Ron Paul: Analysis or Scoffing?

I often peruse a number of local blogs, including David Miller’s Pursuit of Liberty and Frank Staheli’s Simple Utah Mormon Politics. During the recent campaign cycle, Frank made clear his strong support for Ron Paul.

In a comment on a recent post of David’s, Frank accuses me of being among those that “scoffed at the idea that Ron Paul was the only real alternative.” I began to compose an answer to Frank’s charge, but soon realized that if I posted it, I would be inappropriately hogging David’s blog. So I thought I would write my own post on the matter.

If I scoffed at Ron Paul being the only real alternative, it was only due to what I believe to be a dose of reality. In January 2008 I explained that I differed with Paul on foreign policy. But I also differed with every other presidential candidate on at least some substantive issues. Depending on the nature of the policy and the candidate’s stance, support of a candidate isn’t necessarily ruled out by a few policy differences.

In the referenced post, however, I explained that Paul’s foreign policy stance came across as utterly unrealistic to most voters. Various polling later showed this to be correct. Nearly 15 months ago, people were generally unhappy with our nation’s foreign policy. But Ron Paul’s utopian libertarian approach to foreign policy seemed so impractical and idealistic that it rendered him an unserious candidate in the minds of most voters. It was the poison pill that kept people from taking anything else he said seriously.

Still, I never implied that voters shouldn’t support Ron Paul; only that few ultimately would support him. This is not simply due to his foreign policy statements. Paul has done much over the years to limit his appeal to the point that he is not broadly politically viable.

Some ardent Paul supporters delude themselves into believing that he would have had a reasonable chance of becoming president if only this or that might have been tweaked — if the media had treated him fairly or if the establishment hadn’t quashed him, for example.

All of these suppositions require the willing suspension of disbelief. Repeated polling found that Ron Paul enjoyed very deep support in very narrow categories. Pollsters knew that no amount of positive media coverage, money, or getting his message out would have expanded his support much beyond those narrow categories.

Mitt Romney, on the other hand, enjoyed much broader support with depth in some categories. But his support was still regional, meaning that it was insufficiently broad to make him nationally competitive, even after spending unprecedented wads of cash. John McCain’s support was quite broad but very shallow. In the end, that was enough to win a party nomination but too weak to carry a general election.

In an interview I listened to during the campaign, Ron Paul essentially admitted that he was a ‘message’ candidate — that he was in the race to send a message and to influence the debate, rather than to win. That might be enough to gain the votes of those of us that found the other candidates unworthy of our support. But people that study political psychology can tell you that a major factor in most votes is the desire to be identified with the winner. Just sending a message isn’t enough for most voters. They want to win.

Again, you can argue all you want that if only some minor thing had been different, Ron Paul would have been viable enough for winner-oriented people to vote for him, but this is simply not a reflection of reality.

Like it or not, political races are as much popularity contests as anything else. For decades Ron Paul has created and marketed himself as a contrarian. This packaging necessarily limits his appeal and makes it impossible for him to win broad based support.

People appreciate criticism of the government. Carping about the government is a favorite American pastime. But Paul’s message is so stark as to seem to many to be a refutation of some things they have come to believe to be essential elements of what America means.

I state these criticisms of Ron Paul as an admirer of many of his positions and without intending derision. I am only putting forth my analysis of the matter. Regardless of how much I like some of what Ron Paul has to say, whether I put up yard signs supporting him, or whether I vote for him; the simple truth is that he is not and never will be a viable candidate for U.S. President.

I do not think that failure to enthusiastically support translates to scoffing. But, if trying to be an objective analyst makes one a scoffer, then I guess Frank is right.

Institutions of Liberty

Broad based liberty can only exist in a society that has thriving institutions of liberty. These institutions comprise a sprawling multi-level network that informs and impacts every facet of life. This network includes institutions of every conceivable size.

It is not possible to design such a broad, multi-faceted network. But it is possible to develop a framework that supports such a network and encourages its survival and expansion.

The list of types of institutions of liberty is extensive. It includes businesses, libraries, youth groups, educational establishments, trade associations, municipal governments, churches, legal systems, scientific societies, media and other communication lines, travel routes, charity and service societies, free and open elections, arts, military, athletic clubs, etc.

The fact that an institution falls into one of these categories does not make it a liberal institution. (Note that the term liberal is here used to denote support of human liberty rather than to describe a specific modern political ideology.) In fact, most of the categories listed above include many illiberal institutions — organizations that run counter to human liberty.

If category isn’t enough to classify a structure, what delineates between a liberal and an illiberal institution? It would be easy to say that liberal institutions are dedicated to human liberty, while others are not. But in fact, many organizations not devoted to liberty actually function to encourage it.

For example, the argument that religion works against human freedom is at least nearly as old as recorded history. But celebrated economist F.A. Hayek (himself a non-religionist) makes a compelling argument in his book The Fatal Conceit that religion plays an indispensible and unparalleled role in transmitting the moral code essential to human liberty. (It would be easy to challenge my one-sentence synopsis of chapter nine of Hayek’s book, but I suggest reading Hayek’s well organized thoughts before doing so.)

Similarly, it has been shown time and time again that a healthy family structure functions to decrease harmful dependency and increase human liberty. This is true, even if the family has no particular devotion to freedom.

So, it seems to me that the test of whether an organization is liberal or illiberal must come down to its actual effect on liberty. We may classify an institution as liberal if its overall effect supports liberty, even if some of its actions work against it (since few human organizations are pure). I also believe that many organizations have transitioned over time from liberal to illiberal and vice versa.

Thus, I also contend that it takes vision and effort to create and maintain liberal institutions. I somewhat disagree with various strict libertarians that such structures would spontaneously pop up and naturally continue without concerted and united effort. To the extent that this does occur, these institutions owe much to the freedom-friendly environment fostered by other liberal institutions and the deliberate effort to promote such an environment.

Since organizations are continually in flux, it is imperative that we work to make sure that our liberal institutions continue to advance liberty. I also believe we have a duty stand against illiberal institutions, and to try to correct them where possible. The good thing about the work of liberty is that each person, regardless of their status in life, can and should do their part to support the cause of freedom.

Voters are Not Hapless Victims

Americans hate Congress. Americans love to hate Congress.

Nearly three months into its term, the 111th Congress is enjoying approval ratings around 30% positive and 56% negative. This is almost exactly on par with the approval ratings for the 110th Congress at the same time two years ago. After May 2007, however, the ratings for the 110th Congress declined below that point and never recovered, dipping as low as 12+/79– last fall. If the current trend continues, the honeymoon period for the 11th Congress will end by summer.

The 109th Congress, by contrast, had positive ratings in the high 20- to low 30-percent range its entire term. Its negatives fluctuated from the low 50s to the low 70s. The 108th Congress had about the same. In fact, it’s been a long time since Americans have genuinely approved of Congress. It is essentially a failed institution in the minds of most Americans.

But we apparently think that with few exceptions, Congress is only bad when its members get together. I say this because we keep sending the same people back to Congress election after election. We hate Congress but generally approve of our own representative and senators.

The 2006 congressional elections produced a major shakeup. The Democrats picked up 7% of House seats and 6% of Senate seats. Even in that election, incumbents mostly kept their seats: 94% in the House and 79% in the Senate. Those that lost had been successfully tied to scandals in a very public manner (see OpenSecrets.org article).

Last November’s elections returned 95% of House incumbents and 93% of Senate incumbents to Washington (see OpenSecrets.org article).

There are many reasons for incumbent advantage. Americans have a flair for appearing to favor political outsiders. But the reality is that Americans give a lot of weight to experience. The more experienced candidate wins more than three-fourths of the time (even in races featuring no incumbent). Who has more experience at the job than the incumbent?

Gerrymandered districts also help return House incumbents to Washington over and over again. The incumbent in most districts merely needs to win her party’s primary to ensure re-election in November. Senators have it a little more difficult, because they have to appeal to voters across their state.

Incumbency brings name recognition, which has long been a major factor in political races. Every time the incumbent’s name makes the news, it is advertising. Some of it is good; some is bad. In general, however, it works to the incumbent’s advantage unless he has outraged voters with disgraceful behavior.

Donors also know that incumbents are most likely to win. Incumbency brings more opportunities for fundraising, usually including support from their party’s establishment. In nine out of ten presidential and congressional races the top campaign spender wins.

While incumbency has its distinct advantages, challengers can win even when an incumbent hasn’t been any more dishonorable than the average federal legislator. For example, underfunded newbie Jason Chaffetz convincingly beat four-term incumbent Chris Cannon in last year’s primary in Utah’s 3rd district, thanks to a lot of work at the grass roots level. Also, a challenger’s lack of a voting record can sometimes work to her advantage.

While all of these things are true, I’m afraid that they tend to paint the voters as victims of the political class and its fellow travelers. While voters can certainly fall prey to manipulation, I don’t buy the general argument that the masses are little more than innocent dupes or useful idiots in a political game that is beyond their control.

The people of this nation have more power and capacity than that. In fact, our political affairs are in their current state by choice. We choose to permit Gerrymandering. Heck, sometimes we require it. We choose to accept massive incumbency advantage. We consent to political funding schemes. It doesn’t have to be this way. We choose it, even if we do so by unwillingness to do anything about it.

Instead of discussing the symptoms, it would be better to get at the root of the matter. We should be asking why we as a society choose to organize our politics in this manner. Despite what we tell pollsters, we seem to actually be far more willing to live with what we’ve got than to take steps to effect real improvements.

This could mean that we (as a whole) are fairly satisfied with the current state of affairs, despite what we say to pollsters. Or it could mean that the elite class simply hasn’t pushed the populace to the point of rebellion but that the pot is simmering. Maybe the truth lies somewhere between these two points.

At any rate, I believe Americans have chosen and continue to choose our current political model, including its problems. The question is: why?

On Behalf of a Grateful Nation

They chat amicably but subdued; relaxed, smiling, and renewing acquaintances. The nine military men stand in a circle in front of a mortuary on a lovely early spring afternoon. I watch from around the corner of the building, where I aim to stay out of sight of the funeral attendees.

The men vary in age and represent different military branches. Two Air Force officers in blue coats. One Navy officer in his “dress blue” double breasted jacket (that looks black to me). The two enlisted Army men clad in their old dress green uniforms are younger than the rest. The four men in VFW uniforms appear somewhat older than the others. All of the men wear shiny black footwear.

A signal comes from inside the building. The VFW men retrieve rifles from a nearby vehicle and assemble in a line at attention in front of the building. The five men in Class A military uniforms assemble in a wedge formation arranged by rank, and enter the building.

Although I can’t see what is happening inside, I am familiar with the procedure. The military men step to the flag draped casket, lift the flag, and silently fold it with military precision. I see the leader of the rifle detail call the order. The riflemen fire three volleys with exact coordination and return to attention.

I watch as my teenage son — a volunteer with Bugles Across America who has been standing at attention in his BSA Venturing uniform — raises his trumpet to his lips and begins sounding the haunting melody of Taps. Today he has a friend along, also in Venturing uniform. He is near me, out of sight of the funeral attendees. At the end of each stanza, my son pauses as his friend sounds a repeat of the same notes on his own trumpet. This is known as Echo Taps.

I know that inside the building, the five military men are facing the casket and presenting a final salute. Following the sounding of Taps, a member of the flag detail steps forward, kneels before a family representative, and presents the folded flag on behalf of a grateful nation for their loved one’s service. (Each branch of the service has its own wording.)

The flag detail reassembles and exits the building. “At ease” is ordered. All of the military men quickly gather up the brass (shell casings) from the ground. The rifle detail stows the rifles. Then there are handshakes and appreciation all around. One of the VFW members smilingly tells my son’s friend, “Good luck, Herb Alpert.”

The look in these men’s eyes and their demeanor says it all. They are honored to perform this service; an act they consider important and sacred. Each of them is fully aware that someday it will be their turn to be the honoree at a similar service.

The two teenagers chatter in the car as I drive away. The sunny afternoon looks the same, but something inside me is different. I feel a little more thoughtful. A little more grateful.

Can AIG Fail Softly? Should It?

An AIG failure can be safely managed without producing systemic collapse, says Lucian Bebchuk, a professor of law and economics at Harvard, in this WSJ article.

We have been told since last autumn that it was necessary to pump (apparently endless) billions of dollars into AIG to prevent the complete collapse of our national and worldwide financial industry. If the whole financial industry were to crumble, we would all be left to make do with only the assets currently in our possession.

Such a catastrophic failure is a seriously scary scenario. Look in your wallet. None of your plastic cards would work anymore. Your paper money would be worthless. ATM screens everywhere would go dark. What would you trade for your next tank of gas or loaf of bread? Is it any wonder that demand for gold has skyrocketed (driving its price up), or that retailers of emergency and home storage products are having trouble keeping up with demand?

To prevent such dire events, the government first dumped an $85 billion “loan” into AIG in exchange for preferred stock shares. Then every 90 days or so since then, we’ve chucked in another few tens of billions of dollars. And, whaddoyaknow, that has added up to a pretty large chunk of taxpayer money.

But at least we’re buying worldwide financial stability, right? Well, not quite, says Bebchuk. Some of AIG’s capital infusions to its customers are producing no value for taxpayers, he says. Many of these customer firms deserve to get what Bebchuck calls “a significant haircut.”

Bebchuk is not taking the hard libertarian line that the best course of action is to allow all of these firms to take their lumps even to the point of failure, regardless of the wreckage that would occur. (To be fair, many libertarians say that in the long run, this would produce the most humane outcome.)

Rather, Bebchuk says that Chapter 11 bankruptcy would be quite feasible, provided all of the various governments involved step up and deal directly with firms to which AIG has derivative obligations, and “commit to provide supplemental coverage that would make up any difference between the value that creditors would get from AIG'S reorganization and, say, an 80% recovery.” For this cushion, governments would get stock shares in these businesses, much as the U.S. government is now doing with AIG.

Why should U.S. taxpayers solely bear the burden of AIG’s obligations to international firms? AIG is a multinational firm with obligations in many nations. Not only should other governments deal with AIG problems within their own borders, many have actually demonstrated a willingness to work on today’s serious economic issues.

Bebchuk says his plan “could allow setting different haircuts for different classes of creditors.” It sounds intriguing. I like the idea of letting U.S. taxpayers off the hook for foreign obligations. However, I believe that government ownership of private business creates a moral hazard that should be avoided.

When government competes in the marketplace, it uses its exclusive coercive powers to crush competitors and to pick winners and losers, irrespective of what the market desires. It uses its power to change the rules of the game. It is like having a powerful sports team that owns the stadiums, writes the rules, and employs all of the referees. What other team could successfully compete?

I have to wonder what is worse: government owning shares in one big corporation, or government owning shares in many companies throughout the world.

I have long felt that the government’s midnight deal to prop up AIG was not the best way to have handled the situation. I believe that subsequent events have proven this out. It is nice to hear a proposition for letting AIG fail without destroying our financial system. But is this solution really any better than what we now have?

Should Teacher-Student Texting be Prohibited?

Salacious news sells well. So recent reports that two middle-aged female school teachers at a northern Utah school each had sexual liaisons with the same 13-year-old male student have generated a lot of public interest.

The vast majority of pedophiles being ‘corrected’ by our justice system are male. But females can be pedophiles as well. This is the reason that any organization where adult-child interaction is part of the program and/or where adults are placed in positions of trust or responsibility over children must employ tactics designed to minimize the opportunity for inappropriate relations. For example, the Boy Scouts now prohibits any one-on-one interaction between an adult and a child at any BSA event (except for parent-child).

Public attitudes are changing, but there is still a difference in the mind of most people when it comes to relationships between adult males and children, and relationships between adult females and children. In effect, a male in such a relationship is regarded as having a higher level of culpability than a female, regardless of the relative ages of the individuals involved.

Recently, when a male teacher at a local junior high school engaged in an inappropriate relationship with a female student, the public roundly despised the man. The lovesick schoolgirl was only a victim. But when a pretty teacher in Florida was found to have been having sexual relationships with male students, there was a perception that the boys were having their way with the teacher. In both situations, adults abused their position of trust to entice children into improper relationships.

In the case of the two female junior high school teachers and the 13-year-old boy, a fair amount of personal and erotic texting went on between teacher and student. A friend of mine suggested that the boy bore a lot of blame for this. I responded that the boy no doubt behaved entirely inappropriately, but that the teachers — each of whom was old enough to be the boy’s mother — had a duty to see to the boy’s welfare rather than satisfying their own lusts with the confused lad.

Imagine, I said, if I were to receive texts of a personal nature from a 13-year-old girl. What would be the proper course of action? My friend admitted that the answer was quite clear. I should involve suitable adult parties to make sure the girl got the help she needed. The very moment I encouraged the girl’s improper behavior, I would be wrong, both legally and morally. It is no different for these two teachers.

Having worked with youth groups most of my life, I have come to understand that some adults are good with youth because they relate to them on a peer-to-peer basis rather than an adult-to-child basis. Young people often adore and flock to such adults. When this is coupled with a position of trust, it presents broad opportunity for abuse. We are coming to recognize that even if a child welcomes romantic attention from an adult, the adult is wrong for pursuing such. Indeed, the adult is wrong for not putting a stop to it and getting help for the child.

Since the criminal activities of these two abusive teachers have come to light, there have been fresh calls for the banning of all text messaging between teachers and students (see St-Ex editorial). It is difficult for schools and other organizations to keep regulations current with rapidly evolving communication technologies. Should schools implement a zero tolerance policy for texting between teachers and students? Is it ever appropriate for teachers and students to text each other directly?

Several comments on the St-Ex article suggest that banning all texting between teachers and students would be an overreaction. Texting students might be appropriate for “teachers chaperoning field trips and track meets and other outings,” for example.

One St-Ex commenter suggests “a rule requiring any texting or emailing or photo -sending by teacher to student to be copied to” appropriate authorities. (How about copying to students’ parents? How about a requirement to forward to the proper authorities any message a teacher receives from a student?) “Any text/email/photo not so copied would be presumed inappropriate and lead to disciplinary action.” Maybe different contact rules would be appropriate for different student age groups.

Zero tolerance policies almost always end up causing inappropriate discipline and broad punishment of the people that play by the rules. So I am reluctant to advocate elimination of all texting between teachers and students. Rather, I think input from teachers, administrators, students, and parents should be sought regarding this issue. Then appropriate policies should be crafted at the appropriate level to mitigate the problems in the least onerous method.

Can Low Voter Turnout be Helped?

Many have bewailed Utah’s relatively low voter turnout rate. NonprofitVote.org reports that in the recent election, only 54.8% of Utah’s eligible voters bothered to vote, putting the state in a dismal 48th place nationwide.

But the statistics provided by NonprofitVote.org reveal a little more information. Just four years earlier, 68% of Utah’s eligible voters turned out, putting Utah in 28th place among states, about in the middle of the pack.

When considering the four-decade trend, Utah’s low 2008 voter turnout is an anomaly. It falls so far out of line that, depending on the statistic being modeled, most statisticians would drop the data as an outlier.

By age, income, marital status, and race categories, Utahans tend to vote at rates very similar to those of the national average for each grouping. Utah’s rate is brought down by its high number of young adults ages 18-24, the group with the lowest turnout across the nation.

The chief reasons for the 13.2% drop between 2004 and 2008 seem quite obvious. Many Utah voters weren’t much interested in voting for any of the presidential candidates. Remember, that in the presidential primary, the vast majority voted for Romney. Despite the fact that Gov. Huntsman was lined up behind McCain, many Utahans felt jilted and never warmed to the crusty senator from Arizona.

Moreover, there were no competitive statewide races to bring voters out. The governorship was nailed down tight. The big race of interest in the third congressional district had essentially been decided in the primary. Many municipalities hold their races in the off years, so there was less interest generated from that level as well.

Moreover, had 13.2% or even 30% more voters turned out in Utah, it would not have altered the outcome almost any race. These factors — no validating nationwide or statewide race, few local races, and races whose outcomes were predetermined — reduced the incentive for people to vote last November.

Today’s Utah Policy Daily weighs in on this issue.

“To those who say that partisanship and Utah’s caucus system create voter apathy and low turnout, John E. Gidney, a former candidate for Taylorsville City Council, has this response: “City elections are non-partisan. Candidates are not decided in caucus or convention but in a primary, if needed, and then they go on to the general election. Elected city officials can have great effect on people's lives, yet city elections usually have the lowest voter turnout of any election. Why don't people vote? That is a question that probably has many answers but one is plain apathy!””

I have been thinking about this since only 9% of registered voters in my city voted in the 2007 municipal primary election. We like to lambaste people as too apathetic to do their civic duty. While nagging may shame some people into voting, I do not believe that is a course that will produce better civic involvement.

I have to believe that most of my neighbors are rational people that are interested in doing what is best for themselves and for their community. In my own city I have watched voter turnout vary drastically from election to election. Far more people vote when they feel passionate about a candidate or an issue or when they think that their vote may actually make a difference. The less there is of either factor — passion or competition — the less likely it is that people will vote.

My city also held a special bond election in 2007 to vote for whether to raise everyone’s property tax by a fairly significant amount to pay to cover the lap pool portion of the city’s swimming facility so that it could operate year round. This was a clear issue that impacted voters directly. More voters were informed and motivated. As I noted back then, 25.6% voted in that election. 71% of them voted against the tax increase.

A couple of years earlier, a particular city council member had made a real nuisance of himself to several small businesses in the city. In doing so, he had abused the authority with which the voters had trusted him. Banter about it went back and forth in the newspaper and in council meetings for weeks. Voter turnout in the nonpartisan primary was more than three times the 2007 municipal primary turnout. Out of a field of candidates, this tenured council member came in a distant last place.

In the case of my city’s 2007 municipal primary, a field of 10 candidates was being reduced to a field of six for the final election. Although there was plenty of competition, it was frankly very difficult to judge the relative value of any of the candidates, even after attending meetings. Most voters figured that it would be better to let those that had some inside knowledge about the candidates make the selection, rather than vote blindly.

You can argue that all of the city’s registered voters should have become more informed, but I have to tell you that this is far more difficult than it sounds. I personally knew many of the candidates, read all the campaign literature I could get my hands on, and talked to the candidates personally. All of the information I gathered was still very scanty. I was somewhat upset when I went to the polls that I had gone far out of my way to become informed and still didn’t have enough information upon which to base a solid decision. How can I fault my neighbors for feeling the same way?

Our political parties do much to get out the vote, but they are often their own worst enemies. Examples of corruption and bizarre cartoon-like behavior and stances in both parties are too numerous to count. Why should anyone trust any adherent to our major political parties?

Low voter turnout has many causes and solutions are elusive. While simply getting more people out to vote rarely makes a difference in the outcome of a race, having more people disconnected from the political process makes a difference in the quality of the process and in our governmental institutions. It makes for different types of candidates and for different types of actions once people are in office. And I don’t mean that in a good way.

This is part of the reason for the declining level of confidence Americans have in their political institutions. That confidence decline, in turn, engenders voter apathy. It is a self perpetuating downward cycle. The authors of this article discuss our failing governmental institutions, noting:

“Only less than a quarter of Americans believe that the federal government truly reflects the will of the people. Almost half disagree with the idea that no one can earn a living or live "an American life" without protection and empowerment by the government, while only one-third agree. … It shows fundamentally that public confidence in government remains low and is slipping.”

This only makes people more likely to become politically disengaged. Still, this SL Trib article (although paying tribute to some debunked myths about voter turnout) discusses how voter turnout is tied to a larger nationwide social pattern of general decline in social and civic institutions, which I posted about in September 2007. It is hard to combat a broad social trend.

Difficult as that may be, I think it is essential to teach the importance of civic involvement. I believe that what I wrote in September 2007 is still accurate: “Civic disengagement ultimately leaves a political class in charge of more of our lives than we ever thought possible, and without adequate checks and balances.” That, my friends, is the opposite of what America is supposed to be about.

Some politicos think the situation is hopeless and cannot be successfully turned around in any meaningful way without an actual revolution. Are they right?

Good Job On Cutting Spending

Everyone is congratulating the Utah State Legislature for managing to cobble together the biggest spending cut in the history of the state while minimizing the negative impact. And believe me, the $600 million spending cut is quite an achievement.

But let’s also take a little longer view than just the 2009 legislative session. Does anyone remember that in 2006 Utah ended up with the biggest budget surplus in the history of the state? Then in 2007 the state had another massive budget surplus. The surpluses from these two years amounted to about $1.3 billion.

A paltry amount of this horrendous taxpayer overpayment was budgeted as tax cuts. Times were good for state government. I was among the lonely voices calling for fiscal discipline and austerity in those long forgotten days. Like a tiny handful of others, I nagged about boom cycles eventually going bust.

It’s not that legislators were unaware that the gravy train would eventually grind to a halt. Nor were they completely irresponsible in their spending. Many worked to enact one-time spending measures aimed at preparing the state for future hard times. Some of that has actually paid off well. Otherwise, we’d be in even worse shape.

But one of the key things we did in the years Utah was flush with cash was to expand state government at a rate far beyond the normal growth in population plus inflation. Getting money for new and expanded government programs was relatively easy in those halcyon days. This year’s legislature was tasked with having to make “hard decisions” about where to cut back on the programs we grew so wildly during the glory days.

Frankly, I detest it when any politician harrumphs that they are “working hard” to make “hard choices” or something of that nature. It seems so condescending to me. What’s hard for these politicians is telling lobbyists and all those people with their hands out to government that they can’t get the amount of largess that they desire.

You see, during the boom years, it’s rewarding to play the hero. You can tell your schmoozing lobbyist friends and grubbing special interest groups that you can get them some or all of the funding they want. The flip side of the coin is that in bust years, politicians fight to avoid the pain of disappointing those that incessantly seek increased government dependency.

The bottommost consideration in all of this is the people that actually pay the cost of government. Yes, many are the same people benefiting from government. But few realize the how much we punish taxpayers and everyone involved in the economy when we expand government.

A 2006 study showed that “the cost to the private sector of providing the government an additional $1 in tax revenue is about $2.50, and in some circumstances much more.” Actually, the study considers more than just raising taxes. It also addresses increasing government spending irrespective of taxes. Government expansion produces an outsized economic drag that costs jobs and decreases prosperity.

Government is necessary and there are essential services that only government should provide. But I think that this set of services is far smaller than that to which we have become accustomed. It’s certainly smaller than most of our elected officials believe it to be.

Some speculate that people would buy far less government if they realized its true cost. I’m not so sure that is the case. Human nature is sometimes an odd thing. As long as we think we’re getting the value we want out of government, many of us assume that ‘the other guy’ is (or the rich people are) bearing the real burden. But this simply is not true. Every single person pays the cost in economic growth and jobs that will never be seen, lost opportunities, and higher prices.

So while I heartily cheer the legislature for cutting spending, I am completely confident that given the least opportunity, they would move to aggressively expand government as much as possible short of causing widespread public anger. While Utah government is a paragon of fiscal responsibility when compared with the likes of California, we are far from the ideal of liberty to which we should aspire.

"Washington is like 'the Godfather'"

It has been said that the process of making legislation is like the process of making sausage: you don’t want to see either one. But liberty relies on an informed public. Thus, it is essential for Americans to understand how laws are made, despite the unpleasantness. I’m not talking about the School House Rock version, but the way it happens in real life.

Former Bush II speechwriter William McGurn provides an interesting view into the legislative process in this article. Pork and earmarking make for bad legislation. But it is pork and earmarking that enable legislation to pass. The uglier a bill is (i.e. the more earmarks and pork it has), the more likely it is to pass, explains McGurn.

When a legislator adds an earmark or pork to a bill, the legislator has an incentive to see the bill become law. The more legislators that add personally desired projects to a bill, the uglier the bill becomes, but also, the more likely it is to pass. Having added such projects to a bill, a legislator is in no position to denigrate another legislator’s add-ons.

McGurn notes that such legislators may even duplicitously vote against the legislation if enough other votes exist to ensure passage, so that the legislator can wear a mask of fiscal conservatism for the folks back home.

The Chief Executive has little incentive to rein in the legislature. Doing so might anger a legislator whose vote may be crucial on some future piece of legislation. Besides, by allowing legislators to pork up a bill, the executive gets to add plenty of provisions of personal interest as well.

The problem is that this type of horse trading — agreeing to look the other way while the other guy adds lard to a bill — ill serves the American public, regardless of what Senator Bennett says. Almost nobody in Washington actually believes William Weld’s maxim that “there is no such thing as government money, there is only taxpayer's money.”

Before anyone engages in partisan ranting on this issue, McGurn is quick to remind us that both parties are deeply steeped in the larding practice. Writing about the current hideous $410 billion spending bill signed today by the President, he says that “though Democrats account for about 60% of the earmarks in the omnibus, six of its top 10 Senate earmarkers are Republican ….” He also reminds of the GOP’s 2005 earmarking profligacy that was partly to blame for voters turning against the GOP in 2006.

There would not be nearly as much of this kind of gaming going on with your money if Washington didn’t have such sprawling powers as it now does. If the general welfare clause of the Constitution were not so broadly interpreted, politicians would have no fig leaf with which to cover most of the spending done under the government rubric. As it is, there is no logical limit to what government is permitted to do or spend.

A healthy understanding of the current repulsive state of legislative gamesmanship should temper any ascription of altruism to any piece of legislation coming out of Washington.

During the Constitutional Convention, John Rutledge argued against any proscription against slavery, saying (in Madison’s words) that “Religion & humanity had nothing to do with this question. Interest alone is the governing principle with nations.” Rutledge was condemned for his position. But in essence, this is the state of our government today.

With apparently limitless funds at play and no real connection between the taxpayer and the money allocated by government, we should not be surprised when self interested people come out of the woodwork to seek a piece of the expansive pie continually being divided up by our politicians.

Finally, McGurn quotes Steve Ellis, vice president of Taxpayers for Common Sense. Explaining the larding process in legislation, Ellis says, “Washington is like ‘the Godfather.’ The earmarks are favors from the Don. And once you've asked for his help, you're in it together -- whether you want to be or not.”

Senator Bennett is right in noting that earmarks only make up a small fraction of federal spending. But the process of earmarking leads to much larger spending and bad legislation. Earmarks are representative of what is wrong with the Washington, D.C. political establishment.

Moreover, this effect insidiously flows down to poison state, county, and municipal governments. All of us are co-opted and have become reliant on kissing the rings of Washington power brokers to ensure new or continued funding for our interests. These things ought not so to be (James 3:10).

Consumerism Views the Economy Backward

Have you been getting fewer noisome credit card offers lately? If so, you’re not alone. Revolving credit is contracting. Meredith Whitney, CEO of her own stock analysis organization, says that about half of the “roughly $5 trillion in credit-card lines outstanding in the U.S.” will “be expunged from the system by the end of 2010.”

My first thought upon reading this was that $5 trillion in available credit card debt amounts to nearly $17,000 for each living person in the nation and nearly $50,000 for each U.S. household. That’s a lot of available unsecured debt. Whitney notes that Americans generally only borrow 17% of this accessible amount. Still, that amounts to $850 billion in outstanding credit card debt, or about $7,500 per household.

We’re swimming in credit card debt. Americans have been buying on credit like crazy for the past few years. Wouldn’t reducing available credit card debt by half be a good thing? Wouldn’t that be the prudent way to go?

Hold on there, says Ms. Whitney. Let’s consider the ramifications of “this swift contraction in credit well beyond the scope of the current credit market disruption.”

Whitney writes, “Without doubt, credit was extended too freely over the past 15 years, and a rationalization of lending is unavoidable. What is avoidable, however, is taking credit away from people who have the ability to pay their bills.” This would have an unnecessarily harsh impact on the economy.

While everything that Whitney says is accurate; she seems to look at our economic problems primarily as a lack of adequate consumption. In fairness, this may be because she is treating only a specific segment that happens to be consumer centric. But there are plenty of journalists, government officials, and highly educated economists that take the same view.

While “two-thirds of the U.S. economy [is] dependent upon consumer spending,” as Whitney notes, putting the key focus on consumerism provides a skewed view and leads to doing the wrong kinds of things. The emphasis must not be on promoting consumer spending, but on supporting and encouraging the effective development and marketing of goods and services that consumers want at prices they are willing to pay.

You may argue that these are just two ways of stating the same thing, but they are not. One is like trying to grow a tree in your yard by looking mainly at leaf production. The other is like trying to grow a healthy tree by properly preparing the soil and carefully tending the whole tree from the roots on up. This approach takes longer, but it will achieve the desired results more readily than the other method.

Today, it seems that most of our public policies aimed at helping the economy are ‘leaf’ oriented rather than ‘root’ oriented. We have the wrong focus, so we’re doing the wrong things, even to the point of harming the roots that are essential to the vigor of the whole tree. If we get the proper focus, we’ll be more likely to do the right things.

Our economy is not primarily based in consumer spending. It is based in freedom that results in the kind of productivity that not only provides people resources to spend, but gives them goods and services upon which they want to spend those resources. Until we get this right, we’ll continue to do the wrong things.

The Tyranny of Legalism

Last week I read an AP article about the Supreme Court ruling against Wyeth Pharmaceuticals in favor of Diana Levine. Levine lost part of her right arm when an anti-nausea drug manufactured by Wyeth was administered intravenously.

The article is a great human interest story. Levine was a professional musician that played piano and guitar. Since I have been an amateur piano and guitar player for decades, I immediately identified with Levine. From such a musician’s point of view, there is no amount of money that could adequately compensate for the loss of an arm.

But as I read the article, I was bothered by the seeming lack of negligence on the part of the drug manufacturer. Everyone admits that Wyeth had an explicit bold type warning on the drug that intra-arterial injection would cause gangrene and result in the loss of the limb — a warning that a medical technician ignored.

Clearly the medical technician was negligent in this matter. Levine won her lawsuit against the technician and the hospital. But she also sued the drug manufacturer. A jury awarded her $6.7 million, but Wyeth contested that finding. The Supreme Court ruled 6-3 against Wyeth, saying that compliance with FDA warning rules does not pre-empt state court challenges.

Perhaps Wyeth chose to challenge the suit from a weak angle. But I’m still trying to wrap my head around Wyeth’s supposed negligence. It’s difficult to second guess a jury, but medical malpractice juries are famously easy to push to the side of the injured party. Exactly what was Wyeth supposed to have done in order not to be negligent?

Writing about this ruling, L. Gordon Crovitz says in this WSJ editorial piece, “The simple lesson businesspeople took was that the drug maker could not have done anything to avoid being sued.” With this ruling, the Supreme Court has effectively erected an impossible standard for businesses.

What kind of fallout can be expected from this new unattainable obligation? For starters, the bar for suing any manufacturer has been lowered. We shouldn’t fool ourselves into thinking that this will apply only to pharmaceuticals.

This means that manufacturers will increase their defensive practices. They will factor those anticipated costs into their products, making their businesses less flexible and less productive. This will raise the cost of everything for everyone. Manufacturers that can’t afford this new burden will go out of business. But trial lawyers will make a lot more money.

What this does not mean is that products will actually become safer. Rather, manufacturers will seek new ways to insulate themselves from lawsuits as much as possible. Today’s ridiculous product warning labels will now become even more bizarre, as manufacturers begin to include specific warnings for every state. Anything we buy will come with more paper and small print, but none of this will make any of us safer.

Crovitz tries to paint this legal finding as one of the final hurrahs for the Luddites of an antiquated legal system that must inevitably give way to a model suited to the Information Age. Maybe. But our outdated legal system has a far better funded constituency than did Britain’s 19th Century textile artisans. Trial lawyers are one of the wealthiest groups in the nation. Even in the current recession, theirs is still a significant growth industry.

Each of us deserves to be protected from unscrupulous and/or negligently shoddy manufacturers. But there is a point where legal zeal exceeds common sense. When that happens, it means less liberty for everyone.

Now Is the Time to Protect Liberty

Throughout my life I have seen times when a goodly number of Americans have willingly desired to relinquish liberties when the reasons for doing so have been painted in an altruistic light. While some would have us believe that this began with the Bush II administration’s post-9/11 security measures, a study of American history shows that episodes of this have occurred at fairly regular intervals, beginning prior to independence.

As people today cast wildly about for solutions to our present economic problems, it seems that some are willing to jettison precious freedoms for a promise of economic security, much as many were willing to give up liberties for protection from terrorists after 9/11.

I came upon an important quote by Louis Brandeis, who was an associate justice of the U.S. Supreme Court from 1916-1939. Brandeis often aligned himself with progressivist thought, so I find plenty of his writings with which I disagree. Still, Brandeis’ writings include many timeless principles, such as those embodied in this quote:

“Experience should teach us to be most on our guard to protect liberty when the government's purposes are beneficial. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding.”

The financial gyrations of our federal government over the past six months exemplify “insidious encroachment [on liberty] by men of zeal, well meaning but without understanding.” While some still trust the centralized ‘we’re so smart we know how to fix this’ approach by the late Bush and current Obama administrations, it increasingly requires a willing suspension of disbelief to do so.

While most Americans hunker down and hope for the best, declining numbers have confidence that our federal politicians have any solid idea of what they are doing. Hopefully this means that Americans will stop looking for solutions in all the wrong places and start looking more closely at what they can and should do. History shows that Americans have a pretty good track record of doing so.

Why I Feel As I Do About America

A few evenings ago, I was working on creating ‘home movie’ DVDs using content from our family’s video camera. I came across a clip from last spring of my son’s junior high band concert. The concert began with the band’s rendition of the Star-Spangled Banner. Throughout the song, the audience rose and paid homage to the U.S. Flag posted in front of the band.

The band’s performance of our National Anthem was actually pretty poor. If you’re a musician, you will know that it is a difficult song to play. Still, as I watched the clip I reflected on the tender feelings that arose within me during the song. I never cease to feel a thrill each time I see the U.S. Flag honored. I still feel inspired each time I pledge allegiance to our republic.

In the days since I watched that video clip, I have pondered why I feel the way I do about my country and what patriotism means to me. I have determined that I feel about America much as did Gordon B. Hinckley, who said:

“I love America for her great and brawny strength, the products of her vital factories and the science of her laboratories. I love her for the great intellectual capacity of her people. I love her for their generous hearts. I love her for her tremendous spiritual strengths. She is unique among the nations of the earth - in her discovery, in her birth as a nation, in the amalgamation of the races that have come to her shores, in the consistency and strength of her government, in the goodness of her people.”

I too love America. I love her for the ideals and principles of liberty upon which she was founded. I love her natural and man-made beauties. I love her for the great amount of good she has accomplished and which ordinary free Americans achieve on their own. Perhaps more than anything else, I love her for the hope she inspires in individuals domestically and throughout the world.

The United States of America is the greatest nation on the face of the earth today. It is a grand place, but it is not a perfect place. While it seems vogue in some circles to see only America’s faults, problems, and failures to live up to her stated ideals, I believe America is wonderful and beautiful even when all of these are considered.

And I do believe that it is very wise to consider America’s flaws. But I also feel that it is wrong to make them the central feature of our individual view of America. To do so is to ignore the greater grandeur of the whole picture.

To me, a true American is one that loves this country with his eyes wide open. A true American feels rapture when the U.S. Flag is raised and when he sings the National Anthem, regardless of which political faction is in control at the moment. A true American stands proudly by America when she is in the right and lovingly works to correct her when she strays.

My personal belief is that America has often been and can still be a tool in God’s hands to accomplish much good in this world. From that perspective, I agree with Ronald Reagan’s paraphrase of Lincoln’s 1862 annual address to Congress that America is “the last best hope of man on earth.”

The present times seem dismal. Indeed, gloom is now broadcast continuously from most sources. It is possible and even probable that matters may get far worse. But I believe that Americans will come through this crisis and survive to conquer many future problems with their heads held high, and that they will be better off for having done so.

This is what we do. We are, after all, Americans.

Rationing Is Inevitable; How Do You Want It?

As much as we would like it otherwise, all things scarce are rationed. The only question is the method of rationing. Pick between pricing or waiting (or some combination of the two).

Whoever coined the phrase, “time is money” was on to something. Our time has value. That value varies based on perceived scarcity. Have you ever paid more for something that is convenient rather than waiting to get it where you know it will cost less?

I used to work for a company that operated a chain of convenience stores, where almost every item sold was priced ridiculously higher than it would be at your average grocery store. Yet there was plenty of product turnover in our stores. Were the customers stupid, or were they making a decision to spend more based on the scarcity of their personal monetary and time resources?

The beauty of a system like this is that each consumer is free to choose how much time and money to spend on a purchase. There are a variety of choices available. If you can wait a few days, you might be able to find the desired product cheaper online. If you absolutely must have it at this very moment, you will likely pay more than you would otherwise.

I personally have never understood the people that spend hours waiting in the cold for the stores to open on the day after Thanksgiving. They apparently believe that their availability of time at the moment amply exceeds their cash supply, or that bragging rights on getting the best deal are worth the investment. Some are apparently willing to kill other people over such matters.

What happens when you don’t have a choice in the matter of whether to spend time or money on a product or service? When I was young, no one had the option of transacting banking business between 5:00 PM on Friday and 9:00 AM on Monday. Thankfully, that model eventually gave way to anytime banking online and at ATMs, and live banking on Saturdays. Thanks to competition, today you have plenty of banking choices.

A few years back, a local supermarket chain advertised that they would work to never have more than three customers in a checkout line. I’m not sure what happened to that philosophy. Checkout is usually pretty quick at the local outlet of that chain. But if I choose to go to the store at the busiest time of day (or of the week), I can expect to wait a bit at checkout. It may seem like I don’t have a lot of choice in the matter, but I do. I could choose to go at a less busy time or I could choose to pay more at a different retailer. And, in reality, the store is pretty good about adding checkers at busy moments.

Economist Don Boudreaux writes in this 2007 article about returning from overseas at the busiest travel time of the year only to be faced by an interminably long wait to have his passport checked at JFK Airport. At peak season, the government supplied only three passport checkers at JFK.

Boudreaux explains that “commercial airports are neither built nor operated in full accord with the profit motive. Political and bureaucratic incentives are the dominant forces in play to guide the construction and operation of these airports.”

The “profit motive” is often badmouthed and sidelined in the name of fairness. After all, is it fair for someone to make money off of your plight? What would happen if the government contracted other services to safely validate passports for a fee? Would the lines have been shortened if some had chosen to pay an extra $10 or $20 for rapid passport verification?

Fairness and Medicine
While each of us is in favor of fairness, we would be wise to consider whether the resulting rationing of products and services by time is a preferable alternative to rationing by cost? Take, for example, health care. Mandated health care price limits necessarily mean rationing by time. When no one is free to pay more for a scarce commodity or service, everyone must unavoidably wait for it.

In our current public-private socialized health care system, rationing is both by cost and time. The waiting is usually limited to dallying in the doctor’s waiting room. But if you need a medical procedure, you can usually get it fairly expeditiously.

This is not the case with many procedures in countries with government run health care systems. In Canada the waiting list for major joint replacement exceeds three years. Even then, government bureaucrats have told people as young as 57 that they’re too old to benefit from the procedure.

Our quirky system still rations partially by price. Those that can least afford medical procedures can go without (although this is not always the case). Proponents of government run health care argue that our current system is immoral. But assuaging these people’s consciences means that everyone will necessarily have their medical care rationed much more significantly by time than it is today.

Even then, the costs tied to medical care will not go away. They will simply be coercively socialized so that those that have more monetary resources will be forced to pay even more to cover care for those that have less. We will all pay, but it will be far less directly tied to a medical good or service than it is today.

While such a system may be considered fairer on the surface, it will create perverse incentives for people to obtain services that are ineffective and/or unnecessary, regardless of what the bureaucrats do that run the system.

I reported last November that Medicare spends most of its money on cases we don’t know how to treat. The same study revealed that about 75% of all Medicare expenditures are for treatments that are completely ineffective. But we now have an entire industry that is reliant on that revenue stream, so the government bean counters are powerless to cut it off.

Massachusetts’ Romneycare system has proven to increase both monetary and time costs for most of the state’s citizens. Yet it is touted as a ‘free-market’ success, upon which a national medical care system should be modeled.

Before we rush headlong into the equality of a government run health care system, we should carefully consider whether we really want more rationing by time than we have today. They had equality like that throughout the economy in the old USSR.

With government run medicine, people will still suffer and people will still die due to inadequate health care. But the demographics will be somewhat different. Some that could afford to get a treatment today will be forced to wait so long that the treatment will do them no good. Our current system is a mess. But is a system like this better?

What Repayment Plan?

I occasionally find myself in agreement with liberal columnist and pundit, Michael Kinsley. He sometimes drops observational tidbits that are quite accurate, regardless of your political leanings.

So, I took note when I found Kinsley quoted in the Wall Street Journal’s opinion section, which leans generally conservative. I don’t know if Kinsley is only talking about the latest ‘stimulus’ spending or all such spending of recent months (and future months), but what he says clearly applies to the whole shebang:

“[E]ven if the stimulus is a magnificent success, the money still has to be paid back. The plan of record apparently is that we keep borrowing, spending and stimulating, faster and faster, until suddenly, on some signal from heaven or Timothy Geithner, we all stop spending and start saving in recordbreaking amounts. Oh sure, that will work.

“There is another way. If it's not the actual, secret plan, it will be an overwhelming temptation: Don't pay the money back. So far, even as one piggy bank after another astounds us with its emptiness, there have been only the faintest whispers about the possibility of an actual default by the U.S. government. Somewhat louder whispers can be heard, though, about the gradual default known as inflation. Just three or four years of currency erosion at, say, 10 percent a year would slice the real value of our debt -- public and private, U.S. bonds and jumbo mortgages -- in half.

“Anyone who regards the prospect of double-digit inflation with insouciance is either too young to have lived through it the last time (the late 1970s) or too old to remember. Among other problems, inflation works only as a surprise or betrayal. It can never be part of any public, official plan. Plan for 10 percent inflation, and you'll get 20. Plan for 20 and you'll need a wheelbarrow to pay for your morning Starbucks. But if that's not the plan, what is?”

A worthy question indeed. Every American should be asking it.

Techies and Their Managers

I work in an organization of professionals that are very intelligent, well educated, and good at what they do. That does not mean that it is problem free, but it is generally a decent work environment.

Most (not all) of the managers in this organization originally worked in the same kind of technical positions that they currently manage. With rare exception, these techies-cum-managers change their nature one they are in management.

To the techies, this change is Dilbert-esque or even sinister. It seems as if their once-human colleagues have morphed to become one of ‘THEM.’ In fact, these managers have taken on a new role that requires them to view the business quite differently.

Interestingly, many of the highly intelligent technical folks have difficulty comprehending the leadership view. They feel that their general intelligence level automatically translates to an objective view of the business. Often, however, they are so deep in their specialty niches that they cannot bring themselves to grasp the broader view. They can hear and say the words, but the meaning is apparently lost on them.

This was evident in a recent meeting. A group of technical professionals was very upset about being required to use an application that their analysis revealed was inferior to the one they currently use for the same purpose. Mostly, they felt that management had ignored their professional concerns in the decision making process. In fact, management was simply considering a much broader set of goals.

This does not mean that management was right or that they handled the situation properly. But when the bigger picture became more apparent, many of the technical people seemed incapable of comprehending it, preferring instead to keep looking at only a small piece.

My master degree program was half computer science and half MBA. Having received fairly deep training in both technical matters and management theory, and having worked at various levels in different organizations, I have some appreciation for the demands, views, and incentives that drive both technical professionals and their managers.

Management is not nearly as idiotic as depicted in Dilbert. But Dilbert would not be so consistently humorous were there not some truth behind the portrayal. Managers too can become so distanced from the functions they manage that they do a lousy job of leading. Sometimes they are placed in situations with competing demands. The result can seem bizarre to the workers.

In reality, the techies and the managers are simply responding to different sets of incentives. Techies are looking out for what they believe to be best for the business from their view inside their niche, while managers are trying to do what is best from a different vantage point. The former techies that remain too deep in technical pursuits usually make poor managers, because they never rise to the business view required of a manager.

Due to the incentives and viewpoints inherent in the jobs being done, most professional technical organizations simply cannot function without someone taking the leadership role and understanding the leadership perspective.

I don’t expect my technical colleagues to blindly accept anything management does. Heaven knows that my organization’s managers have made their fair share of blunders. But it would be nice if my associates would at least take a step back when management appears to do something harebrained and realize that there are probably bigger issues at stake, as opposed to automatically erecting the us-vs.-them wall.

Healthy vs. Unhealthy Risk

Could part of the reason for the banking meltdown be the corporate structure of the banks involved? James K. Glassman and William T. Nolan think so. They lay out their case in this WSJ op-ed piece.

They believe that the move from a partnership structure in banks to a corporate structure over the past quarter century led to unhealthy risk taking. While risk taking is essential in any vibrant economy, too much of the wrong kind of risk eventually leads to serious problems — problems that “expose the rest of society to your failures.”

In the case of banking, current and past examples show that partnerships behave in a fiscally conservative manner. Glassman and Nolan offer Brown Brothers Harriman & Co, the nation’s largest and oldest private banking partnership as an emblem of responsibility and stability.

On the other hand, banking corporations tend to take unhealthy risks. Essentially, the managers figure that if something goes wrong, it’s the shareholder’s problem. They have already taken steps to insulate their personal holdings from corporate setbacks.

The basic idea here is that risk tends to perform its proper market function when it is tied to fairly direct accountability. Conversely, when accountability is diminished — when the people in charge of making business decisions do not bear the direct consequences for those decisions — the incentive for responsible behavior is reduced.

“[S]tructure determines behavior …,” write Glassman and Nolan. They suggest that no amount of government oversight will do for banking what a proper business structure will accomplish. They argue strongly for a return to partnership as the preferred structure for banks.

How do you get there from here? Not by governmental requirement, they say. “Rather, investors -- and governments -- should recognize the extra safety inherent in doing business with partnerships.”

The current economic crisis, where businesses and investors are scrambling to find a safe haven, provides a good opportunity for this kind of recognition. The big firms being bailed out do not offer a secure structure for doing business. So, hopefully, people will be wise enough to move to the staid and steady partnerships that offer the desired stability.

I wonder, though, what will happen once the current slump passes. When high-flying unhealthy risk takers offer a better return, will business dollars move back to the banking corporations? If so, it will prove that we have learned little from our present problems.

How Much are You Willing to Pay for News?

Modern technology has rendered the sharing of information cheaper and easier than ever before. But that doesn’t mean that all information should be given away gratis. At least that’s the argument made by Wall Street Journal tech editorialist, L. Gordon Crovitz.

The main Internet news content distribution model has been to allow unlimited access, paid for by advertising. Unfortunately, this model hasn’t functioned as well as the industry had hoped. Revenues have been falling. What can be done?

Crovitz says, “People are happy to pay for news and information however it's delivered, but only if it has real, differentiated value.”

As examples, Crovitz cites services like iTunes ($1 per song) and Amazon.com’s Kindle ($10 per book). “Beyond the Web,” he writes, “consumers pay monthly cable or satellite charges in the thousands of dollars per year.” Paid content delivered via wireless phone has also become quite popular.

Ultimately, it comes down to providing something of value. Crovitz writes:

“For years, publishers and editors have asked the wrong question: Will people pay to access my newspaper content on the Web? The right question is: What kind of journalism can my staff produce that is different and valuable enough that people will pay for it online?”

Some content suits the free access/advertising model. But clearly there is a market for the right kind of paid content.

As newspapers struggle to maintain a foothold in the market, Crovitz’s suggests that people are willing to pay for local information that makes a difference in their lives, and that local news is the one thing that city newspapers are uniquely qualified to provide.

I think Crovitz is correct, but that information must be of sufficient quality to make customers willing to part with their scarce resources for access to it. As far as my local newspaper goes, there has been a significant decline in both the quantity and quality of local content since the bygone days when I was a news carrier.

My guess is that newspapers find themselves in a Catch-22. They have steadily scaled back on reporting of local content due to declining revenues. They would need to beef up their staffs (and their staff skills) to provide the kind of content that will sell well online. But they see no way to get to that point from where they are.

I suppose that if existing newspapers don’t step up to the plate and provide sufficient worthwhile local content online that people will pay for, other outlets will eventually develop for this kind of information.

Sacrificing Liberty for Roads

As a follow-up to my last post about roads and transportation matters, I wish to note that the AP has reported that Transportation Secretary Ray LaHood wants to get more revenue to finance federal transportation infrastructure.

Although the article mentions enhancing revenues through “other funding options” such as “more tolls for highways and bridges and more government partnerships with business to finance transportation projects,” the main focus of the report is a push to charge taxes per mile driven rather than the current flat 18.4-cent per gallon gas tax. (You also pay state gas taxes per gallon: 24.5 cents in Utah.)

LaHood says that “everyone” agrees that the current “highway trust fund is an antiquated system for funding our highways.” What he means by that is that people have been buying less gas per mile driven due to more fuel efficient vehicles. When they buy less gas, they pay less gas tax. This means that government gets less revenue for roads without reducing the need to build and maintain them.

While a tax calculated on miles driven would resolve funding reductions caused by fuel efficiency, it would not solve the chief problems that led to the last year’s $8 billion shortfall. The current economic downturn has reduced actual miles driven per vehicle. Last year’s skyrocketing gas prices also reduced miles driven. So, even if we had LaHood’s tax-per-mile plan in place, it would not have made much difference in current funding.

Although the article doesn’t make it very clear, LaHood is trying to address a long-term trend rather than short-term fluctuations. While it is important that our highway funding mechanism be kept up to date with cultural and technological changes, it is also essential to consider the economic and moral costs of implementing a plan such as the one suggested by LaHood.

To charge taxes per mile driven, the government would have to know how many miles each vehicle had traveled. Assuming this could be effectively accomplished without unduly infringing on personal liberty, (a fairly broad assumption,) there would need to be an efficient tax collection methodology.

The AP writer says:

“The system would require all cars and trucks be equipped with global satellite positioning technology, a transponder, a clock and other equipment to record how many miles a vehicle was driven, whether it was driven on highways or secondary roads, and even whether it was driven during peak traffic periods or off-peak hours.

“The device would tally how much tax motorists owed depending upon their road use. Motorists would pay the amount owed when it was downloaded, probably at gas stations at first, but an alternative eventually would be needed.”

Does this sound a little Big Brother-ish to you? Not to worry. The AP reports:

“Privacy concerns are based more on perception than any actual risk …. The satellite information would be beamed one way to the car and driving information would be contained within the device on the car, with the amount of the tax due the only information that's downloaded, he said.”

Of course, gas pumps would need a way to read the data on that device. Moral hazards aside, implementing these devices on vehicles and gas pumps would not be without cost to the taxpaying consumer. Like most politicians and bureaucrats, however, LaHood seems to be blithely unconcerned about (or unaware of) these hidden taxes that would be levied directly or indirectly on everyone (since we all directly or indirectly use the highways).

The moment you install regulatory devices on automobiles — especially ones that calculate tax — people will start finding ways to subvert the devices. Then we will need to implement a corresponding policing function, thus, raising costs even more. This is a wicked spiral that will lead to restrictions on the liberty of each person.

(A low-tech workaround would be to fill up gas containers like the ones you use for filling your lawnmower, and then dump the gas into the vehicle off site. Government would then need to create restrictions on this kind of activity. Gas station attendants would be forced to become law enforcers.)

Might there not be an upside to all of this? Sure. But only if more government intrusion is welcomed. If the devices were not simply one-way devices, the ability of emergency responders to get to the scene of a crash would be enhanced. So would the ability of law enforcers to track down stolen cars and fugitives. We would first need to address the question of whether these benefits would be worth the moral hazards involved.

We have a system of federal highways that are essential to our nation’s economy and wellbeing. This kind of infrastructure does not come free of charge. Those of us that benefit from these roads — that would be all of us — have a responsibility to ante up our share for their development and maintenance. But it is essential that in devising systems to accomplish this objective, the higher goal of individual liberty be carefully guarded and maximized.

Our current gas tax system may be “antiquated.” Indeed, it may fail to adequately capture sufficient revenue to meet funding requirements. But at least it minimizes government intrusion. Businesses are tasked with collecting the federal tax on each gallon of fuel sold. The tax is collected while the taxpayers and their activities remain largely anonymous to the government.

While contemplating ways to address the long-term trend of declining revenues, let’s not throw away the best features of our current system. Let’s put liberty first on the docket instead of passing it off in some mumbling afterthought.

UPDATE: The Obama administration has nixed LaHood’s per-mile transportation tax idea, at least for now. Apparently some in Congress still want to pursue the idea, and a number of states are thinking about it as well.

Of Tolls and Private Roads

Like it or not, we have a road system that is primarily government owned and operated. Strict libertarians would like roads privatized. The private entities involved would find ways (mostly by exacting tolls) of building and maintaining roads, while also turning a profit. The argument goes that the profit motive would provide incentive for these entities to do a better job of caring for road infrastructure than government does.

This sounds intriguing, but a profit motive alone does not engender incentive for innovation, productivity, and higher quality. Fair competition is required for that to happen. For this reason, road privatization makes sense in only certain instances.

The Adams Avenue Parkway in southern Weber County is a good example of a mutually beneficial private toll road. Most of the $8.9 million construction cost came from private investors. The state put up $2 million and additional property taxes were levied on property owners along the parkway. A private company built the entire 1.6-mile stretch, and then returned all but half a mile of it to local government.

In essence, government paid less for the portion of road it kept than it would have paid to construct the road itself. The property taxes levied on adjacent property owners are no more than if government would have built the road.

Only half a mile of this road is on private property operated by a private company. The private road connects seamlessly to public roads. The $1 toll to drive that short half mile seems terribly steep. But realize that there are several other competing routes available, including major highways. The road is a convenience. No one is forced to drive on this stretch, but it can save some drivers 15-20 minutes at peak traffic times.

This road would never have been constructed by government alone, since no non-toll model would have made funding feasible. The only worry government has with this short road is maintaining the public roads that connect to it: roads government would maintain anyway.

The result is a win-win situation. Drivers that believe that their personal time saved in traffic is worth the high toll are free to use the private road. No one else has to pay for or give a second thought to the road. Since there are competing routes available, the company that owns the road has an incentive to maintain it well. Drivers on the competing routes contend with less traffic than they would otherwise, due to the fact that some drivers opt to pay the cost to drive on the toll road.

Another fairly successful model is the 10-mile long 91 Express Lanes toll highway in Los Angeles. These lanes were constructed between the existing east- and westbound lanes. Government owns the lanes and contracts with a private firm to operate and maintain them. The continuously varying toll prices, based on traffic density (demand), are displayed on electronic billboards along the stretch.

People are free to use the express lanes if they are willing to pay the toll prices — a form of willing self taxation — but they don’t have to. They can opt to drive on the more congested toll-free lanes. Once again, the people that opt to pay to drive on the express lanes relieve some congestion for those that drive on the toll-free lanes.

Still, public-private partnerships don’t always provide sufficient incentives for fair play. The private firm that initially owned the lanes negotiated a non-compete agreement that prevented the state from making significant improvements to the nearby highway for 30 years. This caused a lot of contention until a few years ago when government acquired ownership of the express lanes.

Private road ownership and/or tolling can provide transportation solutions in targeted situations, but experience shows that they can’t be successfully or efficiently implemented everywhere. As we saw with the tolling debate on the Mountain View Corridor, businesses and residents along the corridor would have been unfairly affected by full tolling because it would have raised their costs comparative to those along competing routes.

There is no one-size-fits-all transportation solution alternative. Where it would make sense to implement tolling and/or private roads, each solution must be carefully crafted to suit the conditions.

It must also be recognized that addressing our current and future transportation needs requires a broad spectrum approach. We can’t achieve what needs to be done with tax increases and public transportation improvements alone. No option should be excluded, but each option needs to be implemented where it makes the most sense and will provide the greatest cost-benefit value.