Independent Institute Senior Fellow Robert Higgs is interviewed on Fox News’ “Freedom Watch with Judge Andrew Napolitano” on how Barack Obama is Herbert Hoover’s true “Progressive” heir as an economic interventionist, corporatist and protectionist. Hoover’s policies caused the Great Depression and Franklin Roosevelt then continued and greatly expanded such policies as his New Deal, deepening and prolonging the economic and social malaise until after World War II.

Also see Dr. Higgs’s books:

Crisis and Leviathan: Critical Episodes in the Growth of American Government

Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity.

[Crosspost from commentary section: http://www.independent.org/newsroom/article.asp?id=2623 ]

When Barack Obama dumped Rev. Jeremiah Wright during the presidential campaign, he explained that the Reverend was a man lost in another time, when hard-core white racism required hypersensitivity to issues of race.

Likewise, former President Jimmy Carter seems lost in the hypersensitive radicalism of the late 1960s. In controversial remarks, the former president recently tagged opponents of President Obama’s policies as racists: “I think an overwhelming portion of the intensely demonstrated animosity toward President Barack Obama is based on the fact that he is a black man.”

During the late 1960s, activists on the left started to color-code policy debates, much like their white supremacist predecessors. Older readers will recall: before the health care debate, it was welfare. Welfare reform was “code” for white racism, according to the deep thinkers of the 1970s and 1980s. Never mind that there was strong black support for such reform.

Now it is health care and budget deficits. Oppose the president’s proposal? You’re likely a “racist.” Concerned about massive deficits? Also “racist.”

Here is what Jimmy Carter and others fail to see: On race, America has changed across the board. Witness the election of Barack Obama, the integration of new immigrants into U.S. society (even in the rural South), and the acceptance of racial intermarriage. In 1958, only 4 percent of whites approved of intermarriage; today it barely elicits a yawn.

Immigration and intermarriage promise to change the black-white “race hustle” in ways the Left and Right can’t control.

This is a teachable moment for Jimmy Carter and others who do not know the hidden history of civil rights.

The civil rights movement owes much to individuals—some famous, some forgotten—who placed individual freedom, the Constitution, color-blind justice, and self-help above other interests. The movement started with Frederick Douglass, Lewis Tappan (the financial angel of abolitionism) and other evangelical Christians who struggled against the pernicious pro-slavery Christians of the South. In later years, these champions of liberty stood against Chinese Exclusion (1882), race-based immigration quotas (1924), and Japanese internment. They also stood for anti-lynching laws, merit-based college admissions (rejecting quotas on Jews), welcoming Jewish refugees from Nazi Germany, and decriminalizing “illegal aliens,” a promise carried through by Ronald Reagan.

If Jimmy Carter reads about this long struggle he will hear much name calling from opponents of “live and let live.” But he won’t hear it from Frederick Douglass, Booker T. Washington, superlawyer Louis Marshall, H.L. Mencken, Zora Neale Hurston, Branch Rickey and the many others who opposed inserting race where it doesn’t belong: sports, politics, college, and so on.

Part of the problem is that historians have blotted out this tradition. Only the “progressive” Left view is presented: that government is sometimes the problem, but always the solution. Those who favor nondiscrimination, what we used to call a “colorblind society,” are now to be considered racists.

In fact, it is government that has done the most harm to people living in our country because of their skin color. Government supported slavery, Jim Crow, Chinese Exclusion, Japanese internment, forced sterilization of “inferior races,” and today’s race preferences in hiring, promotion, awarding of contracts, and other areas. Libertarians such as Ward Connerly, who led the charge against state-sanctioned racial preferences in California, are the true heirs of the long civil rights movement, not Jimmy Carter.

Going deeper than law and politics, Americans can learn from pioneers such as Frederick Douglass that people should be treated as individuals rather than as symbols of group stereotypes. Carter ought to read Douglass’s orations, especially his speech envisioning an America where we are “one country, one citizenship, one liberty, one law, for all people without regard to race.”

Jimmy Carter is a relic of a time and mindset past. It’s time to move on.

By now, most Americans have watched the newscast on the brutal killing of Chicago honors student Derrion Albert.

FDR made “freedom from fear” one of his Four Freedoms. Many Chicago students flee to my rural university to secure “freedom from fear.” They escape gang violence and the prospect of ending up in jail. They are the Derrion Alberts of the world–kids who want to start over.

Alas, college administrators–in the name of “diversity”–promote gang magnet events such as our Player’s Ball: a fraternity-sponsored event with “pimps,” “hoes,” and “bitches.”

Guilty white administrators cave to demands for “urban culture.” After all, “it’s a black thing.” Diversity officials remain silent (privately, they do not approve but “what are we going to do?”).

The same administrators ban credit card vendors on campus, squelch “hate speech” (a term never applied in this context) but will not lift a finger to “do the right thing.” At the very least, campus officials could use their bully pulpit to criticize these events.

One of my former students escaped his gang, became an honors student and attended the “Ball” in his second year. At the Ball, gang members searched him out and put a “hit” on his head for leaving them. Several of us found a way to relocate him but ultimately this student left for another university.

That is not education, it is exodus.

Since administrators and diversity deans do nothing, say nothing, hear nothing, I call them out: “Shame on you!”

Derrion Albert could have been one of my students, if he lived to attend college. For the Derrions of the world, those of us who teach or lead need to speak up.

R.I.P. Derrion Albert

[Crossposted with National Association of Scholars blog.]

Sibel Edmonds, U.S. translator-turned gagged whistleblower, describes in her interview by Philip Giraldi in The American Conservative about one of the greatest scandals of our time, involving serious breaches of national security and foreign lobbyists blackmailing members of Congress. Stories like this are usually buried, however, as more superficial scandals always seem more sexy and easily analyzed in partisan sound bytes.

The Troubled Asset Relief Program (TARP) is a year old now.  On September 19, 2008, Treasury Secretary Henry Paulson announced the need for a $700 billion program to purchase toxic assets held by banks to prevent a financial meltdown, and after some modification TARP was rapidly approved by Congress on October 3.  Looking back after a year, was TARP necessary?  Did it work

The answers are No, and No.

To look at the first question, consider what TARP was designed to do.  Secretary Paulson said interbank lending had dried up because banks had these toxic assets (they were mortgage-backed securities) in their portfolios, and nobody knew what they were worth.  Banks could not, therefore, be sure of the financial security of other banks, so were reluctant to lend, locking up financial markets.  The solution, Paulson argued, was to approve TARP and use $700 billion to buy up those toxic assets.  When the toxic assets were replaced by Treasury securities, banks would then have more solid balance sheets and interbank lending would resume.

It is easy to say the program wasn’t necessary, because the TARP money wasn’t used to buy those toxic assets, despite Paulson’s argument that it was necessary to do so.  Instead, after some delay, TARP money was used to buy preferred stock in banks, shoring up their balance sheets by making the federal government part owner of the banks.

Secretary Paulson forced the nine largest banks to issue stock to the Treasury, paid for by TARP money, even though it appears that several of the banks didn’t want to participate.  (Other banks participated too.)  Secretary Paulson said that if some of the big banks participated and others didn’t, it would identify some banks as weaker than others, which Paulson believed was undesirable.

Instead of buying up toxic assets, which Paulson said was necessary, the TARP money was used to partially nationalize the banking industry.  TARP money was also used to take federal ownership of AIG (after it was initially rescued by the Fed) and to provide bailout money for Chrysler and General Motors.

When the auto companies initially approached Secretary Paulson for a share of the TARP money he said it was only to be used for the purchase of toxic assets from financial institutions.  But when Congress would not bail out the auto industry, Paulson changed his mind and put up TARP money.

Was it necessary to appropriate $700 billion to buy toxic assets?  In hindsight we can see the answer is no, because the money wasn’t used that way.  Instead it was used to purchase federal ownership of financial institutions and automobile manufacturers.

Did TARP work?  We see that it didn’t work as originally intended, but are we better off because the federal government has partially nationalized those financial and manufacturing firms?  We see that the TARP money didn’t prevent the bankruptcies of Chrysler and GM, it just delayed them for six months, and gave the federal government big ownership shares in the bankrupt companies.

As for the banks, it may be that some of them would have failed without the TARP money, but taking a longer view, that is not a bad thing.  When firms take risks, they must balance the potential profits from success against the potential losses from failure, and the TARP support removes the last part of that balancing act.  There may have been some dislocations in the short run from bank failures, but in the long run allowing them to go under preserves the incentive structure that makes a market economy run.

Banks are financial intermediaries that match up borrowers and lenders.  When a bank goes under, it does not reduce the amount of money available to borrowers, or prevent savers from providing money that can be lent.  Other financial intermediaries are available to borrowers and lenders to replace the activities that failed banks would have performed.  There may have been some short-run dislocation, but in the long run we are better off allowing markets to allocate resources.

Ultimately, what TARP did was to provide funds for the government to take an ownership interest in private firms.  Nationalizing our financial and industrial firms is not in the public interest.  The federal government now owns 80% of AIG and 61% of GM.  TARP was not necessary.  It didn’t work.  And what it actually did was undesirable.

You need a strong stomach to endure the messages disseminated by the mainstream news media, especially by its premier outlets, such as the New York Times. Of course, at this late date, nobody expects anything like political nonpartisanship or sound economic analysis  from the Times, yet one continues to hope that the writers will not flaunt their leftish sensibilities in an utterly buffoonish manner. If you happened upon a September 28 article “Europe’s Socialists Suffering Even in Downturn,” by Steven Erlanger, your hopes in this regard must have been violently shattered.

Much might be said about the article’s main content, but I won’t get into that material here.  What struck me comes right at the beginning in an explicit statement of the writer’s assumptions. The article begins well enough—splendidly, in fact—as its first sentence tells us, “A specter is haunting Europe—the specter of Socialism’s slow collapse.”  The next sentence, however, begins with the prefatory phrase, “Even in the midst of one of the greatest challenges to capitalism in 75 years, involving a breakdown of the financial system due to ‘irrational exuberance,’ greed and the weakness of regulatory systems,” then tells us that European socialist parties nevertheless are not doing well.

Not that style alone reveals much, of course, but one might wonder why Socialism is written with a capital letter, and capitalism is not. This stylistic distinction tempts one to think of the parallelism in writing God with a capital letter, but the devil in lower case.

There’s something charmingly quaint about the leftists’ continuing attack on capitalism, which is a type of economic order that, if it ever existed at all in this country, has not existed in recognizable form since the 1920s—in a more plausible assessment, not since the years before World War I. Yet the so-called progressives never tire of beating the long-dead horse of capitalism. Are they so ideologically blind that they cannot see how governments at every level have intervened and intervened again until they have displaced or distorted every element of the economic order that might once have contributed to its capitalist character? We live, as F. A. Hayek observed as long ago as 1935, not in a market system, but in a situation of interventionist chaos, where virtually every market is so hog-tied by regulations, laws, and taxes or so artificially pumped up by subsidies, regulatory advantages, and tax loopholes that virtually nothing remains pure and unsullied by the filthy hand of the interventionist state. We inhabit, as we have for nearly a century, a blessed “mixed economy.” What’s this ongoing nonsense about the failure of capitalism? Before anything can fail, it must first exist.

Then comes the obligatory progressive whack at greed, as if those who conduct business among consenting buyers and sellers are intrinsically soiled by an unworthy motivation, whereas, in stark contrast, those whose greed is expressed through state-sanctioned robbery and extortion are, lo and behold, verging on sainthood. How did these people come to believe that getting something done by threatening violence against those who don’t care to join the party—that is, by working through the state—stands higher on the holiness scale than private voluntary cooperation? It takes a special kind of intelligence to achieve this sort of twisted moral outlook, but the New York Times, along with the other upscale news media,  has succeeded in finding writers whose ability is equal to the challenge.

Notice also the assumption that markets are driven by “irrational exuberance,” rather than by rational calculation and bottom-line self-responsibility, and that any perceived market failure must have been the result of “the weakness of regulatory systems.” Can anything fly more flagrantly in the face of centuries of facts? When have governments ever acted more rationally than private individuals in free markets? And when have stronger regulations ever solved any real problem, as opposed to creating new or greater problems where private actors were chipping away at genuine solutions, had they only been left alone to carry out their plans? The shelves are groaning under the weight of the Code of Federal Regulations, yet the progressive will never rest until we have reached that nirvana in which everything that is not forbidden is required.

To reflect on the fact that the New York Times serves as a prime source of information for the better sorts and for the political class is to despair of the future of our prosperity and our freedom—what little remains of them. God save us from outrageously overbearing and intolerably impudent, yet tiresomely ignorant and analytically challenged, progressive news media.

(P.S. No one should interpret the foregoing commentary as in any way friendly toward so-called conservatives, whose sins are at least the equal of, and often worse than, those the progressives habitually commit.)

One of the interesting things about the Baucus health care reform bill now under consideration by Congress is that it will place a large financial burden on state governments, while state governments already consider themselves fiscally overburdened.  You would think that governors and state legislators would be up in arms about this, but I’ve heard little from them in terms of objections.

The burden has been noticed by many, including Senate majority leader Harry Reid of Nevada, who is pushing to have 100 percent of Nevada’s extra costs covered by the federal government.  While Senator Reid may have the power to effect this change in the bill, you’d think that this shifting of costs to the states would be enough to eventually kill it.  Isn’t there enough political clout at the state level to stop this from happening?

The shift of costs to the states is a result of increasing the scope of Medicaid, whose costs are shared between the federal and state governments.  The Baucus bill already proposes to pay between 77 and 95 percent of the additional state costs for the first five years, after which the states are on the hook for all of it.  So the costs that Senator Reid is worried about are a small part of the burden states would face in five years.

I don’t really view this as a partisan issue.  Regardless of what you think about health care reform generally, does anybody think that it would be a good idea for this federal initiative to place additional financial burdens on state governments?  They would either have to raise their taxes to pay for a federal program, let Medicaid crowd out other state expenditures, or some combination of both.  In support of my claim that the issue is not partisan, Democrat Harry Reid is on my side.

The root of this particular problem goes back nearly a century, to the passage of the 17th amendment in 1913.  Prior to the 17th amendment Senators were chosen by their state legislatures, and represented the interests of their state governments.  Under that system, this cost-shifting could not have been remotely feasible, because the representatives of the state governments, in the Senate, would not possibly sign off on it.  Now, with the popular election of senators, Congress is more able to pass the costs of its initiatives on to the states.

I’ll go a step further and argue that the cost-sharing arrangement in the original Medicaid program approved in 1965 could not have passed had Senators been chosen by their state governments rather than by popular vote.

Lots of people have criticized Senator Baucus’s health bill, and I’m one of them.  Looking at the bigger picture, the issue I’ve raised also provides a nice illustration for why we should repeal the 17th amendment.

Dear Anonymous Donor:

Thank you for your contribution of a 2008 1,000,000,000,000 Zimbabwean dollar (ZWD) note, received by mail today. We note that the Zimbabwean government redenominated the ZWD again on February 2, 2009, at a rate of 1,000,000,000,000 old ZWD to 1 new ZWD, and as I write this your donation is currently valued at $0.00275961.

Since we don’t know where to send a letter thanking you for your contribution, please consider this your official notification that, in accordance with IRS regulations, your entire gift is tax-deductible, in return for which no goods or services were provided.

Please consult your own tax counsel to determine if you can deduct the cost of the stamp you used to mail it to us: its value is nearly 160 times that of your enclosed cash donation.

Very truly yours,
Mary Theroux

The 2010 Sir John M. Templeton Fellowships Essay Contest is underway. Open to college students (undergraduates and grad students) and untenured college teachers from around the world, the contest will award a total of $26,500 in prize money for the best essays addressing a question prompted by political economist Frederic Bastiat.

“Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone.” —Frederic Bastiat (1801–1850)

Assuming Bastiat is correct, what ideas or reforms could be developed to make people better aware that government wants to live at their expense?

Junior Faculty Division:

1st Prize: $10,000
2nd Prize: $7,500
3rd Prize: $4,000

Student Division:

1st Prize: $2,500
2nd Prize: $1,500
3rd Prize: $1,000

The deadline is May 3, 2010. The winners will be announced in October 2010. (Winners of the 2009 Templeton Fellowships Essay Contest will be announced this October.)

More information about the 2010 Templeton Fellowships Essay Contest, including rules, full eligibility requirements, bibliography, and winning essays from previous years

Federal, state and local taxes customarily are due when you choose to do something, such as buy a pack of cigarettes, a gallon of gasoline, a new set of tires, a bottle of liquor or wine, a bracelet or a ring, or take a job and earn income. No tax is due if you choose not to do those things.

Buried in the fine print of the various healthcare reform bills now being considered on Capitol Hill are provisions for taxing people who do not purchase a product President Obama and his allies in Congress plan to insist that you buy, namely, yet-to-be-defined “adequate” health insurance.

Legislation backed by Senate Finance Committee Chairman Max Baucus proposes levying an excise tax on anyone who does not maintain health insurance coverage. Individuals who fail to purchase such policies face fines of up to $980 per year; the penalty could be as high as $3,800 for families. The House version of the bill also calls for “a tax on individuals without acceptable healthcare coverage”.

Demanding that every American either pay or play by the government’s forthcoming healthcare rules is a blunt way of forcing people who would not otherwise do so to buy insurance. Large numbers of the 30 million (or is it 40 million?) individuals now uninsured are young, unmarried and in good health. Not purchasing health insurance is a fairly safe bet for them. But the premiums (or taxes) they will be required to pay are designed to help cover the healthcare costs of people with preexisting conditions to who, if Obamacare is enacted, no insurer, private or public, will be able to deny coverage or even charge actuarially fair premiums. “Adverse selection”, a problem that exists because purchasing insurance is rational only for those who expect their risk-adjusted cost of claims to exceed their premium payments, can quickly bankrupt a private insurer or cause the budget of a public insurance option to go deeply into the red.

But wait! Washington is close to issuing a diktat either that you buy health insurance or pay an excise-tax penalty if you do not. The terms of the coverage you purchase voluntarily cannot be too generous, though, or your insurance company will be subject to another tax. Under the Baucus proposal, if an individual pays more than $8,000 per year in health insurance premiums – or a family pays more than $21,000 – the federal government will levy a 35 percent tax on the policy. That tax will be collected from the insurer, but by the laws of supply and demand, some (perhaps most) of the burden will be passed on to consumers in the form of even higher premiums.

Labor union members and federal government employees are the principal beneficiaries of so-called Cadillac health insurance policies (with General Motors functioning under public ownership, “Lexus policies” possibly is more apt). The 35 percent tax may therefore be doomed politically and have to be made up for with revenue-enhancing increases in other taxes.

It is not news that the public sector’s appetite for taxes is insatiable. But the healthcare reforms now on the table break new ground. Taxing people who choose not to purchase health insurance is not much different from taxing people who do not buy cigarettes. After all, nonsmokers too deny government a potential source of revenue. By the same argument, no personal choices should be left untaxed.