The Boston Globe takes a look at how Lawrence Summers screwed up Harvard before being promoted to running White House economic policy. Link via Mankiw.

"Albany should emulate New York City's public financing of campaigns, which promotes competition and lessens the corrupting influence of special interests," the New York Times advises in an editorial this morning. How's that "public financing of campaigns" working out for New York City? Well, it's hard to credit the law with promoting competition when, as this article notes, "Over the past two decades, incumbent New York City Council members have enjoyed a 97.5 percent rate of re-election." And it's hard to credit the law with countering corruption, when, as this article reports, the council "for years used slush funds, stowed in the names of fictional organizations, to sidestep budget rules and bestow political favors. That was followed by indictments, first of two Council aides, who later pleaded guilty to embezzling city funds designated for a nonprofit group." And, as Henry Stern of New York Civic points out, "public funds have been used by sure losers to promote themselves or their private businesses or law practices. Or, worse yet, to employ their relatives to work in their campaigns on the taxpayer's dime. Both winners and losers have found public finance a way to put campaign workers on salary who would otherwise be volunteers. Technically, public funds cannot be used to hire relatives. They get around that by using funds they raised privately to pay their loved ones, and the public funds are then freed to use for other purposes. Sure winners have abused public financing, printing more literature than they can use, buying unnecessary advertising to get favorable treatment in the press, sending sound trucks around to blare their names to the neighborhood, sometimes at unseemly hours, on behalf of a politician who has been an incumbent for many years and is in no danger of defeat. In many cases, public funding is little more than a racket, with both sides operating to scam the city treasury." What, you may wonder, has this to do with the future of capitalism? It's another example of government spending programs competing with private activity, and of such programs failing to achieve their stated goals while instead opening themselves up to abuse. The pattern of distorted incentives and government waste and use of taxpayer funds to support cronies is similar, whether it is the politicians who are being subsidized through the public campaign finance system that the Times holds up as a model, or whether it is subsidies for automakers, for farmers, or for banks.

Gordon Crovitz, who is both brilliant and a friend, has a column in Monday's Wall Street Journal on the very hot topic of the leaked emails of climate change scientists, which makes the scientific peer review process look political and closed-minded. He asks, "Why are scholars who review papers allowed to remain anonymous?" Earlier in the paper, he notes that the emails were "released by an apparent whistle-blower who used the name 'FOI.'" One question Mr. Crovitz does not address is the apparent contradiction in decrying the abuses that peer reviewers commit under the protection of anonymity while at the same time reveling in the disclosures of those abuses, disclosures made possible by a whistleblower operating under the protection of anonymity.

In today's New York Times, Paul Krugman endorses a Tobin Tax on financial transactions (FutureOfCapitalism.com readers read about it here first on Wednesday) as "part of the process of shrinking our bloated financial sector." How's that process going? Well, even without a Tobin Tax, employment in the financial sector, which includes insurance and real estate, has shrunk to 7.697 million, down from a peak of 8.362 million in December 2006. That's a loss of 665,000 jobs. Each of those lost jobs has a human impact. The question for Mr. Krugman (he doesn't answer it in the column) is how many hundreds of thousands, or millions, more jobs would he like the financial sector to lose before it is no longer "bloated" in his estimation? And, some follow up questions: How is it possible for a politician or a regulator to know whether a sector is "bloated" or not, and to impose taxes on the sector just until the point at which the sector is no longer bloated? Would this assessment be made for all industries that make up the American economy -- newspaper columnists? Ivy League economics departments? -- or just politically unpopular industries? And why would such an assessment by a regulator or a politician be more accurate or effective than the aggregated wisdom of the individual choices and decisions that make up the overall economy? Right-sizing, in other words, has a way of happening on its own without a lot of help from politicians. What's more, it'd be particularly ironic if the same politicians who, through the Troubled Asset Relief Program and the TGLP, tried to protect the bloated financial sector, turned around and then imposed a tax with the aim of shrinking that same sector. Better to have no bailouts and no Tobin Tax than to have a Tobin Tax imposed to try to undo the effects of the bailouts.

Karl Rove, the White House aide to President Bush, has an op-ed in the Wall Street Journal predicting that voter anger over government deficit spending is going to hurt the Democrats and help the Republicans. He, of all people, should know; during the Bush administration the government went from a budget surplus of 2.4% of GDP in 2000 to a deficit of 3.2% of GDP in 2008. Granted, there was a war on, and the Democrats controlled Congress for some of this period, and, granted, a deficit of 3.2% of GDP is small compared to the deficit of 12.9% of GDP estimated for 2009. Even so, Mr. Rove's failure to deal with the Bush administration's record on this front, even in a sentence or two, strikes at least this reader as a strange omission. Even another senior Bush administration aide, Keith Hennessey, acknowledged, "In early January CBO estimated a deficit for FY 2009 of 8.3% of GDP. Most of that was because of the TARP. That 8.3% is a genuinely 'inherited' problem that is not President Obama's 'fault.'" The rest of Mr. Hennessey's post went on to blame the Obama administration for overestimating how much of the deficit problem is attributable to the Bush administration, but the key point is right there; attributable to Bush, the country swung from a surplus of 2.4% of GDP to a deficit of 8.3% of GDP. As George Melloan says, "What transpired under a Republican administration, albeit with a Democratic Congress, in the second half of 2008 will discredit Republican claims to be for small government for years to come." And as Daniel Henninger says, "the American voter is absolutely, totally, unremittingly disgusted with both political parties."

As Americans prepare to celebrate a Thanksgiving holiday that marks the harvest of some of the first European immigrants to America, they may want to settle in with some reading appropriate for the day. A good choice would be Immigrant, Inc.: Why Immigrant Entrepreneurs Are Driving the New Economy (and How They Will Save the American Worker) (FTC-mandated disclosure: I got a free review copy and if you buy the book via the Amazon link on this page FutureOfCapitalism.com gets a small revenue share). Written by an immigration lawyer, Richard Herman, and an immigration reporter, Robert Smith, from Cleveland, Ohio, the book is full of enlightening statistics and inspiring stories of immigrant success.

House Democrats Peter DeFazio of Oregon and Ed Perlmutter of Colorado are readying a bill under which "the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax," the Hill reports. The paper says that half of the $150 billion in tax revenue raised would go toward reducing the deficit, while the other half would be spent on things such as highways with the aim of creating jobs. The legislation is called the "Let Wall Street Pay for the Restoration of Main Street Act of 2009." Notice that the tax as described would not apply to Treasury Bills or to municipal bonds. George Melloan had a piece in yesterday's Wall Street Journal noticing the way that the Federal Reserve is forcing banks to buy more T-Bills in the name of reducing risk, describing it as "feeding the government and starving free enterprise." The interest on government bonds is already tax-exempt; imposing the DeFazio-Perlmutter tax would even further tilt the playing field for investors away from investing in the equity of private companies and toward enabling federal, state, and local government debt-financed spending. The politicians, in other words, are readying a tax that will make it even easier for them to borrow and spend. The Hill article says that Speaker Pelosi "said such a move would need to be done in conjunction with efforts in other countries." At least she realizes that otherwise, the tax would just force trading activities that now take place in New York to move overseas, making the $150 billion revenue estimate an overly optimistic one.

The Manhattan Institute's Steven Malanga has thoughts based on Nathaniel Philbrick's book: "As Philbrick describes it, after three years in America the Pilgrims 'stumbled on the power of capitalism' and in the process ensured the colony's survival."

The folks at Saturday Night Live are at it again, taking aim at President Obama. Here's the latest: a mock press conference between the president of China and President Obama. The Chinese president notes that America owes China $800 billion and asks, "Are we going to get our money?" About the stimulus, the Chinese president asks, "How many jobs has it created?" The question alone prompts audience laughter. The "Obama" character answers, "So far, none." The Chinese president asks, "How exactly is extending health care coverage to 30 million people going to save money?" The Obama character answers, "I don't know." The Chinese president says, "Each of your plans to save money involves spending even more money. This does not inspire confidence." Then he says, "I suppose if I really wanted to get my money, I could call and say I was a Wall Street banker who needs my bonus. But I would not stoop to that level." No wonder GE is selling NBC to Comcast; if this keeps up, Jeffrey Immelt may not count on getting invited to the next White House state dinner, and that corporate strategy and ad campaign about how GE means "stimulus" and "government" may not work out so well. Nor will the company necessarily be able to rely on Timothy Geithner's public promise that the government will never allow GE to fail.

The Associated Press has a nice feature on Gene Dattel and his book Cotton and Race in the Making of America, which was reviewed here back on November 12.

The New York Times sends a reporter to consumer debt court in Brooklyn and finds a judge holding bankers up to ridicule for charging 29% interest rates. The judge is identified as Noach Dear: "John Gotti must be looking down and smiling," Judge Dear said. "Even he wouldn't have the chutzpah to charge that interest." The Times doesn't offer any further identification of Judge Dear, but the Village Voice has his number in a 2007 article that reported, among other things, that the state attorney general ordered him to repay charitable funds that he used to pay for first-class airfare to Israel for his family; that he accepted an Apartheid-era trip to South Africa funded by the whites-only Johannesburg City Council; that he "stiffed suppliers to a kosher restaurant of which he was an owner" when the restaurant went bankrupt; and that he left investors who had invested $170,000 in the restaurant in the lurch. That this same Mr. Dear is now sitting as a judge in debt court is a kind of chutzpah in its own right, albeit one upon which the Times does not remark. The rest of the Times article is devoted to a discussion of an effort to revive prohibitions on usury. One can see why the Times would support such an effort; it's paying 14.053% interest to Carlos Slim at a time when 30 year mortgages are 5% and two-year Treasury yields are less than 1%. Less clear is why Judith Trachtenberg of Congregation B'nai Jeshurun on Manhattan's Upper West Side would join the anti-usury campaign, as the Times reports she has, given that efforts to enforce laws against usury drive have historically been rooted in Christian animosity toward Jewish money lenders, who in medieval times regularly charged interest of 33% or more. But that's another matter.

Senator Schumer has sent a letter to the secretary of agriculture complaining "Dairy farmers in New York and across the country have been suffering from a crisis of extreme low milk prices throughout the year." He announed the letter with a press release referring to the "unprecedented dairy crisis." Yet for Mr. Schumer, a milk price crisis isn't unprecedented; it's almost as regular as a trip to the corner store. As this New York Sun editorial pointed out, Mr. Schumer issued another press release complaining about low milk prices back in 2003; back then, he wrote, "It boggles the mind that USDA could just decide to disregard the law, and let milk prices plummet." When Mr. Schumer isn't complaining about low milk prices, he is complaining about high ones; the Sun editorial reports that back in 2004, he sent the Justice Department a letter asking it to protect consumers from milk prices that had increased 23% over the course of almost a year. It's another example of what we'd call the arrogance of central planning; the Harvard College, Harvard Law School educated Mr. Schumer thinks he knows what the price of milk should be, and that with the right enforcement and subsidies from government agencies, he can set the price at a level so that no dairy farms go out of business and no consumers have to pay more than the minimum necessary to keep all the dairy farms in business. If Mr. Schumer's static view of the economy held sway, we'd all still be getting up at dawn to milk cows. In fact, the reason Mr. Schumer keeps having to send out alarmist press releases about milk prices is that government efforts to set prices never work as well as the self-correcting, supply-and-demand mechanism of the free market.

Senator Schumer is denouncing Adidas for deciding to make NBA game jerseys in Thailand instead of in New York: "It is flat wrong for Adidas to move the production of jerseys worn by NBA players outside the United States...Adidas must do the right thing and reverse this decision, and continue to produce all these jerseys domestically... To do anything else is an insult to the American worker and sports fans everywhere in America." What a classic example of arrogance by a politician. What's next, a requirement that all the suits worn by executives at TARP-recipient banks be made in America? That all the scrubs worn by surgeons accepting Medicare reimbursements be made in America? If all our trading partners imposed similar requirements, wouldn't that have an adverse affect on American exports? And what about all those foreigners playing in the NBA? Are they insults to American basketball players, robbing jobs from American workers? Mr. Schumer has never been a free trader, as this New York Sun editorial points out. For the senator of an international city like New York that has benefited enormously from free trade back to its early days as a port to display this kind of nativist protectionism is pretty amazing, and telling. If Mr. Schumer's static view of the economy held sway, we'd all still be working in garment factories on the Lower East Side. The 100 jobs in upstate New York are visible. The benefits we all get from an economy where firms and individuals are free to make decisions on where to obtain goods without arbitrary political interference are harder to quantify but they are nonetheless real.

"Experience is the best teacher, but the tuition is high," is a proverb that Mark Perry recently cited in another context. It comes to mind as a reader brings to my attention a press release from the Securities and Exchange Commission announcing that Gregg Berman had been named a "senior policy advisor" in the SEC's new Division of Risk, Strategy, and Financial Innovation. Mr. Berman's background? As this New York Times Magazine article from before Mr. Berman was named to the SEC job explains, Mr. Berman was a founding partner of RiskMetrics, which specialized in the Value at Risk, or VaR, model that failed in some significant ways in the financial crisis. The Times article quotes Nicholas Nassim Taleb describing the RiskMetrics firm as "intellectual charlatans."

David Brooks has a column in the New York Times this morning about health care. Besides making it clear where he stands on taxes ("the Democrats have admirably agreed to raise taxes," he writes) the article says that if the proposed health care overhaul passes Congress, "more of the nation's wealth would be siphoned off from productive uses and shifted into a still wasteful health care system." This strikes me as a false dichotomy. If a drug company or a doctor finds a cure or a treatment for cancer or some other debilitating or deadly disease, isn't that "productive"? Wasn't the invention of magnetic resonance imaging productive? If you can extend someone's life, that gives that person more years to be productive. Medical advances such as in vitro fertilization make it possible for couples who might have been infertile to create children who will grow up to be productive entrepreneurs or taxpayers. The idea that just because something is health care means that it is therefore "unproductive" just doesn't make sense. Sure, there's waste in the health care system. But there's waste in lots of other sectors of the economy, too. Some nurses who are busy changing bandages on AIDS patients this morning may think that it's wasteful to spend money on diamonds or fur coats or Rolls-Royce automobiles or meals at restaurants fancy enough to rate a review in the Times food section. Is what the nurse is doing more wasteful than what the diamond merchant or furrier or Rolls-Royce dealer is doing? Never mind the fact that some of the "waste" in the American health care system may be a result of the fact that the government already controls 45% of health care spending. The obsession with rooting out "waste" is something that Amity Shlaes spoke of the other night in her Hayek Lecture as a characteristic of New Deal-era arrogance and central planning. The communists used to complain it was wasteful to have all those different brands of breakfast cereal in America when all anyone really needed was one. Think of all the supermarket shelf space and advertising dollars that could be saved! No one is in favor of wasting the government's money. But in capitalism, what can sometimes look like waste is actually competition, or prosperity, or free choice. (Update: Even the usually dependable Greg Mankiw thinks Mr. Brooks "gets it right.")