It is just the little touches
after the average man would quit
that make the master's fame.
Orison Swett Marden
If You Build It, The Tax Collector Will Come
The faithful reader knows that I've been regularly tweaking Obama over his infamous Roanoke gaffe. The segment heading is, of course, is my variation of the famous quote from Field of Dreams: "If you build it, [Shoeless Joe Jackson] will come." Since government claims credit for private sector success (should we ever be surprised?), if the private sector, taking all the risk, succeeds, the government, in its role as organized legal plunderer, demands its cut of the action.
On the Public Sector Mismanagement of Infrastructure:
Why We Need a Primary Role for the Private Sector
Below is a clip of Obama (HT CrownThomas) espousing what I, channeling my inner Frédéric Bastiat, describe as "the slice of pizza fallacy", as Obama tries to educate the crowd on his dubious variation of neo-Keynesian multiplier effects. I find Obama's boring, flippant, staccato, seat of the pants, meandering delivery style excruciating to listen to; he comes across like a clueless, unprepared, unknowledgeable college lecturer.
This blog is an advocate for infrastructure, but let's have a reality check here: government has largely barred or restricted the private sector role. And what has happened? The US Chamber reviews these salient facts, based on transportation:
One-third of major roads are in poor or mediocre condition, 25% of bridges are structurally deficient or functionally obsolete, and the air traffic control system faces a multiyear overhaul. If transportation networks continue to deteriorate, the Chamber’s Transportation Performance Index projects that over the next five years, the economy could forgo as much as $336 billion in lost growth..As for private investment (or at least shared public-private investment)? Consider Democratic Senator Bingaman's amendment, according to AEI:
An amendment in the Senate's version of the highway reauthorization bill, which recently passed, penalizes any state that leases an existing transportation facility. The state would lose part of its federal highway funds. This amendment, proposed by Sen. Jeff Bingaman (D-N.M.), actively discourages infrastructure investment if it comes from a private source. The Senate bill would also eliminate the use of Private Activity Bonds for leases of transportation facilities, which are critical in attracting private investment. Yet America's dilapidated transportation system desperately needs private investment for renovations and maintenance.Where is the public outrage over the fact that Democrats routinely use highway funds (e.g., seeded from federal gasoline taxes) as a kind of slush fund to parcel out transit subsidies? Why is it with only 4 years of budget surplus (under a GOP Congress) over the past several decades and massive federal spending, somehow the Democrats, who have controlled one or both chambers of Congress for most of the past 60 years, have grossly neglected routine maintenance or have done little, if anything, to relieve massive congestion in many, if not most metropolitan area? AND YET OBAMA HAS THE AUDACITY TO ASK FOR MORE MONEY--for what? To have new projects fall under the same old same old government negligence or penny-wise, pound-foolish budget cuts? Do you think that the private sector would let roads or bridges fall into disrepair, knowing that they would lose customers? "Free" roads and bridges artificially lower costs of traveling and promote overuse of existing infrastructure. Government bureaucrats for all practical purposes have a job for life and do not have vested interest in the efficient operation of government services. Obama pushes spending for dubious projects, like high-speed rail, which will lose money from day 1.
Here is a decent discussion which answers some questions:
Capital spending on the building of infrastructures worldwide has declined. The reasons behind this decline in spending can be attributed to numerous factors. First of all, many countries have experienced large budget deficits in recent years and thus do not have the extra capital to spend on their infrastructures. Second, tax revenues in many countries have been stagnant since the oil crisis of the 1970s. Third, many countries have increased their spending on welfare, using money usually spent on the public sector, and have underestimated the increasing burden that population growth and other societal changes place on existing infrastructures. The long delays in the planning and implementation of major projects is a fourth significant problem. Delays are caused by the increasingly complex nature of many of these major projects as well as by the increased scrutiny and opposition by environmental advocacy groups and landowners.And what is the general makeup of government expenditures? According to the CBO:
State and local governments account for about 75 percent of total public spending on transportation and water infrastructure—even after subtracting from their gross spending the value of grants and loan subsidies that the federal government provides for such purposes—and the federal government accounts for the other 25 percent. The federal government has provided much of the funding for operating and maintaining the nation’s air traffic control system.HOW MANY TIMES have I written in this blog: government is part of the problem, not the solution?
The US Chamber estimates that we are leaving $1T of GDP on the table because of the fact the government has mismanaged national infrastructure (note: this is my characterization of US Chamber findings: they are less direct).
We need to get rid of dysfunctional policies: take a simple example of progressive resistance to mileage-based user fees for electric cars. Electric car owners don't pay their fair share of highway expenses because the cars don't use as much (if any) gasoline (but progressive politicians don't want to give up their freeloader subsidies of politically correct vehicles). The owners of these cars are typically higher-earning professionals, whereas more lower-income people are likelier to own cheaper, less gasoline-efficient vehicles. Even some Republicans oppose converting one or more (e.g., HOV) lanes on interstates or beltways into toll lanes. (Apparently INDIRECT tolls through gas taxes are more equal than DIRECT tolls...) We need fewer misguided, counterproductive populist proposals like Bingaman's, more ways of the public sector looking for ways to privatize infrastructure; this is a no-brainer when government at any level is facing multiple demands on limited tax revenues.
Surprised? A Progressive Economist
Calls For Devaluing the Dollar
Moneynews has an item about economist Dean Baker of the progressive Center for Economic and Policy Research calling for devaluation of the dollar, which he says is necessary to close a trade deficit.
This is so wrong-headed one hardly knows where to begin. First, the strong dollar reflects the current instability of competitive currencies, especially the euro. It helps consumers stretch their dollars. It also supports purchases of government bonds and helps contain inflationary pressures, particularly imported raw material or components.
Second, there is a conceptual misunderstanding as to whether a trade deficit is a good or bad thing. Daniella Markum has a relevant post where she explains, among other things, trade deficits are not inversely related with jobs, trade deficits correlate with a recovering economy, and, in particular:
America runs a high trade deficit because the supply of domestic savings consistently falls short of the demand for domestic investment. As long as that shortfall exists and the U.S. wishes to grow, America must import surplus savings from other countries – such as China. U.S. policymakers can best provide a long-term solution to the trade deficit not by introducing barriers to trade, but by addressing the tax and spending policies that keep savings too low.James Rickards further explains:
Currency wars [beggar-thy-neighbor] arise when a country steals growth from trading partners by cheapening its currency to promote exports. Citizens everywhere should realize that competitive devaluations are not a path to prosperity—they are a path to ruin. This scenario—one country trying to devalue its currency and inviting retaliation from other countries—is at the heart of all currency wars. The result can either be a deflationary contraction of world trade as seen in the 1930s or an inflationary destruction of wealth as seen in the 1970s. An even worse outcome—hyperinflation followed by a crash and deflation—cannot be ruled out.
The Federal Reserve set about trying to cheapen the dollar through policies such as quantitative easing—the printing of money—and zero interest rates. The idea was to make the U.S. dollar unattractive to foreign investors and import inflation from abroad through higher import prices. The prospect of inflation would encourage Americans to borrow and spend, and ultimately get the U.S. economy growing. Inflation was being encouraged for the first time in 40 years because it was the key to reducing the real value of America's debt. All savers and investors, both American and foreign, would be deprived of the value of their savings through U.S. dollar devaluation in order to benefit banks, hedge funds, speculators, and other leveraged investors.Alternatively, I've suggested that a nominal interest rate of zero is effectively a tax on future consumption or investment. Since tomorrow's dollars purchase less, one is encouraged to spend sooner than later. Also, as Rickards points out, persistent inflation, say, targeted at 2% per year, lowers the cost of borrowing because you are paying off the loan with cheaper dollars.
Bottom line: whenever you hear a progressive economist like Baker crying Chicken Little, be cautious. Trade and/or currency wars are no-win propositions.
A Fitting Tribute to Fallen Heroes
Let us hope that one day we will have political leadership as worthy as the virtuous, patriotic young people risking their bodies and health, even sacrificing their very lives.
One of the problems we see in any bureaucracy is that a manager will always find a way to spend his budget surplus. We see relevant problems pervasively in government. Recall the Milton Friedman quote from earlier this week (my edit):
I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.Starving the government beast is critical; enabling policies include, but are not restricted to, across-the-board budget cuts; consolidation of related operations; flattened bureaucracies; decentralization of transfer payments to the state/local government; and privatization of nonessential operations. We need to reset expectations, enabling citizens to take back their liberty and personal responsibility.
Across-the-board budget cuts force managers to prioritize government outlays. Isn't it time to stop the hypocrisy, e.g., of cutting reimbursements to doctors and providers automatically, while the politicians can't (or won't) even do the same to their own budgets?
The same thing holds true of the Defense Department/State Department. Just as a bureaucrat finds a way to spend his budget, so will hawks find a way to rationalize a large standing military through resource-sapping alliances and international meddling, which have unintended consequences. Our republican ideals require no sword; they are self-evident. If Big Defense has no major adversaries, it will promote smaller ones or invent others: it will dupe the average citizen and issue dire warnings. They manipulate citizens into a stage of panic against a phantom or exaggerated enemy. Patriotic music plays; the flag is omnipresent; high sounding speeches are made; and tributes to heroes are given.
Parents who have lost a son on the battlefield deserve more than lip service acknowledging their child's service to his country, medals and certifications, a flag or fleeting references on national holidays (while other families enjoy cookouts, shopping, or televised sports). Let us ensure that the number of families which make an ultimate sacrifice is minimal: the threat must be tangible and local, not abstract and over there.
We need to make trades, not war.
Musical Interlude: My Favorite Groups
Frankie Valli and the Four Seasons, "Candy Girl". Wow, does anyone have a falsetto like Frankie's? Cute brunette in the video: the sweetest thing in the video isn't the candy but Candy herself. Those lips look a lot sweeter than the wax lips I used to buy as a kid.
