In a new article in the London Guardian, “$2 Trillion Debt Crisis Threatens to Bring Down 100 U.S. Cities,” Elena Moya reports that “Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the U.S. economic recovery. Nor are European cities safe—Florence, Barcelona, Madrid, Venice: all are in trouble.” Here is an except:

More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery.

“Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy,” Whitney told the CBS 60 Minutes programme on Sunday night.

“There’s not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults—more. This will amount to hundreds of billions of dollars’ worth of defaults.”

New Jersey governor Chris Christie summarised the problem succinctly: “We spent too much on everything. We spent money we didn’t have. We borrowed money just crazily. The credit card’s maxed out, and it’s over. We now have to get to the business of climbing out of the hole. We’ve been digging it for a decade or more. We’ve got to climb now, and a climb is harder.”

American cities and states have debts in total of as much as $2tn. In Europe, local and regional government borrowing is expected to reach a historical peak of nearly €1.3tn (£1.1tn) this year.

Cities from Detroit to Madrid are struggling to pay creditors, including providers of basic services such as street cleaning. Last week, Moody’s ratings agency warned about a possible downgrade for the cities of Florence and Barcelona and cut the rating of the Basque country in northern Spain. Lisbon was downgraded by rival agency Standard & Poor’s earlier this year, while the borrowings of Naples and Budapest are on the brink of junk status. Istanbul’s debt has already been downgraded to junk. . . .

Please also see the following Independent Institute books on the need to privatize and marketize cities and urban services:

The Voluntary City: Choice, Community, and Civil Society, edited by David T. Beito, Peter Gordon, and Alexander T. Tabarrok

Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell

Street Smart: Competition, Entrepreneurship, and the Future of Roads, edited by Gabriel Roth

Property Rights: Eminent Domain and Regulatory Takings Re-Examined, edited by Bruce Benson

To Serve and Protect: Privatization and Community in Criminal Justice, by Bruce L. Benson

Can Teachers Own Their Own Schools? New Strategies for Educational Excellence, by Richard K. Vedder

The much anticipated call to arms for a left/right antiwar coalition, ComeHomeAmerica.US, is now available. The book is edited by Paul Buhle, Bill Kauffman, George O’Neill Jr. and Kevin Zeese. It includes selections from both conservatives and liberals, including the editors as well as yours truly (on the American Anti-Imperialist League), Jesse Walker, Doug Bandow, Bill Kauffman, Cindy Sheehan, Ralph Nader, and many others.

Here is the book’s description:

This book was prepared for a meeting of people from across the political spectrum who oppose war and militarism. The book presents views from the right, left and radical center, views that reflect those of many Americans which are not represented in the political dialogue in Congress or the White House, or the mainstream media. Throughout American history there have been times when movements developed that were outside the limited political dialogue of the two major parties, such as the abolitionists, the Anti-Imperialist League, the Non-Partisan League, and aspects of the Old Right and the New Left. Sometimes those movements have broken through and created paradigm shifting moments. Some of the materials in this book describe the Populist Movement of the late 1800s to provide an example of the type of movement that can influence politics, even though it starts outside of the “acceptable” political spectrum. Our hope is that this meeting will be the first step toward building effective advocacy against war and militarism which pulls in the majority of Americans who recognize that war should truly be a last resort limited to the real defense of our Nation.

“Of all the enemies of true liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instrument for bringing the many under the domination of the few.”
—James Madison

On November 13, 2010, unsuspecting shoppers got a big surprise while enjoying their lunch at the Welland Seaway Mall in Welland, Ontario, Canada. More than 100 members of the Christmas Flash Mob broke out to sing the “Hallelujah Chorus,” from George Frideric Handel’s oratorio “Messiah.” This YouTube video of the event has now also been seen by more than 23.5 million viewers.

Here is another incident this year of the Christmas Flash Mob at Macy’s Center in Philadelphia, PA (October 26, 2010).

Merry Christmas to all!

HT: S. Fred Singer

Today the Senate joined the House of Representatives in repealing the ban against homosexuals serving in the military. 

In 1993 Congress enacted 10 U.S.C. § 654, which effectively prohibits homosexuals from serving in the armed forces.  The statute demands immediate separation from the armed forces of a person who (1) engages in or attempts to engage in a homosexual act, (2) states that he or she is homosexual, or (3) marries or attempts to marry a person of the same sex.  Congressional policy statements recorded in the preamble to the statute clearly state that “[t]he presence in the armed forces of persons who demonstrate a propensity or intent to engage in homosexual acts would create an unacceptable risk to the high standards of morale, good order and discipline, and unit cohesion that are the essence of military capability.” 

Many Americans disagree on whether section 654 is a sound statute.  Some cheer its demise and others fear that military readiness will be compromised.

Whatever your position on this, let’s all cheer that this change in policy was effectuated by our elected representatives in Congress rather than the unelected judiciary.  The Constitution grants Congress the  power to raise, support, and regulate the armed forces.  Congress has now exercised its authority to repeal prohibitions on homosexuals.  If the people’s representatives believe that this is a mistake, they can change their minds and reinstate section 654.  When courts resolve such policy matters, however, the democratic process is short circuited and the overturning of a court decision is much harder under principles of stare decisis. 

(Note that U.S. District Judge Virginia A. Phillips recently struck down the statute in Log Cabin Republicans v. United States, but the ruling was stayed.  Higher courts have considered the statute and upheld it.)

Right now the score card is 2 judges in favor and one against the insurance mandate.  According to reports, it might soon be 2-2.

This report is from the New York Times:

In a three-hour hearing, the judge, Roger Vinson of Federal District Court, said the law’s requirement that most Americans obtain insurance, a provision that takes effect in 2014, would constitute “a giant expansion” of the court’s traditional application of the Commerce Clause of the Constitution.

“People have always exercised the freedom to choose whether to buy or not buy a commercial product,” the judge said, noting that he had been uninsured and paid out of pocket when his first son was born.

Despite the nation finding itself in a very slow recovery, one part of the country is doing very well.  Newsweek reports that seven of the nation’s ten highest-income counties are in the Washington, D.C., area.  Four of the highest-income counties are in the D.C. suburbs of Maryland and three are in Virginia.  Also in the top ten are two New Jersey counties and one in New York.

At the top of the list is Loudoun County, Virginia, with a median household income of $114,000.  Only 16% if Loudoun County’s households make less than the national median income.  The unemployment rate in Loudoun County, at 4.9%, is well below the national average of 9.8%.  But that makes sense in light of the fact that while the private sector lost jobs during the recession, government employment went up.

If you are looking for economic security in tough times, it appears you’re better off as a member of the plundering class than the productive class.

Encountering a mad dog one day, the cat

   inquired of this menace: Republican or Democrat?

The dog’s mouth foamed freely with cash and honey,

   and he said: “Who cares? It’s all about the money.”

 —

He then led the cat down a garden path,

   all smiles and promises, till he turned in his wrath.

He attacked like the crazed beast he certainly was

   and sent the cat flying in a cloud of fuzz.

 —

So, beware politicians you might meet on your walk;

   they’ll promise you anything, but it’s just empty talk.

Don’t give them a chance to latch onto what you’ve got,

   for the only good mad dog’s the one that’s been shot.

I’ve been watching the negotiations on extending the Bush tax cuts take shape, and in the compromise shaping up between President Obama and the Republicans in Congress, nobody will get exactly what they want.

But, I was surprised to read Fareed Zakaria’s assessment in the Washington Post, because I think of him as a smart guy, and his opinion on the compromise is exactly the opposite of mine.  He says, “The only parts of the plan likely to have a significant effect in stimulating the economy are the extensions of unemployment insurance, cuts in payroll taxes and, perhaps, tax credits for businesses (“perhaps” because they are temporary and thus would only bring forward investments). To get these measures, worth about $250 billion, Obama agreed to an extension of the Bush tax cuts that will cost around $750 billion…”

So, Zakaria’s opinion is: Extending unemployment insurance: Good; Cuts in payroll taxes: Good; Extension of the Bush tax cuts: Bad.

My opinion is exactly the opposite: Extending unemployment insurance: Bad; Cuts in payroll taxes: Bad; Extension of the Bush tax cuts: Good.

I do have some sympathy for people who have a difficult time finding a job in a stagnant economy, but when you pay people to be unemployed, you are going to get more unemployed people.  Extending the unemployment benefits will slow the recovery (it already has), and contribute to the very problem it is supposed to mitigate. Unemployment would be lower, and the economy would recover faster, if we did away with the extended benefits.

I am also amazed that President Obama and other Democrats want to extend them, because the sagging economy works against Democrats.  Politically, it makes no sense for President Obama to bargain for a policy that will reduce his re-election chances in 2012.  So, extending unemployment insurance is bad for the economy, it’s bad for the Democrats, but it’s good for the Republicans.

A one-year cut in payroll taxes makes no sense to me.  I’m generally in favor of tax cuts, but with the (mythical) social security trust fund running down, why implement a tax cut that further compromises the program’s finances?  Zakaria seems to think this will stimulate hiring, but would employers really want to hire more now just because they get a one-year discount on labor costs?  Temporary tax cuts have a minimal stimulus effect, because everyone knows they will go away.  Zakaria even seems to acknowledge this when he mentions temporary tax credits for businesses.  Does the same argument not apply to a temporary payroll tax cut?  No stimulus effect, plus further weakening social security: those are the reasons I put this in the bad column.  But I would not call this “really bad,” because it is, after all, a tax cut.

Which brings us to the extension of the Bush tax cuts.  Lowering marginal tax rates is the best way to use tax policy to boost economic activity.  That’s what the Bush tax cuts did, and that’s why we should not only extend them, but make them “permanent” (of course, nothing in politics is really permanent).

President Obama seems to have no awareness that people who make high incomes make those incomes by (1) working hard, and (2) taking risks.  When the government shares in your profits, but not in your losses, that creates a disincentive toward risk-taking (and working hard), which reduces entrepreneurial activity in the economy: activity that keeps the US economy moving ahead.  For that reason, extending the Bush tax cuts for high-income people is more important to economic progress in the US than extending them to lower-income people.

I felt that my views on the tax compromise were straightforward enough that there was almost no point in mentioning them.  But when I saw that Fareed Zakaria’s views were exactly the opposite of mine, that prompted me to speak up.

U.S. District Court Judge Henry E. Hudson’s ruling today affirms that there are limits to Congress’s powers under the Commerce Clause.  Congress’s attempt to force Americans  to participate in the market for health insurance is a bridge too far under current precedent.   Judge Hudson rightly recognized that requiring Americans to participate in commerce to is simply different from regulating already-existing commercial activities.   

Judge Hudson did not enjoin enforcement of the law because he realized that the ultimate issue will be decided by the Supreme Court.  The coverage mandate does not go into effect until 2014, thus there was no reason to suspend this provision.  The Supreme Court will have decided the ultimate fate the health care law by then. 

Here is an early press report on the decision.

You probably have seen stories like this about student riots in Britain last week protesting tuition hikes.  The hikes are fairly substantial, roughly tripling the tuition students will be asked to pay.

What I find unsettling about this is that people in what we think of as a very civilized country that recognizes individual rights would riot because they believe that they are entitled to have others pay for their education.

We are headed that way in the United States too.  Indeed, we even use the word “entitlements” to describe many government redistribution payments.  We have evolved to a point where these payments are no longer viewed as the generous contributions of those who have the ability to pay to those who are not as well-off, but rather as, well, entitlements.  Those on the receiving end are entitled to make claims on the incomes of their fellow citizens.

The student riots are especially telling because, in general, college students come from higher-income families than the general population, so tuition subsidies have always, on average, been a subsidy from those who are less well-off to those who are financially better-off.

What do these riots say about the entitlement mentality of British society?  Is Britain that much different from other Western democracies?  The Orwellian way in which we have modified the language of government transfers is at least partly to blame.  Let’s go back to referring to transfers as public charity, rather than calling them entitlements.