Thursday, May 31, 2012

What About the Court?

Yesterday I argued that it made much more sense to base one’s vote for president on the economy rather than on social issues. But there is one key rationale for voting on social issues that I didn’t address.

As I mentioned, the president really doesn’t have that much direct influence over questions like abortion, gun control and same sex marriage—except for the not inconsiderable power of the bully pulpit and the ability to influence people from a position of leadership. As I further argued, in these matters, however, presidents tend to follow popular sentiment instead of taking the political risk of trying to change it.

But the president does have one key responsibility that is potentially very powerful in deciding these issues. Activists using these social issues will emphasize that whoever is president will appoint a lot of federal judges and, most significantly, is quite likely to be filling vacancies on the Supreme Court. This is often the most powerful motivator for someone who, say, cares very strongly about the abortion question, to vote one way or the other for president. The next president could potentially change (or solidify) the makeup of the court that is the final arbiter on some of these questions.

Does that mean that, if one of these social issues is extremely important to you, you should vote on that basis rather than the economy? I would argue not. For one thing, no matter which side you are on, the battle will only be harder if the economy tanks. For another, in the long run popular opinion matters much more than individual court decisions. In the past half-century, how many Supreme Court decisions have really been game changers for controversial social issues? Can we think of one during that specific time span other than Roe v. Wade back in 1973? That ruling is really the exception that proves the rule. Generally, the Court is very careful not to get too far ahead of public opinion.

Sure, there have been plenty of decisions that one side or the other really doesn’t like, but I would argue that these are generally decided on legitimate constitutional grounds rather than partisan voting of the Justices. If there seems to be a lot of 5-4 decisions, it has more to do with judicial philosophy than politics. The one case, of course, that is often cited when worrying about the makeup of the Supreme Court is Bush v. Gore in 2000. But realistically, how often will the Court be called on to settle presidential elections? And while journalists and detractors like to refer to it as a 5-4 decision, that split was only on whether Florida law allowed a new statewide recount after December 12. The key decision in the case was to reject Al Gore’s request for a partial cherry-picked recount and that argument was rejected by an overwhelming 7-2 vote.

Also, if the hope or fear of a new Roe v. Wade type ruling is your motivation for voting for one presidential candidate or another, consider this. Quite a few people argue that that landmark ruling was actually something of a setback in the cause of abortion rights. Because that ruling was made by a panel of justices not elected directly by voters and effectively overruled the authority of state legislatures and the Congress to decide the issue, it fired up people who saw abortion as immoral. The battle over the issue has continued for nearly four decades since and shows no signs of abating. Compare that to what happened in Britain. Public opinion, pro and con, in that country roughly broke down similar to the U.S. Abortion was legalized by Parliament in 1967, reflecting that a (slight) majority of citizens favored its legalization. And while there are certainly abortion opponents in the UK to this day, it has not been nearly the divisive issue there that it has been in the States because the question was settled democratically and not by judicial fiat.

This may not be an argument that convinces many people, but I still contend that things will turn out better for everyone if, in the presidential election, voters focus on the economy and work on social issues closer to home.

Wednesday, May 30, 2012

Fooled Again?

When I was a university student in the early 1970s, some songs were ubiquitous. Led Zeppelin’s “Stairway to Heaven” comes to mind. Cat Stevens’s “Wild World” is another.

One song that really seemed to be an anthem, as it blared out of everyone’s dorm room was The Who’s “Won’t Get Fooled Again.” The song captured the excitement of revolution and protest which saturated the air in those days. Those of us coming of age understood it to be about our generation and our determination not to be taken in by politicians like Richard Nixon. “Change it had to come / We knew it all along,” sang Roger Daltrey. But if you listened carefully, the lyrics were actually quite cynical and, in fact, mocking of those of us listening to it and getting excited by it.

“But the world looks just the same / And history ain’t changed / ’Cause the banners, they all flown in the last war,” continued Pete Townshend’s words. Later the words address the listener directly: “I’ll get all my papers and smile at the sky / For I know that the hypnotized never lie / Do ya?” Finally, it concludes, “Meet the new boss / Same as the old boss.”

You might think you are breaking free of hide-bound tradition, Townsend seems to be telling us, but so did your parents and at best, in the end, you are merely ushering in a new orthodoxy that isn’t really better, just different. And maybe it’s not even that different.

A couple of trivia notes: The song was the last one performed by the original members of The Who (before drummer Keith Moon’s untimely death). Interestingly, Townshend declined to give filmmaker Michael Moore permission to use it over the closing credits of his documentary Fahrenheit 9/11.

To me, the song evokes feelings of being played for a fool by politicians at the national level. Sometimes this takes the form of distracting voters from the most important issues by focusing on issues that aren’t going to be settled at the national level but which get lots of people, on both sides, emotionally involved and excited.

These issues, which are commonly referred to as “hot button” issues, include ones like abortion, gun control and gay marriage. These are ideal for rallying the parties’ respective bases because people on both sides feel so passionately. People who think abortion is murder don’t think of it as a side issue, just as people who think same sex marriage is a civil right don’t see that as a minor issue. But the reality is that these issues tend to get settled from the bottom up. The politicians follow the voters rather than the other way around. An opinion poll on voters’ views on these issues in a particular district or state will reliably predict the stands the political representatives take. A perfect example of this is the president. When he ran for office in liberal Hyde Park in Chicago, he went on record supporting same sex marriage. When he ran for the U.S. Senate from Illinois, he went on record as against it. Now, as president and with the country close to half in favor of same sex marriage, he is in favor of it again.

As popular opinion evolves, so do the political parties’ de facto positions. Democrats made significant gains in 2006 and 2008, in part, by running candidates who supported gun rights in Republican-leaning jurisdictions. So it’s probably not a coincidence that, nationally, there has been more focus on “stand your ground” laws, as highlighted by the Trayvon Martin case, than on gun ownership restrictions. The abortion issue has also had an interesting evolution. While only a quarter of the population supports banning abortion under all circumstances, the percentage opposed to abortion in general has grown and is north of 50 percent. Again, Democrats have adjusted their position accordingly. They have pushed the national dialog to contraception rights (actually, contraception subsidies).

Similarly, you can see opposition to gay marriage (civil unions are nearly not even an issue any more) weakening in both parties (clearly, faster among Democrats than Republicans) as attitudes change in general society. But the passions on both sides tend to obscure the fact that polling shows that most people don’t actually consider this to be among the country’s most urgent issues.

The point of all this is that, if you feel strongly about any of these social issues, you are better off lobbying your friends and neighbors than politicians. And, if you do want to get politically involved, you are better off working at the local and state level. People who, in presidential elections, decide to be single-issue voters are missing the boat. The economy has been bad for four years now, but it stands to become a lot worse without strong positive leadership. Any other issue you may care about will not seem nearly so important if that happens.

I remember asking a friend, whose opinion I very much respected, at the end of the Clinton administration what she considered Clinton’s most important accomplishments. Strangely, she couldn’t think of any particular one and ended up saying simply that she liked having a president who shared her values. (She should have cited the strong economy, but I guess that was just taken for granted in those days.) It is natural to want our leaders to think and feel as we do. But the fact is that, if we elect somebody who is not equipped or willing to deal with the economy simply because we like his positions on other issues that we personally find important (but on which he really isn’t going to make much difference beyond moral support), then those other issues are probably only going to get exacerbated by a failing economy.

Voting solely on hot button social issues is one trap, but another is assuming that, if we feel strongly that a candidate is right when it comes to an issue we feel passionately about, then he must be very smart and must therefore be right on all other issues as well. That makes no logical sense. The better candidate may not be the one that personally appeals to you the most. Sometimes the person you wouldn’t want to spend a lot of time with is the best one for the job. That’s not a great campaign slogan, but it is true.

Candidates pay consultants big bucks to suss out which demographic groups they can manipulate with which side issues, and the reason they pay big bucks is that it works. And, as long as it works, the old Who song will continue to be true: we’ll just keep getting fooled again.

Thursday, May 24, 2012

Mi Vida Chilena (VI)

One of the lasting effects of my year in Pinochet-era Chile was to foster deep-rooted fear, repulsion and resentment of bureaucrats, functionaries and minor government employees with temporary but significant control over my life.

I understand that there are public employees everywhere who work hard, do a good job under difficult conditions and who perform valuable services. But we have all had the experience, at one time or another, where we start to feel like a character in a story by Franz Kafka.

My first introduction to the truly intractable bureaucrat was in France, where a government job is actually quite prestigious and is respected and admired by most French people. But just do a Google search for “French bureaucracy” and you will get all kinds of horror stories from foreign residents. The main memory this topic brings to my mind is not the most egregious example, but it is the most enduring one. It is a memory of standing for a half-hour in a post office queue only to have the employee I was waiting to see shut the window with no warning and put up a “Closed for Lunch” sign—leaving me and others the choice of waiting for an hour until he came back or going to the end of another snaking queue. Call me spoiled, but I was used to post offices where there was a single queue for all the windows rather than forcing customers to play roulette with their personal time.

I also have my stories about dealing with functionaries in Chile. My landlady had a regular explanation for any complaint I brought her about an experience at a bureaucrat’s hands. “She must have been a Christian Democrat,” she would say. It was a popular theory that the government was full of Christian Democrat appointees who were resentful because the military had taken over the government directly after the September 11 coup instead of turning it over to the centrist Christian Democratic Party (PDC), as some had expected them do. The PDC had a successful presidency until 1970, but its popular leader was prevented from another term by term limits. In the end, the party wound up putting Salvador Allende in power by supporting the Popular Unity instead of the Conservatives to settle a three-way race.

Most of my own bureaucratic nightmares, not surprisingly, had to do with immigration matters. During a break in the middle of the school year, I decided that I wanted to visit Chile’s north and Bolivia. Admittedly, I was naive because of how easy it had always been for me to cross borders in North America and Western Europe. After a few great days in the Atacama Desert and seeing the world’s largest open pit copper mine at Chuquicamata, I arrived at the Bolivian border and was told that, if I entered Bolivia, I would not be able to come back into Chile because I did not have a re-entry visa in my passport. I immediately did the paperwork to get one, but by the time I finally got it (it took several days) I had run out of time. I headed back south disappointed, but I blamed no one but myself.

After the end of the school year in January, I planned to visit Chile’s Lake District and the Argentine city San Carlos de Bariloche. I was determined not to make the same mistake as before. Well in advance I visited the appropriate government office to get a re-entry visa. “But you already have one,” said the gentleman, eying the one I had obtained but never used to go to Bolivia. That re-entry visa was a few months old. Could it still be used? Yes, he said. Was he sure? Yes, he said. So off I went. I was a bit uneasy but decided I was just being paranoid.

I had a great time traveling through some of the most beautiful landscapes in the world by bus and by boat and by bus again to the summit of the Andes. There was one nervous moment at the Argentine border. I had a weekly newsmagazine with me and the cover featured a provocative illustration about three small disputed islands in the Beagle Canal of Tierra del Fuego over which at that moment Chile and Argentina were actually close to going to war over. I thought it prudent to bury that magazine deep in my duffel bag. But the Argentine border guard seemed to have x-ray vision. He opened the bag, immediately reached down below my clothes and pulled it straight out. I did not get it back.

San Carlos de Bariloche was a beautiful place that felt a bit like Switzerland. While there, I had what was probably the best steak I ever ate in my life. The reputation of Argentine beef was well deserved.

When the time came to cross the border back into Chile, I found that my paranoia hadn’t been that unreasonable after all. The Chilean border guard looked at the re-entry visa in my passport. “This is several months old,” he said. “This isn’t valid.”

I insisted that I had been told by an official in Concepción that the date on the re-entry visa didn’t matter and that it was still valid. The border guard insisted otherwise. Fortunately, after nearly a year in South America, my Spanish was quite good and I could keep up an argument. Also, I had learned during my year in France that sometimes a well-played temper tantrum could break an impasse like this. It has never been my nature to shout or show great anger, but sometimes Latin people just wouldn’t take me seriously if I didn’t. In the end, he shrugged his shoulders and let me pass. But, significantly, he refused to stamp my passport.

At this point, I felt that I was home free. I had only a few weeks until I would get on a plane and fly back to the States and all the headaches about travel documents would be a thing of the past.

To get on that plane, however, I needed to get an exit visa from the Chilean government. That involved various visits to different offices and many forms, certifying that I owed the Chilean government no taxes and that there was no warrant for my arrest, etc. The most nerve-wracking visit was to the Central Nacional de Informaciones (CNI), a government intelligence branch with police powers. Notorious under its previous name, the acronym DINA, it was associated with disappearances, torture and, most spectacularly, the assassination of exiled Socialist politician Orlando Letelier in a car bombing in Washington D.C. in 1976.

There was nothing particularly sinister about my CNI interview, but my heart sank as my interviewer flipped through my passport. He looked up at me and said solemnly, “You are not in this country legally.”

Given that I had a student visa that was good for a full year and had kept my nose clean and owed no taxes and I was merely heading back to my own country, I hadn’t expected any problems. But the gentleman had quickly focused on the fact that the stamps in my passport showed that I had left Chile for Argentina and there was no stamp showing that I had crossed the border back in. I told him the story of the re-entry visa and the mixed advice I had been given by government officials. He was having none of it.

I had to come back for a second interview. In between I told my girlfriend the story, venting about how unreasonable the CNI man was being. She laughed and suggested that I just wasn’t explaining it right to the gentleman. She offered to go back with me and “interpret.” I was nearly pleased when she got no further with him than I did and she came away shaking her head over it the way I had. Somehow, in the end, we managed to convince him that there was little point in refusing to approve my exit visa because it would only result in me being forced to overstay my student visa and making me a prisoner of his country for no particular reason. In the end I got my exit visa.

It was an emotional parting to leave Chile and all the friends I had made during the year. Ahead lay a week in Peru, a visit to Machu Picchu, meeting a young man who would become one of my closest friends ever and, finally, home.

Tuesday, May 22, 2012

An Economy Driven by Distraction

“Orwellian” is an overused word. That is probably because politicians, partisans and pundits continue unabated to take perfectly good words with positive connotations and twist them to mean something else, to suit their own purposes.

In the wake of the recent French and Greek elections and the G8 summit in Chicago, we are hearing even more refrains of “austerity doesn’t work” and “Europe needs growth instead of austerity.” Everyone is in favor of growth, so that is a non-issue. But when politicians like Greece’s Alexis Tsipras, France’s François Hollande and the U.S.’s Barack Obama refer to “growth” policies they are talking about more borrowing and spending—in other words more of the same policies that have to date resulted in precious little growth. And, in most European countries to date, the austerity they are criticizing has largely taken the form of higher taxes and fees—which those same politicians generally favor. It does your head in.

Another way that politicians weasel around hard economic issues is to appeal to people’s feelings rather than using hard numbers. To undermine an opponent or bolster their own support, it is depressingly easy to distract a lot of voters with issues that have emotional resonance but are not particularly key.

A good example of this is all the coverage that bubbled up with the Occupy Wall Street protests—and still appears regularly in certain media—about “income inequality.” Apparently, a lot of people’s sense of fairness dictates that all people’s income should somehow be kept within some kind of range. Economists and commentators on TV and radio can be heard citing income inequality as a serious problem that needs to be addressed.

The attraction in making this an issue is that, if we accept that a wide gap in income levels (as opposed to the overall standard of living) as a problem that needs solving, there is only one logical solution—higher taxes on the wealthy—and that suits politicians right down to the ground. As I have said before, there is nothing particularly wrong with raising taxes on the rich, but in the grand scheme of things it doesn’t actually bring in that much extra money and it certainly doesn’t make the poor any less poor. A government could raise a lot more money by increasing taxes on the middle class because, collectively, there is much more income earned by that group, even though each individual earns much less than someone in the wealthy category. There just aren’t enough people in the one percent and there are too many people in the ninety-nine percent.

But would any of the protestors at any of the various Occupy sites actually care about income inequality if they had jobs and/or were having no problems paying their mortgages or other debts? Some surely would, but most of those in the crowds probably wouldn’t. But maybe your response to that is that the reason people don’t have jobs and cannot pay their mortgages and other debts is because of income inequality. But does anybody really seriously believe that, if you could somehow lower the income of the wealthy, that everyone else’s would go up? Or maybe that’s not the point. Maybe people just want to see the wealthy that little bit less well off simply because it would make them feel better or would feel fairer.

One of the best explanations I have seen of why the income inequality obsession really makes no logical sense was in a column by Holman Jenkins Jr. that appeared last month in The Wall Street Journal (subscription required). As Jenkins points out, there is little logical sense in focusing on the condition of a tiny minority (the super-rich) rather than on improving the conditions of the vast majority.

“If it were learned that the car driven by the average American is 10 times more likely to burst into flames than the car driven by the richest 1%,” he asks, “what should the policy response be? Should it be to mandate that cars driven by the rich burst into flames more often?”

He goes on to highlight the silliness even more by pointing out that the inevitable result of efforts dealing with income inequality is to cause the rich simply to report less income. He quotes CNBC’s John Carney as reasoning that, as an example, the fabulously wealthy Mark Zuckerberg could, if he so chose, avoid all tax by not investing his considerable assets and instead meet his living expenses by borrowing against them. According to Carney, the Facebook founder might even be able to quality for the Earned Income Credit by doing that.

You might not like the rich and you may resent their lifestyle, but you can only raise taxes so much on them before they stop investing, and that’s bad for everybody. (Well, not really bad for the rich because, after all, they are still rich.) In extreme cases, you might see them fleeing the country altogether. I don’t think that’s a huge problem, but it’s not unheard of. Speaking of Facebook founders, it has been in the news lately that Eduardo Saverin renounced his U.S. citizenship to avoid significant capital gains liability as a result of the Facebook IPO. Born in Brazil, Saverin was a naturalized U.S. citizen and since 2009 has been living in Singapore. This action will not have gotten him off entirely scot free by a long shot (the IRS levies an exit tax in these situations), but his accountants have obviously calculated that over the long haul he will still save a bundle on his estimated $2 billion stake in Facebook. Take that, Buffett rule!

Fortunately, we have economic geniuses like U.S. senators Chuck Schumer and Bob Casey who have a solution to this situation: pass a law (cleverly called the Ex-Patriot Act) that would extract a new 30 percent capital gains tax on people in Saverin’s situation (even though they are no longer U.S. citizens or residents) and bar them from ever re-entering the U.S. It’s not clear whether this law would even be constitutional or enforceable. But the senators are clearly not concerned about that.

The entire point of the exercise, after all, is to make people feel better. After all, it is much easier for politicians to talk about the likes of Eduardo Saverin and his billions than to have to answer questions about why the masses of people who haven’t abandoned the United States continue to live with such a bad economy.

Monday, May 21, 2012

Mi Vida Chilena (V)

In hindsight, I am sure that I was never in any personal danger during my year in Chile. As I’ve already written, in many ways I felt absurdly safe because of the military clamp-down enforcing law and order. And I scrupulously followed the requirement I had agreed to with the Rotary Foundation not to discuss or get involved with anything political.

While I was quite happy to listen to other people’s political views when they wanted to share them, I avoided expressing any opinion on Chilean politics myself. Maybe I had taken a risk by becoming friends with a Communist and visiting her family’s home, but I figured I surely couldn’t have been in any more danger than my friend and her parents, and the military were leaving them alone. (Her brother, who had continued to engage in some level of political activity after the coup, was a very different story.)

Soon after my arrival in Concepción, I was a guest at a meeting of my host Rotary Club. Typical of Chileans, its members all greeted me warmly and cordially and had endless amounts of chat. One man in particular, though, was very quiet and serious. He wore a uniform, and we had no conversation. But at one particular moment he slipped me his card. It indicated that he was an officer in the carabineros, the paramilitary national police force. He indicated, rather seriously, that, if at any point I needed help, I should call him. I guarded that little paper rectangle like a precious jewel. I never went out without it. I considered it my get-out-of-jail-free card, my ace in the hole. If things should ever go wrong for some reason, I figured that man’s card would be an extremely handy thing to be able to produce. Fortunately, I never had an occasion to. To this day, I still have the card.

In a completely unexpected way, my proscription against political involvement became untenable toward the end of the year. Elections had been suspended after the military coup, but in late 1977 President Pinochet called a plebiscite, or consulta, to be held on January 4, 1978. This was prompted by unrelenting international criticism of the regime, including formal condemnation by the United Nations General Assembly for not respecting human rights. Pinochet announced the consulta with an angry television address. The nation would vote yes or no (i.e. expressing agreement or disagreement) with a single sentence that was actually two statements joined by the conjunction “and.” The first statement was, “Faced with international aggression unleashed against our country I support President Pinochet in his defense of the Chile’s dignity.” The text continued, “and I reaffirm the legitimacy of the government of the Republic to sovereignly lead the country’s institutional process.”

In other words, Pinochet had stacked the deck. Very few Chileans would be willing to vote no on the first statement, which was essentially equivalent to “I love my country.” But a vote in favor of part one was necessarily a vote for part two, which was in favor of keeping Pinochet in power. This conflation bothered some people, but not others. In the house where I was living, I saw a generational split. My landlord’s son, who was close to my own age, was bothered by the unfairness of requiring people to vote yes or no on the two questions together, when they might agree with one but not the other. “Fortunately, that presents no conflict for me,” replied his father with finality. In his mind, there was no reason not to see the two questions as one.

The consulta presented a particular problem for me. During the coup, the electoral rolls, for whatever reason, had been destroyed. A new system had to be devised to regulate the voting. The solution was to have voters present their national identity cards upon which a stamp would be affixed. The stamp would prevent anyone from voting more than once. And any identity card that did not have a stamp would be considered invalid. In other words, everyone with an identity card was required to vote.

I myself carried an identity card, a requirement for residing and studying in the country for a year. Surely, as a non-national, I wouldn’t be required to vote. But the journalists on television repeated several times that, unlike traditional elections, the polls would be open to “extranjeros y analfabetos” (foreigners and illiterates). My polola (girlfiend) was endlessly amused (at my expense) by the fact that they kept using the two words together, as if to imply that they were one and the same. But this way of conducting the vote had a perverse result. Since there was no absentee voting, Chilean citizens outside the country (the ones most likely to vote no) could not vote, but a non-Chilean like myself was actually required to vote by virtue of temporarily residing in the country. I had so much trouble believing this that I went so far as visiting local government offices to verify if I was really required to vote. I was told I was.

While the vote was guaranteed to get a high, if not nearly unanimous, yes vote, I personally had no particular reason to affirm my support for the government’s position or for the government itself. But the idea of voting gave me pause. Rumors were circulating that the government would have a way of telling how an individual voted and that there could be retaliation against those voting no.

On the day of the vote, I went to the polls, as required. It was very different than polling places I had frequented in California. For one thing, there was the conspicuous presence of men in uniform with rifles at the ready. When I presented my identity card, the poll worker looked at it suspiciously, eying my surname. “Are you Swedish?” he asked in a tone that was mildly accusatory. The Swedish government had been one of Pinochet’s most vocal critics. “No,” I replied, “I’m from the United States.” Presumably thinking of then-President Jimmy Carter, his face suggested that this was only marginally better. I received my ballot and went into the booth. The poll worker stood just outside the curtain. “Señor Larson,” he called a couple of times, “do you need any help reading the ballot?” I kept declining until I had made my X. People’s concerns about how secret the ballot would be were not completely unfounded. The ballot was not produced by a printing press but was mimeographed. And the paper was very thin. It was quite easy to see through it. I did my best to cover it with my hand as I dropped it into the box.

In the end, the results of the vote were strange only in that the no vote was actually surprisingly large, given how the question was phrased. Seventy-five percent had voted yes, 20.41% had voted no, and the remainder had been blank or otherwise invalidated. But it was more than sufficient to allow Pinochet to claim he had an overwhelming mandate. And the size of the no vote actually had a silver lining for the government. Because it amounted to a fifth of the voters, no one seriously accused the government of election fraud.

For a few weeks after the vote, I found myself looking over my shoulder and clutching my magic card. But as time went on, I relaxed and decided that any concerns I might have had were unfounded. And, anyway, I had met my requirement, and my identity card was still valid. There should be no problem when I had to submit it to the authorities to get my exit visa to leave the country. That had been my concern all along.

And I was right. When it was time to apply for an exit visa, the identity card presented no problem whatsoever. It was something in my passport that nearly kept me from being able to go home.

Friday, May 18, 2012

Trickle or Drought?

One of the criticisms you often hear about supply-side economics is that it is “trickle down” economics. This conjures up the image of a bunch of rich people living it up on some elevated platform and some of the wealth they are enjoying spills or falls through cracks in the platform and masses of middle class and poor people underneath scramble to pick them up.

If you think about it too much, it gives you a headache. Is this wealth in the form of dollar bills? If so, shouldn’t it be called “flutter down” economics? “Trickle down” implies that the wealth is liquid, perhaps expensive French wine that is being spilled, which means the poor devils down below must be trying to catch the errant drops in their mouths. No matter how you try to think of it, it doesn’t work.

The problem with the metaphor is not just visual. What it implies is the problem is one of wealth transfer and the question is, what is the fairest way to do the transfer? But trying to think of fair ways to movie money around misses the whole point. That falls into the trap of thinking of the economy as dollar bills instead of human activity. As I asserted in a previous post, the basic economic question is how to get the most people making or doing things that most people want or need. To be sure, taxing some people and passing that money on to other people can encourage some economic activity. People who receive money from the government will definitely spend it or maybe even put it toward starting their own business, although realistically that won’t be true of most people. And just because beneficiaries of government programs have more money in their pockets that doesn’t mean that other people will necessarily start up new businesses to meet their consumer needs and wants.

Tax cuts, on the other hand, don’t involve a transfer of money from one group of people to another. Instead, they leave money in the pockets of the very people who are most likely to start or expand businesses and, consequently, hiring people. And that gets more people involved in the economy.

To be sure, transferring money to people who are unemployed or otherwise in need is a compassionate thing to do. And it can seem unfair to see one group of people who are comfortable and can afford to pay more in taxes not doing so when people are in need. But it only seems that way when we focus on how much money everyone has instead of whether they are gainfully employed. While compassionate, unemployment and other benefits are, in the end, a disincentive to participate in the economy. That doesn’t mean we, as a society, shouldn’t pay them. But we need to be aware that, like any medicine, too much can be unhealthy or even fatal.

So, if a good economy is simply a matter of low taxes, how come the economy has been so bad for the past four years during a period of relatively low tax rates? First of all, that’s an oversimplification. It really isn’t the precise tax rate that matters so much as the percentage of the nation’s economy that is diverted from the free market by the government. But to answer the question, the economy has been bad in spite of low taxes because the employer class has been severely hit by two severe blows. The financial crisis made it difficult to impossible to borrow money, a requirement for business startups and expansion. Then potential employers were hit by a massive amount of uncertainty that has made business planning extremely difficult. One aspect of this uncertainty stems from a massive overhaul of the healthcare system, which will clearly increase the costs of health care in general and the hiring of employees specifically. Another aspect of the uncertainty is the administration’s oft stated desire and/or intention to raise taxes. Any prudent businessman would tend to wait until things look more certain before investing money in starting up or expanding. And government subsidies for new businesses, such as those in so-called “green energy,” are not filling the gap by a long shot.

If we look back at the best economic periods in recent history, at the top of the list would be the Clinton administration. Democrats like to point out that taxes were higher then than they were under Bush and (so far) under Obama. But remember that under Clinton the government actually managed to balance the budget, which is a good indicator that taxes were not too high for the state of the economy at that time. Compare that to Obama’s record high deficits which, no matter how you make the comparison, are by far the highest in history. The next best economy would be the one under Reagan. The growth during that period has been derided by critics as an “era of greed” and “trickle down economics.”

But I would wager that most working people today would gladly trade that economy for the one the country is living through now. You can call it “trickle down” if you want, but the reality was that those economic policies enabled a lot more people to participate in the economy, leading Reagan to win his re-election by a landslide. How good are the current president’s election chances by comparison?

Thursday, May 17, 2012

Mi Vida Chilena (IV)

An attractive young woman has captured the imagination of many people inside and outside of Chile. Her name is Camila Vallejo, and she is clearly talented, ambitious and charismatic. As the president of the University of Chile student federation, she has been a prominent leader of protests that have been going on for months. And she is a Communist.

Vallejo was the subject of a somewhat fawning piece last month by Francisco Goldman in The New York Times Sunday Magazine (access limited by pay wall) titled “Camila Vallejo, the World’s Most Glamorous Revolutionary.” In the long, rambling article Goldman, who is in his late 50s, comes off as nearly a bit creepy as he goes on about his efforts to meet her and his desire to have his picture taken with her. He introduces us to her as “a Botticelli beauty who wears a silver nose ring and studies geography.”

To tell the truth, I can identify with Goldman’s (and everyone else’s) crush on a beautiful young Communist woman. I had my own brief infatuation with one early during my student year in Chile. But she wasn’t an activist like Camila Vallejo. She was reserved and private. It was a very different time in Chile.

She was my classmate in a German class and, soon after I met her, she happened to break up with her boyfriend. I took the initiative and asked her out. She was hesitant, probably because it was so soon after her breakup but also because I was an American. In the end, I did get her to go out with me, but only a few times.

We never reached the level of becoming pololos (the Chilean word for steady boyfriend and girlfriend), but I did get invited to her home once. The occasion was her onomástico. That’s roughly the equivalent of a birthday. (It actually refers to the day of the saint you are named after, but in many Catholic countries you would typically be named after a saint whose day you were born on.) I thought Communists were supposed to be atheists, I teased her, so why are you celebrating a saint’s day? She laughed and said that her family celebrated all the religious holidays because “the problem with being an atheist is that there aren’t any good holidays.” I met her father, who had been detained by the military during the coup and was later released. He was clearly not interested in talking to me, but her mother was cordial.

There was always an air of sadness looming over my friend and her family and, as I got to know her better, I understood why. Her brother, a Communist Youth leader, was one of the desaparecidos (the disappeared). Three months before I arrived in Chile (i.e. November 1976), he was abducted on a street in downtown Santiago. He tried to escape by throwing himself in front of a bus. Lying bleeding on the street, he yelled his name to bystanders and asked them to get word to his family in Concepción. He was taken away and never seen again. His family tenaciously pursued every means it could to have him released, but the government never acknowledged having arrested him.

While I have had no contact with my friend since leaving Chile all those years ago, I have occasionally looked for updates on her brother’s case on the internet. In 2007 (17 years after Pinochet stepped down from the presidency and nearly one year after he died), the Supreme Court finally convicted seven agents of the Comando Cojunto (a joint unit of members of the armed forces and a movement called Patria y Libertad) in the case. They were sentenced to three years and a day and granted parole, which meant that they served no jail time. While it is clear that her brother was tortured and killed, his body was never recovered.

Things were destined not to work out between me and my Communist friend—mainly because, despite the adventurousness of youth, our different backgrounds and values would have inevitably clashed. I did later make another friend who was more suited to me and who was happy enough to be my polola. We had some very good times during that year.

But I had become very aware that Chile could be a dangerous place if you were seen to be a threat to the government. That weighed on my mind toward the end of the year when I was obliged, very much against my will, to participate in nationwide vote.

Tuesday, May 15, 2012

Growth Pains

Economics is hard enough to talk about. It doesn’t help most of us that economists have their own jargon that sometimes uses an otherwise common word to mean something different than how we lay people might use the word.

For example, I have always had a problem with one of the most common words in any economic discussion: growth. On one hand growth is a positive word when applied to a child or personal maturity. But it can also have a negative connotation, as it can also describe an infection or a cancer.

When it comes to local planning issues, adversaries are often described as either pro-growth or anti-growth. Pro-growth people are often seen as those who want to pave over forests and generally rape the environment.

When one talks about growth in a national sense, it sounds like something that cannot go on forever. After all, the country is the size it is, and a thing cannot grow indefinitely because it will ultimately run out of room. Yet politicians and economists will tell you that, without growth, you are not going to get economic prosperity and tax revenues to fund all those government programs that are meant to make society at least a bit fairer.

Personally, I would prefer use the word “productivity” instead of “growth.” But “productivity” has already been assigned as an economic term. It refers to how much a country produces divided by how many people are employed. In other words, high productivity means getting the most done with the fewest people possible.

My personal definition for “growth,” as it is used economically, is providing the most things (goods) or services that the most people have a need or desire for. In other words, it refers to how productive (in the sense that we non-economists normally use the word) a country is. Growth means having the most people spending their time doing or making things that the most people need or want. This makes more sense if we can stop thinking about economics in terms of money and think of it purely in terms of human activity. Exchanges of money are merely a way of gauging which goods or services are valued by others in your society.

The more people engaging such activity, the better. This is something that even capitalists and communists agree on. All economic disagreements are essentially about the best way to get the most people engaging in this activity. Specifically, what can the government do to encourage this to happen?

Demand-side Keynesians think the best way is to put money in the hands of people so they will spend it, causing other people to make or do things to get some of it. Supply-side Friedmanites think the best way is to leave money in the hands of people, so they will use it to make and do things that other people will pay them for.

Both sides of this argument have their merits and can positively affect the economy. After all, supply and demand are part of a constantly ongoing circle, not a linear thing that has a start and a finish. But over many years I have come to the conclusion that the disciples of Milton Friedman have the better argument. Demand-side relies on the human impulse to want things. Supply-side, on the other hand, leans more on the human impulse to be doing something worthwhile. Critics of supply-side economics have done their best to paint it as a philosophy of greed, but it actually relies more on the human need or desire to produce rather than on the human need or desire to consume. Personally, I think this is a nobler (and more accurate) view of human beings than the Keynesian one.

Given all the generations during which various governments have favored either the philosophy of John Maynard Keynes or that of Milton Friedman, it seems as though the question of which works better should have been resolved long ago. But things are never that simple. For one thing, few governments have the discipline or political will to purely follow one or the other. For another thing, in a democracy, governments normally pass from one party to another and back again, and there will always be disagreement over whether any ongoing economic difficulties should be blamed on the current government or the previous one.

Many are quick to cite economic conditions after three and a half years of President Obama’s governance as definitive proof that Keynesian economics do not work. They have a strong case, but one could also argue that the president’s policies have not been a fair test of Keynes’s ideas. As soon as the president took office, he went on the biggest federal spending spree in history.

After scathing criticism from Republicans, he told House Democrats at a retreat in February 2009, “Well, then you get the argument, this is not a spending bill, this is a stimulus bill. What do you think a stimulus is? That’s the whole point.”

“No, seriously,” he laughed to his appreciative audience. “That’s the point.”

In other words, Obama put forth the idea that all government spending is stimulative and it doesn’t matter what the money is spent on. Lots of union workers got temporary jobs, and a lot more federal employees were hired (while states and local governments had to lay off employees because of falling tax revenues). But all the spending ignored the real definition of growth, which requires synergy between people who want to work and what society needs and wants.

And among the big winners in all this are the banks and other financial institutions that get to service the ever-growing federal debt. Among the losers, if current conditions persist, will be more state and local public employees and benefits recipients who will suffer from ever shrinking tax revenues.

Friday, May 11, 2012

Mi Vida Chilena (III)

One of the frustrating things about living in Pinochet-era Chile was that the recent history was amazingly hard to nail down.

I’m not talking about the atrocities that were committed during and after the coup. Those were well documented in the international press before I left the U.S. for South America. I’m talking about what things were really like in Chile during the Allende presidency and the subsequent coup, or golpe de estado.

Many people wanted to tell me how terrible things had been during the administration of Salvador Allende and how much better things were once he was gone—even with all the curtailments on liberty that came with military rule. When I finally managed to hear people on the other side, it was not surprising that their version of those years was completely different. But the differences between the two versions were so vast that it was more than just a matter of spin. It was like people were talking about two completely different countries.

During the year that I was there, I met very few other Americans, but at one point I did meet one who had been in the country for years. He was with the Peace Corps, and he had been there through the lead-up to Allende’s election, his entire 34-month presidency and the military coup that ended it. At last, I thought, I will get an objective account of what it all was really like.

I told him how I had been hearing irreconcilable versions of recent Chilean history and that logic insisted that they couldn’t possibly all be true. As a fellow American and outsider, I asked him, could he tell me once and for all how it really was? His reply was brief: “It’s all true.”

I was confused. How could it all be true? He repeated, “It’s all true.” I tried again. Two contradictory things cannot both be true, I insisted. He smiled and said all he was going to say, “No matter what you’ve heard, it’s all true.”

This refusal to bow to logic was utterly consistent with a part of the world where a good many people regularly asked for favors from dead acquaintances and where newspapers carried matter-of-fact accounts of UFO abductions. Chile might have been one of the more Europeanized countries in Latin America, but it was still Latin America. All that Magic Realism stuff didn’t just come out of nowhere. I began to believe that maybe two different realities could co-exist in the same time and place.

In hindsight, I shouldn’t have been so confounded. The same thing has been going on in my own country for years. Conservatives and liberals have their own mutually exclusive narratives for what has gone on in the U.S. for the past several decades. One’s reality is bound to be different depending on who one is and from where one is viewing things. Or depending on how one chooses to view things because of a bias stemming from a feeling about how the world should work.

But some things I could see for myself. I could see bullet holes in the side of a tall building that dated from the day of the golpe. I could see an inflation rate that was coming down from a triple-digit high. And I could see undergraduate students in my classes whose academic preparedness had clearly suffered during their primary and secondary schooling, which would have been during the tumultuous Allende years. It was obvious that the country had suffered in many ways during those years. The question was whether it was due primarily to Allende’s policies and social agitation (as the right insisted) or to international economic sabotage led by the United States and its then-president Richard Nixon (as the left contended).

In any event, whatever moral and logistical support the Nixon administration had given the military regime was over. Jimmy Carter was now president, and his administration was decidedly cool to Pinochet. Stung by this, Chileans would frequently wag a finger at me and tell me to “tell President Carter he needs to understand the Chilean reality.”

The Chilean reality that I saw was that the economy was improving and life was normalizing. I got a personal glimpse, however, into the dark side of Chilean reality when I made a new friend. She was a classmate in a German class I was taking at the local German cultural center. Her father was a Communist who had held local office during the Popular Unity government. He was detained during the September 11 golpe but was later released. Her brother did not fare so well.

Thursday, May 10, 2012

Decision Time

In a piece labeled “News Analysis” in The International Herald Tribune (access limited by pay wall) on April 28, Landon Thomas Jr. wrote that austerity has failed in Ireland (along with Greece and Portugal). That news might come as a surprise to Lars Christensen, chief market analyst of Denmark’s Danske Bank, which owns National Irish Bank in Ireland.

In an interview posted on web site this past weekend, Christensen declared that austerity is working in Ireland but that the European Central Bank needs to do more to spur growth. He recommended more monetary easing, i.e. printing more money. This might make sense for Ireland, but it probably isn’t going to happen because Ireland does not control its own currency. The ECB isn’t likely to grow the money supply because it would likely result in inflation in Germany. And that is the heart of the dilemma for countries in the euro zone. There is no one-size-fits-all monetary policy that is optimal for all its members.

The euro zone is a subset of the European Union and, in the wake of the bailouts for Greece, Ireland and Portugal, a co-existing overlapping subset has been formed. It can be thought of as the bailout zone. Members are offered bailout help but in exchange for giving up some control over their own budgets. For Ireland to join, its constitution requires a referendum, which will be held at the end this month.

At first, it looked like the referendum on the new treaty was a shoo-in to pass because it was seen essentially as an offer of free money. But as people have had time to think about it, they can see it’s a bit more complicated than that. While it can mean more money for the country, it also potentially means increased austerity imposed by foreigners. As I wrote to a friend the other day, it’s basically a choice between either both a carrot and a stick or no carrot and no stick.

The two major parties (Fine Gael in government, Fianna Fáil in opposition) are campaigning in favor of the treaty because, well, they always reflexively support anything to do with Europe. The campaign against the treaty is led by a surging Sinn Féin, which is the modern face of the old IRA. There was an interesting crack in Fianna Fáil solidarity the other day when one of its TDs (parliament members), Éamon Ó Cuiv, came out against the treaty. While the rift was patched by having Ó Cuiv agree not to actively campaign against the treaty, his stance is significant symbolically because he is a grandson of party founder and Irish liberation icon Eamon de Valera. If nothing else, it reminds people to wonder, what would Dev think of handing away more and more Irish sovereignty? A good guess: probably not very much.

The problem with the “austerity” that is being imposed in Ireland, Greece and Portugal is that, in each case, it amounts to a compromise that will make no partisan policy wonk happy. Everyone agrees that cutting spending does no particular good without also doing something about economic growth. But in each case, the spending cuts are accompanied by tax hikes which will predictably depress growth. (This is also President Obama’s position in the U.S.) But it takes a huge leap of faith to do one (either cut spending or raise taxes) but not both. And, barring an electoral landslide for one side or the other, it is politically impossible.

It is completely unhelpful but completely true to say, things would have been a lot easier if political leaders would have avoided this situation in the first place. But they didn’t (except in Germany), so there is going to be pain. The best the politicians can do is to make sure the pain isn’t in vain.

I’m not overly optimistic, but a first step might be to listen to Lars Christensen. A second step might then be to carefully consider whether it would help for some of these countries to take back ownership of their own currency.

Friday, May 4, 2012

Mi Vida Chilena (II)

The Rotary Foundation guidelines were extremely clear. As a Rotary Fellow in Chile, I was strictly prohibited from engaging in political activity or even political discussions.

Whatever qualms I might have had about my institutional benefactor curtailing my freedom of speech were more than balanced by my instinct for survival. In 1977, Chile was not only under military rule but under military curfew. You could be shot for being out on the street too late at night. The country’s long established political liberties had been suspended. So I knew that I was better off not mouthing off with my own opinions about what was going on.

But that didn’t mean that everyone around me wasn’t telling me their opinions at every opportunity. This came as a surprise to me. I had done some traveling around Spain during the later Francisco Franco years, and at that time Spaniards seemed to be paranoid whenever any political topic was broached. I was expecting Chile to be somewhat similar, but it wasn’t. What I came to appreciate was that Chile had had a long history of political discussion and argument, and that hadn’t changed simply because the military was now in charge.

But the political discussions that were going on was very one-sided. Everyone I spoke with was very pro-junta. That shouldn’t have been too surprising, since the people who would have been most anti-junta were by that point dead, in prison, in exile or just keeping quiet out of discretion. Being a young idealistic student, I did seek out other opinions, but people who didn’t like the junta were hesitant to speak about their feelings with an American. But eventually I did gain the confidence of some of those people and heard their side as well.

While all the pro-junta opinions I was hearing did not blind me to the known atrocities committed by the junta, living in Chile was a revelation because it turned out to be a much different country than the one regularly described in the international media. The sort of leftist publications that students (such as myself) would have been reading in the U.S. and Europe portrayed Chile as a terrorized place with a populace cowering in perpetual fear. The fact was that life went on very normally. The economy, under policies taken directly from Milton Friedman, was improving, and the middle class’s standard of living was rising. There was, of course, a lot of poverty in Chile, although not as much as in many other Latin American countries. If nothing else, that year was the one in which I learned that anything I read in the leftist press would always have to be adjusted for its ideological filter.

As for the press in Chile, it had a filter too. Strictly speaking, there was not government censorship per se, but newspapers and magazines ran the risk of running afoul of post-coup security measures if they happened to publish the wrong thing. So there was a high degree of cautious self-censorship. But I came to understand that newspapers had their own way of getting a story out without getting themselves into trouble. If a story was out there that was negative to the government, they would go to the government for a reaction. I mostly learned about problems or contentious issues in the country from articles that followed the “a government spokesman denied...” formula.

In many ways, Chile under Augusto Pinochet was not what I expected. The biggest irony was the fact that I had originally hesitated to go there because I feared for my safety. The reality was that I have never felt safer in my life than the year I spent there. Because of the military’s heavy-handed security, crime was virtually non-existent. As long as I followed the rules and broke no laws, there was really nothing to fear. Of course, this was at the cost of people’s political liberty, which in the end is too high cost. The stability that Chile had in those days was not sustainable forever. Too much power in the hands of a few breeds corruption, and people will not tolerate repression of dissent forever.

I felt no small amount of guilt over the personal safety I was enjoying at the expense of so many who had perished or suffered at the military’s hands. In any event, that sense of safety began to slip away once I began dating a Communist and when I found myself obliged to participate in a national vote.