Conservative Logic

An economic guide to politics, designed for post-Baby Boomers

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Predictable: Obama’s Housing Loan Effort Makes Thing Worse

Posted by A Hamilton on January 3, 2010

Here’s a shocker. A government program (with good intentions, of course) goes awry and actually makes things worse.

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Really, it was completely predictable. The best the the government can do for the housing market right now is to let prices reach their equilibrium (lower) level as quickly as possible. That will bring buyers back into the market, get the construction industry rolling again, and generally help the economy. Of course, the Obama administration is doing the opposite, pursuing policies that distort the market and keep pricies artificially high.

(For those of you out there in your twenties, who don’t own homes, guess who it is who is most hurt by those still-artifically high prices. Yup, it’s you.)

Going forward, I’ll dedicate this blog to similar instances of government fail. Not a single week goes by where I don’t see multiple examples of failed programs, failed ideas, corruption, and incompetence in the government sphere. I’m tired of it. Americans have this idea these days that a benevolent government is going to come around and save their bacon. Nothing could be further from the truth. In fact, history tells us that the bigger and more pervasive that government gets, the more inefficient and bloated it becomes.


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Happy Belated 4th

Posted by A Hamilton on July 12, 2008

Yes, it’s rough out there. Fuel prices and a sluggish economy are hurting us all. But by any reasonable historical standard, Americans are doing okay right now. This 4th, we should keep in mind that the thing that makes America great — Americans themselves, their spirit, their hopes, dreams, optimism, inventiveness — is still intact. Together, I’m pretty sure there aren’t many problems we can’t solve.

In the meantime, we should continue to look to the future, stay positive, and try not to lose perspective about how fortunate we are.

On this troubled Fourth we still should remember this is not 1776 when New York was in British hands and Americans in retreat across the state. It is not 1814 when the British burned Washington and the entire system of national credit collapsed — or July 4, 1864 when Americans awoke to news that 8,000 Americans had just been killed at Gettysburg.

We are not in 1932 when unemployment was still over 20 percent of the work force, and industrial production was less than half of what it had been just three years earlier, or July, 1942, when tens of thousands of American were dying in convoys and B-17s, and on islands of the Pacific in an existential war against Germany, Japan, and Italy.

Thank God it is not mid-summer 1950, when Seoul was overrun and arriving American troops were overwhelmed by Communist forces as they rushed in to save a crumbling South Korea. We are not in 1968 when the country was torn apart by the Tet Offensive, the assassinations of Martin Luther King Jr. and Robert Kennedy, and the riots at the Democratic convention in Chicago. And we are not even in the waning days of 1979, a year in which the American embassy was seized in Tehran and hostages taken, the Soviets were invading Afghanistan, thousands were still being murdered in Cambodia, Communism was on the march in Central America, and our president was blaming our near 6-percent unemployment, 8-percent inflation, 15-percent interest rates, and weakening international profile on our own collective “malaise.”

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Lightning Round II

Posted by A Hamilton on June 30, 2008

Smaller Government Delivers Better Results

This has, of course, been discussed before on this blog. But this article hits hard on the issue. In it, the author, Keith Marsden, summarizes the results of his landmark study comparing twenty similar nations — 10 low tax, small government states and 10 higher tax large government states over the past two decades. The conclusions are fascinating. Not only has economic performance been superior in small government states, but also:

“Slimmer-government countries also delivered more rapid social progress in some areas. They have, on average, higher annual employment growth rates (1.7% compared to 0.9% from 1995-2005). Their youth unemployment rates have been lower for both males and females since 2000. The discretionary income of households rose faster in the first group. This allowed their real consumption to increase by 4.1% annually from 2000-2005, up from 2.8% in 1990-2000. In the bigger-government group, the growth of household consumption has slowed to a 1.3% average annual rate, from 2.1% during the 1990-2000 period.

Faster economic growth in the first group also generated a more rapid increase in government revenue, despite (or rather, because of, supply-siders suggest) lower overall tax burdens.

Slimmer-government countries seem to have made better use of their smaller health resources. Total spending on health programs reached 9.5% of GDP in the bigger government group in 2004, 1.6 percentage points above the average in the slimmer-government group. Yet slimmer-government countries have raised their average life expectancy at birth at a faster pacer since 1990, reaching an average level of 78 years in 2005, just one year below the average for bigger spenders. Average life expectancy is now 80 years in Singapore, although government and private health programs combined cost only 3.7% of its GDP.

Finally, spending by bigger governments on social benefits (such as unemployment and disability benefits, housing allowances and state pensions) was higher (20.3% of GDP in 2006) than that of slimmer governments (9.6%). But these transfers do not appear to have resulted in greater equality in the distribution of income. The Gini index measuring income distribution is similar for both groups.”

More confirmation for a primary thesis of this blog – that the best way to address social issues is to grow the economic pie, not to increase taxes and burn money on social programs that have a poor track record of efficient results.

The Real Story Behind Iraq

Here is a very good summary history of the drivers behind the invasion of Iraq. The conventional wisdom, of course, is that the Bush Administration dragged the country into the war. This article reveals a more complex truth, including some interesting commentary from certain individuals along the way who now behave as if they opposed the war from the beginning:

“Saddam Hussein must not be allowed to threaten his neighbors or the world with nuclear arms, poison gas, or biological weapons. . . . Other countries possess weapons of mass destruction and ballistic missiles. With Saddam, there is one big difference: he has used them. Not once, but repeatedly. . . . I have no doubt today that, left unchecked, Saddam Hussein will use these terrible weapons again.” – Bill Clinton

Bill Clinton of course also was the first to refer to Iraq as a member of an “unholy axis” of rogue nations…. Years before Bush issued his much ridiculed “axis of evil” characterization.

What did Al Gore think?

“You allow someone like Saddam Hussein to get nuclear weapons, ballistic missiles, chemical weapons, biological weapons. How many people is he going to kill with such weapons? . . . We are not going to allow him to succeed.” – Al Gore

Or how about this gem from Hillary Clinton:

“Every nation has to be either for us, or against us. Those who harbor terrorists, or who finance them, are going to pay a price.” — Hillary Clinton

Again, despite the fact that Bush has been widely derided by the left for his supposedly simplistic absolutism, it looks like he was in pretty good company at the time.

WMDs, terrorist connections, international consensus…. This article does a good job assessing the political reality behind Iraq in the years before the war – before Iraq became a partisan issue. The article concludes:

“To judge by his unequivocal pronouncements pre-2003, and as improbable as it sounds now, that someone might well have been Al Gore, the erstwhile hawkish Vice President who had championed the Iraq Liberation Act, or indeed John Kerry, who back in 1998 told Scott Ritter that containment of Saddam was not working and that the time had come to use force. If Bush had failed to act, either one of these two men might have come to office in January 2005 publicly prepared to deal with the “gathering threat” that his predecessor had unaccountably allowed to grow larger and closer and ever more virulent.”

Next Up…. Oil!

My next post – oil and energy, and why partisan stupidity has prevented America from achieving energy independence.

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Lightning Round

Posted by A Hamilton on June 30, 2008

I’m way behind on posting, so here is the lightning round – articles and commentary that I’ve run across that raise interesting and relevant insight – moving past the sound bites and obfuscation, and directly addressing the realities of today’s economy, foreign policy, war, etc.

The Productivity Revolution

This excellent article from the Wall Street Journal shows why protecting manufacturing jobs is not good policy, and why the disruptions that losing these jobs cause is a natural consequence of increasing American productivity.

Manufacturing versus productivity

“Look at the chart nearby. America’s manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it’s likely that you don’t and won’t.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it’s accelerating.”

Death by Entitlement

“Last month, the Congressional Budget Office (CBO) analyzed the growth of government spending and deficits for Rep. Paul Ryan (R.-Wis.), ranking member of the Budget Committee. The report estimated that spending on Medicare, Medicaid and Social Security, which in 2007 represented about 8 percent of GDP, would balloon to 14.5 percent in 2030 and 25.7 percent in 2082.

There is no way that can fly.

If you add in all other spending, including interest on the debt, federal spending under the CBO’s scenario would eat up an astounding 75.4 percent of GDP in 2084.

If taxes don’t keep pace, the CBO says the “additional spending will eventually cause future budget deficits to become unsustainable …”

And if taxes were to keep pace? The CBO says, “[T]ax rates would have to more than double.”

Here’s the source.

So guess who gets to pay the taxes to pay for these burgeoning entitlements? Younger generations of Americans, of course. These programs will fund the retirement and healthcare of older Americans. The taxes to fund them represent such a significant increase that they will be lifestyle-altering for millions of Americans. And still, Washington is intent to maintain the status quo, or even expand, these programs.

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Prioritizing the World’s Problems

Posted by A Hamilton on May 24, 2008

Younger Americans tend to look at the problems of the world and demand solutions. This desire for change and progress is a significant contributor to their political philosophy and political choices.

But we only have limited resources to solve those problems. In a world where reality constrains our ability to drive change, how do we reconcile our policy initiatives with resource constraints?

This article suggests a way — simple cost / benefit analysis — with fascinating implications for real policy.

The pain caused by the global food crisis has led many people to belatedly realize that we have prioritized growing crops to feed cars instead of people. That is only a small part of the real problem.

This crisis demonstrates what happens when we focus doggedly on one specific – and inefficient – solution to one particular global challenge. A reduction in carbon emissions has become an end in itself. The fortune spent on this exercise could achieve an astounding amount of good in areas that we hear a lot less about.

Research for the Copenhagen Consensus, in which Nobel laureate economists analyze new research about the costs and benefits of different solutions to world problems, shows that just $60 million spent on providing Vitamin A capsules and therapeutic Zinc supplements for under-2-year-olds would reach 80% of the infants in Sub-Saharan Africa and South Asia, with annual economic benefits (from lower mortality and improved health) of more than $1 billion. That means doing $17 worth of good for each dollar spent. Spending $1 billion on tuberculosis would avert an astonishing one million deaths, with annual benefits adding up to $30 billion. This gives $30 back on the dollar.

Heart disease represents more than a quarter of the death toll in poor countries. Developed nations treat acute heart attacks with inexpensive drugs. Spending $200 million getting these cheap drugs to poor countries would avert 300,000 deaths in a year.

A dollar spent on heart disease in a developing nation will achieve $25 worth of good. Contrast that to Operation Enduring Freedom, which Copenhagen Consensus research found in the two years after 2001 returned 9 cents for each dollar spent. Or with the 90 cents Copenhagen Consensus research shows is returned for every $1 spent on carbon mitigation policies.

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The Bottom Line on Tax Policy

Posted by A Hamilton on May 24, 2008

As I’ve pointed out before on this blog, there’s a gap between economic interest and voting patterns of younger Americans. I believe that much of this gap is explained by the fact that many younger Americans haven’t been taught the basics of economics. Obviously, this comes into play as we consider tax policy.

This recent article in the Wall Street Journal presents some pretty revolutionary and indisputable facts about tax policy in this country:

The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.” What a pity that his discovery has not been more widely disseminated.


Hauser's Law


The chart nearby, updating the evidence to 2007, confirms Hauser’s Law. The federal tax “yield” (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an “independence theorem,” and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser’s Law says it will also lower tax revenue. That’s a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

An amazing truth has been revealed by a simple analysis of the data. Raising taxes on the rich will not reduce our deficit or fund more social programs, because it’s revenue impact is negligible.

The only tax poicy that makes sense is one that encourages economic growth.

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I Love Massachusetts

Posted by A Hamilton on May 11, 2008

Really, I do. It’s where I grew up. And Boston has got to be one of the best, if not THE best, city in the country.

But Massachusetts has a bad habit of electing corrupt, incompetent government. From $200 million high schools to release programs for felons who go on to rape children and kill cops, Massachusetts is all about governmental irresponsibility via well intentioned but misguided liberal policies.

I am in MA visiting right now. Last night I ran smack into a prime example of corruption and incompetence and I figured I would blog about it.

Last night I was driving north up I-93 into Boston. For those of you who don’t know Boston, I-93 is one of the two main highways into the city along with I-90. It’s a four lane highway both ways and feeds directly into the Big Dig. Anyway, the geniuses in our state government decided to block off two lanes north (into Boston) for “paving” for about (literally) 10 miles. This caused a massive traffic jam at 9 o’clock on a Saturday night, which I was privileged to sit in for 45 minutes.

(In green terms, that’s a lot of wasted gas and unnecessary emissions. For you economists out there, think of the opportunity cost to the economy (time wasted) of that traffic jam.)

The kicker with this particlar construction project was that, of course, there was no actual paving going on. Not one construction vehicle was even on site across the entire 10 miles, let alone actually paving anything.

That being said, every mile or so there was a state trooper parked with his lights flashing, on “detail” collecting overtime over whatever overtime they already collect on a Saturday night.

That’s corruption and incompetence for you.

This is what happens when you elect someone a candidate with no substance and clever rhetoric to chief executive office.

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The Economy, Stupid

Posted by A Hamilton on May 4, 2008

We’ve all heard how bad it is.

But is it really?

And on Friday, after the most recent jobs report — which produced a much-smaller-than-expected decline in corporate payrolls, a huge 362,000 increase in the more entrepreneurial household survey (the best gain in five months), and a historically low 5 percent unemployment rate (4.95 percent, to be precise) — the president told reporters: “This economy is going to come on. I’m confident it will.”

We’re in the midst of the most widely predicted and heralded recession in history. Problem is, so far it’s a non-recession recession. Score one for President Bush. In an election year, it could be a big one.

First-quarter GDP growth came in at 0.6 percent. It wasn’t the widely predicted decline, and economists expect that number to be revised up. GDP growth for the fourth quarter of 2007 was also up slightly, while the prior two quarters averaged over 4 percent growth….

Interesting — isn’t it? — just how durable and resilient our low-tax, free-market, capitalist economy truly is. Hit by soaring food and energy prices, a bad housing downturn, and a Wall Street credit crunch, the economy continues to expand, albeit slowly.

The media and the Democrats would like us to believe the economy is a disaster. But our economy is cyclical by nature, and this downturn may not even be as lasting as most.

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The Trouble with Obama

Posted by A Hamilton on May 4, 2008

Despite a rather profound dislike of Hillary Clinton’s character and public persona, American Gerontocracy endorses her for the Democratic Presidential nomination — with the firm expectation that Obama will, in fact, be the eventual nominee.

Obama is an emotionally compelling candidate because of his rhetorical gifts and his charismatic presense. But what does he really bring to the table? I think most votes would agree that it isn’t his experience, since he has very little. He has never worked in the priate sector. He has never served in the military. He has basically been involved in local politics for almost his entire life, with the exception of a few years of national service in the Senate. He has zero executive experience. By any objective standard, he isn’t ready to be Commander-in-Chief.

(It’s interesting because when you break it down, Obama has almostnothing in common with the average American — blue collar or white collar. His ethnic backgrund, his international upbringing, his Ivy League education, his lack of true real work experience or military service…. All reflect a life history profoundly different from that of 99.9999% of Americans.)

But, his proponents argue, Obama has better judgement than the alternatives. On that basis, he should earn our votes. But does Obama really have good judgement? And how are we to know if he does, since Obama lacks any track record?

This is why Obama’s relationship with Rev. Wright is relevant. As the Wright issue reemerged front and center over the last week, we’ve been given new insight into Obama’s character and his response to pressure:

But we did gain a new perspective on Wright’s former parishioner, Senator Barack Obama. And it’s not flattering. It took the Democratic frontrunner 20 years–and 50 days since videos surfaced of Wright’s incendiary sermons–to discover that the man who helped him become a Christian, officiated at his marriage, and baptized his two daughters is a conspiracy theory-loving self-publicizer. What does that say about Obama’s “judgment,” on which he largely bases his claim to the presidency?

Worse, one of the main reasons for Obama’s unequivocal split from Wright had nothing to do with the reverend’s hateful ideology. You see, Wright had the temerity to suggest that Barack Obama is just another pol. “What I think particularly angered me was his suggestion somehow that my previous denunciations of his remarks were somehow political posturing,” Obama said. This only confirms Obama’s reputation for being thin-skinned and self-absorbed. 

Months ago, when Wright first became an issue in the campaign, many chose to believe the explanations of the Obama campaign that Wright’s words were taken out of context. That they did not adequately represent the compass of Wright, the man. Even Obama excused him as the product of his times, when he said: “”I could no more disown him than I can disown my white grandmother.” And yet, in the last week, Wright’s words — and actions — have shown him to be an irresponsible radical and a racist. Yes, a racist — per Wright:

On Sunday in Detroit, he explained to 10,000 people at the Fight for Freedom Fund dinner of the NAACP — an organization adept at taking offense at far less racist comments from nonblacks — that whites have an inherent “left-brain cognitive, object-oriented learning style. Logical and analytical,” while blacks “learn not from an object but from a subject. They are right-brain, subject-oriented in their learning style. That means creative and intuitive. The two worlds have different ways of learning.”

Blacks even have better rhythm, Wright explained.

And, in fact, for political expediency, if nothing more, Obama has now contradicted his own words and finally disowned Wright.

Amazing. So where is the spectacular judgement that Obama’s backers tout? I don’t see it. And yet the media continues to go easy on Obama, even as he begins to show more and more of his true character as the pressures of the campaign ratchet up.

It’s tempting for younger voters to fall for the Obama mystique…. But politicians have been fooled before — George W. Bush being the perfect example.

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Thoughts on the War in Iraq

Posted by A Hamilton on April 19, 2008

For many younger voters, the war in Iraq fuels a deep hatred of the Bush administration and, by extension, a general dislike of the Republican party. The problems here are manifest. Young voters believe the Bush administration was dishonest in the initiation of the war. They believe the war has been poorly managed. They believe things aren’t getting better in Iraq, and there is no reasonable chance of success. They don’t have a good grasp on the costs and failures of our previous nation-building efforts (e.g. how many younger voters know that in 1947, years after the end of World War II, over 10,000 Germans starved to death as a result of failed Allied occupation policies?). And maybe most importantly, they don’t have a realistic understanding of the chaos and death that would result if the US were to change course and abruptly withdraw from the conflict.

Here’s an excellent paper on the roots of the war and how realistic it is to solely associate it with the Bush administration and “neo-con” policy:

This [dogmatic liberal] version of events [in Iraq] implicitly rejects another and arguably simpler interpretation: that after September 11, 2001, American fears were elevated, America’s tolerance for potential threats lowered, and Saddam Hussein naturally became a potential target, based on a long history of armed aggression, the production and use of chemical weapons, proven efforts to produce nuclear and biological weapons, and a murky relationship with terrorists. The United States had gone to war with him twice before, in 1991 and then again at the end of 1998, and the fate of Saddam Hussein had remained an unresolved question at the end of the Clinton administration. It was not so unusual for the United States to go to war a third time, therefore, and the Bush administration’s decision can be understood without reference to a neoconservative doctrine. After September 11, the Bush administration weighed the risks of leaving Saddam Hussein in power against the risks of fighting a war to remove him and chose the latter, its calculus shaped by the terrorist attacks and by widely shared suppositions about Iraq’s weapons programs that ultimately proved mistaken.

If one chose to believe this simpler version, then the decision to invade Iraq might have been correct or mistaken, but the lessons to be learned from the war would concern matters of judgment, tactics, and execution—don’t go to war based on faulty intelligence; don’t topple a foreign government without a plan to bring order and peace to the country afterwards; don’t be so quick on the trigger; exhaust all possibilities before going to war; be more prudent. But they would not raise broader issues of foreign policy doctrine and grand strategy. After all, prudence is not a foreign policy. It is possible to be prudent or imprudent, capable or clumsy, wise or foolish, hurried or cautious in pursuit of any doctrine. The intervention in Vietnam was the direct product of the Cold War strategy of containment, but many people who think the Vietnam War was a mistake nevertheless do not condemn containment. They believe the war was the misapplication and poor execution of an otherwise sound strategy. One could argue the same was true of Iraq.

Regardless of how we go into Iraq, we are now there. And there are signs of progress. Younger voters would be wise to reject the tendency of Democrats and media to — in the words of Joseph Lieberman — “Hear no progress in Iraq, see no progress in Iraq, but most of all speak of no progress in Iraq.”  Proper consideration should be given to the facts. The situation in Iraq is far from ideal, or even good. But it does appear to be stabilizing, and the ultimate costs of withdrawal at this stage could be far higher than the costs of maintaining a continued, stabilizing presence.


Status of Iraq 1

Status of Iraq 2

Status of Iraq 3

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