The First Amendment vs. The Chicago Way

John McCain is no friend of the First Amendment. McCain-Feingold, the legislation that bears his name, is only the latest in a long series of attempts to restrict political discussion and debate regarding elections (for some examples of the pernicious effect that campaign finance regulations have had, see here and here). It would be hard, given Senator McCain’s history, for another candidate to show greater disregard for freedom of speech.

Barack Obama, however, seems to be giving it his best try. In Wednesday’s Boston Globe, Jeff Jacoby recounts some instances of the Obama campaign’s disturbing tendency to try to use government as a means of silencing criticism:

Blame It on the Fed

A week or two ago, the Wall Street Journal had an interview with Anna Schwartz in which she blamed the current financial situation on the artificially low interest rates created by the Federal Reserve in the early years of the new millennium:

How did we get into this mess in the first place? As in the 1920s, the current “disturbance” started with a “mania.” But manias always have a cause. “If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset.

“The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates that induced ordinary people to say, well, it’s so cheap to acquire whatever is the object of desire in an asset boom, and go ahead and acquire that object. And then of course if monetary policy tightens, the boom collapses.”

The house-price boom began with the very low interest rates in the early years of this decade under former Fed Chairman Alan Greenspan.

Schwartz is the co-author of one of the most respected and influential works on the causes of the Great Depression, a work whose thesis has been endorsed by now Fed Chairman Ben Bernanke (money quote: “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”) Her opinion on the matter thus cannot be dismissed out of hand. And, for what it’s worth, Alan Greenspan’s recent repudiation of capitalism makes more sense on the assumption that he was trying to deflect blame from himself.

Is Barack Obama Corrupt?

It may seem like a provocative question, but as Robin Hanson points out, the conclusion that he is corrupt follows from some widely held beliefs about the role of money in politics:

What motivates campaign donations? Discussions of campaign finance reform are dominated by a private interest theory, that donations are in trade for favors. Here donations in support of interests besides yours are bad news; they says the candidate has implicitly promised to help those interests at your expense.

The main alternative is a public interest theory, which says we donate to signal private info about candidate quality. Under this theory people who get private info suggesting a candidate would be good at promoting the general public interest donate money to signal confidence.

Hanson then proceeds to note the large amount of contributions that Obama has received. And while some of these contributions have been from small donors (or from people who don’t exist), the bulk of it has come from traditional, large money donors:

The Miracle of the Cheese and Cigarettes

This week’s EconTalk podcast featured Mike Munger talking about the role of middlemen in the economy. In the podcast, Prof. Munger makes reference to R.A. Radford’s famous article, The Economic Organization of a P.O.W. Camp, best known for its description of how cigarettes came to be used as a substitute for money in German P.O.W. camps during WWII (cigarettes are often used as a cash substitute in modern day prisons; in prisons where smoking is prohibited, it seems they use mackerel). Solders in these camps received care packages from the Red Cross containing cigarettes, tins of beef, cheese, chocolate, and other similar items. Since not everyone valued each of the individual items equally, trade soon developed. And so, apparently, did middlemen. According to Radford, “Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes.”

The mystery is how he was able to do this. Was he a saint, and the increase in his basket a miraculous event akin to the multiplication of the loaves and fishes? Was he was a very wicked man, who was able to increase his own bounty by defrauding his fellow prisoners? I would think not. More likely, the priest was simply being rewarded for performing a role common to all sorts of middlemen: namely that of matchmaker.

The Cold Hard Truth About the Credit Freeze

When I was about 3 or 4 I had a rather high fever, and my parents decided that the best way to help it break was to put me in the tub and let me sit for a while. The water was freezing, and I complained to my Mom to turn up the heat. “The water is hot,” she said. At first I didn’t believe her, until she pointed to her hands, which turned red from the heat after being placed in the tub, and to the steam rising from the bath. What felt like cold to me was in fact already quite hot, and it was only because of my abnormally high temperature that it didn’t feel that way.

Could something similar be true of today’s credit markets? Everyone seems to agree that credit was given out too freely over the past few years, and that standards need to be more stringent. But to an overheated market, even this readjustment to normal levels would feel like a freeze.

This question (are credit markets frozen, or do they just feel icy due to credit fever?) has been the subject of a remarkable series of posts on the Marginal Revolution blog. Alex Tabarrok started the ball rolling by linking to a recent working paper by the Federal Reserve Bank of Minneapolis which argues against a freeze. Here is a chart from that paper, which shows the quantity of interbank lending for the recent past (not the rate, mind you, but the volume):

Vacant Justice II

On Saturday, I talked about the likelihood that a President McCain or a President Obama would have the opportunity, if elected, to appoint Supreme Court Justices. Today I’d like to talk about the kind of justices they’d be likely to appoint. As with my previous post, I’ll be confining myself to considering whether such justices would be likely to overturn Roe v. Wade if given the chance (I focus on Roe not because I think other matters are unimportant, but because of the central role that the President’s ability to nominate Supreme Court Justices plays in many Catholics thinking on abortion and voting. For an analysis of whether overturning would actually reduce the abortion rate, see here).

I don’t think there’s much doubt that the Justices a President Obama would appoint to the Court would be pro-Roe. He has said as much, and previous experience with President Clinton’s nominees shows that Democrats tend to keep their word on such a pledge.

What about a President McCain?

Vacant Justice

When it comes to Supreme Court vacancies and abortion, there are two things to remember. First, not all vacancies are created equal. There are currently five clear pro-Roe votes on the Supreme Court (Stevens, Breyer, Ginsburg, Souter, and Kennedy), two clear anti-Roe votes (Scalia and Thomas), and two votes that are probably but not definitively anti-Roe (Roberts and Alito). To get an anti-Roe majority on the Court, it’s not sufficient for a President to appoint an anti-Roe justice. It must also be the case that the justice this anti-Roe justice is replacing is one of the five pro-Roe justices currently on the Court. So, for example, if Justice Scalia were to step down and the President were to appoint Judge Pryor (who is about as close to a certain anti-Roe vote as one could imagine) to replace him, this wouldn’t change the vote should a case reach the Supreme Court in which Roe was challenged. That doesn’t mean that a Supreme Court vacancy isn’t important if the justice being replaced is anti-Roe. Should a pro-Roe justice be appointed to replace an anti-Roe justice, this would make achieving an anti-Roe majority on the Court that much more difficult. Likewise, if a pro-Roe justice were to be replaced by another pro-Roe justice, this wouldn’t necessarily change the vote in any case involving Roe, but it would take that seat “off the table” in terms of building an anti-Roe majority for the next 30 years or so until that new pro-Roe justice got ready to retire.

The other important thing to note about Supreme Court vacancies is that they are not random events. A vacancy can occur because a given justice dies or is too ill to continue his service, or it can occur because the justice in question decides to retire. And whether a justice decides to retire at any given point will depend, in part, on whether he thinks he will be replaced on the Court by someone who broadly shares his views on the law. The more liberal a justice is, the less likely he will be to retire during a Republican administration (if he can help it). The more conservative a justice is, the less likely he will be to retire during a Democratic administration.

What About Fannie and Freddie?

Aside from the Community Reinvestment Act, the main culprits fingered by conservatives in their attempts to acquit the free market from charges of causing the current credit mess are Fannie Mae and Freddie Mac. Fannie and Freddie are rather curious creatures. Started as government entities, about forty years ago they were spun off into private, profit making institutions. This privatization was not complete, however, as the two Fs were subject to a different regulatory regime than other lending institutions, and held an implicit guarantee that their debts would be backed by the federal government if they ever got into trouble. I’d imagine that if you had asked your typical economist prior to the current crisis whether this was a desirable institutional set-up, the answer would have been a resounding “No!” And, unlike the Community Reinvestment Act, Fannie and Freddie do seem to have been deeply involved in the subprime mortgage mess.

To say that Fannie and Freddie were involved in the housing bubble, however, is not the same as saying that they caused the housing bubble or the resulting crash. From what I can tell, the claim that Fannie and Freddie played a major role in causing the crisis is not very plausible. For example, as this anti-F&F article notes, almost all of Fannie and Freddie’s involvement with subprime loans between 2005 and 2007, long after the housing bubble had gotten underway.

More on Krugman, Status, and Equality

A Slate column from twelve years ago probably doesn’t warrant a second response post (even if it is by Vox Nova’s favorite Nobel laureate), but I’m going to do it anyway. In his article, The CPI and the Rat Race, Paul Krugman claims that increases in the material standard of living in the U.S. over the last few decades are not all they are cracked up to be, as what matters to people is not so much their absolute condition as their condition relative to others:

I know quite a few academics who have nice houses, two cars, and enviable working conditions, yet are disappointed and bitter men–because they have never received an offer from Harvard and will probably not get a Nobel Prize. They live very well in material terms, but they judge themselves relative to their reference group, and so they feel deprived.

What matters to people, says Krugman, is not so much material possessions as status, and status, unlike economic resources, really is a zero sum game. Krugman ends by saying that:

If one follows this line of thought one might well be led to some extremely radical ideas about economic policy, ideas that are completely at odds with all current orthodoxies. But I won’t try to come to grips with such ideas in this column. Frankly, I don’t have the time. I have to get back to my research–otherwise, somebody else might get that Nobel.

Now that Krugman has won his Nobel, perhaps he will return to the subject.* If he does, he might want to start by revisiting an assumption that is implicit in his analysis, namely that the best way to decrease status inequality is by redistributing income.

A Minimum Wage for Thee, But Not For Me

ACORN (the Association of Community Organizations for Reform Now) has been much in the news of late, as the group is being investigated by the FBI and by the state’s of Ohio, Colorado, Michigan, Nevada, Missouri, Indiana, and Washington for possible voter registration fraud. Some have claimed that ACORN is trying to swing the election in favor of Senator Obama via illegal means. Others claim that ACORN is a good group, unfairly maligned by Republicans desperate to distract attention from their own dismal election prospects.

My familiarity with the group dates from a case a few years ago in California involving the minimum wage. You see, in addition to its voter registration activities, ACORN is a big advocate and agitator in favor of living wage ordinances, which it has helped to pass in several localities. In 1995, however, the group sued for an exemption to California’s $4.25 an hour minimum wage, claiming that the law was unconstitutional (only as applied to them). According to the Court, ACORN sought to justify it’s position as follows:

ACORN contends that California’s minimum wage laws, while facially constitutional as supported by the compelling state interest of ensuring wages adequate to maintain a decent standard of living (see Industrial Welfare Com. v. Superior Court, (1980) 27 Cal.3d 690, 701), are unconstitutional as applied to ACORN because they restrict ACORN’s ability to engage in political advocacy. According to ACORN, this adverse impact will be manifested in two ways: first, ACORN will be forced to hire fewer workers; second, its workers, if paid the minimum wage, will be less empathetic with ACORN’s low and moderate income constituency and will therefore be less effective advocates.