The Democrats’ Chronic Leadership Shortage

It has to be depressing to be a Democrat right now. They are extremely disappointed with Obama but they have no obvious replacement.

Consider some possible scenarios. What if months from now Barack Obama is in the same or worse condition than he is now? What if he and everyone else realize that he is dead-candidate walking? One option would be to do an LBJ and announce that he’s not going to run for reelection. Another would be for some other Democrat to successfully challenge him in primaries.

The Democrats will not want to abandon Obama, but they want even less to lose the White House along with several House and Senate seats. A lopsided loss would do long-term damage to the party and liberalism. If the S.S. Obama is headed to the bottom of the sea, they will be jumping ship.

Their dilemma is, however, who do they have to replace him? Hillary Clinton is the name mentioned most often, but even Democrats have serious doubts about her as demonstrated by her 2008 primary loss to Obama. New York governor Andrew Cuomo has also been mentioned as a possible alternative. Besides those two choices their menu is not very appetizing — Joe Biden, Harry Reid, Nancy Pelosi, or Debbie Wasserman Shultz. I can’t imagine any of those possibilities exciting even Democrats.

Now compare that situation to what’s going on among Republicans. If anything, the Republicans have too large a selection of attractive alternatives. It frustrates me that there can be only one nominee. I like most of the announced candidates as well as several others — Marco Rubio, Sarah Palin, Chris Christie, Rudy Giuliani, and Paul Ryan, for example. The difference in bench strength between the two parties is like night and day.

This is not a new problem for Democrats. Although they have managed to win presidential elections over the past few decades there is usually something off kilter with their candidates. For example, there is something a bit weird about Jimmy Carter, Bill Clinton, Al Gore, John Kerry, Howard Dean, John Edwards, and Barack Obama. They are not what most people would consider normal. Each in his own way has at least a borderline personality disorder. All of them have difficulty being up front and honest about who they are and about their true objectives.

Now contrast those Democrats to Ronald Reagan, Gerald Ford, Bush 41, Bob Dole, and Bush 43. There is a genuineness about most all the leaders of the Republican Party. They tend to be people who are comfortable in their own skins.

John Edwards was John Kerry’s running mate in the 2004 presidential election. It would be hard now to find a Democrat who would say anything positive about Edwards. He was obviously an extremely flawed choice and most non-Democrats could see that from the outset. Howard Dean had significant support in the 2004 Democrat primaries until his “I have a scream” speech, and it became obvious that the guy is not all there. Nevertheless, Dean was later appointed head of the Democratic National Committee and served in that capacity for four years. Anthony Weiner was a popular rising star in the party until some Internet missteps revealed his serious character flaws.

Why do the Democrats have a propensity to support weirdos? What is it about the Democrat party that prevents normal, well-adjusted people from rising to the top of the party? What does their rogues’ gallery of leaders say about the Democrat base? I don’t have good answers to those questions, but there is obviously something going on and it demonstrates a striking difference between the two parties.

However someone rises to the upper echelons of the Democrat party, the process is not very productive. Whatever kind of farm team they use, it simply isn’t sending many qualified players to the majors.

Democrats love to fall in love with their leaders. Although love is the most wonderful thing in the world, it can be brutal when it comes to judgment. A wise friend of mine once told me, “When love walks in the door, judgment crawls out the window.”

Democrats clearly fell head over heels for Barack Obama. A lot of them have now fallen out of love with him and are scratching their heads wondering, “What were we thinking? This guy is not who we thought he was.” The answer, of course, is that they were not thinking. They were love-struck. Especially when love is new you do not want to hear anything negative about your sweetheart. That might explain why Democrats so often make choices they subsequently regret.

The Democrat dearth of viable leaders is not likely to disappear anytime soon. The Republican Party is certainly not problem-free, but a shortage of strong candidates is not one of them. That should give them a valuable advantage for years to come.

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◼ The Democrats’ Chronic Leadership Shortage September 15, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

The Liberals’ Reality Problem

A basic problem for liberals is their rejection of and discomfort with reality. That attitude, unfortunately, creates a number of problems for them as well as for the rest of us.

There is, for example, much about human nature that bothers liberals. They do not like the fact that self-interest is the prime motivator in human decision making. This is at the root of why they speak so disdainfully of profits. The profit motive makes them cringe. For liberals “profits” is a four letter word. They would prefer people to be motivated strictly by charitable impulses and altruism. Rather than recognizing that being motivated by self-interest is a necessary survival tool, liberals conflate self-interest with greed and then blame greed for many of society’s ills.

Part of the genius of Adam Smith was his non-judgmental acceptance of human nature. He recognized that self-interest is the primary motivator in human behavior. Rather than wasting his time denying or lamenting that, he explained how a market economy does the best job of bridling that force and can actually lead to beneficial outcomes for society in general. He wrote, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

There are a number of features of a market economy liberals do not like, and they do everything they can to suppress or eliminate them. In their minds a market economy leads to an unacceptable level of inequality. In a market economy, some people get extremely wealthy. Liberals simply cannot abide that. It irritates them beyond belief. Because it results in an unequal distribution of wealth, liberals are willing to essentially scuttle the entire market economy. Their attitude is essentially, “Stop the economy! I want to get off.”

A critical component of the market is competition. Competition results in winners and losers, but liberals don’t want anyone to lose. Of course, competition isn’t unique to the market; it occurs almost everywhere and bestows profound benefits. Competition is quite literally a fact of life. As Darwin made clear, it’s a key component in the process of evolution. The late economist George Stigler called competition “the patron saint of consumers.” It’s difficult, perhaps impossible, to like reality if you don’t like competition.

Because intentions govern their policies, liberals show no interest in looking at evidence. Their denial and disregard of evidence is another reflection of their dislike of reality. Evidence is about reality; intentions are about fantasizing and self-indulgence.

Another clear example of the liberal rejection of reality is their absolute dislike of budgets. Budgets are one of the clearest instances where reality meets the road. Living within a budget is a form of living in reality. Liberal Democrats in Washington and various state capitals do everything they can to delay passing budgets or living within them once they’re passed. Deficits as far as the eye can see are the unfortunate result.

Humanity is another part of reality that liberals aren’t particularly happy about. They’re convinced that humans should be far less plentiful. In terms of global population, the smaller the better. Many of them feel that in most instances an abortion is preferable to a live birth. A variation of liberalism is environmentalism. Environmentalists consider humans to be much more a curse than a blessing.

The problem with the liberal dislike of reality is how it’s affecting the rest of us. If you don’t like reality one response is to deny that it exists. Denial is a frequent cause of individual and societal problems. From a practical standpoint, this means behaving as if consequences don’t exist or don’t matter. We will be dealing with the damage done by their ill-considered good intentions for many years to come.

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◼ The Liberals’ Reality Problem August 23, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Why President Obama Is Painful to Watch

If someone looked at your face while watching President Obama make a speech or hold a press conference, I’ll bet it would reflect pain and discomfort. Your facial expression might be described as a grimace. There are a number of reasons for that kind of reaction. It might not even matter whether you are liberal or conservative. There is much about Mr. Obama’s style and content that repels rather than attracts.

For example, the man is tiresomely repetitive. How many times has he used the terms “millionaires and billionaires,” “shared sacrifice,” and “corporate jet owners”? He gives new meaning to the term ad nauseam. Most of what he repeats wasn’t worth saying the first time. You’re left wondering, “Is that all you’ve got?”

Saying the same thing over and over makes you totally predictable and uninteresting. Mr. Obama has become tedious and boring.

How many times has he told us that creating jobs is going to be his number one priority? Has it ever happened? His “credibility gap” is growing wider than LBJ’s.

A particularly annoying aspect of Mr. Obama’s personality is that he has virtually no sense of humor. There are very good reasons why humor is categorized as a “sense.” Humor is akin to a sense of taste or sense of balance. Individuals vary widely in regard to these characteristics. Successful comedians have inherent and highly developed senses of what’s funny and what’s not. They are “naturals.” Of course, there are people on the other end of the spectrum, such as Mr. Obama.

It’s painful when people with no sense of humor attempt to be funny. Mr. Obama frequently makes lame attempts at being funny, and people in the room usually laugh, particularly members of the press. If you listen, however, what you hear is an uncomfortable, polite, and brief kind of laugh.

Mr. Obama makes use of awkward and unusual figures of speech. One glaring example that I’ve never figured out is the title of his second book, The Audacity of Hope. I realize it is a phrase he took from his mentor and long-time pastor, Jeremiah Wright. Wherever it came from, what in the world does it mean? It is typical of most of what Mr. Obama says. I suppose that it was meant to sound profound, but if you think about it, it’s anything but.

In the midst of the health care debate Mr. Obama said, “There’s something about August going into September where everybody in Washington get’s all wee-weed up. I don’t know what it is, but that’s what happens.” So far as anyone could determine, no one had ever used the term “all wee-weed up” previously. Later the White House explained that it meant wetting the bed. That still doesn’t make any sense. Let’s just say, the man is not a great communicator. Articulate he is not.

Recently in the debt limit negotiations Mr. Obama warned the Republicans, “don’t call my bluff.” That’s just weird. Anyone with half a brain knows that a basic requirement of a bluff is that you don’t let it be known that you’re bluffing. Admitting that you’re bluffing cancels its effect. If you admit that you’re bluffing, you are sure to be called on it.

Mr. Obama is often cloyingly folksy. One obvious example is his insincere and frequent use of the word “folks.” A similar lame attempt at sounding like a down-home good-old-boy is the dropping of the g in words like going, doing, etc. It just makes him sound phony. Mr. Obama is attempting to act a part, but he’s not a very good actor. Watching bad acting is no fun.

The odds are looking better all the time that Mr. Obama will be a one-term president. There’s a good chance we will only be burdened with his tiresome style for another eighteen months.

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◼ Why President Obama Is Painful to Watch August 12, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Fatal Flaws of Keynesian Economics

It’s now clear that the federal government’s massive stimulus spending has not achieved its objectives. Why hasn’t it? It’s important that we have answers to that question.

The stimulus was premised on the economic model known as Keynesianism: the intellectual legacy of the late English economist John Maynard Keynes. Keynesianism doesn’t work, never has worked, and never will work. Without a clear understanding of why Keynesianism cannot work we will be forever doomed to pursuing the impossible.

There’s no real mystery about why Keynesianism fails. There are numerous reasons why and they’ve been known for decades. Keynesians have an unrealistic and unsupportable view of how the economy works and how people make decisions.

Short-Run Focus

Keynesian policy advocates focus primarily on the short run — with no regard for the future implications of current events — and they assume that all economic decision-makers do the same. Consider the following quote by John Maynard Keynes: “But the long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean will be flat again.” After passage of the stimulus package, Lawrence Summers, Obama’s chief economic advisor at the time, often said that the spending should be “timely, targeted, and temporary.” Although those sound like desirable objectives, they illustrate the Keynesian focus on the short term. Sure it would be convenient if you could just spend a bunch of money and make the economy get well, but it’s not that simple.

The implication of a Keynesian perspective is that you can hit the economy a few times with a cattle prod and get society back to full employment. Remember that so-called “cash-for-clunkers” program? Maybe it accelerated some new car sales by a month or two, but it had no lasting impact.

The “Chicago School” is the primary source of serious research and analysis related to the Keynesian model. Two Chicago School conclusions, in particular, make it clear where Keynesian policies run aground. The two theories are the “permanent income hypothesis” and the theory of “rational expectations.”

The “permanent income hypothesis” was how Milton Friedman termed the findings of his research on the spending behavior of consumers. The MIT Dictionary of Economics defines the permanent income hypothesis as “The hypothesis that the consumption of the individual (or household) depends on his (or its) permanent income. Permanent income may be thought of as the income an individual expects to derive from his work and holdings of wealth during his lifetime.”

Whether consumers and investors focus mostly on the short run or the long run is basically an “empirical question.” A convincing theoretical case can be made either way. To find out which focus actually conforms closer to reality, you have to gather evidence.

Not Evidence-Based

Much of the difference between the two schools of thought can be explained by differences in their methodologies. Keynes was not known for his research or empirical efforts. Keynesianism is definitely not an evidence-based model of how the economy works. So far as I know, Keynes did no empirical studies. Friedman was a far more diligent researcher and data collector than was Keynes. Friedman fit the theory to the data, rather than vice versa.

The Keynesian disregard for evidence is reflected in their advocacy for more stimulus spending even in the face of the obvious failure of the what’s already been spent. At a minimum, we are due an explanation of why it hasn’t worked. (Don’t expect that to be forthcoming, however).

Failure to Consider Incentives

Another of the Chicago School’s broadsides against Keynesianism is the theory of “rational expectations.” It’s a theory for which the 1995 Nobel Prize for Economics was awarded to Robert Lucas of the University of Chicago. As economic theories go, it is relatively straightforward. It essentially states that “individuals use all the available and relevant information when taking a view about the future.” (MIT Dictionary of Modern Economics) The rational expectations hypothesis is the simple assertion that individuals take into account their best guesses about the future when they make decisions. That seemingly simple concept has profound implications.

The Chicago School’s research led them to conclude that individuals are relatively deliberate and sophisticated in how they make economic choices. Keynesians and their liberal followers apparently think individuals are short-sighted and simple-minded.

An elemental but too often overlooked reality about our economy is that it is based on voluntary exchange. Voluntary exchange is an even more fundamental feature of our economy than is the market. A market is any arrangement that brings buyers and sellers together. In other words, the primary purpose of a market is to make voluntary exchange possible.

Voluntary exchange leaves large amounts of control in the hands of private individuals and businesses. The market relies on carrots rather than sticks, rewards rather than punishment. The actors, therefore, need to be induced to move in certain desired directions rather than simply commanded to do so. This is the basic reason why incentives are such an important part of economics. If not for voluntary exchange, incentives wouldn’t much matter.

In designing economic policy in the context of a market economy it becomes important to take into account what actually motivates people and how they make choices. If you want to change behavior in a voluntary exchange economy, you have to change incentives. Keynesian policies do not take that essential step.

The federal government’s share of GDP has gone from 19 percent to 24 percent during Obama’s time in the White House. A larger government share of GDP ultimately necessitates higher taxes or more debt. In and of themselves, higher taxes retard economic growth because of their impact on incentives. The disincentive effect of higher taxes illustrates why big government is far costlier than it first appears.

It’s no accident that Keynesianism is so popular with liberals. It blends well with their unquenchable thirst for expansive government. It doesn’t work for the economy but it works for them. The obvious failure of Keynesianism is further evidence of the bankruptcy of liberalism.

Keynesianism is essentially all the Democrats have. It’s a one-trick pony. That one trick hasn’t worked and now Dems are floundering with nothing more to offer.

All but one member of the president’s original economic team has exited. According to liberal columnist Ezra Klein, “Lawrence Summers and Christina Romer were two of the most influential Keynesians in the country. Obama didn’t just have a team of Keynesians. He had a Keynesian all-star team.”

Now the president has a Keynesian all-gone team. It will be a brighter day for the country when Keynesianism itself is gone for good.

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◼ Fatal Flaws of Keynesian Economics July 22, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Two Different Worlds: The Public and Private Sectors

Most everyone realizes there are differences between the economy’s public and private sectors. However, they may not appreciate just how great the difference is.

We have an ongoing debate about the size of government, and by implication the size of the private sector. When choices are made about what responsibilities and functions to assign to the government, a crucial consideration should be the relative competencies of the private vs. the public sectors.

Consider, for example, differences in how the two sectors take advantage of advances in technology. In the private sector old products become better and cheaper, and new products flow with increasing frequency.

My 2009 car is the same make and body style of a 1990 one I owned years ago. It is significantly better in every way — more powerful, 25 percent better gas mileage, better brakes, more safety features, better handling, and more fun. The application of numerous breakthroughs in technology would be too numerous to count. The inflation-adjusted sticker price has actually declined. I have seen similar improvements in virtually every consumer product I buy and use.

The private sector’s products all around us — food, shelter, clothing, automobiles, home appliances, entertainment, for example. The public sector’s products include defense, the justice system, roads and highways, public schools, income redistribution (welfare), laws, and regulations.

Many of the government sector’s outputs are more like anti-products than products. Regulations stifle innovation, decrease productivity, increase costs, and generally drive people crazy. Rather than wealth creation, regulations result in wealth prevention.

In the private sector virtually every product and every service has been profoundly affected by the technological revolution. The government sector, on the other hand, seems to have no learning mechanism. The private sector is responsive and dynamic; the public sector is almost catatonic. In the private sector new products are introduced at a dizzying rate of speed.

The private sector provides ideal growing conditions for creativity. A striking example of this is the explosion of “apps” (applications) for “smart phones.” (A smart phone is a cell phone that connects to the internet.) The two leading providers of apps are Apple and Google. The current population of available apps is over 350,000 and still growing. Many of the apps are free or cost only one or two dollars.

What these apps can do for you is absolutely mind boggling. The proliferation of the apps is a dramatic example of R.W. Emerson’s observation, “Invention breeds invention.” The apps’ universe has provided creative opportunities for thousands of widely dispersed innovators and entrepreneurs. Hundreds of thousands of innovative people are diligently “finding a need and filling it.”

The government sector is “so yesterday.” Is there any example of technology noticeably increasing the efficiency of government? Does government productivity ever increase? We have expended trillions of dollars on the “war on poverty” and the incidence of poverty is as basically unchanged. Public schools consume a large fraction of state and local budgets. Public schools have grown progressively more dysfunctional over the past several decades.

One of the public “products” most of us are forced to “consume” is the Internal Revenue Code. During the almost hundred years of its existence its efficiency has consistently grown worse. Its birth coincided with that of the Model T Ford. Automobiles are vastly superior to those of the early 20th century, the IRC has evolved backwards. In terms of resources consumed and the burden on the economy, the costs of collecting a dollar of revenue has increased dramatically over the life span of the Internal Revenue Service. The Model T is a museum piece. The IRC should be.

The relative shares and importance of the public and private sectors are only partially a political decision. It isn’t simply about spending money and passing new laws and regulations. The public sector is certainly doing enough of that.

There is in effect an undeclared race between the public and private sectors in regard to satisfying human wants. Who’s winning that race? Which sector is doing a better job of affecting peoples’ lives in a positive way? In fulfilling human wants the private sector is leaving the public sector in the dust. People get more and more value from the private sector and the same or less value from government activity even though the cost of government has increased at an exponential rate.

Why is there so much difference in how the two sectors function? Two important reasons are incentives and competition.

The University of Rochester economist, Steven Landsburg, says, “Most of economics can be summarized in four words: ‘People respond to incentives.’ The rest is commentary.” Although I think that’s an exaggeration, there is much truth in it. The private sector is vastly more effective and efficient than the government mostly because of the differences in the incentive structures. In the private sector you can get rich filling needs and solving problems. The public sector’s incentive structure is totally dysfunctional.

In a competitive environment, innovation, efficiency, and product improvement become matters of survival. Apple and Microsoft spend billions of dollars annually on research and development. They spend those vast amounts more out of necessity than choice. If they did not they would fall behind and lose market share.

President Obama complained recently about the White House’s obsolete phone system. He said that the White House phones are “30 years behind,” and “we can’t get our phones to work.” He said that he was disappointed by the lack of “really cool phones and stuff.” Does he ever wonder why this happens? I doubt that he does. I’m pretty sure no major corporation has an obsolete phone system.

Mr. Obama’s campaign themes were “hope and change.” Ironically, he is intent on increasing the role of government, the entity most resistant to and even incapable of change and innovation, and there is little reason to hope that will change any time soon.

In light of the stark difference in the effectiveness and competence between the private and public sectors, it totally mystifies me that any sentient person would want to transfer more power and money to the government.

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◼ Two Different Worlds: The Public and Private Sectors June 1, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Debt Limit Fear Mongering

“The debt limit is coming! The sky is falling!” Or maybe a more apropos parable is the boy who cried wolf.

Much of what we’re being told about having to increase the debt limit doesn’t make sense. Here are some rather obvious questions that need to be considered regarding the debt limit:

• If you can raise the limit whenever it becomes a limit, what’s the point?

• If not raising the limit would be catastrophic, is it possible to have a limit? If adhering to the limit creates havoc, is it even an option?

• How will not raising the limit result in default? Doesn’t it simply mean that from that point on, your current expenditures cannot exceed your current revenue?

The limit doesn’t even mean you cannot issue new bonds to replace maturing ones. It just means you can’t increase the total amount of outstanding indebtedness. It does not mean that all federal government payments of any kind must stop immediately, as former treasury secretary Alice Rivlin has claimed. There might well be some explanation for the debt limit-default connection, but it is anything but obvious.

When you reach the limit, you basically have three choices — decrease spending, raise taxes, or raise the limit. Have we already reached the point where there are zero discretionary expenditures? Are there no purchases that can be canceled or at least postponed? Are there no positions that can be eliminated or at least left unfilled?

The first federal debt limit was imposed in 1917. It has been raised an average of every fifteen months since then, including eleven times in the past fourteen years.

If the limit can be raised more or less at will, is it a complete joke? No, it’s only a 90 percent joke. In the current iteration of the dance, for example, Republicans hope to use it as leverage to extract spending limitations from the Democrats.

According to H.L. Mencken, “The whole aim of practical politics is to keep the populace alarmed — and hence clamorous to be led to safety — by menacing it with a series of hobgoblins, all of them imaginary.” Fear mongering is part of a politician’s DNA, but lately it has been resorted to in unprecedented levels.

We were told in 2008 that the Troubled Asset Relief Program (TARP) had to be passed in a matter of hours or days or financial Armageddon would surely follow. In retrospect, that is very much in doubt, to put it mildly. TARP probably caused more damage than it prevented.

The stimulus package was rushed though in the first two weeks of the Obama presidency, again under the guise that we had little choice and no time to debate. We were told that passing the stimulus bill would be the only way to prevent the unemployment rate from exceeding 8 percent. The stimulus bill passed, government spending exploded, and the deficit shot up. Nevertheless, the unemployment rate went well above 8 percent and has remained there.

The stimulus has definitely not lived up to its official title — the American Recovery and Reinvestment Act. Two and half years after it was passed, there is no “American Recovery” in sight. We are living through what is by far the longest recession in the nation’s history.

Once again we’re hearing the same calamitous warnings of impending disaster if we don’t put aside our skepticism and just put our trust in the authorities in Washington, D.C. and on Wall Street. Have they earned our trust? What has been their track record?

There are indications that the scare tactics aren’t working like they used to. A New York Times poll last week asked, “Do you favor or oppose raising the debt limit?” Only 27 percent said they were in favor versus 63 percent who were opposed. The results did not change much when the question was followed up with the possibility that a limit might increase interest rates.

Having a debt limit is not the problem. It is only a symptom, or even a symptom of a symptom. Spending beyond our means is the problem.

A budget is one of the most basic and widely used tools of human action. It is a highly useful method for dealing with reality. Failing to face facts about a budget is the same as running away from reality. The simplest and most common budget rule is to balance income with spending. There’s nothing wrong with temporary imbalances, but any serious observer knows that permanent deficits are an invitation to disaster.

Those who argue it’s too soon for the government to live within its means are like a drunk who says he couldn’t possibly sober up unless he first gets another drink. The debt limit is a little bit like an “intervention.”

Everyone admits that the debt limit will once again be raised. Nevertheless, the fact that it has become such a hot issue this time is a good omen. The public, at least, appears ready to get serious.

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◼ Debt Limit Fear Mongering April 28, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

California Descends Deeper Into Self-Destruction

California — it’s the best place to live and it’s the worst place to live. The physical climate is almost ideal and the political climate, if you’re a conservative, is surreal. Through their politicians and bureaucrats Californians seem hell bent on destroying the state’s vast potential. It’s a painful sight to witness.

The latest, all too typical, example is a law signed by Governor Jerry Brown last week mandating new renewable energy requirements for electric utilities in the state. The new law requires that 33 percent of electricity generated be done with “renewable” sources, essentially wind mills and solar panels, by the end of the year 2020. What’s the objective of this “ambitious” new regulation?

To answer that question you first need to understand that California has a wildly inflated sense of self-importance. Californians actually believe they have the ability and duty to save the planet. Humility is clearly not their strong suit.

California has a population of roughly 37 million. That is barely half of one percent of the world’s population. If Californians reduce their “carbon footprint” by a third (a very tall order), that will reduce humanity’s carbon footprint by one sixth of one percent. I hate to tell my fellow Californians, but there is no way on earth that will make an iota’s worth of difference.

Some Californians will point out, however, that that misses the point. Because they think California is the center of the universe, what happens here will change behavior and attitudes throughout the world. California is a place where self-esteem has run amok.

At the signing ceremony Governor Brown said, “It’s about California leading the country. It’s America leading the world. There are people who think we can drill our way to happiness and prosperity. Instead of taking oil from thousands of miles away, we’re taking the sun and converting it.” Brown went on to say quite proudly, “I didn’t get my name ‘Governor Moonbeam’ for nothing.”

A recent Public Utilities Commission study found that previously imposed renewable energy regulations have added $6 billion to what utilities have had to spend generating electricity since 2002. Has there been any measurable or identifiable benefit for spending that unnecessary $6 billion? The benefit-cost ratio of those expenditures is a close to zero as it’s possible to get. This has been absolute folly and we are about to multiply it by who knows how much.

Such costs are even worse than increasing taxes. Taxes at least have the potential to create value when spent on, for example, teachers’ salaries. Taxes redistribute wealth, mandates destroy wealth.

When the utilities are forced to buy several times more power generated by windmills and solar panels, the price is bound to go through the roof. Not to worry, however. The new law further requires the utilities commission to place limits on how much can be spent on renewable power. When one kind of coercion isn’t enough, follow up with another kind of coercion. Of course, the only real result of a price ceiling is to create shortages. Shortages do even more economic damage than rising prices. Keep passing laws until the entire economy is in a straightjacket. One interference with the market always necessitates another, as Fredrich Hayek demonstrated long ago in The Road to Serfdom.

As is usually the case (Obamacare, for example), the spineless lawmakers left the ugly details to the bureaucrats. According to public utilities commissioner Mike Florio, “Our staff is already figuring out what we’ll need to do. It’s clearly a priority for the state, so we’ll get it done as fast as possible.” The politicians and the bureaucrats have not the vaguest idea what they’re doing. They know nothing about what’s involved in providing electricity to the state’s residents and businesses, and they don’t really see why they need to.

The legislation demonstrates the liberal faith in and willingness to use force. The assumption is that solar panels and windmills can suddenly increase their output just because a law has been passed. It’s not that simple. The politicians have no more understanding about how technology works than they do about how the economy works.

If it’s California’s responsibility to save the world, and if force works, why such a modest target? Why not, for example, a 100 percent renewable requirement by 2015? The 33 percent mandate by the end of 2020 is totally arbitrary. How was it arrived at? When you’re operating in a realm where costs don’t matter and objectives are utopian, numbers are a mere afterthought. The targets are unlikely to be achieved even after billions of dollars have been squandered. According to Gino DiCaro, spokesman for the California Manufacturers and Technology Association, industry in California already pays electricity rates about 50 percent higher than the rest of the country. That, of course, is one of the reasons for the exodus of businesses from the state.

Although California politicians fail utterly in their basic responsibilities—balancing a budget, for example—they arrogantly believe they can save the planet. Their attitude is, “We can’t possibly focus on the state’s economy. We’re too busy stopping global warming!” Just as they recklessly overpromise on government-employee pensions, they overpromise on their ability to cure the world’s maladies.

In a spot-on Wall Street Journal column last year entitled “California: The Lindsay Lohan of States,” Allysia Finley (a former resident of California) pointed out that our government here is being “run by a brothel of environmentalists, lawyers, public-sector unions and legislative bums.” Her article followed the November elections that made California a one-party state. She said the state is like “a prima donna who once showed some talent but is now too wasted to do anything with it.” I fervently wish her words weren’t so true. As a resident of California, it breaks my heart to see the state’s vast potential being squandered. As an economist it pains me to see resources so grossly misallocated and wasted on such a massive scale.

I wish this self-destructive behavior were confined to California. Ominously, the renewable mandate signing ceremony was attended by U.S. Energy Secretary Steven Chu. It isn’t often a state-level bill signing is attended by a U.S. cabinet officer. The Obama administration obviously believes California’s lunacy is just what the rest of the country needs. God help us.

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◼ California Descends Deeper Into Self-Destruction April 21, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.