The Enterprise Blog

Archive for December, 2009

Douglas Smith

Three Cheers for Anastasia Kelly

By Douglas Smith

December 31, 2009, 2:51 pm

This week Anastasia Kelly resigned from her position as general counsel of American International Group after the Obama administration’s pay czar threatened to cut her compensation. While certain commentators have criticized her resignation, and in particular her severance package, rumored to be around $2.8 million, it is to be applauded. The government’s attempt to impose limits on the compensation of individuals in the private sector constitutes a gross form of overreaching. It also points out the hazards of the government’s recent bailouts to private industry. The government should not be in the business of “bailing out” certain favored companies. Once it does, however, it should not seek to impose limitations on compensation that are inconsistent with what the market is willing to pay. Doing so only risks losing talent needed to turn these companies around and recoup the government’s investment.

Michael Auslin

A Few Hollywood Entrepreneurs

By Michael Auslin

December 31, 2009, 12:28 pm

Jay Richards asked about Hollywood portrayals of entrepreneurs and corporations in a positive light. Granted, it’s a short list, but four entrepreneur-types that come to mind are:

1. Gary Cooper, as Howard Roark in the 1949 treatment of Ayn Rand’s The Fountainhead;

2. William Holden, in the overlooked 1955 classic Executive Suite (as the idealistic engineer who fights for his company’s soul after the death of its president);

3. Bill Pullman as vintner Jim Barrett in 2008′s Bottle Shock (based on a true story); and

4. Greg Kinnear, as Bob Kearns, inventor of the intermittent windshield wiper, in 2008′s Flash of Genius (also based on a true story)—though here the corporation, GM, is a clear villain.

Positive portrayals of corporations are harder to come by, but then again, they probably wouldn’t make for such a compelling movie.

AEI’s Freakonomist

By The Editors

December 31, 2009, 10:12 am

Imagine if one of the guys from Freakonomics were hired to run a major conservative think tank. Now you can picture Arthur Brooks.

See more here from Politics Daily.

After pointing out that the healthcare bill is 2,000 pages longer than the landmark Civil Rights Act, a reader writes in:

Thanks for writing the short posting “I Didn’t Have Time to Write a Short Bill, So I Wrote a Long One Instead.”

As a worker in high tech, I’m faced with viruses etc. all the time. Call them malware. So, my characterization of long bills — the only purpose, ever, of a long bill is to hide malware. That is, earmarks, things that the simple (like me) would call bribes, special treatment for identifiable companies or lobbyists, etc.  The reason that it takes a lot of pages is that they have to describe the person and the payment very indirectly (so there are no sound bites, and no one but a lawyer is likely to parse the bill that deeply).

As one simple example among thousands, the purchase of Senator Mary Landrieu’s vote with a hundred page adder to the health care bill.

This is an excellent observation. In From Poverty to Prosperity, Arnold Kling and I liken a nation’s laws and institutions to the operating system and software of a computer. We call it the “software layer” of the economy, and if that layer is riddled with bugs and viruses—in the form, say, of corruption—then a nation’s economic performance will suffer. We write in the book:

Societies are held back by government corruption, resistance to innovation, and the habit of rewarding those who expropriate wealth more highly than those who crate it. Institutions are to the economy what an operating system is to a computer. A clumsy or buggy institutional environment will hinder economic performance.

My sense is the bills written by Congress this year are really buggy code.

Jay Richards

Batman and Ironman: Entrepreneurs?

By Jay Richards

December 31, 2009, 10:05 am

In my article “The Miser Versus the Entrepreneur,” I bemoaned the fact that Hollywood so rarely presents entrepreneurs as noble characters. The only ones I mentioned were George Bailey from It’s a Wonderful Life and Willy Wonka. And even these two come with catches—Wonka is eccentric and Bailey is “balanced” by the evil banker Mr. Potter. I figured there must be other examples, but I had a hard time coming up with scads of really solid ones.

A friend suggested that I had overlooked two obvious examples from recent blockbusters—Bruce Wayne from The Dark Knight and Tony Stark from Ironman. These are especially acute oversights for me since I’ve seen both movies, well, more times than I’d want to admit in print. Both are the good guys, and both are successful businessmen and inventors to boot. So, technically, they qualify as positive Hollywood examples of entrepreneurs. Perhaps this is one unwitting reason I liked both movies so much.

Of course, there are complications. Both are heirs to great fortunes, and Wayne seems to use his money mainly as a means for enhancing the heroic qualities of his alter ego, Batman. Much the same is true of Stark, the conflicted weapons designer, who in some ways redeems the evil uses of his inventions as Ironman. The heroism of the unidentified Batman and Ironman are in some ways cordoned off from the roles of Wayne and Stark as business entrepreneurs. But with 21st-century Hollywood, perhaps this is the most we can hope for.

Now here’s an even tougher one: can you think of any recent movies that portray a corporation as a force for good?

It’s the doldrums of December, the winter equivalent of August dog days—but, to mix metaphors with abandon, the anti-trade termites are quietly and relentlessly eating away at U.S. open market and free trade policies. On December 16, the House passed a new $154 billion stimulus bill (the misnamed Jobs for Main Street Act, H.R. 2847). Almost $30 billion additional funds are slated for highway construction and repair projects. Buried within its obscure provisions are new Buy America restrictions that are even tighter than those passed in the original February stimulus bill (who says Congress never learns from past mistakes?).

The new mandates make it much more difficult for departments and agencies to grant waivers to Buy America; mandates include onerous administrative procedures and the requirement that domestic manufacturing jobs be granted preemptive status. As with the February stimulus bill, a who’s who of business interests (some 28 associations and individual companies) wrote a letter protesting the new action, to no avail, of course. Also as in February, the Obama administration was conspicuously absent in the days leading up to passage of the bill (though “sources” told trade publications that the U.S. trade representative was “quietly” working to delete the provision). But certainly there was no clarion call from the White House demanding that the bill be changed or warning that retaliation from trading partners could cost the United States many more jobs than the egregious Buy America provisions could “save.” And, finally, once again like in February, the administration will start out the new year behind the eight ball, attempting to work with the Senate to amend the language, with the same likely result: retention of a tighter Buy America, with the ludicrous proviso that, of course, implementation must not violate U.S. international trade obligations.

Now for a final downer, somewhat deep in the weeds of trade politics. Just before Christmas, Rep. Mike Michaud (D-Maine) and his cohorts in the Democratic Populist Caucus and Trade Working Group (the “avatars” of anti-globalization) finally achieved their goal of getting a majority of House Democrats to sign up to support the Trade Reform, Accountability, Development, and Employment (TRADE) Act of 2009. The provisions of this bill call for a revolution in U.S. trade policy, including mandates that would require renegotiation of all existing free trade agreements in order to force U.S. trading partners to accept major new policies regarding labor and environmental laws, currency regulation, standards for foreign direct investment, health and safety regulations, and government procurement. Rep. Michaud and his fellow anti-trade travelers probably do not expect the full bill to become law, but with a “majority of the majority” they do expect to exact a high price from the Obama administration and the House leadership if and when the president decides it’s time for the United States to reassert itself in the trade arena.

Nick Schulz

Who’s Reading FP2P?

By Nick Schulz

December 30, 2009, 3:59 pm

Yuval Levin, that’s who.

It’s a deeply insightful look at where economics is going and why that should matter to us. They’ve managed to make a book about economics… into a genuinely exciting read (well, for a certain kind of reader of course.) Very well worth your while.

Yuval is delivering next month’s Bradley Lecture on “Recovering the Case for Capitalism.” This will be a major talk, and it is not to be missed. Yuval’s talk will be, as Tyler Cowen would say, self-recommending.

UPDATE: Brooks Wilson also likes FP2P.

In a letter to Rep. Bruce Braley, the Congressional Budget Office further explains some of its analysis regarding the effects of medical malpractice reform on health costs and health outcomes. The letter as a whole is worth reading for a number of reasons, but one point stuck out to me.

Pessimists regarding malpractice reform have pointed out that it would save the federal budget only around $54 billion over ten years. I say “only” because this is nevertheless almost half as much as the entire Senate health bill would purportedly save, even leaving aside well-justified uncertainties regarding whether the Senate bill double-counts its savings. The deficit reductions from malpractice reform seem more certain than other savings proposed in the Senate bill (certainly more than the so-called “game changers,” whose defining quality seems to be that they don’t change the game all that much).

In any case, though, the CBO letter points out that savings would go beyond the federal budget. This makes sense, since most private sector healthcare that would be affected by changes in medical liability laws is not (or, at least, not yet) paid for by the federal government. CBO projects that “the combination of direct savings in malpractice costs and indirect savings in healthcare services would reduce national health spending in response to the proposed reforms by roughly 0.5 percent.”

National health expenditures for 2008 are estimated at $2.4 trillion. Cutting that amount by 0.5 percent would produce overall savings of around $120 billion each year, meaning the true savings to Americans are more than twice the $54 billion figure that is commonly cited.

Malpractice reform is hardly the solution to all our problems, as some seem to believe, but it’s also much too big an issue for liberals to dismiss so casually. (The fact that trial lawyers are a major Democratic constituency has nothing to do with it, of course. Just ask Howard Dean.) When the current health legislation fails to produce the promised savings—or even if it does, and we realize that they’re not nearly enough—this may be a direction in which to look.

Jay Richards

Taking Jihadist Islamism Seriously

By Jay Richards

December 30, 2009, 10:27 am

Christopher Hitchens’s view of religion lacks nuance. He often treats different religions, with fundamentally different beliefs, as if they were more or less the same thing. He finds it almost impossible to balance an eloquent litany of the evils done in the name of a religion with the immense good done in the same name. And he often fails to distinguish different threads within the same religion. But he consistently gets one thing right that seems to elude too many of our elites: religion matters. It informs decisions. It guides conduct. It inspires sacrifice. And sometimes, it incites brutality and evil. Yes, evil.

Of course, there’s no one generic thing called “religion.” There are religions with all manner of different theologies, practices, and histories. Nuance matters here. But one thing should, by now, be clear. It is very specific religious ideology—not mere depression, not existential angst, not mere repressed sexual tension, not bad Western diplomacy, and certainly not poverty—that inspires a well-off Nigerian 23-year-old to strap explosives to his privates in order to kill himself and a few hundred innocent strangers. On Christmas Day. Whatever its name, this religious ideology can’t be wished away. “Jihadist Islamism” works for me. It distinguishes it from “Islam” simpliciter (as philosophers say) without euphemizing it away or pretending that it has no real relation to Islam.

It borders on collective delusion not to face the intrinsically religious and theological taproots of this ideology, and to plan accordingly. The survival of our civilization may hinge, in the end, on whether those in “authority” are able to do so.

Hitchens makes the point with characteristic clarity in Slate:

What nobody in authority thinks us grown-up enough to be told is this: We had better get used to being the civilians who are under a relentless and planned assault from the pledged supporters of a wicked theocratic ideology. These people will kill themselves to attack hotels, weddings, buses, subways, cinemas, and trains. They consider Jews, Christians, Hindus, women, homosexuals, and dissident Muslims (to give only the main instances) to be divinely mandated slaughter victims. Our civil aviation is only the most psychologically frightening symbol of a plethora of potential targets. The future murderers will generally not be from refugee camps or slums (though they are being indoctrinated every day in our prisons); they will frequently be from educated backgrounds, and they will often not be from overseas at all. They are already in our suburbs and even in our military. We can expect to take casualties. The battle will go on for the rest of our lives. Those who plan our destruction know what they want, and they are prepared to kill and die for it. Those who don’t get the point prefer to whine about “endless war,” accidentally speaking the truth about something of which the attempted Christmas bombing over Michigan was only a foretaste. While we fumble with bureaucracy and euphemism, they are flying high.

With apologies to Blaise Pascal

Much has been made about the length of the legislation Congress developed in 2009. The cap-and-trade bill that passed the House was 1,201 pages. The stimulus bill was 1,073 pages. The healthcare bill that passed the Senate  takes the cake this year at 2,074 pages (the House version was a mere 1,990 pages).

A little historical context is helpful. How long were some of the bills that were among the most consequential in our nation’s history?

Homestead Act (1862) — 9 pages.

National Labor Relations Act (1935) [aka “Wagner Act”] — 25 pages.

Social Security Act (1935) — 82 pages.

Civil Rights Act (1964) — 74 pages.

I especially like that last one—the healthcare bill is 2,000 pages more than the Civil Rights Act. There’s probably a larger point to be made here (the need for “simple rules for a complex world” and all that) but the numbers really do speak for themselves.

Special thanks to AEI’s Henry Olsen, researcher Joy Pavelski, and the Library of Congress.

UPDATE: Mark Perry cobbles together what this looks like in graphical form:

bills

About a year after Arne Duncan was nominated to serve as Secretary of Education, today’s Washington Post finally got around to running a story that takes a slightly critical slant in assessing just how well Chicago’s schools actually did during Duncan’s seven-year tenure as superintendent. Reporter Nick Anderson noted that Chicago’s fourth-grade math gains from 2003 to 2009 ranked behind those of several big-city districts including Boston, New York, San Diego, Atlanta, Houston, and even D.C., and that its eighth-grade gains similarly lagged Boston, San Diego, Atlanta, Houston, and Los Angeles.

While better late than never, it would have been nice if we’d seen more of this kind of coverage last winter or during 2009 when the major newspapers were serving as something of a cheering section for Duncan, education stimulus spending, and the Race to the Top initiative. Indeed, the unbridled enthusiasm (and pooh-poohing of skeptics) that has marked news and editorial coverage is eerily reminiscent of the initial response to No Child Left Behind—and we all remember how swimmingly that turned out.

With regard to Duncan in particular, whose omnipresence has D.C. education media pros chatting about the dangers of overexposure, even the new WaPo story is remarkably gentle. Anderson says that Duncan told him that “he is careful not to exaggerate his record,” though Anderson notes that Duncan also said at his Senate confirmation hearing last winter that his Chicago schools were proud “to really be a model of national reform.” More significant, perhaps, is that it’s easy to forget the wealth of advantages that Duncan enjoyed during his seven-year run, and why that suggests taking Duncan’s prescriptions with a grain of salt.

Duncan was appointed by America’s strongest mayor; followed a predecessor (Paul Vallas) who had cleaned house and gotten the books in order; was paired up with the Chicago Teachers Union, one of the nation’s weakest big-city unions; led during a real estate boom that kept the coffers full and alleviated the need for hard choices; inherited the nation’s single best district-specific research outfit (the famed “Chicago Consortium”); enjoyed the support of the lavishly funded and hard-charging Chicago Education Fund under the able hand of Janet Knupp; and had a “mutual consent” provision courtesy of 1995 state legislation, which meant that teachers could only be assigned to a new school if the teacher accepted the assignment and the school accepted them, a crucial bit of legislation that trumped the local contract and that most reformist superintendents would kill for. Given all this, it’s appropriate to consider Duncan’s more ambitious structural reforms—including school closures and his support for charter school creation—on something of a curve, and to note that the extent of his success on rethinking teacher pay was to introduce additional dollars for bonuses into a couple dozen schools out of 600.

Duncan seems like a good and honorable man. His tenure in Chicago featured some noteworthy efforts to promote structural reform. On the whole, I buy Checker Finn’s assessment that Chicago is a “story of a large urban system that has made some gains and has made some promising structural changes.” But there is something incongruous about his occasional shots at more aggressive and less privileged superintendents, such as D.C.’s Chancellor Michelle Rhee, for being unduly combative. It’s easy to be a peacemaker when your opposition is weak, your pace is modest, and you have plenty of resources to buy off your critics. In listening to Duncan or reading his remarks, I sometimes find myself reminded of Ann Richard’s gibe from the 1988 Democratic National Convention: “Poor George … he was born on third base and thought he hit a triple.”

Charles Murray

Happy New Year, Parisians

By Charles Murray

December 29, 2009, 2:54 pm

A reader writes to me what may qualify as 2009′s most entertaining and best-crafted email responding to something I’ve written. About my recent post wishing the French a Merry Christmas, he says:

Sir.

I admire and enjoy your work. In the case of your article in the Weekly Standard and the more recent one at AEI, though, I want to strike a cautionary note.

Like many — perhaps most — Americans I came to have a generalized dislike for the French. Based on a lot of anecdotal stuff, the French press, statements of French politicians, reading Revel’s Anti-Americanism I believe my prejudices were reasonably well-founded. But I was thinking (still do) of the French in the aggregate.

During my 19 years teaching ESL (volunteer) I had personal contact in some depth with a fair number of French students whom I found to be — almost without exception — unfailingly polite, kind, helpful, engaging and sensitive. Many blessed with a splendid sense of humor. All the traits I was not prepared for, but there they were.

For all that, I found their view of the world pretty consistent with the conservative stereotype. Most hold extremely liberal views (spectacularly innocent of fact), which, to their credit, they defend with righteous assurance rather than the arrogance of, say, Scandinavians, Germans and especially Brits.

Among their most strongly held views I found the socialist economic model and the denial-of-causality component of political correctness to be dominant. And while they are convinced that Americans know nothing of European history (ils ont raison, peut-etre), those I have talked with often revealed a shocking ignorance not only of American history but of their own. What they “know” with certainty is what the French press knows with certainty.

My experience parallels yours (pleasant surprise being a common factor), but I remain hesitant to draw too much from it. I agree with you that Americans and French share many good qualities, but when you say, “…and I finally figured it out: The French are Europe’s Americans. Describe the French, and you’re usually describing Americans,” I think you may be — unfortunately — correct. A look at contemporary America’s politics would seem to confirm it.

The charms of the French aside, I suspect that Burke’s views have not gone obsolete.

Let’s face it: Given that almost all the world (including most Americans) are politically obnoxious and historically illiterate, we can’t afford to limit the people for whom we feel affection to those who agree with us. And the reflexively nasty remarks about the French that we hear all the time in the United States are just as irritating as any French reflexive political correctness. So aren’t my post, and the Weekly Standard article, justified if only pour épater les bourgeois?

These are what citizen revolutionaries look like: Senior citizens with sticks participating in a protest march against the Ahmadinejad government and shouting “Give me my vote.” Middle-aged people with their young sons and daughters born after the revolution of 1979 who chant “Death to the dictator,” a slogan directed not at the president but at Supreme Leader Ali Khamenei, award-winning dictator of the year.

The citizen revolutionaries are unarmed, with the exception of the greatest weapons of democratic citizens: a sense of moral superiority and self-confidence derived from a just cause, and a mobile phone for taking pictures of the forces of repression and publishing them on the Internet. Freedom is the cause of the citizen revolutionaries, and their struggle is not a lonely one—freedom lovers abroad support them. The citizen revolutionaries are also superior in number, take over police cars, and free demonstrators held captive. Citizen revolutionaries encircle riot police asking them why they shoot at their family members; meanwhile, weeping youth in anti-riot gear beg for the citizen revolutionaries’ mercy.

You recognize a citizen revolutionary by his courage. Eight people, possibly more, were killed by riot police during yesterday’s demonstrations. But those citizen revolutionaries who sacrificed their lives for the sake of freedom have not died in vain. A week from now, a new wave of citizen revolutionaries will go to the streets to mourn them, igniting another round of clashes against the regime. Should the regime choose to kill more sons and daughters of Iran, the cycle will continue until members of the armed forces recognize that they are not aiming at foreign enemies, but are killing their own family members and citizens of Iran. And, indeed, there are reports of policemen not obeying their commanding officers’ orders to take direct aim and shoot the protesters.

The Islamic Republic still has the Revolutionary Guards and the Basij as its last bastions. The collapse of the regime is not near and the revolutionary struggle of Iranian citizens may prove long; but the power of the citizen revolutionary is growing by the day.

شهروندان انقلابی

شهروند انقلابی ایرانی چهره ای آشنا دارد: پدر و مادر بزرگ های عصا بدست که در راهپیمایی بر علیه دولت احمدی نژاد فریاد می زنند: «رای من کجاست؟» چهره دیگر شهروند انقلابی پدر و مادر های میان سال است که در گذشته ای نه چندان دور انقلابی دیگر را به ثمر رساندند و از آن پس مواجه پرسش های بی وقفه فرزندان خود بوده اند، که آیا این خواسته انقلاب شما بود؟ پس بانیان انقلاب دست در دست فرزندان انقلاب در خیابان  فریاد «مرگ بر دیکتاتور» سر می دهند. مخاطب این شعار نه رئیس جمهور دروغین محمود احمدی نژاد، بلکه علی خامنه ای است که لقب «دیکتاتور سال» را در میان دیگر افتخارات خود به یدک می کشد..
شهروند انقلابی بی سلاح است، قوت قلبش از حس برتری اخلاقی و اعتماد به نفسش از یک آرمان حق طلبانه به وجود آمده است، و در دستان خود یک تلفن همراه برای گرفتن عکس از نیروهای سرکوبگر و انتشار آنها در اینترنت دارد. آرمان او آزادی است و دلگرمی اش این است که مبارزه برای آزادی نبردی جهانی است و مرز های سیاسی- جغرافیایی نمی شناسد. پس از برتری شمار خود استفاده کرده، اتومبیل های پلیس را فتح و بازداشتی ها را آزاد می کند. پلیس ضد شورش را احاطه کرده و از آنان می پرسد که چرا به خانواده های خود تیراندازی می کنند؛ در عین حال جوانانی را می بخشد که در لباسِ ضد شورش گرفتار می شوند.
شهروند انقلابی را می شود از شجاعتشن شناخت. در تظاهرات دیروز، هفت تن، و بطور احتمال خیلی بیشتر، توسط پلیس ضد شورش کشته شدند. اما آن شهروندان انقلابی که زندگی خود را برای آزادی قربانی کردند، بیهوده کشته نشدند. هفتۀ بعد موج تازه ای از شهروندان انقلابی به خیابان ها سرازیر خواهند شد که برای آنان سوگواری و دور درگیری های دیگری را بر علیه نظام برپا کنند. اگر نظام بخواهد دختران و پسران بیشتری را بکشد، آن قدر این دور ادامه خواهد یافت تا نیروهای نظامی دریابند که آنان دشمنان خارجی خود را هدف قرار نمی دهند، بلکه اعضای خانوادۀ خود و فرزندان ایران زمین را به قتل می رسانند. و، گزارش هایی از عدم اطاعت نیروهای پلیس از افسران فرمانده شان به گوش می رسد، زیرا فرماندهان از افراد زیر دست خود می خواهند تظاهرکنندگان را بطور مستقیم مورد هدف قرار دهند.
جمهوری اسلامی هنوز سپاه پاسداران و بسیج را به عنوان آخرین پناه خود در اختیار دارد. فروپاشی نظام نزدیک نیست و تلاش انقلابی شهروندان ایرانی به درازا خواهد کشید؛ اما نیروی شهروندان انقلابی روز به روز زیادتر خواهد شد.

The “prosperity gospel” is the common phrase for an element of mostly Pentecostal Christianity that identifies God’s blessings with riches. If you have faith, so the reasoning goes, then God simply has to bless you with riches. There’s a lot to be criticized about that simplistic and at times destructive formula. Unfortunately, it hides a related but different truth, namely, that Judeo-Christian religion at least, over time, tends to enrich the peoples and cultures that practice it.

J. Kwabena Asamoah-Gyadu has a thoughtful article on the growth of the prosperity gospel, normally associated with certain American churches, in Africa. His article is part of “The Great Conversation” sponsored by the Lausanne Movement and Christianity Today, so it includes several responses from thoughtful critics. Sociologist Peter Berger offers a must-read response. He notes that Asamoah-Gyadu fails to distinguish the half-truth of the “prosperity gospel” from the role of the gospel in bringing prosperity in the long run. And that is surely a needed distinction in reflecting on the spread of Christianity across the impoverished African continent. (h/t to Jordan Ballor)

Nick Schulz

Market Failure and Government Failure

By Nick Schulz

December 29, 2009, 7:23 am

The traditional defenders of free markets have had a rough time getting a hearing lately. After all, it certainly appears as if markets don’t work in any meaningful sense. The Dow rises and plummets in harrowing fashion, the housing market balloons and then craters, financial services firms teeter on the edge of extinction one minute and swing to record profitability the next.

Surely, government can do better.

Or can it?

To find out the answer to that question, you must read this piece.

Looking back on the financial crisis of 2007-2009, it’s clear that the month of October 2008 was “Financial Ground Zero” according to most indicators, including three closely watched measures of financial and credit market risk. As we close out 2009, it’s also now clear that all three market indicators have returned to their pre-crisis levels, suggesting that U.S. financial markets have achieved a full recovery from one of the worst financial crises in recent history.

ted4

1) The TED Spread, a gauge of credit market risk (measured by the difference between the three-month LIBOR rate and the three-month risk-free Treasury bill rate) jumped by 65.5 basis points (bps) on September 15, 2008 as Lehman Brothers filed for bankruptcy and fears about credit risk spread. Two days later, on September 17, the TED Spread rose another 82.6 bps to close above 300, setting a record that still stands for the largest one-day increase in credit risk. At the height of the financial crisis a month later, the TED Spread closed on October 13, 2008 above 456 bps, the highest credit spread ever recorded. As the credit markets have gradually healed over the last year, the TED Spread has fallen to the current level of only about 20 bps, which is below the level that existed before the financial crisis in 2008 (see chart above) and less than half of the 49 basis point average spread since 1990.

vix1

2) The Chicago Board Options Exchange Volatility Index (VIX), a measure of investor anxiety about the U.S. stock market (sometime referred to as the “fear index”), soared to an all-time high of 80.06 on October 27, 2008 as fear and anxiety reached record levels (see chart immediately above). Just two months earlier, in late August of 2008, the VIX was actually trading below its historical average of 20.28, before skyrocketing more than 60 points to close above 80 in late October for the first time in the history of the VIX. Investor anxiety gradually subsided throughout 2009, and the VIX just fell below the benchmark level of 20 on December 22 for the first time since August 28, 2008, and closed below 20 three days in a row for the first time since late May 2008.

bloomberg

3. The Bloomberg U.S. Financial Conditions Index provides a daily measure of the relative health of the U.S. financial markets, bank lending conditions, and the overall availability of credit. A little more than a year ago, in the wake of Lehman’s collapse, the Financial Conditions Index plunged from -2.51 in mid-September 2008 to -11.3 by October, registering an unprecedented fivefold increase in financial market risk within one month (see chart immediately above). Market conditions have now improved to the extent that the Bloomberg U.S. Financial Conditions closed above zero last week for the first time since August 8, 2007, more than 28 months ago, and for the first time since July 2007 it had three consecutive days in positive territory.

Bottom Line: All three of these important and closely watched financial market indicators have returned to their pre-crisis levels, and can be added to a growing list of economic and financial indicators suggesting that: a) the financial markets have fully recovered from the financial crisis, b) the Great Recession is over, and c) the economic recovery is real.

It’s a favorite government trick to announce bad news on a Friday afternoon, so it appears in Saturday’s paper, the least likely edition to be read. By Sunday and Monday, it’s old news. The Obama Treasury just went one better, announcing on Christmas Eve that they were uncapping the amount they believe will have to be invested in Fannie and Freddie. The Bush Treasury first estimated the government-sponsored enterprises’ (GSEs) losses at $100 billion each. The Obama administration, which has been using the GSEs to stabilize the housing market by reducing their underwriting standards, upped the ante to $200 billion each. Now the administration has thrown in the towel completely, and dropped a large lump of coal in each taxpayer’s stocking—it won’t even try to estimate the total losses of Fannie and Freddie.

This is the culmination of an unprecedented policy disaster, inflicted on the American taxpayer by congressional supporters of Fannie and Freddie who refused over many years to approve new and tougher regulations for the two GSEs. Now that many of  these folks are in charge of the House and Senate committees that deal with financial reform, they have suddenly found new respect for regulation and are trying to apply it to the entire financial system. Perhaps the American taxpayers, acting as voters in 2010, will decide that one disaster per career is all they should be allowed.

gray1120The recent Lancet reports that Israel will implement a new law in January 2010 intended to increase the number of deceased organ donors. The country has among the lowest rates of organ donation: only 1 in 10 have signed a donor card compared with 1 in 4 in the United Kingdom and 1 in 3 in the United States. The core of the idea is that the promise of priority will encourage more people to sign their organ donor cards.

The Lancet’s brief description:

People who are prepared to sign donor cards themselves receive priority when they are in need of an organ transplant. Increased priority is also given to first degree relatives of those who have signed donor cards, to first degree relatives of those who have died and given organs, and to live donors of a kidney, liver lobe or lung lobe who have donated for as yet undesignated recipients.

Some important details:

Candidates under 18 and those unable to express their wishes due to physical or mental disability will retain their priority status versus an adult who merits priority.

Should two such people be eligible for the same [heart, liver, or lung], their priority status under the new law would decide who receives the organ.

And why not? The stark reality is that every country that has a deceased donation program has to ration organs. It is perfectly reasonable to offer advantage based upon someone’s willingness to help others.

Those who claim that only medical criteria should determine who receives a transplant may not realize that there are many non-medical advantages embedded in the current U.S. system. We already give living donors priority should they ever need a transplant, as well we should. Recall Steve Jobs’s liver transplant—he took understandable advantage of the United Network for Organ Sharing (UNOS) policy that allows one to relocate to a region where the transplant wait list is shorter. Also, patients have a much better chance of being listed, regardless of medical need, if they have private insurance.

I applaud the logic and spirit of the Israeli program—and think we should do the same thing (see Lifesharers.org, and sign up now if you agree)—and am very eager to see what the two-year evaluation shows. Given Israel’s low rates of donation and the now-limited options for going abroad to obtain a transplant in other countries (the Israeli government no longer pays for transplants obtained in countries that outlaw organ sales), perhaps the new law will have an effect. However, relatively few people need organs and healthy people are unlikely to think they are at risk, so a program based on the idea that “I should give if I want to get” may not be intrinsically persuasive. We’ll see.

One other point—this one in response to the superb Alex Tabarrok, who has written, “one advantage of a no-give, no take system over paying for organs is that most people find this type of system to be fair and just—those who are willing to give are the first to receive should they one day be in need.” I agree fully with Tabarrok that the Israeli system will appeal to common intuitions of fairness, but I hasten to add that deceased donation, as important as it is, will not be an answer in and of itself.

Why? Because there are not enough eligible posthumous organs. Of the roughly 2 million Americans who die annually, relatively few possess organs healthy enough for transplanting. The number is estimated to range between 10,500 and 13,000, representing less than 1 percent of all deaths each year. Moreover, when unaware of the preference of their loved ones, only about half of families give permission for the organs to be retrieved at death. The number of deceased donors in 2008 as reported by UNOS (7,188) is consistent with these realities. Consider this in the context of a 83,000-plus waiting list for kidneys. Incidentally, this built-in constraint on the number of potentially transplantable kidneys underscores the limits of why a “presumed-consent” law—a policy in which all individuals are presumed to be organ donors at death unless they explicitly indicated otherwise while living—is unlikely to yield a huge windfall of transplantable kidneys. (I mention kidneys because they are the organ in most need. Those waiting for any organ equal 105,600. From one donor, multiple organs are obtained.)

Here is a short radio clip that captures the essence of the debate.

Jay Richards

Climate Rage on the Religious Left

By Jay Richards

December 28, 2009, 11:42 am

Since most religious environmentalists on the Left had such high hopes for the Copenhagen climate conference (COP-15), it was inevitable, I suppose, that the meeting’s failure to produce anything other than carbon emissions would lead, not to soul-searching, but to venting.

Mark Tooley of the Institute on Religion & Democracy reports on some of their climate rage. While some secular environmental groups are now asking whether the United Nations–centric approach to climate issues is misguided, their religious counterparts are still pining for UN bureaucrats to save us all.

Frankly, I’m not surprised. I know from direct experience that the views of many religious environmentalists are highly derivative. They simply take the most extreme predictions of mainstream environmentalists, add some bad economics, and preach. Reading Tooley’s quotations from Archbishop Desmond Tutu and Rowan Williams, head of the Church of England, it’s hard to imagine that these intelligent men’s knowledge of either climate science or economics gets beyond the cover of Newsweek:

Williams apocalyptically sermonized against “a world of utterly chaotic and disruptive change, of devastation and desertification, of biological impoverishment and degradation.”

This is misinformed hysteria, not prophetic challenge. Of course, as Tooley notes, these religious leaders are not simply imploring Christians “to deny themselves and live abstemiously [which] would be laudable. But the WCC [World Council of Churches] and other Religious Left climate activists are not so much interested in voluntary Christian asceticism as they are mammoth and coercive international regulation that would forcibly repress economic growth in the West while transferring enormous wealth to Third World kleptocratic elites.” In other words, they’re ultimately advocating policies that aren’t only misguided, but (arguably) immoral.

Andrew, your post reminds me of Chris DeMuth’s important lecture on “unintended consequences and intended non-consequences.” The honest reform advocates will admit that this specific reform coming out of Congress will not do what’s advertised—get healthcare spending under control. That’s an “intended non-consequence” of the reform, since genuine and lasting spending cuts would be politically impossible.

What I find puzzling is why the smart reform advocates think they will be able to address the cost question down the road. Smart liberals seem to think that once the apparatus of control is in place, they’ll be able to use it to ratchet down spending and get deficits under control. But there is little in our political history (or public choice theory) to suggest that they will (look at the experience with Medicare cost overruns, for example).

Jonathan Chait argues that the Senate healthcare bill’s Medicare advisory commission—now known more obliquely as the Independent Payment Advisory Board—“holds the greatest potential to drive transformation of the system.” Unfortunately, Chait says,

In its official budget estimates, CBO credits these experiments with virtually no budget savings. This is because the budget scorekeeper, understandably, tries to use hard data and relies upon proven success in figuring out how much money a given reform will save. There’s no way to tell which of the transformative experiments will actually take hold or what sort of effect they may have. Probably some, even many, will fail. But the bill’s potential for overhauling American medicine, while impossible to quantify, offers one of its strongest selling points.

800px-20_dollars_art3Maybe so—everything else in the bill does seem worse. But one reason the Congressional Budget Office finds so little oomph in the Medicare commission may be that, even if it performs entirely as intended, it won’t come close to closing the Medicare budget gap.

The new board is empowered to impose cost reductions if Medicare cost growth exceeds the growth of Gross Domestic Product plus 1 percent. Congress must accept these reductions or come up with equivalent cuts of their own.

But here’s the problem: Medicare’s baseline level of growth is right around GDP plus 1 percent.

In the past, the Medicare trustees made their “GDP plus 1” cost growth assumption explicit; currently, they use a more sophisticated model of healthcare cost growth that nevertheless mimics the effects of GDP plus 1.  (See pages 178–180 of the 2009 Trustees Report.) CBO’s projected rate of “excess cost growth” is slightly higher than the trustees’, but this plays out mostly in the longer term, by which time we’re long since broke.

In other words, the Medicare advisory commission—despite all the controversy over “rationing care”—isn’t tasked with much more than limiting Medicare cost growth to a rate baseline which some experts have calculated will generate over $62 trillion in deficits over 75 years. Even if Medicare cost growth were held to GDP plus 1 percent, total costs through the 2030s would cut by only around 5 percent.

This isn’t nothing, but it’s also about the best-case scenario for the Medicare commission—given what we’ve seen in the last year, it’s hard to imagine Congress being more ambitious than the commission. And all of this comes at an enormous price: most of the carrots and sticks Congress could have used to impose real cost savings have been devoted to expanding coverage. We’ve got some serious cost issues to deal with in the future but fewer tools with which to do it.

The Medicare commission is “one of the most potent reforms” in the healthcare bill, according to Office of Management and Budget Director Peter Orszag. He’s probably right, but that’s what’s got me worried.

Image courtesy selbstfotografiert.

Michael Auslin

Less Hope and Change in Japan

By Michael Auslin

December 24, 2009, 2:28 pm

yukio_hatoyamaGoverning realities continue to bog down Japanese Prime Minister Yukio Hatoyama, who is now facing increased political and legal pressure over a fundraising scandal. Yesterday, a former aide was indicted for violating Japan’s political funds control law; charges include involvement of Hatoyama’s mother and sister. Fundraising scandals are the primary bete noir of Japanese politicians, and the real powerbroker inside Hatoyama’s Democratic Party of Japan (DPJ), Ichiro Ozawa, was himself forced to resign this year as head of the party due to an aide’s fundraising illegalities.

Yet Hatoyama is also being pummeled on policy issues, not least of which is the deadlock over fulfilling a 2006 agreement with the United States to move Marine Corps Air Station Futenma to another location on the island of Okinawa as part of a larger realignment of U.S. forces. More significantly, some of Hatoyama’s signature domestic plans are beginning to evaporate, as he backs down on campaign promises to abolish the country’s onerous highway toll system and to eliminate a gasoline surtax. On both domestic and foreign issues, moreover, Hatoyama is finding it particularly difficult to deal with his Upper House coalition partners, who are hamstringing key policies. The result, as media note, is a precipitous slide in his job approval ratings, falling in one leading newspaper’s poll from a high of 62 percent in November to just 48 percent currently.

Hatoyama and his DPJ swept to power this summer as agents of change, though Japanese were well aware that the party was untested in the realities of ruling. Unforced mistakes on the new government’s part along with dismal revenue numbers are beginning to dissipate the sense of optimism that infused the public just months ago. In the Asian zodiac calendar, 2010 is the Year of the Tiger, traditionally one of volatility, disputes, and disasters; it’s also one where bold action is often required. Hatoyama may well find out how accurate those predictions can be.

Charles Murray

Merry Christmas, Parisians

By Charles Murray

December 24, 2009, 8:52 am

800px-rue_rivoli_parisA couple of years ago I published a piece in the Weekly Standard saying that the American image of the French as haughty and unhelpful to tourists (especially Americans) didn’t match my experience. I caught a fair amount of grief about it from people who said, “Yeah, but in Paris it’s different.”

Okay, wise guys, I’m writing this at Charles de Gaulle Airport, waiting for my flight home. Let me tell you about my trip from the hotel.

First, a taxi driver points out that it’s a long way around to get to Gare du Nord, and there’s a Metro stop right next to me that will get me there much quicker and cheaper. I forget to retrieve my Metro ticket after going through the turnstile (you need it to get out of the station). A woman chases after me to give it to me. On the train, I look confused about where to get off, and another woman asks if I need directions. At the Gare du Nord, a very confusing place, still another woman patiently gives me thorough directions. I head off, go down an escalator, am looking around for the not-at-all-obvious sign to the airport train, and suddenly there she is again, apparently having decided I looked too stupid to be trusted to get there on my own. Good call. She walks me all the way to the platform.

I will brook no more dissent. Vive la France. Vive la Paris. And watch out if you start to go after the French in my presence.

Image courtesy Donar Reiskoffer.

In a New England Journal of Medicine article, “Getting the Facts Straight on Health Care Reform,” MIT’s Jonathan Gruber writes:

One common refrain of opponents of reform is that it represents a government takeover of health care. But reformers made the key decision at the start of this process to eschew a government-driven redesign of our health care system in favor of building on the private insurance system that works for most Americans. The primary role of the government in this reform is as a financier of the tax credits that individuals will use to purchase health insurance from private companies through state-organized exchanges.

The sentence in bold begs the question of how Professor Gruber defines “primary.” The House and Senate bills would:

— Mandate that individuals obtain at least minimum coverage specified by the government.
— Specify allowable “levels of coverage” and the types of services that must be covered.
— Prohibit health insurance underwriting, require coverage of preexisting conditions, prohibit premiums based on health status, and substantially limit premium variation in relation to age, thus mandating higher premiums for the young and/or healthy.

The bills would substantially cut Medicare Advantage reimbursement, cut Medicare hospital reimbursement, and create an Independent Advisory Board that could order further cuts in Medicare spending unless blocked by specific legislation. The list could go on and on. Reasonable people might regard these changes as representing a “government-driven redesign of our health system.”

Nick Schulz

FP2P Moving Up the Amazon Charts

By Nick Schulz

December 24, 2009, 8:01 am

I am very pleased and humbled to see that From Poverty to Prosperity is now #24 on the Amazon Non-Fiction list. A great many thanks to those who have been buying it and talking it up.

UPDATE: It’s also the #1 Economics/Theory book in the Business and Investing category.


The American Enterprise Institute takes no institutional positions on policy advocacy or political campaigns. The views expressed on The Enterprise Blog represent those of the individual writers.

AEI