The Fallacy of the Politics of Compassion

09/30/2005: I tend to get a lot of vitriol from my liberal friends: “Reagan didn’t care for the poor or the blacks! He only cared about the rich people!”

When Ronald Reagan took office, inflation was 14%, interest rates were 19%, and unemployment was 7%. The misery index was 40%.

When Ronald Reagan left office, inflation was 4%, interest rates were 8%, unemployment was 5%, and the misery index was 17% (a drop of 23%). Certainly, more than the rich did better during the Reagan administration.

In 1980, Carter’s last year in office, the top 5% of the income bracket paid 38% of the taxes. In 1988, Reagan’s last year in office, the top 5% of the income bracket bore 46% of the tax burden, an increase in 8% over the Carter days.

While the rich got richer under Reagan, they also paid a greater share of the tax burden with Reagan at the helm.

How could this be? Reagan’s tax policies rewarded capital gains and encouraged risk taking. As a result, the rich invested in stocks, bonds, mutual funds, and private businesses. This created more jobs (18 million more jobs), more opportunity for upward mobility for little guys like me, and, yes, the people who risked that capital got richer. They also paid a greater share of the taxes.

That is not to say that Carter cared less about the poor than did Reagan; no rational person would suggest that Carter–an upstanding Christian gentleman–didn’t care about the poor. However, the charge that Reagan soaked the poor is–like reports of my demise–greatly exaggerated.

In spite of claims by race-baiters, blacks–as a group–also fared well during the 1980s.

(1) Black income in 1980 was $191 billion. In 1988, it was $259 billion: an increase of 35.6%.
(2) As a group, black males saw their income rise from $9,678 to $14,537: an increase of 50.2%.
(3) The number of black families earning more than $50,000 per year increased from 392,000 to 936,000, an almost threefold improvement.

That’s not to say that overall poverty went down under Reagan: it actually increased by a tenth of a percentage point over his eight years. It spiked during his first four years, largely due to the tail end of the recession that he inherited. Strong fed policy on inflation–that was painful in the short term–caused a short, ugly recession.

However, once interest rates and inflation started coming down, overall poverty declined by more than two percentage points during The Gipper’s second term.

In fact, poverty rose far more during the Carter administration–two percent–than under Reagan (a tenth of a percent). That, however, is hardly a dismissal of Carter.

In fairness to Carter, he was a victim of economic forces that were beyond his control. The banking system was suffering due to the shortcomings of Regulation Q; the bond market nearly collapsed; fuel prices were–on an adjusted basis–higher than today’s post-Katrina shock. The Japanese simply produced better, more fuel efficient cars than the Big Four (which became the Big Three).

Carter didn’t cause the recession, which was the result of a cyclical economy combined with terrible fed policy and the lousy political choices of his predecessors. However, Carter’s attempt at a Keynesian solution was doomed to fail: we needed a free market solution.

Fast forward 25 years: today, the left will sing the praises of the Clinton economy, and with some good reason.

To his credit, Clinton had some very good economic policies. Other than the hard-left swing he initially took in 1993 and 1994 (with a mammoth tax hikes and a failed attempt to nationalize health care), he turned into a quasi-conservative for his remaining six years.

While Clinton did not negotiate NAFTA–Reagan and Bush (41) did that–Clinton did convince the Senate to ratify it (to the objections of many in his own party). He also deserves the credit for the Global Agreement on Tariffs and Trade (GATT). These helped negate the effect of his tax hikes, and allowed us to take advantage of a global economy.

In 1996, he signed welfare reform. While many critics–myself included–contend that he merely did this because his re-election required it, nonetheless, Clinton deserves credit for signing onto a key portion of the Reagan vision for America, in opposition to many in his own party.

As a result, many people who were once on welfare–who normally would be dependent on government for generations–are adding economic value to society today.

Even without the bubble economy of the late 1990s, Clinton’s record was decent: his promotion of free trade, and signing of welfare reform, offset his misguided tax hikes.

It would not be fair to credit Clinton with the dot-com economy (unless one also wishes to blame him for the subsequent crash, and the corporate frauds that contributed to the bubble, neither of which were his fault.) That was a market phenomenon that has ample historical precedent.

Like Clinton, Bush (43) has economic policies that offset one another. Like Clinton, Bush made one really dumb economic move: steel tariffs. His tax cuts, however, were exactly what the economy–reeling from the dot-com crash, September 11, and the corporate scandals–needed. His Administration also deserves credit for aggressively pursuing corporate crooks whose misdeeds came to light when stock prices fell.

The only serious blot on the Bush economic record is spending: he has failed to veto any spending bills provided by Congress. As a result, the national debt–which neither Reagan, Clinton, nor Presidents Bush 41 and 43 seriously addressed–is spiraling out of control.

On poverty, the Bush record has been good. He inherited a recession that could have become Great Depression II. The stock market crash was the largest destruction of wealth in American history. You don’t lose $8 trillion in equity without serious consequences. And yet–even with the aftermath of September 11, and corporate frauds from Enron to Worldcom to Global Crossing to Tyco–the economy managed a soft landing, and resumed healthy growth.

While Bush did not cause all of that, he deserves some credit: with the exception of the steel tariffs, he did almost everything right. So far, Bush has managed to keep a bad situation from becoming a complete disaster.

The upshot of all this is that there are way too many variables in our economy to conclude that one President didn’t care about poor or black people, but that another President “really cared”.

Johnson declared war on poverty, and created many programs to combat poverty. However, no reputable research can conclude that those programs have achieved the desired results: in fact, many societal problems can be directly linked to those programs. Does that mean Johnson didn’t care about poor people?

Nixon–in spite of his republican leanings–gave us wage and price controls. Those were his attempt to help the poor people. But those wage and price controls helped pave the way for gas shortages, recession, and inflation that Ford and Carter would inherit. Does that mean Nixon didn’t care about poor people?

Ford tried his darndest to whip inflation. He even produced WIN (Whip Inflation Now) buttons to promote his efforts. After all, inflation was impacting the purchasing power of the poor people. The campaign didn’t work. Does that mean Ford didn;t care about poor people?

Carter, for all his care for the poor, presided over one of the nastiest recessions since the Great Depression. Poverty spiked on his watch, although through no fault of his own. Under Carter, we gained a new economic measure: the misery index. We also saw a new economic phenomenon: stagflation. Does that mean Carter didn’t care about poor people?

Reagan provided a free market solution to an economy mired in stagflation. This helped create 18 million new jobs, provide low inflation, cut interest rates in half, and reduce the misery index by 23%. Black income was up by a third. Still, the underclass expanded under Reagan, just as it did under Johnson, Nixon, Ford, and Carter. Does that mean Reagan didn’t care about poor people?

Bush (41) inherited an S&L debacle caused in part by the effects of bank regulations and international competition, as well as investments in junk bonds. When a cyclical economy provided a brief recession, Bush was suddenly run out of office. However, he did the best thing you can do for an economy in a recession: nothing. While he vetoed many spending bills–including extending unemployment benefits–that made for a shorter recession: the recovery was in full swing when Clinton took office in 1993. Does that mean Bush didn’t care about poor people?

Clinton inherited a recovering economy and a stable international situation–the Cold War was won by his predecessors. He pushed for free trade, signed welfare reform, and helped globalize the economy. The dot-com mania provided the sharpest economic growth in world history. Still, Clinton–just like Johnson, Nixon, Ford, Carter, Reagan, and Bush before him–could not stem the growth of the underclass. The ensuing stock market crash was promulgated by corporate scandals that began during his administration (although through no fault of his). Does this mean that Clinton didn’t care about poor people?

Dubya inherited an economy on the brink of disaster. The stock market crash was in full swing, and the stock market would lose $8 trillion in equity; corporate scandals were brewing and would come to light within his first 2 years; September 11 would provide the worst attack against Americans since Pearl Harbor. His tax cuts kept a bad situation from getting worse, and–in spite of September 11, corporate scandals, a nasty stock market crash, wars in Aghanistan and Iraq, four hurricane strikes in 2004, and the devastation of the gulf coast (and oil refineries) by the Hurricanes Katrina and Rita. Does this mean that Bush doesn’t care about poor people?

Each President inherited different sets of circumstances. Some provided more federally-controlled solutions; others called for more free market solutions. None of them caused the recessions that they inherited, but each provided a unique approach to them.

Johnson created big federal programs, Nixon tried wage and price controls, Ford made buttons, Carter tried to rescue the bond market, Reagan cut taxes and promoted the free market, Bush did nothing, Clinton raised taxes but signed welfare reform and promoted free trade and globalization. Bush cut taxes and prosecuted corporate lawbreakers.

It would be unfair to say that any of them didn’t care about the poor. It’s not like Presidents have secret switches they can pull to suddenly make poor people rich, or make uneducated people better educated. Even if they could make health care free, that would hardly make it available. Governments can create money, but they cannot add value to the economy.

If the Soviets taught us anything, it is that governments cannot create wealth, and that redistributionist economic policies–however well-intentioned–are no substitute for a market economy.

Some Presidents (Reagan, Clinton) achieved better results than others (Carter, Bush 41). But to say that this President was “more compassionate” than that President, or that this President didn’t care about the poor, whereas that President “really cared”, is ludicrous.

After all, economics never provides perfect solutions; only tradeoffs.

Bennett and Crime: The Sensitivity Police are At It Again

09/30/2005: Yesterday, Bill Bennett provided another example of how the Sensitivity Police are keeping the truth in a lockbox. Bennett, discussing crime rates, provided the following remarks:

“If you wanted to reduce crime, you could — if that were your sole purpose — you could abort every black baby in this country and your crime rate would go down.

That would be an impossibly ridiculous and morally reprehensible thing to do, but your crime rate would go down,”

Keep in mind that he is not advocating abortion for blacks or any minorities, although some heroes of the left–Planned Parenthood founder Margaret Sanger comes to mind–championed exactly that.

Cooler heads will note that Bennett called the practice “impossibly ridiculous and morally reprehensible“. In fact, the only people who believe in the morality of abortion are on the left.

The left–Harry Reid and Chappaquiddick Teddy in particular–are going nuts because Bennett’s comments underscore the social disasters of illegitimacy, a problem that cannot be discussed without critiqing federal anti-poverty programs over the last 50 years.

This is why they must attack Bennett and attempt to marginalize him as a racist. The only alternative is to have a serious debate over the failures of the “Great Society”.

In yesterday’s Wall Street Journal, Charles Murray of the American Enterprise Institute underscored this reality. In the wake of Katrina, many politicians are railing at the problem of poverty. In fact, that is the wrong issue.

As Murray points out, the Katrina debacle underscored the problem of the underclass and highlighted an area that often gets ignored in crime studies: criminality. These people are not merely poor: they are otherwise healthy, able-bodied people who refuse to get an education, refuse to work, and refuse to be productive members of society.

The key contributing factor to this phenomenon is illegitimacy. While this is on the rise among all races (35% overall, as opposed to only 4% in the early 1950s), it stands at 68% among blacks, as opposed to 24% in the early 1960s.

Making matters worse, this is exactly the kind of problem the government cannot solve! We have spent the better part of the last 50 years proving it. In fact, the growth of the underclass–which has continued unabated during the Johnson, Nixon, Ford, Carter, Reagan, Bush 41, Clinton, and Bush 43 administrations–is arguably a product of our otherwise well-intentioned anti-poverty programs.

In fact, looking at the end results of these programs, one could almost wonder if the KKK could not have come up with a more effective agenda to destroy black people.

This is not to say that liberals don’t care about poor or black people. However, the results of these anti-poverty programs, which have cost Americans trillions of dollars, are not congruent with their intentions.

Sadly, this is exactly the truth from which the left wants to hide. After all, their legacy hangs in the balance.

Ergo, Bill Bennett is the target Du Jour.

Delay Indicted

09/29/2005: A Texas Grand Jury has indicted Tom Delay on conspiracy charges related to a political action committee. This felony indictment has forced him to step down from his leadership position.

The prosecutor in this case–Ronnie Earl–has a history of frivolous indictments. And typically, “conspiracy” is a catch-all charge that prosecutors often tag on people when they cannot find hard charges, but still wish to indict someone anyway.

But Delay could still be guilty, and–unless the charges get tossed–he will have his day in court.

We shall see.

If this is frivolous, then this could backfire on the DNC.
That said, guilty or not guilty, I cannot give Delay even a tacit endorsement. He is the same buffoon who claimed we had cut all we could from federal government. If he really believes that, then he’s become part of the problem, and has no capacity to be part of the solution.

He represents all that is wrong with the GOP leadership: he’ll talk a good talk, but at the end of the day he is cut from the same cloth as the most spendthrift Democrats. He needs to be tossed by the voters of his district. Surely there is a better common-sense candidate amongst them.

Roberts Confirmed: 78-22

09/29/2005: Today, the Senate confirmed John Roberts–by a score of 78 to 22–as the next Supreme Court Chief Justice.

We will get a chance to see–firsthand–how much he really believes in constructionism. We will see if he is closer to Scalia or if Ann Coulter is right about Roberts being another Souter.

Frist: Just the Facts, Sir!

09/28/2005: Senate Majority Leader Bill Frist (R-TN) is in some hot water. Apparently, he ordered his blind trust to sell his shares of HCA stock, about two weeks before the stock value took a tumble due to a bad earnings forecast.

Frist and the GOP need to understand: this is not about legal technicalities; it is about the appearance of impropriety. We need straight answers, not legal ones. And Americans deserve them yesterday.

HCA–one of the largest hospital chains in America–was founded by the Frist family. When Bill became a Senator, his HCA shares were supposedly put into a “blind trust”. Blind trusts allow an independent financial team to manage a person’s stock portfolio without him or her knowing the exact composition of that portfolio. Many elected officials use these to avoid conflicts of interests.

Apparently, Frist had divested himself of the HCA shares that he had purchased; however, the shares in question appear to be acquired through an inheritance. According to Frist, he sold those shares in order to avoid the appearance of a conflict of interest, as he is now saying he may be pursuing other political opportunities in 2008. (Since he previously said he was not interested in running for President, this raises suspicion.)

Furthermore, the facts raise a few questions:

(1) When did he acquire those shares in the inheritance?
(2) How long did he hold those shares?
(3) How long did he know that he had those shares?
(4) How much time elapsed from the point that he knew of those shares and his sale of those shares?
(5) Did Frist have any material non-public information–that would cause a rational investor to sell–before he made the sale?

Basically, what did the Senator know and when did he know it?

I also want to know how much information the Senator knew about his “blind trust”, as that could reveal whether he was trying to circumvent the blind trust.

Legally, it comes down to whether he made the sale on the basis of material non-public information.

Politically, the bar is lower: did he make the sale with any insider knowledge at all (basis or no basis)?

Typically, if you have insider information, you must wait until after that information becomes public before you make your sales. People who work for publicly traded companies–I’ve worked for two of them–are grilled about SEC rules on that count. People with sense pay special attention to those rules, too: the SEC has excellent technology and investigators. Even if I were the king of greed, I would never consider betting against the SEC.

If Frist made the sale with insider information, and quickly contacted the SEC and “fessed up”, then this would be a minor matter. In those cases, the SEC usually makes offenders pay back the money plus a fine, and then order the offender to go and sin no more.

However, if you make such trades, and then attempt to play CYA, that is a good way to end up wearing an orange jumpsuit. Just ask Martha Stewart.

To his credit, the sale order and the stock price drop were approximately two weeks apart. The reason I say “to his credit”, is because it highly unlikely–due to efficient markets–that any “insider information” could have remained secret for two weeks. Not in a public company. In such a company, there are officers, higher-ranking executives, and board members who would also have been “in the know” even before Frist, and that information would likely have hit “The Street” long before the announcement.

(Efficient market theory–a staple in the finance world–contends that market prices for securities reflect all known information about that security. This is why–in spite of popular books to the contrary–it is darn-near impossible for investors to systematically beat the market in the long run. There are variations of that theory, but the only disagreement in the financial world is over the extent to which it applies: weak, strong, or semi-strong. )

That doesn’t mean Frist is off the hook, but that time seems to work in Frist’s favor. He could still be guilty, though, and that is why we have an SEC for cases like this.

As for Frist, it is not enough for him to be “not guilty”, as this is as much about public ethics as legalities. He must prove himself innocent. If there was some suspicious insider information that precluded the sale, then the GOP must remove Frist from the Senate. Someone has to take the high road here.

Even if he is legally innocent, that is not enough. If he is making reckless and shady sales, and then attempting to play CYA, then this is conduct unbecoming of a public servant. Democrat or Republican, such folks need to go.

Froggy on New Orleans/Media Racism

09/28/2005: After seeing the news media bungle the reporting of Katrina, Froggy has this to say about the mainstream news media and their latent racism.

In their coverage of Katrina, the MSM completely reared their ugly, partisan, racist heads. Like Dan Rather, they succumbed to faith-based reporting: they took wild stories, didn’t bother to check them out, and reported them as fact because they believed the stories; after all, those stories fit the far-left leanings of the “reporters”.

This is why the MSM needs to clean up their system, and soon. They are quicky slouching toward irrelevance.

Piling on Sheehan

09/26/2005: Sean Hannity is stepping in it.

I realize it would be easy to pick on Cindy Sheehan. After all, she tends to lash out against President Bush with vitriol we typically associate with Hollywood. Many who support her are a Who’s Who of the lunatic fringe. Topping it off, the mainstream media treats her like a rock star.

Hannity–and the right–still need to leave Sheehan alone. She is self-destructing, and there is nothing wonderful about this.

Reynolds: The Truth About Poverty

09/26/2005: In a few days, I’ll develop an exposition on why it is so difficult to compare previous Presidential records on poverty and prosperity. I doing so, I will compare the records of Carter, Reagan, Bush (41), Clinton, and Bush (43). (Hint: if the left wants to defend Clinton’s record based on raw metrics, then those same metrics also prove that Reagan was more compassionate to the poor than Carter. But more on that later.)

Until then, Alan Reynolds provides some significant insight–from the right–on poverty. He’s partly right, but even he misses the mark.