How Many Volokhs Does it Take to Screw in a Constitution?

Over at UCLA Magazine, there is an interesting interview with prodigious law prof, blogger and (very) occasional Reason contributor Euguene Volokh. A sampling:

Q: What is a libertarian?

A: Libertarians take the view that the government should be limited chiefly, though not entirely, to protecting against physical force and fraud. Pure libertarians don't think the government should provide welfare payments or run schools or interfere with private contractual agreements on the grounds that people supposedly have unequal bargaining power or are being oppressed, so long as there's no force involved. I'm kind of a conservative-ish libertarian with a little bit of liberal thrown in at times. I think government funding for K-12 education is probably a good idea. At the same time, it's not clear to me that the government should run the schools. The government funds food for the poor, for example, but we don't tell the poor to go to a government-run food store. If we did, we'd be pretty sure it would be a lousy food store.

Q: What's wrong with our country?

A: Our [K-12] education system fails a very substantial minority of the public and under-serves a majority of the public. My guess is this is largely so because it is a government-run monopoly, and we know that monopolies in virtually all fields are not as effective as competitive systems. It's no coincidence that our college and university system, which is generally much more highly regarded, is characterized by a great deal of competition.
 

Link via LA Observed.

That note about education reminds me of something that Reason Foundation education analyst Lisa Snell writes about here:

The stimulus package will spend more than double the current total federal education budget, bringing federal funding of education to well over $200 billion. Unfortunately, this huge expansion is unlikely to spur improvements in public education and will continue to encourage states and local districts to spend money with little regard to student outcomes.

For all of Candidate Obama's happy talk about being careful with the public monies, shutting down programs that don't work and getting beyond the tired policies of yesteryear, is there any evidence so far that on domestic policy he is offering one iota of change from the Democratic playbook of the last XX years? Fantasia notwithstanding, there is a limited supply of money the government can spend, so I would think that a politician who took "change" seriously would want to spend that money in new ways, rather than newly spend more of that money in old ways. Seeing as how transportation infrastructure and K-12 performance (among god knows how many other expressed priorities) do not currently work worth a damn, shoveling more money at the same-old strikes me, at best, as a horribly bungled opportunity.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    there is a limited supply of money the government can spend...

    Whaaaat!?!? Somebody better inform those dudes on the Hill because I think they may have forgotten that little detail.

  • ||

    Same ol'. Same ol'.

    Who could possibly have forseen that? As I and many others have been telling the doomsday fearing chicken littles and the credulous "hope and change" swallowers, major changes ain't gonna happen if Obama gets elected.

    Gitmo is gonna get closed but no decision has been made about what to do with the detainees. It's been 2 1/2 months since Obama was elected. That's a lot more time that he needed to decide to support TARP. More strings attached federal money for the public schools? Boy, that's a big break with the past.

  • Gilbert Martin||

    "there is a limited supply of money the government can spend..."

    Only if the printing presses break down.

  • Dave W.||

    To bad he is so lousy on criminal law issues.

  • Other Matt||

    is there any evidence so far that on domestic policy he is offering one iota of change from the Democratic playbook of the last XX years

    They are using an economic issue to advance a social agenda? Perish the thought!

  • Paul||

    And Paul Krugman still thinks Obama's stimulus plan is woefully too small.

    NPR needs a new guest. If they don't get one soon, it'll have to become "The NPR/Paul Krugman Newshour".

  • ||

    They should spend it all on infrastructure--everything from typical projects requiring blue collar labor, such as roads and bridges, to high-tech projects like the electronet, wind farms, & high-speed, medium-speed, and light rail. At least then we'd be investing in our nation, rather than throwing money out like candy for nothing in return.

  • Elemenope||

    For all of Candidate Obama's happy talk...

    You are aware that he won, right?

    ...right?

  • The Extispicator||

    I want a flying jet pack or else I am organizing an overthrow of the government!

  • Paul||

    For all of Candidate Obama's happy talk...

    You are aware that he won, right?


    Context, lmnop, context. Welch was referring to the happy talk that Obama made...as a candidate. Because he hasn't made those same talks as President Obama.

  • Kolohe ||

    I think the point was that Candidate Obama is a different ontological construct than President Obama.

    Which is trivially true for any politician.

  • oat willie||

    JET PACK!

    JET PACK!

  • Paul||

    I feel that my flying car is further away than ever... so disappointing...

  • ||

    For all of Candidate Obama's happy talk about being careful with the public monies, shutting down programs that don't work and getting beyond the tired policies of yesteryear, is there any evidence so far that on domestic policy he is offering one iota of change from the Democratic playbook of the last XX years?

    No. Instead he has taken the entire playbook* and given a stimulus powered jetpack.

    *With the trivial exception of Nancy Pelosi's family planning pet project, which you know damn good and well will get funded in some other omnibus excrescence.

  • B.||

    Pseudo-libertarian.

  • ||

    Fantasia notwithstanding, there is a limited supply of money the government can spend.

    Actually, there IS an UNLIMITED supply of money the government can spend: The Federal Reserve has stated it will create as much money as necessary to 'stimulate' the economy and 'stabilize' the banking system.

    See the following 'hockey stick' chart of changes in the money supply:

    Note Carefully the Scale of the Spike on the Right-Hand Edge

    What isn't being created in unlimted supply, because it's impossible to do so, is capital. Capital, you will recall, is the productive infrastructure of the nation: its factories, mines, farms, forests, and skilled people of all kinds. Money is NOT capital - money is the representation of capital.

    Creating more money and handing it out to politically well connected people does not increase our collective wealth. Only production creates capital.

    In fact, as our economy becomes ever more politicized, capital is allocated increasingly according to political, instead of economic, considerations. With every bailout, capital (productive capacity) is misallocated and therefore destroyed.

    So the bigger the bailouts become, and the more the economy is run from Washington, the poorer we will all collectively become.

    Of course, those with political influence will bend the system to their ends, and get richer as the rest of us get poorer, whether they are 'Democrats' or 'Republicans'.

    Who is benefitting? As Deep Throat said during Watergate: Follow the money.

  • tassawwuf burrfoot||

    Paul, how would you feel about a roadable aircraft then? just use the spare $200k ya got laying around...

  • ||

    Malto Dextrine. I would be more worried about inflation if there were no excess reserves. These reserves represent high powered money that has been injected into the the system, that the system has turned back onto the fed. basically the market invests it at 0% wit the fed, because it doesn't want to lend anymore. If the banks were lending, there would be more credit/inflation - instead we have quite the opposite.

  • ||

    Is that the graph that reflects the fact that the Fed pays interest on deposits now?

  • Mike Farmer||

    At this point, as a compromise, it would be an improvement for government to fund education for the poor, make others pay according to their ability and make education private with no government interference (the hard part) -- if they would lower taxes according to the reduction in education spending (another hard part). There's a chance that if Obama did this, he would gain more support from the general public than he'd lose on the left.

  • ||

    If the banks were lending, there would be more credit/inflation - instead we have quite the opposite.

    Correct. The money supply is built upon the "excess reserves" by banks creating new money based on those reserves, by extending new loans based on the reserves.

    The banks aren't lending now. They are afraid to because they see economic activity declining, which means the ability to repay loans is declining.

    When that psychology changes, the banks will start lending again, only they will have a much larger supply of money to lend out. That is when prices will start to rise, in a big way.

    We have monetary inflation now. We will get price inflation later, after the economy bottoms.

    Monetary inflation is determined by Fed policy. Price inflation is determined by the amount of money in existence, plus the mass psychology of the populace. It's the psychology that cannot be controlled by anyone in power.

    Creating new money and handing it out does not increase our collective productive capacity. All it does, is redistribute that wealth, based on political considerations. This is generally destructive of capital creation.

  • squarooticus||

    @some fed:

    Yeah, that chart has been floating around a bunch, but doesn't have any direct correlation to inflation. The following is a much better indicator of what the Fed is doing to the money supply:

    http://research.stlouisfed.org/publications/usfd/page3.pdf

  • squarooticus||

    Oh how nice it would be to be able to edit posts. Here's an actual link:

    http://research.stlouisfed.org/publications/usfd/page3.pdf

  • ||

    Yeah, that chart has been floating around a bunch, but doesn't have any direct correlation to inflation.

    Inflation is an increase in the amount of money. It is not an increase in the general level of prices. That's why I used the terms 'monetary inflation' and 'price inflation'. The two are related but not the same thing.

    If you follow the link to the chart, you can display the data in various ways, and also display other monetary data sets.

    In other words, there is not just one such chart that has been 'floating around a bunch'.

  • squarooticus||

    Inflation is an increase in the amount of money. It is not an increase in the general level of prices.


    Agreed. As a practicing amateur Austrian, I am one of the few around here saying that. But as @some fed implies, this graph does not have any useful correlation to the money supply: it shows the amount of money banks have on deposit with the Fed, which likely is a result of a change in Fed policy regarding those deposits rather than a huge increase in the money supply overnight.

    In other words, there is not just one such chart that has been 'floating around a bunch'.


    That one has appeared on lots of doom and gloom pages on financialsense.com, for instance. I am of course also predicting doom and gloom, but using better data to do so. ;-)

  • ||

    Our [K-12] education system fails a very substantial minority of the public and under-serves a majority of the public. My guess is this is largely so because it is a government-run monopoly



    Eugene has an odd concept of monopolies.

  • ||

    Agreed. As a practicing amateur Austrian, I am one of the few around here saying that.

    I didn't know there was any group that made this distinction. I've been trying to understand what's going on with this crisis, and I've noticed that people use the word 'inflation' to mean two different things, without specifying which thing they are talking about: increase in the money supply, and increase in the general level of prices. So I made up the terms 'price inflation' and 'monetary inflation' to distinguish the two concepts.

    It seems to me that it makes it hard to talk about these things if people attach different meanings to the word.

    So why exactly are you predicting doom and gloom?

  • squarooticus||

    So why exactly are you predicting doom and gloom?


    Refer generally to Mises' predictions of the crack-up boom. What it essentially comes down to for me is the Mexican standoff US Treasury holders find themselves in now.

    For the past 60 years, and especially over the last 30, the US has been financing its standard of living by getting others to lend us money/buy our debt. This is true of both public debt (UST's) and private debt (mortgages, credit cards, etc.).

    The ability to get others to lend us money relies on our ability to pay it back such that the lender gets a return in real terms on their money. If we can't get others to swallow more of our debt, we'll have to resort to printing the money/monetizing the debt---inflation, by definition---which will quickly raise prices ("price inflation"), as history has shown.

    Now, why would we be unable to get others to swallow more of our debt? Simple: if a bond yields less than the rate of price inflation, no one would buy it because they would actually lose purchasing power over the maturity period of the bond. Bond yields rise with expectations of price inflation.

    So, back to today: as the private debt bubble has already started to pop (mortgages first, with credit cards, auto loans, etc. up soon), the government is attempting fill the void of deflation/unemployment/depression with public debt. The problem with doing this is that the money has to come from some place.

    So, if it looks like the Fed has started to print money, and the government doesn't simultaneously slash spending by record levels to give our creditors confidence that the Fed's dollar inflation is temporary, UST holders will eventually terminate the Mexican standoff in dramatic fashion, dumping their bonds on the market or letting them come to maturity and demanding cash instead of rolling them over into new debt, destroying the purchasing power of the dollar.

    When this happens, the process will accelerate due to a positive feedback cycle: when dollars/UST's are in lower demand, the Fed will need to need to print money at an even quicker pace to cover the public debt, thus making dollars worth even less, which will further reduce demand for them as people move to better currencies.

    Germany is in the unenviable position of having gotten to this point first, so it is worth watching what unfolds there: they recently had a bond auction in which only 80% of inventory was sold, meaning that the other 20% were obviously monetized. I'm curious to see what happens to prices in Euro-land if this continues.

    Back to the US:
    - The US dollar is not as strong relative to other currencies as it used to be. There is no longer any reason other than historical inertia for the US dollar to be the world's reserve currency, especially since we are the biggest debtor nation in the world. We shouldn't discount those historical reasons, but they become less and less relevant as the US recession gets deeper.
    - The Fed has already started to monetize the debt, as shown by the AMB chart I posted.
    - What do you think the chances are of the government slashing spending to compensate? Next.
    - Individuals, institutions, and foreign central banks have poured into the UST market as a reaction to recession, sending yields to zero. When this final bubble pops---the public debt bubble---what will happen to yields, and what will be the reaction of institutional and foreign central bank investors?

    The only thing left is for some UST holder to blink.

    Doom and gloom. Q.E.D. ;-)

  • T||

    Doom and gloom. Q.E.D. ;-)

    What? Where's your sense of American exceptionalism? We will weather this crisis like we have weathered other crises in our nation's history: by waiting until the last possible minute to do what's necessary. It ain't quite time to panic, yet. Give it a year or two.

  • ||

    Your logic is impeccable, Captain. We are in grave danger.

    If we can't get others to swallow more of our debt, we'll have to resort to printing the money/monetizing the debt---inflation, by definition... So, if it looks like the Fed has started to print money,...

    Check this out: Fed Keeps Rate Near Zero, Prepared to Buy Treasuries
    Press release put out today.

    Also, Bernanke has said outright that, should low interest rates not 'fix' the problem, the Fed "has this technology called the printing press". In addition the president of the Dallas Fed branch said that they were prepared to create up to another 4 trillion dollars to fund the bailouts. I don't know what form this new money will take (cash or loans from the Fed etc.) but I don't think the form of the money will make much difference. I do know that at the beginning of this monetary intervention, the US base money supply was $850 billion. As your chart indicates, we are up to $1.7 trillion (a doubling) in just a few months. Fed and government officials have said they are planning on increasing this to 4 or 5 trillion, and maybe more, if required.

    So we are talking about at least a doubling of the money supply, with possibly a fivefold increase, in the course of a year or so.

    One of my worries, is that the collective hole in the banks' balance sheets is much larger than a few trillion(!) dollars. The size of the worldwide derivative book is something like $500 trillion. These derivative contracts are supposedly constructed as hedges, and are supposed to balance out. But what if the models used to construct them are now invalid, and the assets are now less than the liabilities, even by only 10 percent? In that case, the Fed will have to fill a $50 trillion hole in the banks' balance sheets with cash to keep them from being insolvent. This is what happened to Long Term Capital Management a decade ago, only on the much smaller scale of $1 trillion.

    I don't think we can create trillions of new dollars in the space of a few months, without crashing the dollar, probably by the mechanism you describe so well.

    Hundreds of billions of new money has been created, and trillions more is on the way. All that is required to release this money into the economy, is for the market participants' psychology to change.

    Hol-ee crap.

    Thank you for your detailed explanation.


  • ||

    is there any evidence so far that on domestic policy he is offering one iota of change from the Democratic playbook of the last XX years?

    Nope, and it's worse than that. Even Clinton was more fiscally responsible, though most of that was slashing the military, failing to socialize medicine, and getting a Republican Congress elected. Even Carter pushed for some deregulation. You'd have to go back to LBJ to find this level of big-government insanity.

  • ||

    I keep hoping my ignorance and relative poverty is going to save me.

    I know I know near nothing about economics, so I'm somewhat optimistic that the fact that all of this deficit spending and money printing, which sounds like an enormously bad idea from my ignorant point of view, might actually work out because I'm stupid, and I think it's going to turn out terribly.

    I don't really have to worry about my savings, stock portfolio or pension because I have none of those of things. I gave up worrying about Social Security long ago. So my big worry is the whole house of cards crashing down into bread lines and Hoovervilles. Since that seems likely to me and since I know nothing on the subject, I'm optimistic it won't happen.

  • ||

    Voros:

    I suggest what little money you can set aside, you use to buy either: a) old US coins, 1964 or before (they are 90% silver), or b) silver dollars, or c) modern one ounce silver coins.

    According to my Dad, who lived through the Depression: A living wage job in 1932 paid a straight 15 cents/hour (no benefits or income tax) which was of course paid in silver coin. A man could support himself, his wife, and one child on that, but only the basics of life.

    15 cents/hour times 8 hours/day = $1.20/day
    One (silver) dollar is about 3/4 ounce of silver.
    So you should be able to survive 1 day for each ounce of silver you have stored away. A one ounce silver coin currently costs about $16.

    Silver is currently wildly undervalued.

    Good luck.

  • angie||

    Euguene is sexy. Not as sexy as a guy with sideburns and a leather jacket, though.

  • ||

    some fed | January 28, 2009, 3:05pm | #

    Is that the graph that reflects the fact that the Fed pays interest on deposits now?


    the chart predates that policy by a year. Interestingly, the feds policy of paying interest on reserves is part of their "exit strategy" from ZIRP, and one of the most important ways that the moentary base will be reduced when the market psychology changes. it's a pretty nifty idea actually - the day I heard about it, I knew in five minutes that hyperinflation was being taken off the table.

    Inflation is an increase in the amount of money. It is not an increase in the general level of prices.
    Agreed. As a practicing amateur Austrian, I am one of the few around here saying that. But as @some fed implies, this graph does not have any useful correlation to the money supply: it shows the amount of money banks have on deposit with the Fed, which likely is a result of a change in Fed policy regarding those deposits rather than a huge increase in the money supply overnight.


    Feel free to define inflation however you like, but don't be surprised when economists ignore you. wholesale increases in the general price level erodes present purchasing power - which is why it's bad - which is why economist define the term that way. monetary expansion is the correct term for "moentary inflation" and while the two are linked - they are not equivalent.


    they recently had a bond auction in which only 80% of inventory was sold, meaning that the other 20% were obviously monetized. I'm curious to see what happens to prices in Euro-land if this continues.

    If you really believe this, I can't have a serious discussion with you about it - you need to learn how the ECB works. This claim is in "truther" territory.

  • ||

    I suggest what little money you can set aside, you use to buy either: a) old US coins, 1964 or before (they are 90% silver), or b) silver dollars, or c) modern one ounce silver coins.

    According to my Dad, who lived through the Depression: A living wage job in 1932 paid a straight 15 cents/hour (no benefits or income tax) which was of course paid in silver coin. A man could support himself, his wife, and one child on that, but only the basics of life.

    15 cents/hour times 8 hours/day = $1.20/day
    One (silver) dollar is about 3/4 ounce of silver.
    So you should be able to survive 1 day for each ounce of silver you have stored away. A one ounce silver coin currently costs about $16.

    Silver is currently wildly undervalued.


    This seems like an insane argument. Just gonna throw that out there...

  • ||

    How many Volokhs do you have? (Or can assemble in one location.) The (USS) Constitution is fairly large.

    But, more seriously, I like Eugene's thinking in general.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement