeless, hungry, substance abusers, people with HIV/AIDS, and welfare-to-work families. These services could be construed as positive externality because the organization provides religious services to the community and the community gives donations to the religious organizations. The church then takes part of that money to help the people in need; then the people in need get their life back together and make a positive contribution to the community. I think this would be a case of externality abuse because the people donating the money know that the money is going to be used for helping the needy. Furthermore, the religious organizations makes a conscious decision to help the people in need in hopes that the people will turn their lives around and become productive members who will donate more money to the them to continue the trend. This leads me to believe that there is no positive externality because it seems that the marginal social benefit is equal to the marginal personal benefit.
I can’t help but wonder what will happen if the government subsidizes the religious organizations. In retrospect, if the government subsidizes religious organizations then the people will move from a weak free rider model to a strong free rider model. Churches and religious organizations are helping the needy, but if more money is being provided to those same people, what is the incentive for them to turn there lives around? There is none. The people receiving the help will continue to take money, food, and whatever they can get.
In conclusion, the government should not subsidize the churches and religious organizations. The churches/religious organizations do not provide a public good, there are no positive externalities associated with the good, and the subsidy may encourage free riders.


The Roberts Court, Does it Matter?

Thursday marked the dawning of a new court. John Roberts was approved for Chief Justice of the U.S. Supreme Court. Bush refered to John Roberts as "a man with an astute mind and a kind heart." Roberts, 50, is the youngest chief justice since Justice John Marshall (the author of Maubury v. Madison) who was appointed to the court in 1801. Bush called the conformation process, "a very meaningful event in the life of our nation."
In John Roberts' speach after he took the oath he said, "What Daniel Webster termed 'the miracle of our Constitution' is not something that happens every generation, but every generation in its turn must accept the responsibility of supporting and defending the Constitution, and bearing true faith and allegiance to it. That is the oath that I just took."
While the speeches made by the President and the new Chief Justice were sweet and sounded good for press purposes, the confirmation of Roberts doesn't make a huge difference. Many believe the position of chief justice is a very powerful one. This simply is not the case. Chief justices can assign opinions when they are in the majority, either to themselves or their collegues. The Chief also stands to represent the court and presides over an impeachment hearing if one should occur for the president; otherwise he is just another justice on the court. As such, in replacing a man like Rehnquist who already held and fighted for very conservative views, Roberts isn't going to sway the court very much in one way or another.
On the other hand, republicans and democrats have already geared up for the fight over who will replace Justice Sandra Day O'Conner, a critical swing vote in the court. Rehnquist was increadibly conservative as a result, politically speaking any nominee would not make the court any more conservative than it already was. The next fight over the replacement of O'Connor will be both heated and devisive. There is even talk about bringing back the critical debate involving the nuclear option (taking away the fillubuster). Democrats have threatened to use the fillubuster for any nominee whom is too extreme. The republicans are calling on Bush to nominate as exteme right of a candidate as he can muster because republicans want to "fight over something where we know what the fight is about."
The next confirmation battle is the one that could reshape the court for better or for worse depending on one's personal views. O'Conner has been a critical swing vote on the court since the 1970's. Her vote helped to decide anything from abortion cases to civil rights cases to cases involving economics. Democrats and Republicans alike want her seat. With all the political and legal rhetoric that is being thrown around right now as well as the millions of dollars being spent by interest groups; one has to wonder, if the Supreme Court only did what the constitution granted it power to do instead of engaging in judicial policy making, would these batttles be this heated and divisive?


The Worth of Katrina

Once upon a time, I questioned whether the federal government's injection of some $6.7 million dollars to the rebuilding of New Orleans was justified because I questioned whether or not there were any positive externalities in having this city up and running. Indeed, I questioned whether or not there were any positive externalities in having any city (other than the one I live in) reconstructed and conducting business as usual. Since the government has seen fit to subsidize the cost of reconstruction, the powers that be must see some positive externalities... right?

Before I continue, I would like to question whether or not it is an imperative for DHS (Department of Homeland Security) to ensure the reconstruction and maintenance of the highway system there - wouldn't the interstate be considered "critical infrastructure"? If so, then this cost clearly lies with the federal government... and with this taken care of, it might be easier for state and local governments to make their currently-displaced taxpayers' money go a little further in funding the secondary roads.

I think that the positive externalities in the reconstruction effort lie more in preventing the "bads", should New Orleans be left as it is. Some that I can think of right away are 1) clearing up the filth to prevent (or slow) the spread of pestilence and disease, 2) encouraging businesses and individuals to resume productivity, and 3) returning children to their regular schedules to begin their healing processes. Some may argue the last point, but I tend to think that the concerns one generation out are fairly immediate.

Another issue that I consider, mostly because my 13 year old daughter has let me know that she thinks about this since 9/11, is that the children are watching. They are watching to see how the nation (governmentally and ecumenically) works together to ease the burden of disaster. As she asked, "If the government won't be there for the people when it is most needed, then why bother paying taxes? Why vote? What good is government, anyway?".

To uphold property rights? Is that the best we can expect?

Thursday, September 29, 2005


Community faces decision for growth

In the county of Franktown there are only 93 residents which are facing the dilemma of making the choice of better sewage systems or keeping their population size down. It is said that if they need to choose if “needed water and sewer systems is a fair trade for more residents, more stores and more traffic”.
Since this town has no tax money devoted to pay for these upgrades themselves, these improvements can only come about with the developer’s money and plans to build. This change would double the number of houses in the town which has people concerned that they will lose the enjoyment of the open land. A suggestion that one town member gave was to for the people that want to enjoy the land use to buy up as much as they could/wanted. This could cause for future concern with the public purpose and the ability for government to come in and take what they feel would be best for the town. This may be an issue that could come up seeing that this town’s septic tanks are causing pollution for other towns’ water sources. At this point it seems that most of the town is rejecting the water improvements along with the growth opportunity. Even though there could be an economic gain for businesses they also see the possibility of losing that small town comfort from their community.
It seems that they are making the choice that they benefit that they receive from remaining small outweighs that of the growth and development that could occur. It seems that it is only a matter of time before this town sees growth.

Wednesday, September 28, 2005

Back to the 70's

While lamenting one day over the ever increasing dollar amount that shows up on the gas pump as I fill my Saturn, I came across a web article on the Tech Central Station site titled Bell Bottom Blues. Since we'd discussed in class that the current oil 'crisis' had finally brought the price of gas to the 'real' price level we saw during the 1970's oil crisis (during which I was a young college student trying to make ends meet) I found it rather interesting the way some comparisons were made. It points out how, on Capital Hill, the same types of political issues are being raised now as was back in the 70's; anti-war protests, women's abortion rights, and even the mention of a Star Wars movie, but the idea that price controls and corrective taxes could possibly bring economic releif seem to be the biggest similarity to those greasy, golden days. The author, Nick Schulz, found this move to be a major backslide, a move back into the disco days as he puts it. He tells of the economic stagnation that occured for a decade after the price controls and taxes were put into place, and how some states (Mass. and Utah) are thinking about implementing these types of programs again today. Schulz also points out how the price of firewood (and lumber in general) is skyrocketing in response to the likelihood of high home heating costs this winter. He also brings to light some of the political shenanigans that are going on with the intent of stalling certain region's abilities to move beyond oil dependence by blocking the move of natural gas into the area. This, along with the talk of tax increases that benefit oil producers, shows how strongly the oil industry has entwined itself with politics.

I agree with most of what the author has to say, even if my opinion is of less intensity. I agree that we need to let the energy market play itself out regardless of how painful it may be to many of our pocketbooks. I also think that price controls and corrective taxes aren't necessarily the answer to our current problem. I do see a potential positive externality here though - not something that could truly be called an externality based on our models, but the idea that research and technology in the area of alternative energy sources may benefit from this current crisis (like it did during the 70s) is starting to sound pretty good right now to a lot of people. Not just the move to smaller, more fuel efficient cars, like we saw in the 70's, but real changes in how we perceive energy, how we obtain it, and how we use it. This, when viewed in the context of the economic normative model we've been utilizing, makes a lot of sense - IF it can bring about a level of effeciency that allows the market to thrive, and individual ethics are not compromised for too many people.

Tuesday, September 27, 2005



This morning I heard audio clips from a political conference. Several speakers were talking about oppression.

What is "oppression?"

Where can we find it?

Monday, September 26, 2005


Constitutional Rights?

(I don't have a specific article to reference, as it has already gone into the "Pay-to-View" archive.)

The New York Times, regarding the Hurricane Katrina debacle a few weeks ago, reported that people who chose to stay in New Orleans after the storm struck were being forced to evacuate by local police. This is interesting in context of the Constitution since the 4th Amendment guarantees:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

It appears to me that the right to be secure in our persons and houses against seizures of any kind means that even in the event of a crisis such as a hurricane or flood, the choice to remain in one's house is still guaranteed by the Constitution. Because there is no probable cause, a person's removal from his/her house would be an unreasonable seizure. Simply because the government says that it is in the best interest of the people to evacuate the city, it can not force people to leave. Rational people will choose the best course of action given the cost of the next best alternative foregone. Maybe some people are prepared for survival even after being severed from the societal matrix--why should they have to leave?

From the perspective of government as a Protective State, its role is to protect our natural rights--which includes the right to do as we will with our person or property as long as it does not infringe upon anyone else's individual rights. The Constitution does not make provisions for the usurpation of these innate rights during crisis situations, so I believe that forced evacuation of any kind is unconstitutional. After all, the person who stays behind risks harm to him/herself, but nobody else does through his/her action. The best thing the government can do in such situations is provide information and let people make their own decisions, although a Paternal State would have a hard time with this.


Budget Cutting

I posted a link to a budget cutting exercise over at Economics and Government . You might want to take a look.

Thursday, September 22, 2005


Economic Literacy & Externality

William Polley:
"In a way, this brings us back to the question of the value of economic literacy. If the only reason for becoming economically literate was to become a more intelligent voter, then ignorance would be individually rational. However, the economic world would keep right on spinning. Markets would keep right on working -- except to the extent that policy makers, not subject to the constraints of an economically literate population, get in the way. However, there is a larger social issue at stake. Economic literacy has positive externalities. For me the most compelling argument for economic literacy is not to make sure everyone can shift a demand curve, but simply to teach people how to avoid being taken in by fallacies of composition and other logical fallacies.

[. . . .]

. . . . There's a great deal of social value in a citizenry able to recognize free lunch claims and refute them."
What? Positive externalities? This couldn't be another example of externality abuse could it? Probably not. After all, the implication of there being positive externalities would be to subsidize economists.


The Oil Pinch

Are you preparing NOW for the ever evident oil depletion? As humanity comes to terms with the inevitability of a world beyond oil, the remaining oil supply will be exploited in three ways:
To maintain the global economy; To create a new solar economy which will not depend upon oil; To fight over the oil that remains. Oil will become more expensive and less available. This will be painful in the industrialized countries which have become totally dependent upon oil, and in the less developed countries where oil use is extremely sensitive to price escalation.
America's economy might not be able to stomach oil at $66 a barrel. Not easily, at least.
So far, the country has largely shrugged off oil's steady climb, even as the cost of crude has risen 54 percent this year. But with gasoline prices perilously close to $3 per gallon, some experts have concluded that the country's economic growth could slow, sapped by the cost of energy.
They acknowledge that high fuel prices are squeezing family and business finances. Still, they note, the economy is growing at a healthy clip, adding jobs, even though oil prices have been above historic norms for more than a year. As long as prices rise slowly, they say, the economy has time to adjust. So when does the economy finally hit the breaking point and fall back into a recession? With the fear of Hurricane Rita on the wakes I think the next recession might happen sooner than we all want to believe..


There Are Statistics & Statistics Without Understanding

I've posted a comment on understanding econometrics over atEconomics and Government that you might want to check out:
"In my view, when you do empirical estimations or when you evaluate the estimations of others, it is very important to understand what happens to your estimates if there are any number of ways in which your data do not meet the statistical assumptions on which your estimates are based."

Thursday, September 15, 2005


Classic Gov't Failure In New Orleans?

Peter Leeson:
"In a paper published two years ago, my colleague at WVU, Russell Sobel, investigated the political economy FEMA. Sobel found that, like nearly all federal decisions to allocate resources, FEMA too suffered from traditional problems of government failure identified by public choice.

In particular, he documented that even after controlling for the severity of disasters, FEMA money was channeled to states more important for presidential elections. In other words, swing states get significantly more money after adjusting for other potentially contributing factors than non swing states. Congressional districts with representatives on FEMA oversight committees also receive more aid and disaster relief tends to be larger in election years.

In addition to teaching us important lessons about self-interested rulers, the recent events in New Orleans can teach us something about government failure and the emergence of private institutions to fill the void left by this failure as well.

If nothing else, government is charged with protecting private property rights. But as the vivid pictures of looters on CNN showed all too clearly, in New Orleans it seems, government was unable to perform even this basic function. In the wake of this vacuum of state-provided protection, the WSJ reported the other day that a number of residents who have not yet moved and do not plan to have hired out private protection for their property."
I'm not sure whether there are markets failures that would provide a justification for a government bureau such as FEMA (Federal Emergency Management Agency), but Leeson points out that there are also sources of government failure. As we sit around as economists, sort of pronouncing from on high, that the role of government is to correct market failures, it seems important to understand the limitations of government in achieving that goal. Government failures may indeed be more severe, perhaps of greater frequency, than market failures. Witness the market response to government failure in New Orleans.

Tuesday, September 13, 2005


Senators urge boost in standards of fuel economy


From the Washington Times:
"Congress should consider raising fuel-economy standards for all vehicles for the first time in 30 years in light of the gasoline shortages and huge spike in pump prices caused by Hurricane Katrina, key senators said yesterday.

'I believe we must take another look at the CAFE standards,' said Sen. Pete V. Domenici, New Mexico Republican and chairman of the Senate Energy and Natural Resources Committee, referring to the Corporate Average Fuel Economy rules enacted in the mid-1970s but not updated since.

'We looked at that before, and it was not politically possible. I'm not sure that will be the case after Katrina,' he said.

His comments came as the government reported that gas prices last week breached the $3 level for the first time on average nationwide, with the biggest increases seen in Mid-Atlantic states such as Virginia and Maryland, and in the District, where the average price for regular was $3.29 a gallon.

Republicans and Democrats both said they suspected price gouging as gasoline costs soared in the aftermath of Katrina, but they complained that the government doesn't have the ability to prevent such market abuses.

'The American people are being victimized more than any free market would warrant,' said Sen. Gordon H. Smith, Oregon Republican.

Mr. Smith and other senators at a committee hearing yesterday said regulators, including the Federal Trade Commission, are not aggressively pursuing price gouging and other market manipulation by energy companies reaping huge profits.

'There are growing concerns that oil companies are making too much in profits at the expense of consumers,' Mr. Domenici said.

Some relief at the pump is on the way as the prices of crude oil and wholesale gasoline dropped for a second day in New York trading, and are close to levels that prevailed before the hurricane struck the Gulf Coast, the heart of the nation's oil-producing sector.

Witnesses at yesterday's hearing said pump prices will remain high for weeks and possibly months, however, because the hurricane knocked out about 10 percent of production at oil wells and 5 percent of production at refineries that could take up to a half-year to restore. "
How can we use economic analysis to consider the public policy issues raised here? I can suggest some specific questions:

Is there a market failure justification for the national government mandating fuel economy standards for our vehicles?

Does the term "price gouging" have an economic meaning in general, and do you think "price gouging" is an accurate way to describe what has happened after the hurricane?

Is there a market failure justification for the national government to try to deal with "price gouging?"

Thursday, September 08, 2005


Hurricane Damage & Economic Lunacy

Walter Williams:
"According to a couple of poorly trained economists, there's a bright side to Hurricane Katrina's destruction. J.P. Morgan senior economist Anthony Chan believes hurricanes tend to stimulate overall growth. As reported in 'Gas Crisis Looms' (Aug. 31, 2005), written by CNN/Money staff writer Parija Bhatnagar, Mr. Chan said, 'Preliminary estimates indicate 60 percent damage to downtown New Orleans. Plenty of cleanup work and rebuilding will follow in all the areas. That means over the next 12 months, there will be lots of job creation which is good for the economy.'

Professor Doug Woodward, of the business school at the University of South Carolina, has the same vision. Professor Woodward said, 'On a personal level, the loss of life is tragic. But looking at the economic impact, our research shows that hurricanes tend to become god-given work projects.' Within six months, Professor Woodward 'expects to see a construction boom and job creation offset the short-term negatives such as loss of business activity, loss of wealth in the form of housing, infrastructure, agriculture and tourism revenue in the Gulf Coast states.'

Let's ask a few smell-test questions about these claims of beneficial aspects of hurricane destruction. Would there have been even greater economic growth and job creation for our nation had Hurricane Katrina not only destroyed New Orleans, Mobile and Gulfport, but other major metropolitan areas along its path, like Cincinnati and Pittsburgh, as well? Would we consider it a godsend, in terms of jobs and economic growth, if a few more category 4 hurricanes hit our shores? Only a lunatic would answer these questions in the affirmative."
Right on Walter. The hurricane destroyed an enormous quantity of wealth and assets, not even mentioning the loss of life which also means a loss of productive resources. Re-creating the wealth and the assets is simply replacing what people in the economy already had achieved through their own productivity.

Wednesday, September 07, 2005


Will The "New Federalism" Survive the New Court?

Randy Barnett :
"Perhaps because his illness prevented him from providing his strong personal leadership, in this the final year of the Rehnquist Court there are signs that his legacy may not endure. In Gonzales v. Raich both principles of state sovereignty and of enumerated powers were put to the test. Rehnquist was one of only three justices who were willing to say that Congress cannot magically transform the noncommercial possession of homegrown marijuana into "interstate commerce." The Chief joined the dissenting opinion written by Justice Sandra Day O'Connor. Many who now lionize her when discussing her replacement omit mentioning her stalwart support of the New Federalism so strongly advanced by her fellow Arizonian and Stanford classmate.

Sometime this fall, two of the five votes that made up the Lopez and Morrison majorities will have been replaced. Only Justice Clarence Thomas will be left from the three Raich dissenters. As the new chief justice (assuming he is confirmed), will John Roberts assume the role of his mentor William Rehnquist — for whom he clerked — and lead the Roberts Court to enforce the Constitution's original plan of limited federal power? Will President Bush now look for a nominee to replace Justice O'Connor who is as committed to the New Federalism as she was? Given that so many of the New Federalism cases were 5-4, if either of the new justices adopts the mantra of "judicial deference" to congressional power, then Chief Justice Rehnquist's death, along with Justice O'Connor's retirement, may presage the second death of federalism. A judicial withdrawal from enforcing the original limits on the powers of Congress would undo the New Federalist legacy of William Rehnquist.

As the president now decides who next to nominate, he would uphold the Constitution by selecting a person with a firm and demonstrated commitment to the Rehnquist Court's New Federalism legacy. Only such a choice would continue the movement to restore the "first principles" of constitutionally limited government that William Rehnquist affirmed so eloquently. One can hardly imagine a sadder end to the tenure of William Rehnquist than that his most prized and important contribution to constitutional law is aborted by a conservative Republican president and a Republican-controlled Senate."
Read the entire piece.

Thursday, September 01, 2005


Gasoline Price Ceiling?

Arnold Kling
". . . I tried to explain that if the futures price indicates that next week gasoline will be at $3.00 a gallon and you as a dealer bought it at $2.00 a gallon, it is neither in your interest nor society's interest for you to sell your gasoline at $2.00 a gallon.

I suggested that the best policy now would not be a price *ceiling* to hold down the price of gas, but a price *floor* to immediately raise it to a level that would slow panic buying. My idea is to have the government recommend a price per gallon of $6 through Labor Day, $5.50 from then until October 1st, and $5.00 for the month of October. The idea of having a pre-announced, staggered schedule is that it reward the people who put off buying gas and punish the idiots who are rushing to top off their tanks."

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