Tag Archives: political economy

A Bill Under the Commerce Clause

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Some view the Constitution’s Commerce Clause as granting to the Congress expansive powers of Federal control of intrastate activities, individual activities, and even the thoughts of private citizens.  A supine Supreme Court has supported this view.  Wickard v Filburn, for instance, agrees that Congress can regulate privately carried out agricultural activities, and NLRB v Jones & Laughlin extends that to manufacturing activity that occurs wholly within a state—an activity that prior to Jones & Laughlin was considered separate and distinct from any commerce-related process.  With these rulings in mind, a Federal District judge, Gladys Kessler, has even held that this Commerce Clause control extends into the private thoughts of individual citizens (Mead v Holder).

The line of reasoning for this startling evolution can be summarized in Chief Justice Charles Evans Hughes’ majority opinion in Jones & Laughlin: activities that are intrastate in character (which rather tautologically includes those individual activities) are regulable under the Commerce Clause when they bear a “close and substantial relation to interstate commerce.”

Agriculture is such an intrastate activity when the processes of field preparation, sewing, growing, and harvesting are considered separately, and separately from any subsequent process of bringing that harvest to market.  Likewise, manufacturing is such an intrastate activity when the processes of gathering equipment and locally procured supplies, the assembly of those supplies into finished product, and their in-plant inspection are considered separately, and separately from any subsequent process of bringing those finished products to market.  However, since Wickard and Jones & Laughlin hold such activities to bear a “close and substantial relation to interstate commerce,” it is reasonable to hold that any activity that impacts those processes of agriculture and manufacturing also bear a “close and substantial relation to interstate commerce.”  Such activities here plainly include union strikes and boycotts.

Accordingly, I propose a simple, one-page bill (no 2,000+ pages for me) that bans union strikes and boycotts, citing the Commerce Clause as the constitutional authority for such a ban.

It would be interesting to hear the Commerce Clause objections to such a bill.  What rationalizations might be offered?

Government Tax Increases and Government Spending Cuts

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Stipulate, arguendo, that government spending is stimulative.  In order to pay for the stimulative spending, government must collect taxes or borrow.  Taxes taken away from the citizens, though, is money the citizens no longer can spend.  Raising taxes to pay for increased stimulative spending is even more money that those citizens now cannot spend.  This reduced private spending offsets the public spending funded by that taxation.

Increased taxes to support increased public spending reduces private spending even more than the amount of the tax increase, though.  The increment above the simple reduction in private spending comes from individuals and businesses now being especially careful to husband their monies: they increase their savings so as to improve their ability to handle unforeseen problems, such as a medical emergency, a roof repair, a capital plant problem, another increase in their tax bill beyond the one just suffered.  Thus, private spending is reduced further by increased saving, and a tax increase results in a net reduction in the sum of private and public spending.

This offset doesn’t change when government borrowing, rather than tax increases, is used to fund stimulative (government) spending.  Americans aren’t stupid.  We all recognize that today’s government borrowing is just tomorrow’s increased taxes and/or rising inflation, and so the above husbanding still occurs.

This is a relatively symmetric relationship.  A reduction in tax rates achieves two positive things (although after a minimum threshold, the second positive becomes a wasteful negative).  The first positive thing is that more money is left in the hands of private individuals and private businesses.  This additional money is either spent, which is directly stimulative, or it is saved against one of those unforeseen events, or for a planned large expenditure, future retirement, or future investment.

Thus, saving is stimulative tomorrow, and more than that, the saved money actually serves two stimulative roles.  One role is that this is the money private individuals and our businesses are going to spend tomorrow for one of the reasons just described.  The other role is through private or commercial lending/borrowing.  Those savings are assets that banks and other financial institutions can lend to our neighboring private individuals and to our businesses, so our neighbors and businesses have increased money for their current spending.

The second positive thing is that with these reduced tax rates, economic growth is encouraged, and that increased economic activity generates more revenue for the government beyond the direct reduction from those reduced rates.  However, since government has no need of money beyond funding the few things our government was created to effect, any amount beyond that level is wasteful and so provides room for reducing tax rates even further.

Finally, in the real world, where (Keynesian) stimulus spending has been shown to be wrong empirically (vis., FDR’s “stimulus” spending during the Great Depression, which prolonged the Depression; and Obama’s “stimulus” spending in the present deep recession, which is prolonging the recession), reduced government spending also is net stimulative.  Government spending crowds out private spending through at least two mechanisms.  Government demand artificially elevates prices compared to the level at which those prices would exist in the face of solely private demand, and private spending is reduced by lack of need to purchase: the government will buy and transfer the goods to the private individuals.  Reduced government spending reduces that crowding out, and private individuals and businesses return to the market place.

Recovery, and Recovery, and Recovery

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…creeps in this petty pace.*  Here are some statistics, courtesy of Edward Lazear, writing for The Wall Street Journal.

  • In the three years [after the Great Depression of 1930-33], the economy rebounded with growth rates of 11%, 9%, and 13%, respectively.
  • The current recovery, beginning in 2009, has had growth rates of in 3% and 1.7% in 2010 and 2011, respectively.  The [2012] growth rate looks to be about 2%.
  • From post-WWII to the current recession (1947-2007), the US’ average annual growth rate was 3.4%.
  • Since the ’80s, we’ve had somewhat slower growth, but even here, the average growth rate was 3%.
  • During our current “recovery,” our economy has grown at 2.4%—below both that long-term trend, and the intermediate, nearby trend.
  • Today our economy is 12% smaller than it would have been had we matched our growth trend since 2007.
  • Today our economy is 4 per centage points further off trend line than it was 1Q09 when President Obama’s nearly trillion-dollar “stimulus” effort started.

Historically, the deeper the recession, the stronger the subsequent recovery.  The present “recovery” isn’t robust by any measure.  It’s not even catching up.

Whose policies have been in effect throughout this creeping, petty “recovery?”  Not those of Bush the Younger.

*With apologies to the Thane, Macbeth.

Our Energy Program

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There are a few items of interest as President Obama continues to tout his energy “policy.”

First, there’s this:

Brazil’s ethanol program is often touted as having weaned that nation off its dependency on foreign oil.  In truth, they made a political decision 40 years ago that they did not wish to be vulnerable to Middle Eastern (and others’) machinations or crises.  As a result of that decision, and their subsequent efforts, Brazil, which used to import over three-fourths of its oil, today imports no oil.  In fact, it’s a (minor) net exporter.  While their ethanol development program has contributed to their overall reduction in dependency on foreign oil, Brazilian oil production and use have both increased sharply: consumption by nearly 120% since 1980, and production even more markedly—875% over the same time frame.  Figure 1 tells that tale.

Figure 1: Brazilian Oil Production and Consumption, 1980 – 2009

What accounts for this?  In addition to on-shore production, Brazil actively drills for oil in the Atlantic, off its coast—often far off its coast and in very deep waters.  Brazil also actively drills in the Gulf of Mexico—a vast source of off-our-own-coast oil for which President Obama won’t allow American companies to drill—as he won’t allow off our Atlantic or Pacific coasts, or in Alaska, or anywhere oil is under Federally-owned land.

Then there’s this, courtesy of Speaker of the House of Representatives, John Boehner (R, OH).  Here is made manifest President Obama’s disdain for domestic oil production and for Americans’ pocketbooks.

Don Seymour writes [emphasis and link in the original]:

President Obama called for the kind of “all of the above” energy strategy long-championed by Republicans. But far from supporting all of the above,” the Obama administration has spent more than three years blocking efforts to expand energy production and bring down gas prices, while pushing job-crushing tax hikes and taxpayer-backed loans to companies like Solyndra.

Figure 2 pretty much says it all.

Figure 2: Running on Empty: The White House Plan for Higher Gas Prices & Fewer Jobs

Finally, there’s enormous technological improvement supporting vast increases in natural gas production, which the Obama administration would just as soon see disappear.  Fracking technology has exploded our accessible domestic stores of gas.  In the Marcellus gas deposit, alone, which lies thousands of feet down in a reservoir reaching from West Virginia to New York, is enough gas to satisfy our nation’s energy needs for the next 15 years.

Fracking (hydraulic fracturing) is the technology that’s making this heretofore unreachable gas eminently reachable.  Fracking works by drilling a 5″ diameter hole (yes, it’s that small) from a more or less convenient location on the surface down several thousand feet until the drill reaches the gas-containing shale or the depth at which the shale exists, then bending to horizontal and drilling farther, now into the shale, until the pipes and rig are well into in the part of the shale containing the gas. This is where that “more-or-less convenient” part comes in: the drill doesn’t have to be vertical, or at an angle off vertical to get to  the targeted location.  This allows the surface location of the drilling to be offset quite a ways, for instance out of town, or well away from the farmer’s house.  After arrival in the targeted gas area, a high-pressure burst of water and sand is pumped into the piping, which creates millimeter-wide fractures in the shale through which the natural gas can escape into the piping.

Notice that: it’s water that does the fracturing.  The sand is along to be driven by that same pressure burst into the cracks created by the water to hold them open.  There are some impurities add to the mix: biocides akin to what gets dumped into backyard swimming pools for keeping bacteria, algae (even at that depth), and so on from clogging the pipes (they’re only 5″ across).  Other impurities include lubricants to keep the sand from abrading, too much, the pipes on the way into place.  And to facilitate withdrawing the water so the gas can flow more easily.  There are impurities added by the depths through which the drilling occurred, also, as the drilling equipment and water are withdrawn so the gas can be collected: for instance, the drilling often goes through geologically ancient underground seas, or seabeds, so the equipment coming back up is coated with the salts of those ancient seas.  The withdrawn water then is treated by the frackers, or by water treatment specialist companies hired by the frackers, to greater purity than the typical city water treatment plant before it’s released back into the environment.

But Obama’s administration keeps trying to butt in—both to “standardize” regulations concerning fracking, and to use that “standardization” to interfere with fracking itself.  It’s only necessary to review his EPA regulations concerning coal use, ethanol for our cars, his “green” energy projects.  He’s moving to block the use of coal altogether; he mandates, or continues to mandate during his “review” of excess regulation, the use of ethanol in our gasoline without regard to what that does to an automobile’s engine or what ethanol production does to the price of food.  And he has accelerated the diversion of our tax money into his favored “green” companies.  Competition, even from clean natural gas, cannot be accepted.

And never mind that state regulators see no need for Federal involvement.  This isn’t a turf battle; they make their argument on logic and facts.  Pennsylvania regulators, for instance, understand the practices and geology of Pennsylvania much more thoroughly and clearly than can Federal regulators at the remote EPA.  At best, any reasonable Federal regulatory system would end up essentially replicating what many of the states already do, but at a political and physical distance that makes those Federal regulators more remote, and they’re less accountable.  Further, that remoteness renders even well-intentioned Federal regulators unable to tailor their regulations to the varied specific state environments—political, economic, or natural—the way the individual states can,

Ireland, Economic Prosperity, and the Euro

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Irish Prime Minister Enda Kenny said over the weekend that Irish voters in their upcoming referendum on the European Union’s fiscal union treaty can choose between economic recovery or risking Ireland’s continued participation in the euro.  Indeed, Mr Kenny painted a clear contrast between voting up and voting down those recently (re)negotiated terms of the EU’s fiscal union: a “yes” vote, he insists, removes doubts about Ireland’s commitment to the euro zone, and it helps the country regain access to international debt markets.  On the other hand, a “no” vote removes the safety net for Ireland: access to the EU’s permanent euro-zone bailout fund.

This is a false choice, since there is no conflict between the Irish exiting the euro and their economic prosperity.  No one in European leadership, or anywhere else, has made the case—or even tried to make the case—that an inhomogeneous polity can succeed.  What Mr Kenny really needs to do is make that case.  On what basis does he think using the same currency as Greece, Spain, Italy, and Portugal is a path to prosperity?  Those nations don’t have the same social imperatives that Ireland has.  Those nations don’t see money having the purpose that Ireland sees.  Those nations don’t have the same view of the role of government that Ireland has.

The social imperative of those Mediterranean nations is the importance, in their view, of social and economic safety nets.  They want those bailouts.  They want to be protected from the results of their choices—or have their governments make those choices for them.  The Irish have shown themselves, throughout their history, to favor personal initiative, personal responsibility.  The Irish have shown themselves willing to risk failure to achieve great success, and more importantly, to learn from their failures so as to achieve even greater prosperity.

The purpose of money, in the view of those Mediterranean nations, is for current consumption. These people want to buy now, whether necessities, nice-to-haves, or luxuries. The government and the safety net it provides will take care of the future.  The purpose of money for the Irish is to store value, to store the results of their labor and/or the value of things they produce or acquire with their labor.  Certainly, that includes current consumption—those necessities, nice-to-haves, and luxuries.  But that store of value also is a store against an uncertain future, which not even government can predict with any accuracy.  That store is for their own future consumption, including their retirement, in accordance with their own view of value in the realization of that future.

The purpose of government, in the view of those Mediterranean nations, is to provide that safety net.  The purpose of government, they say, is to take care of the people.  The Irish, with their world view of the moral value of personal responsibility and personal initiative, see government’s role as providing and protecting an environment in which they as individuals are able to satisfy their own imperatives, are able to fulfill their own potential to its fullest—and both that potential and the terms of that fulfillment are defined by the individuals involved, not by government.

The path to recovery  and prosperity for Greece, Spain, Italy, and Portugal may well be participation in the euro.  The path to recovery and prosperity for Ireland does not have the euro along the way.  Nor do the Irish have anything to fear in terms of access to the international financial markets (not only the debt markets).  Their recovery and prosperity are what will provide this, not any adherence to a poorly constructed union.  Moreover, in the end, Ireland has no need of any bailouts; the Irish are made of sterner stuff.