Richard J Grant

Published in The Tennessean , Sunday, August 28, 2011 by Richard J. Grant The pattern of migratory flows throughout history suggests that people move from situations that they perceive to be relatively unsatisfactory to destinations where the living conditions are expected to be better. In a big world there will always be someone traveling in the other direction, but the greater flows of people tend to be toward those areas perceived to be better-suited to their survival, prosperity, and sense of life. Border controls are in place to manage the flow of people in both directions. But some borders are particularly geared to controlling traffic in one direction rather than another. That is why Hong Kong had to devote more resources to controlling inward-migration from Canton than did the People's Republic of China have to devote to controlling traffic coming the other direction. China's concern was with losing people, especially the most talented or productive. The sa...

Published in The Tennessean , Sunday, August 21, 2011 by Richard J. Grant When I passed through Checkpoint Charlie for the first time, the Berlin Wall was already 19 years old and its final construction had just been completed. It was more than just a wall. Physically, the 12-foot-high concrete slabs that formed the Wall's face to the West were paralleled on the East side by smaller walls, fences, and buildings. In between was the 100-yard-wide “Death Strip,” with various obstacles and little cover for those daring enough to cross it without authorization. East German and Soviet troops patrolled the strip. Looking beyond the physical, West Berlin was like an island of freedom surrounded by a prison. The Wall was designed to keep East Germans inside East Germany. Before the barriers went up, millions of East Germans had “voted with their feet” and crossed to the West through Berlin. The contrast between East and West Berlin reminded one of the sudden change from black-a...

Published in The Tennessean , Sunday, August 14, 2011 by Richard J. Grant If you manufacture aluminum baseball bats, you probably noticed an unusual increase in orders this past week. Then you noticed the demand is coming from Britain, where one thinks first of cricket, not baseball. You might have wondered why, but were only too happy to increase production to meet this new demand. Markets work. We often hear about “market failure.” What’s that? Just imagine something that is not provided in the marketplace but you feel should be. You can call that “market failure,” if you wish. The classic example was lighthouses. Surely they couldn’t be profitable, right? This was taught to an entire generation before someone decided to check history and discovered that lighthouses were, indeed, provided by private companies long before governments stepped in. You don’t need to know what’s happening in Britain to be able to supply them with more bats. But it helps to know more abou...

Published in The Tennessean , Sunday, August 7, 2011 by Richard J. Grant Economists call it “rational ignorance.” We all do it; we economize on information. Not only that, we economize on knowledge and education. All these things cost us something and at some point we deem increasing them not to be worth the extra expenditure of time, effort, or money. Things that are important or interesting to us get more of our attention. If we have a goal, whether it's earning income or helping a friend, we have a strong incentive to learn what is needed to succeed. But if the decision is unlikely to have any effect on our income or on our friend's welfare, then we have little incentive to put more effort into learning about it or even taking any action. We are helped by anyone who can save us time and energy in learning what we need to know. Often we'll even pay these information-providers, just as we pay the producers of the technology that helps to deliver that information. In life w...

Published in The Tennessean , Sunday, July 31, 2011 by Richard J. Grant In recent days, President Barack Obama has become quite fond of quoting his esteemed predecessor, President Ronald Reagan. We all know the dangers of quoting out of context and of misunderstanding quotes, but it is also rumored that Obama has been studying Reagan's career. Perhaps he came across this 1986 Reagan quote: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Given President Obama's record so far, it seems that he mistook this for advice. Superficially, the two men do have some similarities. Both share the same job title and both inherited very poorly performing economies. Both saw unemployment rise during their first two years in office. At no time during Reagan's two terms did Republicans control both houses of Congress. The Republicans never had a majority in the House ...

Published in The Tennessean , Sunday, July 24, 2011 by Richard J. Grant It is often said that business taxes, such as the corporate income tax, are simply passed on to consumers through higher prices. But it is not that simple. If companies could just raise prices to cover their higher costs, why didn't they just put their prices that high in the first place? When a company raises its prices, some customers stop buying and others cut back on the quantities that they purchase. This is especially true if competitors do not raise their prices. But even if all businesses are affected by rising tax rates, or any other cost, the company cannot assume that it can raise its prices without losing sales. This is why companies don't like taxes: it hurts them. It hurts their owners by reducing profits, and it hurts their customers because they pay more for less. Just because a company sets its price does not mean that customers will come forth with the predicted levels of spending. The sal...

Published in The Tennessean , Sunday, July 17, 2011 by Richard J. Grant Did President Barack Obama just admit that Social Security adds to the deficit? In an interview about the debt ceiling with CBS News last week, the president said, “I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it.” Clearly it was not the president's intention to admit that Social Security payments are inextricably entwined with the federal budget. His intention was to score political advantage by scaring a politically active voting bloc, composed largely of seniors, into pressuring Republicans to raise the debt limit unconditionally. There never has been any chance that Social Security payments to current recipients would be missed or even reduced. Although Congress is not legally bound to continue such payments indefinitely, it has a strong political motivation to do so. Over the past 70 years, pe...

Published in The Tennessean , Sunday, July 10, 2011 by Richard J. Grant One reason that big government is associated with weak economies is its inability to consider adequately the costs of its actions. This is why the various “stimulus” packages have failed to achieve their stated goals. They did succeed in bailing-out particular companies and classes of investors, but the American economy has been slow to adjust and is showing signs of continued weakness. Big-spending governments can always point to big results. But these results look good only when some of the costs are ignored. When the federal government spent hundreds of billions of dollars specifically on “stimulus,” the burden on taxpayers and the private sector was greater than that. Taxpayers hand over the levied amount of dollars to the government, but they also bear the burden of tax-compliance costs and the adjustments to maximize after-tax profits. That is just fiscal policy – the effects of government spending, taxing, a...

Published in The Tennessean , Sunday, July 3, 2011 by Richard J. Grant About a year before the Declaration of Independence, Benjamin Franklin wrote the oft-quoted sentence, “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.” Mr. Franklin and his colleagues famously lived up to the admonition implied in his words. But he was not confident that future Americans would consistently do so. When he emerged from the Constitutional Convention a dozen years later and offered his storied description of the result, “A republic, if you can keep it,” he was worried less about physical dangers than democratic dangers. It has become easy to believe that we can vote ourselves into financial security, but there is no substitute for work and saving. It is easy to believe that we can force people to save for their old age and to administer those savings through governmental programs even though we know that centrally planned economies are les...

Published in The Tennessean , Sunday, June 26, 2011 by Richard J. Grant One evening some years ago, I went to a restaurant with a famous actor. As we entered, and were about to pass the crowded bar, he turned to me and said, “Watch this, I can be anybody I want to be.” I am reminded of this when observing how politicians can make Social Security appear to be anything they want it to be. When seeking support for the program, they tout it as a freestanding, self-financing, off-budget pension program. But when they need to use the Social Security “surplus” to reduce the federal government's budget deficits, it has been convenient to include the program within the total budget. When the original law passed in 1935, Social Security was presented in different ways to different audiences. It is a myth that there was public demand at the time for a compulsory, government-run, old-age pension program. Public opinion at the time was not much different with regard to Social Security than it w...

Published in The Tennessean , Sunday, June 19, 2011 by Richard J. Grant Is the economy made of glass? We keep hearing how “fragile” it is. There has long been a tendency to think of the economy as an almost physical, machine-like entity. We still sometimes hear economists refer to “pump priming,” as if the government is needed to inject the initial income into the system to get it flowing. Or perhaps they see the economy as some kind of an organism that just can't rouse itself without some centrally directed “stimulus.” We think of a machine as needing some kind of control panel or driver's seat. If it is an organism, then we want to put it on a leash. Someone must control it and direct it. Such a vision of the world either ignores or downplays the role of real, autonomous people. Never mind that the real-world economy is an ever-changing network of a multitude of individuals, each seeking their own purposes. Never mind that these individuals will tend to prosper when they coop...

A shortened version was published in The Tennessean , Sunday, June 12, 2011 by Richard J. Grant Whenever a president or governor announces that he is going to focus on “creating jobs,” we have reason to worry. Our state and federal governments have grown way beyond the size where any additional government job is likely to contribute more to society than it costs. It is not an insult to President Barack Obama to say that he cannot create jobs. He can't and we shouldn't expect him to. He can, however, “make work.” Unfortunately, that is what he has done by driving up regulatory and tax-compliance costs, and creating much uncertainty about future policy. That is why the unemployment rate has remained so high for so long and has risen in the past two months to 9.1 percent. The political need for government office-holders to seem important to voters is sufficient to explain the growth of government intervention. An ideological bent toward bigger government simply makes this worse. W...

A shortened version was published in The Tennessean , Sunday, June 5, 2011 by Richard J. Grant A thousand years ago, Mongol invaders displaced the Song Dynasty, which shifted toward the south coast of China. This brought a new commercial and strategic interest in the development of sea travel. By 1132, the Emperor had established a permanent navy and devoted resources to maritime engineering. Knowledge grew, as did the number and sizes of the increasingly sophisticated sailing vessels. By the 15th century, Chinese traders and the navy operated huge fleets of several hundred ocean-going vessels. But with the Ming Dynasty, which began around 1368, the traditionalist, Confucian bureaucracy grew in power and influence. After the death of the adventurous Emperor Zhu Di in 1424, the Chinese became increasingly bureaucratized and inward looking. The maritime expeditions by the great fleets soon came to an end. An imperial decree restricted Chinese ships to coastal waters and individuals were ...

Published in The Tennessean , Sunday, May 29, 2011 by Richard J. Grant History is easier to understand when we remember that the interests of individual politicians regularly differ from those of their constituents. This helps explain the recent grandstanding by Senate Democrats when they summoned oil-company executives to act as political punching bags to help distract attention from the Obama administration's abysmal record on energy supply. This show trial was the centerpiece for hearings in support of the Democrats' “Close Big Oil Tax Loopholes Act,” which purports to eliminate oil-industry subsidies. The show-trial format fit well with the political exploitation of public distress over rising gasoline and oil prices. The Senators made wild and misleading insinuations in the form of marketable soundbites while the oil executives had to respond in the longer paragraphs that are usually needed to explain reality. Passive listeners were led to believe that oil companies were m...

Published in The Tennessean , Sunday, May 22, 2011 by Richard J. Grant The Federal Reserve Board has been trying to raise prices, particularly house prices. On average, it has more than succeeded: Consumer Price Index figures for April show an annual increase of 3.2 percent in consumer-goods prices. In the past, the Fed has expressed a belief that 2 percent price inflation would be about right to promote growth. In contrast to the rising CPI, home prices seem not yet to have bottomed out nationally. The Fed has purchased huge blocks of mortgage-backed securities, and has been creating money to buy Treasury securities in unprecedentedly large quantities. This has kept interest rates artificially low and has undoubtedly slowed the adjustment of prices in the property market. Expansions in the money supply cause prices generally to be higher than they would have been, but prices are not all affected equally. Some prices rise faster than the average while others rise more slowly or, like p...

Published in The Tennessean , Sunday, May 15, 2011 by Richard J. Grant Over the years from 1792 to 1930, the federal government ran surpluses twice as often as it ran deficits. But in the 80 years since 1930, the federal government has run annual deficits seven times more often than it has run surpluses. It has been 10 years since the last surplus. During the first hundred years of the Republic, it was not at all unusual to see significant reductions in the national debt. Debt was always recognized as a useful tool in the pursuit of national interests, but that recognition was balanced by a strong ethical imperative to avoid deficits and to pay down the national debt whenever possible. The Great Depression marked a turning point in this ethical attitude. In 1932, when government revenue fell to half its 1930 levels and spending rose by more than 40 percent, President Herbert Hoover stumbled through an election-year with a deficit that was almost 58 percent of the budget. His opponent, ...

A shortened version was published in The Tennessean , Sunday, May 8, 2011 by Richard J. Grant Canada's forty-year flirtation with socialized medicine has created the impression in the minds of many Americans that Canada is an example of a socialist country. But one sector does not a country make. By recent measures of economic freedom, Canada ranks as high as or higher than the United States. The “Economic Freedom of the World” report, published in 2010 by the Fraser Institute and the Cato Institute, gave the US and Canada virtually equal overall rankings. The more recent 2011 “Index of Economic Freedom,” published by The Wall Street Journal and the Heritage Foundation, ranks Canada three places higher than the US. If Canada is less free than the US in its health-care sector, then it more than makes up for it with greater freedom in other areas. But even in the health-care sector, the Canadian government does not interfere with everything and the US government does not interfere w...

Published in The Tennessean , Sunday, May 1, 2011 by Richard J. Grant The “CAP Act of 2011,” as championed by Sen. Bob Corker, R-Tenn., would place a cap on total federal government spending and gradually reduce the maximum level to 20 percent of GDP over 10 years. Placing a legislated cap on spending does not bind future congresses, but it would give them guidance and would provide a benchmark that future taxpayers could easily monitor. The purpose of a cap is to create an upper limit. It is a ceiling, not a floor. It also leaves open the question of what will be the composition of the spending that does occur. We still need to make specific choices about specific spending programs and specific cuts. That is the purpose of the budget. President Barack Obama has presented two budgets already this year, neither of which would comply with Corker's spending cap. Obama's first budget would actually have kept spending close to present levels and the second would not even bring spend...

Published in The Tennessean , Sunday, April 24, 2011 by Richard J. Grant Most of us know what Charles Dickens meant when he wrote, "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery." As individuals, we are quick to see the consequences of spending beyond our incomes. But the lesson is not so obvious when the government does the spending for us. Currently, the U.S. Government is spending about 25 percent of our Gross Domestic Product (GDP), which means that the federal government alone is spending a quarter of what we produce each year. But tax revenues won't keep up with this level of spending. Revenues have recently been below 15 percent of GDP and rarely reach 20 percent. The government is either unable or unwilling to do what is necessary to raise revenue to match its appetite for spending. Countries with higher percentages of government spending als...

A shortened version was published in The Tennessean , Sunday, April 17, 2011 The President’s speech misses the point by Richard J. Grant Last Wednesday, President Barack Obama delivered a televised speech that had been billed as a major policy statement on the budget. What listeners actually received was a campaign speech that played fast and loose with anything resembling fact but did reveal much about the Obama vision of America. The president attempted to contrast two different visions of America, his own versus one “championed by Republicans in the House of Representatives.” The latter was a reference to the Republican budget plan for Fiscal Year 2012 as presented the week before by Congressman Paul Ryan (R-WI), chairman of the Budget Committee. The Ryan plan would cut about $6 trillion (over 10 years) from the spending increases projected in the budget previously offered by the president. Even with $6 trillion of cuts, the Ryan plan would not achieve a balanced budget in 10 years....