The Deep Mystery Of Why Venezuela Is Failing

Last week in a post on the death spiral that is Venezuela's economy, I linked to a New York Times front page article ("Dying Infants And No Medicine") that described the disastrous state of that nation's healthcare facilities.  What I failed to mention was the usual cluelessness of Pravda in analyzing the causes of Venezuela's economic crisis.  In a lengthy article of several thousand words, here is all they say about how Venezuela came to its present economic extreme:

This nation has the largest oil reserves in the world, yet the government saved little money for hard times when oil prices were high. Now that prices have collapsed — they are around a third what they were in 2014 — the consequences are casting a destructive shadow across the country. Lines for food, long a feature of life in Venezuela, now erupt into looting. The bolívar, the country’s currency, is nearly worthless.  The crisis is aggravated by a political feud between Venezuela’s leftists, who control the presidency, and their rivals in congress.

Aha -- now we know!  The Venezuelans somehow forgot to "save money" when oil prices were high!  And now there's a "political feud" to boot!  The concept that Venezuela explicitly and aggressively pursued socialism and that that might have something to do with the problem -- that concept appears nowhere in the article.

If you think it is impossible to top the New York Times for economic cluelessness, I recommend to you this article from last week in Time magazine, "These 5 Facts Explain Why Venezuela Could Be on the Brink of Collapse."   OK, they say they are going to explain why Venezuela is in this mess.  Surely, they won't be able to do that without at least mentioning socialism?  Wrong!  Here's the entire text under the heading of "How Venezuela Got Here":

As Hemingway would say, Venezuela went bankrupt gradually, then suddenly. For years, the country has been deeply dependent on its vast oil reserves, which account for 96 percent of export earnings and nearly half its federal budget. That was manageable when oil was selling at more than $100 dollars a barrel. Venezuela has budgeted for oil at $40 per barrel for years now, but instead of saving the surplus when prices were higher, much of this emergency oil fund was either spent or stolen. Venezuela would now need oil prices to reach $121 per barrel to balance its budget—instead, they’re hovering around $50. Damage to Venezuela’s economy has been exacerbated by drought. About 65 percent of the country’s electricity is generated by a single hydroelectric dam that’s now in serious trouble.

Basically, it's the same non-explanation that we were fed by Pravda -- they failed to "save[] the surplus when prices were higher."  Oh, and of course Time adds in that there has been a big "drought."  Could the people at Time really be this dumb?  

Funny, but the economy of Texas is also heavily reliant on the oil business.  Texas has experienced the same decline in the price of oil as has Venezuela.  So how's the Texas economy doing?  Here's a brand new report out from Texas A&M University, with data through March 2016, well into the oil price decline.  A fair summary is that because of the oil price decline, the economy of Texas has gone from booming growth to much slower growth, with small negatives in some indicators.  For example, "real total private hourly earnings" were down 1.5% from March 2015 to March 2016; but the total number of jobs in the state was up over the same period, and the unemployment rate remained well below the U.S. national average (4.6% versus 5.0%).  Oh, and Texas had a huge drought from about 2010 to 2014.  Its economy boomed throughout that period.  

And of course, it's not just Texas.  Countries or states with high reliance on oil but a market economy do just fine when the price of oil declines.  Places like Norway and Canada come to mind; even Mexico!  Really, Time and the Times, can't you look around for some explanation that is even plausible?

Actually, the Time article above links to a prior effort in the same publication from December 2015, titled "These 5 Facts Explain Why Venezuela Is In Big Trouble -- Still."  It's unbelievable, but again there is no mention at all of socialism and its effects.  Fact #2 that "explains" why Venezuela is in "big trouble" is headed "Woeful Economy":

Let’s start with the economy, which is on course to contract by 10 percent this year. Venezuela must pay back $15.8 billion in debt between now and the end of 2016, but the country only has $15.2 billion in foreign reserves to make good on that. 7.3 percent of Venezuelan households are classified as living in “extreme poverty.” Working for the minimum wage in Venezuela means you can only afford a week’s worth of groceries per month—40 percent of people working in Venezuela make the minimum wage or less.  Come 2016, the country is projected to have an 18.1 percent unemployment rate. Inflation this year has already reached a staggering 159 percent; Venezuelans have taken to using their country’s currency as napkins. The only thing worse than not having the money to buy food and basic goods? Having the money and finding bare shelves in the supermarket.

Got that?  The economy is bad because the economy is bad!  Thank God we have read Time to find that out!  In case you're curious, the other four "facts" that "explain" why Venezuela is in big trouble are: #1 - "election fallout" (it's the "political feud" referred to by the Times); #3 - "petro-state in a cheap oil age"; #4 - "crime and no punishment"; and #5 - "a little help from my friends" (i.e., Venezuela over-borrowed during the good times and now the debt is coming due).  What about things like massive nationalizations, seizing businesses, price controls, currency controls, blowout government spending, redistributionism, and all the other elements of socialism?  Somehow, those things completely escape Time's notice.

So, if you are wondering how millions of young people can think Bernie Sanders and his policies are just fine, now you know.  Why would anyone associate the disaster in Venezuela with socialism? 


Supreme Court Justice Comes Out For "Forced Labor"

Something called the American Law Institute held its annual meeting this past week in Washington.  Haven't heard of them?  That's why they're dangerous.  The ALI is a group largely consisting of legal academics (watch out!) that purports to put out various model codes, and also to summarize the common law of things like contracts and torts in big multivolume works called "Restatements," all for the supposed edification of legislatures and judges.  But being the bunch of lefty academics that they are, these guys can't resist any opportunity to try to sneak the latest campus fad into the law.  This year that took the form of an attempt to put a so-called "affirmative consent" rule as to sexual conduct into the ALI's model penal code.  It would have been big news if the proposal had passed, but on Tuesday it actually got voted down.  In case you think that the ALI may actually have been overcome by good sense, don't forget that this proposal is very likely to be back next year, and again the year after, and so on.

But even as what had looked to be the big piece of news out of the conference fizzled, along came Supreme Court Justice Sonia Sotomayor to shake things up.  In a Q&A session, as reported in the National Law Journal here, ALI director and recent-past NYU Law Dean Richard Revesz asked Sotomayor what should be done about the "dearth of legal services for low-income individuals."  Here is how the NLJ reported her response:

“I believe in forced labor” when it comes to improving access to justice for the poor, she said during an appearance at the American Law Institute’s annual meeting in Washington. “If I had my way, I would make pro bono service a requirement.” . . .  [P]rofessional and ethical duties require [pro bono service], Sotomayor insisted. “It has to become part of their being,” she said.

You probably know that most of the Supreme Court Justices don't get out and do a lot of public speaking, and now you can see why.  It only took Ms. Sotomayor a couple of sentences to give you a thoroughly revealing picture of how the mind of the left-wing jurist works.  Let's analyze. 

Start with Dean Revesz's question about the "dearth" of legal services for the poor.  The existence of a desperate shortage of legal services for the poor is a total article of faith among the great and the good of the legal profession -- for example, among the leaders of organizations like the American Bar Association and the New York City Bar.  But is there really such a "dearth"?  It should not escape our notice that, according to the leaders of the legal profession, in spending scarce public funds to assist the poor, the government's highest priority should be to spend the money -- not on the poor themselves, but -- on lawyers!  There's more than a little reason for skepticism.

Well, what is the evidence (if any) of this huge shortage?  Look around a little and you will find that the most cited "studies" supporting the proposition of a terrible shortage of legal services for the poor are two reports put out by the federal Legal Services Corporation, in 2005 and 2009, the second co-sponsored by none other than the ABA.  Yes, the LSC is the federal agency that collects money from Congress and dispenses it to grantees to provide legal services to the poor.  In other words, these two "reports" from LSC are nothing more than the usual federal agency self-servingly seeking more money for itself.  Only in the most high-minded terms, of course (we need to provide "equal access to justice" and end the "justice gap"!).  And the methodology?  They went around the country asking their own people how much "unmet need" was out there.

Perhaps we should ask the relevant question:  If the idea is that legal services are to be provided to the poor at no charge to the recipient in a socialist "to each according to his needs" model, is there any chance that there will ever be no "unmet need"?  Of course not.  This is really the same as asking when there will be enough food to go around in Venezuela.  Demand for free stuff always exceeds the supply, and government efforts to meet the demand with other people's money always fall short.  That's the essence of socialism.

But of course Justice Sotomayor did not push back on the premise of the question.  Questioning the necessity of unlimited free legal services for the poor is just not something that is done in the polite circles where she circulates, including the ALI.   And then, with the premise accepted, it takes Sotomayor all of the blink of an eye to go right past "we need more of the infinite free government money" and get to "forced labor" as the answer.  If the lawyers aren't providing voluntarily and for free all the services that anyone without resources might want, then they must be forced to do it.  Hey, it's only fair!

Am I the only one who finds it a little odd that someone who is supposedly on the front lines of protecting the rights of the citizenry found in the U.S. Constitution would see no problem in advocating for "forced labor" (her term)?  Granted, since the abolition of slavery after the Civil War, not a lot of cases come up under the 13th Amendment ("Neither slavery nor involuntary servitude . . . shall exist within the United States . . . ."); still, the terms of that Amendment are rather clear and definitive.  (Ilya Somin of George Mason Law School has a lengthy post here on the details of the jurisprudence under the 13th Amendment.  For example, there was the military draft -- but you did get paid if you were drafted and served.)  But I would have little doubt that a Breyer or a Ginsburg or a Kagan would see eye to eye with Sotomayor on this one.    

Make no mistake, the world of legal "pro bono" as currently practiced is very much a project of the progressive left, in which they would like all potential dissenters to be forced to participate.  There is much legitimate pro bono work.  For example, defense of people charged with crimes, and with their freedoms at stake, is an area where nearly all would agree that the indigent should have free representation.  But in fact almost all representation of the indigent in criminal matters is done by lawyers paid by the government.  The large majority of what goes under the banner of "pro bono" is about other things, mostly civil.  A very very large proportion consists of chasing the government itself for various handouts and entitlements that, it turns out, may not be so easy to collect on.  Another big area of pro bono at my old law firm was representing tenants in rent-regulated buildings against landlords seeking to evict them.  The underlying philosophy is that the best way to "help" the poor is to navigate them through the legal labyrinth so that they can get more benefits, entitlements, and handouts.  In the big picture, this is the way the government keeps the poor poor.   Does this cause really justify forced labor?    

The Devastation Of New York City's Economy

A big theme in the current election cycle is the plight of the workers and the towns that have seen their factories close and their jobs move elsewhere, often to China or Mexico.  I have written about some of these towns on this blog, including Galesburg, Illinois here, and Van Wert, Ohio here.  On a larger scale, Detroit and Cleveland could also be cited.  Appealing to the displaced workers left behind in such towns is a focus of the campaigns of all of the remaining presidential contenders.

But I would argue that, over the course of my lifetime, no town has seen its economy devastated to nearly the extent that the economy of New York City has been devastated.

But wait a minute, you say -- isn't New York City's economy doing rather well these days?  I didn't say that it wasn't.  What I said was that New York City's economy has been devastated, and devastated more than the economy of just about any other town, over the course of my lifetime.  Do you think there is something inconsistent between an economy being devastated and the same economy doing rather well?  If so, why?  I don't think there is any inconsistency.  Indeed, I would say that for an economy to be doing well thirty or fifty years from now, a nearly essential pre-condition is that it get thoroughly devastated on an ongoing basis between now and then.  You may not want the devastation to happen all at once, but you definitely want it to happen.

Let us consider the extent of the devastation of the New York City economy over the course of the past 60 years or so.  If you are not familiar with this story, it is a real eye-opener.

  • According to the story linked above, in 2004 Galesburg, IL, lost its biggest employer, a Maytag factory, to Mexico.  Really?  Let's talk about real devastation: manufacturing in New York City.  In the 1950s there were around one million manufacturing jobs in this city.  This New York Times article from 2000 gives a figure of 37,000 manufacturing businesses in New York City in the aftermath of World War II.  An article here from 1993 by Samuel Ehrenhalt in the Monthly Labor Review traces some of the intervening history.  By 1980 the number of manufacturing jobs in NYC had shrunk by around half, to about 500,000.  By 1991 it was 184,000.  Today it's about 70,000.  This decline is not one lousy factory, it's thousands upon thousands of companies, completely wiped out.  The iconic New York City manufacturing industry was lady's apparel.  Have you ever seen one of those pictures of the rows and rows of women in a New York City garment center loft hunched over their sewing machines making clothing for the world?  Ehrenhalt gives figures of 231,000 such jobs in New York City in 1966, and 84,000 in 1991.  (And of course he talks about how important it is for these jobs to be "preserved"; they weren't.)  ABC News here gives a number under 20,000 for 2011, and without doubt it's even lower today.  The remaining apparel manufacturing in New York today is for very specialized things like Broadway show costumes.  Believe me, nothing in your wardrobe was made in New York City.  Undoubtedly, most of your clothes were made in places like China and Mexico, if not Thailand, Sri Lanka or Bengladesh.
  • If there's one thing that New York City is known for in the world it's having the world's most spectacular port.  The port is the reason the City is here.  The New York Times article linked above gives a figure of 400,000 jobs in New York City in the 1940s and 50s in "port-dependent" businesses, including 14,000 sailors and deckhands, 36,000 longshoremen, 40,000 in port-related trucking and warehouse operations, 30,000 in ship construction and repair, and so forth.  Try even to find any of that today.  There are no piers handling freight at all in Manhattan, and only the most minimal amount in Brooklyn and Queens.  Such ocean freight operations as continue to exist in the region are in New Jersey, and highly automated at that.  The number of "port-dependent" jobs in the City is at best 5% of what the number was at its peak.
  • How about "wholesale trade"?  According to a chart in Ehrenhalt's article, that was the single largest industry category of employment in New York City in 1960, with 315,000 employees.  By 1991, "wholesale trade" didn't even make it into the top ten industries, and employed fewer than 90,000.  Believe me, it hasn't come back.  Hey, we "cut out the middleman"!
  • Surely retail is an industry that New York City continues to be known for.  People from all over the world come here to shop, and the iconic New York City retail institution is the big department store.  Stores like B. Altman, Gimbels, Bonwit Teller, Best & Co., Arnold Constable, Abraham & Strauss (Brooklyn) and Gertz (Queens) are well-known names.  Oh, they're all gone.  Today we're basically down to four full-scale department stores, but actually two of them are part of one company (Macy's and Bloomingdale's) and the other two are part of one other company (Lord & Taylor's and Saks), so it's really only two; and both are struggling to hang on amid big sales declines attributed to the growth of internet retailing.
  • But what about headquarters of major companies?  When Fortune first started putting out the 500 list in the 50s, about a quarter of those top companies had their headquarters in New York.  By 2012 it was down to 43 (and most of them are different companies).  And in many cases it was the biggest and most prominent companies with the biggest staffs that picked up and moved.  Take the oil industry.  Here is a New York Times summary of the relocation of that industry out of New York in the 70s and 80s.  In the mid-80s Exxon had its headquarters and some 4000 employees in a gigantic office building on 6th Avenue that was part of the Rockefeller Center complex.  In 1987 they picked up and moved to Texas.  Mobil (then a different company from Exxon) had an almost-as-big building and staff on 42nd Street across from Grand Central.  In the same 1987 they moved to Virginia.  Texaco occupied a big chunk of the Chrysler Building, another huge building next to Grand Central.  They moved to Westchester in 1977 (and later merged with Chevron and went to California).  Shell went in stages in the 70s and 80s to Houston.  The big office building at 70 Pine Street in the financial district was built as the headquarters of the Cities Service company, later Citgo.  They got bought by the government of Venezuela in the 80s, and we know where that has gone since.  Citgo had moved out of 70 Pine Street even before that, and today that building is undergoing a residential conversion.  As just one example in the non-oil category, AT&T (then the dominant monopoly national operator of land-line phone service) in the late 70s contracted to build a fancy new headquarters at 550 Madison Avenue.  Here is a history of that building at Wikipedia.  AT&T hadn't even finished the building when in 1982 they were forced by the government to divest all their regional operating companies and downsize drastically.  They never even completely moved in, and began transferring operations to New Jersey and subleasing the space, mostly to Sony.  By the 90s AT&T was long gone, and the building was known as the Sony building.  Sony was then flying high, but in the intervening 20 years Sony has also hit hard times and has gradually downsized.  Today there is talk of 550 Madison also undergoing residential conversion, although most recently it seems that those plans may be shelved.  AT&T?  They are very largely a mobil phone company and are based in Dallas.
  • Surely the big investment banks are and always have been the backbone of the New York economy?  Actually, prior to 2008 there were five of them (Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns).  Three of the five promptly went broke.  Only GS and MS survived largely intact.  Bear Stearns mostly disappeared, with some pieces picked up by Chase; Lehman also mostly went away, although substantial pieces got bought by Barclays; and Merrill Lynch did the best of the three, largely bought by Bank of America.  Lots and lots of people got laid off.

Whew!  Is there anything at all left intact of the New York City economy from 60 years ago? Really, not much at all.  And I challenge the people of any other city or town in this country to show that their economy has been more devastated than ours.

But yes, the economy is doing rather well.  The number of jobs in the City hit 3,720,600 in the latest (March) figures from the New York State Department of Labor.  This is a record high number since anyone started keeping track.  The unemployment rate was a very-respectable 5.5%, and the labor force participation rate (16+) was 58.2% (which is a few points behind the national average, but a substantial uptick for the City over recent years).

And thank God that all those old terrible jobs were wiped out!  There would have been no one to take the new and much better jobs!  Those hundreds of thousands of women hunched over their sewing machines made minimum wage back when the minimum wage was barely $1 per hour.  Yes, not every newly-created job pays more than every job that was lost, but overall the newly-created jobs are far, far better.  Not only do they pay better overall, but there is much, much less hard physical labor and there are far more comfortable working environments. 

So what the heck are all the new jobs?  Certainly, I could give lots of examples.  "Business services" is a general description of the kinds of things that people do who work in office buildings -- things like accounting, auditing, law, advertising, consulting, publishing.  There's a huge "tech" sector that didn't exist at all 20 years ago and was only getting started 10 years ago; and that sector consists of hundreds of companies doing wildly different things.  The hot new thing in the office market is for an entrepreneur to set up a few floors of an office building as "shared space" and sublet units to dozens of small and start-up companies.  Indeed, that's the kind of place where I have my office.  Oh, there's also a big government and healthcare sector (much bigger than I think appropriate).

But the real question is, does it even matter what all the companies are that hire all the people?   It's almost a certainty that by 60 years from now the large majority of them will be gone.  So what?  If you want to have a successful economy 60 years from now, the only thing that really matters is the new companies that get created between now and then.  That's how it works.  Look at what has happened to the New York City economy over the last 60 years, and ask yourself if you would really have wanted a government using its coercive powers to somehow force the "preservation" of all the old jobs and prevent the moving to China and other foreign countries of what really were the very worst and lowest-wage jobs.  This, of course, is what all of our presidential candidates are proposing.


Venezuela Is Showing How The Socialist Death Spiral Works

The basic principle is actually very simple:  Given freedom to buy and sell stuff without government restriction (a situation sometimes referred to as "capitalism"), each year humans figure out small ways to work a little more efficiently or make their product or service a little better in order to improve their own lives.  This phenomenon is observed as economic growth.  Conversely, under conditions where buying and selling stuff is severely restricted and government controls who gets what, people devote their energies not to working more efficiently or making better products, but rather to getting in on more and more of the government largesse.  In the sectors of the economy dominated by government restrictions and handouts, economic production shrinks, first a little, and then faster and faster.  I have called this phenomenon the "Socialist Death Spiral."

But it is important to recognize that the Socialist Death Spiral is difficult to spot in its early stages, when all you have to go by are government-produced numbers.  All government statistics, in all countries, are designed and engineered to favor government spending in order to make those in power look good and help them grow their spending empires.  All government spending on goods and services is counted as a one-hundred-cents-on-the-dollar addition to GDP.  So if the government borrows a billion dollars and spends it on a completely wasteful and useless project (solar panels for Buffalo anyone?), the GDP accountants count that as a one billion dollar increase in GDP.  This kind of thing can keep GDP apparently growing for a long time, even as it is really shrinking.  Then one day the whole house of cards collapses. 

In Venezuela strongman Hugo Chavez came to power in 1999.  He embarked on a long list of explicitly socialist programs:  nationalizing many formerly privately-owned businesses (the remainder of the oil industry, telecoms, utilities, cement, etc., etc.); extensive price controls and subsidies for widely-used consumer products; massive government spending on public housing; currency and exchange controls; hiring lots more government employees; etc., etc.  And how did that go?  At first it seemed as if all was going well, at least if you believed the government numbers.  From an article by Oscar Raul Cardosa in 2006:

Chavez stepped on the gas for his social reforms — education, healthcare, etc – and also in regard to breaking down the country’s excessive concentrations of wealth. ...  Chavez presided over economic growth of nine per cent in 2005 and ... the first quarter of 2006. Above all, however, he has achieved a 6.3 per cent effective reduction of poverty, after taking over a country whose vast majority — 80 per cent — was perched between poverty and squalor.

To his credit, Cardosa does recognize that Chavez may have been helped by the good luck of rising oil prices during his early years in power; but Cardosa shows no skepticism at all as to whether the government numbers were accurate or honest.  Move a few years later, and Venezuela was still managing to keep up the image of success, even as skeptics were asking whether it could really be possible.  Try this article from Salon as late as 2013, titled "Hugo Chavez's Economic Miracle" (you can't make this stuff up):

[A]s shown by some of the most significant indicators, Chavez racked up an economic record that a legacy-obsessed American president could only dream of achieving.  For instance, according to data compiled by the UK Guardian, Chavez’s first decade in office saw Venezuelan GDP more than double and both infant mortality and unemployment almost halved. Then there is a remarkable graph from the World Bank that shows that under Chavez’s brand of socialism, poverty in Venezuela plummeted (the Guardian reports that its “extreme poverty” rate fell from 23.4 percent in 1999 to 8.5 percent just a decade later).  In all, that left the country with the third lowest poverty rate in Latin America.  Additionally, as Weisbrot points out, “college enrollment has more than doubled, millions of people have access to health care for the first time and the number of people eligible for public pensions has quadrupled.

Of course, that was all right before the bottom fell out.  I particularly like the line in the Salon article about "infant mortality" being "halved."  The lead front-page story in today's New York Times gives us an update on that.  The article is titled, "Dying Infants and No Medicine: Inside Venezuela's Failing Hospitals."  Here's how the article starts:

By morning, three newborns were already dead.  The day had begun with the usual hazards: chronic shortages of antibiotics, intravenous solutions, even food. Then a blackout swept over the city, shutting down the respirators in the maternity ward.  Doctors kept ailing infants alive by pumping air into their lungs by hand for hours. By nightfall, four more newborns had died.

What, are you telling me that socialism can't completely fix infant mortality, let alone make all human existence perfectly just and fair?  Read on in the article and you find that the rate of deaths among babies less than a month old has recently multiplied by a factor of one hundred, going from 0.02% to 2% between just 2012 and 2015.  And that was before the recent electricity and food crises!  And then there's this description of the general economic situation in the country today:

The economic crisis in this country has exploded into a public health emergency, claiming the lives of untold numbers of Venezuelans. It is just part of a larger unraveling here that has become so severe it has prompted President Nicolás Maduro to impose a state of emergency and has raised fears of a government collapse. . . .  Lines for food, long a feature of life in Venezuela, now erupt into looting. The bolívar, the country’s currency, is nearly worthless.

And meanwhile, from Europe, comes news that at least a few people over there are beginning to recognize the problem of the Socialist Death Spiral -- although I haven't seen anyone but me use that term yet.  In a letter published yesterday in Britain's Telegraph newspaper, some 300 corporate CEO's have decided to buck trendy establishment opinion and advocate for the UK's exit from the EU.  The reason:  the stagnation brought about by the bureaucratic EU model:

Year-on-year the EU buys less from Britain because its economies are stagnant and millions of people are unemployed. According to Mervyn King, the former governor of the Bank of England, the euro “might explode”.  Brussels’ red tape stifles every one of Britain’s 5.4 million businesses, even though only a small minority actually trade with the EU.  It is business – not government – which generates wealth for the Treasury and jobs for our communities. Outside the EU, British business will be free to grow faster, expand into new markets and create more jobs. It’s time to vote leave and take back control.

Amen.  Are you listening, Bernie Sanders?  In Europe, government spending in most countries is around 50% of GDP.  In round numbers, that means that only half the economy is growing, and fully half is very likely shrinking (although not reflected in the official government numbers).  And then there are the big spenders with government spending in excess of 50% of GDP -- the likes of Greece, Italy, and even France.  Their official numbers show stagnation, but the likely reality is that if you could accurately take account of the (larger) shrinking sector of the economy, and net it against the (smaller) growing sector, you would have net shrinkage. If past experience is any guide, when the crisis comes, it will hit all at once.

We have a world sadly lacking in examples of the opposite economic strategy, but one comes today from the Economics21 branch of the Manhattan Institute.  It is Latvia.  In an article titled "Latvia's Free Market Success Story," Preston Cooper shows that from 1995 to 2015 Latvia's per capita GDP has almost tripled, from about $8000 to almost $23,000.  How did they do it?

Latvia followed the exact opposite of the Krugman-Keynesian prescription. The nation maintained its currency peg and cut government spending instead of increasing it. The medicine worked: with broad public support, Latvia abolished half of its government agencies and cut the state workforce by 30 percent, according to Åslund and Dombrovskis. Coupled with regulatory and education reform, this downsizing galvanized the private sector and brought the country roaring back.

I would be as skeptical of Latvia's numbers as anyone else's.  But notice that these guys actually cut government spending and the size of government, which eliminates the principal fraud of faking economic growth by counting government spending as a full addition to GDP.  There's a very good chance that this one is real.

Another Day In Government Metastasization

When you get right down to it, our federal Constitution isn't really very complicated.  The government as a whole has only such powers as are defined by a limited list (Article I, Section 8), and even those powers are exercised by three branches having separate functions.  "All legislative Powers" are "vested in a Congress" (Article I, Section 1); "[t]he executive Power" is "vested in a President" (Article II, Section 1); and "[t]he judicial Power" is vested in "one supreme Court and in such inferior Courts as Congress may from time to time ordain and establish" (Article III, Section 1).  And then there's the so-called "power of the purse," located in Article I, Section 9: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law. . . ."

Or you can go with the alternative view, which is that there's a vast administrative state out there, some of it kind of reporting to the President and some not, and they can just do whatever the hell they want.  After all, they're the experts, and they know much better than the mere people what is best for them.  Today this second view has been adopted by around 98% of the legal academy, as well as by four of the current eight justices of the Supreme Court.  (Soon to be five?  We'll see.)

But, you ask, the Constitution is right there for all to see and is so simple in its structure and commands; is it really so easy just to evade it entirely?  The answer is that today the world of legal and constitutional scholarship is characterized by such a pervasive and powerful groupthink that it is no longer necessary to make arguments that even pass the proverbial "straight-face test."  Of course the agencies have to be able to do whatever they want!  Otherwise all hell will break loose!  (Or something like that.)

For today's first example, consider the decision today from the federal District Court for the District of Columbia (Judge Rosemary Collyer) in United States House of Representatives v. Burwell.  I cannot find a copy of the full text of the decision online, but here are reports from The Hill and from Fox News.  This is the case where Republicans in the House have sued the executive to enjoin it from spending unappropriated money to pay to health insurance companies to save them from incurring big losses under Obamacare.  Oh, the government has gone right ahead and spent some tens of billions of dollars on this purpose over the past few years, even though there has been no appropriation of money for the purpose by the Congress.  

But what about Article I, Section 9 of the Constitution?  The government claimed that the appropriation could be found in Section 1402 of the Obamacare act, but here is that section, and you can look for yourself -- there's no appropriation there.  Lacking any helpful text in the statute, the government then argued that the appropriation could be "inferred," outside the text of the law.  How?  Because without the appropriation the law just wouldn't "work" as intended, or something like that.  From Judge Collyer's opinion:

Such an appropriation cannot be inferred.  None of Secretaries’ extra-textual arguments — whether based on economics, ‘unintended’ results, or legislative history — is persuasive.  

As you can see from this, the government's argument really was not very much different from "we have to be able to do whatever we want, or else all hell will break loose."

You probably are now wondering how press secretary Josh Earnest could possibly spin this one.  Here:

This suit represents the first time in our nation's history that Congress has been permitted to sue the executive branch over a disagreement about how to interpret a statute.

OK, but is there any other prior example of a President just going ahead and spending tens of billions of dollars of unappropriated money in defiance of the Constitution?  And is this President's position really that he can just do whatever the hell he wants and spend whatever unappropriated money he wants, in the face of Article I, Section 9, and there's nothing that anybody can do about it?  Earnest did not answer those questions.

But Judge Collyer is just one lonely District Judge, and a GW Bush appointee at that.  It will be a couple of years before we see how her decision fares in the DC Circuit (now firmly in control of Obama appointees) and then the Supreme Court.  Oh, and meanwhile, this being the government, the injunction granted by Judge Collyer does not take effect, and the government gets to just go ahead and spend tens of billions more of unappropriated money while we wait for the final decision.  If you were trustee of a trust and you spent money like this, when you lost in the end you would have to refund it all personally.  Don't count on that happening to Mr. Obama when this saga ends.

And further in the category of "the government can do whatever the hell it wants," we have the famous doctrine known as "Chevron deference."  This doctrine, arising out of a 1984 Supreme Court decision by that name, says that the courts should in nearly all cases go along with the interpretation of a statute put forth by the federal agency that is applying the statute.  I guess the doctrine looked like a good idea to the Supreme Court at the time, especially as we were heading into the era of impossibly-complex multi-hundred-page statutes.  After all, the agencies are the experts!  They are neutral and a-political, and not at all out for their own aggrandizement!  Right?  Somehow it never occurred to the naifs at the Supreme Court that every single "interpretation" of a statute by an agency will turn out to be in the direction of increasing the agency's power and prerogatives.  And how to reconcile the Chevron doctrine with the fact that interpretation of statutes is the very core of the judicial power, vested in the courts, and not the agencies, by the Constitution?  You will not find that question addressed in the Chevron decision.

So you'll be glad to learn that the Harvard Law Review is just out with a major piece by Harvard Professor Adrian Vermeule explaining to all why it just doesn't make sense to have any approach to administrative law other than that agencies get to interpret their own statutes and further, to set their own procedures for adjudicating cases.  (Wait -- adjudicating cases?  Isn't "the" judicial power of the United States vested in the Article III courts?  Oh, you are so naive!)  Excerpt:

[D]evelopments in the law since Mathews was decided in 1976 support a reduced due process role for courts. Those developments include: (1) the “very basic tenet of administrative law that agencies should be free to fashion their own rules of procedure,” announced by the Supreme Court in Vermont Yankee, two years after Mathews, and recently reaffirmed in Perez v. Mortgage Bankers; (2) the watershed of Chevron, decided in 1984, and its key premises that, on grounds of both expertise and accountability, agencies are better positioned than courts to interpret governing statutes; (3) the growing body of caselaw that affords agencies Chevron deference even on procedural provisions in organic statutes — a body of caselaw that has witnessed agencies taking charge of the Mathews calculus, and that squarely rejects due process counterarguments.

The article goes on for 40 pages or so, but you get the gist:  agencies can do whatever the hell they want.  You might think that the Constitution or their statute constrains them, but then they get to "interpret" their statute (always in favor of themselves and against you), and then they get to try the case before their own in-house judge, and then they get to set the procedures in that case, and then when you lose your first appeal is within the agency itself, and then your second appeal is also within the agency itself, and then you finally get an appeal to the court, but it will give deference to the agency on everything from what the statute means to the procedures to the factual findings against you made by an employee of the agency.  In what way is this meaningfully different from "the agency can do whatever the hell it wants"?  Well, thank God we have big-time Harvard professors like Vermuele to explain to all the little people why this is all just fine!

UPDATE, May 13:  John Hinderaker at PowerLine posts a link to Judge Collyer's opinion here.