Richard J Grant

Published in The Tennessean , Sunday, December 18, 2011 by Richard J. Grant Economists call it the “shortsightedness effect.” Government decisions tend to be biased against actions with easily recognized current costs and less-obvious future benefits. Politicians prefer it to be the other way around. They prefer the benefits to show up before the next election — the costs later. It also applies to tax policy and the timing of tax revenue. Such is the dilemma faced by the governor of Tennessee. Gov. Bill Haslam is worried about a legislative proposal to eliminate Tennessee’s estate tax and its Hall Income Tax on dividends and interest. The governor knows that both of these taxes hurt the state’s economic development. As he put it, they “chase capital away from the state.” Enough capital is chased away by these taxes to have reduced Tennesseans’ income growth measurably. Recent research by economists Arthur Laf-fer and Wayne Winegarden compared Tennessee to other states with similar pol...

A shortened version was published in The Tennessean , Sunday, December 11, 2011 by Richard J. Grant “What does not kill him makes him stronger,” wrote Friedrich Nietzsche. This oft-quoted phrase, usually out of context, is misunderstood almost as often – for it is not necessarily true. That which does not kill him leaves him stronger than he would be if he were dead. Thus history is presented to us as a string of non sequiturs dressed up as a necessary unfolding of events. We look back fondly at our leaders of the past assuming that, if we survived the crisis of that time, whatever our leaders did must have been wise. We know better, but are sometimes susceptible to rhetoric that reaches into the haze of history to retrieve moral authority from precedent. So it was that President Barack Obama arrived in Kansas last week in search of reflected glory, invoking the memory of a speech by Theodore Roosevelt a century ago. That President Roosevelt served as a Republican is useful as a rhetor...

Published in The Tennessean , Sunday, December 4, 2011 by Richard J. Grant Some taxes are just not worth the trouble. There are many ways in which a tax can end up costing us more than the revenue it generates. This is especially true when the tax rates are high and the tax base is narrow enough that people can shift to other activities that are less heavily taxed. Resources shift into second-best uses. Taxes reduce the ability of individuals to accumulate capital. Although some government spending is devoted to long-term capital projects, such as roads and bridges, most of it is shifted into consumption. As social programs become a larger proportion of governmental spending, governments increasingly inhibit our ability to maintain and create capital. With less capital, our future incomes will unfortunately be lower than they would have been. While this implies a lower future standard of living for individuals, it also implies a lower capacity for the future provision of government ser...

Published in The Tennessean , Sunday, November 27, 2011 by Richard J. Grant The progressives among us often insist that we need stronger laws and greater regulation. But they don't really mean it – at least not in any consistent sense. While happy to load us up with regulations at all levels of government, they do so only by either ignoring or defining away any limitations on government at the constitutional level. If we are now dogged by a flourishing pack of sharp-toothed regulators, it is because the constitutional leash intended to limit the range of politicians’ powers has been loosened from its anchor. The U.S. Constitution was intended as a conservative document that would give the national government a few defined powers and no more. Government was constitutionally limited to protect citizens from the whim of the aspiring oligarch and the appetites of the mob. The Orwellian phrase, “living constitution,” really describes a constitution that is moribund. Any constitution tha...

Published in The Tennessean , Sunday, November 20, 2011 by Richard J. Grant During the past week, the total debt of the U.S. government surpassed $15 trillion. This brings the total debt up to about 99 percent of the annual production of the U.S. economy. Given that the debt has been growing more than four times faster than the economy, it should cross the 100 percent barrier by the end of the year. Meanwhile, in Washington, the congressional “supercommittee” is supposedly working on proposals to reduce, if not eliminate, the annual budget deficit. We know for sure that they have no intention of eliminating the deficit. Their assigned task is to reduce the deficit by $1.2 trillion over the next 10 years. This leaves two big questions: What is the benchmark from which the cuts will be made, and why will it take 10 years to reduce the deficit by an amount that is less than the last annual deficit? As for the benchmark, the usual trick is to use projected spending, rather than actual curr...

Published in The Tennessean , Sunday, November 13, 2011 by Richard J. Grant Of those people that I have met who express an aversion to the welfare state, those who express the strongest feelings are often those who grew up in the system but worked their way out and escaped. They recognize the perverse incentives that separate sustenance from any thought of production. Charity without thought is unlikely to edify the recipient; and this describes the destination, if not the beginnings, of governmental welfare systems. When charity is transformed into entitlement, any moral obligation to lift oneself up is no longer enforceable by those who pay. To call such payments “a gift” is to insult both parties to the transaction. Society has lost something. There are those who, like Blanche DuBois, are content to depend on “the kindness of strangers.” But someone must do the world’s work, and societies that understand this are those that survive and prosper. Welfare states throughout history have...

Published in The Tennessean , Sunday, November 6, 2011 by Richard J. Grant At a young age I was taught that, were a fire to break out in the stables, I should first cover a horse's eyes with a blanket before leading it to safety. A horse, like other animals and humans, will in a time of trauma have an urge to flee to the familiar, to the formerly safe. Such human behavior is evident at the time of economic crises. There is a tendency to run to the apparent safety of the very institutions that caused the crisis, some of which continue to burn. It should be no surprise that Freddie Mac (Federal Home Loan Mortgage Corporation) is asking taxpayers for another $6 billion in bailout money to cover its losses in the July-September quarter. Since the beginning of the 2008 financial crisis, Freddie Mac and its older sister Fanny Mae have burned through at least $169 billion of bailout money. It is estimated that they will come begging for at least another $51 billion in the next three years...

Published in The Tennessean , Sunday, October 30, 2011 by Richard J. Grant The Obama administration recently nationalized the college loan industry. Then this week the president announced an income-based cap on the repayment rates of student loans. After 20 years, any unpaid portion of the loan would be forgiven, that is, paid by taxpayers. The net effect of this policy will be to encourage disproportionately those students who are least likely to benefit either themselves or taxpayers in the pursuit of higher education. The most heavily subsidized students will be those who enter the lowest value-adding professions. In the world of educational subsidies, higher education has always offered the lowest returns to taxpayers. This effect is merely exacerbated by the involvement of the federal government. But none of this matters to those who know that the real name of the game is No Vote Left Behind. In contrast, some state governments have been moving their educational policies toward gr...

Published in The Tennessean , Sunday, October 23, 2011 by Richard J. Grant Decades ago, while riding an overnight train through Italy, a fellow passenger offered a warning. He had heard that organized criminals would wait until passengers fell asleep and then spray anesthetic into the compartment to deepen that sleep. With the passengers now safely oblivious, the thieves could help themselves to unguarded valuables. Although almost certainly untrue, this story does serve as a neat allegory for the real-life relationship between taxpayers and tax legislators. It is much easier to get voters’ support for a tax-rate increase when taxpayers are unaware of their true position in the political food chain. We know that, all else equal, income earners and property owners are happier the more of their income and property that they are allowed to keep. The higher the tax rate on each additional dollar earned, the less likely it is that a worker will put in the extra effort to earn one more dolla...

Published in The Tennessean , Sunday, October 16, 2011 by Richard J. Grant Since June 2010 , the Chinese currency has risen in value by about 7 percent compared to the U.S. dollar. This has not stopped accusations of “currency manipulation” from the U.S. and elsewhere. Such accusations are politically useful since not one person in a hundred understands what the charge means and it vaguely sounds as though the accuser has the best interests of U.S. workers at heart. The U.S. Senate has just passed a bill that would require the U.S. to impose tariffs on goods imported from selected countries in order to punish currency manipulators and to counteract perceived underpricing. House Speaker John Boehner has already indicated that the bill will not proceed in the House. He sees punitive tariffs as harmful to trade relations. But few dispute the charges of currency manipulation. This is interesting because, of all the problems that Chinese actions might present us with, currency manipulation ...

Published in The Tennessean , Sunday, October 9, 2011 by Richard J. Grant There’s an old joke about a senator who, when told that his idea won’t work because of “the law of supply and demand,” retorted, “Then we’ll just repeal that law!” As if to remind us that truth is stranger than fiction, Sen. Dick Durbin, D-Ill., was recently shocked to learn that it really was just a joke. It was Durbin who inserted the amendment into the 2010 Dodd-Frank financial-regulation law that capped the transaction fees that debit-card issuers could charge retailers. He and his colleagues apparently believe that the forced reduction of prices is the same thing as the reduction of costs. He thought he could get something for nothing. To recoup revenues lost from debit-card interchange fees, many banks have announced increased monthly fees on debit-card accounts. Real costs didn’t shrink. What changed was the pricing structure through which we bear those costs. The debit-card interchange fees were invisible...

Published in The Tennessean , Sunday, October 2, 2011 Richard J. Grant In the 2003 movie, Master and Commander , a British warship during the Napoleonic Wars is rounding Cape Horn when a severe storm rises. The mizzen-mast breaks and falls into the sea with a square sail and parts of the mast, still held by several lines, dragging behind the ship. A popular midshipman has also been swept overboard, and his only hope is to swim to the trailing rigging. But the wreckage is acting as an anchor that threatens to sink the ship. The storm won’t wait for the unfortunate midshipman; the commander must choose between losing one man or the possibility of losing everyone. Suppose that the commander had waited in hope for the man overboard to swim to the rigging, and in the waiting lost the ship. Other than the loss of a military asset, lost also would be the men and their future descendants, as well as all the experience and survival lessons that might have been passed on to the benefit of future...

Published in The Tennessean , Sunday, September 25, 2011 by Richard J. Grant While financial markets focus on the latest version of “Operation Twist” in which the Federal Reserve attempts to “twist” the yield curve by reducing long-term interest rates relative to short-term rates, there is another kind of twist going on between businesses that are owned or favored by the government and those that are private. One group is subsidized or protected while the other is taxed or harassed. The U.S. Postal Service is in serious financial trouble. Like any spoiled child of government, it just can't get the hang of acting like a real business. Despite its privileged position, it faces the prospect of cutting service and very likely defaulting on obligations promised to employees. Article I of the Constitution gives Congress the power “To establish Post Offices and post Roads;” but it does not give it the obligation to do so. Also, there does not appear to be any command in the Constitution t...

Published in The Tennessean , Sunday, September 18, 2011 by Richard J. Grant When you wake up on the road to Hell, it matters which way you choose to walk. The Obama administration never ceases to remind us that it was their predecessor that dropped us off on that road. But at some point, the not-so-new president needs to take notice of which way he is leading us. Whatever starting point we might have wished for, as my old professor James Buchanan would say, “We start from here,” and not from someplace else. Call it our “inheritance.” But that's where we started, so get over it. If everything had been wonderful in the year 2008, then candidate Obama probably would not have stood a chance of becoming president. As it turned out, many years of copious and perverse regulation, unnecessary and excessive government spending, and an unnatural interest-rate policy all began to unwind in a perfect financial storm. Now, after two and a half years in power, the Obama administration is feelin...

Published in The Tennessean , Sunday, September 11, 2011 by Richard J. Grant Ten years ago today, I happened to be living in the Middle East. It was early evening, the end of the workday, when I arrived home to see the television on with the image of one of the twin towers burning. When the second plane hit, we knew that a bigger story was unfolding. The more we learned, the more we had to question the reality of our surroundings. But it was to our surroundings and the events in them that each of us had to react. In some places more than others, we could be reminded of Robert Browning's words, “For sudden the worst turns the best to the brave.” Watching from 6900 miles away gave an odd sense of safety despite being closer to what might well have been the source of the problem. What soon became apparent, in a land where appearances are always deceiving, was the difference in deeper sentiment. But strength is always respected, especially when applied wisely. Many shared the thought t...

Published in The Tennessean , Sunday, September 4, 2011 by Richard J. Grant It is often said that “a little bit of knowledge is dangerous.” An excellent illustrator of that statement is the U.S. Department of Justice, particularly its Antitrust Division. Last week, the Department of Justice filed a civil antitrust lawsuit to block the acquisition of T-Mobile USA by the much larger AT&T. According to its own press release, the department said that “the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.” In this, the Department of Justice (DOJ) claims for itself not only the knowledge of good and evil but also the knowledge to manage entire industries, if not the entire economy. Were...

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...