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Why Are Politicians So Corrupt These Days?

Everybody likes to rail on about corrupt politicians these days. They sling mud at their opponents, do sleazy things and try to get away with it, hang out with lobbyists, and give special favors to their political friends. Come election time, challengers from the outside always promise to end the corruption that’s inside and bring a fresh start. Then the same thing happens a few years later. Why are our politicians so corrupt?

It’s tempting to think that today’s politicians in Washington, D.C. are corrupt in an unprecedented manner, and to try to find reasons to explain it. Maybe it’s the result of social moral decay. Maybe it’s because the population of the United States has more than tripled since the number of House Representatives was fixed at 435, so representatives can no longer be as close to the people.

Maybe there are specific factors contributing to modern corruption, but I just want to point out for the sake of perspective that this is nothing new. Bill Clinton lied in the 90’s. Nixon had his Watergate scandal in the 70’s. And that’s just very recent history. The ever-helpful Wikipedia has a fantastically long list of federal political scandals going all the way back to the time of George Washington, when a senator was “expelled from the Senate for trying to aid the British in a takeover of West Florida.” One of Andrew Jackson’s appointees embezzled over a million dollars (in the 1830’s) and “fled to Europe to avoid prosecution.” Ulysses S. Grant’s administration had an infamous Whiskey Ring full of bribes and kickbacks that resulted in “110 convictions.” The list is full of suspicious behavior, unsightly cover-ups, and outright fraud. It’s true that the list gets notably longer for more recent administrations – but it’s hard to know if that’s because politicians are more corrupt or if it’s just easier to keep track of them these days. Regardless, the U.S. federal government certainly has a long history of corruption.

Continue reading Why Are Politicians So Corrupt These Days?

Ron Paul – Winning Without Winning?

The LA Times has a good post conjecturing that Ron Paul is winning the Republican party even without actually winning anything simply by way of how much he has shaped the debate in the last few years.

It’s a pretty good piece – it doesn’t dismiss Paul outright but it doesn’t promote him like a Paulbot, and it’s got a good sense of humor. Four years ago, Paul was the only Republican candidate talking about reducing government spending – and now everyone in the federal government is talking about it. And some of the GOP these days are even sounding more open to things like legalizing marijuana or ending wars in the Middle East – small government positions that are typically thought of as anti-GOP. The left likes to dismiss the Tea Party as Koch-infused AstroTurf, but Ron Paul and his supporters were Tea Party before there was a Tea Party.

The post also talks about some classic Paul behavior that I hadn’t heard about:

Paul came up more than 1,000 delegates short of winning the nomination in…wait for it, St. Paul, but here’s what he did do: Talking fiscal discipline, he took his supporters’ donations (more than Mike Huckabee’s hand-clapping evangelicals ponied up, btw) and walked the fiscal walk.

Flying commercial and sleeping in Super 8’s, Paul paid all of his campaign bills. He ended up with a $5-million surplus, a word we don’t often hear associated with things Washington, unless it refers to empty words.

It doesn’t say what he did with the $5 million, but I believe that he did something very legal, moral, and fiscally sound with it. I just trust him – and I can’t say that about any other politician.

That’s one of the reasons I just like the guy. Even though I’ve learned enough about politics, economics, and the world in the last four years that I’m not as gung-ho about him as I was the last time around, he’s still probably closer to my beliefs than any other candidate out there. (Paul is already polling better than he did last time, for what it’s worth.) Sure, some of his positions and statements make me wince in uncertainty, but there’s no hypocrisy or corruption in them – all the other guys make me wince because their positions are worse and I can’t trust them anyway.

So I’m perfectly happy to watch him continue to influence the debate in Washington even if he doesn’t actually win a national election (although his son did win the Kentucky Senate, one of the many previously unthinkable things that have happened in the world in the last few years). I’m not convinced, for instance, that a gold standard would work anymore in our complicated global economy, but our excess-driven debt-ridden fiat system is getting so bad, compounded by government overreach and corruption, that any attempt to pull back in the other direction is, I think, a net improvement from where we are now.

So keep it up, Paul, and good luck at that silly Ames straw poll.

Reasons For Optimism 1-3

A few days ago I talked about my determination not to become overly pessimistic about the future based on current trends, mainly and simply because current trends have a way of surprising those who expect them to continue. So when I came across a handful of news articles about new medical and technological discoveries, I thought it would be appropriate to kick off a new occasional series called “Reasons For Optimism.”

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Obama To Campaign On Romney’s Weirdness

Yesterday Politico reported that the Obama campaign’s political strategy right now for 2012 is to assume Romney will be the nominee and attack him for being “weird”:

Barack Obama’s aides and advisers are preparing to center the president’s reelection campaign on a ferocious personal assault on Mitt Romney’s character and business background, a strategy grounded in the early-stage expectation that the former Massachusetts governor is the likely GOP nominee.

The dramatic and unabashedly negative turn is the product of political reality. Obama remains personally popular, but pluralities in recent polling disapprove of his handling of his job, and Americans fear the country is on the wrong track. His aides are increasingly resigned to running for reelection in a glum nation. And so the candidate who ran on “hope” in 2008 has little choice four years later but to run a slashing, personal campaign aimed at disqualifying his likeliest opponent…

Obama’s reelection campaign will portray the public Romney as inauthentic, unprincipled and, in a word used repeatedly by Obama’s advisers in about a dozen interviews, “weird.”

Now, look, I don’t like Romney myself and I think he’s probably inauthentic, unprincipled, and maybe even weird, but there are three reasons this admission by Obama’s political campaign strategists is much weirder.

Continue reading Obama To Campaign On Romney’s Weirdness

Remember the Uncertainty

I don’t think the US deserves a AAA rating on its debt anymore because I think its financial situation is far worse than the official forecasts suggest. I base this notion on the fact that forecasts ten years ago actually thought the debt would be lower today than it was then, when it ended up over three times larger.

Whoever was making those forecasts may have overestimated the growth of the economy, or underestimated the growth of government spending, or (from my bias) underestimated the negative effect of government growth on the private economy. Less abstractly, whoever was making those forecasts was probably not expecting 9/11 or two unfunded wars or a housing bubble and bust or a global financial crisis or even things like Hurricane Katrina or the BP oil spill. Unexpected things happened, and as a result we are sitting under a debt pile of $14.3 trillion instead of less than four.

At least now “they” expect the deficit to be higher ten years from now, but when “they” say $7-10 trillion higher I laugh at the underlying assumptions. We might not come anywhere near the expected growth of those forecasts, and that’s before any number of unexpected “black swan” events occur – and the rest of this decade will certainly have some. I believe the forecasts to be off by so many trillions that it’s irrelevant whether or not S&P made a $2 trillion math error in their downgrade – they’re all off by so much that doesn’t even matter.

And yet, I must remember that the uncertainty goes both ways. If we go back ten more years, we find that the early 90’s had some ominous warnings about the growing U.S. debt load, and there were estimates that by 2000 the debt would have doubled, when it actually ended the decade almost where it started thanks to some surpluses during the Clinton years that nobody saw coming.

I’m too young to remember any of those details, but I definitely remember the financial crashes of 2007-2009, when, among other things, the stock market lost half its value. Through the lens of my newfound economic knowledge and libertarian philosophies I saw this crash as the result of decades of horrible government intervention. I worked at the Apple Store at the time and sold my few shares of company stock because I didn’t know if the world would ever recover and I wanted to at least get back the amount I had invested instead of waiting to see if everything would drop by half again.

Of course, today Apple shares are pushing through all-time highs that are about five times the amount that I sold back in early 2009. The world economy doesn’t seem that much better, and certainly not more stable, than it was two years ago, but the crash did not continue. I was overly pessimistic, and I paid for that pessimism. (At least my naive doom-and-gloom investment strategies weren’t a total loss. The twenty or so ounces of silver that I slowly accumulated in that time period for $15-$20 an ounce are currently the best-performing thing I own.)

So just because I think the forecasters are overly optimistic, I don’t want to be overly pessimistic. The rest of this decade will have nasty surprises, but it could have nice ones too. Who knows what amazing things will be invented, what new things will be discovered, what unpredictable things will be done by any one of the seven billion people breathing on this planet?

Despite all the vast increases in knowledge in the last hundred years, we are living in a largely unpredictable world. Tyler Cowen points to a post by Brad DeLong admitting, “If You Had Told Me a Year Ago That on August 5, 2011 S&P Would Downgrade the U.S, and the 10-Yr Treasury Would Yield 2.5%… I would have laughed at you.” We think we understand trends and causes and effects in the economy but are still baffled on a regular basis when reality doesn’t match what we expected. History is full of experts who were too confident about the future, and it’s easy to forget that we are the “experts” that the bloggers of the future will mock for our own overconfidence and lack of knowledge.

I think the United States is not going to be a pretty place ten years from now, but there’s a tiny little skeptical, optimistic part of me that won’t be surprised if we’re somehow running trillion-dollar surpluses with very low unemployment. OK, I would still be surprised. But if the last ten years – nay, the last five years – is any indication, I’m not willing to put any money down on what the price of oil will look like in 2021, or the price of gold, or the level of the stock market, or the yields on Treasuries, or the deficit, or unemployment, or anything, really. I will expect things as best I can, and try to prepare for them accordingly, but I will always remember the uncertainty.

Thoughts on the S&P Downgrade

Well, everybody’s offering their thoughts on the S&P downgrade, so I might as well mention some of the reactions and offer my own.

Remember, earlier this year the ratings agencies said they were thinking about downgrading the U.S. if they didn’t come up with a plan to get their deficits in line. There was lip service in Washington about the need to reduce the debt, and Obama even appointed a commission to come up with ways to fix things, but no one ever did anything about their recommendations (known as the Bowles-Simpson plan), probably because the solutions were so balanced that both political parties found them unacceptable. But Republicans took the agency warnings as proof that they needed to cut spending before they raised the debt ceiling again. Of course, when the debt ceiling got closer and no agreement was being reached, the ratings agencies then warned that if they didn’t reach a deal they might downgrade the country, too. Then they warned that even if they reached a deal, if the cuts weren’t big enough, they might still downgrade us:

The major credit rating agencies have warned that if a big enough deficit-reduction plan of about $4 trillion is not agreed on — even if the debt limit is raised — they could still downgrade America’s coveted triple-A rating.

We only came up with a plan to cut $2-something trillion. The agencies wanted 4, we gave them 2, boom, they downgraded. Simple as that. Naturally, Republicans are using this as proof that we need to reduce the deficit even more. Of course, to them that only means cutting spending, and no tax increases at all. Tyler Cowen thinks the GOP will regret their stance, because they could have had $4 trillion with Obama’s “grand bargain” that was mostly spending cuts but still had some tax increases. But Cowen doesn’t think the markets will care too much, as “the facts on the ground did not change today… Still, years from now today may well be seen as a turning point of significance.” Megan McArdle thinks the GOP will take the share of the blame for this too, and she also wonders if the stock market was dropping all week due to rumors of the downgrade. (I think I side with Arnold Kling’s theory that the markets were dropping on concerns of the economy anyway, and the debt ceiling deal just accelerated the flight to Treasury bonds by making investors less nervous about holding Treasuries.)

Continue reading Thoughts on the S&P Downgrade

Layman’s Terms: What Is the S&P Downgrade?

Well, I was going to rattle off my thoughts on the S&P downgrade like everybody else but first I thought I’d make a post explaining what that even means to help give some context for anyone who doesn’t follow world financial news or even national financial news all the time.

So, basically, there are three organizations known as the Big 3 credit ratings agencies – Standard & Poor’s (S&P), Moody’s, and Fitch. There are investors all over the world, from rich billionaires to folks managing the retirement portfolios of middle-class Americans, and they like to make more money by loaning the money they have to various groups of people, from governments to homebuyers, who pay it back with interest. Except sometimes, of course, people can’t pay the money back when it’s due – maybe a country got into too much debt and is about to collapse, or maybe a million people bought homes they couldn’t afford and then lost their jobs and then stopped making house payments and now the group that originally loaned the money to the homebuyers from the investors can’t pay the investors back. That’s oversimplified, of course, but the main point is that when you loan money there’s a good chance you’ll get more money back but always a small chance you won’t get any of it back. In general, the more investors are wary of a certain borrower, the higher the interest rate they will require to loan them money. If the interest rate for, say, bonds issued by a certain country is low enough that there aren’t enough investors willing to get in on it, then the rate goes up until enough investors get attracted by it so the country can borrow as much money as they need for that time period, and that’s partly why interest rates all over the world go up and down all the time.

This is all well and good, but it gets rather complicated. for your average portfolio manager (let’s name him Max). If Jane Smith has $25 coming out of her check every two weeks to save for her retirement, Max tries to decide where best to invest the money. But there are thousands of places where he could put that money, from stock markets to government bonds all over the world, and he doesn’t have time to keep up with the ever-changing details of every country’s financial situation – right now the 5% interest rate on Italy bonds is a way better return than every stock market in the world, but the reason it’s so high is there are increasing fears that the government there might default – so Max probably doesn’t want to put Jane’s money there. But that’s just one example, and Max doesn’t have time to keep up with the ever-changing risks associated with the thousands of available options. So how does he decide where to put Jane’s money?

Continue reading Layman’s Terms: What Is the S&P Downgrade?

What’s Wrong With Mandated Paid Vacation?

I’ve been reading The Price of Everything by Eduardo Porter, which was recommended to me by, of all things, a copy of Relevant Magazine I got from Cornerstone Festival, and it’s got a lot of interesting information in it. Some of it has to do with how money relates to happiness. We know in general that money can’t buy happiness, but Porter looks at decades’ worth of surveys done across dozens of countries that attempt to measure satisfaction, well-being, and happiness. He concludes that generally people in richer countries are happier than people in poorer countries, but that the happiness gains from income gains seem to level off once you hit a rich enough point, partially because things like time start to matter more than money:

Time is relatively more valuable to the rich, who already have money, than for the poor who don’t… The value of our time also rises with age. That’s because wages increase as we proceed on our careers, gain expertise, and acquire seniority. The number of hours in the day, by contrast, does not. (p. 34)

Porter claims that according to surveys, life satisfaction actually fell in the United States in recent years even though it has increased in most other countries. He says that while Americans are on average more than one-third richer than French or Germans, we report about the same level of happiness, and he has a pretty good theory, related to the value of time, as to why this is the case:

No other workers in the industrial world work as much as Americans. Every country in the OECD except the United States mandates a combination of paid leave and paid public holidays… While the time devoted to work has declined in most industrial countries, in the United States it has remained flat over the past thirty years…

This work has produced a lot of growth… Yet perhaps what went wrong is that all the happiness gained by Americans from the extra income was consumed by the unhappiness of having to work seventy-six more hours a year to get it. Compare this with the situation in France. The French economy has grown a little more slowly. But the French worked 260 fewer hours in 1997 than in 1975… The trade-off changes as we become richer. The value of our scarce free time increases, while the things money can buy become less important the more we have. (p. 75-76)

Well, that’s pretty interesting, isn’t it? The libertarian in me thinks there’s already way too many government requirements for businesses, and the proper response to a desire for mandated paid vacation would be to write it off without a thought. Just because all the other countries do it… yeah, that’s what they said about health care too. The more you require things out of companies, the more they just make up for it by paying employees less or charging more for products; nothing is free and everything has a cost; extra regulations just slow down the economy and make it harder for us to make progress.

But what if we’ve already made enough progress that an extra week or two of free time would make us happier than the extra economic progress from the work? That’s a tantalizing thought. (For perspective, note that it’s estimated that about 75% of American workers already receive some paid vacation, although most of them probably do not get the several weeks offered in some European countries.) I’ve already seen time become more valuable to me as I grow up, and I’m only 22. Even the poor in the modern United States are fairly well-off, as this information from the Heritage Foundation suggests:

We already have plenty of stuff. Even if a mandate for paid vacation slowed economic progress in the United States, maybe we would all be happier. Of course, there are other arguments that we don’t want more vacation in the United States. CNN says, “Only 57% of U.S. workers use up all of the days they’re entitled to, compared with 89% of workers in France, a recent Reuters/Ipsos poll found… Working more makes Americans happier than Europeans, according to a study published recently in the Journal of Happiness Studies.” We get fewer vacation days, but we don’t even use them all – a bunch of us sure aren’t acting like more time off would make us happier.

Continue reading What’s Wrong With Mandated Paid Vacation?

End Aid To China. We Send Aid to China?!

They say that raw fraud and waste and inefficiency doesn’t make up a very large part of the budget. They say that all the easy low-hanging fruit has already been picked in the last couple years, and the only stuff left to cut requires hard decisions and painful sacrifices. But I sure keep getting surprised by stories of members of Congress trying to cut spending that I didn’t even know was happening. Here’s the latest:

WASHINGTON — A bipartisan group of senators is calling for an end to tens of millions of annual U.S. development aid to China, saying there are more needy countries than the world’s second-largest economy, which has trillions in foreign reserves.

The eight Democrats and four Republicans made their appeal Thursday to a Senate appropriations committee that must approve foreign aid funding for the fiscal year starting in October.

They urge an end to all development aid for China other than for Tibetans and for promoting human rights.

They say since 2001, the U.S. has provided more than $275 million in direct assistance to China, such as for expanding Internet access and improving public transportation.

If we’re still sending million of dollars to China to help them build roads or whatever – something we arguably shouldn’t have been doing in the first place – then I have to believe there’s still billions of dollars of easy cuts out there to horribly inefficient and unnecessary spending. (Also note that this one started when Bush was president.)

The irony with this one is that you could say the money we gave China probably came from China anyway. But the difference between this and China funding their own infrastructure is that we still have to pay the $275 million back.

The Narrative Fallacy and the Debt Ceiling

In Nassim Nicholas Taleb’s interesting book The Black Swan, he talks about the “narrative fallacy,” wherein we like to confidently prescribe reasons for random events. This happens all the time in financial news. Last Thursday the stock market dropped, and the headlines said, “Buyers exit market before House debt plan vote.” The article said:

U.S. stocks faded in the afternoon on Thursday to end mostly lower, with investors skeptical a key vote by Congress would lead to a deal to avoid a U.S. default. The S&P 500 fell for a fourth straight day as buyers kept to the sidelines while lawmakers tried to hash out an agreement on the deficit.

The next day, Friday, the stock market dropped again, bringing the Dow Jones loss over the last six days to 581 points. And what did the news say? Wall St ends worst week in a year on debt stalemate. Or, Markets on edge as debt limit debate drags on:

The Dow Jones industrial average fell nearly 100 points, its sixth straight decline, as the U.S. edged closer to a Tuesday deadline to raise the country’s borrowing limit or risk the prospect of a debt default.

Wow. We didn’t know if Congress was gonna pass a bill to extend the debt ceiling by August 2 (even though that date was part of even more atrocious reporting), and apparently investors were worried. That was repeatedly given as the reason for the stock market going down all last week. Then Sunday night they hammered out a deal, the House passed it on Monday, the Senate passed it on Tuesday, and it got signed into law. So what happened on Tuesday, August 2?

Stocks now down for year as economic concerns grow:

The stock market fell sharply Tuesday because investors have grown increasingly worried about the economy.

Aww! So much for the buyers coming off the sidelines because the debt ceiling got raised. Now it’s just the economy! But does anybody have any doubt what the headlines would have said if the Dow had dropped 265 points today and we hadn’t passed the debt ceiling bill?