Left and Wrong author: Harold Meyerson
Left and Wrong article: Greece or California: Who’d you rather be?

In the linked article, Harold Meyerson (a left-wing writer for the Washington Post and Los Angeles Times) argues that we as a nation need to bail out California, which is beset by budgetary woes, because Europe has decided to give aid to Greece.

What draws progressives to be bailout suckers? Battered-wife syndrome?

How many bailouts must we all suffer before the bailout suckers learn one very simple lesson: if money is obtainable for certain behavior, that behavior will certainly obtain. That is not to say that California wants to default. A bailout does not provide an incentive to default. It removes a disincentive to default.

There are certain economic consequences to a bankrupt California, and California should suffer all of them. Contrary to what Meyerson says, there are very few consequences to those outside of California; no budget cuts, no layoffs, no crowded classrooms. The only serious consequence to the rest of the country is the bailout he proposes.

The rest of the country has no input in the California budgetary or legislative process, nor should it. To invite this by giving them a feather bed invites federal control over California priorities and programs. If we go down that road, Californians (and Texans and Alaskans and Hawaiians) will soon enough have input and control over the budget priorities (and taxes) in my state. After all, Meyerson says we should not give Californians special treatment.

Congress should do the exact opposite of what Meyerson proposes. They should vote on and pass a bipartisan declaration that states that no federal funds will be appropriated to California in the event or anticipation of credit downgrade or default. That will prevent California legislators from kicking the can down the road (to Washington, DC) and force them to make the hard choices they must make … for themselves.

Link: http://www.realclearmarkets.com/articles/2010/02/15/why_washington_cant_reform_healthcare_97634.html

Another really good article on health care economics …

Link: http://www.realclearpolitics.com/articles/2010/02/03/the_perils_of_prosperity_the_story_behind_the_economic_crisis_100149.html

This summary of the causes of the recession by respected economist Robert Samuelson is generally close to the mark. It leaves out some key points (CRA, homeownership promotion, mark-to-market), but is right on the principle macroeconomic factors.

The second to last paragraph has some merit:

But it’s neither possible – nor desirable – to regulate away all risk. Every “bubble” is not a potential Depression. Popped bubbles and losses must occur to deter speculation and compel investors and borrowers to evaluate risk. The overregulation of finance may discourage useful innovation and clog the channels for capital on which an expanding economy depends. Finally, a single-minded focus on the blunders of Wall Street may also distract us from other possible sources of future crises, including excessive government debt and borrowing.

Two big inefficiency problems are occurring with the way the government is handling the crisis right now. First, the return to excessively low interest rates (which Samuelson points out were part of the reason we got here) and an unprecedented amount of deficit spending will result in productive inefficiency–an excessive amount of investment over saving. The difference is made up in an increase in the money supply fed by government debt (and, for the first time, by existing mortgage securities). This will end up in higher inflation (when money velocity returns), unused capital investment, and broken balance sheets (both for households and for government).

Second, since much of the spending is by government, it also results in allocative inefficiency–investment and consumption of goods and services at prices divorced from actual value. Whenever you hear some Keynesian (like Brad DeLong) saying “spend money on anything", you will understand what I am talking about. Intuitively it makes no sense to pay people to bury cash in the ground and dig it up again. Yet almost the entire stimulus bill was money looking for a grift. The boom caused a lot of government-induced malinvestment, principally in financial services and homebuilding industries. The bust is a natural reaction to correct these, to move the capital and labor invested in these industries elsewhere. If this is interrupted by government pushing the resources into yet other unproductive work (e.g., green jobs), the bust will have made us all poorer for nothing and will continue until we let the natural adjustments occur.

To progressives I say: … LET’S MAKE A DEAL!

I’ll keep my morals out of your bedroom if you keep your morals out of my wallet.

Let the progress begin.