Month: June 2014

Let’s Make a Deal

Let's make a deal

The last deal negates all of the concessions made in the other deals — for those of us who will choose to live in Free States.

Every Silver Lining Has a Cloud

Today’s big economic news is the decline in real GDP reported by the Department of Commerce’s Bureau of Economic Analysis (BEA): an annualized rate of minus 2.9 percent from the fourth quarter of 2013 to the first quarter of 2014. Except for times when the economy was in or near recession, that’s the largest decline recorded since the advent of quarterly GDP estimates:

Quarterly vs annual changes in real GDP - 1948-2014
Derived from the “Current dollar and real GDP series” issued by BEA. See this post for my definition of a recession.

What’s the silver lining? Quarter-to-quarter changes in real GDP are more volatile than year-over-year and long-run changes. Some will take solace in the fact that real GDP rose by (a measly) 1.5 percent between the first quarter or 2013 and the first quarter of 2014. (Though they will conveniently ignore the long-run trend, marked by the dashed line in the graph.)

What’s the cloud? Well, as I pointed out above, the quarter-to-quarter decline in the first quarter of 2014 is unprecedented in the post-World War II era. Unless the sharp drop in the first quarter of 2014 is a one-off phenomenon (as suggested by some cheerleaders for Obamanomics), it points two possibilities:

  • The economy is in recession, as will become evident when the BEA reports on GDP for the second quarter of 2014.
  • The economy isn’t in recession — strictly speaking — but the dismal performance in the first quarter presages an acceleration of the downward trend marked by the dashed line in the graph. (For those of you who care about such things, the chance that the trend line reflects random “noise” in GDP statistics is less than 1 in 1 million.)

Even if there’s a rebound in the second quarter of 2014, the big picture is clear: The economy is in long-term decline, for reasons that I’ve discussed in the following posts:

The Laffer Curve, “Fiscal Responsibility,” and Economic Growth
The Causes of Economic Growth
In the Long Run We Are All Poorer
A Short Course in Economics
Addendum to a Short Course in Economics
The Price of Government
The Price of Government Redux
The Mega-Depression
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
The Illusion of Prosperity and Stability
Taxing the Rich
More about Taxing the Rich
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Say’s Law, Government, and Unemployment
Unemployment and Economic Growth
Regime Uncertainty and the Great Recession
Regulation as Wishful Thinking
The Real Multiplier
The Commandeered Economy
We Owe It to Ourselves
In Defense of the 1%
Lay My (Regulatory) Burden Down
The Burden of Government
Economic Growth Since World War II
The Economy Slogs Along
Government in Macroeconomic Perspective
Keynesianism: Upside-Down Economics in the Collectivist Cause
The Price of Government, Once More
Economic Horror Stories: The Great “Demancipation” and Economic Stagnation
Economics: A Survey (also here)
Why Are Interest Rates So Low?
Vulgar Keynesianism and Capitalism
Estimating the Rahn Curve: Or, How Government Spending Inhibits Economic Growth
America’s Financial Crisis Is Now
The Keynesian Multiplier: Phony Math
The True Multiplier
The Obama Effect: Disguised Unemployment
Obamanomics: A Report Card

See especially “Regime Uncertainty and the Great Recession,” “Estimating the Rahn Curve: Or, How Government Spending Inhibits Economic Growth,” and “The True Multiplier.”

Has America Always Been Leftist?

Dr. John J. Ray, writing at Dissecting Leftism, enraged some Americans with two recent posts about America and leftism. I’m grateful to Dr. Ray for publishing, in a subsequent post, a message that I sent to him about the two posts in question. Herein, I elaborate on the points that I made in my message to Dr. Ray.

In “America Has Always Been Leftist,” Dr. Ray asserts the following:

As most Americans learn around the time of Thanksgiving, America was founded by fanatical communists.  They forbad [sic] private ownership of land and insisted that all produce be shared communally.  If that’s not communism, nothing is.  They were such fanatics that a third of them had to starve to death before they decided that communism wasn’t such a good idea and went back to the way things had always been done in stodgy old England.

So what should we expect of a nation dominated by the descendants of fanatical communists?  What we should expect is exactly what we actually got, I submit.

But before I get to that, let me  ensure complete clarity about what the core of Leftism is.  The content of Leftism changes from time to time.  Before WWII, Leftists world wide were energetic champions of eugenics, for instance.  Leftists now abhor it.  So what is constant in Leftism?  Anger.  Leftists in all eras are so dissatisfied with the society in which they live that they want sweeping changes to it. And they thirst for power to achieve that.  That is Leftism.

Pace Dr. Ray, it is well known that the “fanatical communists” of Plymouth Colony quickly abandoned their experiment in communism; for example, Jerry Bowyer writes:

…America was founded by socialists who had the humility to learn from their initial mistakes and embrace freedom.

One of the earliest and arguably most historically significant North American colonies was Plymouth Colony, founded in 1620 in what is now known as Plymouth, Massachusetts. As I’ve outlined in greater detail here before (Lessons From a Capitalist Thanksgiving), the original colony had written into its charter a system of communal property and labor.

As William Bradford recorded in his Of Plymouth Plantation, a people who had formerly been known for their virtue and hard work became lazy and unproductive. Resources were squandered, vegetables were allowed to rot on the ground and mass starvation was the result. And where there is starvation, there is plague. After 2 1/2 years, the leaders of the colony decided to abandon their socialist mandate and create a system which honored private property. The colony survived and thrived and the abundance which resulted was what was celebrated at that iconic Thanksgiving feast….

It is, moreover, an exaggeration to say that America is “a nation dominated by the descendants of fanatical communists.” First, as I’ve just pointed out, the inhabitants of Plymouth Colony were hardly fanatical. If they had been, they would have chosen the sure impoverishment (and probable death) of communism over the relative prosperity (and liberty) that came their way when they abandoned their infatuation with communism.

Second, only a small minority of today’s Americans — even of today’s white Americans — can count themselves as “full blooded” descendants of the inhabitants of Plymouth Colony or other early settlers might also have harbored socialistic delusions. There have been too many immigrants from continental Europe and too much “miscegenation” for that to be true.

Third, and fundamentally, it is meaningless to generalize about “Americans,” as I’ve explained at length here. There are and have been individual Americans of many political persuasions, most of them confused and contradictory.

That said, I do agree, generally, with Dr. Ray’s characterization of the motivations underlying the War of Independence. In his next post, “Has America Always Been Leftist?,” Dr. Ray says this:

I did learn something very important from [the critics of “America Has Always Been Leftist”].  It was vividly brought home to me how impressive fine words are to most people.  When even patriotic American conservatives can be taken in by them, it shows why Leftists have so much influence. Leftists are nothing but fine words.  To me fine words are only provisionally important.  They have to be backed up by deeds and it is the deeds that matter.

An excellent example of how fine words impress even conservatives  is the preamble to the Declaration of Independence.  It is full of fine words and noble sentiments.  Most political documents are.  Stalin’s Soviet constitution also was a high-minded document proclaiming all sorts of rights for Soviet citizens  — rights which were denied in fact.

So once you look past the grand generalizations of the Declaration’s introduction and get to the nitty gritty of what the Yankee grandees really wanted fixed, you see that it is very mundane, if not ignoble.  What was really bothering them was restrictions on their powers to legislate.  They wanted more laws, not less!   Very Leftist.

And from THAT starting point you can see why the war was fought and for whose benefit.  The grandees concerned had a lot of influence and were good at fine talk so they could muster an army — and they did.  And who benefited from the war?  Was it the poor farmers and tradesmen who died as foot-soldiers in it?  No way!  It was the grandees who started the war.  They emerged with exactly what they wanted:  More power.

I am sorry if that account sounds offensive to people who still believe the original propaganda, but if you ignore the fancy talk and just look at the facts, that is what happened.

Dr. Ray’s sweeping use of “Leftist” aside, his main point is well taken. I made a similar observation in response to a post by Timothy Sandefur, who was then guest-blogging at The Volokh Conspiracy. Sandefur, writing about his book The Conscience of the Constitution, asserted that “The American founders held that people are inherently free—that is, no person has a basic entitlement to dictate how other people may lead their lives.” I responded:

Did they, really? All of them, including the slave owners? Or did they simply want to relocate the seat of power from London to the various State capitals, where local preferences (including anti-libertarian ones) could prevail? Wasn’t that what the Declaration of Independence and Articles of Confederation were all about? The Constitution simply moved some of the power toward the national capital, mainly for the conduct of foreign policy and trade. Despite that, the Constitution was a “States’ rights” document, and remained that way until the ratification of Amendment XIV, from which much anti-libertarian mischief has emanated.

In response to Sandefur’s next post, I wrote:

Why can’t you [Sandefur] just admit that the Declaration of Independence was a p.r. piece, penned (in the main) by a slave-owner and subscribed to by various and sundry elites who (understandably) resented their treatment at the hands of a far-away sovereign and Parliament? You’re trying to make more of the Declaration — laudable as its sentiments are — than should be made of it….

In sum, the War of Independence isn’t all that it’s cracked up to be.

And there’s no doubt that liberty suffered in the long run as a result of the North’s victory in the Civil War. I return to Dr. Ray’s “America Has Always Been Leftist,” where he says this:

“Only” half a million men died [in the Civil War].  And for what?  EVERY other country on earth abolished slavery without the need for a war.  Does that not tell us something?  It should.  In his famous letter to Horace Greeley [link added], Lincoln himself admitted that slavery was not the main issue.  The issue was the dominance of central government.  V.I. Lenin call your office.  Lincoln didn’t call it “dominance of central government”, of course.  He called it “the union” but the result is the same.

And just about everything Lincoln did was without a shred of constitional justification and in fact breached the constitution.  Hitler at least had the grace to get an “enabling act” passed by the German parliament.  Lincoln just marched on regardless. He destroyed the liberty of the press (there goes your first amendment) and locked up thousands of war opponents (there goes your 4th amendment).  But most centrally, Lincoln’s whole enterprise was a defiance of the basic American constitutional dispensation that the states are sovereign, not the federal government.  Lincoln turned that on its head.  The feds now became the main source of power and authority.  There is no doubt that Lincoln talked a good talk.  He even used to persuade me once.  But his deeds reek of Fascism.

A good example of the large gap between his deeds and words is that masterpiece of propaganda, the Gettysburg address.  Goebbels admired it for good reason.  In case anybody hasn’t noticed, Lincoln claimed that his war was to ensure “government of the people, by the people, for the people” — which was exactly what he had just denied to the South!  Only Yankees are people, apparently.  Hitler thought certain groups weren’t people too.

Overwrought? Perhaps, but if Lincoln wasn’t a left-statist, he at least set an example for extra-constitutional activism that inspired Theodore Roosevelt’s hyper-activism (e.g., see this and this). TR, of course, set an example that was followed and enlarged upon by most of his successors, unto the present day.

Another anti-libertarian legacy of the Civil War is the false belief that it “proved” the unconstitutionality of secession. Balderdash! Secession is legal, Justice Scalia’s dictum to the contrary notwithstanding. (See this, this, and this, for example.) And the ever-present threat of secession might have helped to keep the central government from overstepping its constitutional bounds.

I must conclude, however, that the American Revolution and Civil War have little to do with “left” (or “right”) and much to do with human venality and power-lust, which are found in persons of all political persuasions.

The genius of the Constitution was that it provided mechanisms for curbing the anti-libertarian effects of venality and power-lust. The tragedy of the Constitution is that those mechanisms have been destroyed. If Dr. Ray were to say that Americans have gradually lost their liberty through successive and cumulative violations of the Constitution, I would agree with him

And if Dr. Ray were to say that Americans have become the captives of a leftist state, and are likely to remain so, I would agree with him.

*     *     *

Related posts:
FDR and Fascism
The Modern Presidency: A Tour of American History
An FDR Reader
The People’s Romance
The Near-Victory of Communism
A Declaration of Independence
Tocqueville’s Prescience
Invoking Hitler
The Left
The Constitution: Original Meaning, Corruption, and Restoration
I Want My Country Back
Our Enemy, the State
The Left’s Agenda
The Meaning of Liberty
The Southern Secession Reconsidered
The Left and Its Delusions
Burkean Libertarianism
A Declaration and Defense of My Prejudices about Governance
Society and the State
Why Conservatism Works
Liberty and Society
Tolerance on the Left
The Eclipse of “Old America”
A Contrarian View of Universal Suffrage
Defending Liberty against (Pseudo) Libertarians
Defining Liberty
Conservatism as Right-Minarchism
“We the People” and Big Government
Parsing Political Philosophy (II)
How Libertarians Ought to Think about the Constitution
Romanticizing the State
Libertarianism and the State

Income Inequality and Inherited Wealth: So What?

Greg Mankiw offers a refreshing take on  Thomas Piketty’s infamous thesis, Capital in the Twenty-First Century. Mankiw opens by asking, “Is inherited wealth making a comeback?” He continues:

Yes, says Thomas Piketty…. Inherited wealth has always been with us, of course, but Mr. Piketty believes that its importance is increasing. He sees a future that combines slow economic growth with high returns to capital. He reasons that if capital owners save much of their income, their wealth will accumulate and be passed on to their heirs. He concludes that individuals’ living standards will be determined less by their skill and effort and more by bequests they receive.

To be sure, one can poke holes in Mr. Piketty’s story. Since the book came out, numerous economists have been doing exactly that in book reviews, blog posts and academic analyses.

Moreover, given economists’ abysmal track record in forecasting, especially over long time horizons, any such prognostication should be taken with a shaker or two of salt. The Piketty scenario is best viewed not as a solid prediction but as a provocative speculation.

But it raises the question: So what? What’s wrong with inherited wealth?…

The bottom line is that inherited wealth is not an economic threat. Those who have earned extraordinary incomes naturally want to share their good fortune with their descendants. Those of us not lucky enough to be born into one of these families benefit as well, as their accumulation of capital raises our productivity, wages and living standards.

Unlike Mankiw, I would have stopped at “so what?” The incessant attacks on income inequality and inherited wealth arise not only from faulty economic reasoning, as Mankiw points out, but also from envy and resentment.

Envy and resentment are found among non-achievers, of course, but they are rampant in the ranks of the affluent. There we find pseudo-academic poseurs like Paul Krugman and Robert Reich, leftist pundits, well-heeled politicos, and cossetted bureaucrats who feast on the spoils of the welfare state. These hypocrites can’t attack “the rich” with a straight face, so they attack “the very rich,” a class that they define (conveniently) to exclude themselves.

That said, I can’t resist the temptation to add to Mankiw’s short list of links to posts and articles that are critical of Piketty’s analysis. Here’s a small sample of related readings:

Richard A. Epstein, “The Piketty Fallacy,” The Libertarian, May 5, 2014
Arnold Kling, “More Contra Piketty,” askblog, May 21, 2014
Scott Sumner, “The Middle Class Is Doing Fine,” EconLog, May 21, 2014
Pejman Yousefzedah, “Facts Are Stubborn Things … As Thomas Piketty Is Beginning to Find Out,” Pejman Yousefzedah, May 23, 2014
Ed Morrissey, “The Perils of Piketty,” Hot Air, May 25, 2014
Tim Worstall, “Why Income Inequality Is Really Very Good for Us Indeed,” The Adam Smith Institute, June 2, 2014
Mark J. Perry, “Sorry Krugman, Stiglitz, and Pikkety: Income Inequality for Individual Americans Has Been Flat for More Than 50 Years,” Carpe Diem, June 5, 2014

For many more readings, see the links at the bottom of “Mass (Economic) Hysteria: Income Inequality and Related Themes.” See also my many posts tagged “income inequality,” and follow the links therein.

(Full disclosure: I am an “unprivileged” child of “unprivileged”parents. I have inherited not so much as a penny. In 31 years of salaried, full-time employment, I earned above-average compensation. My earnings were in the top-5 percent of individual incomes for a few years at the end of my full-time working career.)

“Liberalism” and Personal Responsibility

As usual, I enclose “liberal” and its variants in quotation marks because such words refer to persons and movements whose statist policies are in fact destructive of liberty, that is, illiberal.

The unacknowledged core value of “liberalism” is its repudiation of personal responsibility. There is ample evidence of this; for example:

  • the treatment of material inequality as inequity, as if differences in intelligence, skills, ambition, and work habits are irrelevant
  • unblinking support for the redistribution of income and wealth, thus encouraging sloth and punishing intelligence, skill, ambition, and hard work
  • a preference for rehabilitation and second, third, and fourth chances, as opposed to sure, swift, and harsh punishment for criminal acts
  • the unsupported view that terrorism arises from poverty and is therefore “understandable,” and isn’t an act of war but merely a crime whose perpetrators must be accorded due process in American courts
  • the promotion of abortion, which is a way of escaping the consequences of imprudent sexual behavior — after-the-fact birth control, as it were
  • the disparagement and destruction of familial responsibility, through welfare programs, easy divorce, the advancement of gay “marriage,” and the subsidization of women’s work outside the home
  • a general disinclination to hold persons responsible for the consequences of their actions: various addictions are “diseases”; those who acquire lung cancer by smoking are “victims” of tobacco companies; those who engage in risky sex acts are “victims” of AIDS; those who borrow money and don’t repay it; and on and on
  • the treatment of straight, white males as”privileged,” to justify the indiscriminate bestowal of favors on “protected groups” (those who aren’t straight, white males) because all members of such groups are discriminated against,” “disadvantaged,” and “oppressed,” by definition.

Anthony Daniels (Theodore Dalyrmple) captures the essence of the “liberal” mindset:

In the United States, the National Institute on Drug Abuse defines addiction quite baldly as a chronic relapsing brain disease—and nothing else. I hesitate to say it, but this seems to me straightforwardly a lie, told to willing dupes in order to raise funds from the federal government.

Be that as it may, the impression has been assiduously created and peddled among the addicts that they are the helpless victims of something that is beyond their own control, which means that they need the technical assistance of what amounts to a substantial bureaucratic apparatus in order to overcome it. When heroin addicts just sentenced to imprisonment arrived, they said to me, “I would give up, doctor, if only I had the help.” What they meant by this was that they would give up heroin if some cure existed that could be administered to them that would by itself, without any resolution on their part, change their behavior. In this desire they appeared sincere—but at the same time they knew that such a cure did not exist, nor would most of them have agreed to take it if it did exist….

[A]ll the bases upon which heroin addiction is treated as if it is something that happens to people rather than something that people do are false, and easily shown to be false. This is so whatever the latest neuro-scientific research may supposedly show….

Dishonest passivity and dependence combined with harmful activity becomes a pattern of life, and not just among drug addicts. I remember going into a single mother’s house one day. The house was owned by the local council; her rent was paid, and virtually everything that she owned, or that she and her children consumed, was paid for from public funds. I noticed that her back garden, which could have been pretty had she cared for it, was like a noxious rubbish heap. Why, I asked her, do you not clear it up for your children to play in? “I’ve asked the council many times to do it,” she replied. The council owned the property; it was therefore its duty to clear up the rubbish that she, the tenant, had allowed to accumulate there—and this despite what she knew to be the case, that the council would never do so! Better the rubbish should remain there than that she do what she considered to be the council’s duty. At the same time she knew perfectly well that she was capable of clearing the rubbish and had ample time to do so. This is surely a very curious but destructive state of mind, and one that some politicians have unfortunately made it their interest to promote by promising secular salvation from relative poverty by means of redistribution….

[T]he notions of dependence and independence have changed. I remember a population that was terrified of falling into dependence on the state, because such dependence, apart from being unpleasant in itself, signified personal failure and humiliation. But there has been an astonishing gestalt switch in my lifetime. Independence has now come to mean independence of the people to whom one is related and dependence on the state. (“The Worldview That Makes the Underclass,” Imprimis, May/June 2014)

The deeper tragedy is that the denial of personal responsibility leads inevitably to the erosion of liberty. When the state becomes the arbiter of our morals, it becomes perforce the arbiter of our actions.

*     *     *

Related posts:
The Cost of Affirmative Action
It Can Happen Here: Eugenics, Abortion, Euthanasia, and Mental Screening
Affirmative Action: A Modest Proposal
Affirmative Action: Two Views from the Academy
Affirmative Action, One More Time
A Contrarian View of Segregation
The Consequences of Roe v. Wade
The Old Eugenics in a New Guise
The Left, Abortion, and Adolescence
After the Bell Curve
A Footnote . . .
Schelling and Segregation
“Equal Protection” and Homosexual Marriage
Law, Liberty, and Abortion
Same-Sex Marriage
“Equal Protection” and Homosexual Marriage
Law, Liberty, and Abortion
Abortion and the Slippery Slope
An Argument Against Abortion
Singer Said It
A “Person” or a “Life”?
The Case against Genetic Engineering
Affirmative Action: Two Views from the Academy, Revisited
A Wrong-Headed Take on Abortion
“Family Values,” Liberty, and the State
On Liberty
Negative Rights, Social Norms, and the Constitution
Rights, Liberty, the Golden Rule, and the Legitimate State
Perry v. Schwarzenegger, Due Process, and Equal Protection
Rationalism, Social Norms, and Same-Sex “Marriage”
Our Enemy, the State
Pseudo-Libertarian Sophistry vs. True Libertarianism
Positivism, “Natural Rights,” and Libertarianism
What Are “Natural Rights”?
The Golden Rule and the State
Libertarian Conservative or Conservative Libertarian?
Evolution, Human Nature, and “Natural Rights”
More Pseudo-Libertarianism
More about Conservative Governance
The Meaning of Liberty
In Defense of Marriage
Understanding Hayek
Burkean Libertarianism
Rights: Source, Applicability, How Held
True Libertarianism, One More Time
Human Nature, Liberty, and Rationalism
Utilitarianism and Psychopathy
Abortion and Logic
The Myth That Same-Sex “Marriage” Causes No Harm
Society and the State
Are You in the Bubble?
Liberty, Negative Rights, and Bleeding Hearts
Conservatives vs. “Liberals”
Why Conservatism Works
Abortion, Doublethink, and Left-Wing Blather
Race and Reason: The Victims of Affirmative Action
Abortion, “Gay Rights,” and Liberty
Race and Reason: The Achievement Gap — Causes and Implications
Liberty and Society
The Eclipse of “Old America”
Genetic Kinship and Society
Liberty as a Social Construct: Moral Relativism?
Defending Liberty against (Pseudo) Libertarians
“Conversing” about Race
Defining Liberty
Conservatism as Right-Minarchism
“We the People” and Big Government
Evolution and Race
The Culture War
The Pseudo-Libertarian Temperament
Parsing Political Philosophy (II)
Getting Liberty Wrong
Surrender? Hell No!
Governmental Perversity
Libertarianism and the State

Playing the Social Security Trust Fund Shell Game

There’s a simple way to calculate the size of the federal government’s debt at any point in the future:

D’ = D – R + S – T


D’ = Amount of debt at a future date

D = Present debt

R = Federal government’s revenues from all sources (including Social Security taxes), from the present to the future date

S = Federal government’s spending for all purposes (including SS benefits), from the present to the future date

T = Value of Treasury securities redeemed by the SS trust fund to defray the gap between SS taxes collected and SS benefits paid

(For an explanation of how the redemption of securities by the trust fund can reduce the debt, see below.)

The present level of debt (D) is approximately equal to the debt ceiling. Therefore, as long as the deficit (R – S) is greater than the value of securities redeemed by the trust fund (T) to pay current benefits, the debt ceiling must rise or spending must be cut. (Aside: The ability of SS trustees to redeem trust fund holdings and pay benefits is simply a mechanism for ensuring the payment of full benefits until the trust fund is exhausted, regardless of any budget crunch. The trust fund, itself, is nothing more than a set of numbers in a government ledger. It isn’t an asset, any more than swampland is an asset to a sucker who buys it sight unseen.)

In theory, the trust fund could be exploited to get around the ceiling, by redeeming more holdings than required for the payment of current benefits. It’s a ploy was used in the past but is now illegal, Michael McConnell explained it in 2011:

The Social Security Trust Fund holds over $2 trillion [now over $2.7 trillion] in special Treasury securities, which it is legally entitled to redeem when necessary for the payment of benefits. When the Treasury redeems those bonds, the public debt will correspondingly be reduced, which will enable it to auction new bonds to investors, without violating the debt ceiling. This is precisely what happened during the debt ceiling crisis in 1985. Then, it was a Democratic House of Representatives that refused to raise the ceiling at the behest of a Republican President (an episode conveniently forgotten by those who wish to paint the Republican House today as uniquely evil for insisting that a debt ceiling increase be accompanied by spending reductions). The Social Security trustees cashed in some $9 billion in special Treasury securities for the payment of benefits, and the Treasury auctioned off the same amount in new U.S. bonds, without violating the debt ceiling. Here is how the Comptroller General described the event:

The Treasury Department estimated that it would have insufficient cash on November 1 to pay social security benefits and other government obligations. In order for these payments to be made, the Treasury needed to borrow money from the public, and in order to borrow the money, Treasury had to reduce its outstanding debt below the statutory limit. Therefore, on November 1 the Secretary redeemed $9.613 billion of the Trust Funds’ long-term securities, and $1.9 billion of securities held by certain other government-managed trust funds, to permit public borrowing of about $13 billion.

In this way, the Reagan Treasury was able to continue to pay Social Security benefits without interruption, despite the failure of Congress to raise the debt ceiling at the time.

The Comptroller General ruled that these redemptions were lawful, except that the trust fund redeemed more securities than were actually necessary for the payment of benefits. Some years later, Congress passed a statute codifying the Comptroller General’s decision. Public Law 104-121, section 107(a), prohibits redemption of special securities held by Social Security prior to maturity for any purpose other than the payment of benefits or administrative expenses. This statute is significant for two reasons. First, it confirms that the trustees have authority to redeem the special securities prior to maturity for the payment of benefits, and second, it prevents the executive from using the trust fund as a massive kitty to avoid the effect of the debt ceiling.

What could happen if the law were repealed? This:

1. Given the estimated size of the trust fund at the end of 2014 (as reported here), trust fund holdings could be liquidated as follows: FY 2015 — $469 billion; FY 2016 — $536 billion; FY 2017 — $576 billion; FY 2018 — $627 billion; FY 2019 — $722 billion; FY 2020 — $144 billion. The payout in FY 2020 would exhaust the trust fund. The total ($3.1 trillion) exceeds the estimated value of the trust fund at the end of 2014 ($2.8 trillion) because the trust fund would be credited with interest on its remaining holdings while those holdings were being drawn down.

2. The redemptions in 2015-2019 would entirely offset projected budget deficits for those years; the redemption in 2020 would offset about one-fifth of that year’s projected deficit. (See Table 1 here.) Thus it wouldn’t be necessary to reduce federal spending from currently projected levels until some time in 2020.

3. Under present law, however, depletion of the trust fund means that SS benefits must then be cut to a level that can be sustained by SS taxes. The cuts would be relatively small at first, but would grow steadily through the years. (Go here and compare the columns “non-interest income” and “cost” for the years 2020 and beyond.) For example, benefits in 2021 would have to be reduced to 90 percent of the level currently planned for that year; by 2030, benefits would have to be reduced to 80 percent of the planned level.

The good news — if the ploy could be executed — is that the Social Security crisis would be brought forward to the near future, instead of being deferred until 2033, when the trust fund is now expected to vanish. The undeniable urgency of the situation might compel Congress and the president to act — and perhaps to do something about the federal government’s entire fiscal mess — instead of continuing to kick the can down the road.

The bad news is that the federal government would run huge deficits for the next several years (at least). Programs that are unaffordable in the long run would be kept alive to acquire larger constituencies. Accordingly, it would be harder to curtail or kill them.

The real solution, of course, isn’t fiscal trickery; it’s fiscal responsibility. Let’s hope that 2017 brings with it a Congress and White House controlled by the non-RINO wing of the GOP.

*     *     *

Related posts:
Economics: A Survey (also here)
Why Are Interest Rates So Low?
Estimating the Rahn Curve: Or, How Government Spending Inhibits Economic Growth
America’s Financial Crisis Is Now
“Social Insurance” Isn’t Insurance — Nor Is Obamacare
The Keynesian Multiplier: Phony Math
The True Multiplier

Verbal Regression Analysis, the “End of History,” and Think-Tanks

There once was a Washington DC careerist with whom I crossed verbal swords. I won; he lost and moved on to another job. I must, however, credit him with at least one accurate observation: Regression analysis is a method of predicting the past with great accuracy.

What did he mean by that? Data about past events may yield robust statistical relationships, but those relationships are meaningless unless they accurately predict future events. The problem is that in the go-go world of DC, where rhetoric takes precedence over reality, analysts usually assume the predictive power of statistical relationships, without waiting to see if they have any bearing on future events.

Francis Fukuyama has just published an article in which he admits that his famous article, “The End of History” (1989), was a kind of verbal regression analysis — a sweeping prediction of the future based on a (loose) verbal analysis of the past.

What is the “end of history”? This, according to Wikipedia:

[A] political and philosophical concept that supposes that a particular political, economic, or social system may develop that would constitute the end-point of humanity’s sociocultural evolution and the final form of human government.

What did Fukuyama say about “the end of history” in 1989? This:

In watching the flow of events over the past decade or so, it is hard to avoid the feeling that something very fundamental has happened in world history….

What we may be witnessing in not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government. This is not to say that there will no longer be events to fill the pages of Foreign Affairs‘s yearly summaries of international relations, for the victory of liberalism has occurred primarily in the realm of ideas or consciousness and is as yet incomplete in the real or material world. But there are powerful reasons for believing that it is the ideal that will govern the material world in the long run. To understand how this is so, we must first consider some theoretical issues concerning the nature of historical change.

What does Fukuyama say now? This:

I argued [in 1989] that History (in the grand philosophical sense) was turning out very differently from what thinkers on the left had imagined. The process of economic and political modernization was leading not to communism, as the Marxists had asserted and the Soviet Union had avowed, but to some form of liberal democracy and a market economy. History, I wrote, appeared to culminate in liberty: elected governments, individual rights, an economic system in which capital and labor circulated with relatively modest state oversight….

Twenty-five years later, the most serious threat to the end-of-history hypothesis isn’t that there is a higher, better model out there that will someday supersede liberal democracy; neither Islamist theocracy nor Chinese capitalism cuts it. Once societies get on the up escalator of industrialization, their social structure begins to change in ways that increase demands for political participation. If political elites accommodate these demands, we arrive at some version of democracy.

The question is whether all countries will inevitably get on that escalator. The problem is the intertwining of politics and economics. Economic growth requires certain minimal institutions such as enforceable contracts and reliable public services before it will take off, but those basic institutions are hard to create in situations of extreme poverty and political division. Historically, societies broke out of this “trap” through accidents of history, in which bad things (like war) often created good things (like modern governments). It is not clear, however, that the stars will necessarily align for everyone….

A second problem that I did not address 25 years ago is that of political decay, which constitutes a down escalator. All institutions can decay over the long run. They are often rigid and conservative; rules responding to the needs of one historical period aren’t necessarily the right ones when external conditions change.

Moreover, modern institutions designed to be impersonal are often captured by powerful political actors over time. The natural human tendency to reward family and friends operates in all political systems, causing liberties to deteriorate into privileges….

As for technological progress, it is fickle in distributing its benefits. Innovations such as information technology spread power because they make information cheap and accessible, but they also undermine low-skill jobs and threaten the existence of a broad middle class.

No one living in an established democracy should be complacent about its survival. But despite the short-term ebb and flow of world politics, the power of the democratic ideal remains immense. We see it in the mass protests that continue to erupt unexpectedly from Tunis to Kiev to Istanbul, where ordinary people demand governments that recognize their equal dignity as human beings. We also see it in the millions of poor people desperate to move each year from places like Guatemala City or Karachi to Los Angeles or London.

Even as we raise questions about how soon everyone will get there, we should have no doubt as to what kind of society lies at the end of History.

And blah, blah, blah, blah, blah.

The “end of history” will be some kind of “democracy,” and it will arrive despite all of the very real obstacles in its way, which include sectional and sectarian conflict, the capture of governmental power by special interests, and economic realities (which are somehow “wrong,” despite the fact that they are just realities). In the end “hope and change” will prevail because, well, they ought to prevail, by golly.

In sum, Fukuyama has substituted a new verbal regression analysis for his old one.

You may have guessed by now that “verbal regression analysis” means “bullshit.” Fukuyama emitted bullshit in 1989, and he’s emitting it 25 years later. Why anyone would pay attention to him and his ilk is beyond me.

But there are organizations — so-called think-tanks — that specialize in converting your tax dollars into bullshit of the kind emitted by Fukuyama. It’s unfortunate that the output of those think-tanks can’t be bagged and used as fertilizer. It would then have real value.

“Wading” into Race, Culture, and IQ

Below, I offer a list of readings on the subject of (or closely related to) Nicholas Wade’s A Troublesome Inheritance: Genes, Race and Human History. These readings supplement and generally buttress the points that I make in “Race and Reason: The Achievement Gap — Causes and Implications” and “Evolution and Race.”

Steve Sailer, “2008 SAT Scores by Race and Income,” Steve Sailer: iSteve, March 15, 2014

Charles Murray, “Book Review: ‘A Troublesome Inheritance’ by Nicholas Wade,”, May 2, 2014

Arnold Kling, “Heritability of Social Status,” Library of Economics and Liberty, May 5, 2014

Alfred W. Clark, “Roundup of Book Reviews of Nicholas Wade’s ‘A Troublesome Inheritance,” Occam’s Razor, May 6, 2014

Robert VerBruggen, “Race Is Real. What Does That Mean for Society?,” RealClearScience, May 6, 2014

Steve Sailer, “The Race FAQ,” Steve Sailer: iSteve, May 6, 2014

Steve Sailer, “Gelman on ‘A Troublesome Inheritance in Slate,” Steve Sailer: iSteve, May 8, 2014

Steve Sailer, “From the Steveosphere on ‘A Troublesome Inheritance,” Steve Sailer: iSteve, May 8, 2014

Ashutosh Jogelekar, “Genes and Race: The Distant Footfalls of Evidence,” Scientific American, May 13, 2014*

James Thompson, “‘It’s the People Stupid’: A Review of Wade’s ‘A Troublesome Inheritance’,” Psychological Comments, May 14, 2014

Fred Reed, “‘A Troublesome Inheritance’: Wading in the Zeitgeist,” Fred on Everything, May 17, 2014

Greg Allmain and Wesley Morganston, “Gene Appears to Increase IQ and Memory,” Theden, May 22, 2014

Steven Malanga, “A Biological Basis for Race?,” City Journal, June 6, 2014

Scientific American chastised Jogelekar for his politically incorrect views, and then fired him. How “scientific”!


This much of Marx’s theory of alienation bears a resemblance to the truth:

The design of the product and how it is produced are determined, not by the producers who make it (the workers)….

[T]he generation of products (goods and services) is accomplished with an endless sequence of discrete, repetitive, motions that offer the worker little psychological satisfaction for “a job well done.”

These statements are true not only of assembly-line manufacturing. They’re also true of much collar” work — certainly routine office work and even a lot of research work that requires advanced degrees in scientific and semi-scientific disciplines (e.g., economics).

One result of alienation, especially among males, is the mid-life crisis, which often causes them to deplore the “rat race” and even to seek a way out of it. (I’ve been there.)

I thought of alienation because of a recent post at West Hunter. It’s short, so I’m reproducing it in full:

Many have noted how difficult it is to persuade hunter-gatherers to adopt agriculture, or more generally, to get people to adopt a more intensive kind of agriculture.

It’s worth noting that, given the choice, few individuals pick the more intensive, more ‘civilized’ way of life, even when their ancestors have practiced it for thousands of years.

Benjamin Franklin talked about this. “When an Indian Child has been brought up among us, taught our language and habituated to our Customs, yet if he goes to see his relations and makes one Indian Ramble with them, there is no perswading him ever to return. [But] when white persons of either sex have been taken prisoners young by the Indians, and lived a while among them, tho’ ransomed by their Friends, and treated with all imaginable tenderness to prevail with them to stay among the English, yet in a Short time they become disgusted with our manner of life, and the care and pains that are necessary to support it, and take the first good Opportunity of escaping again into the Woods, from whence there is no reclaiming them.”

I suspect that there’s a lot of truth in those observations. Why? Because the life of the hunter-gatherer, however fraught, is less rationalized than the kind of life that’s represented by intensive agriculture, let alone modern manufacturing and office work.

The hunter-gatherer isn’t “a cog in a machine,” he is the machine. He is the shareholder, the manager, the worker, and the consumer, all in one. His work with others is truly cooperative. It is like the execution of a game-winning touchdown by a football team, and unlike the passing of a product from stage to stage in an assembly line, or the passing of a virtual piece of paper from computer to computer.

No wonder so many males find relief from their alienation by watching sports on TV. There, they see real teamwork (however artificial the game), and they see that teamwork rewarded by victory (though not always victory by the home-town team). The beer helps, too.