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In Honor of Ayn Rand: Alan Greenspan on the Gold Standard and Economic Freedom (1966)

adam.summers@reason.org (Adam Summers) — Mon, 02 Nov 2009 14:12:00 EST

Earlier I wrote a post on the gutting of Rep. Ron Paul's bill to audit the Federal Reserve. In honor of Reason's Radicals for Capitalism spotlight on Ayn Rand this week, allow me to expand on the topic of monetary policy by using the words of a member of Rand's social and intellectual circle: Alan Greenspan.

Ironically enough, before becoming chairman of the Fed, Greenspan was an avid proponent of a gold standard and critic of the government fiat money system (a system based on paper money rather than backed by a precious metal such as gold, in which paper money can be created "out of thin air," thus causing inflation and the erosion of the value of the dollar). Greenspan contributed to Rand's newsletter and other publications.

In a 1966 essay entitled, "Gold and Economic Freedom," reprinted in Rand's Capitalism: The Unknown Ideal, Greenspan wrote:

Gold and economic freedom are inseparable, . . . the gold standard is an instrument of laissez-faire and . . . each implies and requires the other.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. Where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible.

More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. . . .

The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron. . . .

Under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. . . .

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

One might wonder how a man who wrote so passionately in opposing a monetary scheme that allows the government to print money backed by nothing, engage in deficit spending and the expansion of government, and erode the value of the dollar through the hidden tax of inflation could effectively become the nation's economic dictator-in-chief. Rep. Paul is as confused by this as any other gold standard and free banking advocate. In a 2008 interview with The Daily Reckoning, Paul discussed this apparent enigma.

Q: You and former Fed Chairman Alan Greenspan have famously knocked heads over the years. Can you tell me a little about that? Why it is that you seemed to be at times the only person that seemed to be keeping a very close eye on the goings-on at the Federal Reserve?

Ron Paul: Alan Greenspan from '87 up to over a year ago was the Chairman of the Federal Reserve Board, the U.S. central bank. I see the central bank and the Federal Reserve System as unconstitutional in that they have this tremendous power and a monopoly control over money and credit, which is an ominous power. Greenspan, or any chairman of the Federal Reserve, is more powerful than even our president because he has so much control over the economy. But the interesting thing about Alan Greenspan was that he was a true believer in Austrian economics and in the gold standard. So in a private conversation I had with him I told him that I followed what he taught. In the 1960s he was very clear on his position on gold, that he liked gold and rejected the fiat monetary system, because if you have fiat money it leads to deficits and to the expansion of government - all of which he opposed.

So it's rather ironic that now that Dr. Greenspan accepts the paper monetary system (which is a fiat system). He literally was the participant in these deficits, and I would bring this up to him in the committee because the Federal Reserve Board's chairman always condemn deficits; it's always Congress's fault. But my point was Congress couldn't do it if they weren't complicit: If we don't want a tax and we can't borrow and then they have to print the money in order to accommodate the big spenders. If the Federal Reserve couldn't do that, interest rates would go up and there would be restrain on spending. So he literally became one who once believed in the restraints of the gold standard to one who was converted into becoming the Federal Reserve Board Chairman - the one that ran this whole system of fiat money and central economic control. I would chastise him quite frequently about how can he be for a free market when he endorses a system of central economic planning by controlling the money? And when you think about it, the monetary unit is used in every single transaction, so if you can control one half of every single transaction you have a lot of power, and a lot of control.

Q: There is a story you are asked to tell often, about having Alan Greenspan sign a copy of a book called Gold and Economic Freedom. What happened there?

Ron Paul: In the 1960s, I was studying and reading Austrian economics and I received the Objectivist newsletter that Ayn Rand put out. Alan Greenspan had a piece in the newsletter and it was a delightful article - it said all the things I believed in. One day, we had a personal meeting with Greenspan just to get our pictures taken and chat for a few minutes, and we knew that was coming up. So I dug out my original copy, and I took that with me, so when we were getting ready to get our picture, I flipped it open to his article and said, "Do you remember this?" and he said he did. Then I asked him to autograph it, so he got out his pen and he was signing it, and I said, "Do you want to write a disclaimer on this article?" He said, "No, I wouldn't do that. I just read this recently and I fully support everything I wrote." Which is interesting because you don't know exactly what he means. If he fully supports what he wrote, why was he managing a monetary system that was exactly opposite of what he wrote in 1966?

Rep. Ron Paul's Bill to Audit the Federal Reserve 'Gutted' in Committee

adam.summers@reason.org (Adam Summers) — Mon, 02 Nov 2009 14:03:00 EST

A WorldNetDaily story reports that the bill sponsored by Rep. Ron Paul (R-TX) that would call for an audit of the Federal Reserve has been "gutted" in a congressional committee. The legislation, H.R. 1207, would also close loopholes that prevent transparency of Fed actions. It currently has over 300 co-sponsors in the House.

In a telephone interview with a Bloomberg reporter, Paul said that the bill had been stripped of measures closing loopholes that protect the Fed and blamed Rep. Melvin "Mel" Watt (D-NC), chairman of the House Financial Services Committee's Subcommittee on Domestic Monetary Policy and Technology, for ripping the teeth out of the legislation. Watt has significant ties to the banking industry and received the largest share of his 2008 campaign contributions—over one-third of his total contributions for the cycle—from the finance, insurance, and real estate industry. Watt's four largest contributors were Bank of America, headquartered in Watt's district in Charlotte, Wachovia Corp., American Express, and the American Bankers Association.

Paul vowed to try to restore the gutted provisions of the bill through an amendment when it comes to the House floor for a vote.

The veil of secrecy that shrouds the Fed has only made it more mysterious, and monetary policy that much more complex and obscure, to the average American taxpayer. Political discourse over subjects like deficits and inflation tends to focus on fiscal policy, but this is only one half of the equation. It is time for more people to ask why the Fed should have a government-granted monopoly for the creation of money and what it does with its powers to alter the value of money and interest.

Below is an excerpt of the WND article quoting Rep. Paul on some of his criticisms of the Fed:

Paul long has been a critic of the secrecy of the Federal Reserve.

"Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar," he said earlier. "Since 1913, the dollar has lost over 95 percent of its purchasing power, aided and abetted by the Federal Reserve's loose monetary policy."

"Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations," Paul said when the plan to audit the Fed was introduced. "While the conventional excuse is that this is intended to reduce the Fed's susceptibility to political pressures, the reality is that the Fed acts as a foil for the government. Whenever you question the Fed about the strength of the dollar, they will refer you to the Treasury, and vice versa. The Federal Reserve has, on the one hand, many of the privileges of government agencies, while retaining benefits of private organizations, such as being insulated from Freedom of Information Act requests."

Paul has warned, "The Federal Reserve can enter into agreements with foreign central banks and foreign governments, and the GAO is prohibited from auditing or even seeing these agreements. Why should a government-established agency, whose police force has federal law enforcement powers, and whose notes have legal tender status in this country, be allowed to enter into agreements with foreign powers and foreign banking institutions with no oversight? Particularly when hundreds of billions of dollars of currency swaps have been announced and implemented, the Fed's negotiations with the European Central Bank, the Bank of International Settlements, and other institutions should face increased scrutiny, most especially because of their significant effect on foreign policy. If the State Department were able to do this, it would be characterized as a rogue agency and brought to heel, and if a private individual did this he might face prosecution under the Logan Act, yet the Fed avoids both fates."

San Diego County to Outsource 200 Health Service Jobs

adam.summers@reason.org (Adam Summers) — Tue, 27 Oct 2009 23:33:00 EDT

Earlier this month, the San Diego County Board of Supervisors voted unanimously to outsource nearly 200 health service jobs in the county's Health and Human Services Agency. The positions include 198 caseworkers and other employees, and will be outsourced to private-sector contractors and nonprofit organizations. The move is expected to save the county approximately $6.8 million.

"We're looking at a troubling financial forecast," said Board of Supervisors Chairwoman Dianne Jacob. "We have a responsibility to the taxpayers to explore any and all cost-saving measures."

According to the San Diego Union-Tribune article that reported on the issue, the county supervisors eliminated 800 positions from the county government's work force earlier this year.

Since the 1990s, San Diego County has embarked on a number of successful privatization and outsourcing efforts. The City of San Diego, which is in an even bigger budget hole, should follow the county's lead. In 2007, Reason published a study that conservatively estimated that the city could save $80 million to $200 million a year by competitively bidding for services such as water/wastewater maintenance, parks and recreation, library operations, street maintenance, trash and recycling collection, vehicle fleet maintenance, printing and copying, facilities management, and information technology. A couple of months later, voters approved a measure to allow the city to force government agencies to compete with the private sector for contracts to provide services. After three years, however, the city has yet to implement the program, as the city employees' labor unions have thus far effectively stonewalled it.

As state and local governments across the country continue to struggle with tight budgets and the effects of the economic downturn, it is more important than ever to get the best value for taxpayers' dollars. To that end, privatization and outsourcing should become vital tools and governments should conduct top-to-bottom "Yellow Pages tests" to see where private-sector vendors and nonprofit agencies may provide services more cheaply and/or of better quality than government agencies.

Other Resources:

» Reason study: Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition

» Reason's privatization research and commentary

Indiana Cancels IBM Welfare Modernization Contract

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 16 Oct 2009 13:52:00 EDT

Yesterday, Indiana Governor Mitch Daniels announced the cancellation of the state's large welfare modernization contract with IBM after deciding that not enough progress had been made on a corrective action plan to resolve ongoing implementation issues. As Mary Beth Schneider and Bill Ruthhart at the Indianapolis Star report today:

Calling it an endeavor that "just did not work," Gov. Mitch Daniels on Thursday canceled Indiana's 10-year, $1.34 billion contract with IBM to deliver welfare services. In its place, Indiana will develop a hybrid structure that keeps some elements of the modernized welfare system, Daniels said, while restoring the best of the past system: personal contact. [...]

He said taxpayers still will save money under the hybrid system, though less than hoped for under the IBM contract.

Under the hybrid system, instead of being pushed to apply for help through impersonal call centers or computers, clients once again will meet face-to-face with a worker in a county office. State-employed caseworkers will be assigned to assist applicants.

Privately employed workers remain, along with a paperless computerized system for tracking cases. But subcontractors who had been managed by IBM, including those employed by Dallas-based Affiliated Computer Services who take the initial applications, now will be managed by the state.

Even as he yanked its contract, Daniels thanked IBM, which had added employees and more technology this summer in an effort to salvage the contract. "They did try hard," he said. "It wasn't resources. It wasn't effort. It was a flawed concept that simply did not work out in practice."

A separate AP story adds:

Daniels has said repeatedly that he inherited one of the nation’s worst welfare systems, which was troubled by fraud, high error rates, long customer wait times and slow progress in moving people from welfare to work.

He said Thursday some reforms have worked.

"The fraud appears to have stopped, and we're still on track to save taxpayers hundreds of millions of dollars, but the intended service improvements have not been delivered and that’s not acceptable," Daniels said.

IBM officials countered that the state's claims are "unjustified" and that the company was indeed making progress. They cited the external pressures of a national recession that drove Indiana's welfare rolls up 33 percent since the modernization contract began three years ago. It's unclear whether IBM plans to pursue legal action.

This massive privatization effort has certainly been the source of much controversy in Indiana in recent years, and there will no doubt be critics that claim, as Indiana House Speaker B. Patrick Bauer already did, that the contract cancellation represents "a blow to privatization." I suppose that depends on your perspective. I see it differently, for three reasons.

First, it must not be too much of a blow to privatization, since the state plans to work with IBM's current subcontractors to build the hybrid system.

Second, while no one will argue the contract worked out as originally intended, Daniels was quick to acknowledge that some of the reforms worked, most notably addressing the high levels of fraud that helped prompt the state to persue reform in the first place. And on a deeper level, a major thrust of the original initiative was transitioning from a Cold War-era, paper-based welfare benefits system to a paperless, electronic system commensurate with what citizens should expect in e-government. That system, and the contractors who built it, will remain moving forward.

Last, the Indy Star article notes Gov. Daniels response to the question:

Daniels, though, rejected that his decision says anything about the merits of privatization.

"It has nothing to do with private or public. It had to do with a concept," he said. "If you would use the same concept IBM brought, and every worker was a state worker, you would have had the same results, or worse."

I said something similar in my latest column a few days ago on the inherent "trickiness" of major IT transformations, public or private:

With any large-scale privatization initiative, especially those involving complex system overhauls like an IT modernization, you have to expect upfront that there will be obstacles. This would also be the case if government was doing the exact same work in-house—large-scale projects are inherently tricky. It's all about how you deal with the inevitable challenges.

When all is said and done, this privatization initiative wasn't cancelled—it morphed midstream. That happens sometimes on large-scale projects for which there's no proven template. Gov. Daniels and his administration deserve tremendous credit for (a) embracing a bold reform solution (political risks and all), (b) defending it against political attacks after the early setbacks, (c) requiring a corrective action plan and giving the contractor a window of time to implement it, and (d) not being afraid to course-correct and acknowledge shortcomings, while at the same time not abandoning the things that have actually worked in the reform.

So let's be clear—it would be a huge mistake for media and other observers to surmise that Indiana dealt a "blow to privatization" this week. Instead, they're entering "welfare modernization version 2.0." Indiana couldn't have made the improvements its made in the welfare system to this point without privatization (don't forget the horribly broken system the state started with, the "public option" they were desperately trying to dismantle). The state won't be moving forward without privatization either.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

In Need of Cash, Britian Puts Chunnel Up For Sale

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 12 Oct 2009 09:58:00 EDT

In April, Chancellor of the Exchequer Alistar Darling, the U.K.'s finance minister, announced that our cousins across the pond were planning to use asset sales to raise funds, given their economy is in a similar place as ours. Yesterday, Prime Minister Brown reiterated this plan:

The British government is holding a fire sale of public assets including the undersea Channel rail link to raise 16 billion pounds ($25 billion) as Prime Minister Gordon Brown warned on Monday that the country is "only halfway there" in overcoming the recession.

The sale of assets, which also includes the government's 33 percent stake in European uranium consortium Urenco, spearheads the ruling Labour Party's attempt to boost its economic credentials as it loses ground to the opposition Conservative Party ahead of next year's general election.

Read the whole story from the AP here.

Ostrom, Williamson Win Economics Nobel Prize

sam.staley@reason.org (Samuel Staley) — Mon, 12 Oct 2009 08:42:00 EDT

Political economist Elinor Ostrom and economist Oliver Williamson have won the 2009 Nobel Prize in Economics. Both were recognized for their work in using economic analysis to understand the differences between market and nonmarket decision making, and how private individuals can solve problems that are "collective" in nature. In other words, their work is in the tradition of economic governance.

Here is the press release from the Royal Swedish Academy of Sciences announcing the prize:

Elinor Ostrom has demonstrated how common property can be successfully managed by user associations. Oliver Williamson has developed a theory where business firms serve as structures for conflict resolution. Over the last three decades these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention.

Economic transactions take place not only in markets, but also within firms, associations, households, and agencies. Whereas economic theory has comprehensively illuminated the virtues and limitations of markets, it has traditionally paid less attention to other institutional arrangements. The research of Elinor Ostrom and Oliver Williamson demonstrates that economic analysis can shed light on most forms of social organization.

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

Oliver Williamson has argued that markets and hierarchical organizations, such as firms, represent alternative governance structures which differ in their approaches to resolving conflicts of interest. The drawback of markets is that they often entail haggling and disagreement. The drawback of firms is that authority, which mitigates contention, can be abused. Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets. A key prediction of Williamson's theory, which has also been supported empirically, is therefore that the propensity of economic agents to conduct their transactions inside the boundaries of a firm increases along with the relationship-specific features of their assets.

What might make this prize different in today's climate is that both winners' research has shown that markets and individuals can solve collective choice problems through private means. For Williamson, the firm is seen as an efficient way to solve collective choise problems. Ostrom's work has shown that private individuals, working collectively and not through government, can solve common resource problems (and she has extended this to global warming).

In short, awarding these two the nobel prize has given a little boost to markets and private solutions to public problems.

Ostrom in the first woman to win the prize. Interestingly, most of Ostrom's academic work has been in public choice and political economy. Her Ph.D. is in political science and she teaches public administratin at Indiana University at Bloomington.

Taxi Regulation Leads to Corruption

sam.staley@reason.org (Samuel Staley) — Sat, 10 Oct 2009 09:33:00 EDT

I weigh in on the intended and untended impacts of restricting the supply of taxi in cities in a commentary for Sunday's Washington Post. When cities limit the supply of taxis, they create powerful incentives for cab companies to influence and steer the regulatory process in their favor. Taxi users, drives, and small cab companies lose out.

Overnight, supply restrictions on taxi companies and cars transform small companies into multimillion-dollar enterprises through regulation-induced paper wealth. In the District of Columbia, dozens of cab companies and drivers have been indicted on taxi bribery charges. The indictments allege that $300,000 was spent over the last two years to influence the process. But this is a small investment given the potential gains.

As I write in the Washington Post commentary:

But it's not just overt bribery that undermines the taxi market.

In city after city, the regulatory system has quickly become captured by the strongest players involved: taxicab company owners, who often act as a bloc and work fiercely to protect their interests. Less well-organized and vocal players, notably drivers, single-car operators and taxi users, become marginalized.

Taxi users and outlying neighborhoods inevitably lose in this scenario, too. As the supply of taxis and new competitors is limited, drivers and companies abandon low-margin, low-dollar fares in "thin" markets such as outlying neighborhoods or fares that arise from meeting the day-to-day needs of residents. Instead, they focus on high-margin, high-dollar fares in downtown areas such as K Street or Capitol Hill, near major event locations such as the convention center or the Kennedy Center, or at the airports.

Other cities should take note.

San Diego Pension Board Rejects Accounting Changes, Avoids Repeating Past Mistakes

adam.summers@reason.org (Adam Summers) — Tue, 22 Sep 2009 18:49:00 EDT

The San Diego pension fund is to be applauded for its recent 10-2 vote to reject proposed changes to the city's annual pension payment requirements. The changes would have manipulated the amount the city is required to pay into the pension system, allowing it to reduce payments by tens of millions of dollars--at least, in the short term.

The proposals included altering the plan to pay down the city's $2 billion-plus pension deficit by stretching payments over 30 years, instead of 15, and relaxing the requirements of a payment trigger that kicks in when the market value of the pension fund's assets falls by more than 20% from an actuarial value based on the fund's average value over a period of several years. Now that the pension fund's assets have fallen dramatically and the trigger has come into play, the board had considered changing the trigger from a 20% shortfall to a 40% gap, as the California Public Employees' Retirement System (CalPERS) did in June. Of course, there is a reason the trigger was created in the first place: to serve as a stop-gap and prevent the city from letting the pension fund become too underfunded and the its long-term liability from getting too high. To simply ignore this and rewrite the rules for political expediency would have been fiscally irresponsible.

Critics of the proposals had argued that they sounded eerily like the kinds of ill-fated measures adopted when the city first got into trouble with its pension system when it intentionally underfunded the system by increasing pension benefits while reducing the city's contributions in 1996 and 2002. When the accounting changes were first proposed in July, Councilman Carl DeMaio cautioned in a San Diego Union-Tribune news article that "The retirement system is going down a path--a very dangerous path--that it's been down before, which is the manipulation of financial forecasts to allow the city to intentionally underfund the pension system." Added San Diego County Taxpayers Association president Lani Lutar, "Our concern is that any adjustments to these actuarial assumptions and formulas would result in underfunding of the pension system, which would be repeating a very recent mistake." Finally, former pension board member Bill Sheffler spoke to the motivation for the changes. "There's no doubt in my mind that this is politically motivated," Sheffler said. "The city wants relief so that they don't have to make the hard, structural changes that city finances have to eventually recognize."

Those "hard, structural changes" include recognizing that the city's pension system is unsustainable at current benefit levels, and that this means city services will be negatively and significantly affected in order to pay for government workers' retirements. Government pension benefits are excessive and must be brought back into line with compensation received in the private sector but the city made its bed by agreeing to those excessive benefits and now it must lie in it. Those benefits cannot be reduced for current employees and must be paid in full, unless, perhaps, the city ultimately declares bankruptcy, which seems increasingly likely.

Another lesson is that this just illustrates the manipulation to which "defined-benefit" pension systems are open. When contributions are based on actuarial assumptions about how much the average pension fund returns will be, how long people will live, how much salaries and inflation will go up, and so forth, and these assumptions are projected decades into the future, it all becomes educated guesswork. Furthermore, by fiddling with the assumptions, governments can significantly reduce the amount that they must contribute to the system in the near future. If their projections then prove to be completely wrong and the system becomes drastically underfunded, oh well, they'll probably be long gone from office by then.

By contrast, some of the biggest benefits of a 401(k)-style "defined-contribution" retirement plan are that there is much greater transparency and employer contributions are very stable and predictable, since they are just a fixed percentage of an employee's salary (with some small variation based on whether the employer kicks in a little more if the employee matches a certain level of contributions). This is why the private sector started switching to defined-contribution plans 30 years ago and hardly any defined-benefit plans have been started in the private sector in the last decade or more. It is time that state and local governments follow the private sector's lead and switch to defined-contribution retirement plans for all new employees.

Connecticut to Map Public Lands, Sell Assets

anthony.randazzo@reason.org (Anthony Randazzo) — Wed, 16 Sep 2009 18:20:00 EDT

There are two recent news stories coming out of Connecticut on land management.

First, Connecticut Governor Jodi Rell announced today that the Constitution State (formerly the Nutmeg State) will begin a comprehensive, digital inventory of public lands. The announcement was focused on mapping to preserve state forests that line Connecticut highways. ConnecticutPlus.com reports:

...the Governor has assembled a team of representatives from the Departments of Transportation and Environmental Protection, Connecticut Siting Council, Office of Policy of Management and the Council on Environmental Quality. They will be responsible for: Converting existing maps to digitalized format; [and] adding scenic land locations to the state's Geographic Information System (GIS) data for planning and permitting purposes.

In 2001, the Connecticut State Comptroller and Office of Policy and Management (OPM) joined forces to create a real property inventory called the Joint Effort for State Inventory Reporting system (JESTIR). A special division of the OPM, the Bureau of Assets Management, is responsible for maintaining the inventory. JESTIR collects publicly owned property inventory information from all state agencies and on a quarterly basis and analyzes them. Until now, there was not a focus on registering which public lands logged in this system should be given extra special preservation privileges.

Second, Connecticut is now looking to asset divestitures to meet serious budget needs. The Hartford Business Journal reports:

The $37.5 billion budget that went into effect last week includes a plan to raise $60 million over the next two fiscal years by selling state assets. State agencies are currently developing lists of potential items that could go on the sales block. While nothing has specifically been targeted, options including state-owned office buildings and vacant land are on the table, lawmakers said.
The state treasurer and the Office of Policy and Management are charged with submitting finalized lists of possible assets to sell by Feb. 3.

The plan includes selling up to $15 million in assets for fiscal 2010 and up to $45 million in assets for fiscal 2011. “We were looking at every possible way to close the budget deficit over the last several months and there was recognition on the part of legislature that there were various state assets that should be evaluated,” said state Rep. Cameron Staples, (D-New Haven), co-chair of the state’s finance committee. “The question is, what do we need to own, versus what we can afford to own, and what we can actually sell. That evaluation is the key right now.”

Staples said some state-owned properties require a fair amount of upkeep and that the recent wave of early retirements by state workers might leave some office space vacancies, which could make it easier for the state to sell those buildings.

Read the whole story here. Len Gilroy first reported on this development back in July.

Doing Business A New Report about Regulatory Reforms Worldwide

shirley.ybarra@reason.org (Shirley Ybarra) — Mon, 14 Sep 2009 10:14:00 EDT

The World Bank and the International Finance Corporation has published the annual update to the “Doing Business.” This is a report that has been tracking regulatory reforms world wide since 2004.

“Despite the challenges presented by the financial crisis, the number of reforms hit a record level this year. Between June 2008 and May 2009, 287 reforms were recorded in 131 economies, 20% more than the year before. Reformers focused on making it easier to start and operate a business, strengthening property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures.”

The full report is available here.

Economies are ranked on their ease of doing business, from 1 to 183, with first place being the best. A high ranking on the ease of doing business index means the regulatory environment is conducive to the operation of business. Singapore was ranked 1 and Central African Republic 183. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings from the Doing Business 2010 report, covering the period June 2008 through May 2009, are available here.

An interesting report worth a review.

Motown Comeback?

shikha.dalmia@reason.org (Shikha Dalmia) — Wed, 09 Sep 2009 12:42:00 EDT

Detroit is in a $300 million hole. Its schools are under an emergency financial manager. Its population loss is exceeded only by post-Katrina New Orleans. Crime has reached new heights, even for a city widely regarded as the murder capital of the country. And its elected representatives are going to jail faster than anyone can say s-l-a-m-m-e-r.

Yet some people are predicting that Detroit is about to experience a SoHo-like, artist-led renaissance. I examine that claim, first advanced in a New York Times op-ed, in my latest Forbes column.

An excerpt:

For starters, as best as I can gather from news reports--and after a day-long drive in East Detroit last weekend--this exciting new renaissance seems confined to less than a block. And it is hard to imagine it growing much more.

Real estate in Detroit is certainly cheap--but living in the city is not. That's because, thanks to a dysfunctional city bureaucracy, residents have to pay dearly--either in time or money--for every basic service, particularly for safety. Even Cope, who writes a regular blog called the Power House Report, seems to acknowledge that. In an April post, he described a burglary at the house of his neighbor John. Despite the presence of a German shepherd, Cope noted, the robbers kicked in the two back doors and made away with some irreplaceable jewelry. Cope spent a day helping his friend replace the door, but seemed dejected afterward. "Somehow the neighborhood seems less friendly this week," he wrote. "Maybe it's just the warming of the weather that brings out the rats, fires, garbage and druggists, prostitutes, weirdos or maybe it's just me."

A childless and bohemian couple might well find it rewarding to endure all of this for the sake of a city they have adopted. But for most ordinary folks with families, children and regular jobs, living with rats, fires, garbage, druggists, prostitutes and weirdos is simply too big a price to pay.....

Whole thing here.

Obama, School Children, and the Subtle Attack on Federalism

sam.staley@reason.org (Samuel Staley) — Tue, 08 Sep 2009 18:25:00 EDT

President Obama's speech to America's school children today raised a lot of eyebrows and more than a few protests, with many political opponents openly voicing concerns about brainwashing. My colleague at Reason online, Jesse Walker, has a thoughtful and useful summary of the key issues and notes that the speech would be objectionable regardless of who is in office.

Specifically, one of Jese's objections is that a president speaking directly to school children, without a proper filter, contributes to a "bipartisan cult of the presidency." We're supposed to have a government with Seperation of Powers, so that competition keeps each branch in check. We are also supposed to have a Federalist system that keeps the Federal government from getting too big.

A bit later, Jesse writes:

"Children shouldn't be taught that the president—any president—is a beloved paternal figure with a grand plan for everyone. (From the original lesson plan: "Students might think about: What specific job is he asking me to do? Is he asking anything of anyone else? Teachers? Principals? Parents? The American people?") Children should be taught the truth: that presidents are polarizing figures who are constantly dogged by controversy. That Americans don't always agree about proper public policy, and sometimes they disagree enough to do something as drastic as keeping their kids home from school. That politics is about conflict, not listening in unison while a friendly face on a TV screen dispenses instructions."

I agree, but think there is more to this speech, and Obama's implicit approach to the presidency, than many people may recognize. Without a doubt, the speech was likely rewritten many times once the controversy blew up, and the content ended up being rather dull and non-objectionable. But, the last paragraph in the speech caught my attention (emphasis added):

Your families, your teachers, and I are doing everything we can to make sure you have the education you need to answer these questions. I’m working hard to fix up your classrooms and get you the books, equipment and computers you need to learn. But you’ve got to do your part too. So I expect you to get serious this year. I expect you to put your best effort into everything you do. I expect great things from each of you. So don’t let us down – don’t let your family or your country or yourself down. Make us all proud. I know you can do it.

Let's see: the President of the United States is working hard to fix America's schools. Most children probably don't know that elementary and secondary education is a state and local responsibility. A serious erosion of this responsibility occurred under George W. Bush with No Child Left Behind, where national standards were imposed on schools. And granted, the long-term trend has been toward empowering the federal government. But, Obama is extending the federal role even further by claiming bricks and mortar is also a fundamental federal responsibility.

In short, we see in this speech another example of a president with little respect for basic principles of Federalism. It's not just the cult of the presidency; it's a cult of the omnipotent Federal government, too.

More Reason Foundation blog posts on Federalism can be found here, here, here, and here.

The Tire Problem

anthony.randazzo@reason.org (Anthony Randazzo) — Wed, 02 Sep 2009 14:15:00 EDT

Another trade dispute has opened with China, this time over tires. The argument is emblematic of the same, "tired" trade debate (yeah, I said it) going on for years. Yet, somehow, America still fails to see the full benefits of free trade. Here is the issue:

Between 2004 and 2008, tire imports from China increased 215 percent, while imports from other nations decreased 5 percent and U.S. tire production declined 27 percent.

The wide growth is in violation of the anti-surge provision in Section 421 of the Trade Act.

That kind of statement isn't exactly a "leading" view on free trade. After all, any export has the potential to dislocate American workers on some level. Any activity can dislocate workers if you get down to the nitty gritty. If you totalled up all the time that Congressmen travel overseas for various functions and calculate how much they would have spent on food in the United States, then all the travel is probably displacing a couple Wendy's or Whole Food's workers.

But I digress. In terms of the China trade issue, the leading complainers here aren't actually U.S. tire companies, it is the United Steelworkers union, as a representative for the rubber workers union. They want Congress to use its authority to pass tariffs on Chinese rubber imports to make them more expensive in the US marketplace. Interestingly, an op-ed in the Washington Post notes:

No U.S. tire companies joined the complaint, and it's easy to understand why: Almost all the leading tire manufacturers with major production facilities here -- including Bridgestone, Cooper, Goodyear, Michelin and Pirelli -- also have factories in China. What's more, the Chinese government often requires those factories to export all the tires they make. Cooper has opened two such factories under a government mandate stipulating that every one of their tires be exported for their first five years.

Here is the thing. What makes a company "American" or "Chinese"? Is it where the headquarters are? Is it who the owners are? Where the factories are? Budweiser is made by a company founded in America, by Americans, with headquarters in America, and breweries in America, that happens to be owned by a Dutch company, InBev. Goodyear started in Ohio, founded by a German, that makes its tired in China and sells them back in the US. Globalization has made figuring out "what" a firm is a lot harder and more ambiguous. But why does it matter.

If Americans can buy cheaper tires from a Chinese manufacturer, that are just as good if not better quality than an American manufacturer, then why would we want to charge Americans more? What seems like the real unamerican thing to do is make it more expensive for Americans to buy things. There is nothing ambiguous about that.

Of course, it comes down to jobs. The complaint is that Goodyear, Bridgestone and others aren't employing Americans. But if we are getting a quality product for less, then employing Americans to make a more expensive product would be a waste of resources. And we complain about Wall Street being unwise with its investments. There will always be a need for competition, just not government subsidized competition, which what the proposed tariffs would do. Instead of trying to keep jobs at those plants which aren't needed (which isn't all of them, its not like China has taken over the market), those workers should be used to produce other things that China can't, to innovate, to create.

Former San Diego Councilman Convicted of Extortion and Fraud Now Heads City Employees' Union

adam.summers@reason.org (Adam Summers) — Wed, 02 Sep 2009 13:01:00 EDT

A post on the L.A. Times's L.A. Now blog the other day literally caused me to do a double take. The post was about former San Diego Councilman Ralph Inzunza, whose conviction regarding bribes and illegal political contributions from a strip club was just upheld by a federal appeals court. The case involved illegal contributions made by strip-club owner Michael Galardi to Inzunza and Councilman Michael Zucchet, who had just stepped in as acting mayor after Mayor Dick Murphy had resigned from office, in exchange for their efforts to repeal a city law prohibiting nude entertainers from touching patrons. (The ban never was repealed.) Councilman Charles Lewis was also indicted but died before trial.

As a San Diego Union-Tribune article relates,

Zucchet and Inzunza, both 35, were accused of taking $34,500 in cash bribes and campaign contributions from Galardi in a failed plot to repeal the city's "no-touch" ordinance. [Galardi's lobbyist Lance Malone] allegedly delivered the wads of cash from Galardi to Inzunza and Zucchet.

Inzunza and Zucchet were both convicted in 2005 of conspiracy, extortion, and fraud. Inzunza was sentenced to 21 months in prison. Curiously, Zucchet's conviction was overturned by the federal judge who heard the case and the U.S. 9th District Court of Appeals refused the prosecutor's bid to overturn the acquittal order. Both resigned from the city council following their convictions.

Now comes the part that caused my "wha-huh?" moment:

Inzunza has been free on bail since the conviction. Zucchet is now acting general manager of the Municipal Employees Assn.

So, let me get this straight: a city councilman and interim mayor is convicted of conspiracy, extortion, and fraud; resigns in disgrace; and then goes on to be the head of a city employees' labor union?! Perhaps this should not be so surprising, given the shenanigans of labor unions over the years, but it is very revealing about what the union values and what it stands for. In what private-sector business could you be convicted of corruption, extortion, and fraud, and then go on to become the leader of another organization? Perhaps this will be a wake-up call to taxpayers about the kind of thieves and thugs that wield enormous influence over our governments.

California Can Keep Parks Open with User Fees

adam.summers@reason.org (Adam Summers) — Tue, 01 Sep 2009 12:39:00 EDT

Budget cuts have hit numerous functions of the California government recently, and state parks are no exception. Struggling with $14.2 million in cuts this year, officials have responded by threatening to close about 100 parks. A final list of the parks to be closed is expected shortly after Labor Day.

About two weeks ago, the California Department of Parks and Recreation (California State Parks) increased fees at parks around the state in an effort to stave off some park closures, although it acknowledged that the higher fees were still well below the levels necessary to make the parks self-sufficient. In fact, only 13 of the 279 state parks are self-sustaining.

In my latest column posted on Reason.org, I argue that not only could the parks be kept open by setting fees at self-sustaining, "market" rates, but also that user fees are fairer than devoting money from the state's General Fund, and that user fees can improve park management efficiency and accountability as well. Contracting with private and non-profit groups for management of parks can additionally help to drive down operations costs. The following is an excerpt of the article.

In recent years, at all levels of government, user fees have provided an attractive alternative to general appropriations funding. User fees provide a fairer funding source since they ensure that those who actually use government services are primarily responsible for paying for those services, reducing tax dollars and giving people more choices.

User fees also offer practical benefits such as increased park management flexibility—allowing park managers to adjust to economic conditions or changes in park visitors’ recreational preferences—and greater financial accountability. States such as Vermont, New Hampshire and Texas have realized significant park services cost savings through user fees.

Opening up park management and maintenance services to a competitive bidding process, and turning these operations over to private-sector or non-profit groups, could further reduce costs and help to make the parks self-sufficient while addressing maintenance backlogs...

If user fees go up, some will say that the state is pricing out the poor. But there are ways to accommodate all income groups. The demand for park services is not constant year-round, or even throughout the week. Parks that use market pricing would have an incentive to reduce fees during times of low demand and increase fees during times of high demand. Thus, anyone who wanted to save money on recreation fees could do so by visiting parks during off-peak days or seasons.

If that’s not enough, the state could set aside an allotment of passes each day to distribute on a first-come, first-served basis. This method would allow anyone willing to get in line early for tickets to pay with their time instead of their dollars.

California doesn’t “have” to close its parks. By increasing user fees to make state parks self-sustaining and contracting with private-sector or non-profit groups to manage and maintain the parks, California can prevent the threatened park closures. Leveraging volunteer assistance and seeking out tasteful corporate sponsorships to generate additional revenues should also be part of the solution.

As the experiences of other state park systems show, the benefits of recreational user fees and park self-sufficiency are not merely theoretical. A market-based approach to the parks would ensure the future of the park system and offer greater preservation of the state’s natural wonders.

Read the full column here.

Other resources:

» My previous Reason policy study on national parks and user fees: Funding the National Park System: Improving Services and Accountability with User Fees (Full Study | Policy Summary)

» Reason's California-related research and commentary

Double-Dipping in Fulton County

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 31 Aug 2009 14:42:00 EDT

From the "Gaming the System" files, an investigation by CBS Atlanta has exposed some double-dipping in the Fulton County Sheriff's Department:

Last month CBS Atlanta's Wendy Saltzman exposed employee's double dipping - getting both a pension and a paycheck.

It might sound pretty good to get paid both a pension and a paycheck from the same boss, except that Fulton County Sheriff Ted Jackson has been warned that it's against the county's policy.

13 double dippers in his agency were told to resign or lose their county funded pensions. All 13 resigned after the pension board ordered them to choose between their current jobs or their pensions, but a CBS Atlanta investigation found 10 of them back on the payroll. They were rehired as "independent contractors." [...]

Pension board chairman Jim Stephens said that still violates pension rules and the sheriff may have been breaking other county policies as well.

As if this wasn't bad enough, it gets worse. One spillover effect of the Department's foray into questionable personnel practices is that it's now left with inadequate security for the County courthouse. According to Fox Atlanta, the courthouse is now only able to man one security screening checkpoint at the building, creating a bottleneck that had citizens lined up around the block to get inside for court hearings and other routine business.

Just goes to show that whenever the public sector tries to game the system, taxpayers end up losing every time.

California Holds Garage Sale to Get Rid of Surplus Property

adam.summers@reason.org (Adam Summers) — Wed, 26 Aug 2009 12:26:00 EDT

The State of California is looking for some extra revenue, so it is doing what any cash-strapped family would do: clear out its unused items and hold a garage sale. As described in this L.A. Times article today, the state's garage sale will take place this Friday, August 28 (8 a.m. to 6 p.m.) and Saturday, August 29 (7 a.m. to 12 p.m.), with a preview of the state vehicles for sale on Thursday, August 27 (8 a.m. to 4 p.m.), in Sacramento. Items have also been put up for sale on eBay and Craigslist. There is everything from adaptors to Zip drives, with plenty of Blackberries, bookcases, cameras, desks, file cabinets, hard drives, laptop computer bags, monitors, routers, and tables available. There are even baseball bats, binoculars, a ceramic cat, fake plants, a golf club, a massage seat, Sacramento Kings memorabilia, a surfboard, a tennis racquet, VCRs, and an Xbox game console (with instructions!). (See here for a complete list of items for sale.) Gov. Schwarzenegger is even autographing the visors of some of the vehicles for sale to up the offers. For more information on the state's surplus property blowout, see the Great California Garage Sale Web site.

All sarcasm aside, the state absolutely should get rid of all its unused or underused property. That's just good asset management. When private companies come upon tough times, they get even more aggressive about divesting themselves of assets they don't need, or are not core to their business, and the government should do the same.

Unfortunately, the state's efforts to get rid of surplus property have been disjointed and piecemeal at best. The watchdog Little Hoover Commission has repeatedly criticized the state for not effectively managing its real property assets (see here, here, here, and here). In 2004, the California Performance Review Commission made several recommendations to improve the state's asset management. (See, for example, recommendations INF 11: Tapping Surplus Property Assets (pp. 757-74) and INF 19: Better Management Needed for California's Real Estate Assets (pp. 823-29) in Chapter 4, and SO 26: Implement a Statewide, Automated Asset Management Tool (pp. 1435-38) and SO 80: Using Innovative Techniques to Enhance Sale of State Surplus Property (pp. 1805-09) in Chapter 7.) In a separate report, the CPR detailed nearly 50 high-value, urban properties owned by the state that it estimated could fetch a combined $1.6 billion to $4.3 billion. (Given today's real estate market, the sales prices would likely be lower, but they would still be significant.) That report was made possible by a Schwarzenegger executive order, which also directed all state entities to review all their real property assets. These assets are recorded by the Department of General Services (DGS) in the Statewide Property Inventory.

That is not to say that there have not been successes, though. In 2001, the state sold surplus real estate in Silicon Valley for $149 million. According to a July 2008 DGS report about state surplus property, during the five years from FY 2002-03 to FY 2006-07, California sold, transferred, or exchanged 43 surplus properties with a combined value of over $218 million. But much more needs to be done. Earlier this year, Schwarzenegger proposed selling some of the state's high-value entertainment venues (entertainment is hardly a core government function)--including the Del Mar Fairgrounds and Race Track, Orange County Fairgrounds, Los Angeles Coliseum and Sports Arena, Ventura Fairgrounds (Seaside Park), and Cow Palace--but even this modest idea of divesting what should be low-hanging fruit has thus far failed to gain much traction.

The Great California Garage Sale may not generate enough revenues to plug the kind of massive budget holes California has experienced in recent years (and likely will be forced to tackle again in the near future), but it is a start, and it's the kind of thing government should be doing anyway as a good asset management practice. Besides, as Jon Coupal, president of the Howard Jarvis Taxpayers Association, asserts, "if this is the beginning of taking a . . . thorough review of our property management practices, it's a good thing."

Other resources:

» See the discussion of asset divestiture and procurement reforms in Reason's California Citizens' Budget study (pages 69-84).

» Reason's California-related research

» Stay tuned to Reason.org for policy analyst Anthony Randazzo's forthcoming how-to guide on government asset management and privatization.

Our Credit World Without Personal Responsibility

anthony.randazzo@reason.org (Anthony Randazzo) — Wed, 26 Aug 2009 07:31:00 EDT

The New York Times wrote an irritating editorial last week that epitomizes the attitude American culture is taking towards personal responsibility. One of the proposed regulatory changes is a Consumer Financial Protection Agency to stop "abusive" practices by firms offering financial products. The CARD Act has already been passed into law, restricting credit card companies operating practices, and raising the cost of credit. And the NYT wants more.

The NYT argues that banks are being abusive with overdraft charges and should be more transparent with their notification practices. They argue that it is wrong to charge high fees when people over spend their accounts. They cite stats that say banks will collect more than $38 billion this year in overdraft charges. But why is this a problem?

Do banks list in contract terms for bank accounts when people sign up what the overdraft charges are? Yes.

Do banks send out notifications when the terms of contracts change, giving people a chance to move banks if they don't like new rules? Yes.

Should the people who fail to keep track of their finances and overspend their accounts be held personally responsible for their own errors? Yes.

Why are banks the victims here? It isn't just this, it's the whole attack on abusive practices from banks. There are times when banks break the law, or when product managers bully clients, sure. Those are criminal acts. Punish them accordingly. But just because a bank charges $35 if you overdraft your account doesn't mean they are suddenly in the wrong.

The NYT tells this story to make its point:

One college student whose bank records were analyzed by the center made seven small purchases including coffee and school supplies that totaled $16.55 and was hit with overdraft fees that totaled $245.

The Times would like to paint the bank as the one in the wrong here for the high charges by painting their "evil" corporate ways against the backdrop of someone "just getting coffee" and the all important "school supplies". But what is the reality? Person A did not have enough money in Bank account Z. Person A committed the money of Bank Z to various retail outlets. Bank Z, following the agreement they had with Person A from the start, paid the retail businesses, but charged fees because they were giving up their own money instead of Person A's money. In cold hard facts the bank isn't wrong, though anecdotally they look like Mr. Potter.

The Times supports laws that would require banks to warn customers in real time when a debit charge to their account overdrafts. They support legislation that would force banks into more transparency. But is using the power of the state the right way to go? No, that will just force banks to do the minimum necessary and allow people to not have to take charge of their own finances? With online banking how hard is it to check the level of your checking account each morning before you head off on your day?

If more transparency and better notification of pending overdraft fees is really important, then a grassroots effort can make that known to banks. Banks can use this as a competitive advantage. Very few laws have been passed forcing companies to "Go Green" but they are doing it anyway to gain customers. The same can happen here, with Citigroup trying to win back customers by offering services like The Times wants shoved down everyone's throats. Then Bank of America and Wells Fargo would follow suit to keep customers from leaving them. And if customers didn't flock to Citigroup, then maybe its because the laws The NYT's likes really don't matter that much to everyone. So why would we want the supposedly all knowing state to force us into them, likely raising the cost of checking accounts? It is all just so ridiculous.

U.S. Debt to Nearly Double in 10 Years

adam.summers@reason.org (Adam Summers) — Tue, 25 Aug 2009 23:11:00 EDT

Consumers are not the only ones struggling with debt these days. According to the White House Office of Management and Budget, the federal government will add approximately $9 trillion in debt over the next 10 years, nearly doubling its burden from more than $11 trillion to nearly $20 trillion. The figure is almost 30% higher than the $7 trillion estimate made just six months ago. The deficit for this year alone is $1.58 trillion, which is the highest as a percentage of GDP since World War II, and next year is expected to bring an additional $1.5 trillion deficit. To put that in perspective, consider that last year's $459-billion deficit was a record, but now the White House and the Congressional Budget Office are projecting deficits greater than $500 trillion every year until 2019. The ratio of national debt to GDP will rise from 48% this year to an estimated 69% in 2019. By any measure, this is simply a crushing debt burden.

Add to all this the fact that Social Security and Medicare have a combined unfunded liability of about $107 trillion. Yet the Obama administration is still pushing its $1 trillion health-care proposal. (And if anyone thinks the costs of such a program, if it passes, will be anything less than many times that estimate, I've got a bridge to sell you.) At what point do these debt figures stop being mere numbers and start being real money? When we hit $1 quadrillion?

To be fair, the debt is not solely the fault of the Obama administration. In fact, as the administration noted, a good portion of the debt is due to the financial mismanagement of George W. Bush's administration, which oversaw a growth in government spending greater than that under any president since LBJ. If Obama's health plan and continuation of the economic "stimulus" spending is any indication, though, he does not seem likely to reverse this course. Yes, borrowing and spending our way to fiscal ruin has certainly been a bipartisan policy.

The U.S. government has been spending money like a teenager off at college with his first credit card. The thing about debt is that eventually the bills come due, however. Barring a radical departure from its free-spending, big government, nation-building ways, the American empire will go the way all empires inevitably go: crumbling down under a mountain of debt. IOUs can only last for so long. (Just ask California.) What will happen when the bill collectors come a-callin'?

A Key Question: Better at Doing What?

adrian.moore@reason.org (Adrian Moore) — Thu, 20 Aug 2009 12:08:00 EDT

Steve Goldsmith's latest column in Governing magazine argues that "government managers should examine their value proposition just the same. In fact, revisiting "why" an agency is involved in a particular activity can be a crucial step in finding better, faster, cheaper ways of delivering value to citizens and taxpayers."

He goes on to examine how Linda Gibbs transformed NYC homeless services and Michelle Rhee transformed DC schools after asking "better at doing what?" Both are great examples of what happens when a government leader focuses on what they want to accomplish rather than how to sustain the current system.

What's Behind Obama's Falling Poll Numbers

sam.staley@reason.org (Samuel Staley) — Wed, 19 Aug 2009 10:23:00 EDT

American Enterprise Institute president Arthur C. Brooks analyzes President Obama's poll numbers in the Wall Street Journal, arguing persuasively that the current Democratic Leadership is fundamentally misreading the American public.

The core of his argument (I believe) is here:

"Blaming a cabal of conspirators—a time-honored technique for leaders on the wrong side of public opinion—is paranoid and self-defeating. More importantly, it betrays a tin ear to the culture of most Americans—an independent, optimistic culture that is mistrustful of government nannying and intolerant of policies that mortgage our future.

"Consider the evidence. Despite the vote in November, it is clear that when Americans are not in an abject panic, we dislike government fiscal promiscuity. The president's sinking approval ratings are due precisely to his administration's free-spending ways. In a July 2009 Gallup poll, the No. 1 reason for disapproval of the president's economic policies was, literally, "spending too much." In second place was the worry that the president is "leading the nation toward socialism" through government takeovers and bailouts.

"What exactly is our problem with government spending? It is not just that we think it is wasteful and ineffective (although most recognize this to be true). Americans actually think the government makes it harder for people to get ahead in life."

I increasingly believe that what is playing out in D.C. is a fight for the political soul of American government. President Obama clearly stands for the populist progressive wing and its naive faith in government as protector and guaranteer of the public interest. He and others in leadership positions, however, seem to have forgotten that they won the national election with a slim majority, not a concensus: 52 percent does not a painless revolution make.

I believe Dr. Brooks is right: A substantial plurality, perhaps even still a majority, believe that a future of opportunity is preferable to a stagnant one that equalizes outcomes. Market economies deliver on the promise of opportunity far better than those under the highly regulating hands of populist progressives.

Understandably, "Buy Canada" Laws Are Troubling

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 17 Aug 2009 16:15:00 EDT

Last week, the city council of Marystown, Newfoundland in our red-leafed neighbor to the north passed a resolution pledging to only buy Canadian-made products. Understandably, this is a problem for American businesses. It's bad for Canada too.

A "Buy Canada" law artificially inflates the price of goods in the country, or at least the region around Marystown. This may help businesses in the short-term, but it decreases individual income and ultimately reduces consumption. It also hurts consumers by reducing the potential for innovation, as Canadian businesses are shielded from outside ideas for new products and delivery of services. Seriously, no one in Marystown wants an iPhone?

American businesses can look at this protectionism and see the problems with it easily, especially the problems it poses for those who seek to sell their products in Canada. Like the company selling iPhone gloves. We want there to be fair opportunities to compete for business both in Maine and Newfoundland. What is the difference between people in Ontario and North Dakota? Why should an invisible line across the (often frozen) plains keep some from buying the best priced product available?

This should make the "Buy American" laws proposed and passed seem just as ridiculous as a "Buy Canada" law. Sure we have the iPhone here, so maybe it's an easier life living under "Buy American", but how do you know that iPhone is really American-made in the first place. The iPod has parts made in dozens of countries not called the United States of America. Probably only the Thiphone would pass the local parts test. And even then it might be made in China.

When Obama Speaks, "I Hear a Symphony"

shikha.dalmia@reason.org (Shikha Dalmia) — Sat, 08 Aug 2009 10:50:00 EDT

President Barack Obama's legendary charm is wearing thin with the general public. More people now think that Obama's first six months in office are a failure than thought that George W. Bush's first six months were a failure. But Obama seems to have lost none of his allure for the liberal glitterati.

Chris Matthews, the MSNBC host, famously declared after a campaign speech by Obama that every time His Awesomeness spoke, he felt this thrill going up his leg. "I don't have that too often," Matthews cooed.

And now the National Journal reports that after a recent health care luncheon with the president, Democratic Montana Senator Max Baucus was heard having this conversation with Sen. Charles Schumer, D-N.Y., in the White House driveway: "One of the senators was saying to me as we walked out, 'You know, it's just so wonderful to hear him speak.'"

And then Baucus offered his own review of the president's oratory: "You know, it's like a symphony. It's like a great meal. He is so good."

Back in a Senate hours later, Baucus was still gushing.

"It's like going to a great symphony," he said. "He is so good."

Here is my suggestion: Taxpayers should spring for therapy sessions to help smitten lawmakers get over their Obama infatuation during the August recess. Maybe then, when they return in fall, we might be able to hammer a sensible health care reform plan.

Better, Faster, Cheaper

adrian.moore@reason.org (Adrian Moore) — Wed, 05 Aug 2009 08:15:00 EDT

The two scarcest resources in better policy are good ideas and the will to make them happen. To help with the first comes Better, Faster, Cheaper, a new website from the Ash Institute for Democratic Governance and Innovation at the Harvard Kennedy School.

They have a team of top notch contributors, with a good eye for innovations that work and lessons learned. This should become an important resource for good policy ideas.

Already there is a great column on solving storm water runoff problems by my former colleague Lynn Scarlett, until recently deputy secretary at Interior. And another on electronic benefit transfer cards by John O'Leary, also formerly with Reason. Hmmm, maybe there is a trend here. . .

California Still Issuing IOUs

adam.summers@reason.org (Adam Summers) — Tue, 04 Aug 2009 21:48:00 EDT

Legislators in California may have plugged up the budget hole with bubblegum and sealing wax for the time being, but the State Controller's Office, presumably in recognition that the latest budget deal has not solved the state's fiscal woes once and for all, is continuing to issue IOUs. According to a spokeswoman for Controller John Chiang, even though the budget measures intended to resolve the deficit--recently pegged at $26.3 billion--were signed by Gov. Schwarzenegger on July 28, it will take some time to determine just how the budget package will affect the state's cash flows, so in the meantime the IOUs continue to flow.

I can now attest to this personally, as I got my hands on a little piece of history just last week when my 2008 tax refund finally arrived in the form of an IOU, or "registered warrant," as they are formally known. The instrument of the registered warrant was developed as an emergency financial measure during the Great Depression. Since the Great Depression, the only other time the state issued IOUs was during a two-month-long budget impasse in 1992 (see pages 16-17 of this Legislative Analyst's Office report from January 2009 for more on IOUs). The state started issuing IOUs on July 2, and had planned to issue nearly $3 billion worth of them by the end of the month.

In case those of you not privileged enough to receive an IOU from California were curious, here is the text of the letter from the state controller that accompanies the registered warrant:

Due to the State of California's severe cash crisis, your payment is being made with the enclosed registered warrant, also known as an IOU.

A registered warrant is a "promise to pay," with interest, that is issued by the State when there is not enough cash to meet all of the State's payment obligations. Registered warrants are legally negotiable instruments that bear a maturity date of October 2, 2009. IOUs may be redeemed, with interest, by the State Treasurer on or after October 2, 2009. If the Pooled Money Investment Board (PMIB) determines there is sufficient cash available for redemption at an earlier date, they may be redeemed earlier than October 2, 2009. These IOUs are issued in place of regular warrants, or checks. The interest rate, set by the State Pooled Money Investment Board on July 2, 2009, is 3.75% per year.

Some financial institutions may choose to honor IOUs before the maturity date. If your financial institution honors the IOU, you may "cash" the warrant as you would any other check. Contact your financial institution to determine its policy on accepting IOUs.

If your financial institution will not accept the registered warrant, you may hold the IOU until it matures and then be paid the full face value of the warrant, plus interest. To receive interest, warrants should be presented in person or by mail on or after the maturity date of October 2, 2009, to the State Treasurer's Office at 915 Capitol Mall, Sacramento, CA 95814. If the PMIB sets an earlier date for redemption, IOUs may be redeemed with interest on that date.

More information about IOUs is available at the Controller's Web site at www.sco.ca.gov. The Web site will be updated as new information becomes available. You may also call the Controller's Registered Warrants Assistance Line at 1-866-267-4255. I regret the inconvenience this causes and appreciate your understanding as I try to manage the worst cash crisis since the Great Depression.

STATE CONTROLLER

Oh, and that massive amount of money that the State of California, the world's eighth-largest economy, simply can't afford to reimburse me for? It's $10. My bank, like the other large banks in the state, stopped accepting IOUs on July 10. Guess I'll have to wait until October to collect on it. At least I can get in on that 3.75% annualized interest rate. Then again, maybe I can sell the IOU as a collectible for more than face value.

For related research and commentary, see:

California's Spending by the Numbers
Citizens' Budget 2003-05: A 10-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (At least as applicable today as it was six years ago!)
Reason's California-Related Research and Commentary