I have discussed the views and personal career of Robert Rubin before in these columns, so I shall not track back over the reason why I label him the Prince of Darkness. Suffice it to say that Robert Rubin is one of those opportunists who bottom-feeds off state capitalism, taking whatever he can, from whomsoever suits his immediate purpose.  He is a man without any evident principles save those of extreme narrow self-interest:  a motive which potentially might have made him an entrepreneur, doing well while doing good, but, unfortunately has launched him on a career path designed to do well for himself while landing all the costs on unwary others.

Couldn’t have said it better myself.

From the WaPo:

With the recovery faltering less than two months before the November congressional elections, President Obama’s economic team is considering another big dose of stimulus in the form of tax breaks for businesses – potentially worth hundreds of billions of dollars, according to two people familiar with the talks.

Go figure.

From Russ Robert’s EconTalk podcast:

David Kennedy of Stanford University and the author of Freedom from Fear talks with EconTalk host Russ Roberts about the Great Depression and its political and economic relevance. Kennedy talks about the economic policies of Hoover and Roosevelt, and how the historical narrative was shaped and evolved over the decades. The conversation concludes with Kennedy’s thoughts on the nature and value of history.

Kennedy on the Great Depression

Kennedy would be better if he studied a bit more economics.  But I think it’s a fair assessment even with his obvious approval of big government paternalism.

Crack a beer or two and give it a listen.

In the 1930s Americans supposedly lost faith in markets and rallied to government. But if you go back and look at public opinion polling then, you find something rather different. You find majorities grumbling about Big Government, scorning Big Business and opposing Big Labor.

The 1940s were different. Facing the threat of total war, Franklin Roosevelt transformed himself from “Dr. New Deal” to “Dr. Win the War.” He fostered cooperation between Big Government, Big Business and Big Labor. Roosevelt was brilliant at selecting, from all these sources, the best men (and women) for jobs he considered important.

The result was a war effort that was brilliantly successful. America was the arsenal of democracy, vanquishing its enemies and inventing the atomic bomb. Big Unit governance gained enormous prestige and held onto it for a generation after the war.

Similarly, one could call the rally a gross affront to the memory of King, who presumably wouldn’t have cared much for Beck’s right-wing politics. But one could also call the day a strange, unlooked-for fulfillment of King’s prophecies: 47 years after the “I Have a Dream” speech, here were tens of thousands of white conservatives roaring their approval of its author. …

In a sense, Beck’s “Restoring Honor” was like an Obama rally through the looking glass. It was a long festival of affirmation for middle-class white Christians — square, earnest, patriotic and religious. If a speaker had suddenly burst out with an Obama-esque “we are the ones we’ve been waiting for,” the message would have fit right in.

Fortunately for us (and I suppose Smith too) Smith authored the course text book which included a chapter titled: The Unfortunate Fact That Balance Sheets Balance.  This notion raised eyebrows amongst the students who were all well taught in financial accounting (which doesn’t presuppose that we were all well learned in such.) But the Cliffs Notes on the chapter are that the there is an illusion of legitimacy from the equal footings represented on a financial statement which, if not there, would cause a credit analyst to dig further into the “accounting risk” that all financial statements have.  As a young credit analyst this notion served me better, or at least as well, as anything I learned in collage.

I thought of this as I was reading the comments in Gregg’s previous post about the effectiveness of the federal stimulus where David Crisp linked to the CBO blog which says the ARRA:

Increased the number of people employed by between 1.4 million and 3.3 million…

Pointing out the CBO’s admission of it’s own uncertainty in these numbers, Mr. Crisp responded:

Dave, Methodological shortcomings acknowledged. But if I have to choose between the CBO and Boehner, Limbaugh, Hannity, et al, guess where I’m going.

I have to agree with David that given this (false)  choice I would defer to the CBO as well. The problem is, of course, that supporters of the ARRA hold up the CBO numbers as proof positive that that jobs were “created or saved” due to the stimulus.  My challenge to those is: prove it!  The whole idea behind the fiscal multiplier came from Keynes General Theory of Employment which, to date, is still theory and still general.

Arnold Kling, writing on another matter, wrote yesterday:

I suspect that a big reason that mathematics took over economics is that it gives you a sense of mastery. Indeed, it may give you a false sense of mastery. As you learn mathematical economics, you realize that you are getting really good at doing something that only a small group of people is able to master. And you get the sense that because you completed a mathematical proof that you accomplished something. It is very seductive.

Which brings me back to Dr. Smith’s “unfortunate fact(s).”

Now, as you might guess, I’m not convinced that the multiplier works at all or, at a minimum, any fiscal stimulus can be a Pareto improvement – a state where it is possible to make someone better-off without making someone else worse off.  But let’s take Dr. Smith’s advice and dig  deeper.  Megan McArdle does the thought experiment:

How much unemployment reduction you get for a given amount of stimulus spending is, obviously, at best an imperfect estimation. But let’s take the CBO’s estimates as representing a rough consensus of those who favor stimulus:  for our $800 billion, we got a reduction of 0.7 to 1.8 percentage points.

Full employment is perhaps 4.5-5%.  If we assume that stimulus benefits increase linearly, that means we would have needed a stimulus of, on the low end, $2.5 trillion.  On the high end, it would have been in the $4-5 trillion range.

I’m going to go out on a limb and say that even if Republicans had simply magically disappeared, the government still would not have been able to borrow and spend $2.5 trillion in any reasonably short time frame, much less $4-5 trillion.  The political support for that level of government expansion simply wasn’t there among Democrats, much less their constituents.  Even if they had found the political will, I doubt that government institutions could have effectively channeled that much new spending.  And assuming away those two problems, would lenders really have been available to fund 18% deficits at rock-bottom rates?

[...]

Which raises an interesting question:  what if Keynesian stimulus works, but no one can ever actually afford to do it, short of something like World War II, where the government can tap into a patriotic outpouring of national savings by issuing bonds with negative real yields.

Well, I’m equally unconvinced that WWII cured the depression with negative real interest rates but, more likely, the lack of consumption goods forced the savings rate so high that, after the war, there was huge pent-up demand and a great deal of savings in the bank to satisfy it that finally stimulated the economy (amongst other factors like being the last industrial base standing.)

But so far no one has yet proved that the stimulus is noting but an economic transfer benefiting some cohorts at the expense of others.  And the more I hear “but at least the stimulus made things better than they would have been” the more I believe that the conventional wisdom is nothing more than an unfortunate illusion.

Since we’ve already spent most of the money, I hope someone would prove me wrong.  But I won’t hold my breath.

Even people who believe in Keynesian intervention would have to admit, I think, that President Obama and the Democrat Congress have made a terrible mess of it. I feel compelled to agree with Congressional Republicans who accuse “the administration of squandering stimulus spending on efforts that brought little gain.” I don’t believe in Keynesian policy because I think the private sector is far better at conducting economic activities than the government (as I believe the per job spending demonstrates), but even if I did, I would have to feel let down by my elected leaders because they have screwed the whole thing up so badly that any more ’stimulus’ is probably politically impossible.

Nice work. We’ll see you in November…

Americans got angry when the federal government tried to bail out banks by buying assets or taking capital positions. Whatever you may think of those bailout programs, they at least had the advantage that taxpayers were getting something in return for their money. There is another bank bailout program going on now – one that allows the federal government to recapitalize banks with public money, receive nothing at all in return, and somehow escape criticism for doing so. That bailout program is called the Recession.

How does the Recession allow the government to bail out banks? With the recession going on, people are afraid to do anything risky with their assets, so they keep them deposited in banks, earning no interest. Banks can then invest these deposits in Treasury notes and credit the interest on those Treasury notes to their bottom line, thus improving their balance sheets. So the government pays to recapitalize banks while receiving nothing in return.

[...]

So the success of this bailout program depends on avoiding recovery, avoiding increases in inflation expectations, and avoiding major declines in Treasury note yields. Now do you understand why the Federal Reserve Bank presidents – representatives of the banking sector – are the most hawkish voices at the FOMC’s policy meetings?

To which Arnold Kling adds:

I call it neutron-bomb monetary policy. The banks are still standing, while the people are getting killed. I don’t think that is the explicit intent of the Fed, but the structure of the organization makes it much more responsive to the thought process of bankers than to that of ordinary Americans.

This isn’t the first time this has happened and it bolsters the argument that the Fed’s mission creep needs to be reigned back to one of simple price stability (if we continue to allow them to exist at all.)  Bailing out borrowers on the backs of savers is wrong  from either an egalitarian or free market perspective – especially if the “borrowers” are zombie financial institutions.

But the unfortunate fact is that the average Joe has no idea they’re getting screwed.

No, not this Adam and Eve:

This one.  You know, the “anal sex toys” and “kinky bondage” people. Not only are they coming to town, they’re opening up right on Central Avenue in good old downtown Great Falls.

I must preface this whole piece by pointing out that I am not opposed to Adam & Eve, the store, and I don’t really care where they open. If they own the land, or the rights to occupy the land, and their business is legal, they should be able to ply their trade anywhere they damned well please.

In fact, those of you who know me, know that I oppose any but the most broad and general zoning or land use restrictions for otherwise legal enterprises. I oppose the very notion of zoning. To me, complex “land use codes” are nothing more than one group of people deciding to use political power to impose their will on another group of people. These types of situations invariably result in bureaucrat, administrator-types developing and maintaining their own power base in a community by picking winners and losers based on their personal, subjective desires. The opening of the Adam and Eve store downtown provides a perfect example.

Let’s start with the definitions contained in the City of Great Falls Land Use Code:

“Adult book store/adult video store” means a commercial establishment which, as one of its principal business purposes, offers for sale or rental for any form of consideration any one or more of the following:

1. books, magazines, periodicals, or other printed matter, or photographs, films, motion pictures, video cassettes or video reproductions which are characterized by an emphasis on the depiction or descriptions of specified sexual activities or specified anatomical areas;

2. instruments, devices, or paraphernalia which are designed for use in connection with specified sexual activities.

Does the Adam & Eve store fit the bill? You tell me:

I would submit that, any portion of one’s product line that is significant enough to advertise publicly can reasonably considered a “principal business purpose.” The Land Use Code, though, does not define a “principal business purpose,” it defines a principal land use. According to the Code, that is: “the dominant land use of a parcel of land.”

Here’s our first problem. The pointy-headed types who drafted the Code goofed. A “principal land use” is defined in the singular, yet the definition of an adult video store clearly contemplates more than one principal business purpose. Hmmm. I guess that leaves us with an interpretation question. We therefore must conclude that a “principal land use,” which the Code defines singularly, is something different from a “principal business purpose,” of which a business can have more than one. As noted above, though, a “principal busines purpose,” is apparently not defined by the Code. (An interesting aside: The Code was adopted in 2003, apparently having been lifted verbatim from a different city’s code. A simple bit of legal research would have pointed out that at least one Court had already found the problematic ambiguity in the code. Nice drafting guys…)

I guess we’ll need to do some interpretation, won’t we? Let’s turn to the introductory language: “The establishment of sexually-oriented businesses in business districts which are immediately adjacent to and which serve residential neighborhoods has a deleterious effect on both the business and residential segments of the neighborhood, causing or contributing to blight and a downgrading of property values.” Oh my gosh, we wouldn’t want that to happen! Based on the foregoing fear of blight and downgrading, the City Commission legislated that these businesses can only operate in I-1 or I-2 districts, Light or Heavy Industrial.

You can review the Zoning Map to see that the downtown area is most definitely not Light Industrial or Heavy Industrial. Nevertheless, the Adam & Eve store is allowed to sell the Katie Morgan Cyberskin Ass on Central Avenue. (But it’s not a “sexually oriented business.”)

How?

Let’s thank our Planning Director, Michael Haynes, who solved the problem. “The request they made was for a lingerie store with novelties, and that’s what our zoning determination was based on. We would have to look at adult movies, etcetera, to see if that fits in with what’s permitted downtown.” Oh. We would “have to look” at it? When would that be? Would that be when they advertise DVDs and adult toys in their window? Or would it be…say…never?

Further, while Mr. Haynes is not directly quoted, the KRTV piece cited above implies that the City has adopted this test: “If the majority of sales came from adult movies and sexual novelties, zoning restrictions would apply.” If, in fact, the City has adopted such a test, that is simply absurd.

Think about it. We know from the City’s own definition that an adult bookstore can have more than one “principal business purpose,” becuase it uses the plural “purposes.” If we are going to consider, though, a majority of sales, that would mean a business could have only one principal purpose since two different items cannot both be a majority of sales; there’s only one majority. Thus, the test apparently applied by the City violates the City’s own Code. You tell me if this is interpretation or legislation.

Anyway, here we are. The City adopts a restrictive ordinance and then turns around and ignores its own ordinance to allow a business to open in clear violation of its own Code. I can already smell the blight wafting toward my office.

“But wait Smith!” you exclaim, “you said you’re against land use restrictions. This should be a good thing.”

Sure, I am against land use restrictions. On the other hand, they exist and are presently the law in our town. What I am really opposed to is what we have here. A poorly drafted law that is now interpreted in a discretionary fashion to pick a winner and a loser.  Adam & Eve wins. Michael Haynes has decided that this company, for whatever reason, and no matter how much he tries to rationalize his decision by resort to seemingly objective criteria, gets to win.

What about the next guy (or gal), though? What if Michael Haynes doesn’t like the next business to come along?

Well, then he can resort to seemingly objective criteria and decide that the next one loses.  But no one person, Michael Haynes or otherwise, is supposed to pick the mercantile winners in our capitalist society. We, the consumers and citizens, are supposed to pick the winners.  When did we, as the citizens of this community, agree that the City can hire one person who can tell us how to use our land?

We abolished the monarchy over 200 years ago.

Or did we?

This was real, hard-core, hammer-and-sickle communism; the county elected a communist state senator (also the editor of The Producers News) and a sheriff. They extorted their opponents, and firebombed a rival newspaper.

The book, which I just got the other day, leads with a story of a 1930s funeral, where a 14-year-old girl was memorialized at the Farmer-Labor Temple, her casket draped with the red flag, with mourners singing the International. Bizarre.

Personally, I’m a bit surprised one doesn’t hear about this chapter of Montana history more often.