Here’s the number to keep in mind: $763 billion.

If enacted, Barack Obama’s latest budget would mean that in just ten years, interest payments alone on the national debt would begin pushing the trillion-dollar mark: $763 billion a year by 2023. That may be a rosy estimate: It assumes that interest rates, currently near historic lows, do not rise a great deal over the next ten years as the Treasury continues to pile up new debt. If interest rates do climb a bit higher — not even to their historical average, but higher than they have been of late — then those interest payments easily could be more than $1 trillion a year.

But let’s stay with that $763 billion a year for now. How much money is that? It is more money than the federal government spent on anything in 2011: The largest single spending item in 2011, Social Security, amounted to only $725 billion. Department of Defense spending was only (only!) $700 billion, and all nondefense discretionary spending combined amounted to only $646 billion. If you believe the welfare state is too expensive now, or that we spend too much money on the military, consider that President Obama proposes to spend more than that merely making interest payments on all the debt his budget would help pile up. How much debt? How about $8.5 trillion in new debt over the next decade, for a total of more than $25 trillion in national debt. At 6 percent interest, it would cost us $1.5 trillion a year to service that debt: about the size of President Clinton’s entire proposed budget for 1995.

Under Obama’s budget, in 2020 interest payments alone would amount to more than national-defense spending in that year. By 2023, interest payments alone would amount to more than all nondefense discretionary spending in that year.

As it is, interest payments on the national debt already amount to about 7 percent of all federal spending—that’s hundreds of billions of dollars a year spent on nothing but paying the price of failing to pay off previous spending, robbing today’s taxpayers to pay yesterday’s beneficiaries of government largesse.

That kind of spending on interest payments is not politically sustainable, and probably is not economically sustainable, either. American taxpayers are going to be none too eager to keep blowing a Pentagon-plus-sized hole in the budget, year in and year out, just to accommodate past spending.

Barack Obama has the luxury of knowing that there is not one person in Congress who takes an Obama budget proposal seriously. Put to the test, Senate Democrats have voted unanimously against an earlier Obama budget, and Democrats in both houses already have written off this latest fanciful proposal.

It does not stand a chance of being ratified into law, but it is worth noting the fact that the president of the United States has just proposed a budget that amounts to a national economic suicide pact. And he couldn’t even be bothered to do that on time. There may be a political case for his having done so, but as national economic leadership, this budget is grossly irresponsible.

— Kevin D. Williamson is a roving correspondent for National Review. His newest book, The End Is Near and It’s Going to Be Awesome, will be published in May. 

The New York Times on Sunday carried a heavy breathing report alerting the diminished newspaper-reading public to the fact that Senator Max Baucus (D., Mont.), who chairs the committee that shapes corporate-tax law, has many connections to corporations that would like to see the tax code shaped in ways that benefit them. Angels and ministers of grace, defend us! Reports the Times:

Restaurant chains like McDonald’s want to keep their lucrative tax credit for hiring veterans. Altria, the tobacco giant, wants to cut the corporate tax rate. And Sapphire Energy, a small alternative energy company, is determined to protect a tax incentive it believes could turn algae into a popular motor fuel.

To make their case as Congress prepares to debate a rewrite of the nation’s tax code, this diverse set of businesses has at least one strategy in common: they have retained firms that employ lobbyists who are former aides to Max Baucus, the chairman of the Senate Finance Committee, which will have a crucial role in shaping any legislation.

No other lawmaker on Capitol Hill has such a sizable constellation of former aides working as tax lobbyists, representing blue-chip clients that include telecommunications businesses, oil companies, retailers and financial firms, according to an analysis by LegiStorm, an online database that tracks Congressional staff members and lobbying. At least 28 aides who have worked for Mr. Baucus, Democrat of Montana, since he became the committee chairman in 2001 have lobbied on tax issues during the Obama administration — more than any other current member of Congress, according to the analysis of lobbying filings performed for The New York Times.

. . . Mr. Baucus is viewed as an important ally when it comes to including corporate tax priorities into legislation. Last year, he introduced a plan — most of which was eventually passed into law as part of the fiscal cliff deal in January — that contained more than a dozen tax breaks, some of them pushed by clients who had retained Washington lobbying firms that employ his former aides or political advisers. Shannon Finley, who served as a political consultant and fund-raiser for Mr. Baucus before joining a lobbying firm in Washington, was hired in late 2011 by Beam, the liquor industry giant, to protect a federal tax break that it gets a cut of for producing its Cruzan rum in the United States Virgin Islands. Despite protests from fiscal conservatives that it was a giveaway, the provision was included in Mr. Baucus’s package, costing $222 million over the coming decade. Ms. Finley declined to comment.

First of all: Thanks to Eric Lipton of the Times for an unusually forthright report, one that at least acknowledges exactly who it is — “fiscal conservatives” — standing in opposition to things like the great rum subsidy.

The Times has been maddeningly hit-and-miss on the subject, but in fairness, hit-and-miss is a 100 percent improvement for the Times, which is miss-and-miss on most important issues. For example, in a March editorial headlined “The Real Spending Problem,” the Times correctly identified the fact that special subsidies and giveaways written into the tax code are, as a ledger issue, fiscally indistinguishable from simply writing checks to favored interest groups. But the Times being the Times, it went on to argue for the repeal of three tax policies that collectively amount to basically nothing, and which are not targeted subsidies of the type it decries: the carried-interest treatment of certain private-equity investments, IRA rules that allow some investors to amass very large tax-deferred retirement accounts, and “like kind” exchange rules for farmers. Even if we accept the argument that the carried-interest rule is an unfair giveaway to Wall Street (and I do not), the revenue lost from that arrangement is chump change: less than $2 billion a year, as the Times acknowledges. The farm rule adds up to about $3 billion a year in forgone revenue. (There is no good estimate on the IRA rule, to my knowledge.)

Meanwhile, the fiscally significant tax giveaways find a stalwart defender in the editorial page of the New York Times. The deductibility of state and local taxes — a direct subsidy to tax-and-spend governments on the familiar blue-state model — costs the Treasury between $40 billion and $50 billion a year — 20 to 25 times the cost of the carried-interest exemption. Like the benefits assigned to investment income, this tax break primarily benefits higher-income people. Not coincidentally, they disproportionately benefit higher-income people in New York Times country: New York, Connecticut, New Jersey, and other high-tax states. Maintaining that tax giveaway is not bad fiscal policy, according to the Times, but rather a moral imperative.

The mortgage-interest deduction cost the Treasury some $76 billion in 2011, but do not expect that tax subsidy to knock carried interest off the top of the Times’s most-wanted list. The tax exemption granted to municipal bonds is a direct subsidy to big-spending states and cities, too, at a cost of some $30 billion a year.

Those three tax subsidies alone account for between $100 billion and $150 billion in forgone revenue annually, but the New York Times is worried about picayune billion-here, billion-there deductions. (Don’t get me wrong: I’d repeal those farm giveaways, too.) It is, as usual, a question of who is being subsidized at the expense of whom.

And keep in mind, the New York Times is the head varsity cheerleader for the Obama administration, which is a veritable factory of special-interest tax-credit proposals. Those McDonald’s credits mentioned in the Times story? The Obama administration proposes to make them permanent. Politically favored energy interests, certain small businesses, renewables, politically connected automobile companies: Obama’s economic strategy has a tax credit for everybody . . . everybody who fits into the administration’s political agenda, at least.

The corporate tax is not a very large source of federal revenue (about 10 percent) but it is a very large source of corporate welfare, conferring benefits on the favored at the expense of the unconnected. It should be repealed. Corporate revenues have only so many ways of hitting the pockets of investors, executives, and employees; ideally, they would be taxed at that point, as personal income, with all sources of income taxed in the same way, whether from salaries, bonuses, capital gains, dividends, or inheritances. If we did so, the New York Times, and the conventional wisdom it represents, would have a lot less to worry about when it comes to the career paths of Senator Baucus’s former aides. And the tax code could go back to being a revenue source rather than a favor factory. 

One of these things is a gigantic waste of money, the other two are just kind of gross.

Congratulations to Texas and the Aggies on becoming the home of a new federally backed center for emergency vaccines. The $91 million project, a joint effort by Texas A&M University, the federal government, and GlaxoSmithKline, will be responsible for the development and manufacture of vaccines during pandemics and other emergencies. Governor Rick Perry is of course very excited about this: The project will mean as many as 7,000 new jobs in Texas, and billions in expenditures, largely from out-of-state private and public sources.

Is this good news or not?

There are two ways of looking at this. Government spending is rarely welcomed here at Exchequer, and that $91 million is another $91 million we’re down in the hole. And while Texas and the Perry administration deserve great credit for making the state remarkably attractive to a variety of enterprises and investors, it is no secret that Texas is not above sweetening the pot for potential investors, that its methods for doing so are not immune from politics, or that the state’s leaders have a talent for keeping federal money pouring into the state for sometimes questionable projects. Practically every state and a large number of cities have economic-development funds similar to Texas’s; my impression is that Perry & Co. are no more impure than any other state administration when it comes to goosing the free(ish) market with tax dollars — they’re just a little bit better at it.

On the other hand, when government spends money, it should spend money on public goods. “Public good” is a term with a fixed meaning in economics, and it is not synonymous with “stuff that is good for the public” or “stuff the public likes.” Most of what the federal government spends money on (entitlements) is clearly not within the category of public goods, while a few things (missile defense, border patrol) clearly are. Some things, such as the federal highway system, are in a grey area, and might be considered public or non-public goods, depending on your interpretation.

Some public-health measures, such as mosquito-eradication programs in malarial areas, are clearly within the definition of public good, and it seems to me that things like the Centers for Disease Control and the  Aggies’ new pandemic-vaccine center are, too. And at the risk of sounding like a home-state cheerleader for Texas, if that $91 million center performs as advertised, then that is a relatively small price to pay for a measure of insurance against otherwise unmanageable, unforeseeable infectious epidemics, which are on my list of underrated threats. And that $91 million is not only a good investment in the event of a sudden epidemic; it is a good investment even if such an event never comes to pass, for the same reason that accident insurance is a good investment even if you never get in a wreck: Risk mitigation is inherently valuable, even if the trauma you are insuring yourself against never materializes.

But that all points to the unending challenge of trying to get government to behave: Even if  we concede that such a center is a good investment and well within the purview of federal action, we still have to worry about a great many variables: Will the project be managed effectively and efficiently? Will Glaxo’s lobbying arm turn it into yet another opening on the corporate-welfare trough? Will the project overgrow its original mandate through the inevitable mission creep associated with such undertakings? Is it a better use of resources than all the others to which we might have dedicated those funds?

Amity Shlaes’s much-admired new book on Calvin Coolidge deserves all the praise that has been heaped upon it, not least because her Silent Cal is not merely a prudent and admirable figure but an inspiring one: President Coolidge, hunched over the federal accounts with his budget generals, is not just a penny-pinching puritan (though the world could do with a good deal many more penny-pinching puritans): He is a man expending every effort to ensure that Americans enjoy a government that is reliable and honest, a worthy steward of the wealth with which it has been entrusted. Self-government works well only when the people trust their institutions.

Progressives often complain that the contemporary Right is increasingly anti-government in both its rhetoric and its policy preferences; some moderate Republican types, such as David Frum, echo that criticism. But one possible reason that conservatives have arrived at a greater distrust of the government is that the government has become less trustworthy. The self-dealing and the friends-and-family appropriations that we now regard as business as usual in Washington may be entirely legal, but they are nonetheless wrong — not just ill-advised but immoral — and it is not surprising that Americans’ trust in public institutions (and many private institutions, such as Wall Street firms) is pretty low. This is a critical problem for a self-governing republic. Even when it comes to such core governmental functions as national defense and law enforcement, it is difficult to believe that all (or even most) of every $1 appropriated to the relevant agencies is used for the purpose intended.

It leaves us with a kind of double suspicion: We suspect that the federal government will often invest our resources in doing things that are none of its business, and we also suspect that it will manage to do a great deal wrong even when it is performing tasks that are appropriate to it. Progressives believe that our politics would be less toxic if conservatives were not so hostile to the public sector; conservatives believe that our politics would be less toxic if the public sector were less deserving of our hostility.

While Texas likes to boast of its economic performance in recent years, it has also made some important advances in the intangible area of public trust, for instance by making detailed information about government outlays easily available to the public. The state’s controller, Susan Combs, is something of a crusader when it comes to openness and transparency in government. And while the libertarian tendency is currently on the ascent among Republicans, rolling back government is only one part of the conservative agenda: Making sure that government operates with a sufficient probity and thrift is an important part, too, especially for conservatives who seek an active role in government. We’d like a smaller government, sure, but we also would like a government we can trust. That is something that has to be put to the test every day, whether there is $1 at stake or $91 million.

— Kevin D. Williamson is National Review’s roving correspondent. His newest book, The End Is Near and It’s Going to Be Awesome, will be published in May. 

Where is Senator Elizabeth Warren when we need her? Senator Warren — whose main mode of political operation is grandstanding during financial-oversight hearings — recently browbeat some feckless Treasury officials over the HSBC money-laundering case. HSBC was fined just under $2 billion in the settlement, but that was not enough for the crusading Senator Warren: She wanted to see bankers led off in leg irons. “Your company pays a fine,” she said, “and you go home and sleep in your own bed at night — every single individual associated with this — and I just think that’s fundamentally wrong.”

I am inclined to agree with Senator Warren in the case of HSBC. Somebody over there belongs in a prison cell, and possibly in stocks. When Larry Kudlow put the question to his bipartisan panel a while back, nobody, left or right, seemed to think that Senator Warren was being unfair to the bank. It was a rare moment of bipartisan agreement.

So I am hoping that Senator Warren will join me in asking: Why haven’t the powers that be in the ailing state of Illinois been dragged off to the hoosegow? Or at least given a $2 billion fine, as HSBC was?

The state of Illinois is a criminal enterprise engaged in securities fraud. Illinois this week became only the second state in history to be charged with fraud by the Securities and Exchange Commission. As I reported back in 2010, the state of Illinois is habitually underfunding its public-employee pensions, placing the state government’s finances in an ever more precarious state. And the Illinois government systematically misled the public about the state of its finances in order to allow it to keep selling bonds to witless investors. As the SEC puts it: “Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system.”

Illinois is hardly alone in this. New Jersey was charged with fraud on precisely the same grounds — lying to investors about its pensions. Former prosecutor Kevin James, in the course of his campaign for mayor of Los Angeles, went so far as to compile a dossier on the city’s finances and file a complaint with the SEC. Shortly after the municipal bankruptcy of our friends in San Bernardino, America’s worst-governed city, the SEC came calling, asking the city authorities to be sure to hang onto bond documents and communications with underwriters, and by all means to forgo putting them in the shredder.

As Senator Warren put it in a different context: “They did it over and over and over again, across a period of years. And they were caught doing it, warned not to do it, and kept right on doing it.”

It is time to put some lying, defrauding bureaucrats in prison.

The U.S. municipal-bond market is enormous: between $3.5 trillion and $4 trillion, or about a quarter of GDP. It is a sensitive market: Most municipal debt is held by individuals, including a great many easily spooked older investors, but a great deal is held by banks and other financial institutions. A meltdown in that market — one possible result of widespread fraud — could bring down banks and investment companies along with cities and states, and decimate retirement savings across the fruited plain.

It is, in other words, a situation that cries out for an example to be made of wrongdoers.

But Illinois did not even get a fine — just a settlement in which it agrees to mend the error of its ways. Why is that? A cynic might be tempted to think that, because all this governmental book-cooking helps the authorities in Springfield and elsewhere keep their public-sector unions fat and happy — which in turn helps keep Democratic campaign coffers full — the Obama administration may be taking it a little easy on the president’s friends and colleagues back home in Illinois. Maybe it’s political self-interest. Maybe it’s laziness. I would not rule out haplessness or stupidity, either. But I cannot help noticing: Illinois, New Jersey, California — they have something in common politically, no?

It is a very bad thing when private-sector bankers commit crimes. It is a much more serious thing when government commits crimes, because criminal governments undermine the entire enterprise of law enforcement, weakening our institutions and thereby interfering with the operation of markets. If you are a victim of fraud in Illinois, to whom do you take your complaint? To a state that is itself guilty of fraud? That is a serious problem in a free society.

Senator Warren has been working hard to build credibility on these issues, and her baby was the new federal Consumer Financial Protection Bureau. Perhaps she could reach into that organization for some advice on how to proceed with the case of the state-organized fraud in Illinois. But if she does, she should probably forgo the counsel of Anthony Gibbs. Who is he? He is the former executive vice president of legal compliance . . . at HSBC. Of course he now works at the Consumer Financial Protection Bureau. Where else would he work?

— Kevin D. Williamson is National Review’s roving correspondent. His newest book, The End Is Near and It’s Going to Be Awesome, will be published in May. 

Everybody loves the idea of the self-sufficient farmer — hardy, independent, working his own land to produce what he needs on his own terms. It is a romantic vision, unless you have the experience of having lived that way: In the modern parlance, we call that economic model “subsistence agriculture,” and it is associated with places like Afghanistan and Uganda, a neolithic standard of living, and intervals of famine.

But the nice thing about having a primitive economy is that the economics gets real simple real quick. Let’s say you live in Grainville, population 100, a village of self-sufficient corn farmers who among them produce 1,000 bushels of corn every year. Corn farming is their only form of organized economic activity — otherwise, they are reduced to foraging in the countryside in old-fashioned hunter-gatherer style. If they lack trade or economic diversification, we know precisely how much the people of Cornville can consume in any given year: exactly what they produce, i.e., 1,000 bushels of corn. In order to make the math easy, let’s say that Grainville’s corn consumption follows the same pattern every year: 800 bushels eaten, 200 bushels used as seed for the next year’s crop, producing the same 1,000 bushels for the next season. Over and over.

The same pattern holds true at Corntown, the nearly identical village down the road. They put 800 bushels in the granary and 200 bushels in the seed silo. On and on it goes, for generations, until one year somebody in Corntown gets a big idea: 1,000 bushels of corn minus the 200 needed for seed leaves eight bushels per person per year, which is by no means a lavish standard of living, but they know from bad crop years that they can, if absolutely necessary, live on a little less — 7.5 bushels per person per year is enough to get by, if only barely. So why not put 750 bushels in the granary and 250 in the seed silo? It would be a very lean year, but with a little luck, and perhaps a milder winter, they would have an extra 50 bushels of seed corn the next planting season.

People grumble when stomachs rumble. But when the next harvest comes around, Corntown is, if not exactly fat and happy, better off: Instead of 1,000 bushels of corn, they have 1,250—a better harvest than anybody can remember having seen. But this bumper crop brings with it a heated debate among the yeomen of the Corntown Growers’ Cooperative. Yeoman Smith says that they should declare a festival year, set aside the usual 200 bushels for seed, and distribute the remaining 1,050, giving everybody 10.5 bushels instead of the usual eight. Yeoman Jones says that they should return to their usual practice of putting 800 bushels in the granary and set aside the remaining 450 for seed, producing an even bigger crop next time around. And Yeoman Flint proposes an even more radical idea: Tough out one more year of putting only 750 bushels in the granary and set aside 500 bushels for seed. Nobody much likes Yeoman Flint’s proposal: The past year was pretty tough, and another year like it might lead to serious discontent in Corntown. But Yeoman Flint has a compelling argument: If the winter is especially tough or there is another unforeseen need, that corn sitting in the seed silo is still there for them — they could always eat some of the extra seed if things proved tough, dipping into their corn savings.

There are three possible scenarios for the next harvest:

1.     Under the Smith model, the harvest is 1,000 bushels, back to square one, with the one fat year a fading memory.

2.     Under the Jones model, the next harvest is an astounding 2,250 bushels — more than twice what the people of Corntown are used to having.

3.     Under the Flint model, the next harvest is 2,500 bushels, a truly mind-boggling harvest for Corntown.

The people of Corntown are mostly moderates. They know a good thing when they see it, but they do not want to go overboard, so the Jones model is the most popular — after all, when you are used to having only 1,000 bushels a year, the difference between 2,250 and 2,500 does not seem that vast. But the Flintists turn out to be hardcore, uncompromising ideologues, and they are not prepared to give way, so 20 of them decide to take their share of the year’s crop — 250 bushels — and go their own way, forming their own cooperative down the road a bit.

So, now we have three corn-farming villages: Grainville follows the Smith plan, planting 200, harvesting 1,000, eating 800 (or eight per person per year), planting 200, etc. Corntown now follows the Jones plan, modified for their new, smaller population: They set aside 640 bushels to eat (eight bushels for each of their 80 remaining residents) and plant the balance, which comes to 360 bushels. And the tiny new village of Flintstown, population 20, sets aside 150 bushels to eat (7.5 bushels per person) and plants its remaining 100.

The next year, then, the harvest looks like this:

1.     Grainville: 10 bushels/person

2.     Corntown: 22.5 bushels/person

3.     Flintstown: 25 bushels/person

People start to think of Grainville as kind of déclassé: With a per capita GVP (Gross Village Product) of only ten bushels, it is by far the poorest of the three villages. But almost nobody from Corntown is looking to move to Flintstown, either: Even though its GVP is slightly higher, life is kind of hard there, and its current standard of living — as measured by how much corn you get to eat — is slightly lower. The people of Corntown congratulate themselves on their moderation. The people of Flintstown come to think of the people of Corntown as high-living libertines. Which brings us to:

Year Two Per Capita GVP

Grainville: 10B (0.00 growth rate)

Corntown: 72.5B (322 percent growth rate)

Flintstown: 87.5B (350 percent growth rate)

Discovering the power of investment — forgoing a little consumption now in order to produce more in the future — was a powerful thing, indeed. Both corn-investing villages now are producing far more seed corn than corn to eat. But of course that kind of spectacular growth cannot last forever. There’s only so much land and water, only so many laborers — and only so much corn, cornmeal mush, hoecakes, and unsalted popcorn you can stomach. (Neither village has made contact with the far-flung communities of Pigtown, Cowtown, Avocadoville, or Tomatoburg yet.) And even with its higher level of investment, Flintstown’s growth rate is not going to be 8 percent higher than Corntown’s forever. But it will be higher.

After the initial boom, Corntown levels out at 6 percent growth, and thrifty Flintstown at 7.5 percent in Year Three and going forward. In the coming years, that does not make an earth-shattering difference in their per capita GVPs. In Year Eight, Corntown’s per capita GVP is 97B, while Flintstown’s is 126B. And Flintstown gets a little less flinty: Corn consumption goes up a little bit, meaning that the amount of corn replanted goes down proportionally, and so the difference in their growth rates is diminished, too: Corntown continues growing at 6 percent, and Flintstown, still relatively tight with a bushel, grows at 6.5 percent. That half of a percentage point does not seem like much to brag about — until you check in with the great-grandkids. In Year 100, Corntown’s per capita GVP is 19,481B — but Flintstown’s is a whopping 38,832B, meaning that Yeoman Flint’s great-grandkids are on average twice as wealthy as Yeoman Jones’s. (Grainville, of course, disappeared after the first serious drought. And since Flintstown hasn’t developed a market for domestic laborers, Grainvillians perish from the earth, and nothing is left of them but sad stories.)

And when the corn-investing villages finally get around to establishing trade ties with Pigtown and inventing the tamale, the merchants prefer trading with Flintstown — sure, Corntown is a bigger market, but Flintstown is twice as wealthy, and they can afford to pay more for pork, avocados, beef, cotton — and for farming tools that make their corn operations more efficient, helping them to sustain their growth edge. In Year 200, Flintstown still has only a quarter the population of Corntown, but its economy is equal to 80 percent of that of its neighbor, and its citizens are on average three times wealthier. In another 50 years, Flintstown’s total GVP will be greater than Corntown’s, and its per capita GVP will be four times as much — which is to say, the difference between Flintstown and Cornville will be more than the difference was between either of them and long-forgotten Grainville back in the early days of the corn-investing boom. And Flintstown will have so much capital accumulated that its citizens will have long been able to consume at higher levels than the once-proud residents of Corntown, even while their economy continues to grow at a faster pace.

You can imagine what happens from there. All the trade roads lead to Flintstown, which is home to the best markets. If you want to be an artist or a poet instead of a corn-trader, Flintstown is where you go — it is wealthy enough to support art and high culture. All the most enterprising and energetic residents of other villages dream of a better life in Flintstown. If invaders come from foreign shores, Flintstown has the resources to protect itself. And it has so much corn that it can experiment with new corn-growing techniques; if it loses a little in a bad experiment, nobody is going to starve. Corntown does okay, too, but it will never catch up with Flintstown — not unless it gets more serious about investing or Flintstown lets up.

And all that is possible because the Flintstowners decided, a long time ago, that they could make do with a half-bushel less of corn every year.

There are other ways to get your hands on that seed corn, of course. Perhaps some enterprising investors from another rich village saw an opportunity in Flintstown, admiring the thrifty ways of its residents, and lent them the extra seed corn in exchange for a cut of future harvests. That would work, too, but there is no way of getting around the fact that you can’t plant corn you eat, and you can’t eat corn you plant. Somebody, somewhere, had to consume less corn than they produced to make that growth possible.

And the worst-case scenario is borrowing corn to eat today to be paid back out of future harvests.

Please spare a moment for this hilariously illiterate piece of “analysis” from the Union of Concerned Scientists, which apparently gets its best material from the Union of Half-Educated Sophomores.

The subject is gasoline retailing and the villain is Big Oil. And the shocking headline repeated by Doug Newcomb of Wired (whose editors really should know better) is this: Two-thirds of the cost of a gallon of gas is . . . oil. Gasp, shock, awe, etc. Newcomb quotes Joshua Goldman, the author of the UCS study: “I was actually surprised to learn how little gas stations make from selling gas.” You know who is not surprised to learn that gas stations earn only a few pennies on the gallon? People who work at gas stations. I myself uncovered that particular nugget way back in the summer of 1991, when I was enrolled in a fascinating econ seminar called “Working at 7-Eleven.” Goldman may not have my special academic insights as a former member of the smock-wearing elite — he probably doesn’t even know how to clean a Slurpee machine — but the fact that gas stations make very little money from selling gas is common knowledge. (How common? Even Matt Yglesias knows!)

UCS writes:

Your gas money doesn’t support your local gas station, nor does it benefit you financially, even if you own oil company stock. Most of the money you spend at the pump goes directly to one place: oil companies.

You have a choice when it comes to your oil use: Continue pumping your money into oil company profits or invest in fuel efficiency and keep the profits in your pocket instead.

This will take some unpacking. It is true that about 68 cents on the dollar of gas sales goes toward oil costs, but that is not the same thing as “pumping your money into oil company profits.” That 68 cents on the dollar is revenue, not profit. Oil companies could be posting profits of $0.00 and the cost of oil would still account for the majority of the cost of a gallon of gas. As it turns out, gasoline is made out of oil. Oil and gasoline are pretty much the definition of undifferentiated commodities, so it is no surprise that in a very competitive market the profit margin for selling them is low. If you do not know the difference between revenue and profit, you should not be writing in public.

The question of how much profit an Exxon or a Chevron actually makes off a gallon of gas is a complicated one; the short answer is: nobody knows. Exxon’s “downstream” earnings — the money it makes selling gasoline and other refined petroleum products — run about 7 or 8 cents a gallon. Critics point out that this figure does not include the money that Exxon makes from crude-production operations, and that is fair enough. In total, Exxon makes about 8 cents on the dollar for everything it does, soup to nuts: Its profit margin for the past 20 quarters averages 8.26 percent. That is, it is worth noting, a good deal lower profit margin than Wired parent company Conde Nast generally achieves, according to the company’s CEO, Charles Townsend. Apple’s profit margin runs about three times Exxon’s. Chip-maker Linear Technology’s profit margins routinely run four times those of Exxon. Energy is a high-volume business, not a high-profit-margin business. But regardless of the size of the margin, how much revenue goes where tells you nothing about profit.

The UCS argument that the structure of the gasoline industry ensures that fuel purchases do not “benefit you financially, even if you own oil company stock,” is also ground-poundingly absurd. UCS elaborates: “Say you have $20,000 invested in ExxonMobil, the largest publicly traded oil company in the world. If you spent $1,700 on gas from ExxonMobil over the course of a year, your fuel purchase would yield far less than a penny in stock earnings. Even if you had $1 million invested, you would still get less than one cent in return after spending almost $2,000 on gasoline.” Or, as Newcomb puts it: “The UCS says that even drivers who own shares in an oil company and buy that brand of gas won’t see a bump in their stock portfolio because of their loyalty.”

I myself do not own a car and rarely buy a tank of gas, but I do invest in oil companies on the theory that — pay attention, here, Goldman and Newcomb — lots of other people buy gasoline, billions of them, in fact. That my gasoline-buying habits have a very small impact on the performance of my oil stocks is the very definition of the fact that is trivially true. As for brand loyalty, somebody ought to let Newcomb in on the fact that Exxon-branded gas stations do not really have anything to do with ExxonMobil, which began selling off its U.S. gas stations back in 2008 and at the moment does not own a single gas station in the United States. They kept the Exxon name, but Exxon sold them to distributors and local oil companies, and is doing so in Europe as well. Why? Because — this is news to the people at UCS and Wired — it’s hard to make much money retailing gas. “[The] fuels marketing sector continues to be challenging, with reduced margins and significant competitive growth,” Exxon’s Premlata Nair told the Washington Post, five years ago. Five years is like 60 in Wired years, right?

Did UCS even consider the math behind its own argument? Did Wired? If $1,700 in gasoline purchases generates $1,156 in revenue for an oil company but far less than a penny in revenue for somebody who owns $20,000 worth of stock (or 225 shares in Exxon), what could that possibly mean? That revenue elves are running off with the money? That Exxon shareholders are suckers? What it mainly means, of course, is that there are lots of shares of Exxon stock on the market: 4.5 billion shares outstanding and a market capitalization of nearly $400 billion. So, yeah, your piece of the action on $1,700 worth of sales when you own 0.000005 percent (five millionths of 1 percent) of the company is apt to be quite small. Ingenious observation, guys! It also means that (cf. those profit margins cited above) getting oil out of the ground and into the high-test pump is not cheap. Your conclusion might be that you should buy less gasoline. Or your conclusion might be that you should buy more Exxon shares. It depends on what your goals are.

Also: If you ordered a hamburger and learned that 68 percent of the revenue went to a beef rancher, would that make you feel better or worse about your hamburger? Isn’t the point of things like local farm coops to send more revenue to the producers?

The economic illiteracy continues, both at UCS and at Wired. “Fuel efficiency is really what’s going to put more money back in your pocket and put more money back in our communities,” Goldman tells Wired, and Newcomb worries that “very little of the remaining cash goes into the local economy.” Can we please lay aside the primitive superstition that in the developed world in the 21st century there is such a thing as the “local economy”? Let’s say we took the Brooklyn farm coop approach to gas, and a quaint little store on my corner had a oil well in the back, a DIY-refinery in the garage, and a hand-lettered chalkboard outside advertising its artisanal gas. The bearded hipster inside runs the whole thing. Local economy, right? But I assume he lives in a house or an apartment, which is bound to be made of concrete and steel not locally sourced. He probably has a cell phone and a computer and may even shop at Trader Joe’s or Whole Food or — angels and ministers of grace defend us! — Walmart, thus sending the money I spend at his shop far and wide. You know who has a “local economy”? North Koreans and hunter-gatherers. Autarky is no way to live. Somebody should explain comparative advantage and gains from trade to these gentlemen.

And how exactly is fuel efficiency going to “put more money back into our communities”? I took a little walk around my neighborhood this morning, and I did not see a single Prius factory.

Finally, neither party seems to appreciate the importance of UCS’s “finding” that, after oil, the No. 2 contributor to the cost of a gallon of gasoline is taxes. UCS writes: “Of the remainder, 14 percent of the money spent on gasoline goes to taxes that help pay for roads and transportation services, 10 percent to refining costs, and 8 percent to distribution and marketing.” Think on that: For refined petroleum products, taxes cost more than refining, but less than petroleum. Which one of those seems out of whack?

This UCS “study” is almost entirely empty of intellectual content, reducible to: If you spend less money on gas, you spend less money on gas. It is a juvenile example of dressing up baseless preferences as empirical observation. UCS describes itself thus: “The Union of Concerned Scientists puts rigorous, independent science to work to solve our planet’s most pressing problems.” Wired describes itself as a literate magazine. Neither organization’s reputation should escape this kind of sophomoric intellectual fraud undamaged. Both of them have made the world a little dumber today.

Thanks to the fiscal-cliff deal and the Obamacare tax, we now have a tax code that is more “progressive” than at any time since Jimmy Carter was president. It will be interesting to see what long-term effect that has on household-income trends. The results may prove counterintuitive.

Tax increases on high-income people may be redistributive, but not always in the way intended. That is because we pay taxes individually in the short term, but in the long term we pay taxes collectively: Individuals and firms pass on tax costs to employers and consumers to whatever extent they can, just like any other cost. But the same factors that make any given worker a high-income wage-earner in the first place are likely to make that worker one who can most effectively pass on tax expenses. Likewise, the most profitable firms in many cases will be the ones that have the most power to pass on tax expenses to consumers or suppliers.

A high-income worker is one who by definition is in high demand. The same factors that make him a high-income worker also enable him to demand higher wages in response to tax increases or other factors that diminish his real income. You see this all the time with financial and tech specialists who are recruited to positions in high-tax areas such as New York or California: Workers in that position, or headhunters recruiting them, simply add taxes and other cost-of-living factors into the starting point of income negotiations. A $100,000-a-year job in Manhattan is not the same as a $100,000-a-year job in Muleshoe.

Likewise, companies with very in-demand products (Apple, Mercedes-Benz) have the most ability to pass costs along to consumers, while equally powerful but price-constricted firms (Walmart) have the most power to pass expenses on to suppliers and other business partners. A tax hike on Walmart is not necessarily a tax hike on Walmart — it’s likely to be a tax hike on, for example, Cal Maine Foods, which relies on Walmart for a third of its business. In business as in love, the power in a relationship is always in the hands of the party with the least to lose by walking away from it.

Which is to say, it is not clear that you really can raise taxes on the rich, even if you try.

At the other end of the spectrum, low-wage workers are those who by definition are not in very much demand and therefore have the least ability to negotiate tax offsets. The same is true for less powerful firms.

So, let’s say you’re Walmart, and your top hundred inventory-management, systems, and finance guys all come to you looking for a 10 percent bump because of the fiscal-cliff tax hike and the Obamacare tax hike. Walmart does not live and die by greeters or Cal Maine eggs — it lives and dies by logistics and finance, and it really needs people who are good at that. It will work as hard to keep its top talent as Apple will to keep its top engineering and design talent. So where does Walmart go to get that money to keep its top talent? If you have 100 high-wage specialists you really need to keep happy and tens of thousands of low-skilled greeters, cashiers, warehousemen, etc., all of whom you are pretty confident you can easily replace, you are going to be tempted to shift some money from the big, low-skilled pot to the small, high-skilled pot. Likewise, if Walmart has a supplier that represents 0.01 percent of its sales but relies on Walmart for 33 percent of its own sales, who do you think is going to prevail if Walmart decides it needs to knock prices down by a nickel?

We may not consciously plan that kind of thing down to the dime, but people know that there is a difference between their pre-tax income and their real income, and people with the market power to maximize the former also have the power to maximize the latter. Put another way: Even a very progressive tax code “does very little to alter the market distribution of income.”

It is transfers, not taxes, that really generate such progressivity as we have in the United States. As Lane Kenworthy shows, the overall U.S. tax system — federal, state, and local — is not all that progressive in its effects, despite a very progressive graduated federal income tax. What low-income workers don’t pay in federal taxes, they make up for in state and local taxes, particularly sales taxes, which are basically a flat income tax for the poor. Kenworthy finds that each quintile pays about 30 percent of its income in taxes. But the system becomes much more progressive when transfers are accounted for.

Tax hikes on the so-called rich may decrease the private sector’s share of income, but they probably will not do much to decrease the real income of high-wage workers and may in reality increase government revenue at the expense of low-wage workers in the long term, though it is very difficult to disaggregate the complex relationships between taxes, wages, and prices. But those who say that they are most interested in economic inequality would do well to follow Kenworthy’s example and look at transfers rather than taxes. Means-testing Social Security and Medicare would do more to make the total package of taxes and transfers more progressive than any tax hike likely to pass Congress in the foreseeable future. It is also a reform that many conservatives and deficit hawks could support. This should be persuasive to those on the Left whose interest in tax hikes on the high-income is not strictly punitive, but I am afraid they are a very small minority.

– Kevin D. Williamson is National Review’s roving correspondent. His newest book, The End Is Near and It’s Going to Be Awesome, will be published in May. 

I had assumed that the effects of the Community Reinvestment Act were overstated by its critics. This is one of those times when I do not mind being wrong:

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.

 

There is a great deal of interesting information in the paper, which you can read here. (What, this isn’t what you do with your Christmas break?)

The habitual overpromising and underfunding of government-employee pensions is a fiscal powder keg in an economy full of sparks — and a new report estimates that teachers’ pensions alone are underfunded by nearly a half-trillion dollars.

Strange, then, that the state of New York has decided to take about $1 billion out of its teachers’ pension system to “invest” in infrastructure projects related to recovery from Hurricane Sandy, an initiative announced by Bill Clinton. (Remember him?)

New York is one of the few states that can afford to roll the dice a little bit with its teachers’ pensions, because New York is one of the few states with pension systems that are not critically underfunded. (The few others include Idaho, Alaska, Wisconsin, South Dakota, North Carolina, Tennessee, and Washington.) City comptroller John Liu said yesterday: “This innovative plan could help us rebuild the city, create jobs, and yield solid returns on our pension funds,” but it is not yet entirely clear how that will happen, and the details of the particular investments remain murky. The pension fund may simply buy bonds related to infrastructure projects, or it may take a direct ownership interest in some of the projects.

I find this troubling inasmuch as mixing a pension manager’s fiduciary responsibility with political incentives invites conflicts. For example, the pension fund could face political pressure to make investments in the districts of influential elected officials, or to lend money on overly liberal terms. The public enterprises that perform well usually are those that do one thing and concentrate on doing it well, and it probably would be best for New York’s teachers if their pension manager focused exclusively on fiduciary concerns rather than try to act as a creator of jobs or an organizer of hurricane-recovery projects. It will be interesting to see what kind of returns these investments yield.

Beyond New York and the handful of funded-up states, the picture looks pretty grim. Key findings from “No One Benefits,” the report referenced above:

Pension systems are severely underfunded. According to the most recent data available, NCTQ estimates that teacher pension systems in the United States have almost $390 billion in unfunded liabilities. Funding shortfalls have grown in all  but 7 states between 2009 and 2012.

Pension underfunding is even worse than meets the eye due to unrealistic assumptions and projections about returns on investments. Even with states almost certainly overestimating how well funded their pension systems are, NCTQ finds that pension systems in just 10 states are, by industry standards, adequately funded.

Retirement eligibility rules add to costs. In 38 states, retirement eligibility is based on years of service, rather than age, which is costly to states and taxpayers as it allows teachers to retire relatively young with full lifetime benefits. In the just ten states—Alaska, California, Illinois, Kansas, Maine, Minnesota, New Hampshire, New Jersey, Rhode Island and Washington—that no longer allow teachers to begin collecting a defined benefit pension well before traditional retirement age, states save about $450,000 per teacher, on average.

Most pension systems are inflexible and unfair to teachers. Many assume that defined benefit pension plans are a clear win for teachers. But while most defenders of the status quo fight tooth and nail to preserve traditional pension plans, the reality is that these costly and inflexible models are out of sync with the realities of the modern workforce. Current National Council on Teacher Quality pension systems are built on a model that assumes low mobility and career stability and helps to put public education at a competitive disadvantage with other professions.

Note that the savings per teacher derived from the reform of eligibility rules runs $450,000, or more than two and a half times the average net worth of a retirement-age U.S. household. The real value of the average teacher’s retirement benefits in low-cost Wyoming is pushing the $1 million mark. The value of the average teacher’s retirement in Illinois is estimated at $2.4 million — and they were on strike over compensation not too long ago. Illinois has been issuing debt to meet its pension obligations, an unsustainable strategy.

The economics of the pension situation is of course worrisome (terrifying), but the political lesson is depressing, too: Government simply cannot be trusted to keep honest accounts.

NOTE: This has been corrected since first posting.

The prospects for serious fiscal reform in Washington look dire indeed, at least for the immediate future. Speaker John Boehner saw most of his caucus easily reelected, but he clearly was spooked by the Republicans’ drubbing in the presidential race and in key Senate races. The Republican steering committee announced its intention to strip key House conservatives of relevant committee positions. Senator Jim DeMint has concluded, not without reason, that he will be a more effective force for limited government as head of the Heritage Foundation than he could be as a leader in the Senate.

One of Rush Limbaugh’s key insights, and an oft-reiterated one, is that the Republican party functions best when the leader of the party also is acting as the leader of the conservative movement, e.g. Ronald Reagan in his day or Newt Gingrich in his. Right now, the Republican establishment is deeply at odds with conservatives, who once again find themselves playing the role of an insurgency in their own party. If my correspondence with National Review readers is any indicator, Boehner’s stock is not trading much higher than Barack Obama’s among limited-government true believers and deficit hawks. The coalition is indeed in disarray, and a crisis of leadership is upon us.

The implicit proposition of Boehner’s leadership has been that with President Obama in the White House and Harry Reid running the Senate, a go-along/get-along strategy was Republicans’ surest ticket to gaining the Senate, the White House, or both in 2012. When the party suffered a humiliating rout instead, conservatives’ already heated frustration came to a boil.

How to go about fixing this? As much as I admire Senator DeMint, he is mistaken that Republicans’ current troubles are the result of a failure to “clearly articulate the failures of liberalism and the common sense of conservative alternatives.” There is no shortage of conservatives who spend day and night clearly articulating the failures of liberalism and the good sense of conservative alternatives, from talk-radio populists to think-tank wonks and numbers geeks. While there have been some bad candidates, weak campaigns, and defective GOP leaders, that is always true. The fundamental problem is the Republican policy agenda.

A very large part of that problem is the focus on tax rates to the exclusion of many other economic goods. I do not wish to see a tax increase, on wages or on capital gains, for anybody. But if the top rate on incomes goes from 35 percent to 39.8 percent, that is not the end of the world. That is certainly not the hill Republicans should choose to die on. As policy, there are more important issues; as politics, it is worth noting that there are not very many voters who earn $388,350, the income at which the top rate kicks in. And many of the voters in that exalted bracket are not single-issue tax-rate voters. Single-minded and borderline fanatical insistence on this one issue, together with the pageantry of related pledges, has done a great deal to provide cover for the radicalization of the Democrats under Obama.

Compare the 2012 debacle with the conservative triumph of 2010. It is true that there were a great many anti-tax voters in 2010 — with some making the “tea” in “tea party” an acronym for “Taxed Enough Already” — but the proximate cause of the 2010 win was a very strong popular reaction against a radical increase in government spending and government intrusion into the economy: the stimulus, Obamacare, and the bailouts of Wall Street and Detroit (though this last reaction was slightly deferred). President Obama was at the time arguing for the preservation of the Bush-era tax rates, at least for the $250,000-and-under set, which, as Kate Trinko points out, means that Democrats then and now are defending the great majority of the Bush tax cuts. The Democrats were allowed to escape their reputation as tax-raisers, and Republicans put themselves in the position of cementing their reputation as the party of the rich. (Of course here “rich” means high-income people who didn’t make their money in Hollywood, in government, in ambulance-chasing, in academia, or, for the most part, on Wall Street, but let’s not let reality get in the way of a good political narrative.)

Republicans, as I have recently argued, have a great deal more to offer the country than tax cuts. They might ask: Do we wish to see our country’s energy sector continue to grow, and to see America displace Saudi Arabia as the world’s largest oil producer? The country will answer “Yes,” and Republicans should be ready with a list of specific policies to ensure that this happens. Republicans might ask: Do we wish to create a great many more solid career opportunities for the very large share of our young people who are not headed for MBAs, law degrees, or information-technology jobs? The country will answer “Yes,” and Republicans must be ready with a solid policy agenda. Ask the country if it wants to end subsidies to politically connected businesses, and it will answer “Yes.” Be ready. Instead, Republicans have been asking if the country is ready to put everything on hold to forestall a relatively small tax hike for households with incomes approaching $400,000 and up, and the country has answered “No.” The country is wrong to want to raise taxes for reasons having to do more with envy than economics, but certain human realities have to be accounted for in politics.

As for the more difficult questions, such as whether the country will protest if the Republicans attempt to reform entitlements by changing the indexation benchmark from wages to prices — a reform that would save billions of dollars without actually cutting the current benefits of one person — the answer is not obvious, but then that is the nature of hard questions. But it will be easier for conservatives to do the hard thing if they have an agenda that emphasizes the great many relatively easy and popular proposals that conservatives can and should support. But that is going to take deft and imaginative leadership of a sort that we have not lately seen from Republican leaders. John Boehner has not been the catastrophe that many fiscal hawks accuse him of being, but it is not clear that making the best of a bad hand is the most we can or should hope for. 

Everything you need to know about the economy and presidential politics, you can learn from Sir James George Frazer and The Golden Bough:

OF THE THINGS which the public magician sets himself to do for the good of the tribe, one of the chief is to control the weather and especially to ensure an adequate fall of rain. Water is an essential of life, and in most countries the supply of it depends upon showers. Without rain vegetation withers, animals and men languish and die. Hence in savage communities the rain-maker is a very important personage; and often a special class of magicians exists for the purpose of regulating the heavenly water-supply. The methods by which they attempt to discharge the duties of their office are commonly, though not always, based on the principle of homoeopathic or imitative magic. If they wish to make rain they simulate it by sprinkling water or mimicking clouds: if their object is to stop rain and cause drought, they avoid water and resort to warmth and fire for the sake of drying up the too abundant moisture. Such attempts are by no means confined, as the cultivated reader might imagine, to the naked inhabitants of those sultry lands like Central Australia and some parts of Eastern and Southern Africa, where often for months together the pitiless sun beats down out of a blue and cloudless sky on the parched and gaping earth. They are, or used to be, common enough among outwardly civilised folk in the moister climate of Europe. I will now illustrate them by instances drawn from the practice both of public and private magic.

Thus, for example, in a village near Dorpat, in Russia, when rain was much wanted, three men used to climb up the fir-trees of an old sacred grove. One of them drummed with a hammer on a kettle or small cask to imitate thunder; the second knocked two fire-brands together and made the sparks fly, to imitate lightning; and the third, who was called “the rain-maker,” had a bunch of twigs with which he sprinkled water from a vessel on all sides. To put an end to drought and bring down rain, women and girls of the village of Ploska are wont to go naked by night to the boundaries of the village and there pour water on the ground. In Halmahera, or Gilolo, a large island to the west of New Guinea, a wizard makes rain by dipping a branch of a particular kind of tree in water and then scattering the moisture from the dripping bough over the ground. In New Britain the rain-maker wraps some leaves of a red and green striped creeper in a banana-leaf, moistens the bundle with water, and buries it in the ground; then he imitates with his mouth the plashing of rain. Amongst the Omaha Indians of North America, when the corn is withering for want of rain, the members of the sacred Buffalo Society fill a large vessel with water and dance four times round it. One of them drinks some of the water and spirts it into the air, making a fine spray in imitation of a mist or drizzling rain. Then he upsets the vessel, spilling the water on the ground; whereupon the dancers fall down and drink up the water, getting mud all over their faces. Lastly, they squirt the water into the air, making a fine mist. This saves the corn. In spring-time the Natchez of North America used to club together to purchase favourable weather for their crops from the wizards. If rain was needed, the wizards fasted and danced with pipes full of water in their mouths. The pipes were perforated like the nozzle of a watering-can, and through the holes the rain-maker blew the water towards that part of the sky where the clouds hung heaviest. But if fine weather was wanted, he mounted the roof of his hut, and with extended arms, blowing with all his might, he beckoned to the clouds to pass by. When the rains do not come in due season the people of Central Angoniland repair to what is called the rain-temple. Here they clear away the grass, and the leader pours beer into a pot which is buried in the ground, while he says, “Master Chauta, you have hardened your heart towards us, what would you have us do? We must perish indeed. Give your children the rains, there is the beer we have given you.” Then they all partake of the beer that is left over, even the children being made to sip it. Next they take branches of trees and dance and sing for rain. When they return to the village they find a vessel of water set at the doorway by an old woman; so they dip their branches in it and wave them aloft, so as to scatter the drops. After that the rain is sure to come driving up in heavy clouds. In these practices we see a combination of religion with magic; for while the scattering of the water-drops by means of branches is a purely magical ceremony, the prayer for rain and the offering of beer are purely religious rites. In the Mara tribe of Northern Australia the rain-maker goes to a pool and sings over it his magic song. Then he takes some of the water in his hands, drinks it, and spits it out in various directions. After that he throws water all over himself, scatters it about, and returns quietly to the camp. Rain is supposed to follow. The Arab historian Makrizi describes a method of stopping rain which is said to have been resorted to by a tribe of nomads called Alqamar in Hadramaut. They cut a branch from a certain tree in the desert, set it on fire, and then sprinkled the burning brand with water. After that the vehemence of the rain abated, just as the water vanished when it fell on the glowing brand. Some of the Eastern Angamis of Manipur are said to perform a some-what similar ceremony for the opposite purpose, in order, namely, to produce rain. The head of the village puts a burning brand on the grave of a man who has died of burns, and quenches the brand with water, while he prays that rain may fall. Here the putting out the fire with water, which is an imitation of rain, is reinforced by the influence of the dead man, who, having been burnt to death, will naturally be anxious for the descent of rain to cool his scorched body and assuage his pangs.

Other people besides the Arabs have used fire as a means of stopping rain. Thus the Sulka of New Britain heat stones red hot in the fire and then put them out in the rain, or they throw hot ashes in the air. They think that the rain will soon cease to fall, for it does not like to be burned by the hot stones or ashes. The Telugus send a little girl out naked into the rain with a burning piece of wood in her hand, which she has to show to the rain. That is supposed to stop the downpour. At Port Stevens in New South Wales the medicine-men used to drive away rain by throwing fire-sticks into the air, while at the same time they puffed and shouted. Any man of the Anula tribe in Northern Australia can stop rain by simply warming a green stick in the fire, and then striking it against the wind.

In time of severe drought the Dieri of Central Australia, loudly lamenting the impoverished state of the country and their own half-starved condition, call upon the spirits of their remote predecessors, whom they call Mura-muras, to grant them power to make a heavy rain-fall. For they believe that the clouds are bodies in which rain is generated by their own ceremonies or those of neighbouring tribes, through the influence of the Mura-muras. The way in which they set about drawing rain from the clouds is this. A hole is dug about twelve feet long and eight or ten broad, and over this hole a conical hut of logs and branches is made. Two wizards, supposed to have received a special inspiration from the Mura-muras, are bled by an old and influential man with a sharp flint; and the blood, drawn from their arms below the elbow, is made to flow on the other men of the tribe, who sit huddled together in the hut. At the same time the two bleeding men throw handfuls of down about, some of which adheres to the blood-stained bodies of their comrades, while the rest floats in the air. The blood is thought to represent the rain, and the down the clouds. During the ceremony two large stones are placed in the middle of the hut; they stand for gathering clouds and presage rain. Then the wizards who were bled carry away the two stones for about ten or fifteen miles, and place them as high as they can in the tallest tree. Meanwhile the other men gather gypsum, pound it fine, and throw it into a water-hole. This the Mura-muras see, and at once they cause clouds to appear in the sky. Lastly, the men, young and old, surround the hut, and, stooping down, butt at it with their heads, like so many rams. Thus they force their way through it and reappear on the other side, repeating the process till the hut is wrecked. In doing this they are forbidden to use their hands or arms; but when the heavy logs alone remain, they are allowed to pull them out with their hands. “The piercing of the hut with their heads symbolises the piercing of the clouds; the fall of the hut, the fall of the rain.” Obviously, too, the act of placing high up in trees the two stones, which stand for clouds, is a way of making the real clouds to mount up in the sky. The Dieri also imagine that the foreskins taken from lads at circumcision have a great power of producing rain. Hence the Great Council of the tribe always keeps a small stock of foreskins ready for use. They are carefully concealed, being wrapt up in feathers with the fat of the wild dog and of the carpet snake. A woman may not see such a parcel opened on any account. When the ceremony is over, the foreskin is buried, its virtue being exhausted. After the rains have fallen, some of the tribe always undergo a surgical operation, which consists in cutting the skin of their chest and arms with a sharp flint. The wound is then tapped with a flat stick to increase the flow of blood, and red ochre is rubbed into it. Raised scars are thus produced. The reason alleged by the natives for this practice is that they are pleased with the rain, and that there is a connexion between the rain and the scars. Apparently the operation is not very painful, for the patient laughs and jokes while it is going on. Indeed, little children have been seen to crowd round the operator and patiently take their turn; then after being operated on, they ran away, expanding their little chests and singing for the rain to beat upon them. However, they were not so well pleased next day, when they felt their wounds stiff and sore. In Java, when rain is wanted, two men will sometimes thrash each other with supple rods till the blood flows down their backs; the streaming blood represents the rain, and no doubt is supposed to make it fall on the ground. The people of Egghiou, a district of Abyssinia, used to engage in sanguinary conflicts with each other, village against village, for a week together every January for the purpose of procuring rain. Some years ago the emperor Menelik forbade the custom. However, the following year the rain was deficient, and the popular outcry so great that the emperor yielded to it, and allowed the murderous fights to be resumed, but for two days a year only. The writer who mentions the custom regards the blood shed on these occasions as a propitiatory sacrifice offered to spirits who control the showers; but perhaps, as in the Australian and Javanese ceremonies, it is an imitation of rain. The prophets of Baal, who sought to procure rain by cutting themselves with knives till the blood gushed out, may have acted on the same principle.

What else but superstition can explain the belief that if the president (priest-king) only cared enough about (observed the ritual governing) health care or the economy (the rain and the crops), then scarcity will be abolished and we can consume more than we produce?

One thing that is missing from the debate about economic policy is the critical ingredient of humility. Humility isn’t critical for moral reasons, although humility is a virtue, and we would like our politicians to be more virtuous. Instead, humility is a practical good in the economic-policy debate, because if the effects of economic policies were decisive and predictable, then there would never be a recession or non-trivial unemployment. But there are recessions and widespread unemployment, which means either that politicians’ ability to manage the economy is much more limited than our political rhetoric suggests (more likely) or that incumbents are intentionally enacting bad policies that they know will produce recessions and unemployment (less likely).

Politicians have obvious incentives to pretend that they have more knowledge and power than they do. Nearly as much damage is done by the priesthood of professional economists and journalists, who for their own narrow interests also exaggerate what politics can achieve, be those interests professional or political or some combination of the two (assuming they can be distinguished).

This lack of humility produces headlines and sound bites like this one on Sunday from The Atlantic: “Tax Cuts Don’t Lead to Economic Growth, a New 65-Year Study Finds.” The piece itself, by business editor Derek Thompson, isn’t terrible, and one has to assume that, like most writers, he probably isn’t responsible for his headlines. But the headlines dominate political discourse, which is by its democratic nature shallow.

In fact, correlating tax-rate changes to growth rates is very close to being meaningless. That’s because the relevant comparison isn’t between observed growth rates under various tax regimes but between observed growth rates and the growth rates that we would have observed under different tax regimes. That more meaningful comparison has the academically and journalistically undesirable quality of being unknowable. Social scientists frequently measure the wrong factor because it is measurable, when the right factor is not.

Further, the effects of tax changes probably are not immediate in the vast majority of cases. If our theory is that changes in the tax code change incentives for consumers, workers, investors, and firms, then you have a great number of factors that are going to have effects that become manifest over very different time intervals. If you eliminate the sales tax on computers for one month, then you might expect a spike in month-over-month sales for one month, and that is fairly easy to estimate. If you change capital-gains-tax rates, research-and-development credits, capital-investment-write-off rules, etc., then you have a whole different range of temporal variables, since developing a better artificial hip and building a factory to produce that improved artificial hip are very different enterprises, requiring different time commitments. In an economy as complex as ours, such factors probably are not predictable even in principle.

Which is why even very smart people, such as Atlantic writers, produce maddening paragraphs, such as this one from Mr. Thompson: “Well into the 1950s, the top marginal tax rate was above 90%. Today it’s 35%. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. At the same time, the average tax rate paid by the top tenth of a percent fell from about 50% to 25% in the last 60 years, while their share of income increased from 4.2% in 1945 to 12.3% before the recession.”

All of that is trivially true. The tax code in 2012 is different from the tax code in 1955. Lots of other things are different, too: Japan emerged from the postwar rubble to become a major economic power and then went into gentle decline during the subsequent years, the ruins of Europe were rebuilt, a European monetary union was created and then began coming unglued, Germany was reunited, the Soviet Union was disunited, China began to liberalize its economy, a globalized information economy emerged with India and South Korea winning significant places in it, the Internet became a critical economic reality, the population of the planet more than doubled, worldwide markets were integrated, standardized containerization revolutionized shipping, smallpox was eradicated, life expectancies grew in many parts of the world, U.S. birth rates declined . . . and so on. Telling us that tax rates were X in the 1950s and Y in 2012, while growth was A in the 1950s and B today, tells us something approximating nothing.

It certainly doesn’t tell us “Tax Cuts Don’t Lead to Economic Growth.” Try turning it around: What might the sentence “Tax cuts lead to economic growth” even mean? Maybe: “Tax cuts, independent of all other variables, consistently and predictably lead to economic growth”? I very much doubt that anybody who is not a political speechwriter or talking head would argue such a thing. How about: “In some well-defined circumstances, tax reductions may contribute to higher levels of economic growth than probably would have been observed had higher rates prevailed”? Here we have the opposite problem: Does anybody not believe that? Between the data and the headline falls the Shadow.

After 40,000 years of civilization, we very clever creatures still cannot predict the weather with any reliable degree of detailed accuracy more than about a week out. (But some of us still pray for rain.) Scientists who have spent their lifetimes working on extraordinarily specialized problems routinely are baffled by new and unexpected developments. (But some of us still believe the universe is turtles all the way down.) Our highest-paid stock-pickers routinely are outperformed by darts thrown at a board, by kindergartners, and by monkeys. (But some of us still believe in the sure thing.) On and on it goes: Executives reliably make disastrously bad decisions about their own businesses, and most entrepreneurs fail.

In spite of the massive piles of evidence surrounding them, politicians routinely tell us that if we will merely give them the power to do X, then Y surely will follow. The Obama administration predicted that if the stimulus and other policies were enacted, then unemployment would decline to 5.2 percent. (It isn’t 5.2 percent.) Mitt Romney says that if we enact his agenda, the result will be 4 percent growth. Personally, I think that politicians should be goosed with a Taser every time they use the word “percent” in a future-tense sentence. But to be more charitable, let’s instead conclude that such projections should be viewed skeptically.

Unhappily, many economists desire to play kingmaker and therefore lend the prestige of their discipline to the wishful thinking of politics, where arguments are oversimplified to a point that is indistinguishable from dishonesty. They are aided in this by journalists who provide a bridge from the rigorous world of academic research to the standards-free world of political discourse. The result is something like a fairy tale or just-so story. That voters choose to accept such fanciful promises is another piece of evidence that our politics is not rational but ritual.

I’d never heard the name Max Kohl until a few hours ago. But I like the guy.

Kohl’s, the department store he founded, is looking to hire some 52,000 or so people in the coming months — good news for job-seekers across the country. The downside is that these are seasonal jobs for the holidays, but the more interesting fact is that the number of seasonal employees the store is seeking is up 10 percent over last year, a very good indicator of the firm’s expectations for the all-important holiday retailing season, and a good indicator in general.

But expanding operations is not easy. It requires, in a word, capital. Lots of it. Tons of it. Where did Kohl’s get the capital to do this? As it turns out, Mitt Romney had something to do with it.

Kohl’s is a typical American success story: Max Kohl, a Jew born in Poland in 1901, decides that there’s a richer future for him in the United States than in Poland. He ends up in Milwaukee. He starts a grocery store. He does this in 1929, incidentally — not the best year in American history to launch a new business. But he weathers the Depression, adds a store, then another, and by the 1960s he’s the owner of the state’s largest grocery-store chain, employing more than 5,000 people. He then does the same thing all over again with a chain of department stores. And if you’re building department stores, why not build the shopping centers they’re located in? So he does that, too, and pretty soon he has so much real estate that he has to start a real-estate company to keep up with things. On top of having more real estate than he can keep up with, he has more money than he can keep up with, so he gives wagon-trains of it to Brandeis University, the Jewish National Fund, and a bunch of local charities and religious groups. By the time of his death at 80 he had, like so many immigrants, made more of the opportunities afforded to Americans than most sons of the soil do. Well done, Max Kohl.

His businesses lived on. The department-store chain went through a couple of ownership changes, first being acquired by BATUS (a division of British American Tobacco), which ultimately decided that Kohl’s didn’t fit in well with the rest of its portfolio, namely such high-end properties as Saks Fifth Avenue. Kohl’s managers thought that they could do a better job with the chain than their smoky corporate overlords, and so they — irrationally optimistic capitalists that they were — bought the company, now comprising 40 stores, and took it private. The managers changed the merchandise mix and implemented forward-looking retail practices such as digital inventory management. Kohl’s wasn’t a market revolutionary like Walmart, but it was smart and careful, staking out turf between the low-end discounters and the higher-end department stores. Kohl’s prospered to such an extent that it caught the attention of a major investor, the Morgan Stanley Leveraged Equity Fund, which bought the company in 1988 with the intention of taking it public. Aggressive expansion ensued, and sales nearly trebled in the next four years, when the company went public. More innovative management practices were introduced, and an enormous distribution center was constructed. By 1999 there were 259 Kohl’s stores, and revenues were more than $4.5 billion. All this from Max Kohl’s little grocery and the villainous leveraged-buyout artists.

Around the turn of the century, Kohl’s ran into a little trouble, with declining sales and profit. Max Kohl said he attributed his success to selling good stuff and being nice to his customers. Kohl’s doesn’t put it that way, but that is essentially what they were failing to do at the time, making some bad decisions about inventory and allowing their stores, now in numbering in the hundreds, to fall into disarray. Investors were not happy. Heads rolled. Kohl’s recovered and began to grow again. Today it operates 1,100 stores and employs about 140,000 people, more than the population of Alexandria, Va., or Savannah, Ga. It makes a lot of money and wins praise for its environmental practices. That’s what happens when Max Kohl’s plan to run a better grocery store collides with the free market, including the critically important capital market.

The list of the firm’s top shareholders is heavy with big hitters: T. Rowe Price, State Street, Vanguard, BlackRock, Morgan. And a bit down the list you’ll find Brookside Capital, a hedge-fund operator and subsidiary of Romney’s firm, Bain Capital, which as of June had a position of about $100 million in Kohl’s, up significantly from the March reporting period. Because Kohl’s is now a $12 billion firm, Brookside is not a particularly big investor, and Kohl’s isn’t an especially big part of Brookside’s portfolio, which is heavy on Apple, DirecTV, Anheuser-Busch, El Paso Corp., Google, Kinder Morgan, and less cutting-edge firms, such as Macy’s.

Forget every stupid thing you’ve ever heard a politician say about “job creation” — this is what it really looks like. Entrepreneurs have ideas, management teams seek incremental improvements, and investors invest. Sometimes it works out, sometimes it doesn’t. There’s nothing dramatic about it, no great speeches, no grand plan to create 140,000 jobs at a single firm. It just happens. Sometimes a company makes a big bet on a promising firm, like Bain with Staples or Morgan with Kohl’s. Sometimes it is a quiet, conservative bet, like Brookside with Kohl’s. Both are necessary in the marketplace, and that is where the money comes from to make a couple of stores into a national retail powerhouse that sometimes needs an extra 52,000 employees to see it through the busy season. Maybe a part-time job at Kohl’s is not what you’re looking for, but those jobs at Apple and Kinder Morgan are a result of the same process. They sure as hell aren’t the result of politics. In the world of politics, one guy — the president — has an outsized role in everything. In the real world, lots of people play lots of small roles in making big things happen. 

That Mitt Romney has allowed himself to be put on the defensive over his role in this business says something about him, but it says more about the American electorate. Barack Obama gives speeches about job creation. But this is how it’s done. Obama’s demonization of investors and Romney’s unwillingness to offer a compelling defense suggests that both sides are betting that the American people are too stupid to understand what makes their economy work.

Those of you who have criticized me for being soft on taxes may have a point: Back home, I’m something of a liberal:

A Lubbock County, Texas, judge, the panhandle county’s chief administrator, is asking for a tax increase to hire deputies for the inevitable civil war he believes would follow President Obama’s re-election.

The way he puts it, Judge Tom Head wants to prepare for the “worst”, which to him means “civil unrest, civil disobedience” and possible “civil war”, according to a report from Fox 34 Lubbock.

Judge Tom Head and Commissioner Mark Heinrich told the station this week that a 1.7 cent tax increase for the next fiscal year was necessary to prepare for many contingencies, including Obama’s re-election. He also mentioned to the station that the county needs a pay increase is needed for the district attorney’s office and more funds to pay for more sheriff’s office deputies.

He’s going to try to hand over the sovereignty of the United States to the (United Nations), and what is going to happen when that happens?” Head asked the station during a Monday interview. “I’m thinking the worst. Civil unrest, civil disobedience, civil war maybe. And we’re not just talking a few riots here and demonstrations, we’re talking Lexington, Concord, take up arms and get rid of the guy.”

Wrote a local columnist: “His words border on sedition, the incitement of discontent or rebellion against a government.” That’s the good part, of course — but an unnecessary tax increase? The budget’s already balanced.

When the Stranger says: ‘What is the meaning of this city?
Do you huddle close together because you love each other?’
What will you answer? ‘We all dwell together
To make money from each other’? or ‘This is a community’?
And the Stranger will depart and return to the desert.
O my soul, be prepared for the coming of the Stranger,
Be prepared for him who knows how to ask questions.

—T. S. Eliot, Choruses from ‘The Rock’

Today marks the 100th anniversary of the birth of Milton Friedman, whom I never met but have always regarded as one of my favorite teachers. William F. Buckley was the reason I wanted to become a writer, but it wasn’t until discovering Milton Friedman that I really understood what it was I wanted to write about.

If those of you from outside of Texas need another reason to envy the Lone Star State, wrap your head around this fact: When I was at Lubbock High School, economics was a required course, and Milton Friedman’s Free to Choose was required reading in that course. This meant that I spent my teen-age years among friends and classmates among whom there was practically none who had not read Milton Friedman. Some were moved by Free to Choose, some merely digested it for examination purposes, and some hotly rejected it, but everybody knew it, at least superficially. That was really something. T. S. Eliot once remarked that he thought his students at Harvard might have been better off if they had read fewer books but had read the same books, and there is much to recommend that belief. Education is a conversation.

I had learned many things before encountering Free to Choose, but the work of Milton Friedman was the first thing I learned that seemed to matter. I had been a good student, and schoolwork had been for me simply a theater for performance: I was good at most subjects, but none of them seemed important to me. I gravitated toward literature not because it seemed to me (dread word) “relevant,” but because reading books and writing about them was pleasurable. I was going to be reading books and writing, anyway. But Friedman was something different — my first real memorable contact with organized political thinking. Everything of course seems intense and unprecedented in adolescence — because everything is new — and there is something of the quality of romance to a first intellectual love. For me it was Walt Whitman and Milton Friedman, my church and state. I thank the heavens that my literature curriculum hadn’t included Ayn Rand and that my economics teacher didn’t assign us John Kenneth Galbraith. (And surely you know the joke: All great economists are tall, with two exceptions: Milton Friedman and John Kenneth Galbraith.)

The libertarianism of Rand (and she hated the word “libertarian”) was based on an economics of resentment of the “moochers” and “loafers,” the sort of thing that leads one to call a book The Virtue of Selfishness. Friedman’s libertarianism was based on an economics of love: for real human beings leading real human lives with real human needs and real human challenges. He loved freedom not only because it allowed IBM to pursue maximum profit but because it allowed for human flourishing at all levels. Economic growth is important to everybody, but it is most important to the poor. While Friedman’s contributions to academic economics are well appreciated and his opposition to government shenanigans is celebrated, what is seldom remarked upon is that the constant and eternal theme of his popular work was helping the poor and the marginalized. Friedman cared about the minimum wage not only because it distorted labor markets but because of the effect it has on low-skill workers: permanent unemployment. He called the black unemployment rate a “disgrace and a scandal,” and the unemployment statute the “most anti-black law” on the books with good reason. He talked about two “machines”: “There has never been a more effective machine for the elimination of poverty than the free-enterprise system and a free market.” “We have constructed a governmental welfare scheme which has been a machine for producing poor people. . . . I’m not blaming the people. It’s our fault for constructing so perverse and so ill-shaped a monster.”

I knew what he was talking about, because I had seen the monster up close. Not too many years before encountering Friedman, I’d found myself in the odd position of having to talk my mother out of signing our family up for food stamps. (Yeah, I was precisely that kind of ten-year-old.) I do not recall what arguments I made, but I am sure that my motive was impeccably childish: the avoidance of stigma. My mother relented, and that particular rough patch was passed over, in no small part with the help of a month’s worth of groceries that mysteriously appeared on our doorstep one evening. Some time later, we were able to buy a larger house (things had become pretty crowded at home) from a neighbor who was retiring to his vacation home. My mother would not have qualified for a mortgage, and the deal was done by means of a contract drawn up at the kitchen table. Having the old house as a rental property made an enormous difference in our family prospects, and suddenly my mother was in her small way a small-business owner. Those things don’t happen in societies in which everybody is poor and desperate, but in societies in which people generally have enough and expect to have even more in the future. Being a rich society is, as Milton Friedman knew, a choice, and being a rich society leaves you free to choose lots of things, like helping out your neighbors. Americans are not the sort of people who are going to let their neighbors starve in the streets — not then, not now.

Free to Choose gave me the intellectual framework to understand what I already intuited about the welfare state, about the man from the government who says he is here to help. And that is what really should be remembered about Milton Friedman: He didn’t argue for capitalism in order to make the world safe for the Fortune 500, but to open up a world of possibilities for those who are most in need of them. The real subject of economics isn’t supply and demand, but people, and to love liberty is to love people and all that is best in them. And it is something that can only be done when we are free to choose.

It must be an election year: Washington has noticed that the brutes in Beijing still aren’t reading their Bastiat, and a World Trade Organization complaint is in the works. I do not think that the Obama administration, even if it knew what to do, would be willing to do what it takes to radically improve U.S. economic competitiveness vis-à-vis China, since he was carried to Washington upon a great swell of votes from the less productive corners of the fruited plain, but it’s nice to have inscrutable foreigners to blame. Really, what would Washington do without the Chinese?

On the one hand, it is good that the United States and China are members of a free(ish)-trade convention, giving them a forum at the WTO for resolving differences. WTO rules are arcane and convoluted, but the organization enjoys reasonable credibility in settling disputes that arise under its purview. As China becomes a more mature and normal country, it is important that it learn to comply with the obligations into which it has freely entered. (Not that the people of China can be said to have “freely entered” into anything, but you know what I mean.) U.S. China hawkery does tend to ebb and flow with election cycles, one cannot help but notice.

So, free trade would be a good thing, and free(ish) trade under the WTO is probably a second-best outcome preferable to other politically available options. So, rah-rah for us.

Sort of.

I cannot help but notice that our own customs regime is an embarrassment. (“Not as bad as in China!” isn’t exactly a ringing endorsement of public policy.) For example: We charge a relatively straightforward protectionist duty on imported passenger cars and special-purpose vehicles, depending on various features (interior capacity, size of engine, number of engine cylinders, etc.), but then, of course, we mess with it. Some car parts get attached post-import, so Mercedes-Benz is required to do a separate parts-duty calculation for the aluminum roof racks that are permanently affixed to M-class sport-utility vehicles. (Read all about it here.) Never mind the 2.5 percent duty — consider the trade consequences of the fact that Mercedes-Benz has to go to the federal government for an official ruling about its roof-racks before it can do business. It’s not just the cost of the tariff per se, but the cost of compliance, too — Mercedes sells five different classes of SUVs and crossovers in the United States, with multiple models in most classes.

So, Mercedes-Benz gets hassled, but sometimes imported parts get preferential customs treatment. If you’re Nissan Forklift, you get to participate in the foreign-trade zone program that allows for delayed or reduced duties on imported parts — provided, of course, you are doing your business in the home district of a sufficiently powerful member of Congress. American mercantilism is a lot like Chinese mercantilism, but less patriotic. It’s the makework fallacy as national policy.

Lest you think that there is anything other than straightforward protectionism going on, take the program administrators at their own word:

This event was notable in that it opens the door for a new industry sector to lower its Customs-related costs through the Foreign-Trade Zones Program. How does this event benefit the the Marengo area? “By utilizing the FTZ program to level the playing field with its overseas competitors, Nissan Forklift can be more competitive. This results in job retention, and capital investment; and both of these lead to increased economic activity in Marengo as well as providing much needed support to the U.S. manufacturing base,” says Craig Pool, President of the Foreign-Trade Zone Corporation. 

Clear enough? U.S. trade policy provides publicly funded benefits for rent-seeking business interests and acts as a tax on U.S. consumers of foreign goods and many domestic goods containing foreign components. There is little or no evidence that it accomplishes anything that makes the U.S. economy more productive, or that it improves wages or employment. But it is a good way for congressman to send goodies back to the district.

And it is not as though the United States is totally shut out of the Chinese market: It’s worth noting that the best-selling passenger vehicle in China is a Buick — weirdly enough, a Buick is a status symbol in China. Consumer preference still matters, and in many sectors in which the Chinese economy is relatively open to imports, the United States is outperformed by other countries.

So, sure, make China play by the WTO rules — but don’t expect to get too much out of it.

While I had been hoping for an assist from the Supreme Court, my opinion about Obamacare today is the same as on the day it was passed: Don’t sweat it. We are going to see the law replaced with something more sensible, and we are going to get major entitlement reform in the deal to boot. That is going to happen regardless of who wins in November, or the Novembers after that.

If Obamacare were left in place (and even if we set aside our well-grounded suspicions about its real fiscal impact) and the other major entitlements remained unreformed, federal spending on these programs would in a few short decades hit 19 percent of GDP, meaning that we would be spending each year on a handful of entitlement programs about what the federal government spent in total in the average year in the decade leading up to President Obama’s election. Since we will presumably still have an army, the FBI, federal courts, etc., and since much of the rest of the federal budget is still going to be there, it seems to me unlikely that this spending will in fact be possible. CBO estimates of federal spending in 2050 run to 30 or 40 percent of GDP, with debt levels exceeding 200 percent of GDP. It seems to me implausible that the federal government is going to be able to sustain spending levels that are double the recent norm, especially considering that the rising ratio of debt to GDP is going to make deficit financing more difficult and expensive, forcing Congress to rely more heavily upon taxes.

We aren’t going to spend X trillion dollars on Obamacare, because we do not have X trillion dollars to spend. The trick is for voters to get that through Washington’s thick skull before the bond market does.

The Court may not have been on our side today, but the math still is.

Foreclosures are down year-over-year but spiked sharply in May — up 9 percent. Both home sales and prices have recovered a bit recently, both up about 10 percent year-over-year. What seems to be happening is that a great number of foreclosures that were delayed in the past year are now getting under way as lenders begin to figure out how to prove that they own mortgages in default, having fecklessly failed to do so previously.

As usual, politics is making things worse, extending the problem rather than mitigating it. Nevada’s anti-foreclosure law, for instance, which increases documentation requirements, seems to be effective mainly in lengthening the foreclosure process, rather than in keeping people in their homes. (Though there is no excusing the mortgage industry’s shockingly shoddy documentation process.)

More houses going into foreclosure will put downward pressure on prices, because banks don’t like to be homeowners, and consequently dump properties ASAP. Bank-owned homes sell for a third less than other houses.

The underlying problem, as ever, is negative equity — which is increasing, in spite of all of the political attention focused on the problem. This has had some perverse consequences. A great deal of those recent gains in house prices have occurred at the bottom end of the market, where there is the highest level of negative equity. Simply put, people with significant negative equity can’t really sell their houses, so the number of low-end houses on the market has decreased, driving up prices for the remaining inventory. But negative equity also correlates with mortgage default. So a significant rise in housing prices could draw a lot of new product onto the market, possibly reversing recent housing gains, while a significant economic downturn — say the result of a worldwide financial crisis resulting from the collapse of European financial institutions — could send a lot of borrowers into default and houses into foreclosure. And if current free-money mortgage-interest rates should start going up, sales and prices are sure to suffer. Short version: We’re still playing real-estate roulette.

Negative equity has some other less obvious economic consequences, too, such as inhibiting labor mobility. If you are anchored in California because you cannot afford to take a $30,000 hit selling your house, it is more difficult to take that job in Texas.

The Obama administration’s response to the housing meltdown is widely held to have been a comprehensive failure (when you’ve lost Businessweek . . .), but then there was no ingenious idea from Washington that was ever going to have changed the fundamental problem: Lots of people bought houses they couldn’t afford, and lots of people irresponsibly lent them money to do so, in part as the result of a wildly popular bipartisan consensus that government should encourage people to buy houses. Remember that the next time some guy seeking elected office tells you he is going to fix the economy by legislating away economic facts.  

The Left’s answer to the deficit: raise taxes to protect spending. The Left’s answer to the weak economy: raise taxes to enable new spending. The Left’s answer to the looming sovereign-debt crisis: raise taxes to pay off old spending. For the Left, every deficit is a revenue-side problem, not a spending-side problem, and the solution to every economic problem is more spending, necessitating more taxes. The problem with that way of looking at things is called Detroit, which looks to be running out of money in about one week. Detroit is what liberalism’s end-game looks like.

And Detroit does in fact have a revenue problem, as I argued in the May 14 National Review (“Let Detroit Fail”): “Revenues declined by more than $100 million between 2007 and 2011. Income-tax revenue dropped by 18 percent, utility-tax revenue by 17 percent, property-tax revenue by 2.3 percent. Seeking a quick fix to its revenue problems, Detroit chartered several casino-gambling operations, only to see taxes from them begin to decline (by 1.5 percent last year) after a period of early growth. Detroit, once the wealthiest city in the United States by per capita income, is today the second-poorest major U.S. city.”

Detroit is evidence for the fact that the economic limitations on tax increases sometimes kick in before the political limitations do. The relationship between tax rates, tax revenue, economic incentives, growth, and investment is complex, to say the least, and deeply dependent on the historical and economic facts of particular places at particular times. We have theories of growth, but no blueprint. But Detroit was not reduced to its present wretched circumstances by historical inevitabilities or the impersonal tides of economics. It did not have to end this way, but it did, and understanding why it did is essential if we are to avoid repeating Detroit’s municipal tragedy on a national scale.

One lesson to learn from Detroit is that investing unions with coercive powers does not ensure future private-sector employment or the preservation of private-sector wages, despite liberal fairy tales to the contrary, nor do protectionist measures strengthen the long-term prospects of domestic firms competing in highly integrated global markets. We cannot legislate away comparative advantage or other facts of life. But the problem of unions’ coercing distortions in the private sector is at this point a relatively small one, given the decline of unionization outside of government. Organized labor being a fundamentally predatory enterprise, its attention has turned to the public sector, where there are fatter and more stable rents to be collected.

The second important lesson to be learned from Detroit is that there are hard limits on real tax increases, a fact that will be of more immediate significance in the national debate as our deficit and debt problems reach crisis stage. Even those of us who are relatively open to tax increases as a component of a long-term debt-reduction strategy must keep in mind that our current spending trend is putting us on an unsustainable course in which our outlays will far outpace our ability to collect taxes to pay for them, no matter where we set our theoretical tax rates. The IMF calculates that to maintain present spending trend the United States will have to nearly double (88 percent increase) all federal taxes to maintain theoretical solvency. Those tax increases are sure to have real-world effects on everything from investing to immigration. At some point, the statutory tax increases will not increase actual revenue.

Even the best tax regimes are cannibalistic: Every tax is an incentive for the taxpayer to relocate to a more friendly jurisdiction. But tax rates are not the only incentive: Google is not going to set up shop in Somalia. Healthy governments create conditions that make it worth paying the taxes — which is to say, governments are a lot like participants in any other competitive market (with some obvious and important exceptions). The benefits of being in Detroit used to be worth the costs, but in recent decades millions of people and thousands of enterprises large and small have decided that is no longer the case. It is not as though one cannot profitably manufacture automobiles in the United States — Toyota does — you just can’t do it very well in Detroit. No one with eyes in his head could honestly think that the services provided by the city of Detroit and the state of Michigan are worth the costs.

The third lesson is moral. Detroit’s institutions have long been marked by corruption, venality, and self-serving. Healthy societies have high levels of trust. Who trusts Detroit? This is not angels-dancing-on-the-head-of-a-pin stuff. People do not invest in firms, industries, cities, or countries they do not trust. Corruption makes people poor.

What is true of Detroit is true of the country. Our national public sector not only is bloated and parasitic, it is less effective, less responsible, and less honest than that of many other developed countries, including New Zealand, Canada, Australia, and Germany. I am not an unreserved admirer of Transparency International’s global corruption-perceptions index, but I believe that it is in broad outline accurate. Liberals are inclined to learn the wrong lessons from the relative success of countries such as Canada or New Zealand, concluding that what we need is a bigger welfare state, government-run health care, etc. (Conservatives, for our part, tend to overemphasize the role of comparatively low taxes and light regulation in the success of countries such as Singapore and Hong Kong. Those are important, but there are other equally important factors.) In reality, there is a great diversity of health-care arrangements and social-spending levels among the countries that have more effective institutions than ours, while many countries with the sorts of institutions liberals admire (take Italy, Spain, Greece, and Portugal for starters) are in crisis, in significant part because of plain corruption. What the more successful countries tend to have in common is a public sector that is less intent on looting the fisc.

Sure, Hong Kong and Singapore have lower levels of government spending (as a share of GDP) than does the United States. So do Switzerland and Australia. At 38.9 percent of GDP, our public-sector spending is indistinguishable from that of Canada (39.7 percent). It is not obvious that we have much to show for it. 

The city fathers of Detroit inherited one of the richest and most productive cities in the world, and they ruined it in a generation. The gentlemen in Washington have been entrusted with the richest and most productive nation in the history of the world, and the trendline does not look good. Those of us seeking to radically reduce the footprint of government must remind ourselves from time to time that our case is as much ethical as economic, that the ethical and the economic are indeed closely intertwined. 

If I have learned anything over the past few years in my part-time employment as The New Criterion’s theater critic, it is that unless it is articulated with great skill and artistry, there is nothing so boring as a display of human emotion. Ideas, even mistaken ones, have a great potential to be interesting; sentiment less so. But of course you could learn as much reading the op-ed page of the New York Times or the comments section of any website publishing disputatious content.

I was put in mind of that fact reading two books recommended by left-leaning friends: The first was Paul Krugman’s End This Depression Now! (I am generally skeptical of policy books with exclamation points in their titles, and Professor Krugman’s book has fortified my skepticism.) The second was the late Tony Judt’s Ill Fares the Land. To the existing criticism of Professor Krugman’s policy preferences I have little to add except to reiterate my belief that while I can see the overall logic of Keynesian stimulus-spending arguments, I do not share the Keynesians’ belief that it does not matter what we spend that money on. To Professor Judt’s policy prescriptions I have nothing at all to add, inasmuch as his platform is almost entirely content-free, consisting in the main of an incontinent fondness for railroad stations. (I am not exaggerating — please do read the book if you doubt me.)

What struck me most about the two books, and about Professor Krugman’s recent journalism, is the constant exhortation to anger. End This Depression Now! begins and ends with such exhortation, and, writing in the New York Times, Professor Krugman is forever going on about the necessity of being “angry at the right people.” Among those people he believes it is right to be angry at are academic economists who do not share his views, and who therefore must be, in his analysis, acting out of bad faith in order to pursue ends that are “cruel and wasteful.” Professor Judt likewise fills his little book with demands that we be enraged at the alleged malefactors he identifies, and similar demands that we regard post offices and train stations with sucrotic sentimentality.

The problem with being enraged is that it prevents thinking, and causes one to write dumb things, e.g.:

For the alleged productivity surge never actually happened. In fact, overall business productivity in America grew faster in the postwar generation, an era in which banks were tightly regulated and private equity barely existed, than it has since our political system decided that greed was good.

What about international competition? We now think of America as a nation doomed to perpetual trade deficits, but it was not always thus. From the 1950s through the 1970s, we generally had more or less balanced trade, exporting about as much as we imported. The big trade deficits only started in the Reagan years, that is, during the era of runaway finance.

And what about that trickle-down? It never took place. There have been significant productivity gains these past three decades, although not on the scale that Wall Street’s self-serving legend would have you believe. 

So there is the obvious: Professor Krugman writes that the productivity surge “never actually happened,” and then a few sentences later concedes that there were “significant productivity gains,” but they didn’t work out the way he’d have liked. But the main problem with the paragraphs above is that they entirely ignore the uniqueness of the post-war economic situation. In short, it is easy to be a trade-balancing industrial powerhouse when a cataclysmic war has cleared the economic playing field of competitors. The economic conditions that prevailed from the late 1940s to the middle 1970s were not the result of ingenious industrial policy at home but the result of the destruction of the rest of the world’s economic infrastructure. Dead men make no widgets, and the factories and shipyards of Nagasaki weren’t doing a hell of a lot of business after getting nuked. Real incomes for American men 25 and over began to decline in 1973, not after the ascent of high finance in the 1980s. One minute’s thinking would reveal that the story is much more complicated than Professor Krugman suggests, but thinking is not on his agenda, at least so far as his New York Times work is concerned. And he is not alone in that: Have a look at William Cohan’s “Don’t let go of the anger” for further evidence.

Josef Joffe, writing in the New York Times, noted that Professor Judt’s book is “a cri de coeur – an outburst of rage and sorrow in equal parts,” but then added the critical qualifier that “unless the reader belongs to the choir to which Tony Judt preaches — call it the Europhile liberal left, who would rather sell their Prius than forgo their New York Review of Books — he or she may ask: Where have we heard this before? A pugnacious reader might stab a felt pen at every other paragraph and scribble: ‘Caricature!’ or ‘What about . . . ?’” Which is correct. But Professor Judt’s book is not an invitation to think; it is an invitation to feel. Like Rachel Maddow, Professor Judt has very warm feelings about large-scale public-works projects such as the Hoover Dam, which, while indeed majestic, was obsolete before it ever came on line and generates about one-third the electricity of a typical nuclear power plant. Our aesthetic appreciation of such enterprises should not stop us from asking the relevant questions: Does it work? It is the best use of our scarce resources? I admire New Deal–era post offices and Paul Cret’s fascist architectural vibe as much as the next guy, but we should probably fire a great number of the people who work in those buildings, because they do not produce much of value.

I have written about the surfeit of emotion on the right from time to time, and it is, needless to say, no more useful or interesting than the perpetual emotional adolescence on the left. We have extraordinarily difficult problems in front of us. And we are not alone: I have just returned from Spain, where the unemployment rate among the young is 50 percent and where public finances are probably unsalvageable. (My report will appear in the next issue of National Review.) We need clear thinking and cold-eyed analysis, not wishful thinking or blinkered emotionalism. Getting righteously angry is an exercise in self-gratification, a fruitless indulgence.

Mitt Romney has some big plans for Day 1. But where are the spending cuts? TBD, apparently.

Mr. Romney has promised a 5 percent cut in non-defense discretionary spending, which is to say: approximately squat. Non-defense discretionary spending runs around 15-17 percent of the budget. A 5 percent cut in that amounts to very little in terms of the big Fiscal Armageddon picture. We could cut non-defense discretionary spending to $0.00 and we’d still be running a big deficit. Not good enough.

We cannot turn around the fiscal picture (and consequently our long-term economic prospects) without cutting Social Security, Medicare and Medicaid, and defense. We do not have to cut them all in the same way or by the same amount, obviously, but to take any 20-percent slice of federal spending and declare it sacrosanct is the mark of fiscal unseriousness — and putting four such slices off limits (I’m including “other mandatory” and interest, which really is mandatory, as the fourth slice) is unseriousness times four.

Sure, that’s going to be hard to run on. But if there is such a thing as a Romney administration, there is still going to be a Congress. Maybe it will be a strongly Republican Congress. Maybe not. But it is not as though any of this gets easier after the election. I am increasingly of the opinion that if you won’t run on it you won’t do it.

Spending cuts on Day 1: Somebody put that on Mr. Romney’s Outlook calendar. 

This weekend op-ed from AEI’s Norman Ornstein and Brookings’s Thomas Mann has drawn a great deal of criticism, much of it arguing that, contra the authors’ claims, Democrats are as ideological, as extreme, and as unbending as congressional Republicans, and are at least equally to blame for the current sorry state of affairs in Washington, if not more so.

That argument has a great deal of truth to it: It was Democrats, not Republicans, who ensured that the recommendations of President Obama’s bipartisan deficit-reduction panel were D.O.A. It is Democrats in the Senate, not Republicans, who have refused to pass a budget since FY 2009’s. It was Democrats, not Republicans, who turned the confirmation process into a pageant of bare-knuckles politics (consult Robert Bork about that). It is Democrats, not Republicans, who insist that any plan to balance the budget take more than half of all federal spending off the table. Etc.

But while the authors focus on the allegedly extreme partisanship in Washington, anybody who has been watching our national descent into insolvency must conclude that the problem has been too much bipartisanship, not too little. For more than a decade now, the operating model in Congress has been that Democrats more or less support Republicans’ tax cuts (though sometimes howling about it for the benefit of their base) while in return Republicans support Democrats’ spending (also howling about it). That is the substance of the national suicide pact that Congress has signed us up for.

Divided government can sometimes have good results, as it did during the Gingrich– Clinton years, but it can also have bad ones. When the government is divided, or when the majority party holds only a very small majority in one of the houses, there are very powerful incentives to accede to the least painful of the other side’s demands. Democrats have been energetic in condemning the “Bush tax cuts” and blaming them for the high deficits currently afflicting us, but they have made no serious effort to repeal the bulk of them, because the majority of the tax cuts went to households earning less than $200,000 a year. In fact, Democrats have touted the payroll-tax  deal as a key domestic achievement, as though talking Republicans into supporting an irresponsible tax cut were one of the labors of Hercules.

The sins on the Republican side of the ledger have been too thoroughly documented to require much revisiting here, but the spending chart from 2001–09 tells the story. As Vero reminds us:

During his eight years in office, President Bush spent almost twice as much as his predecessor, President Clinton. Adjusted for inflation, in eight years, President Clinton increased the federal budget by 11 percent. In eight years, President Bush increased it by a whopping 104 percent. 

Republicans had a lot of things they wanted to get done from 2001–09, and the easiest way to keep things moving was by talking a great deal about spending without actually doing much of anything about it. Likewise, if we judge them by their actions rather than by the speeches they make, Democrats are broadly content to go along with a great deal of the Republican agenda on taxes. I’m sure that if they thought they could get away with it Democrats would raise the top rate to 90 percent, but they know they can’t, and the ones who take the time to look at the numbers know that it is the bottom two-thirds of U.S. taxpayers who are unusually lightly taxed, not the top third. But there isn’t much juice in running against the interests of the middle class, which is why Mitt Romney has embraced President Obama’s magical $200,000 mark as the AGI above which many tax cuts will not apply.

Those who complain that there’s not a dime’s worth of difference between the parties are mistaken — there are a great many dimes’ worth of difference between Paul Ryan’s vision and Barack Obama’s — but the day-to-day reality suggests that there is a bipartisan modus vivendi in Congress, and it is killing us.

It is particularly galling that Ornstein and Mann cite the passage of No Child Left Behind as a worthy example of Democrats behaving in a bipartisan fashion. NCLB is not an especially good piece of legislation; bad legislation that has bipartisan support still is bad legislation. (Those of us who are skeptical of the wonders of bipartisanship might be forgiven for applying the hairy eyeball to anything that had the backing of both George W. Bush and Teddy Kennedy. I would not trust a Bush-Kennedy accord on pizza toppings.) Sometimes good ideas have bipartisan support, and sometimes bad ones do. We’ve seen more of the latter than the former in recent years, and Republican accommodation of Democratic priorities on entitlements, domestic spending, and tax-code shenanigans would have left the country worse off, not better off. By all means, the Republicans should embrace good ideas when Democrats offer them. You know who else should support good ideas offered by Democrats? Democrats. But as Erskine Bowles and Alice Rivlin know, when it comes to the budget the best and most responsible Democrat-backed initiatives are dead on arrival in Nancy Pelosi’s caucus.

Ann Romney, after a boorish attack from Democratic operative Hilary Rosen — who sneered that she “has actually never worked a day in her life” — responded in traditional family-first terms. Which is fine, but I wish she had responded in plain economic terms.

The Romneys are unusual in that they have five children and in that they are very wealthy. But like families with fewer children and less money, Mitt and Ann Romney as parents faced essentially two kinds of scarcity in their household: scarcity of economic resources and scarcity of parental time. (It is worth remembering that the word “economy” comes from the Greek word for household.) The Romneys solved that problem with a classic application of gains from trade and comparative advantage.

Mrs. Romney is by all accounts a very bright and ambitious woman, but there is not much in her educational background (Harvard B.A. from the extension program) or subsequent biography that suggests she was going to be well suited to a career like her husband’s. But let us assume, for the sake of argument, that she could have, had she so chosen, become a senior-level executive at a medium-to-large business enterprise — not CEO of ExxonMobil, but not making minimum wage, either. The typical salary range for chief financial officers at U.S. corporations runs from $61,786 to $265,882, according to Payscale.com, depending upon the size and complexity of the business and the particular industry. Let’s assume that Mrs. Romney would have earned top dollar, $265,882. Would it have been a good idea for her to go to work?

According to one estimate from a hostile party, Mr. Romney earned about $6,400 an hour at Bain Capital. The Romneys’ personal net worth is somewhere between $190 million and $250 million, but that understates things a bit: The Romneys set up a trust for their grandchildren worth an additional $100 million or so.

Assuming a 2,000-hour work year, Mrs. Romney as a higher-end CFO would have earned about $132.94 an hour, or about 2 percent of her husband’s hourly wage. A 40-year career at $265,882 would have given Mrs. Romney lifetime earnings equal to about 3.5 percent of the family’s net worth.

The Romneys, who are notably charitable people, have given away far more money than Mrs. Romney probably would have earned in a career that would be considered by most of us wildly successful and highly paid.

Conclusion: Ann Romney is economically a hell of a lot smarter than Hilary Rosen.

The marginal value of the wages earned in a typical C-level career would have been almost nothing to the Romneys. But there is that other scarce resource: parental time.

It is difficult to put a dollar value on parental time, but it is clear that to the Romneys one hour of Mrs. Romney’s time at home with the family was worth far more than one hour in C-level wages; further, a 2,000-hour annual block of time invested in earning C-level wages would have fundamentally changed the character of the Romney household for the worse, while providing negligible economic benefit. Instead, she provided the family with a critical good that Mr. Romney, for all his riches, could not acquire without her cooperation. If we think of the household as a household, Ann Romney’s decision to stay at home makes perfect economic sense: Her decision to be a full-time mother enormously improved the quality of life for Mr. Romney, for the couple’s five sons, and — let’s not overlook this critical factor — for Mrs. Romney herself.

Mrs. Romney’s personal investment model — marry a man who turns out to be wildly successful in business and politics, escape the tedium of what is sometimes described romantically as “a career,” have five children and the pleasure of raising them — is not open to everybody, of course: The supply of future centimillionaires is limited, and they are not easy to identify. But making intelligent decisions about forming a household and about the division of labor within that household is an option open to many of us, though unhappily not to all of us, given the state of the family.

Ms. Rosen’s remarks were criticized as being snide; the real problem is that they were stupid.

The Obama administration has done something I would call odd, if odd weren’t the norm in this White House. The administration is worried about global warming. It also is worried about the American economy, particularly manufacturing, and international competition, particularly from China. The administration’s response, as you might expect, has been to enact new regulations that will increase greenhouse-gas emissions worldwide, cripple one U.S. industry and increase costs for practically all others, discourage domestic manufacturing, and subsidize manufacturing abroad, particularly in China. It takes a kind of perverted genius to do that much wrong in one move, as though the Marquis de Sade had been reincarnated as an economist advising the president.

I refer, of course, to new EPA regulations that will in effect ban the construction of new coal-fired power plants in the United States. And that is not all it will do: Power-plant operators have already said that they will be forced to shut down some 300 facilities producing a total of 42 gigawatts, or nearly 4 percent of the nation’s total generating capacity.

There are many laws that are not amendable by EPA fiat or by acts of Congress. Among them are the laws of China and the law of supply and demand. This inconvenient fact makes the administration’s move particularly bone-headed.

What happens is this: With new coal-fired plants off the table, future U.S. demand for coal is reduced. Lowered demand reduces the price. Demand for coal is still very strong in the rest of the world; India and China in particular are full of people who will want to consume more energy and energy-intensive goods as they continue to lift themselves out of poverty, and lower coal prices will encourage and enable them to do so. Energy-intensive industries, such as heavy manufacturing, also will benefit from cheaper coal, unless those businesses have the misfortune of being located in the United States, where they will be denied that benefit.

Reducing U.S. consumption of coal will not reduce world consumption of coal; it will shift consumption from the United States to other countries — including countries with electricity-generation infrastructure that is relatively old and unsophisticated compared to that of the United States. Coal will be redirected from relatively clean U.S. plants to relatively dirty Asian plants.

By way of illustration, here is a Chinese coal ship, demonstrating China’s famous environmental sensitivity by tearing a two-mile hole in the Great Barrier Reef and dumping fuel oil in it:

China, to be fair, is building a lot of greener, high-tech coal-fired plants. It’s also building a lot of old-fashioned ones. And the plants equipped with the green tech do not always use it, because it is expensive and cumbrous to do so.

If you are worried about global warming — and let’s just grant the entirety of the anthropogenic thesis for the sake of argument here — then what you have to worry about is not emissions from the United States but emissions from the globe, global warming being a notoriously global phenomenon.

Coal at its very best is environmentally problematic, to be sure. There are no pretty coal mines. But burning coal, like fracking for gas, presents environmental problems that are manageable, unless your idea of management is imposing arbitrary and counterproductive rules that achieve the opposite of everything you had hoped to achieve, in which case you might want to think about a career in politics.

The United States may be the first country in history to colonize itself, reducing the world’s most advanced and complex economy to a raw-materials supplier for sophisticated manufacturing economies abroad. Worse, we may not even be able to do that: One of the few U.S. firms that stand to benefit from increased Chinese coal consumption, SSA Marine, is having a terrible time trying to build a new West Coast coal terminal, called Gateway Pacific, to enable it to better serve our competitors abroad. Everybody from the EPA to the Whatcom County (really) municipal government is standing in the way of the project, and the main impetus behind the opposition is not local environmental concerns but ideological opposition to the world’s use of coal, period. Given the rarity of hearing something coherent from somebody affiliated with the Chamber of Commerce, it’s worth hearing at length from the chamber’s man in Whatcom:

These opponents wish to end the world’s use of coal and they intend to make a point by derailing the Gateway Pacific Terminal.

Stopping the terminal will not stop China from using coal; the world has plenty. It will only stop China from using our cleaner coal, which has less mercury, sulfur, and nitrogen oxides. Opponents say the coal China uses affects our air quality. So if they use our coal, our air will actually be cleaner.

Stopping this terminal will not even stop U.S. coal exports. The U.S. has at least 10 coal-export terminals and will export more. British Columbia has three coal-export terminals, and all are capable of expansion. If opponents succeed in stopping Gateway Pacific, the coal trains will continue to run right past us up to Canada, which will get the jobs and tax revenue.

Frankly, what we should be concentrating on is taking care of our local environment. The project is starting an exhaustive environmental review under the oversight of federal, state and local agencies. Let’s allow these agencies — and SSA Marine — to do their jobs instead of arbitrarily opposing something without all the facts.

As with opposition to fracking, most of the opposition to Gateway Pacific is really about opposition to the use of the commodity per se. It may be that the Obama administration is cowed by the malignant antihumanistic environmentalists who play an outsized role in Democratic affairs, particularly in campaign financing. It may be that the administration really believes its risible rhetoric about the so-called green-energy economy that’s always right around the corner (waiting for a federal handout). But a policy cannot be judged by the intentions of the men behind it; it must be judged by its actual results, which in this case means subsidizing dirty Chinese coal at the expense of the U.S. economy.

David Sirota writes:

In the apartment building the Times profiles, domiciles go for $7 million a year, including a 300-square-foot “en suite sky garage” that “would be valued at more than $800,000 if priced at the same rate per square foot as the rest of the apartment.” No doubt, the view from the garage is so good, the car’s owner can see the vast swaths of the city’s outer boroughs — the places where people are lucky to make $800,000 in their entire lifetimes.

This sounded fishy to me. It is: The apartments are for sale, not for rent, and the apartment in question is on sale for $7 million; it does not rent for $7 million a year.

Easy enough mistake to make (and Sirota corrected it after I pointed it out). But what about this? “No doubt, the view from the garage is so good, the car’s owner can see the vast swaths of the city’s outer boroughs — the places where people are lucky to make $800,000 in their entire lifetimes.”

The poorest borough in New York City is the Bronx, where the median household income is $34,264 a year, or $1.37 million over a 40-year working life. Given that they would have to be making a good deal less than the median Bronx income, you’d have to be unlucky to make only $800,000 in your lifetime. (About 44 percent of people living in the Bronx are either under 18 or over 65, so I’m using household income rather than per capita income.)

I lived in the South Bronx for a few years, and it is indeed poor. (My congressional district was the poorest in the United States.) But people in the Bronx would not be any wealthier if rock stars and movie stars (I’m told Mick Jagger and Nicole Kidman live in the building in question) had to park their Rolls-Royces  on the ground level. The two things are not related.

UPDATE:

Even if you take the less representative measure of per capita money income, New Yorkers outside of Manhattan would have an average 40-year income of $975,760, meaning that an income of $800,000 would make them unlucky, not lucky.

UPDATE 2: 

Sirota writes that even at $7 million once rather than $7 million per annum, the apartment is still [expletive deleted] “nauseating.” But why?

The apartment in question is selling for five times the median in Manhattan. Sirota lives in Denver. Here is an apartment selling for five times the Denver median. Two bed, two bath — nauseating? And it doesn’t even have a Ferrari elevator! If anything, Mick Jagger et al. seem to be getting a relatively good deal. New 1 percent motto: Better with money than you are.

Pennsylvania’s capital city cannot pay its bills:

(Reuters) – Pennsylvania’s distressed capital city, Harrisburg, will skip $5.3 million of debt payments due next week, the first time the city has defaulted on its general obligation bonds, to ensure there is enough cash to fund vital services.

Pennsylvania’s capital of 50,000 people is mired in $326 million of debt due to the expensive retrofits and repairs of its troubled trash incinerator.

There is something poetic about a trash incinerator bringing down Harrisburg. If only they’d put more spending measures into it.

And in Rhode Island, the pension tsunami is rolling ashore:

The smallest city in the nation’s smallest state — Central Falls, Rhode Island — is bankrupt. The main reason is it can’t afford the pensions for its retired city workers. How the city is digging out of its financial hole may have consequences for city pensions in other cash-strapped towns across the country.

For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them. Central Falls was broke, its pension fund short $46 million. It declared bankruptcy.

I wonder how many states and municipalities will be insolvent on Election Day, 2012. Guesses?

Who has the power in Washington? Who won the payroll-tax battle? Not Republicans, not Democrats — government employees.

The new deal on the payroll-tax extension (which will do little or nothing to benefit the economy) was held up by a largely unrelated matter: requiring federal workers to contribute more toward the costs of their own pensions. (More, Congress? How does 100 percent strike you?) The original proposal would have required all federal workers to bear more of the costs of their own retirements, but Democrats representing Maryland, that tony little suburb of Leviathan, shrieked. The compromise instead will cover only new hires.

I’m still tickled that the Obama administration’s great political victory here is getting Republicans to agree to a stupid tax cut with no offsets — stupid tax cuts with no offsets being a Republican specialty — but the outcome is grim: The combination of stupid spending and stupid tax cuts is a potent one, and it may be an indicator of worse things to come. If we should revert to the Bush-Hastert-Pelosi model, in which Republicans and Democrats simply swap tax cuts and spending increases between themselves to keep the machinery moving, the consequences for our national debt will be, in a word, terrifying.

But as the ship takes on water, you can bet that federal workers will continue to loot the fisc until the last rapidly depreciating U.S. dollar has been spoken for.

In Lyndon Johnson and the American Dream, Doris Kearns Goodwin (just Doris Kearns in NR’s copy of the book — we’re old-school) has one interesting observation about LBJ: He never got out of the legislative mind-set, and his measure of success when crafting his hallmark programs, from Medicare to the Civil Rights Act of 1964, was simply getting the bill passed. Never mind the contents of the program: Just get something signed into law. Tragically for LBJ, he didn’t have a Nancy Pelosi around to tell us that we had to pass Medicare so we could find out what’s in it.

I get the same feeling for President Obama’s new mortgage settlement: Never mind what it does, or whether it does any good, just get everybody’s signature on the deal.

Here’s what it does not do: It isn’t going to prevent a lot of foreclosures (and may in fact cause some), it isn’t going to assuage the terror in the mortgage markets, and it probably isn’t going to clean up the system that caused some number of homeowners to be foreclosed on without proper documentation.

Like the fiasco that was HAMP, this settlement will encourage homeowners to become delinquent on their loans: There’s $10 billion set aside for principal writedowns for delinquent homeowners, but paid-up borrowers only get $3 billion to encourage the refinancing of underwater mortgages. U.S. homeowners are upside-down to the tune of more than $750 billion, with more than a fifth of homeowners underwater. So, even if you think that the federal government ought to be in the business of trying to micromanage mortgage refis, this is four-tenths of 1 percent, assuming maximum utilization.

Also, those writedowns are going to cover (probably exclusively) mortgages that have been securitized. Guess who owns those? Fannie and Freddie have a pot of them, as well as pension funds, particularly large, government pension funds. So the banks are going to be taking a writedown: The taxpayers are going to be taking a writedown. (Though the markets probably have already discounted those securities by this point, so that point may be moot.)

And one of the biggest problems — the mortgage documentation system — goes largely unaddressed. Basically, the new rules say to fast-and-loose mortgage servicers: “Don’t do that again, and pay $1,500 to $2,000 to everybody you foreclosed on without proper documentation.” Given the complexity of assembling proper documentation and the legal costs involved, $2,000 per offense is a great bargain for the wrongdoers, practically an invitation to keep doing exactly the same thing. Everybody gets worked up about robo-signing, but robo-signing is not the root of the problem, only a symptom of it: The root of the problem is that the underlying system for keeping track of mortgage ownership in an age of securitization and mass default is entirely inadequate to the task. So far as I can tell, the new servicer rules basically say, “Document stuff the right way next time,” but don’t do much to spell out what that looks like and creates incentives not to comply. If the price of fraud is lower than the benefit to be derived from the fraud, then what is the disincentive to fraud?

None of this will stop President Obama from doing a little preening and bragging that he got the banks to cut homeowners a break, even though this deal costs the banks basically nothing and does basically nothing for homeowners.

I am not super-enthusiastic about most kinds of financial regulation, but the basic rule of law requires that you be able to legally document your right to foreclose on a house before you foreclose on it, and the current system does not provide that easily. We’d have been better off taking $27 billion to Google and asking them to design a proper document-management system.