Reason Foundation - Out of Control Policy Blog

Mises Predicted the Crisis

anthony.randazzo@reason.org (Anthony Randazzo) — Sat, 07 Nov 2009 22:21:00 EST

In this weekend's WSJ, Mark Spitznagel, founder and chief investment officer of the hedge fund Universa Investments LP, writes that, in the 1920s, German economist Ludwig von Mises predicted how our crisis would evolve:

Taking his cue from David Hume and David Ricardo, Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse.

Read the whole piece here.

Another $24 Billion Stimulus: President to Sign Extension of Homebuyer Credit

anthony.randazzo@reason.org (Anthony Randazzo) — Fri, 06 Nov 2009 12:15:00 EST

Yesterday, the House passed a bill that extends the homebuyer credit an extra six months by a vote of 403-12. The Senate passed the same bill on Wednesday 98-0. Overall, the tax credit stimulus is expected to cost $24 billion:

Under the measure, an $8,000 tax credit for first-time homebuyers would be extended for seven months and expanded with a $6,500 credit for some prospective homebuyers who already own homes. [...]

The IRS says some 1.4 million people applied for the homebuyers credit through August, helping enliven the moribund housing market. The legislation would extend the program through June of next year, as long as the buyer signs a contract by the end of April. It also offers a $6,500 tax credit to those who have lived in their current residence at least five years.

The measure doubles the income ceiling for eligible individuals to $125,000. Homes must cost less than $800,000 to qualify.

See CNBC's full article on this here. President Obama is expected to sign the bill later today.

As I wrote about at the end of last month, with all of the problems in the housing market, the last thing we need is Congress propping up housing prices and stealing demand from the future. Even The New York Times understands the extended credit is problematic:

The vote gives campaigning lawmakers something to crow about on the stump. But the new tax credit appeals primarily to affluent voters who do not need the government’s help buying property. And encouraging buyers to leave one house for another does nothing to reduce the glut of homes on the market, which is an important factor driving down housing prices. Finally, the tax credit does nothing about the central housing problem, which is foreclosure.

Read NYT's whole op-ed here.

And none of this is to mention the continued spending in a supposed age of fiscal responsibility. The president wants health care to be deficit neutral because his preferred price tag is a whopping $900 billion. But $24 billion here and $24 billion there adds up in the end, creating just as many deficit problems as the spending coming all in one chunk.

Faux-Recovery: Unemployment Hits 10.2 Percent

anthony.randazzo@reason.org (Anthony Randazzo) — Fri, 06 Nov 2009 11:36:00 EST

Unemployment continued to rise in October, a sign that the highly touted recovery isn't all the administration and Wall Street would like us to believe. From Reuters via Yahoo! finance:

The U.S. jobless rate unexpectedly jumped to a 26-1/2-year high of 10.2 percent last month, adding to pressure on the Obama administration to do more to tackle unemployment even as signs of recovery mount.

The Labor Department said on Friday that employers cut 190,000 jobs in October, more than the 175,000 markets had expected but fewer than the 219,000 lost in September.

Economists had been predicting a rise to around 9.9% from September's 9.8%. But the percentages are worse than that, hitting the highest percentage we've seen in over a quarter of a century. While actual number of jobs lost is less than last month, there is a greater number of Americans out of work. That speaks negatively about the reality of economic recovery. Again, from Reuters:

"Unfortunately, the problem is becoming deeper and more protracted," Mohamed El-Erian, chief executive of bond giant Pacific Investment Management told Reuters. "It's not just the increase in the headline number. ... It's also about the longer-term nature of unemployment, the increase in underemployment, and the prospect for only a very gradual recovery."

Even with the stock market up from its low in March, and positive GDP growth in the 3rd quarter this year, recovery in the real economy is anything but thriving. GDP growth in the third quarter was based largely on government subsides, not stable earnings. Wall Street has come back on confidence that the big boys will be bailed out if necessary by the Obama administration. But there are still severe problems in the housing market, and those problems are keeping the banking industry down as well.

The government needs to tout a recovery for political purposes. Wall Street would like us to think there is a robust recovery so we'll buy stocks. But unemployment numbers like these don't speak of real recovery, only the continuation of economic problems:

Unemployment Percentages from the Past Year

October-08 | 6.5%
November-08 | 6.7%
December-08 | 7.2%
January-09 | 7.6%
February-09 | 8.1%
March-09 | 8.5%
April-09 | 8.9%
May-09 | 9.4%
June-09 | 9.5%
July-09 | 9.4%
August-09 | 9.7%
September-09 | 9.8%
October-09 | 10.2%

Source: Bureau of Labor Statistics

Gun-Control Laws Fail to Prevent Gun Crimes in England; Ayn Rand on Self-Defense

adam.summers@reason.org (Adam Summers) — Thu, 05 Nov 2009 19:17:00 EST

In England, gun crimes committed by youth gangs are becoming a big problem.

Footage of boys, hardly out of childhood, wielding revolvers, shotguns and jumping on police cars was posted on YouTube just two weeks after Rhys Jones was killed.

Yet it was the 11-year-old's murder during an unprecedented feud between youths in Croxteth and neighbouring Norris Green which brought Liverpool's gang violence to public prominence.

The battle between the Croxteth Crew, to which Sean Mercer belonged, and the Strand Gang, operating in the city's L11 postcode, formed the backdrop to the schoolboy's murder – an innocent victim caught in the crossfire of gangs blighted by a hatred for one another.

Despite the country's strict gun-control laws (or, more likely, because of them), gang members are still getting their hands on guns and using them to shoot and kill rivals and innocent bystanders. It seems that criminals do not obey laws on the other side of the pond either!

This is the point that gun-control advocates seem unable to grasp: gun control laws only work against law-abiding citizens. Moreover, as economist John Lott noted in his famous book, More Guns, Less Crime, gun-control laws prevent innocent, law-abiding citizens from defending themselves against those that would violate laws to commit crimes against them. Criminals don't like getting shot any more than do victims. When there are fewer gun laws, there is a greater chance a potential victim will be armed and able to fight back. This provides a greater deterrent to crime. Where citizens are forced to be unarmed, they are much easier targets for criminals.

Since we are celebrating the ideas of Ayn Rand this week at Reason (see here and the related articles and videos posted at reason.org and reason.tv), consider Rand's similar views on self-defense:

The necessary consequence of man's right to life is his right to self-defense. In a civilized society, force may be used only in retaliation and only against those who initiate its use. All the reasons which make the initiation of physical force an evil, make the retaliatory use of physical force a moral imperative.

If some "pacifist" society renounced the retaliatory use of force, it would be left helplessly at the mercy of the first thug who decided to be immoral. Such a society would achieve the opposite of its intention: instead of abolishing evil, it would encourage and reward it.

[From "The Nature of Government," The Virtue of Selfishness (1964)]

Reason Foundation Co-Founder Tibor Machan on Ayn Rand's Great Legacy

Thu, 05 Nov 2009 17:11:00 EST

Tibor Machan was one of the founding partners in Reason Enterprises, which began publishing Reason magazine in 1971, three years after its creation. He became editor in the spring of 1971 and worked with the magazine through the '70s and '80s as an associate editor and senior editor. In 1978 he co-founded the Reason Foundation with Manny Klausner and Bob Poole. Today Machan holds the R. C. Hoiles Chair of Business Ethics and Free Enterprise at the Argyros School of Business & Economics at Chapman University in Orange, California.

"I think that for Ayn Rand to have survived and made a life for herself, she almost needed that edgy personality, otherwise she would have been destroyed," says Machan, who was born in Hungary in 1942. At 14 years of age, his father smuggled Machan out of the country, fearing the Hungarian communist government. His background helps give Machan insight into how the intellectual mind of Ayn Rand functioned. "Her unpleasantness," he says, "ultimately can be fully justified given the treatment she was given when she came out the Soviet Union, told the truth about that country, and nobody paid attention." In 2000, Machan wrote Ayn Rand exploring all the major themes of Ayn Rand's philosophical thought.

Approximately six minutes. Interview by David Nott, camera by Alex Manning, and editing by Hawk Jensen.

This is part of the Reason.tv series Radicals For Capitalism: Celebrating the Ideas of Ayn Rand. Go here for more information, other videos, and related materials. Go here for downloadable versions of this video.

Privatization News Roundup, Nov. 5, 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 05 Nov 2009 16:45:00 EST

Some privatization news highlights from the last two weeks that haven't been covered elsewhere on the blog:

FEDERAL

"VA will turn to a contractor to reduce backlog of GI educational benefits," NextGov.com
"Senators express concern about administration's contracting guidance," Government Executive
"OMB's new procurement guidance inadequate, lawmakers say," Federal Times
"OMB pushes more fixed-price contracts," Federal Times

STATE & LOCAL:

"Panel offers cost cuts," The Advocate
"Public vs. private: Should NC give up booze control?," WRAL.com
"State-run setup's benefit doubted," The Patriot-News
"FSSA chief outlines plan to create 'hybrid' welfare system," The Herald-Times
"Plan to privatize prison deserves consideration," Denver Post
"Missouri Department of Corrections calls prison population boom no problem," Columbia Missourian
"Privatization fears persist for public Macclenny hospital," Florida Times-Union
"Eliminate, privatize some state services," Sioux City Journal
"Walker makes direct budget pitch," Milwaukee Journal Sentinel
"Novato Sanitary referendum gets green light," Contra Costa Times
"Brown County to look at privatizing planning," Green Bay Press Gazette
"Somerville Mayor Curtatone reconvenes Financial Advisory Committee," Somerville Journal
"Cape May County Youth Shelter employees, parents oppose privatization plan," Press of Atlantic City
"Central Dauphin moving forward with bus outsourcing plan," The Patriot-News
"Staffing drives airport's quest to privatize," Daily Inter Lake

INTERNATIONAL:

"Brazil In Talks On Rio's Galeao Airport Concession," Wall Street Journal
"State mulls disposals, partnerships to release value from property portfolio (South Africa)," Creamer Media's Engineering News
"KDB takes one step closer to privatization," Korea Herald
"KDB plans for mergers ahead of privatization," JoongAng Daily
"Poland's privatization plan shall help to close budget gap," Poland.com
"Czech Airlines Privatization Off For Now," Aviation Week
"Serbia to Privatize a Number of State Enterprises in 2010," PropertyXpress.com
"Syria launches its first electricity privatization tender," Daily Star
"AZN 75 million invested in Azerbaijani privatized enterprises for Jan-Sept," Azerbaijan Business Center
"MP offers to start using private prisons in Kyrgyzstan," 24 Press Club

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

FOMC Remains Optimistic on Inflation

anthony.randazzo@reason.org (Anthony Randazzo) — Thu, 05 Nov 2009 13:38:00 EST

The Federal Open Market Committee released its November statement yesterday. There was little change from the September statement, and interest rates remain at 0 to .25 percent. However, the FOMC did indicate what it was watching in terms of inflation indicators. We see it in the changed language between statements:

September 23: "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

November 4: "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

The statements are exactly the same, with the addition of this line: "including low rates of resource utilization, subdued inflation trends, and stable inflation expectations." Those three things are what the Fed is watching, and if there is a significant swing in those categories, we can probably expect a rate change. WSJ writes:

The Fed has been running full throttle for an entire year, while the financial panic has subsided, credit markets are healing, and third quarter GDP growth was 3.5%. The Fed is nonetheless focused principally on the "output gap," by which it means "low rates of resource utilization" and the high jobless rate. As long as the economy isn't going at full capacity, the governors believe, there's no danger of price increases and thus we need "exceptionally low levels of the federal funds rate for an extended period."

(Also, see here for the Goldman analysis of these indicators.)

The FOMC at present remains convinced inflation will remain subdued. The November statement repeats September's position verbatim:

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

Time will tell if they are right, and if Bernanke can keep his word that he's got inflation under control. But even if inflation isn't about to rise, we are creating an artificial subsidy for companies right now by maintaining cheaper than would be credit.

CA Treasurer Says Public Pensions Will 'Bankrupt' State

adam.summers@reason.org (Adam Summers) — Wed, 04 Nov 2009 20:29:00 EST

Perhaps the powers that be in Sacramento are finally waking up to the fact that the state's public pension system is in need of serious reform.

First, at a seminar in August, California Public Employees' Retirement System (CalPERS) chief actuary Ron Seeling admitted that the cost of pension benefits for state employees is "unsustainable."

Now state Treasurer Bill Lockyer is warning that, without significant reform, pensions will "bankrupt the state."

At a recent joint hearing of the Select Committee on Improving State Government, Lockyer scolded legislators and offered a pessimistic view on the prospect of reforming the pension system: "It's impossible for this legislature to reform the pension system, and if we don't do it we bankrupt the state. And I don't think anybody can do it here because of who elected you." (See about 45 seconds into the video below.)

Lockyer again alluded to the influence of the state employees' labor unions in stifling pension reform in an interview following the hearing. As reported by Ed Mendel of the Calpensions blog, Lockyer spoke of the pressures to satisfy the special interests and major campaign contributors that help elect politicians, saying, "That sense of obligation is always too strong to ever do anything that is going to seriously affect, in an adverse way, the folks who helped elect you."

He, additionally, spoke of the prospect of offering reduced benefits to future state hires, creating a "two-tier" system: "People talk about a two-tier system as a way to do it," Lockyer said. "I think that's ultimately inevitable. But I don't know that it's ever possible legally or politically to do takeaways (of promised benefits)."

An initiative that would create such a two-tier system is currently being drafted by the California Foundation for Fiscal Responsibility (CFFR), a group focused on public pension reform and the organization responsible for collecting and publicizing the "$100,000 Pension Club." (According to CFFR's searchable databases, there are 6,133 retired state and local employees collecting pensions of at least $100,000 through CalPERS, and an additional 3,090 retired educators collecting such generous pensions through the California State Teachers' Retirement System (CalSTRS).)

Lockyer does not like the odds of a pension reform initiative passing, however. With another nod to the power of well-funded labor campaigns, he noted that such an effort would be difficult "when affected interests can dominate the airwaves with their point of view."

California, like many other state and local governments, is being held hostage by its employee labor unions. The state's labor costs are too high and its unions too powerful. When politicians can be bought by labor unions, and then return the favor by imposing pension obligations that will not be realized until long after they are out of office, that is a recipe for fiscal disaster. Even with significant reform, such as a shift to a 401(k)-style defined contribution retirement system comparable to benefits received in the private sector for all new employees, it will take California many, many years to recover from the past and present costs of state employee compensation (if, indeed, it is ever able to recover). Without it, the state will be doomed to perpetual budget crises and broken government.

Senate to Move on CFPA, Regulation Reform

anthony.randazzo@reason.org (Anthony Randazzo) — Wed, 04 Nov 2009 18:04:00 EST

With financial services reform put on a fast track out of the House Financial Services Committee, the Senate is preparing to move as well. From Bloomberg:

Senate Banking Committee Chairman Christopher Dodd said he will unveil legislation next week to overhaul regulation of U.S. financial markets without Republican support after failing to reach a compromise.

The more cloistered Senate bill is likely to differ in significant ways from the House bills that have already reach the house floor. Nevertheless, reform could pick up in speed over the next few weeks, as word has come down from the White House that something needs to be passed. Anything really. Just something to get the president a policy win that he can tout before the year is up.

Dodd has complained that GOP members haven't been willing to deal. But it doesn't appear that he has been willing to budge much either. On the issue of consumer protection, left-wing democrats in the House and Senate seem dead set on a stand alone agency. Blue Dogs are getting strong armed into it. But there isn't any reason for one other than the political gain. From Bloomberg again:

Senator Richard Shelby, the committee’s top Republican, opposes a standalone consumer agency, which is a priority for Dodd and the administration. The agency would police banks for lending abuses in mortgage and credit-card lending. [...]

Shelby, of Alabama, today said he could support a consumer agency if it is part of a bank regulatory agency, rather than a separate entity proposed by Obama and backed by House Democrats. “That would be something we could discuss very positively,” Shelby told reporters in Washington. A separate agency is “a dangerous thing for safety and soundness.”

A stand alone consumer financial protection agency of any kind could be extremely damaging to the country, especially small businesses. (See here for my host of reporting on CFPA.) Banking and consumer issues are very complimentary, and should be kept together. Taking them away from the Fed and put into a stand alone agency isn't a bad idea in principle, though it could turn south quickly if handled improperly.

Dodd says he wants to have the bill out of committee by December. If that happens, financial services reform may be complete by year's end. It has seemed unlikely until the past few weeks with the White House now breathing heavily down Dodd and Frank's necks.

Video: Manny Klausner on Ayn Rand v. Reason magazine

Wed, 04 Nov 2009 16:00:00 EST

Manuel "Manny" Klausner was one of the founding partners in Reason Enterprises, which began publishing Reason magazine in 1971, three years after the publication's creation. He became editor in the summer of 1972 and a senior editor in June 1978. In 1978 he co-founded the Reason Foundation with Tibor Machan and Bob Poole. He remains on the board of the Reason Foundation today, is a stalwart supporter of the Federalist Society, and a libertarian lawyer extraordinaire.

"Rand is, I think, a very valuable resource in the movement for people who take liberty seriously," says Klausner. "When I was editor of Reason in the early 1970s, we got an article that was submitted that proposed a method for converting the world to libertarianism, and that was by going door-to-door and distributing to every household a copy of Atlas Shrugged. We rejected the article...but it was an example of the kind of impact Rand has had and continues to have on many many people."

Approximately six minutes. Interview by David Nott, camera by Alex Manning, and editing by Hawk Jensen.

This interview is part of the Reason.tv series Radicals For Capitalism: Celebrating the Ideas of Ayn Rand. Go here for more information, other videos, and related materials. Go here for downloadable versions of this video.

Re-Examining Rand

shikha.dalmia@reason.org (Shikha Dalmia) — Wed, 04 Nov 2009 15:16:00 EST

Rand has a profound effect on people, especially the youth, when they first read her. But over time she loses her appeal. This makes it very hard to build a social movement around her ideas.

Rand's adherents blame all this on the faulty philosophical principles of society--especially on issues of morality. But replacing false ideas with true ones is precisely what transformative figures do, and certainly what Rand, who firmly believed in the power of reason and truth, was hoping to do. Surely, if she had witnessed the events of last year--the government bailout of banks, the takeover of auto companies, the looming socialization of health care--she'd be wondering where she went wrong. Or, to use her lingo, she'd be "checking her premises."

So where did she go wrong?

Read my latest Forbes column here to find out.

Reason Founder Robert Poole on Ayn Rand's Impact

Tue, 03 Nov 2009 17:00:00 EST

Robert W. Poole Jr. was one of the founders of Reason Enterprises, which began publishing Reason magazine with its January 1971 issue. He co-founded the Reason Foundation in 1978 with Manny Klausner and Tibor Machan and has held many titles with the magazine, including editor, managing editor, executive editor, editor-in-chief, and publisher. He remains on the board of the Reason Foundation today and is the Searle Freedom Trust Transportation Fellow and Director of Transportation Policy.

"Rand really inspired a lot of people who otherwise might have become conservatives, like me," says Poole. "If you go back and look at surveys that were done of libertarians in the 1960s, '70s, and even the '80s, and asked what single book or thought leader most inspired you to become a libertarian, it was always Rand by a large large majority—always a plurality and usually a majority."

Approximately six minutes. Interview by Michael C. Moynihan, camera by Dan Hayes, and editing by Hawk Jensen.

This is part of the Reason.tv series Radicals For Capitalism: Celebrating the Ideas of Ayn Rand.

Go here for more information, other videos, and related materials.

Go here for downloadable versions of this video.

California to Send 2,300 More Inmates to Out-of-State Private Prisons

leonard.gilroy@reason.org (Leonard Gilroy) — Tue, 03 Nov 2009 12:43:00 EST

Per Southern California Public Radio, California has amended its contract with private prison provider CCA to increase the total number of contracted out-of-state prison beds by an additional 2,300 as part of the state's strategy to get a grip on its prison capacity crisis:

Back in 2006, Governor Schwarzenegger declared a state emergency in California's prisons due to overcrowded conditions he said threatened inmates and prison guards. That proclamation authorized the Department of Corrections and Rehabilitation to temporarily transfer 7,900 inmates out of state over the last 3 years.

The departments' Gordon Hinkle says the transfers enabled California to get rid of thousands of makeshift cells erected in prison day rooms and gymnasiums. "One of the things we've been trying to do in California is to shut down any of the 'bad beds' or dorm-type living situations which creates a higher security risk not only for the inmates but for also for the correctional officers that are working to supervise them."

Under an amended contract with the Corrections Corporation of America, one of the largest private prison operators in the country, California will be able to transfer an additional 2,300 high-security inmates to the company's facilities in Arizona, Mississippi, and Oklahoma. The transfers are expected to begin early next year.

The inmates are likely to be housed at CCA's North Fork Correctional Center in Oklahoma and its Red Rock Correctional Center in Arizona. This is now the fourth time that the contract has been amended since originally signed in 2006, representing a ten-fold increase in three years (from 1,000 in 2006 to 10,468 under the latest amendment).

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

Atlas Shrugged, Railroads and Warren Buffet

sam.staley@reason.org (Samuel Staley) — Tue, 03 Nov 2009 08:53:00 EST

I couldn't help but notice the irony of Berkshire Hatthaway's $34 billion offer to take Burlington Northern Santa Fe railway private. Berkshire Hathaway is the investment arm of financial mogul Warren Buffet, widely regarded as one of the world's most prescient investors ("The Oracle of Omaha"). Railroads were also the central business of the Taggart family in the famed Ayn Rand novel Atlas Shrugged.

So, is Warren Buffet showing entrepreneurial leadership during a period of increasing government intrusion into the economy? According to the New York Times:

The deal, which will also include the assumption of $10 billion in Burlington Northern debt, represents what Mr. Buffett said was a big bet on the United States. He told CNBC in an interview that railroad operators cannot do well unless American businesses were producing goods and customers were buying them.

“It’s an all-in wager on the economic future of the United States,” he said in a written statement. “I love these bets.”

Only time will tell, but railroads are also slated to be beneficiaries of government largesse as we enter a new era of federal subisidy to support intercity passenger rail (and high-speed rail in particular). Railroads will benefit directly from federal and state taxypayer subidies that upgrade track and operations. So, Buffet's investment makes sense from the view that paper profits will increase because of these subsidies even as the basic economic viability of the industry deteriorates.

So, we actually may be witnessing the further erosion of private industry via railways similar to the way Rand characterized the process in her novel.

Reason Foundation is devoting the entire week to the legacy of Ayn Rand, including an overview of her impact on popular culture and insights from co-founder Bob Poole.

Trouble in 'Net Regulation Paradise

steven.titch@reason.org (Steven Titch) — Mon, 02 Nov 2009 14:28:00 EST

One of the White House's most vocal supporters of Internet regulation has quietly resigned, creating speculation as to whether there is mounting West Wing concern about the scope of President Barack Obama's plans to tighten federal oversight of Internet business.

Susan Crawford, Obama's advisor on telecom and Internet policy, resigned last week amid "little fanfare," reports The American Spectator.

White House sources say that she ran afoul of senior White House economics adviser Larry Summers, who claimed he and other senior Obama officials were unaware of how radical the draft Net Neutrality regulations were when they were initially internally circulated to Obama administration officials several weeks ago. "All of sudden Larry is getting calls from CEOs, Wall Street folks he talks to, Republicans and Democrats, asking him what the Administration is doing with the policies, and he isn't sure what they're talking about," says one White House aide. "He felt blind-sided, and Susan was one of those people who heard about it." In the end, the proposed regulations were slightly moderated from the original language FCC chairman Julius Genachowski, a Crawford ally, circulated.

Read the full text here (second item).

Hat tips to Jerry Ellig at George Mason University and Jeffrey Eisenach at Empiris LLC for the spreading the word.

Rand: Don't Drive Away the Producers in Society

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 02 Nov 2009 14:20:00 EST

In this weeks' WSJ weekend interview (which I blogged yesterday), NYSE CEO Duncan Niederauer lamented that excessive regulation was putting a strangle hold on the American economy. And it is true that the more oppressive the government becomes, the more lawmakers seek to redistribute from the successful to pitied, the more policymakers direct private business operations, the more social entitlement mentality increases, and the more the producers of society are looked at with disdain for their supposed lack of communal charity, the closer we get to a society that does not advance, does not create, does not grow, and slowly withers away.

Niederauer says the way society is suppose to operate is: "the entrepreneur gets rewarded for taking personal risk, borrowing capital, taking an idea, starting a new business from scratch. That's America the last time I checked." But now, the ability to take risks is being stripped by Congress. The ability to find new capital is being strangled away. The incentive to create and grow is being legislated into oblivion by "reform" ideas. And those who took risks and failed continue to be supported by the rest of society.

All of this has eerily similar tones as the world Ayn Rand constructed in her novel, Atlas Shrugged. She writes of a world where it is no longer valuable for the producers to pursue financial and personal gain, and those who employ, design, and create wind up leaving civil society. Rand's ideas were fully captured in this book that makes one of the most profound cases for pure, uninhibited, politically incorrect, radical capitalism. These are the ideas that we celebrate this week at Reason, in our Radicals for Capitalism week.

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?

Preschool Hype: National Security Edition

lisa.snell@reason.org (Lisa Snell) — Mon, 02 Nov 2009 14:05:00 EST

Retired officers push early childhood benefits to help national security

A bipartisan group of retired military officers says without more educational and health investments in children the country will face a growing “national security threat.”

Now, the group is pushing for significant investments in early childhood education, parenting guidance as well as mental and nutrition services.

“The safety of our country demands urgent and intelligent action,” the group says in its mission statement. “We call on all policymakers to ensure America’s national security by supporting interventions that will prepare young people for a life of military service and productive citizenship.”

Congress is considering legislation for a new initiative called the “Early Learning Challenge Fund” designed to help states improve their early education programs and expand access to include more at-risk kids. The House already passed its version of the bill, which would fund $1 billion annually for eight years in competitive grants to states. The Senate has yet to vote on that bill.

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."

Ayn Rand Preschool Action with Barack Obama, Preschool Advocates as Comprachicos, and "Maggie Roark" Standing Alone Against the Daycare Worker of Her Time...

lisa.snell@reason.org (Lisa Snell) — Mon, 02 Nov 2009 12:39:00 EST

Perhaps the title of President Obama's education agenda could have been pulled right out of an Ayn Rand novel: Barack Obama and Joe Biden's Plan for Lifetime Success through Education and perhaps Rand might see the President's objective for "a Preschool Agenda that Begins at Birth," as more evidence that the education establishment is made up of "Comprachicos" or individuals and entities who manipulate the minds and attitudes of children in a way that will permanently distort their beliefs or worldview. As Rand wrote in The New Left:

The production of monsters--helpless, twisted monsters whose normal development has been stunted--goes on all around us. But the modern heirs of the comprachicos are smarter and subtler. They do not hide, they practice their trade in the open, the results are invisible. In the past this horrible surgery left traces on a child's face, not in his mind. Today it leaves traces in his mind, not on his face. In both cases the child is not aware of the mutilation he has suffered. Today's comprachicos do not use narcotic powders. They take a child before he is fully aware of reality and never let him develop that awareness. Where nature put a normal brain, they put mental retardation. To make you unconscious for life by means of your own brain, nothing could be more ingenious. They are the comprachicos of the mind. They do not place a child into a vase to adjust his body to its contours. They place him into a school to adjust him to society.

See Reason.tv's Rand-O-Rama here including the bit from The Simpsons where "Maggie Roark" stands alone as an independent thinker against the daycare worker of her time. . .

In Honor of Ayn Rand's Long Legacy: Rand on Tax Credits for Education

lisa.snell@reason.org (Lisa Snell) — Mon, 02 Nov 2009 12:14:00 EST

In honor of Rand-O-Rama (The Long Shelf Life of Ayn Rand's Legacy) and Reason's week-long tribute to Ayn Rand, I acknowledge that she was an early supporter of tax credits for education choice which has grown up into a robust school choice option for families in the United States. In a 1973 essay she wrote:

The essentials of the idea (in my version) are as follows: an individual citizen would be given tax credits for the money he spends on education, whether his own education, his children's, or any person's he wants to put through a bona fide school of his own choice (including primary, secondary, and higher education).

The upper limits of what he may spend on any one person would be equal to what it costs the government to provide a student with a comparable education (if there is a computer big enough to calculate it, including all the costs involved, local, state, and federal, the government loans, scholarships, subsidies, etc.).

If a young person's parents are too poor to pay for his education or to pay income taxes, and if he cannot find a private sponsor to finance him, the public schools would still be available to him, as they are at present--with the likelihood that these schools would be greatly improved by the relief of the pressure of overcrowding, and by the influence of a broad variety of private schools.

I want to stress that I am not an advocate of public (i.e., government-operated) schools, that I am not an advocate of the income tax, and that I am not an advocate of the government's "right" to expropriate a citizen's money or to control his spending through tax incentives. None of these phenomena would exist in a free economy. But we are living in a disastrously mixed economy, which cannot be freed overnight. And in today's context, the above proposal would be a step in the right direction.

Parents would still have to pay for education, but they would have a choice: either to send their children to free public schools and pay their taxes in full--Or to pay tuition to a private school, with money saved from their taxes.

Rand would be pleased because during the 2008-09 school year, an estimated 109,604 students benefited from seven scholarship tax credit programs operating in six states. In 2008, scholarship granting organizations received approximately $218 million in donations from generous companies and families. Scholarship tax credit programs provide smart incentives for individuals and businesses to get involved in education, ensuring that children are able to attend the schools that are right for them.

Check out RAND-O RAMA at Reason.tv!

Rand-O-Rama: The Long Shelf Life of Ayn Rand's Legacy

Mon, 02 Nov 2009 11:39:00 EST

Few authors have ever achieved the popularity that the novelist and essayist Ayn Rand (1905-1982) did. With the publication of The Fountainhead in 1943 and Atlas Shrugged in 1958, Rand became a full-blown cultural phenomenon, selling millions of books and inspiring countless readers—ranging from former Federal Reserve Chairman Alan Greenspan to Playboy founder Hugh Hefner to actress Angelina Jolie—with her moral defense of capitalism. A refugee from Soviet Russia, Rand argued that capitalism was the best way of organizing society not simply because it was more efficient than communism but because it allowed the individual to fill his or her potential. A self-declared "radical for capitalism," Rand emphatically rejected collectivism of all stripes and embraced "man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute."

Decades after her death, Rand's work is hotter than ever. In an age of massive government intervention into every aspect of the economy and personal lives, sales of her books are way up and a movie version of Atlas Shrugged is in the works. References to Rand are everywhere from Mad Men to The Colbert Report to The Simpsons and there's even a new critical appreciation, as evidenced by two new biographies, Ayn Rand And The World She Made and Goddess of The Right.

This Reason.tv video is approximately four minutes long and produced by Meredith Bragg and Nick Gillespie, "Rand-O-Rama" analyzes the 21st-century Rand renaissance.

This video is part of the Reason.tv series Radicals For Capitalism: Celebrating the Ideas of Ayn Rand. Go here for more information, other videos, and related materials.

All Ayn Rand Fans: Brian Doherty Live Chat on Rand Tuesday, Nov. 3 at 3 p.m. Eastern

gillespie@reason.com (Nick Gillespie) — Mon, 02 Nov 2009 11:15:00 EST

As part of our two-week-long series Radicals for Capitalism: Celebrating the Legacy of Ayn Rand, Reason magazine Senior Editor Brian Doherty will be conducting a live chat on Tuesday, November 3 at 3:00 p.m. Eastern time/12:00 p.m. Pacific time.

The topic: "Is 2009 the Year of Ayn Rand?"

To participate or follow, simply go to reason.com/reason-live-chat.

For more about the series Radicals for Capitalism, go here. And look for a new Reason.tv video to be posted here every day over the next two weeks.

Tennessee's Gold-Standard Preschool Not Effective After 2nd Grade

lisa.snell@reason.org (Lisa Snell) — Sun, 01 Nov 2009 23:44:00 EST

Via Education WeeK:

A report released Thursday shows the effectiveness of Tennessee's pre-kindergarten program diminishes after the second grade, but supporters say it still provides a valuable foundation that will help at-risk children succeed.

The report commissioned by the state comptroller's office reveals kindergarten students who participated in the pre-K program performed better academically than a group of those who didn't.

However, it shows that there is "little evidence that the unique effects of pre-K" last beyond second grade.

Education Week also reports that U.S. Education Secretary Arne Duncan says that Preschool is Key to Solving the Education Crisis. Who knew the education crisis was kindergarten readiness?

My So-Called Stimulus Job: Higher Education Edition

lisa.snell@reason.org (Lisa Snell) — Sun, 01 Nov 2009 22:58:00 EST

Via College Life blog at the Orange County Register, UCI folks question the Governor's claim about the number of jobs the stimlus created for California colleges:

Governor Arnold Schwarzenegger says Congress’ federal stimulus program has saved or created 8,356 jobs in the University of California system, a claim that comes as a surprise at UC Irvine, Orange County’s largest employer.

Schwarzenegger’s claim was made by his California Recovery Task Force,which also says the stimulus created or saved 26,156 jobs in the California State University system, bringing the total for the two systems to about 34,500.

“We can’t figure out where the governor’s office got the data to support saying 34,000 jobs have been saved in the CSU and UC systems. No such data has been forwarded by our campus to the state,” said Cathy Lawhon, director of media relations at UCI.

And in other education stimuls news, Politics K-12 reports that VP Joe Biden says 325,000 education jobs have been created or saved. Let's go with saved, because in the education sector there was much more state budget fill than new job creation. As Governor Schwarzenegger explained:

"Those teachers would have been gone if it hadn't been for the stimulus money."

Joe Biden real man of genius here.