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The Center for Freedom and Prosperity has a new website, which also includes a new location for The Market Center Blog.

This blog will no longer be updated, so be sure to update your subscriptions and bookmarks to the new Market Center Blog home!

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I periodically get emails and phone calls from people wanting me to respond to particular statements from politicians, columnists, and other high-profile figures.

Not surprisingly, Paul Krugman occasionally is the subject of these communications, particularly with regards to his view that Keynesian spending is an elixir and universal cure for economic stagnation.

I certainly have waded into the so-called stimulus fight, addressing the issue over and over and over again. But I generally try to comment on the underlying economic and political issues while avoiding pointless arguments with other people (not always with total success, as seen here and here).

The most recent Krugman-related email I received, however, has nothing to do with fiscal policy. It deals with his views on housing bubbles. Here’s what he advised back in 2002.

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Given what has happened in the past five years, Krugman’s endorsement of a housing bubble certainly leaves him vulnerable. And if it turns out that Alan Greenspan took his advice, that would be rather damning.

But I think he should be criticized for his general support for economic intervention, not his specific recommendation for a housing bubble.

Sure, his advice doesn’t look very good with the benefit of hindsight, but economists are notoriously awful forecasters, as I’ve noted before. Moreover, Krugman legitimately could argue that his advice was for the specific circumstances of 2002, and not a permanent recommendation.

That’s why my criticism is limited to his overall belief that government should steer the economy. And if you want to understand that issue, this post looking at the work of Robert Higgs is a great place to start.

P.S. If you want some amusing Krugman-baiting, you should read Best of the Web by James Taranto of the Wall Street Journal. Taranto often refers to Krugman as the “former Enron adviser” and routinely mocks Krugman for his silly assertion that horror stories about healthcare in the United Kingdom are false.

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Under current law, Social Security is supposed to be an “earned benefit,” where taxes are akin to insurance premiums that finance retirement benefits for workers. And because there is a cap on retirement benefits, this means there also is a “wage-base cap” on the amount of income that is hit by the payroll tax.

For 2011, the maximum annual retirement benefit is about $28,400 and the maximum amount of income subject to the payroll tax is about $107,000.

It appears that President Obama wants to radically change this system so that it is based on a class-warfare model. During the 2008 campaign, for instance, then-Senator Obama suggested that the programs giant long-run deficit could be addressed by busting the wage-base cap and imposing the payroll tax on a larger amount of income.

For the past two years, the White House (thankfully) has not followed through on this campaign rhetoric, but that’s now changing. His Fiscal Commission, as I noted last year, suggested a big hike in the payroll tax burden. And the President reiterated his support for a class-warfare approach earlier this week, leading the Wall Street Journal to opine.

Speaking Tuesday in Annandale, Virginia, Mr. Obama came out for lifting the cap on income on which the Social Security payroll tax is applied. Currently, the employer and employee each pay 6.2% up to $106,800, a level that rises with inflation each year. …Mr. Obama didn’t hint at specifics, though he did run in 2008 on a plan to raise the “tax max” by somewhere between two to eight percentage points for the top 3% of earners. …most of the increase could be paid by the middle class or modestly affluent—i.e., those who merely make somewhat more than $106,800. A 6.2% additional hit on every extra dollar they make above that level is a huge reduction from their take-home pay. If the cap is removed entirely, it will also mean a huge increase in the marginal tax rates that affect decisions to work, invest and save. In a recent paper for the American Enterprise Institute, Andrew Biggs calculates that this and other tax increases Mr. Obama favors would bring the top marginal rate to somewhere between 57% and 68% when factoring in state taxes. Tax levels like these haven’t been seen since the 1970s.

Obama is cleverly avoiding specifics, largely because the potential tax hike could be enormous. The excerpt above actually understates the potential damage since it mostly focuses on the “employee” side of the payroll tax. The “employer” share of the tax (which everyone agrees is paid for by workers in the form of reduced take-home wages) is also 6.2 percent, so the increase in marginal tax rates for affected workers could be as high as 12.4 percentage points.

This video from the Center for Freedom and Prosperity, narrated by yours truly, elaborates on why this is the wrong approach.

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Responding to widespread criticism of his AWOL status on the budget fight, President Obama today unveiled a fiscal plan. It already is being criticized for its class warfare approach to tax policy, but the most disturbing feature may be a provision that punishes the American people with higher taxes if politicians overspend.

Called a “debt failsafe trigger,” Obama’s scheme would automatically raise taxes if politicians spend too much. According to the talking points distributed by the White House, the automatic tax increase would take effect “if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade.”

Let’s ponder what this means. If politicians in Washington spend too much and cause more red ink, which happens on a routine basis, Obama wants a provision that automatically would raise taxes on the American people.

In other words, they play and we pay. The last thing we need is a perverse incentive for even more reckless spending from Washington.

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Maybe Obama’s not so bad on Second Amendment issues.

His Administration has contracted with the folks at Ruger to produce a special pistol in honor of the government workforce.

This new gun will be called “The Bureaucracy Special.” The only downside is that it doesn’t work and you can’t fire it.

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The Department of Housing and Urban Development is trying hard to win the “Bureaucracy of the Year Award,” and they have a new motto.

But I think the bureaucrats at HUD are cheating. I’m almost sure I saw one of these signs during my last visit to the DMV, though I confess I started hallucinating after three hours.

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When I was in college and first became active in politics and public policy, I periodically would meet people who warned about sinister conspiracies that had to be exposed and overcome.

The most common villain, reviled by conspiracy theorists on the left and right, was something called the Trilateral Commission, though the Council of Foreign Relations often was mentioned in the same breath (I also remember a lefty friend warning about the Bilderbergers and Illuminati, though I never quite understood who or what they were supposed to be).

It’s been a long time since I’ve heard anybody mention any of the above groups, but this doesn’t mean conspiracy theories have faded into the sunset. There are thriving communities of people who think:

a) Obama is a Kenyan and/or Muslim (the birthers).

b) The U.S. government and/or George W. Bush were complicit in the 9-11 attacks (the truthers).

c) The Federal Reserve is a sinister cabal.

d) The Koch brothers have a secret plan to turn America into…well, I’m not sure, but they have a secret plan to do something bad.

This is probably just the tip of the iceberg, but you get the idea. The common theme in all these conspiracies is that wealthy/powerful people, in some unaccountable and hidden fashion, manipulate the levers of government to achieve some evil goal.

I suppose a quick disclaimer would be appropriate. The Koch brothers directly or indirectly provide 3 percent of the funding for the Cato Institute, so if they have a conspiracy, I’m part of it. Though I’m not sure how a conspiracy can be a conspiracy if it’s all public information.

But I digress. The main point I want to make is that it is almost always foolish to believe in conspiracies. Or, to be more specific, it’s foolish to believe in big conspiracies. We have a government that is spectacularly incompetent, filled with some of the most short-sighted and narcissistic people in the world, so why would anyone think it is realistic to believe that this bunch of buffoons could maintain a conspiracy using an organization that doesn’t even have the ability to give away money without creating giant clusterf*cks?

In a column for National Review, Jonah Goldberg made this point quite effectively in discussing the fevered speculations of the birthers and truthers.

I’m not saying there are no secret dealings in Washington. There are lots of them. But they involve run-of-the-mill corruption, with politicians doing things like providing earmarks in exchange for campaign cash. That’s the kind of scheme that works, because only a tiny handful of people are in on the deal, and they obviously have lots of reasons to keep quiet. Heck, in most cases there’s probably not even an overt conspiracy, just an implied understanding.

I think people are drawn to conspiracy theories because they assume that things happen for a reason, as part of a deliberate design. So if we have a TARP bailout, for instance, they assume that there was a deliberate effort to create chaos so the people who are part of the conspiracy can grab more money and power.

I’m willing to accept the last part of that scenario. Washington is filled with people who are willing to use any excuse to grab money and power. But I think it is silly to think that some hidden group of bigwigs orchestrated the financial crisis for that reason.

As indicated in my title, it is much more realistic to believe bad things happen because of corruption, incompetence, politics, ideology, greed, and self-interest. These ever-present characteristics of human nature help explain why politicians, bureaucrats, lobbyists, and interest groups pursued the various policies (easy money, housing subsidies, etc) that inadvertently came together in a perfect storm to destabilize the financial system.

Yes, powerful interest groups have a lot of influence on the political system. But it’s not a hidden conspiracy. Take the example of Goldman Sachs, which frequently is cited as being part of some evil plan. Their lobbyists are well known, their campaign contributions are public knowledge, and their policy positions are openly stated.

I often disagree with the actions of Goldman Sachs. But you don’t need to believe that the company’s endorsement of, say, the Dodd-Frank bailout bill is part of a conspiracy. It’s just the kind of the out-in-the-open, day-after-day, special-interest deal-making that is routine in Washington.

I like good conspiracy theories, but I like them in David Baldacci novels rather than as explanations for what happens in Washington.

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I’m not sure if this is an energy policy joke or a monetary policy joke, but it’s still worth sharing

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The next time you decide to go on a trip or vacation, consider getting a bunch of these Gas Coupons.

I didn’t realize it, but these coupons are good for one gallon of gas at most retailers.  I have seen them around, but until recently never took advantage of them, I never realized their actual worth.

You probably have one or two just lying around somewhere, now is the time to use them before they lose their value, and it’s too late!!

These coupons can be obtained at most banks and retail stores across America.

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I don’t like it when politicians pass laws that undermine the freedom and prosperity of the American people. But I really hate it when politicians pass those laws and exempt themselves.

Years ago, as a lowly Senate staffer, I recall watching a debate about whether politicians were going to increase fuel economy regulations and thus force people into cars that were smaller, less convenient, and less safe. One good Senator, I think perhaps Don Nickles of Oklahoma, offered an amendment that basically would have forced bigwigs on Capitol Hill to live by the same rules by requiring limousines for congressional leaders to meet the same onerous restrictions. Needless to say, the arrogant political class thought this was absurd and to this day they get driven in luxury gas guzzlers (paid for by you and me).

We now have another version of this laws-for-thee-but-not-for-me mentality from the Obama Administration. No, I’m not talking about Tim Geithner, the Treasury Secretary who is in charge of the Internal Revenue Service but got a free pass after illegally hiding $80,000 of income from the IRS. I’m talking about the President and his personal fleet of limousines.

He wants us to abide by rules that will be expensive and lower the quality of cars, but those rules won’t apply to him. Here’s what the Detroit News reported.

The U.S. Secret Service said today that some federal vehicles for law enforcement and security purposes will be exempt from President Barack Obama’s directive that all federal vehicles purchased starting 2015 be advanced technology models. Secret Service spokesman Robert Novy said the directive wouldn’t apply to vehicles used for some law enforcement or security reasons by various federal agencies. …That would include the GM-built Cadillac presidential limousine and other vehicles in the motorcade. It also expected to include many law enforcement vehicles.

Not surprisingly, this is completely contrary to what the President said he would do, as noted elsewhere in the article. Unless, of course, you think “100 percent” means something other than “100 percent.”

Obama announced the plan this week to “green” the federal fleet. “I’m directing our departments and our agencies to make sure 100 percent of the vehicles they buy are fuel-efficient or clean energy cars and trucks by 2015.Not 50 percent, not 75 percent — 100 percent of our vehicles,” Obama said today at an appearance in Landover, Md., at UPS facility to urge private companies to green their vehicle fleets.

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Joe Nocera has a must-read story in the New York Times about how the legal fallout from the financial crisis. His basic theme is that the government let all the bigwigs get away with their crimes, but then has a fascinating discussion about how the government targeted an inconsequential mortgage borrower.

I’m not sure I accept the first part of his premise. There were lots of sleazy people taking advantage of the perverse system created by bad government policy, but I would like to see some clear evidence of actual crimes before hopping on that bandwagon. Selling mortgage-backed securities filled with crummy home loans to Fannie Mae and Freddie Mac may have been immoral, for instance (at least from a libertarian perspective), but I’m not aware that it is against the law to make choices that hurt the economy – particularly when government policy is designed to reward such stupidity.

That being said, I do wonder why there haven’t been any bribery prosecutions of the politicians who got sweetheart loans as part of the “Friends of Angelo” scheme. Actually, I don’t wonder why politicians such as Chris Dodd and Kent Conrad got a free ride. Politicians operate by the principle that law are only for the little people. Nonetheless, these are examples of real laws being violated.

But I’m digressing. The purpose of this post is to show how the government decided to go through great effort and expense to nail someone who, at most, was willing to go along with the government-subsidized and government-created housing scam.

Here are the sordid details.

A few weeks ago, when the Justice Department decided not to prosecuteAngelo Mozilo, the former chief executive of Countrywide, I wrote a column lamenting the fact that none of the big fish were likely to go to prison for their roles in the financial crisis.

…There was, in fact, someone behind bars for what he’d supposedly done during the subprime bubble.

…Mr. Engle’s is a tale worth telling for a number of reasons, not the least of which is its punch line. Was Mr. Engle convicted of running a crooked subprime company? Was he a mortgage broker who trafficked in predatory loans? A Wall Street huckster who sold toxic assets?

No. Charlie Engle wasn’t a seller of bad mortgages. He was a borrower. And the “mortgage fraud” for which he was prosecuted was something that literally millions of Americans did during the subprime bubble. Supposedly, he lied on two liar loans.

…It’s not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case.

…Even the jurors seemed confused about how to think about Mr. Engle’s supposed crime. When it came time to pronounce a verdict, the jury found him not guilty of providing false information to the bank, which would seem to be the only fraud he could possibly have committed. Yet it still found him guilty of mortgage fraud. “I think the prosecution convinced the jury that I was guilty of something but they weren’t sure what,” Mr. Engle wrote in an e-mail.

…Even when he emerges from prison, though, his ordeal will not be over. As part of his sentence, Mr. Engle was ordered to pay $262,500 in restitution to the owner of his mortgages. And what institution might that be? You guessed it: Countrywide, now owned by Bank of America. Angelo Mozilo ought to get a good chuckle out of that one.

Later today, by the way, I’ll post about the IRS’s disgusting role in this story.

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