Megan McArdle, a renter as well as econ blogger, provides her take on the President’s foreclosure avoidance plan:

I think that most of the people supporting the mortgage plan really do feel like falling home prices is an obvious catastrophe. I also think that most of them own homes. Because, of course, if prices stay high, where is the money coming from to support them? Well, from people like me, who do not currently have a home to sell, but would like to acquire one in the not-terribly distant future. Keeping people and banks from selling at a loss requires that I buy a house which is overpriced. With the exception of Detroit, all 10 cities broken out by the Case/Shiller house price index show that as of December, home prices were still at least 15% higher than they were in January 2000; their 20-city composite index was still up over 50%.

One of the things that I think is badly understood is that the government cannot do much to prevent house prices from falling. Foreclosures are not the cause of price declines; they are a symptom of them. The underlying event is too many houses, and too little demand for them. Propping up existing mortgages does absolutely nothing about the mismatch between supply and demand. …

The credit bubble briefly expanded the number of people who were willing to gamble that some other family would want to occupy their house; and by convincing people that houses had investment value beyond providing a warm, dry abode, changed the price they were willing to pay for houses. Now the investment premium has vanished, as have the speculators investors. Playing with mortgage terms cannot prop up prices, because it cannot create more homebuyers, nor convince them to pay more than they want for a house.

To put it another way: if the current occupants cannot afford their house at anything close to the price they paid for it, the chances are that no one else can, either.

Stopping foreclosures can prevent some overshoot, but it does so by making housing markets stagnant. People who are just barely hanging on to their houses don’t move to take better jobs, and they certainly don’t invest in the houses, which means that the local housing stock erodes whether or not the houses are foreclosed on.

The “stimulus bill” recently passed by Congress boosts Medicaid spending by $90 billion over the next three years, but did you know that this spending actually imposes added costs on private payers? According to the Lewin Group, on average Medicaid pays only 56 percent what private payers pay for identical services from a doctor, and only 67 percent what private payers pay for identical services from a hospital. These lower payment levels produce a cost-shift, in which private payers subsidize Medicaid to the tune of $132 billion every year. Adam Frey and John Graham of the Pacific Research Institute calculate that the new Medicaid spending will increase this cost shift by about $18 billion.

Of course, the biggest problem is the fiction that the boost in spending will last only three years. When the federal money goes away, will the states really kick people out of Medicaid? Or will they run back to Congress with pleas for more bailouts?

For more on troubling developments in health care policy, see Frey and Graham’s “Obama’s Unhealthy Start: SCHIP Explosion, Medicaid Bailout, COBRA’s Bite,” Pacific Research Institute, February 2009.

Any state thinking about shelling out seven figures just to help its taxpayers know how their money is being spent should consult Nebraska State Treasurer Shane Osborn. Osborn oversaw the production of Nebraska’s transparency site, Nebraskaspending.com, without adding one penny to the state’s budget. In a recent profile, the DC Examiner summarizes Osborn’s accomplishment:

In the first year of his first term as Nebraska state treasurer (after defeating his own party’s incumbent), Osborn posted the entire state budget online. Nebraskaspending.com is searchable, user-friendly and interactive. It clearly explains where Nebraska’s $6.8 billion in revenue comes from (56.3 percent from state taxes, 32.4 percent from the federal government), how it’s spent, and lists all contracts signed in 2007 – including agencies, contract dates, vendors, description of services, and exactly how much Nebraskans are paying for them. The website so far has had over 600,000 unique visitors who spend 18 minutes on average keeping tabs on their elected officials. Next, he’s planning to add city, public school, and state university budgets to the mix.

Osborn didn’t beg the legislature for funds or spend millions of tax dollars, either. “I used my own staff to compile the data,” he told The Examiner. “We worked with other agencies and just hunted it down.” The total cost: $38,000 – most of it going to a local web designer. A state IT grant provided $25,000 and Osborn took the remaining $13,000 from his own budget. “I just viewed it as my job,” he said. “Citizens have a right to know ho the state does business with.”

The average state and local government employee now makes 46 percent more in combined salary and benefits than his private-sector counterpart does, according to the Employee Benefit Research Institute—including 128 percent more on health care and 162 percent more on retirement benefits.

So reports John Avlon in a new City Journal article on why we can expect a new wave of municipal bankruptcies this year. For decades, cities and towns have been generous in negotiating pension benefits with public employees because such long-term costs are never the problem of current city officials—only of future city officials. The fiscal downturn is now exposing the holes in the balance sheets of many cities. As a result, reports Avalon, some cities, like Stockton, Calif., are now considering bankruptcy.

New accounting standards are kicking in that hopefully will help avoid such problems in the future. In 2004, the Government Accounting Standards Board gave municipalities five years to begin reporting benefit costs on an accrual basis. Cities that haven’t already come clean with their accounting may find 2009 a difficult year in which to do it. If they don’t, however, their bond rating may suffer, which would make it harder for those cities to borrow money.

The Agora Institute for Strategic Thinking, Mexico’s free market think tank, has awarded Lech Walesa its first Legion of Liberty award. Agora’s Legion of Liberty honors “extraordinary human begins [who] have proven to be the absolute defenders of individual liberty in any given part of the world.”

Walesa, as leader of the Solidarity strikes in the 1980s, helped bring about the end of Communist rule in Poland. In 1983, Walesa was awarded the Nobel Peace Prize.

The ascendance of socialist governments in Latin America makes the new honor for Walesa very timely. Just last week, leftist Venezuelan strongman Hugo Chavez took another step toward becoming president for life when voters approved a referendum suspending term limits and allowing Chavez to run again for president.

Yet even Chavez appears a little spooked by the prospect of the legendary anti-Communist organizer visiting Venezuela. Walesa had planned to visit democratic activists in Venezuela prior to the referendum, but decided to cancel the trip after the government announced his movements would be watched closely.

As he received the Legion of Liberty award, Walesa addressed the rising tide of leftism in Latin America, declaring: “We must fight against demagogy, populism and the remains of socialism. We will face tough challenges, but I hope that nonetheless, we will have the necessary time to fight and win this battle.”

The Nelson Rockefeller Institute describes federal “stimulus” aid to the states as potentially helpful for states that need to close projected budget gaps. But even this group warns states that federal dollars are not going to be enough to obviate the need to rein in spending eventually. State revenues, the group warns, are not going to recover quickly enough to replace the temporary federal assistance:

Under a low-gap scenario that assumes a fiscal crisis that is milder but longer than the last one, states would face gaps in three years of about 4 percent of general expenditures — $70 billion or more—and would need to cut spending or raise taxes by this much to bring budgets into balance.

Under a high-gap scenario, with a crisis that is both deeper and longer than the severe 2001 fiscal crisis and is consistent with budget gaps of nearly $370 billion over the next 2.5 years, states could face budget gaps exceeding $120 billion in three years.

The institute suggests that state governments refrain from launching new spending and treat the temporary federal assistance as an opportunity to “make orderly decisions about how to trim spending and/or raise taxes.” (Via Commonwealth Foundation’s PolicyBlog.)

The advice to consider budget cuts now seems sensible, but the reason some states are in trouble with their finances is that they are not sensible. They spent money as if there would never be a rainy day. One way of getting state governments to make better decisions is for the voters of those states to elect better decision makers. Bailouts, however, interfere with the feedback mechanisms of the political marketplace. Bailouts mean that lawmakers no longer have to explain to voters why the state can buy every student an iPod but supposedly can’t afford toilet paper for public schools.

In a widely cited law review article (we noted it ourselves in an earlier post), Jonathan Turley identifies a central problem with attempts to deal legislatively with voting representation for the District of Columbia:

It would be ridiculous to suggest that the delegates to the Constitutional Convention or ratification conventions would have worked out such specific and exacting rules for the composition of Congress, only to give the majority of Congress the right to create a new form of voting members from federal enclaves like the District. It would have constituted the realization of the worst fears for many delegates, particularly Anti-Federalists, to have an open-ended ability of the majority to manipulate the rolls of Congress and to use areas under the exclusive control of the federal government as the source for new voting members.

Consider: If the Constitution allows Congress to admit representatives from non-state areas, and the federal government is the governing authority of the District of Columbia, then it would follow that Congress could also decide to divide the district itself into 100 different jurisdictions and then give each of those areas a representative in Congress.

See the problem? Under this theory, Congress could seat a representative from a federal building or a Navy pier, too.

Letting Congress redefine its own membership opens the door to all sorts of political mischief. It would be a little like giving a football team leading at halftime the option of making the third quarter only five minutes long and having the fourth quarter not count at all. It is certainly a fix worse than the problem it tries to cure.

If you are a student interested in learning more about the intellectual foundations of liberty, you should check out the excellent summer programs offered by the Institute for Human Studies at George Mason University. This summer, IHS will offer 12 free seminars. Among the courses are Liberty & Society, an intense and interdisciplinary exploration of classical liberal and libertarian thought; Moral Foundations of Capitalism, which explores the economic and philosophical foundations of capitalism; and Liberty & Current Issues, a survey of today’s most pressing national and global issues using the classical liberal framework as a toolkit. IHS is accepting applications now through March 31. For more information visit the program Web site, or e-mail Elisabeth McCaffrey at emccaffrey@ihs.gmu.edu.

A New York Times story on how California’s new emissions laws will force some businesses to shut down reports:

… the law’s supporters note that less economic activity means reduced emissions of heat-trapping gases, making the law’s goals — cutting carbon-dioxide emissions to 1990 levels by 2020 — easier to meet.

Everybody, knock it off with the doing stuff and the making stuff. It makes the people trying to plan our lives anxious.

It’s not terribly shocking to hear that Congress is contemplating an unconstitutional law, but today the Senate moved closer to passage a bill that is exceptional because it is so obviously unconstitutional. The Senate voted to begin debate on a bill that gives the District of Columbia a voting seat in the U.S. House of Representatives. The House of Representatives itself is expected to take up a similar bill soon. The law also creates a second new seat that will be awarded, at least until the next census, to Utah.   

Good arguments can be made for giving District residents voting representation in Congress, but worthy ends cannot justify unconstitutional means, and the Constitution does not give Congress the power to award representation to non-state jurisdictions. The Constitution does give Congress the power to apportion seats in Congress, but it instructs Congress that “Representatives … shall be apportioned among the several states.” Since the District is not a state, it can be given a vote in Congress only by amending the Constitution.

Neither, of course, does Congress have the power to make the District a state. As Nat Ward and Andrew Grossman explain very well in a recent Heritage Foundation paper, the Founders had good reasons for not making the District a state. They deliberately choose to place the seat of the federal government outside the jurisdiction of any state because they feared that otherwise the state hosting the federal government could use its powers to unduly influence the federal government in its favor. If the District is to be outside of a state, then it cannot itself comprise a state.

But the District’s status as a federal enclave does not mean it is unrepresented in Congress. In fact, as Ward and Grossman point out, the district’s unique status as the seat of the federal government gives it unique influence with Congress:

Though District residents have no representative who answers to them exclusively, they command the attention of all Members of Congress, who share their streets, squares, and other public places, as well as their local concerns. Unlike the appalling British claim of “virtual representation”—that American colonists were adequately represented because allegedly similar voters, in Britain, had elected the Members of Parliament—the Framers actually seated the government in the federal district, ensuring that knowledge and self-interest would coincide so as to promote the District’s needs, in the same way that the franchise attunes legislators to their district’s needs. Thus, this representation, born of shared interest and concern, is real and tangible, reflected in federal government’s financial commitment to the District, as well as Congress’s close oversight of District government and affairs.

Law professor Jonathan Turley, who does favor giving District residents voting representation, points out that using legislation instead of a Constitutional amendment will introduce a monstrosity into our constitutional structure:

It would be ridiculous to suggest that the delegates to the Constitutional Convention or ratification conventions would have worked out such specific and exacting rules for the composition of Congress, only to give the majority of Congress the right to create a new form of voting members from federal enclaves like the District. It would have constituted the realization of the worst fears for many delegates, particularly Anti-Federalists, to have an open-ended ability of the majority to manipulate the rolls of Congress and to use areas under the exclusive control of the federal government as the source for new voting members.

There was a time when our nation’s elected leaders agreed with Turley’s view of the appropriate means for addressing voting rights for the District of Columbia. That’s why a constitutional amendment—the 23rd—was passed in order to give the District electoral representation for presidential elections. When did our elected leaders decide it was not their job to worry about the constitutionality of the laws they pass?

For more on this issue, see Jonathan Turley’s testimony (with attached law review article) before the Committee on the Judiciary, United State House of Representatives, January 27, 2009; Nat Ward and Andrew Grossman’s “Voting Representation for the District of Columbia: Violating the Framers’ Vision and Constitutional Commands,” The Heritage Foundation, February 19, 2009; and Hans von Spakovsky’s “Violating Their Sacred Honor,” National Review February 23, 2009.

Overnight, Artic sea ice expanded by the size of California! Well, no—not really. But last week, the National Snow and Ice Data Center did have to take down its data on Artic sea ice extent for the last two months. The Center’s data are often trumpeted by environmental activists as evidence that global warming is causing artic sea ice to melt, leaving Polar Bears unable to breed or hunt for seal.

The Center said late last week that its readers had alerted the Center that its February 16 data represented certain areas as open sea that actually contained ice. Upon further review, the Center discovered that a malfunction of satellite sensors had caused an underestimation of Arctic sea ice extent by approximately 193,000 square miles—about the size of California.

Here is a graph showing the magnitude of the error. The blue line is the Center’s data; the red line is from a different source that is considered more reliable.

In fairness, we should note that while the Center publishes its data as they become available, it does go back to perform quality checks on its data series. And presumably those checks would have discovered these errors, had they not already been alerted to them by other sources. The Center says its data prior to January are reliable, and show a long-term decline in artic sea ice.

In 2007, the Center reported that the annual minimum for arctic sea ice extent was a record low. However, the Center’s data also show that for 2008 arctic sea ice extent was closer to its historic levels.

If banks can’t lend because their balance sheets are impaired by toxic assets, then why isn’t capital flowing to the creation of new banks that can take advantage of worthwhile investment opportunities? After all, government intervention seems to be making existing banks less attractive to investors. Commenting on Secretary Geithner’s “Financial Stability Plan,” Alex Pollack observes: 

Which would you rather invest in: a new bank with a fresh opportunity to make loans and investments when interest rate spreads are wide; or an old bank sinking in bad loans and losses, entangled with the government as it acts as senior investor and “helper,” cuts executive salaries and forces loan modifications? The FSP includes an undefined concept of “public-private partnerships” to acquire troubled assets, but we can say that banks with troubled assets and TARP investments are already uncomfortable public-private partnerships.

“Turning bad banks into good banks is…difficult and risky,” Paul Romer recently argued in The Wall Street Journal. “It’s simpler and safer to start entirely new banks.” He makes a good point. For one thing, with a new bank, nobody has to try to define the value of troubled assets, let alone set a price at which to sell them to the taxpayers. 

And, commenting on the news today that the government might take new equity stakes in Citigroup, Alan Reynolds writes:

A brilliant February 19 [Wall Street] Journal report by Peter Eavis warned that “Government capital injections sit like ill-disguised Trojan horses in the nation’s largest banks,” showing that under Treasury Secretary Geithner’s socialist scheming the government could seize 74% of Citigroup and 66% of Bank of America. Meanwhile, most other reporters kept claiming bank stocks collapsed simply because Geithner had left out a few details. On the contrary, he said too much, not too little.

The newer Journal report says, “When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. … Citigroup’s low share price already reflects, at least in part, a fear among shareholders that their stakes might be further diluted. A government move to take a big stake could backfire, potentially spurring investors to flee other banks, even healthier ones [emphais added].”

An outright government takeover of failing banks, observes USA Today’s Rick Newman, would discourage expansion by the healthy banks:  

If Citigroup were run by the government, it would suddenly be the safest bank in the country. If you had a big account at a private bank that seemed a little less safe, what would you do? Leave your money there? Or transfer it over to the government bank? If healthy banks started losing customers, that would make existing problems even worse.

Between the threat of the government diluting shareholder value in bad banks and the threat of government competing with good banks, it’s not hard to see why capital might be on strike. Meanwhile, the so-called TED spread remains high, meaning the credit markets remain stuck as everybody waits for the government to figure out what intervention comes next. Maybe it’s time to let banks compete to find good investments, which means letting some of them fail.

The mortgage crisis gave “teaser rates” a bad name. So what now is the big plan for preventing foreclosures? Essentially, President Obama wants to incentivize more teaser rates. The president has proposed spending at least $75 billion on inducements to loan servicers to modify mortgages for borrowers who might not otherwise be able to make their payments. The program calls for lenders to keep rates lower for five years, after which the rates would go up.

When the private sector did it, it was called predatory lending. Now that the government has proposed doing it, it’s called helping people.

In fairness, the government’s plan, unlike the teaser rates offered by private lenders, is not available to just anybody. If you’re a renter who’s been saving up for a house that you can afford, you’re out of luck. These teaser rates will be available only to those who’ve already demonstrated they can’t afford the house they bought.

Automakers came asking for additional loans from the government (aka, bailouts) last week. But trying to prop up failing companies impacts more than just the taxpayers’ wallets. As Philip Levy and Michael Moore point out, these bailout loans could provoke a trade war, and that would hurt American exporters, including the automakers.

American exports of automobiles and light-duty motor vehicles more than doubled, from $21 billion in 2002 to $44 billion in 2007. Michigan exports to China of transportation equipment (which is primarily in the auto industry) rose sevenfold from $80 million in 2003 to $586 million in 2008.

These exports all could potentially be subject to retaliation from nations under WTO rules that the United States has long championed. These “countervailing” duties would be set to offset any competitive advantages that the Big Three exports might have received. This would be no empty threat as many countries could be quite aggressive in defending their own auto industries and would find it all too tempting to use permissible procedures, especially those that have previously blocked them from the American market. Other countries that primarily export cars to the United States could challenge the new subsidies at the WTO by arguing that their car companies had unfairly lost sales in America as a consequence of U.S. government intervention. If the United States were to lose these cases, then retaliation against other American export industries would result.

Health Savings Accounts seem to be doing what they were designed to do: encourage health care consumers to make cost-conscious decisions. In a new report for the Manhattan Institute, Benjamin Zycher cites data from the Kaiser Family Foundation showing that premiums continue to rise for most types of health insurance—except HSAs.

Traditional employer-provided insurance plans, with first-dollar coverage, amount to prepayment plans. Imagine if everybody paid a flat fee for groceries once a month and then shopped for free and you have a pretty good idea of what’s wrong with our health care system. Health care spending, which has been rising for years, currently amounts to 17 percent of U.S. gross domestic product, and is projected to rise to 20 percent by 2016.

Health savings accounts, by combining high-deductible insurance with a pre-funded tax-preferred savings account for health expenses, are intended to return insurance to its insurance function of protecting against large, unexpected expenditures. HSAs, though growing faster than IRAs did when they were first introduced, have only a 3 percent market share. One step that would make HSAs more attractive, says Zycher, would be to raise the annual contribution limits so that they match the limit on out-of-pocket expenditures.  

For more on health savings accounts, see Zycher’s report, “HSA Health-Insurance Plans After Four Years: What Have We Learned?”

The Insider, Winter 2009 is out. Here is the lineup, per the editor’s note:

The times appear tough for the free market/ limited government movement. Left-wing pundits have confidently diagnosed our economic troubles as a case of free markets gone haywire. Too much greed, they moralize, led to too much leverage. So how does the U.S. Congress now hope to stem a downturn? Simple: It wants to issue more IOUs in the name of the taxpayer! Frugality is a virtue for private businesses we are told—but never, it seems, for government. Never mind the bad investments that caused the crisis; the theory now is that government should spend money on things that weren’t important enough to spend money on when there was more money to spend (or borrow and spend). It’s a convenient formula for those whose agenda is to increase the size of government.

So what’s a limited-government conservative to do? In our cover story this issue John Hood reminds us of the good news, namely that the facts are on our side. Decades worth of data from around the world confirm that economic freedom produces not just more freedom, but better economic performance, too. So while conservatives might lose some legislative battles, they can win the long war for liberty by being attentive to making good arguments. Hood identifies a numbers of eminently sensible strategies for making those good arguments. These strategies, we think, can help conservatives lay the foundation for a better time.

With a new U.S. Congress and president taking power, a lot of left-wing agendas appear to be in play. Will rules on union organizing be changed? Will new trade barriers be erected? Will Fannie Mae and Freddie Mac be reconstituted? We’ve asked some of the most knowledgeable experts to give us the lay of the land on these and other important questions.

Also in this issue, Kristina Rasmussen and Pete Sepp tell us how to start a local taxpayer group, and we talk with Ugandan journalist Andrew Mwenda about the fight for liberty in Africa.

Is global warming a big problem that calls for significant and costly restrictions on greenhouse gas emissions? Or has the issue been hyped by charlatans?

Al Gore & Co. get a lot of publicity for their views. Global warming skeptics get their turn when the Heartland Institute hosts the second annual International Conference on Climate Change, starting March 8 in New York City. Heartland expects a thousand attendees to hear 70 of the top climatologists in the world discuss the data and the analyses that have raised doubts about the story of manmade global warming.

Here is Heartland’s promotional video:

The economic history of the past four decades, observes Richard Rahn in today’s Washington Times, demonstrates that low taxes and restrained government spending are good for the economy. President Obama, however, is trying a different formula.

President Obama had promised to restrain spending growth but increase taxes on upper income groups. Yet, the just passed “stimulus” bill represents the biggest single growth in government spending since the Great Depression. If he raises taxes, including just letting the George W. Bush tax rate cuts expire at the end of 2010, his actual economic policies will be like those of the first President Bush, but on steroids. (Note: Presidents Herbert Hoover and Franklin D. Roosevelt both greatly increased taxes and government spending; and as the result, the 1930s was the only decade in American history without economic growth.)

Again, during President Reagan’s years, tax rates came down sharply, government spending growth was restrained, and the economy grew rapidly. During the Clinton years, top tax rates were increased but government spending was restrained for most of his term, and the economy grew rapidly until the last few months of his tenure.

But during the years that President Carter and the two President Bushes were in office, nondefense government spending grew relative to the economy, growth rates were depressed and unemployment rose. Why should we expect a different result this time?

If the policymakers in the United States really wanted to improve the economy, they would heed the findings of the Fraser Institute’s Economic Freedom of the World report or the Heritage Foundation/Wall Street Journal Index of Economic Freedom. These reports consistently find that more economic freedom leads to higher rates of economic growth. In the video below, Cato fellow Dan Mitchell discusses how the lessons of the Fraser report can help the United States today:

Going to the doctor costs more than money. It costs time, too. According to economist Alan Krueger, in 2007 Americans spent 847 million hours interacting in one way or another with the health care system. Krueger, valuing that time at the average hourly wage of production and nonsupervisory workers ($17.43 in 2007), calculates that Americans spent $240 billion in time waiting for health care in 2007.

That equals 10.7 percent of national expenditures on health care. That’s almost as much as Americans pay directly to doctors. Most health care expenditures are made by governments or private insurers. In 2007, out-of-pocket expenditures by individuals amounted to “only” $269 billion—12 percent of the total.

According to some health care advocacy groups, rising health care costs are such a burden that the country needs to adopt a system of government-financed health insurance—single payer. Aside from the obvious fact that it all comes out of our pockets eventually, there’s this problem: Single payer health care is a de facto system of price controls, and when prices are kept below their market level, more people want to use those resources, which increases waiting times. In effect the price of waiting is substituted for the price of the service as the means of rationing care.

If people understood how large the cost of waiting currently is, would they be as likely to embrace a single-payer system?

An open letter to Congress from Heritage Foundation president Ed Feulner: 

For the last 35 years, educators and analysts at The Heritage Foundation have been intimately involved in the nation’s great public policy debates. In all that time, we have never encountered legislation with such far-reaching and revolutionary policy implications as the American Recovery and Reinvestment Act currently before Congress. And never have we seen a bill more cloaked in secrecy or more withdrawn from open public exposure and honest debate.

In addition to being the single most expensive bill ever proposed, this measure calls for a massive expansion of the federal government’s reach into the day-to-day life of virtually every citizen, business and civic organization in the nation. That, in itself, should be the subject of an extensive public conversation and thoughtful debate. Instead, we have seen Congressional leaders schedule snap votes on a 1,434-page bill that no one—repeat, no one—has had a chance to read in its entirety, much less digest and deliberate.

This bill has been advertised as an economic stimulus bill—despite the fact that the Congressional Budget Office estimates it will actually weaken our nation’s long-term economic growth. While the stimulative utility of the bill is, at best, questionable, it would unquestionably rewrite the social contract between the American people and their government. For example:

• The bill reverses the bipartisan and highly successful welfare reforms of 1996 and drastically expands the welfare state. For instance, it will start rewarding states for adding people to their welfare rolls, rather than for helping them find gainful employment. And contrary to long-established practice, it will entitle able-bodied adults without children to receive cash assistance.
• It does extreme violence to the concept of federalism—bailing out states that have spent irresponsibly at the expense of taxpayers in states that have been fiscally prudent.
• It greatly shifts the responsibility and power over health care delivery and decision making from individuals to government. Among other things, it would create a new federal health board to decide which medical services are “effective” in America, paving the way for government effectively to overrule the clinical decisions of private physicians.
• It deliberately censors religious speech and worship on school campuses by prohibiting use of any “stimulus” funds for facilities that are used for sectarian instruction, religious worship, or a school of divinity.

The list goes on. These and similar provisions will mean fundamental changes in our society. In many instances, the bill would establish policies that directly challenge widely held American values.

We are appalled that Congress is even contemplating such profound changes with so little openness and due diligence. In the past, major policy changes in our welfare system, or health care, or trade policies, etc., were always, quite properly, preceded by extensive public conversation and full debate. That is how a democracy should make important decisions.

The failure of Congress and the Administration to allow that debate is damaging to our democracy. Both chambers of Congress suspended their budget rules to push it along. And both the President and the leaders of the House and Senate have violated their solemn promises that the bill would be available for several days of public review prior to voting, so that the American people might have a chance to learn what is in the bill and to make their views known to their elected officials.

This reckless approach to governance can only undermine public faith in our elected officials and our government as a whole. We call on Congress and the Administration to live up to their promises and stated ideals, and give the democratic process a chance to work.

Recent comments by Richard Ebeling at the ThinkMarkets blog seem pertinent to understanding Congress’s reluctance to let the House-Senate agreement on the stimulus bill see the light of day:

Once the political system is based on serving a wide variety of poliitcal, economic, and ideological interest groups, there emerges conflicts among them concerning the legitamacy and priority of the spending programs proposed. …

It was the conflicts and corruptions of special interest politics that helped bring about disillusionment and dislike for the democratic process in Weimar Germany in the 1920s, and created a political atmosphere that when the crisis of the Great Depression struck, many people in German society were ready for “non-democratic” means to generate employment and prosperity.

As Mises pointed out already in 1926, a growing number of Germans were “setting their hopes on the coming of the ’strong man’ — the tyrant who will think for them and care for them.” (’Social Liberalism’ [1926] in “Critique of Interventionism” [1929], p. 67.)

In an atmosphere of “crisis” and the psychological attitude that “something has to be done, now,” there develops an impatience with the deliberative process of the legislative process that the Founding Fathers intentionally bulit into the system to prevent hasty decisions that might be regretted later.

If Congress listened to its own budget office, would it be on the brink of passing a massive deficit-spending bill? Reviewing the Senate version of the “stimulus” bill, the Congressional Budget Office says increasing the size of government produces lower economic growth:

In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive capital. In economic parlance, the debt would “crowd out” private investment. … Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output), CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net.

Implicit in the CBO calculations is the view that the things government will spend money on over the next two years are less valuable than the things that the private sector would have spent that money on. Remember, this is one part of the government talking to another part of the government—not, as Paul Krugman might describe those making such an argument, a crazy right-wing outfit.

Supposedly, the final bill that Congress will vote on soon adds “only” $789 billion to the deficit over the next two years, though no one has seen the details yet. That figure is down from $838 billion in the Senate bill. But does anyone really think that the expansions of programs that are politically popular with Democratic constituencies will be rolled back suddenly in two years?

Around the country, a number of state and local politicians and bureaucrats are resorting to the “Washington Monument ploy” as a way of dealing with budget shortfalls, reports the Tax Foundation. Rather than cutting low-priority spending, these officials warn that vital and politically popular programs will have to be cut unless tax increases are enacted. Such gambits are modeled on the successful ploy of the Park Service in the 1990s to avoid budget cuts by threatening to reduce operating hours at the Washington Monument. Says the Tax Foundation:

The school system in Detroit is the author of the most outrageous Washington Monument ploy of the new year: they announced that budget cuts have forced them to beg parents of Detroit schoolchildren to buy toilet paper for the city schools. Of course, toilet paper is undoubtedly plentiful at City Hall, and it is probably plentiful in the school system too. The announcement of a toilet paper shortage is a publicity stunt designed to force politicians to give the school system more money.

Governors in Illinois, Maryland, Ohio and Washington State have already used the Washington Monument ploy to varying degrees in 2008. Gov. Rod Blagojevich (D-IL) threatened to close 12 historic sites and seven state parks (saving $2 million) as his way of reducing a $2 billion shortfall. In 2008, Gov. Martin O’Malley (D-MD) urged voters to pass a state-operated slot machine initiative, warning that if it didn’t pass Maryland would have to cut funding for care of the disabled, reduce hours at the Baltimore Zoo, eliminate helicopter search-and-rescue efforts, and fire 283 police officers. Gov. Ted Strickland (D-OH) has talked about closing six prisons and ceasing nursing home inspections, and Gov. Chris Gregoire (D-WA) has warned about massive program curtailments even though the budget is still a 1-percent increase over the previous budget.

According to the National Conference of State Legislators, 40 states face budget shortfalls in 2009. The Tax Foundation says states can fix their budget gaps by fixing what’s wrong with their tax codes: Many states rely on targeted tax credits to spur economic activity, while depending for revenue on punitive taxes on politically unpopular groups and unstable sources such as taxes on high-income earners and capital gains taxes. Broadening the tax base by eliminating targeted tax credits would allow states to lower tax rates generally, which will increase revenue without harming economic growth. (See “State Budget Shortfall Presents a Tax Reform Opportunity,” by Joseph Henchman, Tax Foundation, February 2009.)

At The American, Kevin Hassett has produced an illuminating chart on the “stimulus” bill. The bill, which the House and the Senate are currently negotiating, increases federal budget deficits by a vastly greater amount than it cuts taxes. Those deficits, in other words, imply future tax increases that are vastly greater than any current tax cuts.

Hassett asks a good question:

Why would anyone looking at these two bars in the chart ratchet up their consumption today, even if they got a few hundred dollars in cash? As individuals look forward to the long-run costs of current policies, they will likely take actions that will offset the stimulus effects, probably to a good degree. Congress should take this into account as it considers both the size of its tax cuts and the size of its spending increases.

Included in the stimulus bill is a provision that would undo the welfare reform that President Clinton signed into law in 1996. That law succeeded in reducing welfare rolls because lawmakers finally recognized that providing federal matching funds for each welfare enrollee gave state welfare bureaucracies a perverse incentive to expand their rolls. The 1996 reform severed that link, providing instead a flat amount of federal funding to each state. The stimulus bill that Congress is rushing to complete would return the Temporary Assistance to Needy Families Program (TANF) to a matching-grant set up. The House bill adds $4 billion for TANF; the Senate bill somewhat less. Both bills call for the federal government to pick up 80 percent of the cost of each new family enrolled in TANF, a rate higher than that of the pre-reform program Aid to Families with Dependent Children.

Bringing back welfare as we knew it before 1996 threatens to undo significant progress that has been made in lifting people out of a culture of dependency. Welfare caseloads fell by 56 percent in the decade following welfare reform. Writing on the 10th anniversary of welfare reform, Robert Rector noted how successful the reform had been:

This decline in welfare dependence coincided with the increase in the employment of single mothers. These trends have been particularly dramatic among those who have the greatest tendency to long-term dependence: younger never-married mothers with little education. During the late 1990s, employment of never-married mothers increased by nearly 50 percent, of single mothers who are high school dropouts by 66 percent, and of young single mothers (ages 18 to 24) by nearly 100 percent. Welfare reform impacted the whole welfare caseload, not just the most employable.

Not surprisingly, as families left welfare and single mothers transitioned into work, the child poverty rate fell, from 20.8 percent in 1995 to 17.8 percent in 2004, lifting 1.6 million children out of poverty. The declines in poverty among black children and children from single-mother families were unprecedented. Neither poverty level had changed much between 1971 and 1995. By contrast, six years after PRWORA was enacted, these two poverty rates had fallen to their lowest levels in national history, from 41.5 percent to 30 percent for black children and from 53.1 percent to 39.8 percent for children from single-mother families.

Guns ownership is not the unmitigated evil that the United Nations would have you believe, suggests new research by Dave Kopel, Carlisle Moody, and Howard Nemerov. In various troubled locales, the United Nations has pushed an agenda of disarming civilians as a way of quelling civil conflict. But Kopel, Moody, and Nemerov, reviewing data from 59 countries, find that high-levels of gun ownership are positively related to various indices of freedom, such as Freedom House’s Freedom in the World Index, Transparency International’s Corruption Perceptions Index, and The Heritage Foundation/Wall Street Journal Index of Economic Freedom.

Below is one table summarizing their findings. Countries with the highest firearm density (quartile one) score, on average, noticeably better on all measures of freedom.  

The authors of the study, writing in the Texas Review of Law and Politics, caution that these results do not necessarily mean that more guns are the cause of more freedom. It may well be that higher levels of political, civil, and economic freedom are the cause of higher levels of gun ownership. But, the authors argue, it is likely that gun ownership does reinforce other freedoms, because a positive gun culture promotes higher levels of individual competence and personal responsibility.

The table above is from a recent column in the New York Post by Cato fellow Alan Reynolds.

For years, mainstream news bureaus in Washington, D.C., have been cutting staff as specialty publications gain market share. Howard Kurtz, covering a new report by the Project for Excellence in Journalism, reports:

Thirty-two of the nation’s newspapers, representing 23 states, had their own Washington bureaus last year – fewer than half the number of the mid-1980s. The Newhouse and Copley chains closed their D.C. bureaus last year, and Cox is shutting its down in April. Time and Newsweek have 14 and 20 staffers here, respectively, a decline of more than half during the same period. The three broadcast networks had 51 journalists in Washington early last year – down from 110 in 1985 – and that was before the latest cutbacks.

Taxpayer-subsidized outlets, on the other hand, haven’t done so badly:  

National Public Radio’s Washington staff ballooned from 267 in 2000 to more than 400 last year. But NPR recently cut 64 jobs.

As Congress rushes toward enacting a fiscal stimulus plan, panelists hosted today by The Heritage Foundation and the Club for Growth warned that the massive spending bill was likely to delay economic recovery, misallocate resources, slow economic growth, and increase political corruption.  

Historian Burton Folsom Jr. warned the audience that the political consequences of increasing the size of government may be just as troubling as the economic consequences. Folsom pointed out that the Keynesian-inspired economic policies proposed by the Obama administration have much in common with the New Deal policies of President Franklin Roosevelt. Roosevelt’s policies, said Folsom, were successful in at least one sense: Increasing the flow of resources controlled by the federal government allowed Roosevelt to distribute benefits to the political constituencies that Roosevelt and the Democrats needed in order to win re-election. The New Deal, said Folsom, gave Roosevelt the tools he needed to cement together a permanent Democratic majority, even as it failed to bring employment back down to pre-Depression levels.  

The Heritage Foundation’s J. D. Foster pointed out a contradiction at the heart of the Keynesian design. The defenders of the stimulus plan argue that the collapse of credit is caused by the “idle savings” of fearful investors. Supposedly more government spending will solve that problem. But, asked Foster, how will making the government more fiscally irresponsible increase the confidence of investors in the U.S. financial system? In fact, said Foster, more spending and borrowing would only crowd out private investment.

Arnold Kling made a similar point. He argued that in risky times such as these, the correct policy to rebuild investor confidence is to minimize uncertainty. But a massive infusion of new government spending increases uncertainty because it increases the possibility that investors will lose confidence in the ability of the United States government to pay its bills. Kling argued that in a capitalist system, profits are the key to recovery. Profits and losses are the signals that tell businesses to expand or contract and we are not going to get new investment and new hiring unless businesses are making profits. Yet, the government, observed Kling, seems intent on ignoring market signals—in particular the signals that the financial sector should become smaller. Kling believes that cutting the employer portion of the payroll tax by 50 percent would be a much better stimulus than increasing government spending. Such a move in a time of slack employment, said Kling, would encourage businesses to expand hiring. This policy, he noted, has the advantage of using market signals for deciding where new jobs and resources should be allocated, which is much superior to relying on government spending to find the worthwhile projects. A related problem with government spending, noted Kling, is that the government is unlikely to be able to find a good fit between the jobs it creates and the jobs for which the recently unemployed are suited. Will we see, Kling asked rhetorically, Wall Street bankers driving bulldozers on highway projects?

Mario Rizzo argued that stimulus spending by and large amounts to throwing good money after bad. The market now reveals misallocations of resources that arose because of low interest rates. But, said Rizzo, political considerations will lead the government to allocate new spending to propping up those very sectors where adjustments should occur. Employment created by government spending, argued Rizzo, will not last once the fiscal stimulus ends, as eventually it must. Rizzo favors reductions in marginal tax rates as “neutral stimulus”—i.e, stimulus that does not continue to misdirect resources, but rather makes use of consumer preferences to guide new investment.

Luigi Zingales argued that any government intervention in the economy should be guided by clear principles about how the proposed intervention can fix a problem that the market cannot fix. Zingales said the stimulus bill clearly fails this test as well as costs taxpayers a lot of money. One problem that intervention might be able to fix, said Zingales, is dealing with the fact that homeowners with negative-equity in their homes have an incentive to walk away, and the securitization of that debt makes it impractical for any renegotiation of the debt to occur. Zingales reviewed the details of a proposal that he has made previously to solve this problem: Congress should pass a law making a re-contracting option available to all homeowners living in ZIP codes where the value of housing has fallen by 20 percent or more. That would actually save the banks money, Zingales explained, because recovering a house usually yields far less for the banks than the value of the equity that the homeowner lost when he walked away. A similar idea, said Zingales, can be put into place to shore up the failing banking system. Pre-package bankruptcies, argued Zingales, would put the banks back on their feet and allow them to start lending again without any cost to the taxpayer.

Heritage’s Bill Beach concluded the panel discussions by observing that there are two competing ideas on how to promote economic growth: lowering marginal tax rates on productive activity or giving consumers temporary incentives to go out and spend. Those ideas, said Beach, have already been tested. In 2003, President Bush’s proposals to cut marginal tax rates were passed and that lead to strong economic growth. On the other hand, the rebate checks from 2008 failed to boost consumer spending. Beach predicted confidently that by 2010, free market advocates will have won this debate. Given that economists and policymakers are still debating the New Deal that seems slightly optimistic. But we are certainly willing to hope.

The Keynesian construct, on which Congress’s stimulus plan is based, is alluring because it can be expressed as an equation and because it identifies levers for policymakers to pull to fix an economic crisis: If aggregate demand falls, then government must supply the deficit though increased government spending to maintain employment.

It all seems so simple. Could this framework be leaving something out? For an answer, turn to Friedrich Hayek’s 1974 Nobel Prize lecture (via Don Boudreaux at Cafe Hayek). Hayek pointed out that

unemployment indicates that the structure of relative prices and wages has been distorted (usually by monopolistic or governmental price fixing), and that to restore equality between the demand and the supply of labour in all sectors changes of relative prices and some transfers of labour will be necessary.

In other words, bad economic news tells us that adjustments are needed across various sectors in the economy, but Keynesianism says only: Maintain overall demand. In fact, said Hayek, pumping up aggregate demand distorts the price signals that would bring about the needed adjustments, which can be avoided only so long as government continues to pursue inflationary policies. Hayek attributed the stagflation of the 1970s to the demand management that Keynesianism had prescribed in earlier decades:

… the very measures which the dominant “macro-economic” theory has recommended as a remedy for unemployment, namely the increase of aggregate demand, have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity.

Hayek’s lecture actually concerned the larger topic of intellectual hubris that can result from misapplying scientific methods. Keynesianism, he argued, gave policymakers the illusion of control over the economy, when in fact they were as ever hampered by the knowledge problem. The “knowledge problem” is the reality that government planners can never possess the sort of local and specific knowledge that they would need to make better economic decisions than would occur in a free economy. Hayek concluded:

If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, “dizzy with success”, to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.

A tidal wave of deficit spending by the U.S. government is already increasing the costs of borrowing, retarding economic recovery, and confirming again a key contention made repeatedly by critics of Keynesian-style stimulus plans: That government spending, on net, does not add to the economy. The more government borrows to finance its spending, the less capital is available to be invested in the private economy.

Last week, the Financial Times reported that since the end of December, the yield on the benchmark 10-year Treasury note has risen from just over 2 percent to 2.95 percent, and as a result mortgage rates are being pushed higher.

The Congressional Budget Office projects the 2009 federal budget deficit to reach $1.2 trillion. That budget gap amounts to 8.3 percent of gross domestic product, which shatters the previous post-World War II high of 6.0 percent reached in 1983. The 2008 deficit was “merely” $455 billion. The surge in debt reflects the anticipated costs of continuing to bail out banks through the Troubled Asset Relief Program and the government assumption of Fannie Mae and Freddie Mac’s obligations. But the CBO’s projections do not account for the fiscal impact of the stimulus plan that Congress is now debating. That plan would add $800 billion or so to the deficit over a two-year time period.

The prospect of even higher levels of deficits to come has some world leaders questioning U.S. economic policies. At the World Economic Forum in Davos, former Mexican President Ernesto Zedillo told the New York Times: “The U.S. needs to show some proof they have a plan to get out of the fiscal problem. We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

The interest rate for an average conforming mortgage now stands at 5.33 percent. J. D. Foster of The Heritage Foundation projects that new deficit spending will push that rate up by a percentage point or more by the end of 2010. Making it harder for people to finance new homes seems exactly the opposite of what our political leaders claim they want to do.

The American people always have a way of figuring out the facts. And that reminds me of a story. At my age, everything reminds you of a story. This is a story that happens to be about one of our intelligence agencies in Washington. They had an agent, a spy, who was over in a little town in Ireland, and they had to make contact with him. And they called in another agent and told him he was to go there and contact this man. The man’s name would be Murphy. And he said, “Your recognition so that he’ll know who you are is that you say, ‘It’s a beautiful day today, but it’ll be a better one tomorrow.’” And then he was on his way. Well, he got to this little town, and he figured the best place to start his search was in the pub. So, he went into the pub and up to the bar and said to the bartender, “Where would I find a man named Murphy?”

And the bartender said, “If it’s Murphy the boot maker you want, he’s in the second floor of the building across the street. And if it’s Murphy the farmer you want, he’s a half a mile down the road – the farm on the left. And,” he said, “my name is Murphy.”

And the agent said, “Well, it’s a beautiful day today, but it’ll be better tomorrow.”

And the bartender said, “Oh, it’s Murphy the spy you want.”

President Ronald Reagan told that story in 1988 while campaigning for Republicans in California. Mr. Reagan was born 99 years ago today. Happy Birthday, Mr. President!

On February 10, The Heritage Foundation and the Club for Growth will host a morning of panel discussions on why a stimulus plan won’t work and how free market reforms can help get our economy back on track. Mark your calendars to hear some of the brightest folks around. The panelists will be Burton Folsom, J. D. Foster, Arnold Kling, William Beach, Mario Rizzo, and Luigi Zingales. Donald Boudreaux will give a keynote address.

The event takes place at the Hyatt Regency Washington on Capitol Hill (400 New Jersey Avenue, NW, Washington, DC). Registration starts at 8:30 a.m., and the program begins at 9:15 a.m. RSVP by calling (202) 608-1524 or e-mailing specialevents@heritage.org.

A few things that Congress thinks will stimulate the economy:

• $50 million for the National Endowment for the Arts
• $6 billion for university building projects
• $650 million for digital television coupons
• $90 million to educate vulnerable populations on the need to go get their DTV converter boxes
• $150 million for renovating the Smithsonian
• $34 million for renovating the Department of Commerce
• $500 million for improvement projects at the National Institutes of Health
• $44 million for repairs to Department of Agriculture Headquarters
• $350 million for computers for the Department of Agriculture
• $88 million to help move the Public Health Service to a new building
• $448 million to construct a new Homeland Security Department headquarters
• $600 million to convert the federal automobile fleet to hybrids
• $1 billion for the Census Bureau
• $850 million for Amtrak
• $87 million for a polar icebreaking ship
• $1.7 million for the “critical deferred maintenance needs” in the National Park System
• $55 million for the preservation of historic landmarks
• $79 billion to bail out state governments that failed to balance their books

These are all items in the $800 billion plus stimulus bill that Congress is debating. For a longer list of questionable projects in the stimulus package, see “50 De-Stimulating Facts,” by Stephen Spruiell and Kevin Williamson at National Review Online.

If the $800 billion-plus stimulus bill becomes law, the U.S. Conference of Mayors’ list of “shovel-ready” infrastructure projects will become prime candidates for funding. But are these projects worthwhile, or are they just white elephants waiting to happen?

StimulusWatch.org is a new Web site that combines social media tools with a user-friendly database to give the mayors’ list some scrutiny. The site lets you search the list of projects by keyword, location, and program type. You can cast a vote approving or disapproving each project. You can also share information that you may have about a project by editing the project’s wiki, or you can express your opinion in the comments section. You can also sort the database according which projects have the most user activity, how expensive they are, and how worthwhile they are according to user votes.

Yesterday, President Obama signed into law a bill that expands the Children’s Health Insurance Program and pays for that expansion with a 62-cent per pack increase in the federal cigarette tax. Back on September 12, 2008, in Dover, New Hampshire, candidate Barack Obama explained his tax plan:

Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.

But according to the Bureau of Labor Statistics, 95.8 percent of expenditures on tobacco and tobacco-related products are made by consumers making less than $150,000 per year.

Here’s an argument against school choice we hadn’t heard before. Roger Mackett of the University College London tells the Telegraph:

What worries me at the moment are the unintended effects of this ‘choice’ agenda. The Government is keen to give parents choice over which school their children attend. So lots of people are no longer sending their children to local schools. That has led to more and more children going by car instead of walking and we know that lower levels of physical activity can lead to obesity.

The Telegraph also reports that Mackett plans to give a lecture next month discussing a related impact: Kids who are driven to school are less likely to walk to other places, and thus they don’t learn other skills that they need in order to be independent—like how to cross the street. No doubt, less walking means these kids have a higher carbon footprint, too!

We’re glad that Mr. Mackett is concerned about the deleterious impacts that government policy can have on children’s independence and health, but perhaps he should ponder the thought that treating parents as if they were children who can’t responsibly tend to their families’ welfare also has deleterious impacts for the independence of citizens. Just a thought; no lecture planned.

The Pioneer Institute’s annual Better Government Competition is a great opportunity for citizens to get involved in shaping public policy. The Pioneer Institute, for those who don’t know, is Massachusetts’ free market think tank, and with all that has happened in the state in health care the past few years, Pioneer couldn’t have picked a better topic than health care for this year’s competition. The competition is open to anyone with ideas on how to improve health care. Specifically, Pioneer is looking for entries detailing reform ideas that control health care costs, deliver services more efficiently, increase health care quality, improve clinical outcomes, lower administrative costs, decrease waste and unnecessary treatment and increase access to services. One grand prize winner will receive $10,000. The deadline for entry is April 13, 2009.

SEE: Contest Guidelines

A great way to keep track of how your representative and senators are voting in Congress is to sign up for Roll Call’s Megavote tracking service. Hopefully, you know who your representative and two senators are, but you don’t even need to know that much. They’ll tell you that, too. To sign up, just enter your ZIP code and e-mail address, and each week you’ll get an e-mail telling you how your representative and two senators voted on that week’s bills.

Students and young professionals have until March 1 to enter their essays in the 2009 CIPE International Essay Competition. This year’s contest, sponsored as always by the Center for International Private Enterprise, encourages writers to share their ideas on how to create avenues for youth to participate in the political and economic spheres.

The contest is open to students and young professional age 18 to 30. Students from non-OECD countries are especially encouraged to enter. Each winning essayist will be awarded a prize of $1,000.

SEE: Contest Rules and Guidelines

Arnold Kling:

What a recovery will look like will be a profit recovery. … our Marxist conditioning leads us to berate profits. If ever we needed profits in our economy, it’s right now. From third quarter of ’07 to third quarter of ’08, wages and salaries rose 3 percent; profits fell 9 percent. Profits are the most cyclical part of the economy. The capitalist system runs on profits. We can’t have profits continue to fall and have a recovery. So we need more profits.

Another reason we need more profits is we are not running an economy on credit anymore. That’s just a fact. You can try to promote lending and beg banks to lend but we are in the process of deleveraging and if businesses are going to expand, it’s not going to be by borrowing; it’s going to be by expanding using profits. And so we need a profit-driven recovery. That’s where things like using the employer contribution to the payroll tax would be perfect. Ordinarily, in a full-employment economy, if you cut the employer contribution to the payroll tax, in order to compete for workers, firms would just raise wages to compensate so that there wouldn’t be much net effect. In fact the benefit would all go to workers. But in today’s economy with unemployment, the cut in the employer contribution to payroll tax would actually flow through into profits. It would also increase labor demand, because it would make labor cheaper to hire. So that would be helpful.

But most importantly, it would increase corporate profits, and that would lead to more investment, and it would use the decentralized-process of the market to figure out where skills are needed and where the next growth opportunities are, rather than having Washington say: “Well, the next growth opportunity is to build school classrooms or roads and bridges or green projects.” Let the market decide where the resources are used most productively.

ALSO: Listen to entire Cato podcast with Kling for an excellent discussion of the flawed thinking behind the notion of a government multiplier.

In today’s Wall Street Journal, Harold Cole and Lee Ohanian provide evidence that the New Deal should not be anybody’s model of how to recover from an economic downturn:

Why wasn’t the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.

The National Industrial Recovery Act was one of the main pillars of the New Deal. Cole and Ohanian identify it as one of the main sources of drag on the economy. The Act allowed over 500 industries to collude in setting prices and wages as much as 25 percent higher than the level that would have prevailed otherwise. With higher prices came lower production and lower employment. Those lucky enough to have jobs in an organized industry benefited, but everyone else suffered.

Cole and Ohanian further observe that the “recession within a depression” of 1937-1938 followed the Supreme Court’s 1937 decision upholding the constitutionality of the National Labor Relations Act which pushed wages up even further.

So what ended the Great Depression? Cole and Ohanian point out that the economy improved in the late 1930s when the government reversed course and resumed prosecuting cartels under antitrust laws. Also helping bring wages back in line was the erosion of union bargaining power that occurred when the Supreme Court ruled that the sit-down strike was illegal and later when the National War Labor Board limited large union wage settlements to cost-of-living increases.

According to Cole and Ohanian, “New Deal labor and industrial policies prolonged the Depression by seven years.”