“The Black Hole of Agriculture”: “People Love Free Money”

(p. A17) WASHINGTON — Americans are in sticker-shock over grocery prices, while people in developing countries are rioting over food shortages. And across the heartland, American farmers are enjoying record incomes, but losing sleep over rising expenses and turbulence in the commodity futures markets.
Here on Capitol Hill, though, it is pretty much farm politics as usual.
As Congress works toward final passage of the farm bill, it is poised to continue most of the existing farmer subsidy programs, including about $5.2 billion a year in so-called “direct payments” that will be disbursed even as net farm income is projected to hit a historic high in 2008.
The farm bill, which comes along once every five years and will cost upward of $300 billion, in fact will do little to address many of the most pressing concerns. It will not change biofuel mandates that are directing more corn to ethanol and contributing to a global rise in food prices.
. . .
But even strong proponents of the bill, like Senator Tom Harkin, Democrat of Iowa and chairman of the Agriculture Committee, concede that farm interests are deeply entrenched and that there is little appetite for change among many farm state lawmakers, especially when it comes to the direct payment program.
The direct payments are based on the amount of land that certain farmers own, and Mr. Harkin, who has sought to eliminate the payments, said that many recipients of the money then use it to acquire more land and qualify for more payments.
“It’s like the black hole in space that astronomers talk about: everything gets sucked in and nothing ever comes out,” he said. “This is the black hole of agriculture. It doesn’t make sense, but farmers continue to get it.”
Mr. Harkin said there was not much he could do because “I don’t have the votes,” adding, “People love free money.”

For the full commentary, see:
DAVID M. HERSZENHORN. “NEWS ANALYSIS; Farmers’ Income Rises, as Do Food Prices, but It’s Mostly Politics as Usual.” The New York Times (Thurs., April 24, 2008): A17.
(Note: ellipsis added.)

Puzzle: Entrepreneurial Silicon Valley Donates Mainly to Democrats

 

    Source of graphic:  online version of the NYT article quoted and cited below.

Entrepreneurship thrives when government is small, so it puzzles me when the entrepreneurs in Silicon Valley embrace the Democrats, who generally advocate bigger government.
Of course, my Wabash professor Ben Rogge used to point out that there are always cross-currents that go in a different direction from the mainstream. And among the Democrats, there are what used to be called “new Democrats” who appreciate Schumpeter, and entrepreneurship, and dynamism.
Plus, some Democrats are more respectful of personal, lifestyle choices, and in Silicon Valley, that may be what is given the most weight.
Or, more cynically, maybe there’s a public choice explanation—that Silicon Valley donates to Democrats as a form of ‘insurance,’ in the hope that if the Democrats are elected, they will refrain from over-regulating and over-taxing Silicon Valley. (Even more cynically, compare the case of Florida’s sugar-subsidy-rich Fanjul brothers, one of whom donated huge bucks to the first Bush, while another donated huge bucks to Bill Clinton.)
(Another factor is that, alas, entrepreneurs often do not pay much attention to what conditions encourage entrepreneurship.)

(p. C4)  In a flip from the primary season for the 2000 presidential election, 60 percent of the contributions so far from people in the technology field here are going to Democrats. The Democratic candidates raised $1.4 million from the industry in the first half of this year, while Republican candidates raised $890,000. That total is up from $1.2 million in the first six months of each of the last two presidential primary races.

 

For the full story, see: 

LAURIE J. FLYNN.  "In Primary, Tech’s Home Is a Magnet." The New York Times  (Fri., August 24, 2007):  C1 & C4.

 

Qaddafi’s Nomadic Defense of Socialism

 

   Inside a nomad tent near Kabul.  Source:  online version of the NYT article quoted and cited below. 

 

(p. A4)  In some instances, politicians seek to use nomadic traditions to justify their policies, just as American politicians try to exploit nostalgia for America’s rural past to justify farm subsidies, said Robert Rotberg, a professor at the John F. Kennedy School of Government at Harvard, who studies failed states in Africa and Asia.  “Take Qaddafi in Libya,” he said, referring to Col. Muammar el-Qaddafi.  “He would say, you Westerners don’t understand us because we have a nomadic ethos that is essentially socialist, and so we have to nationalize our country’s oil industry to be true to our tradition.”

 

For the full story, see: 

ILAN GREENBERG.  "Memo From Almaty; Ancient Nomads Offer Insights to Modern Crises."  The New York Times   (Weds., August 8, 2007):   A4. 

 

“The Tender Ship” is a Great, but Unknown, Book

 

TenderShipBK.jpg   Source of book image: http://www.amazon.com/gp/product/081763312X/ref=cm_rdp_product

 

Many years ago, I presented a paper on polywater at a conference at VPI (now called "Virginia Tech").  An old man in the audience came up to me afterwards, and told me about a book he had written called The Tender Ship.  It sounded intriguing so eventually I bought a copy and read it.

It is well-written, creative, and rich with examples.

The central thesis is that the government usually is not very good at directing technology.

 

The book reference is:

Squires, Arthur M.  The Tender Ship: Government Management of Technological Change.  Boston, Massachusetts:  Birkhauser, 1986.

 

How to Wrangle Tax Breaks from Rangel

 

   "Charles B. Rangel, House Ways and Means chairman."  Source of caption and photo:  online version of the NYT article quoted and cited below. 

 

(p. A23)  The chairman of the House Ways and Means Committee has proposed legislation that would effectively halt some current tax audits of people who get a tax break for living and operating a business in the United States Virgin Islands.

Many beneficiaries of the tax break are campaign contributors to the lawmaker, Representative Charles B. Rangel, Democrat of New York, according to data collected by CQ MoneyLine, which tracks political contributions.

At least one of them, Richard G. Vento, is currently under audit, according to court filings. Mr. Vento gave $4,400 last year to the Baucus-Rangel Leadership Fund, which supports Mr. Rangel and Senator Max Baucus, the Montana Democrat who heads the Senate Finance Committee.

Beneficiaries of the tax break including Michael W. Masters and Richard H. Driehaus, money managers, accounted for more than half the $51,900 that individuals in the Virgin Islands gave last year to Rangel for Congress, the chairman’s campaign organization. Mr. Rangel raised almost three times as much from such donors last year as in any other year in the MoneyLine database.

 

For the full story, see:

STEPHANIE STROM.  "Tax Proposal From Rangel Could Benefit His Donors."  The New York Times  (Thurs., November 8, 2007):  A23.

 

Schumer Defends Rich Hedge Fund Democratic Donors, While Criticizing Selfish Republican “Plutocrats”

 

   Hedge fund defender, and recipient of hedge fund donations, Democratic Senator Charles E. Schumer.  Source of photo:  online version of the NYT article quoted and cited below.

 

The story quoted below, reminds me of a story I told earlier about the famous democratic economist John Kenneth Galbraith ridiculing the wealth of Republicans.

Schumer’s behavior exemplifies the "public choice" theory of economics that suggests that the motives of politicians will generally be similar to the motives of the rest of us.  In other words, incentives often matter. 

 

(p. A1)  WASHINGTON, July 29 — June was a busy month for Senator Charles E. Schumer. On the phone, at large parties and small gatherings around the nation, he raised more than $1 million from the booming private equity and hedge fund industries for the Democratic Senatorial Campaign Committee, of which he is chairman.

But there is another way Mr. Schumer has been busy with hedge fund and private equity managers, an important part of his constituency in New York. He has been reassuring them that he will resist an effort led by members of his own party to single out the industry with a plan that would more than double the taxes on the enormous profits reaped by its executives.

Mr. Schumer has considerable say on the issue. In addition to being the third-ranking Democrat in the Senate leadership, he is the only Democrat serving on both of the major committees, Banking and Finance, that have jurisdiction in the matter.

He has long been a pro-business Democrat and a fund-raising machine for the party, as well as a vociferous supporter of Wall Street issues in Washington, much the way Michigan lawmakers defend the auto industry and Iowa politicians work on behalf of corn farmers.

But in the case of the tax proposals, the strategy behind Mr. Schumer’s efforts is putting to the test another set of principles he is known for. He has regularly portrayed himself as a progressive politician who identifies with the struggles of the middle class and is sharply critical of the selfish “plutocrats” who he says control the Republican Party.

 

For the full story, see: 

RAYMOND HERNANDEZ and STEPHEN LABATON.  "In Opposing Tax Plan, Schumer Breaks With Party."  The New York Times  (Mon., July 30, 2007 ):  A1 & A14. 

 

Earmarks Often Promote Lawmakers’ Personal Fame and Fortune

 

  "A Kennedy-era tray and a Laura Bush mask at an Ohio library honoring first ladies. The library received a $130,000 earmark."  Source of caption and photo:  online version of the NYT article quoted and cited below.

 

(p. A23)  WASHINGTON, Nov. 12 — Buried deep in the largest domestic spending bill of the year is money for a library and museum honoring first ladies. The $130,000 was requested by the local congressman, Representative Ralph Regula, Republican of Ohio. The library was founded by his wife, Mary A. Regula. The director of the library is his daughter, Martha A. Regula.

Other “namesake projects” in the bill include the Charles B. Rangel Center for Public Service at City College of New York, named for the chairman of the House Ways and Means Committee; the Thad Cochran Research Center at the University of Mississippi, named for the senior Republican on the Senate Appropriations Committee; and the Thomas Daschle Center for Public Service at South Dakota State University, honoring the former Senate Democratic leader.

The bill also includes “Harkin grants” to build schools and promote healthy lifestyles in Iowa, where Senator Tom Harkin, a Democrat, is running for re-election.

Namesake projects are not new, but the appetite for such earmarks appears to be undiminished. The items illustrate the way in which lawmakers funnel federal money to projects in their home states, despite promises to rein in the practice. House and Senate negotiators last week approved a modest reduction in pet projects for health care, education and other domestic programs. But more than 2,200 hospitals and clinics, schools and colleges, museums and social service agencies get money for specific projects, including health information technology, teacher training and the promotion of sexual abstinence. Rather than making hard choices, negotiators accepted almost all the earmarks recommended by either chamber.

Senators John McCain of Arizona and Tom Coburn of Oklahoma, both Republicans, cited the first ladies library as one of the more egregious. Mr. McCain said it illustrated the “many wasteful items tucked away in this bill.”

 

For the full story, see:

ROBERT PEAR. "One Lawmaker’s Waste Is Another’s Namesake." The New York Times (Tues., November 13, 2007): A23.

 

   Source of map graphic:  online version of the NYT article quoted and cited above.

 

Earmarks Increase Wasteful Government Spending

 

   Source of table:  online version of the NYT article quoted and cited below.

 

(p. A1)  WASHINGTON, Nov. 3 — Even though members of Congress cut back their pork barrel spending this year, House lawmakers still tacked on to the military appropriations bill $1.8 billion to pay 580 private companies for projects the Pentagon did not request.

Twenty-one members were responsible for about $1 billion in earmarks, or financing for pet projects, according to data lawmakers were required to disclose for the first time this year. Each asked for more than $20 million for businesses mostly in their districts, ranging from major military contractors to little known start-ups.

The list is topped by the veteran earmark champions Representative John P. Murtha, a Pennsylvania Democrat who is the chairman of the powerful defense appropriations subcommittee, and Representative C. W. Bill Young of Florida, the top Republican on the panel, who asked for $166 million and $117 million respectively. It also includes $92 million in requests from Representative Jerry Lewis, Republican of California, a committee member who is under federal investigation for his ties to a lobbying firm whose clients often benefited from his earmarks.

The House speaker, Nancy Pelosi, requested $32 million in earmarks, while Steny H. Hoyer, the majority leader, asked for $26 million for projects in the $459.6 billion defense bill, the largest of the appropriations bills that go through Congress.

As promised when they took (p. A27) control of Congress in January, House Democratic leaders cut in half from last year the value of earmarks in the bill, as they did in the other 11 agency spending measures. But some lawmakers complained that the leadership failed to address what it had called a “culture of corruption” in which members seek earmarks to benefit corporate donors. Earmarks have been a recurring issue in recent Congressional scandals, most recently the 2005 conviction of Representative Randy Cunningham, Republican of California, for accepting bribes from defense contractors.

“Pork hasn’t gone away at all,” said Representative Jeff Flake, Republican of Arizona, an earmark critic who cites the “circular fund-raising” surrounding many of them. “It would be wonderful if this was a partisan issue, with Republicans on the right side, but it is really not. Many of these companies use money appropriated through earmarks to turn around and lobby for more money. Some of them are just there to receive earmarks.”

Congressional earmarks are for programs that are not competitively bid , and the Bush administration has complained that they waste taxpayer dollars and skew priorities from military needs, like the wars in Iraq and Afghanistan and the global war on terror.

Thomas E. Mann, a Congressional scholar and senior fellow at the Brookings Institution, though, sees the costs of earmarks as less of a problem than their potential for abuse.

“The fiscal fallout of earmarks is trivial,” he said. But they can lead to “conflicts of interest, the irrational and unconstructive allocation of resources, or their use by Congressional leaders as carrots and sticks to buy votes for larger measures that clearly lack majority support on the merits.”

 

For the full story, see: 

MARILYN W. THOMPSON and RON NIXON.  "Even Cut 50 Percent, Earmarks Clog Military Bill."  The New York Times, First Section   (Sun., November 4, 2007):  1 & 27. 

 

Michael Powell Provides Support for the Capture Theory of Regulatory Agencies

 

The following brief story would seem highly compatible with the "Capture Theory of Regulatory Agencies" that is associated with the names of economist George Stigler, and historian Gabriel Kolko.  That theory suggests that regulatory agencies are frequently captured by the industries that they are intended to regulate.

One kind of evidence for the theory is that members of regulatory agency boards often are recruited from the industry, and often return to working for the industry after their terms are over.

 

The efforts of federal regulators to curtail cronyism on corporate boards have led to some odd outcomes. The case of Michael K. Powell, a new director of Cisco Systems, is a prime example. 

Mr. Powell, the former chairman of the Federal Communications Commission, happens to be a son of Colin Powell, the former secretary of state. Cisco happens to have paid the senior Mr. Powell more than $100,000 to deliver two speeches in 2005.

Under guidelines established by the Nasdaq stock market, that connection disqualifies the younger Mr. Powell as an independent director, so he cannot sit on the company’s audit, compensation or governance committees. But by the same definition, Richard M. Kovacevich, the chairman of Wells Fargo, is an independent director of Cisco, even though his company has promised to lend Cisco $120 million.

The difference is that Cisco’s line of credit is deemed too small a part of Wells Fargo’s overall business to present a conflict of interest, while the payments to the senior Mr. Powell exceeded the allowable annual limit of $100,000 to any family member of an independent director.

 

Source of story: 

PATRICK McGEEHAN.  "$100,000? Too High. $120 Million? Fine."  The New York Times, SundayBusiness Section (Sun., September 30, 2007):  2.

 

The key Kolko book is: 

Kolko, Gabriel. Railroads and Regulation, 1877-1916.  W. W. Norton & Company, 1970.

 

Labor Unions Endorse Hillary and Edwards

 

   Source of graphic:  online version of the WSJ article excerpted and cited below.

 

Union endorsements could provide a big boost with next year’s early, front-loaded primary calendar. Half of all 15.4 million union members live in six states — California, New York, Illinois, Michigan, New Jersey and Pennsylvania — and all but Pennsylvania will have voted by Feb. 5.

Major unions have already split their endorsements between three Democratic candidates: Sens. Hillary Rodham Clinton and Christopher Dodd, and former Sen. John Edwards. Union leaders are loath to repeat the division of support that marred the 2004 election, where major unions endorsed Richard Gephardt and Howard Dean, wasting resources on losing candidates. Only one Republican candidate, former Arkansas Gov. Mike Huckabee, has picked up a major union endorsement.

 

For the full story, see: 

NICK TIMIRAOS.  "HOT TOPIC; U.S. Unions: Still a Political Power?"  The Wall Street Journal  (Sat., September 29, 2007):  A7.