A Noneconomic Analysis of the Election

A couple of interesting op-ed pieces on the election, although they are not written by economists or economic in content. I was struck by some similarities in the arguments. The first is by a colleague in the political science department at Hope--Jeff Polet. The second is by a syndicated columnist, Jonah Goldberg. They both point to a long-standing movement in American politics to break away from the constitutional emphasis on checks and balances and a politics that reflects a variety of mediating institutions to one more organic or following what Bismark did in Germany. 

The Electoral College and Federalism

Today is election day and the polls all suggest that the presidential race is very close.  It is possible that Romney could win the popular vote and still lose the electoral vote, or vice versa. A tie in the Electoral College is even possible depending on how a few states go. Given that every four years we hear some pundits argue that it is time to do away with the Electoral College and just use the national popular vote to decide the presidency, I anticipate we will hear similar calls after the election.

To me, the Electoral College is one of the last vestiges of the idea of federalism in our system.  While we may be American citizens, we also are citizens of a specific state.  The United States is a federal system of a collection of states and not one massive nation along the lines of France. While we have done away with many aspects of federalism, including constitutional change that generated direct election of senators and non-constitutional changes such as the Department of Education and programs like No Child Left Behind, I find federalism very appealing.  The basic idea is that government should be as close to the people as possible.  It is impossible for the federal governemnt to be close to the people, but there are things only the federal government can and should do, such as national defense.  The local government should do all that it is capable of doing, but when the geographic area is too small for a task, then the county or state should do it, and only when the state level is too small should the federal government be involved.  This idea may seem quaint today, but would generate a more representative government than what we have.  My vote today has no impact on the presidential election but could determine a local school board election.  I can call up the mayor of Holland but would never get through to the president, and probably not to a senator.

Finally, when I hear calls for doing away with the Electoral College, I ask, why not do away with the Senate then also?  Why should South Dakota have as many senators as California?  Isn't this also antiquated if the Elector College is antiquated?  But the Senate was put in place, at least in part, so the large states couldn't run roughshod over the smaller states.  There are movements encouraging eating local and so on; I say, let our politics be local whenever possible.

Referendum on Obamacare

Today's Wall Street Journal has an op-ed by Christopher DeMuth on Obamacare and the election. He sees the election as a referendum on Obamacare as well as liberty. He notes that most Americans pay little attention to the federal government except when elections roll around because government doesn't affect  most people in a regular way. Exceptions are highly regulated industries, and some incentives for taking on mortgage debt. But, if the president is reelected and Obamacare is strenthened, we will regularly deal with the government.  I think it is worth reading.

Three Noteworthy Pieces in Today's Journal

Three interesting articles and op-ed pieces in today's WSJ.  The first article is by David Wessel and provides background for the fiscal cliff and budget talks. There is also a video that can be seen that is interestings. There is also an op-ed piece on global climate change and Hurricane Sandy. It points out that in many ways we have fewer hurricanes and less-destructive hurricanes than in years past. The third is an op-ed piece by Alan Blinder. He argues that the recovery has been slow but steady and that to have expected better is to have been mistaken.  I have a couple of quibbles with Blinder's piece though. First, he is pretty much a standard Keynesian and emphasizes government spending more than I think is appropriate. But another is more political. He mentions the Simpson-Bowles plan, noting that Pres. Obama did not embrace it but neither did Paul Ryan. The difference is that the commission was appointed by Pres. Obama and he failed to endorse or support the recommendations. The plan just fell flat. As president, he should have been providing leadership on the issue but failed to do so.  To equate Ryan's no-vote with Obama's lack of support and leadership is misguided.

Dodd-Frank and the Administrative Law Process

There is an interesting op-ed in the Wall Street Journal today, written by Eugene Scalia, the son of Justice Scalia. He has been the lawyer in several challenges to the Dodd-Frank rules written by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).  Congress passes laws but often leave it to commissions and agencies to work out the details.  The rules set by agencies and commissions are part of what is know as administrative law.  The public is supposed to have input into the rules-making processes. The law provides for groups with standing to challenge specific rules issued by the agencies. It is a part of the checks-and-balances in our system.  An example of an agency that offen faces challenges in the courts is the Environmental Protection Agency.  If business interests think regulations are to stringent, they may appeal. But if environmental groups think regulations are not stringent enough, they may take the EPA to court.

Scalia notes that the SEC and the CFTC have lost several challenges in the courts to the rules they have set. The setting of the rules is required by the Dodd-Frank bill.  Scalia refutes the idea that it is Republican-appointed ideologues that have caused the set backs by showing how Democratic-appointed justices have often been involved, including at least one who was appointed by Presdient Obama.  The reasons he claims that the SEC and CFTC have lost in the courts is that they often have relied upon weak economic analysis, disrespected the courts, and failed to recognize the importance of process.  Administrative law is nothing if not process related.

When I took a law course for economists sponsored by George Mason Law School almost twenty years ago, I was surprised to discover that I found the portion on administrative law to be so interesting.  I still find it interesting.

Is Quantitative Easing the Right Policy

The Fed's recent announcement of pursuing additional Quantitative Easing--now called QEinfinity by some or QEp (p for perpetual)--keeps monetary policy in the foreground.  Scott Sumner is the best known advocate of nominal GDP targeting--the idea the Fed should target a nominal rate of GDP growth, perhaps 5%, with the idea that ultimately it will help get to 3% real GDP growth.  Tyler Cowen in his Marginal Revolution blog has several good posts on it.  He supports the idea but is concerned about the linkages that will or should or might lead to the growth of real GDP.  Today's Wall Street Journal has an op-ed piece that claims the easy money of the Fed is punishing the middle class.  It is worth a read.

I am less certain about nominal GDP targeting as the cure. Like Cowen, it can sound rather mechanical.  Whether one agrees with the op-ed piece I cite above, it is clear that easy money is punishing savers, including most retirees.

Is China a Case for Stimulus?

Is China an example of fiscal stimulus successfully maintaining a growing economy? Tyler Cowen and Matt Yglesias offer contrasting opinons.  (A link to Cowens which also links Yglesias' blog is here.)  Cowen argues that the spending has been riddled with malinvestments and influenced by corruption so helps demonstrate an important problem with massive stimulus programs. Yglesias counters with the argument that no sector has lower productivity than the unemployment sector, so that even malinvestments are better than no investments.  He also states that no one in China is debating whether the typical household is better off than it was four years ago.

But Yglesias is ignoring a couple of points in my view. First, it is a short-run view only.  Just as I can live well by running up debt, eventually it has to stop. The same is true for nations.  Second, and relatedly, if we asked the typical American household in 2006 or early 2007 whether they were better off than four years earlier, most would have said they were better off.  Unemployment was relatively low, housing prices were high and rising, the stock market was booming, and the consumer was seen as the engine of strong economic growth. But that all came crashing down once house prices collapsed.  Given the overbuilding of office buildings and apartments in China, it is difficult to believe that a similar crash won't happen there.

A final thing to consider is the political situation in China.  The autocratic central government is very concerned about social stability.  Maintaining growth and increased GDP is crucial to prevent social unrest.  But the measures being used to maintain growth may cause even more social unrest if and when the whole thing falls apart.