Big time rent seeking

From  the WSJ:

The Other Government Motors

The list of the Obama Administration's industrial policy failures is long, from Solyndra to Fisker Automotive. But now we are hearing that one success redeems them all: Tesla Motors TSLA +4.69% . Tesla's share price has soared this year on rave reviews for its electric car, growing sales and its first quarterly profit.

Rarely noted is how much this profit is a function of government subsidy and coercion. So let's take apart Tesla by the numbers, if only to give our reader-taxpayers a better sense of what they've paid to make Tesla's owners rich.

The decade-old Tesla debuted its first product, the Roadster, in 2006. With a base price of $109,000, it was discontinued before it hit 2,500 sales. Tesla introduced its Model S a year ago and had sold an estimated 9,650 at a bargain $70,000 through April. By contrast, Ford sold 168,843 F-series pickup trucks in the first quarter alone.

Tesla wouldn't have sold even that many cars without the extraordinary help of government. In 2009 the company received a $465 million Obama loan guarantee, supplemented last year by a $10 million grant from the California Energy Commission.

That money has underwritten Tesla's engineering and manufacturing, but federal and state governments also subsidize the purchase of Tesla products. Any U.S. buyer of a Tesla car qualifies for a $7,500 federal tax credit, while states like Colorado throw in up to $6,000 more in state income-tax credits. Taxpayers pay first so Tesla can build the cars and again to help the wealthy buy them.

These subsidies are important enough to Tesla that its website features an "Incentives" section directing buyers where to look for their states' electric-vehicle benefits—rebates, free parking, exemptions from state sales tax, use of high-occupancy lanes, and the like. Buyers from states that offer no incentives get this Tesla message: "Want to help make EV [electric vehicle] incentives a reality in your area? Encourage your local or state representative by calling or sending them a letter."

Tesla's biggest windfall has been the cash payments it extracts from rival car makers (and their customers), via its sale of zero-emission credits. A number of states including California require that traditional car makers reach certain production quotas of zero-emission vehicles—or to purchase credits if they cannot. Tesla is a main supplier.

A Morgan Stanley MS +0.41% report in April said Tesla made $40.5 million on credits in 2012, and that it could collect $250 million in 2013. Tesla acknowledged in a recent SEC filing that emissions credit sales hit $85 million in 2013's first quarter alone—15% of its revenue, and the only reason it made a profit.

Take away the credits and Tesla lost $53 million in the first quarter, or $10,000 per car sold. California's zero-emission credits provided $67.9 million to the company in the first quarter, and the combination of that state's credits and federal and local incentives can add up to $45,000 per Tesla sold, according to an analysis by the Los Angeles Times.

One irony is that rival car makers—even those making electric hybrids or gasoline subcompacts—don't get the same benefit from zero-emissions mandates. As environmentalist Bjorn Lomborg notes, manufacturing and charging electric cars over their life cycle can produce more carbon than small, gas-powered vehicles. Yet Tesla is cashing in because of the policy bias for fully-electric cars.

Another irony is that the main beneficiaries of this electric-car largesse belong to—well, the 1%. Tesla co-founder Elon Musk is already a successful entrepreneur, and his estimated net worth has soared past $4 billion thanks to the IPOs of Tesla and Solar City (a separate operation that received a $344 million federal loan guarantee).

Also realizing Tesla IPO windfalls are the elite of Silicon Valley venture capital: the Westly Group (whose principal, Steve Westly, is an Obama campaign bundler), Draper Fisher Jurvetson, and VantagePoint Venture Partners. Other paupers in the Tesla venture include or have included Daimler, Fidelity Investments, Google co-founders Sergey Brin and Larry Page, Hyatt heir Nick Pritzker, and former eBay president Jeff Skoll. The state-owned Abu Dhabi Water & Electricity Authority last year booked a $113 million profit selling its share of Tesla. You're welcome.

Tesla isn't oblivious to the politics of all this, and on Wednesday it said it had fully repaid its government loan. That's good, since Tesla's long-term prospects are far from certain. The major auto makers will soon have their own zero-emissions vehicles, which Mr. Musk says will end Tesla's credits boom by year end. Analysts are also warning that Tesla has yet to show it can sell its very pricey car to a mass market.

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Tesla's investors claim this taxpayer support is worth it if it creates a new electric-car company, and for them it is. But such a success must still be measured against other taxpayer losses and misallocated capital.

And even if Tesla's cars do sell, the policy question is why billionaires in California couldn't have financed the business themselves. Why should middle-class taxpayers whose incomes are falling still pay to subsidize the purchase of cars that only the affluent can afford, and then partly as a gesture of their superior environmental virtue? When does the rest of America get its return on Tesla's profits?

A version of this article appeared May 24, 2013, on page A12 in the U.S. edition of The 

Where are we now with the debt?

Gramm and McMillin: The Debt Problem Hasn't Vanished

By PHIL GRAMM
AND STEVE MCMILLIN

President Obama has raised the national debt by nearly $6.2 trillion, the equivalent of $78,385 per family of four. It is true that projected deficits recently have been reduced. April tax filings increased 28% from 2012, but much of this was thanks to a one-time rush at the end of 2012 to report income before rates rose in January. The second largest reduction in the deficit came from Fannie MaeFNMA +14.75% taking a one-time accounting adjustment.

But unless the economy soars, or a significant budget agreement is reached, the most lasting legacy of the Obama presidency will be a $10 trillion increase in the national debt—a burden that bodes ill for the nation's future.

Once the Federal Reserve's easy-money policy comes to an end and interest rates return to their post-World War II norms, the cost of servicing this debt will explode. The cost will increase further as the Fed sells down its $1.85 trillion holding of government bonds, and the Social Security system runs deeper and deeper into the red. The Treasury will then have to pay interest on an ever-growing percentage of the debt.

Since the World War II era, the average maturity of outstanding federal debt has been about five years, and the average interest cost on a five-year Treasury note has been 5.9%. At this interest rate, the expected cost of the Obama debt burden will eventually approach some $590 billion per year in perpetuity, exceeding the current annual cost of any federal program except Social Security.

An America forever burdened by massive government debt would have been unthinkable for much of the nation's history. Beginning with the Revolutionary War, the pattern has been that federal debt increased to help finance the nation's armed conflicts. But government spending after the wars dropped and debt was paid down, or even paid off, as under President Andrew Jackson in 1835.

Federal borrowing during the Civil War reached nearly $2.8 billion, about 30% of GDP. Thereafter the government ran surpluses and redeemed U.S. bonds that served as the reserve base of national banks and literally burned U.S. paper currency—greenbacks—in the furnace of the Treasury building. The money supply fell and federal spending plummeted to $352 million in 1896 from $1.3 billion in 1865.

These are policies that horrify modern Keynesian economists. Yet over that late 19th-century period real GDP and employment doubled, average annual real earnings rose by over 60%, and wholesale prices fell by 75%, thanks to marked improvements in productivity.

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With the onset of the Great Depression, the national debt increased dramatically for the first time in the peacetime history of America, reaching 43% of GDP in 1938. World War II meant more borrowing. Since 1930, there has been no concerted effort to pay down the national debt. Any reductions in the national debt relative to the GDP have been almost solely the result of economic growth and inflation.

As the debt burden rises, so too does the cost of servicing the debt increase as a share of the growth the economy is capable of generating. When the debt on which interest is paid equals the GDP level of a nation, the economy must grow faster than the interest rate to avoid debt-servicing costs consuming all the benefit of economic growth. A nation then begins to lose its ability to grow its way out of a mounting debt crisis. Its options start to narrow down to forced austerity, inflation or default.

Today the total U.S. federal debt is 103% of GDP. Since interest paid to the Fed, the Social Security system and other government pension funds is effectively rebated to the Treasury, taxpayers currently bear only the burden of interest on 60% of this debt. But the size of the debt and the percentage of the debt on which interest will have to be paid are rising.

Some seek solace in the fact that at the end of World War II, the national debt exceeded GDP and still the economy prospered. But when the war ended, federal spending dropped to $29.8 billion in 1948 from $92.7 billion in 1945. Spending as a percentage of GDP fell to 12% from 44%. The U.S. emerged from the war as the world's dominant producer of goods and services. The demand for dollars around the world was insatiable, and a long period of record prosperity ensued. High GDP growth and inflation eventually brought down the debt-to-GDP ratio.

Americans today face a totally different situation. Spending and huge deficits continue unabated, and growth rates have declined since the recovery began four years ago. The reduction in government spending that occurred following World War II would be politically impossible today short of a cataclysmic crisis. Under Mr. Obama, the government has run trillion-dollar deficits for four consecutive years, and the top marginal tax rate today is already higher than it was when the budget was balanced in fiscal year 2001.

The president and many in Washington are complacent because, thanks to the Fed's unprecedented near-zero interest rate policy, the burden of servicing the debt today is just 0.9% of GDP, the lowest level in over five decades. But this cannot last, and the Fed is already looking for an exit plan.

Sadly, nations generally discover the truth of Albert Einstein's dictum that compound interest is the most powerful force in the universe—not through the happy accumulation of wealth but through the agonizing enslavement of debt.

Mr. Gramm, a former Republican senator from Texas, is senior partner of U.S. Policy Metrics, where Mr. McMillin, a former deputy director of the White House Office of Management and Budget, is a partner.

A version of this article appeared May 22, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: The Debt Problem Hasn't Vanished.

The Bowdoin case study

Anyone following the twists and turns of higher education these days will appreciate this fisking of the recent report/study produced by two researchers on the subject of the education offered by Bowdoin College, in Maine.  The author of this piece is Harvey Mansfield, a professor of Government at Harvard.  Mansfield, a conservative, provides the clearest distinction yet between what a liberal education used to mean and what it has become in the new world dominated by the "diversity" and "political correctness" mantras now prevalent.  The bottom line: when all subjects and cultures and studies have equal value, they all become devalued without standards.  My bottom line:  there may be better ways to spend huge sums of money and get a mush education these days than going to some elite school like Bowdoin, or Harvard, or Yale, or Princeton, etc., etc.  These schools may still have credential value, but credential value has a lot less meaning than it did 30-50 years ago.

The Higher Education Scandal

Bowdoin College in Brunswick, Maine, is an institution of good reputation and high quality, where I have some friends. It offers a liberal arts education typical of the best available in America today. It troubles me that Bowdoin, rather than, say, Harvard—a bigger and richer place where I work—should be made an example of. Nonetheless, Peter Wood and Michael Toscano have done just that in a comprehensive new study, “What Does Bowdoin Teach?” the first of its kind and probably destined to be the best, which shows in the practices and principles of one college what political correctness in our time has done to higher education in our country.

The authors are conservatives and their study was sponsored by the National Association of Scholars, a conservative organization. (It is available as a free download at www.nas.org.) It seems that liberals, even those critical of American education, are not inclined to investigate what their liberalism has done to it. Once upon a time, earlier in my life, liberals took pride in the high standards they set for the colleges that they had recently come to dominate and had made the headquarters of their liberalism. Now, they have made an unholy sacrifice of the devotion to excellence they once prized as a mark of distinction over fuddy-duddy, tradition-bound conservatism, and it is conservatives who stand for high standards in education.

Today’s liberals do not use liberalism to achieve excellence, but abandon excellence to achieve liberalism. They have effectually eliminated conservatism from higher education and intimidated—“marginalized”—the few conservatives remaining. These few are the only ones in academia who think something is missing when conservatives are gone. There was a liberal president of Harvard for a brief time recently who thought something was missing when conservatives are gone, and then, courtesy of the liberals, he was gone.

The Bowdoin study was done without the cooperation of Bowdoin, relying on the public statements of its president and faculty, its official documents, and its student newspaper to show what the college is about. Perhaps too much is made of the statements of its president, Barry Mills, a good man as I happen to know. It pains me to see him criticized for affirming things he would have been ousted for denying, as the example of Harvard’s Larry Summers suggests would happen. Bowdoin, like other such colleges, is ruled by a certain principle today, the principle of openness. It claims to be “inclusive,” open to all claims, yet it does not include conservatives. The study counts perhaps a half dozen conservatives among the 182 faculty members. But according to Bowdoin, this absence doesn’t matter. One can be open-minded about conservatism without being conservative, the college believes, perhaps by being objective like a scientist, perhaps simply by doing one’s best to understand it. Of course, it’s true that the best understanding of conservatism doesn’t necessarily come from conservatives, nor from having conservatives present on campus. You need Hindus on campus in order to understand Hinduism? Actually, that is a multicultural imperative that liberals might well apply to Hindus, but will never use to bring in conservatives. Conservatives as opposed to Hindus are the main rivals of—opponents to—liberals in America today, yet somehow it is considered openness not to include those with whom you mainly disagree. This study uses strong words at the end, but only after supplying evidence and argument on the way to its conclusions. It begins with a question: is Bowdoin as open as it claims to be?

It’s easy to number the conservatives at Bowdoin and to wonder why so few, but how does their near-complete absence affect the education Bowdoin delivers? The Bowdoin course catalogue states that “Bowdoin students must design an education.” They are to do this out of their own goals, the college’s “vision,” and its requirements. Yet the requirements are few and the vision is openness: the result is that Bowdoin students are mainly responsible individually for choosing the courses they take. Except for light requirements of distribution outside one’s major and of concentration within it, requirements that have been lessened whenever the college stops to think about them, the student is free to choose. By this principle, all courses are treated by the college as equal, none more important, none necessary to or contributing more toward the “liberal arts.” A liberal arts education, the study says, has become an education in liberating oneself from the liberal arts.

Facilitating this change is a new attitude among the faculty, emphasizing less what students need to know for a liberal education and more what they might want absent that discipline. Hence the arrival of many “topical” courses, as the study calls them, courses that take a current topic, such as the environment (“sustainability”) or samesexuality (my neologism), or “global citizenship,” or multiculturalism, and show its relation to current research by professors of various specialties. One example, freakish but still exemplary, is a course on “Queer Gardens,” which “examines the work of gay and lesbian gardeners and traces how marginal identities find expression in specific garden spaces.” It was abandoned because it got insufficient student enrollment—not because the faculty or the professor had second thoughts about this—call it odd—combination.

The equality of courses affects the courses offered; they are less and less survey courses aimed at teaching a subject-matter, and more and more a variety of courses aimed at showing the relevance of a professor’s specialty. Courses that still have the appearance of following a tradition—summed up in Bowdoin’s longtime favorite phrase, “the common good”—often bend it to the topical model. The phrase itself is bent so as to recommend “diversity” courses. In one official expression the phrase is traced to Richard Rorty rather than John Rawls, revealing a certain slippage within liberalism toward postmodernism that is characteristic of political correctness.

The common good as practiced at Bowdoin is no longer a liberally educated student body to which the professors variously contribute but a collection of students who have individually validated the ill-considered hope of their professors to make them resemble professors like themselves. The college is now not so much a body of teachers teaching students as a research institution that makes small-time, overpraised researchers out of its undergraduates. The research model perhaps fits science students, but the topical courses allow non-science students to be researchers on the frontiers being explored—and defended—by political correctness. Political correctness with its present-minded exactness, its not quite selfless objectivity, and its esoteric jargon is science for non-scientists. Political correctness, the study points out, brings necessary unity to the otherwise incoherent notion of diversity. For how else than by political fiat can one bring together, or be “inclusive” of, subjects defined not by essences but only by their mutually exclusive “otherness”?

Topical courses are featured in programs called “Studies,” such as Gender and Women’s Studies, Gay and Lesbian Studies (separate from the preceding), Environmental Studies, and Africana Studies, that were founded explicitly as political advocacy for their constituents. But also Asian Studies and Latin American Studies, with apparently neutral names, are now concerned mainly with repudiating Western colonialism—long after its demise one would think. The various Studies, but also regular departments, have stimulated other developments in the curriculum—the cross-listing of courses given by one department in another department and the new emphasis on interdisciplinary study. Both have the purpose of making specialty courses seem more general than they are, and both try to endow the idiosyncratic, parochial, even trivial subject-matter of topical courses with the universality of science. The report sums up the Bowdoin curriculum of equal courses as having a certain “flatness” and tending toward “entropy,” where faculty and students share the undemanding practice of self-expression, and the uninterest in teaching of the former joins with the uninterest in learning of the latter.

There is a good deal more in the Bowdoin study, but this much will serve to introduce and recommend it. Perhaps I have spoken too long of the curriculum when the main interest of students is the extra-curricular. One could say, indeed, that the curriculum itself is directed toward the extra-curricular, toward the not particularly well-intentioned and certainly foolish hopes for a not very attractive utopia, as the study concludes, that is without wisdom and without culture. I have focused on the curriculum in order to make it clear that what Bowdoin lacks is not so much the teaching of conservatism by conservatives, as if conservatives could be satisfied, and the troubles of academia resolved, by giving conservatives their own brief act in the Diversity Circus. Bowdoin’s curriculum lacks the academic standards of excellence that conservatives mostly and mainly defend in academia with little or no help these days from liberals. It is conservatives who deplore and resist the brazen politicization of the classroom, the loss of the great books, indeed the disregard of greatness in general, the corruption of grade inflation, the cheap satisfactions of trendiness, the mess of sexual license, the distractions of ideology, the aggrandizement and servility of administrators, the pretense and dissembling of affirmative action, the unmanly advice of psychologists, the partisan nonsense of professional associations, and the unseemly subservience everywhere to student opinion. None of these was necessary or useful in order to welcome those non-WASPs previously excluded from our colleges.

What Bowdoin produces in its students, according to the study, is a certain “knowingness,” a word that nicely captures an attitude I see a lot of at Harvard. Students have learned that to see means to see through, instead of having a good look. There is one bright spot, though. In its diversity Bowdoin decided to allow a “chem-free” dormitory, meaning no alcohol (why not say that?). But it turned out that many minority students opted for this kind of safety, thus failing in their duty to mix with the partying majority, and, combining selfishness with self-righteousness, keeping their diversity to themselves instead of spreading it around so that the lazy majority could lap it up without effort. Minority students made themselves the wrong sort of minority (this is the bright spot), and Bowdoin stomped on them, abolishing the chem-free dorm.

“What Does Bowdoin Teach?” covering much more than can be treated here, contrasts the new Bowdoin with the old Bowdoin. The new came out of the Late ’60s and thinks itself greatly superior to the old bastion of white males with its policies of exclusiveness. From this study, one could conclude that the old Bowdoin set and met high standards for itself and for the white males, at least, and that its biggest mistake was to make way so willingly for the new Bowdoin with its liberal, politically correct policies of exclusiveness. What was gained when so much was lost? Bowdoin—representing the American college—is now open, though not to all, and its openness, now exposed by Peter Wood and Michael Toscano, discloses a new poverty of undernourished hearts and minds. ave credential value but other than the hard science and economics studies they really don't offer much value.

Ralph Raico interview

This interview lasts 1 hour and is interesting to those of us who follow the Austrian school of economics.  Ralph Raico is a historian whose study and teaching has centered on the 18th century liberalism foundation of the economists who evolved from that perspective starting with Bastiat and Adam Smith.

Speech control on campus

Big brother tentacles are everywhere, once you open your eyes.  Outrageous college "speech codes" have been the subject of debate for several years now and in this article one sees why.  If anyone wants to know what has been going on behind the scenes with the Obama administration for the past 4 years  this article is a wakeup call.  When Obama spoke of transforming America while campaigning in '07 and '08, this is one of the many reforms he no doubt had in mind.

Greg Lukianoff: Feds to Students: You Can't Say That

By GREG LUKIANOFF

The scandals roiling Washington over the past two weeks involve troubling government behavior that had been hidden—the IRS targeting of conservative groups and the Justice Department's surveillance of the Associated Press, among others. Largely overlooked amid the histrionics has been a shocker hiding in plain sight. Last week, the Obama administration moved to dramatically undermine students' and faculty rights at colleges across the country.

The new policy was announced in a joint letter from the Education Department and Justice Department to the University of Montana. The May 9 letter addressed the results of a year-long joint investigation by the departments into the school's mishandling of several serious sexual-assault cases. The investigation determined that the university's policies addressing sexual assault failed to comply with Title IV of the Civil Rights Act of 1964 and Title IX of the Education Amendments of 1972.

But the joint letter, which announced a "resolution agreement" with the university, didn't stop there. It then proceeded to rewrite the federal government's rules about sexual harassment and free speech on campus.

If that sounds hyperbolic, consider the letter itself. The first paragraph declares that the Montana findings should serve as a "blueprint for colleges and universities throughout the country." After outlining the specifics of the case, the letter states that only a stunningly broad definition of sexual harassment—"unwelcome conduct of a sexual nature"—will now satisfy federal statutory requirements. This explicitly includes "verbal conduct," otherwise known as speech.

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The letter rejects the requirement, established by legal precedent and previous Education Department guidance, that sexual harassment must be "objectively offensive." By eliminating this "reasonable person" standard—which the Education Department has required since at least 2003, and which protects the accused against unreasonable or insincere allegations—the right not to be offended has been enshrined in a federal mandate.

The letter further states that campuses have "an obligation to respond to student-on-student harassment" even when that harassment occurs off-campus. In some circumstances, the letter says, universities may take "disciplinary action against the harasser" even "prior to the completion of the Title IX and Title IV investigation/resolution." In plain English: Students can be punished before they are found guilty of harassment.

Given that the letter represents an interpretation of federal law by major federal agencies, most colleges will regard it as binding. Noncompliance threatens federal funding, including Pell grants and Stafford loans.

The implications for professors and students are enormous. An unsuccessful request for a date, or even assigning a potentially offensive book like "Lolita," could now be construed as harassment. As attorney and civil libertarian Wendy Kaminer commented on The Atlantic's website this week: "The stated goal of this policy is stemming discrimination, but the inevitable result will be advancing it, in the form of content-based prohibitions on speech."

This attack on campus free speech follows the Education Department's directive two years ago requiring every college in the country that receives federal funds to lower the standard of evidence in sexual-harassment cases. The "preponderance of the evidence," the judiciary's lowest standard of proof, became the required standard. (Many institutions had previously used the "clear and convincing" standard.) As former Dean of Harvard CollegeHarry Lewis has noted, the "preponderance of evidence" mandate means "more convictions—of both guilty and innocent individuals," which is a troubling result "in a society that values individual rights."

Last week's letter is part of a decades-long effort by anti-"hate speech" professors, students, activists and administrators to classify any offensive speech as harassment unprotected by the First Amendment. Such speech codes reached their height in the 1980s and 1990s, but they were defeated in federal and state court and came in for public ridicule.

Despite these setbacks, harassment-based speech codes have become the de facto rule. Earlier this year, my organization, the Foundation for Individual Rights in Education, published a study that looked at 409 colleges and found that 62% maintain codes that violate First Amendment standards.

The stifling effect of these codes isn't theoretical. In 2011, the University of Denver suspended a professor and found him guilty of sexual harassment because his class discussion on sexual taboos in American culture (in a graduate-level course) was considered too racy. Last year, Appalachian State University suspended a professor for creating a "hostile environment" after she criticized the university's treatment of sexual-assault cases involving student-athletes and screened a documentary critical of the adult-film industry.

Recent history gives no reason to expect that the government's new directive on "verbal conduct" will remain confined to sexual speech. At Tufts in 2007, a conservative student publication was found guilty of harassment for criticizing Islam. The same happened to a professor at Purdue University at Calumet in 2012, who faced a four-month investigation.

An obsession with political correctness and the expansion of bureaucracy on campus are key factors in the proliferation of such free-speech abuses. But the hidden force that pushes schools to overreact to offensive, or merely dissenting, speech is fear of liability and the federal government. A growing "risk-management" industry—complete with regular conferences, conventions and consultants—has arisen from efforts by university administrators trying to avoid being sued for discrimination or harassment, and to avoid the costly investigations in which the Education Department's Office for Civil Rights specializes.

All of this effort and expense ought to be unnecessary. The Supreme Court already did the work in Davis v. Monroe County Board of Education (1999). Recognizing that workplace standards for harassment were inappropriate for educational institutions, in Davis the court offered a clear, narrow, workable definition of harassment as a targeted pattern of serious and ongoing discriminatory behavior.

Adopting this standard would have solved—and would still solve, if implemented—universities' liability panic, while allowing real harassers to be punished and avoiding serious threats to freedom of speech. But the Education and Justice departments apparently don't want to embrace the Supreme Court's solution. In their letter, they explicitly reject (and misquote) the court's thoughtful analysis inDavis, deeming it inapplicable for the agencies' "purposes of administrative enforcement."

When the Education Department lowered the standard of evidence for harassment accusations in 2011, some college administrators complained, but most meekly accepted the federal mandate. They may be regretting that submission, now that the government is pushing for even lower standards. Unless we decide that college should primarily be a social institution devoted to preventing offense, it is time for universities—as well as state governments, alumni, students, parents, faculty and citizens—to fight back.

Mr. Lukianoff is the author of "Unlearning Liberty: Campus Censorship and the End of American Debate" (Encounter, 2012) and the president of the Foundation for Individual Rights in Education.

A version of this article appeared May 17, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: Feds to Students: You Can't Say That.

Another hidden scandal

Looking for yet another scandal?  Well here's a beauty!  This one is an  example of how liberals view their relationship to government considering it in effect their very own privately owned business.  This perspective allows someone like Hillary to hire whom she wants, have them do what she wants done including personal services,  and to ignore any government rules and regulations that may proscribe the actives of a  position defined in the law.  Obama's hiring of czars who are essentially his personal consultants neither approved by Congress nor restricted in their duties and actions by any meddlesome or annoying civil service rules and regulations. This is all shameful.  The use of these kinds of "personal" aides to those in power is not only unconstitutional(if not, should be), but illegal and highly destructive to the proper functioning of a representative democracy.  One can only hope that Darrell Issa has this item on his list of outrages that need investigating.

Weiner’s Wife Didn’t Disclose Consulting Work She Did While Serving in State Dept.

The State Department, under Secretary Hillary Rodham Clinton, created an arrangement for her longtime aide and confidante Huma Abedin to work for private clients as a consultant while serving as a top adviser in the department.

Ms. Abedin did not disclose the arrangement — or how much income she earned — on her financial report. It requires officials to make public any significant sources of income. An adviser to Mrs. Clinton, Philippe Reines, said that Ms. Abedin was not obligated to do so.

The disclosure of the agreement that Ms. Abedin made with the State Department comes as her husband, former Representative Anthony D. Weiner, a Democrat, prepares for a mayoral run in New York City. Politico reported the arrangement on Thursday afternoon.

Ms. Abedin declined a request for an interview, but the picture that emerges from interviews and records suggests a situation where the lines were blurred between Ms. Abedin’s work in the high echelons of one of the government’s most sensitive executive departments and her role as a Clinton family insider.

While continuing her work at the State Department, in the latter half of 2012, she also worked for Teneo, a strategic consulting firm, which was founded by Doug Band, a former adviser to President Bill Clinton. Teneo has advised corporate clients like Coca-Cola and MF Global, the collapsed brokerage firm run by Jon S. Corzine, a former governor of New Jersey.

At the same time, Ms. Abedin served as a consultant to the William Jefferson Clinton Foundation and worked in a personal capacity for Mrs. Clinton as she prepared to transition out of her job as secretary of state.

It is not clear what role Mrs. Clinton played in approving the arrangement. Some good-government groups have been critical of such situations, saying public employees’ loyalty should be solely to the public and their government work, rather than private firms and figures.

Ms. Abedin reached her new working arrangement in June 2012, when she returned from maternity leave, quietly leaving her position as deputy chief of staff and becoming a special government employee, which is essentially a consultant. A State Department official said that change freed her from the requirement that she disclose her private earnings for the rest of the year on her financial disclosure forms. Still, during that period, she continued to be identified publicly in news reports as Mrs. Clinton’s deputy chief of staff.

Officials in the State Department and Clinton circles seem especially sensitive about the arrangement, and no one would speak about it on the record. Earlier this month, Mr. Weiner released a copy of the couple’s 2012 tax return showing that they had income of more than $490,000.

But when pressed on the matter, Mr. Weiner declined to discuss what, if any, income Ms. Abedin derived from work done outside the State Department.

An associate of Ms. Abedin’s said on Thursday that the arrangement allowed her to work from her home in New York, rather than at the State Department’s headquarters in Washington, and to spend more time with her child and husband. She earned approximately $135,000 from the department during 2012.

It is not clear how much Ms. Abedin was paid by Mrs. Clinton privately, or from the Clinton Foundation and Teneo. The Clintons have described Ms. Abedin as a surrogate daughter to them.

Ms. Abedin, who is one of Mrs. Clinton’s most trusted advisers, ended her consulting practice in March, when she moved on to become director of Mrs. Clinton’s transition office.

Melanie Sloane, executive director of CREW, an ethics watchdog group, said the arrangement that Ms. Abedin had seemed unusual. “If she was being held out as a deputy chief of staff, it would be highly unusual for her to be a part-time employee or a consultant,” she said. “Being a deputy chief of staff at the State Department is generally considered more than a full-time job.”

Stockman weighs in on FDR, Nixon, and gold

Unless one reads history through the eyes of an economist, Austrian economist, one is likely to miss the impact of financial and monetary factors on the past and future.  Stockman is an Austrian economist  by inclination if not by a degree, and he provides here a valuable perspective on what happens when politicians begin to muck around with free markets.  Basically you get what  we have now,  a runaway fiat money driven economies that lerch from crises to crises and depend upon some central bankers to decide what works and doesn't.  As we speak the FRB is buying in all the treasury created bonds because private individuals and creditor countries like China, are no longer willing to.  Since the real economy is not willing oracle to put all these paper dollars to work, they are flowing into the stock market and being used to keep the Welfare State afloat.  Now sooner or later this game has to stop.  That day will come when the markets assert themselves and force the governments to retrench, balance their accounts and act like real businesses coin the real world.

FDR: Sowing the Seeds of Chaos

When FDR Got the Gold

The long-lasting imprint from FDR’s famous “Hundred Days” did not stem from the bank holiday, national industrial recovery act, the farm adjustment act, the Tennessee Valley Authority, or the public works administration.

Instead, it is lodged in the footnotes of standard histories; namely, FDR’s April 1933 order confiscating every ounce of gold held by private citizens and businesses throughout the United States. Shortly thereafter he also embraced the Thomas Amendment, giving him open-ended authority to drastically reduce the gold content of the dollar; that is, to trash the nation’s currency.

These actions did not constitute merely a belated burial of the “barbarous relic.” In the larger scheme of monetary history, they marked a crucial tipping point. They initiated a process of monetary deformation that led straight to Nixon’s abomination at Camp David, Greenspan’s panic at the time of the 1998 Long-Term Capital Management crisis, and the final destruction of monetary integrity and financial discipline during the BlackBerry Panic of 2008.

The radical nature of this break with the past is underscored by a singular fact virtually unknown in the present era of inflationary central bank money; namely, that the dollar’s gold content had been set at $20.67 per ounce in 1832 and had never been altered. There had been zero net domestic inflation for a century and the dollar’s gold value in international commerce had never varied except during war.

The Thomas Amendment nullified this rock-solid monetary foundation and instead permitted the president on his own whim to cut the dollar’s gold content by up to 50 percent. So doing, it signaled that money would no longer exist fixed, immutable, and outside the machinations of the state, but would now be an artifact of its whims and expedients.

It was a shocking deviation from FDR’s own repeated campaign pledges to preserve “sound money at all hazards” and contradicted the pro–gold standard views of even his own party’s mainstream. Likewise, the removal of gold from circulation entirely had never before been seriously proposed, not even by William Jennings Bryan, the populist Democrat presidential candidate best known for his “Cross of Gold” speech.

Self-evidently, bank notes and checkbook money had long been a more convenient means of payment than gold coins, but the function of gold was financial discipline, not hand-to-hand circulation. Redeemability of bank notes and deposits gave the people an ultimate check on the monetary depredations of the state and its central banking branch. Indeed, the public’s freedom to dump its everyday money in favor of gold coins and bullion was what kept official currency and bank money honest.

At the time, however, the shell-shocked nation—even the conservative opposition—scarcely understood that the Rubicon had been crossed. The most notable clarion call, in fact, came from Lewis Douglas, FDR’s own budget director and key economic advisor. Hearing on April 18, 1933, of the president’s intention to endorse the Thomas Amendment, Douglas famously declared, “This is the end of western civilization.”

Douglas was at least eighty years premature with respect to timing but his sense of the implication was profoundly correct. In one fell swoop, FDR’s capricious actions launched the Democrats down the road to a government-manufactured currency and a purely national form of money.

It thereby repudiated the internationalist hard-money stand of the 1932 Democratic platform, the pro–gold standard candidacies of Al Smith in 1928, John Davis in 1924, and the James Cox—Franklin Roosevelt ticket of 1920. It also nullified the pro-gold principles of Carter Glass and the Democratic majority that had instituted the Federal Reserve Act in 1913 and the Cleveland, Jackson, and Jefferson Democrats who had gone before.

In short, amid the atmosphere of public fear and alarm from his self-inflicted banking crisis, and owing to his willful insouciance in single-handedly scrapping the nation’s deep and bipartisan gold standard tradition, FDR essentially parted the waters of monetary history. Until June 1933, virtually everyone believed that gold-redeemable money was the foundation of capitalism, yet within months such convictions had gone stone-cold dormant.

It would, of course, take time for the resulting monetary vacuum to be filled by an aggrandizing central bank and a credit-money-based financial system cut loose from the discipline of gold. In the interim, the Great Depression quashed inflationary expectations and speculative instincts for decades to come, and produced a generation of conservative commercial and central bankers who earnestly attempted to replicate its discipline.

Nevertheless, it was only a matter of circumstances before the policy vacuum was filled by less wholesome propensities. Eventually, Nixonian cynicism and Professor Milton Friedman’s alluring but dangerously naïve doctrines of floating exchange rates and the quantity theory of money picked up where FDR left off. Notwithstanding Friedman’s aura of intellectual respectability, Nixon’s crass political maneuvers amounted to a primitive economic nationalism that harkened back to the worst of the disaster that FDR had first sown in the 1930s.

FDR’S London Conference Bombshell: The End of the Liberal International Order

After Roosevelt effectively suspended convertibility in the bastion of the world gold standard, money was essentially nationalized. Most of the world’s major economies, including the United States’s, retreated into separate silos of autarky and stagnation, which in turn bred ultra-nationalism, rearmament, and finally world war. But this outcome was not inevitable.

To be sure, the survival of a liberal international economic order had been in doubt throughout the 1920s, as the world struggled to repair the inflationary mayhem of the Great War and resume convertibility of national currencies. Between 1925 and 1928, huge strides toward normalization of exchange rates, capital markets, and trade were accomplished as England, Belgium, Sweden, and even Japan (1930) restored gold standard money.

But all of this tenuous progress had been seriously jeopardized by England’s abandonment in September 1931 of the very gold exchange standard it had spent a decade promoting under the auspices of the League of Nations. So prospects for resumption of the fabulously stable and prosperous pre-1914 liberal international order were hanging by a thread. In this context, historians are agreed that it was FDR who personally delivered the coup de grâce with his famous “bombshell” message to the London Economic Conference in July 1933.

FDR capriciously defied all of his advisors, to the very last man, including the then-chief of his brain trust, Raymond Moley. Flying by the seat of his own pants, he airily dismissed the warnings of his budget director, the brilliant industrialist and financial scholar Lewis Douglas. He also disregarded the firm pro-gold viewpoint of James Warburg, his most senior financial advisor with Wall Street and international finance experience. Moreover, FDR had failed to even solicit the opinion of Senator Carter Glass. Under the circumstances, that was not merely a telling omission; it was damning.

For the better part of three decades, the legendary Virginia senator, also former secretary of the treasury under Woodrow Wilson and principal author of the Federal Reserve Act, had been the Democratic Party’s paragon of authority on matters of money and banking. Glass had been an unwavering proponent of the gold standard and had personally written the 1932 Democratic platform in such a manner as to leave no doubt that the Democrats would not resort to easy money and inflationist expedients.

For several weeks before his March 4 inauguration, Roosevelt pleaded with Glass to become his secretary of the treasury. Yet hardly sixty days after Glass finally refused the job, FDR did not even bother to consult him when launching what were epochal monetary policy actions. In essence, FDR’s April 1933 gold machinations repudiated the life’s work of the very financial statesman he first picked for the single most important job in his government.

Roosevelt’s flip-flopping on Glass and gold was a defining moment. It showed that on the raging economic crisis of the hour, Roosevelt’s insouciance knew no boundaries; he could believe almost any contradiction that came his way.

It thus happened that after the Hundred Days of emergency actions was completed in late June, FDR headed off to vacation on Vincent Astor’s yacht. He sent Moley as his personal emissary to the London conference, which by then had come to be viewed as literally the last hope for retaining an open international trading and monetary order.

The conference had the good fortune that its presiding officer was Secretary of State Cordell Hull. A former Democratic senator from Tennessee and a splendid statesman, Hull had been a staunch advocate of free trade, the gold standard, and an open international economy.

Most of the assembled financial officials, including Hull, recognized that restoration of some semblance of exchange-rate stability was the key to the rest of the conference agenda, especially to rolling back the protectionist trade barriers which were rapidly choking off world trade. The latter had sprung up everywhere after Smoot-Hawley and were being compounded by beggar-thy-neighbor currency manipulation after the sterling-based gold exchange system broke down.

After long and arduous negotiations, the framework for such a monetary stabilization agreement was reached soon after Moley arrived in London. The US delegation, Great Britain, and the French-led gold bloc nations had all managed to find common ground. While Moley had been a strident voice of nationalistic autarky in the Roosevelt inner circle, even he was persuaded by Hull and the British to endorse the tentative internationalist agreement.

The heart of the plan was repegging the dollar to pound exchange rate in a narrow band about 20 percent below the old parity (i.e., at about $4.00 versus $4.86 per pound sterling). From that pivot point, the French franc and other major currencies would be fixed to the dollar.

The significance of this breakthrough cannot be gainsaid. All sides recognized that floating currencies would poison the international trading system, encourage destructive currency speculation, and fuel violent movements of “hot money” among financial centers. The latter would continuously destabilize both national money markets and confidence in the international trading system as a whole.

In one of the great misfortunes of history, however, FDR was literally incommunicado during the hours when a global consensus to reboot the international financial system briefly flickered. Alone on Astor’s luxurious yacht, the Nourmahal,the president had the advice of only his wealthy dilettante chum Vincent Astor and Louis Howe, his butler and glorified White House “secretary.”

When Moley finally found a navy ship to track down the Nourmahal and deliver a radio message outlining the nascent London agreement, Roosevelt, Howe, Astor, and perhaps also the yacht’s captain, as it were, gathered around a kerosene lamp on the deck. There they scribbled out a handwritten response and turned it over to the navy for radio dispatch back to London.

Roosevelt’s message was undoubtedly among the most intemperate, incoherent, and bombastic communiqués ever publicly issued by a US president. It not only stunned the assembled world leaders gathered in London and killed the monetary stabilization agreement on the spot, but it also locked in a destructive worldwide régime of economic nationalism that eventually led to war.

High tariffs and trade subsidies, state-dominated recovery and rearmament programs, and manipulated fiat currencies became universal after the London conference failed. In the months which followed, Sweden, Holland, and France were driven off the gold standard, leaving international financial markets demoralized and chaotic.

At the end of the day, it was only the outbreak of war in 1939–1940 which pulled the world out of the rut of economic nationalism and stagnation to which FDR’s quixotic action had condemned it. It also meant that the domestic economy had now been cut off from its vital export markets, condemning the nation to a halting recovery and to continuous and mostly ineffectual New Deal doctoring that succeeded primarily in planting the seeds of welfare state expansion and crony capitalism.

Roosevelt’s deplorable action from the deck of the Nourmahal tends to be dismissed by historians as a forgivable bad hair day early in the reign of the economic-savior president. In fact, it was the very opposite: FDR’s single-handed sabotage of the London conference was one bookend of a thirty-eight-year epoch. The other end was bounded by Richard Nixon’s equally impudent destruction of Bretton Woods in August 1971.

In each case the modus operandi was the same. Both Roosevelt and Nixon were aggressive politicians who lacked any enduring convictions about economic policy. Neither had any compunction at all, however, about using the taxing, spending, regulatory, and money-printing powers of the state to achieve their domestic political and electoral objectives. In the great scheme of modern financial history FDR and Tricky Dick were peas in a statist pod.

Copyright © 2013 David Stockman. Used with the author's permission.

David Stockman was director of the Office of Management and Budget under President Ronald Reagan, serving from 1981 until August 1985. He was the youngest cabinet member in the 20th century. See David Stockman's article archives.