Which theory is borne out by data?
Robert Murphy's new column over at the Mises Institute reviews the data on macroeconomic performance over the past two years in response to the ARRA stimulus package and casts this ex post facto data against Keynesian and free-market theories to determine which theory was right. His column is worth a read, although I consider this line to embody the central lesson:
As Jim Manzi has been repeatedly arguing - echoing the writings of Mises - it is impossible to conduct a truly controlled experiment in the social sciences. Often without realizing it, economists interpret the data as confirming their preferred theories, even when those same data give stronger support to their ideological opponents.
Read moreTalking taxes: Who said this?
Let's play a little guessing game: Who said this?
"I won't support tax increases -- not when the private sector is losing revenue and losing jobs," [name removed] told the Review-Journal's editorial board in September.
"The general fund needs to be managed in a way that doesn't allow growth beyond population growth and inflation."
Governor-elect Brian Sandoval? Rory Reid? Someone from the Nevada Policy Research Institute? Chuck Muth?
No, no, no and no - although each has publicly noted that raising taxes in the middle of a recession isn't a good idea.
So who said the above quote? Senate Majority Leader Steven Horsford, in 2008.
In case Sen. Horsford needs a reminder, Nevada's private sector is still in a recession.
Las Vegas ranked second-to-last among the nation's 100 largest metropolitan areas in making progress toward economic recovery through the third quarter, Brookings Mountain West reported in its December Mountain Monitor.
The severity of the Great Recession has been well documented in Las Vegas through the housing market crash, foreclosure crisis, massive job losses and slowdowns in tourism and gaming.
Nevada also has the nation's highest unemployment rate.
Now, Sen. Horsford already broke his word by voting for the largest tax hikes in Nevada's history two years ago, and this session he's called for a tax increase of $1.5 billion, which would shatter the "largest tax increase" record he helped set in 2009.
Reminding Sen. Horsford of what he said two years ago may not change his mind, but it should remind everyone - citizens, lawmakers and the media - that even leftists like Sen. Horsford recognize the destructive impact of tax increases on the economy.
It should also empower conservatives and libertarians to continue pointing out that tax increases kill jobs and hurt the economy.
If you tell the truth about taxes for enough time, Sen. Horsford might even decide he agrees with you again - but probably not until 2012.
The alternative to raising taxes is cutting spending, and in that area, NPRI has many ideas to offer.
Corporatist America
As my friend Veronique de Rugy comments in her column yesterday:
Business people love to say how much they cherish free markets, all the while decrying government that limits entrepreneurialism and personal freedom.
But the truth is there is nothing most business people like less than free markets.
Indeed.
Veronique tells the story of embalmers and funeral directors in Louisiana who leaned on the state, using their political connections, to regulate away their competition - carving out a cartel for themselves. You see, the monks of St. Joseph Abbey provided for their needs by making and selling simple wooden caskets, lowering consumers' demand for the high-priced caskets sold at the state's funeral homes. While this was of obvious benefit to many of the low-income families in Louisiana burdened with the task of burying a loved one, the funeral directors knew they could make more money if the state forced these low-income families to purchase more expensive caskets from funeral homes - even if it meant squeezing the families' ability to feed their children.
So goes the tale of Corporatist America: It is the unending collusion of rent-seeking, pseudo-capitalists using their political connections to establish legal monopolies or cartels. The action subverts the rule of law, injures consumers and lowers the national standard of living. And it happens every day.
Murray Rothbard wrote incessantly about how the Federal Reserve System was purposefully designed by its member banks to establish for themselves a legal cartel wherewith to plunder the people.
Frederic Bastiat once wrote an excellent parody of this form of behavior in his famous "Candlemakers' Petition."
A story from yesterday's Las Vegas Sun details the same story once again right here in Clark County. Large gaming interests are appealing to the county commission in an effort to use the regulatory system to shut down competition from small taverns and bars operating slot machines.
The story is just part of a continuing theme of Western civilization: Never trust capitalism to the so-called "capitalists."
Rent-seeking extravaganza
Must-watch from 60 Minutes: 'The Day of Reckoning' coming for states' budgets
This is just an unbelievably good report on the budget problems numerous, if not most, states are facing.
Three things to conclude from the report above:
1. Budget deficits, like the one Nevada is facing, are not unique to Nevada.
2. Like the video above shows, these budget deficits are the result of unsustainable government spending. And state spending in Nevada has been increasing at an unsustainable level. The red line represents what state spending would have been if it had only grown at the rate of inflation and population growth.
3. In order to correct years (and for some states, decades) of unsustainable spending, government spending must be decreased and pension liabilities eliminated. To prevent future problems states should convert state defined-benefit plans to defined-contribution plans.
If you think this is an important issue, I urge you to share this 60 Minutes story with your sphere of influence. "The Day of Reckoning" is coming, but Nevada's response is yet to be determined.
Programming note: Blogging will be light to non-existent until Monday. Happy Holidays!
'Cuts' of $819 million are actually a 17 percent spending increase
Last week I wrote a commentary describing how a 10 percent "cut" in state spending equals a double-digit spending increase.
And today's story by Ed Vogel in the Las Vegas Review-Journal on proposed budget "cuts" is the perfect example of what I was referring to.
State agencies have proposed cutting their budgets by $819 million in the coming two-year budget period, Assembly Speaker-elect John Oceguera said Tuesday.
Stop right there. Let's take a look at the Agency Request budgets and the supposed "spending cut."
General Fund spending FY 10, 11: $6,421,152,167
Requested General Fund spending FY 12, 13: $8,345,385,970
General Fund spending FY 12, 13 with "10 percent" cut: $7,526,068,816
Yep, in the last biennium, General Fund spending was $6.4 billion, and after a "cut" of $819 million, General Fund spending would be $7.5 billion, or a 17 percent increase.
See what's happening here? Government officials aren't mentioning that they want a 30 percent spending increase before talking about the 10 percent "cuts."
Only in government is a 17 percent spending increase labeled a budget "cut."
Now, I have no problem if speaker-to-be Oceguera says, "I believe Nevada's General Fund spending needs to be $7.5 billion (or $8.1 billion)." That's a debatable proposition.
The problem is that Oceguera is attempting to assume $2 billion in new spending before he bemoans $819 billion in "cuts."
You can't have an honest debate with someone using incorrect assumptions. If Oceguera or another lawmaker wants to argue that Nevada needs a $2 billion spending increase, because of X, Y or Z (sorry, I'm not going to give the other side arguments), fine. Let's have a debate on that.
But pretending that a $2 billion spending increase doesn't exist when you talk about $819 million in cuts is dishonest and distorts reality for the general public.
Before engaging in a debate on Nevada's budget, believers in limited government need to make sure that "cuts" and "spending increases" are defined accurately.
Is collective bargaining on the chopping block?
He [Sandoval advisor Dale Erquiaga] confirmed that making changes to the collective bargaining laws is something local governments are demanding in order to keep their payroll expenditures in check, and Sandoval will support such legislation.
"We have been told by school districts and local governments that they can't weather the reductions coming in this biennium unless we address Chapter 288 (the collective bargaining law)," he said.
In case you're wondering what kind of excess government workers are enjoying under current collective bargaining agreements, head over to TransparentNevada and see if you can count how many government workers made over $200,000 last year.
If that's not enough, Nevada is also facing a $33.5 billion unfunded pension liability, when calculated using an economically sound, "options pricing" method of accounting for risk.
Ending collective bargaining would help government rein in these excessive salaries and help prevent taxpayers from getting fleeced.
Want to pay more and get less? Green energy is for you
David Schwartz of the Las Vegas Sun had a great piece this weekend on the cost of green energy in Nevada.
The state is considering switching to solar power for a significant number of its buildings and facilities, even though critics question whether the change would save taxpayers money.
A politically connected Sparks company would have the first right to develop solar projects on 53 government properties and sell the generated energy back to the state, under the proposal Nevada officials are evaluating.
The four-year deal with GA-SNC Solar could spur $300 million in private investment, according to the state energy office. GA-SNC Solar is a partnership between international solar company Gestamp Solar and Sierra Nevada Corp., a Northern Nevada defense contractor that has been a heavy contributor to elected officials, including Gov. Jim Gibbons. ...
Commercial Solar Services, a competing company in Reno, argued in a letter to the state that the price of energy under GA-SNC Solar's contract, at 17 cents per kilowatt hour, would be 54 percent higher than what the state pays NV Energy.
To bolster its argument, Commercial Solar cites a contract that GA-SNC Solar-partner Sierra Nevada secured for a 2.6-megawatt solar project at a Nevada Army National Guard facility. According Commercial Solar Services' letter, the National Guard is paying 18 cents per kilowatt-hour from that project, compared with the 11 cents per kilowatt-hour it paid before the installation.
The piece is especially timely, because most politicians are claiming that green energy projects and green jobs are a key to Nevada's future economic growth.
Green energy and green jobs may be important for Nevada some day, but right now those industries are dependent on government subsidies, mandates and tax breaks for survival. You can't create long-term economic growth through government spending and intervention. Exhibit A: the failed stimulus.
Also, the Heritage Foundation points out that some solar projects require billions (yes, billions) of gallons of water per year - a problem that is especially pertinent in Nevada.
Green energy technology is famously unreliable but it also faces serious technical issues, including the fact that solar farms consume billions of gallons of water every year where water isn't available. For instance, Solar Millenium announced the construction of two solar farms in Armagosa Valley, Nevada that would consume 1.3 billion gallons of water per year, (20% of the desert valley's available water). Many people became concerned about the scarcity of water resources and the environmental impact of this massive water consumption on wildlife. More generally, many communities that foster green energy projects are facing water shortage problems.
Until we let all types of energy succeed or fail on their merits, not on their ability to garner special favors from the government, we'll continue to pay more for energy.
Getting Nevadans back to work: Great ideas from the Nevada Taxpayers Association
The Nevada Taxpayers Association has just released a terrific report detailing the reasons businesses aren't hiring as well as what Nevada lawmakers can do to enable businesses to grow and expand.
First, employers detail some of the many government regulations that are preventing businesses from hiring more people.
1. The cost per employee keeps rising - the modified business tax was increased, the unemployment insurance tax will increase January 1, 2011, and the federal health care provisions have started to kick in. How can I consider hiring anyone, when I don't know what it will cost me?
2. Why can't the local governments and the State look at what the federal government is doing and planning on doing to business (additional filings - 1099Ks, tax increases, increased regulatory burdens) before they add their burdens on us? Government, at any level, can't keep operating in a vacuum and expect me to survive. At what point will each level of government, that has decided they want more revenue, talk to each other to see the totality of the impacts to my business and my ability to hire?
3. I don't understand how the minimum wage can keep increasing when unemployment is so high. Why isn't there a realization that increasing the minimum wage in this economy just means I can't consider hiring entry level employees.
Government can't create long-term economic growth, but by raising regulations and costs and increasing uncertainty, it sure can do a great job of stifling economic growth.
Many of these government-created obstacles are the results of an intrusive and economically destructive federal government, but there's plenty that state politicians can do - either to make it worse or to create an environment that enables businesses to create jobs.
A couple of great suggestions from NTA:
2. Change the prevailing wage requirements to: (1) eliminate prevailing wage; (2) eliminate prevailing wage when construction unemployment is greater than 6 percent; or (3) increase the prevailing wage threshold from $100,000 to $2 million. ...
3. Eliminate Nevada's 24 hour overtime rule, in favor of the federal 40 hour overtime rule.
NTA also suggests a couple of constitutional reforms to Nevada's minimum-wage law. While NTA's proposed reforms wouldn't be as beneficial as repealing the minimum-wage amendment, they'd certainly help.
About the only thing I disagree with in the NTA's report is this suggestion:
1. Provide that an employer who hires any workers who have been unemployed for six months or longer do not have to pay the modified business tax for that employee for four quarters. For the next four quarters the modified business tax is reduced 50 percent. Allow the reduction to continue for the length of time that unemployment remains more than 6%.
Reason: This would be a program similar to the federal HIRE program. It should also help mitigate the increases that will be occur in the premiums for unemployment insurance in future years. Most important, as no revenue has been generated from the modified business tax because these employees have been out of work, there would be no revenue loss to the State.
While I agree that the MBT is a disincentive to hiring, the government shouldn't be picking the winners and losers in the economy through subsidies - or tax breaks. Taxes should be low AND uniform.
When the government starts messing with the economy, no matter how good its intentions are, negative unintended consequences result.
With that small caveat, the NTA's report is really excellent, and there's a lot more in it than I mentioned above. You should read the whole thing.
(h/t Ralston's Flash)
Why the $3 billion budget deficit myth matters to leftists
Not because it's true, but because it's a good negotiating position. As noted by Jon Ralston, who was talking with an anonymous businessman:
But then he [the anonymous businessman] called back almost immediately to make two more points. One was that the budget deficit should be pegged at closer to $3 billion by all the politicians to establish a large enough target for negotiations.
What more can you say? I guess some people think the truth should be disregarded when it's politically convenient. (To be fair, the above statement is only representative of the anonymous person who made it, although I suspect it's a large motivating factor for many who overstate Nevada's budget deficit.)
Just remember this the next time someone claims Nevada's budget deficit is $3 billion. That person may not even believe the $3 billion myth himself, but he's hoping to use the size of the figure to intimidate you into accepting tax increases.
The good news is that most Nevada journalists have rejected the $3 billion deficit myth and are reporting on Nevada's budget deficit accurately. Nevada's liberal politicians ... not so much.
If you want more budget truth, let me suggest reading my recent commentary, titled "How a 10 percent 'cut' equals a 15 percent spending increase."
