Patterico's Pontifications


Blaming Hagel?

Filed under: General — Dana @ 7:45 pm

[guest post by Dana]

In the messy aftermath of the release of Bowe Bergdahl in exchange for five Taliban detainees, it would appear the White House is looking for a fall guy. And they may have found him.

As the fallout grows over the controversial Taliban prisoner swap, White House officials are emphasizing that Defense Secretary Chuck Hagel was the one who “signed off” on the deal — a move one Republican lawmaker suggested is an effort to shift blame.

“I hope they’re not just pushing him out to be a fall guy for this,” Rep. Buck McKeon, R-Calif., told Fox News.

According to a congressional source, Deputy National Security Adviser Tony Blinken refused to answer directly when asked point-blank during a briefing with House lawmakers Monday evening who made the call.

The source said Rep. Tom Cotton, R-Ark., asked the question. Blinken would only respond by saying: “Secretary Hagel signed off on it.”

That comment is not necessarily a revelation. By law, the secretary of Defense is required to sign documents approving detainee transfers.

McKeon noted the White House is stressing Hagel’s role, though, following intense controversy over the trade of five Taliban members held at Guantanamo Bay for Sgt. Bowe Bergdahl. He noted that he “didn’t see Secretary Hagel” on TV when President Obama first announced the release alongside Bergdahl’s parents in the Rose Garden.

“It sounded like it was a presidential program all the way,” McKeon said. “Now that there’s been a little pushback … they said Secretary Hagel [made the call].”

McKeon added: “I think people understand who made this decision. This goes right to the top — or maybe we don’t know who’s in charge of the White House.”


Asked Tuesday to clarify who made the final call, White House spokesman Josh Earnest gave a multipronged response.

He said it is the commander-in-chief’s responsibility to make sure no servicemember is left behind. Asked again whether Obama approved the swap, Earnest pointed to the president’s role in reviewing security concerns about releasing the five Gitmo detainees.

“The president determined that … that threat to our national security had been sufficiently mitigated,” he said. “That was something that the secretary of Defense also certified. But … that was also the widespread, unanimous agreement of the president’s national security team.”


The Free Market Is the Best Thing That Ever Happened to Poor People

Filed under: General — Patterico @ 7:43 am

The standard narrative in this country is that lefty theories of Big Government serve the poor, and that opponents of Big Government are out to help the rich.

This narrative has it exactly backwards. Big Government protects Big Business while the free market improves the lot of the poor.

Tom Woods recently wrote a wide-ranging response to a speech by a lefty Catholic cardinal. The cardinal had droned on about inequality and Piketty and such nonsense. Woods provides one killer argument after another showing how the free market improves society and helps the poor. Here is one of my favorite passages from Woods’s piece:

The vast majority of the progress that has been made against poverty in the world occurred without violence. The statistics are there for everyone to see: as economic liberalization spread throughout the world, poverty declined. In 1820, 85 percent of the world’s population was living in “extreme poverty.” That had fallen to 50 percent by 1950, 33 percent by the early 1980s, and 18 percent by the beginning of the twenty-first century. As I have explained in The Church and the Market and elsewhere, this is the natural outcome of the extension of the market economy and the division of labor. Shake your fist at reality all you like, but the only way to increase the overall standard of living is to leave the private sector alone to increase the amount of capital per worker.

In the United States, poverty had been falling consistently until the federal government’s war on poverty took shape. But over the past 50 years, that progress has come to a halt: the poverty rate has fallen so negligibly as to be statistically insignificant.

In the United States, the purchasing power of the lowest quintile of income earners increased by 15 to 20 times over the course of the twentieth century. When we look at the figures from 2011, the American poor—not the American public in general, but the American poor—97.8 percent had refrigerators, 96.6 percent had gas or electric stoves, 96.1 percent had televisions, 93.2 percent had microwave ovens, 83 percent had DVR capability, 80.9 percent had cell phones in addition to land lines, and 58.2 percent had computers.

People living in poverty today live better than the kings and queens of several hundred years ago. This did not come about because of government. It happened because of the free market. Government did not invent the light bulb, or give poor people in harsh areas access to climate control. Government did not invent the car, the plane, or the communications devices that spread ideas throughout the globe. The free market did that.

The free market has made it possible for people to do more with less. The free market is why people in the United States do not starve. The free market brought us all the wonders mentioned by Woods, and more.

Meanwhile, Big Business runs to Big Government every time someone comes up with a new innovation, and lobbies government to pass new laws and regulations to protect the existing businesses. Why do you think businesses hire lobbyists? To do away with regulations? In some cases, yes — but in many cases, business actually asks government to enact new regulations that make it hard for newcomers to enter the market.

Again: the standard narrative has this backwards. To some extent, the battle over the size of government is indeed a battle between the 47% and the 1%. But the truth is, the 1% run to government for help, while the free market improves the lot of the 47%.

Proponents of liberty and the free market need to stop acting defensive about their ideas. Liberty and the free market benefit everybody — but they especially benefit the poor.

Consumer Spending Is Not the Most Important Part of the Economy — Why Paul Krugman’s Love of GDP Is Wrong, Part Two

Filed under: GDP,General — Patterico @ 6:00 am

As I mentioned yesterday, I am spending time this week attacking GDP as the ultimate benchmark for measuring the strength of the economy. Yesterday, in Part One of the series, I noted that GDP includes government spending even though government spending does not necessarily benefit consumers.

Today, I want to address another problem with GDP: it overemphasizes consumer spending to the detriment of capital investment.

I am going to give you the same video I showed you yesterday, featuring Austrian economist Jeff Herbener, interviewed by Tom Woods. If you are short on time, skip to 4:55, where Prof. Herbener notes that GDP indicates only the value of the final goods and services produced.

GDP is generally defined as the market value of the final products of an economy, including goods and services. But GDP does not measure all economic production. There is an entire production process that goes into the production of any good, whether it be a consumer good or a capital good. This does not get included in the calculation.

For example, when a car is sold, the price of the car is included in GDP. Economists do not include, for example, the cost of the steps in the production process that provide the building blocks for the car — such as the mining of iron ore, the production of steel, or the machinery and computer modeling that serve to transform that steel into the skeleton of an automobile.

The reason is that the final price of the car is thought to represent the cost of all stages of production of the automobile, ideally together with a profit for the company. If one counted the value of the production process and the cost of the car, it is said, that would represent “double counting” of the costs of the production process.

That’s fine if your only goal is to learn the final value of the good. But leaving the production process out of the equation, and including only purchases of final goods and services, distorts the significance of the total. That’s because eliminating the work that goes into making the product gives an outsized significance to the act of purchasing that final product. As Professor Herbener has elsewhere explained:

If all one is interested in determining the the dollar value of all that has been produced in the economy, then, counting the steel, and other parts of the car along with the car would be double counting. But the dollar value of what has been produced in an economy is, perhaps, the least interesting thing we could know about it.

If we really want to understand an economy, we have to know how all the different resources people have get allocated into all the different production processes. The monetary value of all production tells us nothing about this.

. . . .

When we trace back the production of consumer goods to their sources, then, we see that the amount of demand entrepreneurs have for all the producer goods necessary to make some consumer good far outweigh the demand consumers have for it. In other words, the far greater portion of production in an economy is of producer goods, which is explained by entrepreneurial demands, which results in investment spending. Consumer demands and consumption spending are a far smaller portion of all demands and total spending and the production of consumer goods is a smaller portion of the production across the entire economy.

By excluding the cost of production processes from GDP, economists overemphasize the importance of consumer spending. Based on measures of GDP, we are told that consumer spending is 70% of the economy, and that investment is only 15% or even as little as 10%. But that is radically wrong. That may be true when it comes to the value of the final goods. But those goods did not come out of nowhere. They had to be produced.

Tom Woods recently interviewed an economist named Tim Delmastro who successfully lobbied the government to provide a number called “gross output.” This number measures spending at all stages of production — a concept central to Austrian economics. As Delmastro notes in the interview, the GDP number consists of consumer spending (70%) and government spending (20%) with business investment coming up as a distant third. This misleads people into thinking that increasing consumer spending is the most important thing to do in the economy. But when you measure “gross output” and get a more accurate picture of the economy, you learn that consumer spending is only about 30 to 40% of the economy, while business investment is actually over 50% of the economy. (The “gross output” number is actually quite poor under Obama, by the way. Shockingly.)

At 8:21 in the video below, Woods makes the killer point that drives this point home: we are always told we need more consumer spending. If we followed that advice and took it to its logical conclusion, everyone who receives money for a good or service should just go spend it on consumption. As Woods says:

But meanwhile, people are told, or are under the impression, that what we need is more consumer spending. Spend spend spend spend. But if we followed that advice . . . to a “T,” and everybody, as soon as he got money, just spent it on another consumer good . . . let’s say you buy ten gallons of milk from me, and I take that money and I buy a shirt, and the shirt guy buys a hat, and the hat guy buys a gallon of gas . . . then no wages get paid [and] all the production structure we just described grinds to a complete halt. But that would be Nirvana, because you have all the consumption you want!


Tomorrow, in part three of the series, we identify the basic problem with GDP. Namely: it does not measure what we should be most interested in when we study economics: how to allocate scarce resources. See you then.

P.S. Once again: if you choose to sign up for Woods’s “Liberty Classroom” to learn more about concepts like this, please do so though this link. Do yourself a favor and at least check out Woods’s free samples to see what you think.

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