In my last post I discussed the philosophy of liberty and why government becomes tyrannical when it exceeds the bounds of individual rights delegated to it by the free individuals that make up society. I presented a video clip that explores these concepts. I suspect that most of those that viewed the video clip found some things with which they agree and some things with which they disagree.
The video clip begins with the statement that no one has a higher claim on your life than you do. It goes on from this to suggest that the only obligation an individual has to society is to play fair and to engage in no fraud at any level. Consequently, this means that government’s main duty is to ensure a level playing field and to ensure that everyone plays fair. Engineering the outcome of the play is entirely outside the scope of government’s role.
I think, however, that most people don’t fully buy into this concept. All of us are who we are and have what we have partially due to the efforts of others, including many that have long since passed on. Moreover, some of our property is derived from accessing common resources, such as air, water, and roads. So, do individuals have other societal obligations? If so, what are those obligations?
This is a topic upon which a variety of viewpoints exist, seemingly along a sliding scale with pure individual liberty (the individual owes the group only fairness) at one end and total collectivism (the group owns the individual) at the other. Relatively few people think matters rest fully at one end or the other. Most people think that a balance exists at some point on the scale. But where is that point? It is about this that most of our political, legislative, and judicial contests are fought.
Most people agree that individuals have rights that the collective cannot infringe upon. But there are vast disagreements about what those rights are. Most people agree that individuals have certain obligations to the collective, but there are many disagreements about what those obligations are.
Is the individual required to sacrifice his life should the collective determine that a draft is required to conscript soldiers for war? Or must it be a “just war”? And who is the arbiter of whether a war is just or not?
Is the individual required to sacrifice personal property to subsidize other less propertied members of society? Who gets to say what benefits are subsidized, who is considered worthy of the subsidy, and how much the subsidizing individual is required to pay? The reverse side of this applies as well. Do I have a right to be generous enough to vote benefits for the less fortunate from my neighbor’s bank account?
Hearkening back to my Nov. 1 post, do I have a right to require that my neighbors help cover my expenses? What if I get more than half of my neighbors to say that the top earners in my neighborhood must help cover my expenses? What if I get a judge to require my higher-earning neighbors to help cover my expenses? Does that make it right?
Do I have a right to require my neighbors to enter into a collective insurance pool so that I and others can more easily afford medical care? What if 51% of the people in the neighborhood so vote? Does this make it right to force the other 49% to join us in this insurance pool?
What if I want a sports stadium? Is it morally right for me to force my neighbors to help pay for it, even if they never use it? I can argue that it’s good for the community. So, what if I can get more than half of my neighbors to vote that everyone must support such a stadium? Does that make it morally right? If this is OK for a sports stadium, is there anything that the majority cannot morally require the minority to do? Where does the line get drawn?
Since structure fires threaten surrounding properties, can 51% of the people in the community require everyone to minimize fire hazards? To what extent? Specification of storage methods of hazardous fluids? Requiring the installation and maintenance of ceiling sprinklers? Outlawing smoking in even privately owned buildings, since many house fires result from smoking products being dropped on furnishings?
As collective funding of medical treatments becomes more pervasive, does the collective have a right to proscribe certain higher risk behaviors? If so, which ones? Where does the line get drawn?
As you can see, when you start getting into real life issues, matters become far less clear. Moreover, the slippery slope argument becomes more apparent. If individuals can virtuously be coerced by the masses or even by the minority, is there any point on the scale that must never be crossed? If so, where is that point? At what point does collective coercion stop being virtuous and begin to be oppression?
As we slide through the gray areas, it becomes increasingly difficult to determine where tyranny begins. It is so easy to look at what we assume to be unfair outcomes and then force behaviors we assume will produce more fair outcomes. In our support of such coercion, we work so hard to clothe our arguments in facades of virtue that we become oblivious to our own tyranny. We deny that tyranny exists. Like all tyrants throughout time, we claim that we are only doing what is in the best interest of all and we minimize the sacrifices we require.
Unfortunately, tyranny changes those that wield it, no matter how virtuous may be their cause. They unavoidably become oppressors, even if they have the best of intentions. And as such, they act like tyrants.
It is one thing for people to be required to abide by agreements into which they freely enter. It is quite another thing to force behaviors based upon an ill-defined, constantly shifting social contract to which the parties have never fully agreed. The difference between free choice and tyranny is vast. But in my conversations with people, it seems that few can clearly draw this distinction, or else they do it selectively to support their views.
If we do not fully subscribe to the viewpoint presented in the video clip linked in my last post — if we feel that individuals have obligations to society beyond just playing fair — where is the line that collective obligations become tyranny? To deny that such a line exists is to admit that you have TDS (tyrant denial syndrome). How do we keep from crossing this line?
Monday, November 03, 2008
Why Government Must Be Limited
In my last post, I explored the topic of tyranny of the masses. This has often been the downfall to democratic societies throughout history. It is due to this that some anticipated the eventual failure of the American experiment at its outset.
In a society where you have “government of the people, by the people, for the people” (see Lincoln’s Gettysburg Address), the government possesses no rights except those that are delegated to it by the free individuals that make up the society. Any right the individual does not possess cannot be delegated to the collective government.
This means that government — us collectively as a society — has two strict limitations. First, it has no rights beyond those of the individuals in the society. Second, those rights are limited to those that the individuals in the society have actually delegated to the collective government.
Government simply has no legitimacy beyond these two limitations. Whenever government exceeds these limitations, it engages in tyranny.
For example, the individual does not have the right to murder, but an individual does have a right to protect life and property, even to the extent of taking the life of another in certain situations. An individual does not have a right to rob or steal, but an individual does have a right to require that contract obligations be met. An individual has no right to require that others submit to his/her demands, except as specified under agreements freely entered into.
Likewise, a government does not have a right to murder, but does have a right to protect life and property, extending in some instances to the taking of life. A government does not have a right to rob or steal, but it does have a right to enforce contract obligations. But does government have a right to require others to submit to its demands outside of freewill agreements?
The following 8-minute video clip entitled the Philosophy of Liberty explains the basis and limitations of our individual and group rights.
In my next post I will discuss various disagreements that exist with the world view of the creators of this video.
In a society where you have “government of the people, by the people, for the people” (see Lincoln’s Gettysburg Address), the government possesses no rights except those that are delegated to it by the free individuals that make up the society. Any right the individual does not possess cannot be delegated to the collective government.
This means that government — us collectively as a society — has two strict limitations. First, it has no rights beyond those of the individuals in the society. Second, those rights are limited to those that the individuals in the society have actually delegated to the collective government.
Government simply has no legitimacy beyond these two limitations. Whenever government exceeds these limitations, it engages in tyranny.
For example, the individual does not have the right to murder, but an individual does have a right to protect life and property, even to the extent of taking the life of another in certain situations. An individual does not have a right to rob or steal, but an individual does have a right to require that contract obligations be met. An individual has no right to require that others submit to his/her demands, except as specified under agreements freely entered into.
Likewise, a government does not have a right to murder, but does have a right to protect life and property, extending in some instances to the taking of life. A government does not have a right to rob or steal, but it does have a right to enforce contract obligations. But does government have a right to require others to submit to its demands outside of freewill agreements?
The following 8-minute video clip entitled the Philosophy of Liberty explains the basis and limitations of our individual and group rights.
In my next post I will discuss various disagreements that exist with the world view of the creators of this video.
Saturday, November 01, 2008
Masses of Tyrants
A free society cannot exist on majority rule alone. There must be factors that counter the unbridled will of the majority — the majority must be held in check — or else tyranny will reign.
Whether tyranny is wielded by few or by many, those that live under its yoke are oppressed and held in bondage to some extent. In fact, there is an advantage to having a single great tyrant at the helm. For, if he can be deposed, the system of tyranny will fall with him. The situation is similar when tyranny is wielded by a small group. But when masses themselves exercise undue control over others, the oppressed have little recourse.
Consider the slaves in the antebellum South. Though their population in some states eventually exceeded the number of non-slaves, the power of the free masses in slave states sustained the system of human bondage. Even the Supreme Court went along. This system proved so difficult to overcome that a war was waged, followed by a century of official oppression.
Consider the Americans that were imprisoned in Japanese internment camps during WWII. The Supreme Court later ruled the exclusion process constitutional. Due to fear induced by Japan’s attack on the U.S., most Americans in 1942 were generally supportive of the policy. But none of this mitigates the immorality of the action.
In both of these cases, the number of people that supported the oppression did not change the fact that tyranny and injustice were being exercised. In both cases, Supreme Court rulings supporting the policies did not alter the fact that these policies were despotic and immoral. In both cases, the masses supported despotism.
The tyranny of the masses is so difficult to overcome because no single person considers himself or herself a tyrant. Many are merely supportive of a despotic system. Often they have very good reasons for such support, sometimes even couched in altruistic terms. Even when the individual questions such policies, they usually feel powerless to do much about it in the face of massive support.
The following scripture (D&C 121:39) applies just as much to groups and masses as it does to individuals:
Democratic societies where the masses become de facto despots ultimately fail. They often begin with noble aims in mind. While they appeal to the individual senses of altruism, loyalty, and patriotism, they eventually come to find that coercion is required due to a lack of sufficient willingness or enthusiasm on the part of some. The noncompliant are labeled enemies of the state and are punished.
By and by, increasing levels of coercion are required to ensure compliance and to co-opt the masses. The result is that gradually, increasingly ruthless elements are drawn into leadership and enforcement positions. This trajectory eventually leads to a dictatorship, whether it takes a few years or many decades. Even if the masses willingly fawn over and worship the dictator and his court, it does not mean that they have a free society.
I have often expressed my gratitude for living in a free country. But what does freedom mean? How can the majority in a free and democratic society become tyrants? I’ll explore these topics in future posts.
Whether tyranny is wielded by few or by many, those that live under its yoke are oppressed and held in bondage to some extent. In fact, there is an advantage to having a single great tyrant at the helm. For, if he can be deposed, the system of tyranny will fall with him. The situation is similar when tyranny is wielded by a small group. But when masses themselves exercise undue control over others, the oppressed have little recourse.
Consider the slaves in the antebellum South. Though their population in some states eventually exceeded the number of non-slaves, the power of the free masses in slave states sustained the system of human bondage. Even the Supreme Court went along. This system proved so difficult to overcome that a war was waged, followed by a century of official oppression.
Consider the Americans that were imprisoned in Japanese internment camps during WWII. The Supreme Court later ruled the exclusion process constitutional. Due to fear induced by Japan’s attack on the U.S., most Americans in 1942 were generally supportive of the policy. But none of this mitigates the immorality of the action.
In both of these cases, the number of people that supported the oppression did not change the fact that tyranny and injustice were being exercised. In both cases, Supreme Court rulings supporting the policies did not alter the fact that these policies were despotic and immoral. In both cases, the masses supported despotism.
The tyranny of the masses is so difficult to overcome because no single person considers himself or herself a tyrant. Many are merely supportive of a despotic system. Often they have very good reasons for such support, sometimes even couched in altruistic terms. Even when the individual questions such policies, they usually feel powerless to do much about it in the face of massive support.
The following scripture (D&C 121:39) applies just as much to groups and masses as it does to individuals:
We have learned by sad experience that it is the nature and disposition of almost all men, as soon as they get a little authority, as they suppose, they will immediately begin to exercise unrighteous dominion.For a free society to flourish, it is important that strict limits be placed on what those in power can impose upon other members of the society. In other words, the majority (or even just the majority of those that wield power) do not have a right to do anything they have a mind to do. They do not have a right to oppress others.
Democratic societies where the masses become de facto despots ultimately fail. They often begin with noble aims in mind. While they appeal to the individual senses of altruism, loyalty, and patriotism, they eventually come to find that coercion is required due to a lack of sufficient willingness or enthusiasm on the part of some. The noncompliant are labeled enemies of the state and are punished.
By and by, increasing levels of coercion are required to ensure compliance and to co-opt the masses. The result is that gradually, increasingly ruthless elements are drawn into leadership and enforcement positions. This trajectory eventually leads to a dictatorship, whether it takes a few years or many decades. Even if the masses willingly fawn over and worship the dictator and his court, it does not mean that they have a free society.
I have often expressed my gratitude for living in a free country. But what does freedom mean? How can the majority in a free and democratic society become tyrants? I’ll explore these topics in future posts.
Monday, October 27, 2008
Risk, Rewards, and Competition
In my last post, I mentioned my gratitude for FedEx. I recently read Russell Roberts’ book The Price of Everything. Late in the book Roberts drops the name of Fred Smith, the founder and CEO of FedEx. One of the book’s main characters makes a point that there must be rewards available to encourage people to dream big enough to risk entrepreneurship. Contrasting the U.S. with Cuba, she says (p. 160):
In a comment on my Oct. 24 post, I referred to an interview with Fred Smith. While I don’t agree with everything Smith is reported to have said, I think he has some keen insights on the causes of our current financial debacle. He notes that federal taxes are structured to benefit the financial sector and harm asset-intensive sectors, such as manufacturing. Smith explains how this hurts business, reduces productivity, and limits growth of good jobs. He also suggests that our system encourages over-leveraging by the financial sector.
We didn’t arrive at our current tax structure in a moment and there have been many lobbyists that have influenced tax policy over the years. But it seems that the most popular policies among our political class are specifically designed to exacerbate the problems rather than make them better.
I note that the politicians are experts at putting these policies in pretty packages and promoting them, much like the retailers that are now trying to hawk heavily advertised junk toys for Christmas. I explain to my kids that the toys rarely work as well or bring the kind of satisfaction as portrayed on TV. The same holds true for many tax policies.
Regardless of whether one agrees with Fred Smith’s view of public policy or not, I am grateful that he has dreamt up and developed a business that makes it possible for HP to fix my laptop and have it back on my desk in a few days’ time.
One of the main characters in The Price of Everything is challenged for holding the politically incorrect view that “Wal-Mart is good for America.” She retorts (p. 144), “No, I think the process that produces Wal-Mart is good for America.” When asked if that isn’t the same thing, she says:
But if these firms really are too big to fail, we need to ask precisely how they got that way and what needs to be done to remedy the problem. The anti-competitive regulatory structures that many of these firms have lobbied for need to be corrected. The corporate welfare that protects these firms from competition needs to be stopped. And in case you’re wondering which politicians support this stuff, check out who is receiving masses of campaign donations from these sectors.
If we want more businesses to spring up that better meet our needs and wants, we need to permit rewards. But we also need to foster healthy competition. Unfortunately, that’s not the kind of message we are sending to our politicians nowadays. We want rewards without the risk. This cannot be had in the long term. Pursuit of such a path produces the kind of financial problems we have today, as expertly noted here by celebrated economist Arthur Laffer. It’s time to change this.
“We dream and they don’t. We imagine. We look to the future in a way that lets us plan. We save. We invest. We forego pleasure today for something greater tomorrow and we understand why we’re doing it. Jonas Salk dreams of curing polio or Fred Smith dreams of a way to get a package to someone overnight or Steve Jobs dreams of a way to carry 20,000 songs in your pocket…. And it’s not just the entrepreneurs doing the dreaming. We dream, too. Just to take one example, millions of Americans now try to lead healthier lives than they did in the past. They decide to exercise more and eat better. Think of the enormous range of things that have to happen and that do happen to let those plans and dreams come to reality. New kinds of food in the grocery store. New kinds of grocery stores. New kinds of running shoes and racquetball shoes and walking shoes. New kinds of clothes made of new materials that make sweating more pleasant. New kinds of exercise machines. Videos to go with them. New kinds of bikes. More tennis rackets. New kinds of tennis rackets. People to make all those things and work in all those places making and selling and explaining to people about the new choices that are available. An enormous army of workers and creators springs into action. The plans of all the people who want to eat better and exercise more got matched with the plans of all the entrepreneurs who strove to make money meeting those desires.”There is a good discussion in the book as well about why monetary rewards are essential to this system and why purely altruistic motivations don’t produce these kinds of results. Perhaps I’ll post about this in the future.
In a comment on my Oct. 24 post, I referred to an interview with Fred Smith. While I don’t agree with everything Smith is reported to have said, I think he has some keen insights on the causes of our current financial debacle. He notes that federal taxes are structured to benefit the financial sector and harm asset-intensive sectors, such as manufacturing. Smith explains how this hurts business, reduces productivity, and limits growth of good jobs. He also suggests that our system encourages over-leveraging by the financial sector.
We didn’t arrive at our current tax structure in a moment and there have been many lobbyists that have influenced tax policy over the years. But it seems that the most popular policies among our political class are specifically designed to exacerbate the problems rather than make them better.
I note that the politicians are experts at putting these policies in pretty packages and promoting them, much like the retailers that are now trying to hawk heavily advertised junk toys for Christmas. I explain to my kids that the toys rarely work as well or bring the kind of satisfaction as portrayed on TV. The same holds true for many tax policies.
Regardless of whether one agrees with Fred Smith’s view of public policy or not, I am grateful that he has dreamt up and developed a business that makes it possible for HP to fix my laptop and have it back on my desk in a few days’ time.
One of the main characters in The Price of Everything is challenged for holding the politically incorrect view that “Wal-Mart is good for America.” She retorts (p. 144), “No, I think the process that produces Wal-Mart is good for America.” When asked if that isn’t the same thing, she says:
“Not at all. If Wal-Mart can’t meet its competition’s quality and prices, I want it to go out of business. Which it probably will some day, just like many of its competitors before it.”I would say that, despite the fact that I think FexEx provides a good service, what she says goes for them as well. This character goes on to discuss government rules that require businesses like Wal-Mart to pay their workers more or to provide better benefits for them.
“These ideas, even when they’re well-intentioned, will end up hurting the people you’re trying to help by making it more costly to hire workers. And they’re not always well-intentioned. Most of the impetus for those moves comes from competitors who want to handicap a successful rival. That’s a bad option to offer a company—instead of finding a better way of pleasing your customers, spend your time in Washington or your state capitol trying to convince politicians to give you an artificial advantage.”The recent mantra from Washington and Wall Street has been that government assistance is needed to save financial institutions that are “too big to fail.” The argument is that so many of us rely on these firms that failure would devastate the economy in unacceptable ways. Perhaps it would be more accurate to say that failure of these big firms would devastate the lobbying efforts of these firms and the future prospects of some key politicians.
But if these firms really are too big to fail, we need to ask precisely how they got that way and what needs to be done to remedy the problem. The anti-competitive regulatory structures that many of these firms have lobbied for need to be corrected. The corporate welfare that protects these firms from competition needs to be stopped. And in case you’re wondering which politicians support this stuff, check out who is receiving masses of campaign donations from these sectors.
If we want more businesses to spring up that better meet our needs and wants, we need to permit rewards. But we also need to foster healthy competition. Unfortunately, that’s not the kind of message we are sending to our politicians nowadays. We want rewards without the risk. This cannot be had in the long term. Pursuit of such a path produces the kind of financial problems we have today, as expertly noted here by celebrated economist Arthur Laffer. It’s time to change this.
A Happy Ending to a Hard Drive Crash
Two weeks ago the main hard drive on my laptop computer went belly up. I had just done an operation that required a reboot and when it tried to boot back up the hard drive made a quiet but abnormal clicking noise.
I got a sick feeling in the pit of my stomach. I’ve heard noises like that before, so I wasn’t surprised when I got the black screen saying that the operating system could not be found. I ran out of time to mess with the problem that day. But the following day I was actually able to get the machine to boot one last time. Then it was done.
I got on another of our computers and contacted HP’s tech support via chat. The technician was very thorough and helpful. I performed a battery of procedures per her instructions. She finally said that the machine would need to be sent to HP for repairs. I didn’t want to do that because I can generally repair things of that nature on my own. However I was pleasantly surprised when she insisted that my machine was still under warranty, despite my protestations that it was 20 months old.
When I got home from work on Thursday, I found a box containing packing materials and instructions that had been shipped via FedEx. I put the laptop in the perfectly-fitted packaging, taped the box shut, and applied the supplied pre-printed FedEx label. I looked on the FedEx website, found the nearest drop off point, and drove there. Since it was late in the day, I was informed that the package wouldn’t ship until the following day.
I had a tracking number, but I was busy that weekend and didn’t bother to check it. Imagine my surprise when I returned from work on Tuesday to discover a notice stating that FedEx had tried to deliver my repaired laptop. I contacted HP by chat on a Tuesday evening and could have gotten my repaired laptop back the following Tuesday afternoon. I was favorably impressed.
The only problem was that HP required a responsible person at our address to sign for the computer and the FedEx guy came by when nobody could be at home. After we received another notice on Wednesday, my wife called the FedEx office on Thursday to see if they could bring it by earlier in the day. Consequently, I spent a lot of time this past weekend restoring my laptop.
I have learned a few things from this episode. HP’s support performed superbly in this instance. I am grateful for the efficiency of FedEx. It’s important to keep current backups of essential data. I was a few weeks behind on my backups, so I have ended up having to restore some things from hardcopies.
I had been using Mozilla Firefox, but my two older sons prevailed on me to try Google Chrome when I was restoring my computer. I like Firefox and I have no complaints about it. But I must say that I like Google Chrome better. This is a subjective view, of course.
I’m just glad to have my computer back on my desk and working again.
I got a sick feeling in the pit of my stomach. I’ve heard noises like that before, so I wasn’t surprised when I got the black screen saying that the operating system could not be found. I ran out of time to mess with the problem that day. But the following day I was actually able to get the machine to boot one last time. Then it was done.
I got on another of our computers and contacted HP’s tech support via chat. The technician was very thorough and helpful. I performed a battery of procedures per her instructions. She finally said that the machine would need to be sent to HP for repairs. I didn’t want to do that because I can generally repair things of that nature on my own. However I was pleasantly surprised when she insisted that my machine was still under warranty, despite my protestations that it was 20 months old.
When I got home from work on Thursday, I found a box containing packing materials and instructions that had been shipped via FedEx. I put the laptop in the perfectly-fitted packaging, taped the box shut, and applied the supplied pre-printed FedEx label. I looked on the FedEx website, found the nearest drop off point, and drove there. Since it was late in the day, I was informed that the package wouldn’t ship until the following day.
I had a tracking number, but I was busy that weekend and didn’t bother to check it. Imagine my surprise when I returned from work on Tuesday to discover a notice stating that FedEx had tried to deliver my repaired laptop. I contacted HP by chat on a Tuesday evening and could have gotten my repaired laptop back the following Tuesday afternoon. I was favorably impressed.
The only problem was that HP required a responsible person at our address to sign for the computer and the FedEx guy came by when nobody could be at home. After we received another notice on Wednesday, my wife called the FedEx office on Thursday to see if they could bring it by earlier in the day. Consequently, I spent a lot of time this past weekend restoring my laptop.
I have learned a few things from this episode. HP’s support performed superbly in this instance. I am grateful for the efficiency of FedEx. It’s important to keep current backups of essential data. I was a few weeks behind on my backups, so I have ended up having to restore some things from hardcopies.
I had been using Mozilla Firefox, but my two older sons prevailed on me to try Google Chrome when I was restoring my computer. I like Firefox and I have no complaints about it. But I must say that I like Google Chrome better. This is a subjective view, of course.
I’m just glad to have my computer back on my desk and working again.
Friday, October 24, 2008
The Federal Government Is Not the Answer to Our Current Financial Mess
A few months ago I dropped couple of posts (here and here) about how our nation’s money policy is at the root of our current financial quagmire. I followed up in August with this post that suggested that the Fed needed competition. I recently ragged on the Fed even more and discussed the concept of competing currencies in more detail in this post and in comment #3 on the post.
Fed Chairman Alan Greenspan’s testimony before Congress the other day was a debacle. In effect he said, “Boy, I didn’t see this coming, but it’s OK to trust my judgment now.” He then went on to blame everyone except government and the Fed for our current economic mess. The Wall Street Journal says:
Bubble number two came at the hands of Greenspan’s successor, current Fed Chair Ben Bernanke. The Journal has some charts depicting the oil bubble and the parallel euro-dollar exchange bubble that resulted from the Fed’s mishandling of the credit panic that ensued after the first bubble burst.
Instead of a solvency crisis, the Fed treated it like a liquidity crisis. They dropped interest rates drastically, injecting masses of new dollars into the system. This caused inflation, especially in oil and euros, as dollar holders worldwide dumped the shaky dollar for more stable instruments.
Coinciding with the run up in oil and foreign commodities was a run up in stock prices, as this chart shows. The chart also provides a good visual of the bursting of the bubble. What this means to you and me is that when our 401k funds looked great at the end of summer last year, they were really just overpriced. That problem has now been corrected. In fact, it has been overcorrected, as revealed by the tail end of the chart (and our 401k balances). The Journal says:
The bizarre thing is that most political movers and shakers seem completely oblivious to the real causes of the current crisis: federal meddling in housing markets and “Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent.”
I have heard and read many arguments in favor of strong central banks, such as this one and this one. Even many self-styled free market supporters have argued passionately for a strong central banking system. But in light of all of the mischief caused by our central bank of late, it’s difficult for me to swallow. FA Hayek’s observations seem much more appropriate at this juncture. He noted that government control of money has caused much worse problems than anything ever seen with private money.
As Alan Greenspan, Ben Bernanke, a host of financial gurus, big business types, and most of our federal politicians urge us to look to Washington DC for salvation from our financial woes, perhaps it would be wise to realize that these are the same people that caused the crisis in the first place. Looking to them for solutions is akin to an abused wife seeking a non-abusive relationship from her abusing husband.
In other words, now is the optimum time to be looking for financial solutions outside of the federal political class and its fellow travelers. Competing currencies anyone?
Fed Chairman Alan Greenspan’s testimony before Congress the other day was a debacle. In effect he said, “Boy, I didn’t see this coming, but it’s OK to trust my judgment now.” He then went on to blame everyone except government and the Fed for our current economic mess. The Wall Street Journal says:
“The Fed's monetary policy apparently gets a pass. The media and Members of Congress will use Mr. Greenspan's testimony to impugn the very free market principles that the former Ayn Rand protégé has spent his life promoting. It was a painful spectacle to watch.”The Journal, however, does a good job of showing how the Fed caused or helped cause two financial bubbles, both of which have now burst. “The original bubble was in housing prices and mortgage-related assets, which the Federal Reserve helped to create with its negative real interest rates from 2002 into 2005. This was Alan Greenspan's tragic mistake….”
Bubble number two came at the hands of Greenspan’s successor, current Fed Chair Ben Bernanke. The Journal has some charts depicting the oil bubble and the parallel euro-dollar exchange bubble that resulted from the Fed’s mishandling of the credit panic that ensued after the first bubble burst.
Instead of a solvency crisis, the Fed treated it like a liquidity crisis. They dropped interest rates drastically, injecting masses of new dollars into the system. This caused inflation, especially in oil and euros, as dollar holders worldwide dumped the shaky dollar for more stable instruments.
Coinciding with the run up in oil and foreign commodities was a run up in stock prices, as this chart shows. The chart also provides a good visual of the bursting of the bubble. What this means to you and me is that when our 401k funds looked great at the end of summer last year, they were really just overpriced. That problem has now been corrected. In fact, it has been overcorrected, as revealed by the tail end of the chart (and our 401k balances). The Journal says:
“Commodity prices have now fallen back to Earth, as the reality of global recession hits home and the Fed can't ease much further. Meanwhile, the euro has fallen from the stratosphere as Europe heads into recession and the dollar becomes a safer haven in a world of fear.”But all is not well (as everyone is painfully aware). The second bursting bubble is impacting commodity prices worldwide. Emerging markets “such as Russia and the Persian Gulf countries” are being hit hard. And with the precedent of government bailouts now set, other industries such as auto manufacturing and ethanol production have lobbyists plying the Beltway crowd like sharks swimming in chum, looking for similar favors.
The bizarre thing is that most political movers and shakers seem completely oblivious to the real causes of the current crisis: federal meddling in housing markets and “Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent.”
I have heard and read many arguments in favor of strong central banks, such as this one and this one. Even many self-styled free market supporters have argued passionately for a strong central banking system. But in light of all of the mischief caused by our central bank of late, it’s difficult for me to swallow. FA Hayek’s observations seem much more appropriate at this juncture. He noted that government control of money has caused much worse problems than anything ever seen with private money.
As Alan Greenspan, Ben Bernanke, a host of financial gurus, big business types, and most of our federal politicians urge us to look to Washington DC for salvation from our financial woes, perhaps it would be wise to realize that these are the same people that caused the crisis in the first place. Looking to them for solutions is akin to an abused wife seeking a non-abusive relationship from her abusing husband.
In other words, now is the optimum time to be looking for financial solutions outside of the federal political class and its fellow travelers. Competing currencies anyone?
Wednesday, October 22, 2008
I Endorse Early Voting
After work yesterday I stopped by my city’s office building and voted. There were about 20 other people there at the same time, a number I found rather impressive. I exercised my civic voting duty two weeks prior to Election Day, and from the comments of the election judges at the site, a record number are likewise voting early.
I personally enjoy early voting, having done it a number of times previously. The last time I voted on Election Day in a major election, I had to wait in line 45 minutes. Yesterday I waited less than five minutes total. I waited in line a couple of minutes to get my ID verified and then sign in. I waited another minute or so for a booth to open up so that I could vote.
I have heard the criticisms of early voting. I think they have some validity. But on the whole, I think that making early voting available is wonderful. It increases convenience, reduces lines at the polls on Election Day, and increases opportunities for citizens to get out and vote.
There are some valid concerns about early voting increasing voter fraud. This isn’t such a big problem when people go to an actual polling place to vote, as I did. But it is a problem with mail-in ballots. In some cases this problem has been severe. Not only is mail-in voting quite expensive, it can also produce long wait times in determining the outcomes of elections because they have to wait long enough for the ballots mailed on Election Day to arrive, each mailed in ballot must be verified as belonging to a properly registered voter, and it must be ensured that each voter’s vote is counted only once.
There are likely things that could be done to reduce fraud problems with mail-in voting, but that would make it even more expensive. Perhaps it is best to restrict mail-in voting to those that are physically unable to present themselves at a polling place during early voting or on Election Day, such as those that are temporarily living abroad.
I have heard several times that early voting detracts from the sense of community spirit that used to surround Election Day. Pointing to voter apathy, some have even suggested that we make Election Day a national holiday. While community spirit is nice when you can get it, the main goal is to get people politically involved. Increasing voter convenience helps in this regard.
Also, every time we produce a new national holiday, it results in another excuse for retailers to bombard us with inane ads about faux sales events. Not only does adding holidays cost employers money, but most people that get the day off end up recreating rather than doing anything about what the holiday was supposed to be about. A national election holiday might even result in fewer people voting.
Some would like to make voting more exclusive by actually making it more difficult to vote. The argument seems to be that so many ignorant people are voting that we need to restrict the privilege of voting to those that are motivated enough to overcome obstacles to exercise that right
Frankly, I think this is pure poppycock. Even the ignorant are citizens and should be able to cast their ignorant votes. Some will argue that the idiots are already overrepresented in politics. While the rest of us have to live with the results of elections partially influenced by ignorant voters, that is part of living in a democratic republic.
Another concern is that something might change during the early vote period that could change your mind. If you had already voted early, it would be too late to change your vote. There is clearly some risk with this, but it’s really not much different than if something were to happen the day after Election Day that made you wish you’d voted differently.
I think that for the politically informed, the risk of casting an early vote that would be regretted within two weeks is no higher than if they were to vote on Election Day. I mean, I’ve studied the candidates and the issues enough. If I don’t know by this point how I should vote, I can’t see how two more weeks is going to make a difference.
For the politically uninformed that vote early, I don’t see how voting a few days later is going to improve their vote. I remember years ago seeing an older lady on the news being interviewed as she came out of a polling place. She said that she had voted for Jimmy Carter because she liked peanut butter. Two more weeks simply isn’t going to help people like that. And, as I alluded to earlier, even idiots deserve representation.
I think early voting is a wonderful convenience, as long as it’s properly handled. Thanks to early voting, I hope to never stand in a long line on Election Day again.
I personally enjoy early voting, having done it a number of times previously. The last time I voted on Election Day in a major election, I had to wait in line 45 minutes. Yesterday I waited less than five minutes total. I waited in line a couple of minutes to get my ID verified and then sign in. I waited another minute or so for a booth to open up so that I could vote.
I have heard the criticisms of early voting. I think they have some validity. But on the whole, I think that making early voting available is wonderful. It increases convenience, reduces lines at the polls on Election Day, and increases opportunities for citizens to get out and vote.
There are some valid concerns about early voting increasing voter fraud. This isn’t such a big problem when people go to an actual polling place to vote, as I did. But it is a problem with mail-in ballots. In some cases this problem has been severe. Not only is mail-in voting quite expensive, it can also produce long wait times in determining the outcomes of elections because they have to wait long enough for the ballots mailed on Election Day to arrive, each mailed in ballot must be verified as belonging to a properly registered voter, and it must be ensured that each voter’s vote is counted only once.
There are likely things that could be done to reduce fraud problems with mail-in voting, but that would make it even more expensive. Perhaps it is best to restrict mail-in voting to those that are physically unable to present themselves at a polling place during early voting or on Election Day, such as those that are temporarily living abroad.
I have heard several times that early voting detracts from the sense of community spirit that used to surround Election Day. Pointing to voter apathy, some have even suggested that we make Election Day a national holiday. While community spirit is nice when you can get it, the main goal is to get people politically involved. Increasing voter convenience helps in this regard.
Also, every time we produce a new national holiday, it results in another excuse for retailers to bombard us with inane ads about faux sales events. Not only does adding holidays cost employers money, but most people that get the day off end up recreating rather than doing anything about what the holiday was supposed to be about. A national election holiday might even result in fewer people voting.
Some would like to make voting more exclusive by actually making it more difficult to vote. The argument seems to be that so many ignorant people are voting that we need to restrict the privilege of voting to those that are motivated enough to overcome obstacles to exercise that right
Frankly, I think this is pure poppycock. Even the ignorant are citizens and should be able to cast their ignorant votes. Some will argue that the idiots are already overrepresented in politics. While the rest of us have to live with the results of elections partially influenced by ignorant voters, that is part of living in a democratic republic.
Another concern is that something might change during the early vote period that could change your mind. If you had already voted early, it would be too late to change your vote. There is clearly some risk with this, but it’s really not much different than if something were to happen the day after Election Day that made you wish you’d voted differently.
I think that for the politically informed, the risk of casting an early vote that would be regretted within two weeks is no higher than if they were to vote on Election Day. I mean, I’ve studied the candidates and the issues enough. If I don’t know by this point how I should vote, I can’t see how two more weeks is going to make a difference.
For the politically uninformed that vote early, I don’t see how voting a few days later is going to improve their vote. I remember years ago seeing an older lady on the news being interviewed as she came out of a polling place. She said that she had voted for Jimmy Carter because she liked peanut butter. Two more weeks simply isn’t going to help people like that. And, as I alluded to earlier, even idiots deserve representation.
I think early voting is a wonderful convenience, as long as it’s properly handled. Thanks to early voting, I hope to never stand in a long line on Election Day again.
Monday, October 20, 2008
Making It Up
"Rarely do we hear a message of sacrifice -- unless it is a justification for more taxation and transfers of wealth to others. Nor do we hear from leaders or politicians the message that there is something larger and more important than the government providing for all of our needs and wants -- large and small." — U.S. Supreme Court Justice Clarence Thomas
Anyone that actually cares about our nation's Constitution likely feels that it has been incrementally amended without proper consent over the past few decades to mean something very different than was originally intended. If you feel this way, you're not alone. U.S. Supreme Court Justice Clarence Thomas recently lamented this course in a speech, part of which is recounted here.
Justice Thomas suggests that we as citizens have become overly focused on ourselves. By turning Kennedy's call for service on its head, Thomas says, "The message today seems more like: Ask not what you can do for yourselves or your country, but what your country must do for you."
This attitude is reflected in our law. Our Constitution has only been successfully amended 27 times, and two of those amendments cancel each other out. Today we no longer bother to amend the Constitution when we want to change how our government does business. We just simply pass laws that are blatantly out of line with the document's original intent. We get five justices to decide that we (or even other nations) now think differently, so the document has magically changed meaning. Why go through the pain of attempting an amendment when these other avenues are much easier?
Thomas admits that "there is no one accepted way of interpreting" the Constitution. But that does not mean that he thinks this is an acceptable situation. He bluntly says, "Let me put it this way; there are really only two ways to interpret the Constitution -- try to discern as best we can what the framers intended or make it up."
As a nation, we have increasingly been following this latter course of action. We've been making it up as we go along. Imagine if we did that with any other legal document. Lawyers and judges would go berserk if we suggested that we can simply change the original intent of a document at our whim. (Although some of our politicians want to let judges do this with mortgage contracts.) This would destroy our ability to make plans and decisions, since any agreement could be capriciously re-interpreted.
I had a friend ask why the framers' original intent is any more important than what we think today, and why we should consider ourselves bound by words written down by people that are long dead.
The Constitution is the document upon which our government functions. If you don't have that, you don't have a valid governing system. In the absence of a document with solid meaning there is no reason for any citizen to submit to the demands of government or to consider such demands to have any validity, except on the basis of tyranny and fear.
The framers of the Constitution never intended that their word would be the last word on the matter. That's why they established a method for amending the document. If we're going to constantly make end runs around that method — in essence amending the Constitution by stealth rather than by the consent of the governed — we no longer have any valid basis for government.
Before we condone making it up as we go along, we ought to consider Thomas' caution:
The fruits of our me-now attitude is that we get the kind of government we deserve.
Anyone that actually cares about our nation's Constitution likely feels that it has been incrementally amended without proper consent over the past few decades to mean something very different than was originally intended. If you feel this way, you're not alone. U.S. Supreme Court Justice Clarence Thomas recently lamented this course in a speech, part of which is recounted here.
Justice Thomas suggests that we as citizens have become overly focused on ourselves. By turning Kennedy's call for service on its head, Thomas says, "The message today seems more like: Ask not what you can do for yourselves or your country, but what your country must do for you."
This attitude is reflected in our law. Our Constitution has only been successfully amended 27 times, and two of those amendments cancel each other out. Today we no longer bother to amend the Constitution when we want to change how our government does business. We just simply pass laws that are blatantly out of line with the document's original intent. We get five justices to decide that we (or even other nations) now think differently, so the document has magically changed meaning. Why go through the pain of attempting an amendment when these other avenues are much easier?
Thomas admits that "there is no one accepted way of interpreting" the Constitution. But that does not mean that he thinks this is an acceptable situation. He bluntly says, "Let me put it this way; there are really only two ways to interpret the Constitution -- try to discern as best we can what the framers intended or make it up."
As a nation, we have increasingly been following this latter course of action. We've been making it up as we go along. Imagine if we did that with any other legal document. Lawyers and judges would go berserk if we suggested that we can simply change the original intent of a document at our whim. (Although some of our politicians want to let judges do this with mortgage contracts.) This would destroy our ability to make plans and decisions, since any agreement could be capriciously re-interpreted.
I had a friend ask why the framers' original intent is any more important than what we think today, and why we should consider ourselves bound by words written down by people that are long dead.
The Constitution is the document upon which our government functions. If you don't have that, you don't have a valid governing system. In the absence of a document with solid meaning there is no reason for any citizen to submit to the demands of government or to consider such demands to have any validity, except on the basis of tyranny and fear.
The framers of the Constitution never intended that their word would be the last word on the matter. That's why they established a method for amending the document. If we're going to constantly make end runs around that method — in essence amending the Constitution by stealth rather than by the consent of the governed — we no longer have any valid basis for government.
Before we condone making it up as we go along, we ought to consider Thomas' caution:
"No matter how ingenious, imaginative or artfully put, unless interpretive methodologies are tied to the original intent of the framers, they have no more basis in the Constitution than the latest football scores. To be sure, even the most conscientious effort to adhere to the original intent of the framers of our Constitution is flawed, as all methodologies and human institutions are; but at least originalism has the advantage of being legitimate and, I might add, impartial."It seems that Americans in general are quite ignorant of what the Constitution says and how it impacts their lives. Thomas says:
"As I have traveled across the country, I have been astounded just how many of our fellow citizens feel strongly about their constitutional rights but have no idea what they are, or for that matter, what the Constitution says. ... [I]f one feels strongly about his or her rights, it does make sense to know generally what the Constitution says about them. It is at least as easy to understand as a cell phone contract -- and vastly more important."Instead, we seem to develop some kind of emotional meaning about how something ought to be done without any consideration of the total impact such a course of action might have. We want what we want. We want it now. And we want somebody to provide it for us. As Thomas puts it, "Certainly this is no way to run a railroad, not to mention interpret the Constitution. . . ."
The fruits of our me-now attitude is that we get the kind of government we deserve.
Friday, October 17, 2008
Doing Something About Citizen Apathy
A couple of weeks ago, David Miller at Pursuit of Liberty announced that he is forming a group that has as its goal to “draw people out of the silent majority until the silent become the minority by fostering civil dialog between people of differing perspectives. “ People of all political stripes are encouraged to join.
With people from disagreeing political viewpoints participating, you might anticipate some fireworks. But David writes, “The only requirement for participation is a commitment to avoid the playground politics of name calling and guilt by association.”
In other words, David is calling on us to join together to steadily increase the numbers of people that are politically informed and engaged. He is asking that we commit to engaging in civil dialog and put aside acrimony when discussing issues.
David has put out a call for people to come forward to help him put his plan into action. He writes:
Despite pleas from religious and community leaders, only 56.8% of Utah’s adults are even registered to vote — the third lowest rate in the nation. And only a fraction of those registered actually vote. There are a variety of reasons for Utah’s low rates of voter registration and turnout.
It’s the Demographics
It has been a longtime national trend for young adults to be less politically involved. Looking at the statistics, it appears that voter participation rates dropped off in 1972. But in fact, this was due to the lowering of the voting age from 21 to 18 by the 26th Amendment. When screening out the 18-20-year-olds, voter participation rates were actually higher in 1972. People under 25 vote at very low rates except for when they get enthused about a single candidate or issue.
Americans generally tend to become politically involved around middle age. Utah’s adult population consists of a much higher percentage of young adults than does the national population. When adjusted for age, Utah’s levels of political involvement are closer to the national average, but are still below the median.
It’s the Decreasing Value of a Vote
After adjusting for age factors, Utah’s registration and voter turnout rates fall into a grouping of other states that are heavily skewed toward either of the political parties, such as West Virginia. In these states, the incentives for political involvement are lower because the overwhelming majority will dictate the outcome of most races. Most of the uninvolved limit their political engagement because they are relatively certain that the outcomes will be about what they would have chosen anyway.
Others feel disenfranchised because there are few rewards for going up against a large majority. For example, I do not support Governor Huntsman’s re-election. But I don’t see that I am much inclined to vote for any of his opponents. And even when I do cast my vote for a different candidate, how much difference will it make? There isn’t the slightest chance that the Governor won’t win a massive landslide victory.
It’s the Lack of Information and Differentiation
I live in a suburban community where 91% of the adult residents were registered to vote in 2007. That’s a very high rate for Utah. A bond to raise an exorbitant amount to build a cover over the city’s lap pool failed by a 71-29% margin in a special June 2007 election. But only 25.6% of registered voters bothered to turn out (see here). And that was considered a magnificently high rate of participation.
Three months later, only 9% of registered voters bothered to turn out for the primary election that winnowed a field of 10 candidates for 3 city council seats down to 6. I complained at the time that even for politically involved voters there was simply insufficient information about most of the candidates, so that it was difficult to develop an informed opinion. For the less involved, it was nearly impossible to detect any qualitative differences. Why bother to vote when there is no detectible difference between candidate A and candidates B and C?
It’s All the Disincentives
Factors such as this lend to citizen apathy toward politics. When people sense that their involvement could actually make a difference, they tend to get engaged. Involvement increases when questions about direct taxation are involved. But when the incentives for getting engaged are low — well, we’re all busy, our time is a scarce resource, and we believe there are much better uses of our time and energy.
It’s Politics
It has often been said that even if you like sausage, you probably don’t want to watch it being made — and that the political process is analogous to sausage making. With the advent of CSPAN, CNN2, and a MSM corps that shoves the bits and twiddles of the political process in our faces 24x7, many people have come to see how politics really work (and always have worked), and it’s not pretty.
It’s the Parties
Church leaders have urged involvement at the grass roots level, where activity can actually make a difference. There is higher value in helping determine who gets on the ballot than in simply voting for those that end up there by whatever means. Still, as friends of mine from different parties have reported, ever since they attended their neighborhood caucus meetings they have been the objects of endless pestering by the national and state parties to cough up cash to put in the parties’ coffers. This is a disincentive to grass roots party involvement.
I used to deride those that referred to our two major political parties as Republicrats or Demblicans (meaning that there isn’t much difference between the parties). There are plenty of differences, but the behavior of both parties at the national level seems to consist of posturing, power plays, and corruption. These ruling elitists seem to care very little about the real ‘Joe the plumbers’ of the world, except to use them as pawns in their games. This poisons the perception of the validity of both parties all the way down to the local level.
Organizing is Hard
I think David’s idea of an organization that encourages political involvement is a worthy cause. I have often argued that Americans are made, not just born. It requires education and involvement to uphold the principles of liberty and justice upon which our country was founded. That’s why I have worked for years to help teach Citizenship in the Nation to Boy Scouts.
It seems, however, that starting a new organization might be a duplication of Project Vote Smart, a non-partisan group that aims to increase citizen awareness of and involvement in politics. The League of Women Voters takes positions, but has worked for years to foster civil discourse and to get information out to voters. I can’t help but wonder whether it wouldn’t be better to work within an established organization such as one of these. At any rate, getting a new organization off the ground requires serious work and commitment.
Activism Needed
It is also important to realize that not everyone that has political interest has a desire to be an activist. For example, I enjoy analyzing, discussing, and providing my opinion on matters. But when it comes to “engag[ing] effectively with public officials [and] organiz[ing] group efforts,” I start thinking that I’ve already got as many irons in the fire as I can manage and that these matters lie outside of my scope of talents.
I know myself pretty well. I regularly stretch myself beyond my comfort zone. But long experience has shown me that I’m no salesman. That is, I don’t mind explaining why I think and act as I do, as well as how others might benefit from thinking or doing likewise. However, I am not the guy that closes the sale. I have organized relatively large church and Scouting events, and will likely continue to do so. But frankly, I hate doing it. And as I explained here and here, I have a certain distaste for the game of politics.
I freely admit that attitudes such as this will make the development of an activist organization an uphill battle. How do you get people involved that already feel that they are doing a good work within their current scope when involvement in another group would take time and resources away from those other efforts? How do you engage people that shy away from activism?
Doing It
I appreciate David’s thoughtful blog posts. I applaud his efforts to put his words into action. I encourage others to get involved and help in this effort. But let’s not delude ourselves. We are fighting against significant disincentives to political involvement. Simply providing information and discussion isn’t going to overcome that.
If you want people in general to get involved, we will have to break down our elitist system and make each vote actually meaningful. Then the incentives for political involvement will increase. It starts with efforts like this.
With people from disagreeing political viewpoints participating, you might anticipate some fireworks. But David writes, “The only requirement for participation is a commitment to avoid the playground politics of name calling and guilt by association.”
In other words, David is calling on us to join together to steadily increase the numbers of people that are politically informed and engaged. He is asking that we commit to engaging in civil dialog and put aside acrimony when discussing issues.
David has put out a call for people to come forward to help him put his plan into action. He writes:
“In addition to my own energy, and knowledge I need the energy and experience of others who can help me to spread the word, engage effectively with public officials, organize group efforts, and generate ideas to further these aims.”Why are Citizens Apathetic?
Despite pleas from religious and community leaders, only 56.8% of Utah’s adults are even registered to vote — the third lowest rate in the nation. And only a fraction of those registered actually vote. There are a variety of reasons for Utah’s low rates of voter registration and turnout.
It’s the Demographics
It has been a longtime national trend for young adults to be less politically involved. Looking at the statistics, it appears that voter participation rates dropped off in 1972. But in fact, this was due to the lowering of the voting age from 21 to 18 by the 26th Amendment. When screening out the 18-20-year-olds, voter participation rates were actually higher in 1972. People under 25 vote at very low rates except for when they get enthused about a single candidate or issue.
Americans generally tend to become politically involved around middle age. Utah’s adult population consists of a much higher percentage of young adults than does the national population. When adjusted for age, Utah’s levels of political involvement are closer to the national average, but are still below the median.
It’s the Decreasing Value of a Vote
After adjusting for age factors, Utah’s registration and voter turnout rates fall into a grouping of other states that are heavily skewed toward either of the political parties, such as West Virginia. In these states, the incentives for political involvement are lower because the overwhelming majority will dictate the outcome of most races. Most of the uninvolved limit their political engagement because they are relatively certain that the outcomes will be about what they would have chosen anyway.
Others feel disenfranchised because there are few rewards for going up against a large majority. For example, I do not support Governor Huntsman’s re-election. But I don’t see that I am much inclined to vote for any of his opponents. And even when I do cast my vote for a different candidate, how much difference will it make? There isn’t the slightest chance that the Governor won’t win a massive landslide victory.
It’s the Lack of Information and Differentiation
I live in a suburban community where 91% of the adult residents were registered to vote in 2007. That’s a very high rate for Utah. A bond to raise an exorbitant amount to build a cover over the city’s lap pool failed by a 71-29% margin in a special June 2007 election. But only 25.6% of registered voters bothered to turn out (see here). And that was considered a magnificently high rate of participation.
Three months later, only 9% of registered voters bothered to turn out for the primary election that winnowed a field of 10 candidates for 3 city council seats down to 6. I complained at the time that even for politically involved voters there was simply insufficient information about most of the candidates, so that it was difficult to develop an informed opinion. For the less involved, it was nearly impossible to detect any qualitative differences. Why bother to vote when there is no detectible difference between candidate A and candidates B and C?
It’s All the Disincentives
Factors such as this lend to citizen apathy toward politics. When people sense that their involvement could actually make a difference, they tend to get engaged. Involvement increases when questions about direct taxation are involved. But when the incentives for getting engaged are low — well, we’re all busy, our time is a scarce resource, and we believe there are much better uses of our time and energy.
It’s Politics
It has often been said that even if you like sausage, you probably don’t want to watch it being made — and that the political process is analogous to sausage making. With the advent of CSPAN, CNN2, and a MSM corps that shoves the bits and twiddles of the political process in our faces 24x7, many people have come to see how politics really work (and always have worked), and it’s not pretty.
It’s the Parties
Church leaders have urged involvement at the grass roots level, where activity can actually make a difference. There is higher value in helping determine who gets on the ballot than in simply voting for those that end up there by whatever means. Still, as friends of mine from different parties have reported, ever since they attended their neighborhood caucus meetings they have been the objects of endless pestering by the national and state parties to cough up cash to put in the parties’ coffers. This is a disincentive to grass roots party involvement.
I used to deride those that referred to our two major political parties as Republicrats or Demblicans (meaning that there isn’t much difference between the parties). There are plenty of differences, but the behavior of both parties at the national level seems to consist of posturing, power plays, and corruption. These ruling elitists seem to care very little about the real ‘Joe the plumbers’ of the world, except to use them as pawns in their games. This poisons the perception of the validity of both parties all the way down to the local level.
Organizing is Hard
I think David’s idea of an organization that encourages political involvement is a worthy cause. I have often argued that Americans are made, not just born. It requires education and involvement to uphold the principles of liberty and justice upon which our country was founded. That’s why I have worked for years to help teach Citizenship in the Nation to Boy Scouts.
It seems, however, that starting a new organization might be a duplication of Project Vote Smart, a non-partisan group that aims to increase citizen awareness of and involvement in politics. The League of Women Voters takes positions, but has worked for years to foster civil discourse and to get information out to voters. I can’t help but wonder whether it wouldn’t be better to work within an established organization such as one of these. At any rate, getting a new organization off the ground requires serious work and commitment.
Activism Needed
It is also important to realize that not everyone that has political interest has a desire to be an activist. For example, I enjoy analyzing, discussing, and providing my opinion on matters. But when it comes to “engag[ing] effectively with public officials [and] organiz[ing] group efforts,” I start thinking that I’ve already got as many irons in the fire as I can manage and that these matters lie outside of my scope of talents.
I know myself pretty well. I regularly stretch myself beyond my comfort zone. But long experience has shown me that I’m no salesman. That is, I don’t mind explaining why I think and act as I do, as well as how others might benefit from thinking or doing likewise. However, I am not the guy that closes the sale. I have organized relatively large church and Scouting events, and will likely continue to do so. But frankly, I hate doing it. And as I explained here and here, I have a certain distaste for the game of politics.
I freely admit that attitudes such as this will make the development of an activist organization an uphill battle. How do you get people involved that already feel that they are doing a good work within their current scope when involvement in another group would take time and resources away from those other efforts? How do you engage people that shy away from activism?
Doing It
I appreciate David’s thoughtful blog posts. I applaud his efforts to put his words into action. I encourage others to get involved and help in this effort. But let’s not delude ourselves. We are fighting against significant disincentives to political involvement. Simply providing information and discussion isn’t going to overcome that.
If you want people in general to get involved, we will have to break down our elitist system and make each vote actually meaningful. Then the incentives for political involvement will increase. It starts with efforts like this.
Wednesday, October 15, 2008
Making the House of Representatives Representative Again
For years I have stewed about the declining value of an individual vote when it comes to electing and influencing the behavior of our congressional representatives. It simply made no sense to me that we have capped the number of representatives.
This has wildly increased district populations, meaning that each citizen’s voice has less clout with her/his representative. We have ended up with two congressional chambers of elitists rather than having one chamber that is closer to the people. We effectively have two senates.
On the last day of the 1787 constitutional convention, after the document had been finalized and prepared for signing, Nathaniel Gorham proposed that Article I Section 2 be altered. It had read that the minimum population for a congressional district would be 40,000, but Gorham wanted that number reduced to 30,000.
George Washington, though he had presided at the convention, had refrained from speaking out on issues involving the House of Representatives. But he broke his silence on this point and spoke in favor of the reduction because it would increase the number of representatives. He felt that this would help secure “the rights & interests of the people” (see here). The proposal was approved. The ‘fo’ in forty was erased and replaced with ‘thi’ to change the word to thirty.
Since then, the number of representatives increased as the population of the U.S. increased. But in 1911, Congress voted to cap the number of representatives at 435. Congressional districts that once averaged 40,000 citizens in population now average over 700,000 citizens.
The idea that representatives can represent 700,000 people today as effectively as they once represented 40,000 is preposterous, despite our communication technology. The candidates most likely to win are the ones that avoid principled stands and legislate in nondescript ways.
Moreover, the cost of running a campaign to appeal to 700,000 is far higher than the cost of campaigning to appeal to 40,000. Unless one is rich, today’s congressional campaigns require taking lots of money from special interest groups that expect something in return. This severely limits those that can run for office.
If congressional districts today had populations of about 50,000, we’d have about 6,000 members of the House of Representatives. Yes, this would mean more politicians, but it would also mean better representation. You’d see a more nuanced viewpoints. You’d see a decline in the power of the two major parties — of their leadership in the House. Instead of marshaling lieutenants, it would be more like herding cats.
The arguments against returning the House to a truly representative body have been anticipated by J.E. Quidam, who runs an organization called Thirty-Thousand.org. Quidam addresses (here) 15 common questions/issues people have with this proposal. Concerned about having too many politicians, the increased cost, or inability to accomplish anything? Quidam addresses those concerns and others.
The power of lobbyists, big business, and special interest groups would be vastly diminished and diluted. It would be far more difficult to schmooze 6,000 reps than it is to schmooze 435. Legislation would necessarily require a much broader appeal than it does today. Bills would be more readable. Congressional staffs would get smaller. This would not solve all of our country’s problems, but it would certainly get us closer to the principles of freedom envisioned by our Founders.
I frankly have become very disillusioned about politics during this election cycle. My son has been watching the presidential debate tonight. I watched part of it, but I finally had to walk out. It blows my mind to think that one of these fools is about to be the next president of our country. Of course, in retrospect, the last several general elections haven’t offered a much better choice.
If I had my druthers, I’d opt for divided government. Having both houses of Congress plus the executive branch controlled by a single party doesn’t seem to have served us as well as has divided government over the past century or so. Not under FDR. Not under LBJ. And not under GWB.
But I’m also disillusioned about Congress. In fact, one of the reasons I have problems with just about any federal level politician is that I have problems with what the system has become. While I have been concerned about an elitist House of Representatives for many years, I didn’t know until today that there are other people out there that are likewise concerned and that have a plan to do something about it.
I simply can’t get enthused about any candidate at just about any level this election. But this is a cause I can support. Quidam notes that achieving the goal of small congressional districts is improbable. But that doesn’t mean we shouldn’t get the ball rolling.
Boyd K. Packer recently talked about how members of the LDS Church could be so patriotic in 1849 after years of being repeatedly driven from their homes while the government refused to fulfill its obligation to protect its citizens. It was not the government that had failed them that they adored. Rather, it was the principles of freedom and justice upon which this country was founded — the ideals to which we aspire — that was the object of their patriotism.
While I cannot generate enthusiasm for any politician right now, I can generate enthusiasm for a course correction that would bring us closer to the principles upon which our nation was founded.
This has wildly increased district populations, meaning that each citizen’s voice has less clout with her/his representative. We have ended up with two congressional chambers of elitists rather than having one chamber that is closer to the people. We effectively have two senates.
On the last day of the 1787 constitutional convention, after the document had been finalized and prepared for signing, Nathaniel Gorham proposed that Article I Section 2 be altered. It had read that the minimum population for a congressional district would be 40,000, but Gorham wanted that number reduced to 30,000.
George Washington, though he had presided at the convention, had refrained from speaking out on issues involving the House of Representatives. But he broke his silence on this point and spoke in favor of the reduction because it would increase the number of representatives. He felt that this would help secure “the rights & interests of the people” (see here). The proposal was approved. The ‘fo’ in forty was erased and replaced with ‘thi’ to change the word to thirty.
Since then, the number of representatives increased as the population of the U.S. increased. But in 1911, Congress voted to cap the number of representatives at 435. Congressional districts that once averaged 40,000 citizens in population now average over 700,000 citizens.
The idea that representatives can represent 700,000 people today as effectively as they once represented 40,000 is preposterous, despite our communication technology. The candidates most likely to win are the ones that avoid principled stands and legislate in nondescript ways.
Moreover, the cost of running a campaign to appeal to 700,000 is far higher than the cost of campaigning to appeal to 40,000. Unless one is rich, today’s congressional campaigns require taking lots of money from special interest groups that expect something in return. This severely limits those that can run for office.
If congressional districts today had populations of about 50,000, we’d have about 6,000 members of the House of Representatives. Yes, this would mean more politicians, but it would also mean better representation. You’d see a more nuanced viewpoints. You’d see a decline in the power of the two major parties — of their leadership in the House. Instead of marshaling lieutenants, it would be more like herding cats.
The arguments against returning the House to a truly representative body have been anticipated by J.E. Quidam, who runs an organization called Thirty-Thousand.org. Quidam addresses (here) 15 common questions/issues people have with this proposal. Concerned about having too many politicians, the increased cost, or inability to accomplish anything? Quidam addresses those concerns and others.
The power of lobbyists, big business, and special interest groups would be vastly diminished and diluted. It would be far more difficult to schmooze 6,000 reps than it is to schmooze 435. Legislation would necessarily require a much broader appeal than it does today. Bills would be more readable. Congressional staffs would get smaller. This would not solve all of our country’s problems, but it would certainly get us closer to the principles of freedom envisioned by our Founders.
I frankly have become very disillusioned about politics during this election cycle. My son has been watching the presidential debate tonight. I watched part of it, but I finally had to walk out. It blows my mind to think that one of these fools is about to be the next president of our country. Of course, in retrospect, the last several general elections haven’t offered a much better choice.
If I had my druthers, I’d opt for divided government. Having both houses of Congress plus the executive branch controlled by a single party doesn’t seem to have served us as well as has divided government over the past century or so. Not under FDR. Not under LBJ. And not under GWB.
But I’m also disillusioned about Congress. In fact, one of the reasons I have problems with just about any federal level politician is that I have problems with what the system has become. While I have been concerned about an elitist House of Representatives for many years, I didn’t know until today that there are other people out there that are likewise concerned and that have a plan to do something about it.
I simply can’t get enthused about any candidate at just about any level this election. But this is a cause I can support. Quidam notes that achieving the goal of small congressional districts is improbable. But that doesn’t mean we shouldn’t get the ball rolling.
Boyd K. Packer recently talked about how members of the LDS Church could be so patriotic in 1849 after years of being repeatedly driven from their homes while the government refused to fulfill its obligation to protect its citizens. It was not the government that had failed them that they adored. Rather, it was the principles of freedom and justice upon which this country was founded — the ideals to which we aspire — that was the object of their patriotism.
While I cannot generate enthusiasm for any politician right now, I can generate enthusiasm for a course correction that would bring us closer to the principles upon which our nation was founded.
Friday, October 10, 2008
America Will Pull Through
When I was a kid, my brother brought home a 45-rpm vinyl recording of a tribute to the USA by Canadian commentator Gordon Sinclair (see text, hear recording). I had heard it many times on the old vacuum tube radio we had on the shelf in the bedroom we shared. Like all of the vinyl records we had back then, we listened to this one over and over.
Even as kids we knew that times were turbulent. We could often see the worry in our parents’ faces about what was happening in the nation and in the world. We were at war in Vietnam and opposition to the war was strident. We were experiencing rapid inflation. The scandals surrounding President Nixon seemed to get worse with each passing day. The counter culture was in full bloom everywhere. The whole world seemed to be coming apart.
On June 5, 1973, Gordon Sinclair spoke on nationwide Canadian radio about the many favors Americans had done over the years for other nations, calling us “the most generous and possibly the least-appreciated people in all the world.” He talked about the mess we were in and strongly chided “the many smug, self-righteous” people that were “gloating over [America’s] present troubles.” His chiding was somewhat saucy for that era.
Sinclair’s talk so struck a chord that it was set to patriotic background music and released as a single under the title, “The Americans.” My brother was one of many Americans that bought a copy.
Until today, it had been years since I had heard or even thought about Sinclair’s single. But somehow, current events took me back to 1973. I didn’t remember much of the recording, except that the commentator’s name was Gordon, he was Canadian, he talked about America’s problems, and he said that Americans would “come out of this thing with their flag high.” I had completely forgotten that he had added, “And when they do, they are entitled to thumb their noses at the lands that are gloating over their present troubles.”
A lot has changed since Gordon Sinclair spoke those words 35 years ago. We are no longer the only nation that produces decent commercial aircraft, for example. Although, we are still the only nation that has sent humans to the moon.
The reason current events took me back to 1973 is that conditions today are similarly ominous. We are now being bombarded on all sides with news of the dourest nature. It’s nearly impossible to glimpse any hint of sunshine on the other side of the gathering gloom.
Given the state of affairs, parts of Sinclair’s commentary are applicable today. Contrary to what the doom-and-gloomers say, I believe that we “will come out of this thing with [our] flag held high.” We’re Americans. It’s what we do.
Even as kids we knew that times were turbulent. We could often see the worry in our parents’ faces about what was happening in the nation and in the world. We were at war in Vietnam and opposition to the war was strident. We were experiencing rapid inflation. The scandals surrounding President Nixon seemed to get worse with each passing day. The counter culture was in full bloom everywhere. The whole world seemed to be coming apart.
On June 5, 1973, Gordon Sinclair spoke on nationwide Canadian radio about the many favors Americans had done over the years for other nations, calling us “the most generous and possibly the least-appreciated people in all the world.” He talked about the mess we were in and strongly chided “the many smug, self-righteous” people that were “gloating over [America’s] present troubles.” His chiding was somewhat saucy for that era.
Sinclair’s talk so struck a chord that it was set to patriotic background music and released as a single under the title, “The Americans.” My brother was one of many Americans that bought a copy.
Until today, it had been years since I had heard or even thought about Sinclair’s single. But somehow, current events took me back to 1973. I didn’t remember much of the recording, except that the commentator’s name was Gordon, he was Canadian, he talked about America’s problems, and he said that Americans would “come out of this thing with their flag high.” I had completely forgotten that he had added, “And when they do, they are entitled to thumb their noses at the lands that are gloating over their present troubles.”
A lot has changed since Gordon Sinclair spoke those words 35 years ago. We are no longer the only nation that produces decent commercial aircraft, for example. Although, we are still the only nation that has sent humans to the moon.
The reason current events took me back to 1973 is that conditions today are similarly ominous. We are now being bombarded on all sides with news of the dourest nature. It’s nearly impossible to glimpse any hint of sunshine on the other side of the gathering gloom.
Given the state of affairs, parts of Sinclair’s commentary are applicable today. Contrary to what the doom-and-gloomers say, I believe that we “will come out of this thing with [our] flag held high.” We’re Americans. It’s what we do.
Monday, October 06, 2008
Is Banking Immoral?
Connor Boyack asserts in this post that our banking system is inherently immoral. At issue is the fractional-reserve system.
Most adults understand that the money they deposit in a bank is invested or loaned to others. It is not held in a massive vault like Scrooge McDuck’s money bin. That would be like you trying to privately loan money to someone but still retain the cash in your hand. The bank retains only a fraction (thus, the term fractional) of the actual deposits on hand (in reserve) to meet regular business needs. The bank acts as a clearance house that links up willing investors and those seeking investment capital.
The bank pays us interest for the amount we keep on deposit. The bank charges a higher rate of interest to those that take out loans. After subtracting operating costs, the difference between the interest paid by debtors and the interest paid out to depositors is profit to the bank.
Connor claims that this system is immoral, because most depositors expect to be able to access all of their funds at any time they wish. The system only works because the depositors generally do not all want all of their funds at the same time.
If depositors ever demand more funds than the bank holds in reserve, the bank cannot meet the demand. This is called a run on the bank. The bank would have to call in its loans and sell its investments to satisfy depositors’ demands for their funds.
As far as I can tell, there is no implication in this argument that the bank does not have sufficient assets to cover its liabilities. Rather, Connor seems to assert that fraud exists because deposit funds are expected to be far more liquid than the instruments into which those funds are invested.
Let’s put it this way. If you were to privately loan $5,000 to someone with the agreement that this amount would be repaid in monthly installments over a period of two years at a set interest rate, you would not expect to be able to call in the entire debt should you suddenly decide that you wanted to use that money to buy a car instead. You would patiently wait for each monthly payment to arrive. You would also bear the entire cost, should the debtor default on the loan.
However, if you take that same $5,000 and put it in a regular bank account, the bank might take that money and loan it out under a similar agreement to the one in the private loan example. For your trouble, the bank pays you a portion of the interest from the loan.
But you also expect to be able to walk into the bank tomorrow and pull out the entire $5,000, should you wish to do so. In addition, you expect that your funds will be available even if the debtor defaults on the loan. Thus, your deposited funds are highly liquid, while the corresponding debt is far less liquid.
To Connor this is fraud. I can only assume that he would want the bank to tell you at the time of deposit that you can only withdraw, say, $210 per month and that your funds are toast if the debtor fails to repay the loan.
I disagree that this system is inherently immoral or that fraud exists. Rather, the differences between depositor and debtor expectations of liquidity are calculated as risk. We receive information about the nature of the risk via the interest rates associated with the instruments involved. In fact, this is really the only way depositors and debtors have of understanding the risk of using the clearing house’s services.
Each of us engages in risk calculations on a daily basis. You put your life in jeopardy simply by walking out the door to go to work. Will the total cost (including value derived) of taking mass transit exceed the total cost of driving myself? Would it be better to be a few minutes late, or should I try to get there on an eighth of a tank of gas?
Sometimes we subcontract risk, such as with auto insurance. Even ordering something off the Internet to be delivered to your home is a type of risk subcontract. You transfer the risk of driving to the store to the professional UPS driver, for example. If the item arrives damaged, you expect the seller and/or shipper to bear the cost of replacing the item.
In these examples and many other daily risk transfer decisions, the costs of our actions are constantly in front of our faces helping us make informed decisions, even if we don’t understand how the whole system works.
I do not see that the use of a bank as a clearing house is much different than other types of risk transfers in which we regularly engage. The costs of the risks involved in depositing funds in a bank are readily apparent. If you choose a very low-interest deposit instrument, your funds are safer than if you choose a riskier investment. The bank bears the cost of failed loans usually with small impact to you.
Financial Immorality
The problem we run into is when the pricing mechanisms tied to banking transactions are messed up. The prices (interest rates) constitute the information we need to make informed decisions and to weigh alternatives. When anyone meddles with interest rates, we get inaccurate information. This causes investors and depositors to make faulty decisions, resulting in bad behavior.
When a business manipulates financial information, it is called fraud and it should be prosecuted. When the government meddles with interest rates it is called shoring up the economy, or some other politically correct term that is trumpeted by the media and swallowed up by citizens.
In the former case, a firm is trying to unfairly harm others to their benefit. In the latter case, the political class is inserting itself into the market under the guise of altruistically improving the common good (see Aschwin de Wolf article) — paving the road with noble intentions. But in either case, deception is being employed to manipulate the messages participants in the market rely on to make informed decisions. This is immoral.
As economist Judy Shelton noted in this WSJ article, it is not the overall system that is broken, but rather our medium of exchange — “the measure, the standard, the store of value -- which defines the very substance of the economic contract between buyer and seller.” She writes, “It is the money that is broken.”
In other words, our Federal Reserve System is at the heart of our current crisis. Shelton writes:
Even for those that disagree with me about the (im)morality of the private banking system, I suggest that they take a closer look at the inherent immorality of our public banking system. I hope people start thinking to themselves, “There has got to be a better and freer way.”
Most adults understand that the money they deposit in a bank is invested or loaned to others. It is not held in a massive vault like Scrooge McDuck’s money bin. That would be like you trying to privately loan money to someone but still retain the cash in your hand. The bank retains only a fraction (thus, the term fractional) of the actual deposits on hand (in reserve) to meet regular business needs. The bank acts as a clearance house that links up willing investors and those seeking investment capital.
The bank pays us interest for the amount we keep on deposit. The bank charges a higher rate of interest to those that take out loans. After subtracting operating costs, the difference between the interest paid by debtors and the interest paid out to depositors is profit to the bank.
Connor claims that this system is immoral, because most depositors expect to be able to access all of their funds at any time they wish. The system only works because the depositors generally do not all want all of their funds at the same time.
If depositors ever demand more funds than the bank holds in reserve, the bank cannot meet the demand. This is called a run on the bank. The bank would have to call in its loans and sell its investments to satisfy depositors’ demands for their funds.
As far as I can tell, there is no implication in this argument that the bank does not have sufficient assets to cover its liabilities. Rather, Connor seems to assert that fraud exists because deposit funds are expected to be far more liquid than the instruments into which those funds are invested.
Let’s put it this way. If you were to privately loan $5,000 to someone with the agreement that this amount would be repaid in monthly installments over a period of two years at a set interest rate, you would not expect to be able to call in the entire debt should you suddenly decide that you wanted to use that money to buy a car instead. You would patiently wait for each monthly payment to arrive. You would also bear the entire cost, should the debtor default on the loan.
However, if you take that same $5,000 and put it in a regular bank account, the bank might take that money and loan it out under a similar agreement to the one in the private loan example. For your trouble, the bank pays you a portion of the interest from the loan.
But you also expect to be able to walk into the bank tomorrow and pull out the entire $5,000, should you wish to do so. In addition, you expect that your funds will be available even if the debtor defaults on the loan. Thus, your deposited funds are highly liquid, while the corresponding debt is far less liquid.
To Connor this is fraud. I can only assume that he would want the bank to tell you at the time of deposit that you can only withdraw, say, $210 per month and that your funds are toast if the debtor fails to repay the loan.
I disagree that this system is inherently immoral or that fraud exists. Rather, the differences between depositor and debtor expectations of liquidity are calculated as risk. We receive information about the nature of the risk via the interest rates associated with the instruments involved. In fact, this is really the only way depositors and debtors have of understanding the risk of using the clearing house’s services.
Each of us engages in risk calculations on a daily basis. You put your life in jeopardy simply by walking out the door to go to work. Will the total cost (including value derived) of taking mass transit exceed the total cost of driving myself? Would it be better to be a few minutes late, or should I try to get there on an eighth of a tank of gas?
Sometimes we subcontract risk, such as with auto insurance. Even ordering something off the Internet to be delivered to your home is a type of risk subcontract. You transfer the risk of driving to the store to the professional UPS driver, for example. If the item arrives damaged, you expect the seller and/or shipper to bear the cost of replacing the item.
In these examples and many other daily risk transfer decisions, the costs of our actions are constantly in front of our faces helping us make informed decisions, even if we don’t understand how the whole system works.
I do not see that the use of a bank as a clearing house is much different than other types of risk transfers in which we regularly engage. The costs of the risks involved in depositing funds in a bank are readily apparent. If you choose a very low-interest deposit instrument, your funds are safer than if you choose a riskier investment. The bank bears the cost of failed loans usually with small impact to you.
Financial Immorality
The problem we run into is when the pricing mechanisms tied to banking transactions are messed up. The prices (interest rates) constitute the information we need to make informed decisions and to weigh alternatives. When anyone meddles with interest rates, we get inaccurate information. This causes investors and depositors to make faulty decisions, resulting in bad behavior.
When a business manipulates financial information, it is called fraud and it should be prosecuted. When the government meddles with interest rates it is called shoring up the economy, or some other politically correct term that is trumpeted by the media and swallowed up by citizens.
In the former case, a firm is trying to unfairly harm others to their benefit. In the latter case, the political class is inserting itself into the market under the guise of altruistically improving the common good (see Aschwin de Wolf article) — paving the road with noble intentions. But in either case, deception is being employed to manipulate the messages participants in the market rely on to make informed decisions. This is immoral.
As economist Judy Shelton noted in this WSJ article, it is not the overall system that is broken, but rather our medium of exchange — “the measure, the standard, the store of value -- which defines the very substance of the economic contract between buyer and seller.” She writes, “It is the money that is broken.”
In other words, our Federal Reserve System is at the heart of our current crisis. Shelton writes:
“Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year's crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives. We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan.”Whenever I mention the problems with the Fed and suggest that there are viable and better alternatives, people’s eyes tend to gloss over and the ticker tape running in the background starts spitting out, “Warning! Warning! Crazy lunatic!” They have accepted the propaganda about how much the Fed is needed to create economic stability (gee, that sure worked out well) and how awful things were in the days before the Fed.
Even for those that disagree with me about the (im)morality of the private banking system, I suggest that they take a closer look at the inherent immorality of our public banking system. I hope people start thinking to themselves, “There has got to be a better and freer way.”
Friday, October 03, 2008
A Time to Laugh
There isn’t much to be cheery about lately. Pretty much everything we have been barraged with has been quite negative. But even in the most serious of times, it is important to smile and laugh. Humor is an essential element to a balanced and happy life.
I once was attended by a neurologist that had an extremely dry wit. Moreover, he spoke in a nasally monotone that made intoned nuances and emotional intent elusive. I think that many people didn’t realize it at all, but this guy was constantly injecting humor. And much of it was pretty funny stuff.
Not everyone can appreciate deadpan humor. I have a brother that excels at it. I have another brother that is the family funny man. He’s been that way since we were kids. He has a natural ability to make people laugh. He even had the congregation laughing at my Dad’s funeral and it didn’t seem inappropriate at all.
I notice that my children have different styles of humor. My oldest son very much likes sarcasm. He doesn’t mind humor with a sharp edge or a dark hue to it.
My #2 son has worked at being funny over the past few months. He really came to love this Pablo Francisco comedy routine called Little Tortilla Boy:
My son liked it so much that he worked to mimic it, and then he expanded on it. A few weeks ago his high school had tryouts for acts for their homecoming assembly. My son tried out and was accepted.
I went to the auditorium the morning of the assembly with my video camera. The place was swarming. I had to stand at the back, where I had a good view of the stage, but was a fair distance away.
The girl that did the first act sang a patriotic country song. She had a beautiful voice, but she was not an entertainer. She just stood still and sang. This was just as school was starting. Many students were greeting each other and talking over her performance. The audience was not engaged with the performer. I felt badly for her.
Then my son came out and did his performance. It took only a few seconds for the audience to become engaged. The response was great. Even the teachers were impressed. Unfortunately my position made the images shaky and infused a lot of audience noise. Still, it’s a pretty good performance for a kid his age. And it’s funny.
I once was attended by a neurologist that had an extremely dry wit. Moreover, he spoke in a nasally monotone that made intoned nuances and emotional intent elusive. I think that many people didn’t realize it at all, but this guy was constantly injecting humor. And much of it was pretty funny stuff.
Not everyone can appreciate deadpan humor. I have a brother that excels at it. I have another brother that is the family funny man. He’s been that way since we were kids. He has a natural ability to make people laugh. He even had the congregation laughing at my Dad’s funeral and it didn’t seem inappropriate at all.
I notice that my children have different styles of humor. My oldest son very much likes sarcasm. He doesn’t mind humor with a sharp edge or a dark hue to it.
My #2 son has worked at being funny over the past few months. He really came to love this Pablo Francisco comedy routine called Little Tortilla Boy:
My son liked it so much that he worked to mimic it, and then he expanded on it. A few weeks ago his high school had tryouts for acts for their homecoming assembly. My son tried out and was accepted.
I went to the auditorium the morning of the assembly with my video camera. The place was swarming. I had to stand at the back, where I had a good view of the stage, but was a fair distance away.
The girl that did the first act sang a patriotic country song. She had a beautiful voice, but she was not an entertainer. She just stood still and sang. This was just as school was starting. Many students were greeting each other and talking over her performance. The audience was not engaged with the performer. I felt badly for her.
Then my son came out and did his performance. It took only a few seconds for the audience to become engaged. The response was great. Even the teachers were impressed. Unfortunately my position made the images shaky and infused a lot of audience noise. Still, it’s a pretty good performance for a kid his age. And it’s funny.
More Is Less
Well, the massive bailout bill that has been ‘improved’ with massive infusions of pork is now the law of the land (see AP article). The same government that created the conditions that caused the crisis will now print loads of money that it doesn’t have and distribute it pretty much however the imperial Treasury Department sees fit. This will, of course, solve the crisis.
And if you believe that, there’s a bridge I’d like to sell you.
Out of Utah’s five members of Congress, two voted against it (see KSL article). Rep. Rob Bishop (R) of the first congressional district and Rep. Jim Matheson (D) of the second congressional district both voted no. Outgoing Rep. Chris Cannon (R) of the third congressional district enthusiastically supported the bill, as did Sen. Bob Bennett (R). Sen. Orrin Hatch (R) gave some cautionary lip service, but ultimately voted for the bill, as did three quarters of all senators, because, “We’ve got to do something. Doing something is better than doing nothing.” I don’t even let my kids get away with such lame excuses.
Peggy Noonan finds the events of the past couple of weeks both historic and instructive. Questioning the seriousness of the economic condition, Noonan writes, “We have never seen an economic meltdown like this? We've never seen a presidential meltdown like this. George W. Bush's weakness is not all lame-duckship. … After the first bailout failed, Mr. Bush spoke like a man who was a mere commentator, not the leader in a crisis.”
Noonan explains why she thinks this is important:
While Noonan’s assessment of Bush’s weakness seems somewhat myopic, I think Noonan is right on a more significant point. Everything that Pres. Bush has accomplished with the passage of this bill diminishes him in many ways. It diminishes the institution of Congress. It diminishes the free market. And it diminishes each of us as Americans.
With the passage of the bailout, we are less — both individually and as a whole — than we were before. This accomplishment may even trump that of the damage Bill Clinton did to the office of the presidency. It’s kind of grand, in a rather macabre way.
And if you believe that, there’s a bridge I’d like to sell you.
Out of Utah’s five members of Congress, two voted against it (see KSL article). Rep. Rob Bishop (R) of the first congressional district and Rep. Jim Matheson (D) of the second congressional district both voted no. Outgoing Rep. Chris Cannon (R) of the third congressional district enthusiastically supported the bill, as did Sen. Bob Bennett (R). Sen. Orrin Hatch (R) gave some cautionary lip service, but ultimately voted for the bill, as did three quarters of all senators, because, “We’ve got to do something. Doing something is better than doing nothing.” I don’t even let my kids get away with such lame excuses.
Peggy Noonan finds the events of the past couple of weeks both historic and instructive. Questioning the seriousness of the economic condition, Noonan writes, “We have never seen an economic meltdown like this? We've never seen a presidential meltdown like this. George W. Bush's weakness is not all lame-duckship. … After the first bailout failed, Mr. Bush spoke like a man who was a mere commentator, not the leader in a crisis.”
Noonan explains why she thinks this is important:
“We witness here a great political lesson. When you are president, it matters—it really matters—that a majority of the people support and respect you. When you squander that affection, you lose more than mere popularity. You lose the ability to lead when your country is in crisis. This is a terrible loss, and a dangerous one, for the whole world is watching.”While Noonan’s observations strike a chord, she seems not to appreciate the fact that even as her article went to press, it was quite certain that the bailout bill would succeed the second time around. Pres. Bush, for all his squandering of trust and lame-duckness was able, with only 3½ months remaining in his presidency, to pass the single largest transfer of the private economy to centralized government control in the history of our nation. And he did so with masses of Americans clamoring for it to happen. Marx would be proud.
While Noonan’s assessment of Bush’s weakness seems somewhat myopic, I think Noonan is right on a more significant point. Everything that Pres. Bush has accomplished with the passage of this bill diminishes him in many ways. It diminishes the institution of Congress. It diminishes the free market. And it diminishes each of us as Americans.
With the passage of the bailout, we are less — both individually and as a whole — than we were before. This accomplishment may even trump that of the damage Bill Clinton did to the office of the presidency. It’s kind of grand, in a rather macabre way.
Monday, September 29, 2008
The Nature of Politics (part 2)
In part 1 I wrote about the beginning of my enlightenment about politics. Here I will explain my philosophy in a little more detail.
In the end, politics is about gaining power and exercising authority over others. Many that become particularly adept at it are simply playing a game. The desired result seems to justify the tactics, even if an honest assessment of those tactics leaves one feeling ‘dirty.’ Moreover, it’s often a long game where small actions are taken in the hope of producing some future advantage, or where short-term losses are sometimes accepted as part of a long-term strategy to achieve larger goals.
With the passage of years, I have become more jaded — and perhaps even cynical — about politics in general. While there are sometimes virtuous players involved, the basic nature of politics in every political system throughout history remains essentially the same. And virtue is a term that can seldom be appropriately applied to it. Indeed, politics seems to stand in stark contrast to human freedom. It is only in rare fits — usually against the will of established power holders — that any political system increases freedom.
Many of our Founders understood the basic nature of politics. They worked to design a system that pits the interests of competing groups against each other in the hope of keeping factions in check and maintaining some semblance of balance. They never expected that politics would somehow transform into a bastion of virtue, as various people throughout the history of this nation have hoped.
While politics exist in every organization of any kind, the most significant check on political power is the availability of other options. If I find the political climate at my employer unacceptable, I am free to seek employment elsewhere. When alternatives are unavailable or options become limited, political machinations increase and reduce human freedom. For this reason, healthy competition is a cause that should be championed.
Options are naturally limited when it comes to geopolitical entities. Governments have arrogated to themselves the ability to control the most minute detail of the lives of their residents. If I dislike the political climate in my city enough, I am free to move elsewhere. The same with county and state politics. And people do so choose, frequently as the result of tax structures. People even do this with nations, but not so much in the USA. Many people simply live with what they have because they find the (monetary and/or social) cost of moving to be too high.
We can see that while various political factions may bicker about peripheral points, there is often general consensus about the most significant points, regardless of which faction is in charge. This is because politicians tend to respond to the incentives in the political system in which they operate, acting mainly in their own self interests rather than in the interests of their constituents. These interests sometimes happily coincide, but often they do not.
Which faction is on top at any given moment is far less important than the overall culture of the political system in which the various politicians find themselves and the amount of control the system can exert. Since politics — especially when it comes to the professional level — is inherently a dirty business, individuals are best served when strict limitations are placed on how much control the system may have over the lives of people.
Michael Barone writes, “You can sum up much of 20th-century history by saying that in the 1930s Americans decided that markets didn’t work and government did, and that in the 1970s Americans decided that government didn’t work and markets did.”
Barone opines that due to voters’ attention to recent history and ignorance of long-term history, we could be on the verge of once again significantly increasing government control over the economy and over our individual lives.
I agree with Barone that this would be the wrong direction. But it seems to me that we are headed that direction right now regardless of which faction has power. We will likely need to learn a bitter lesson before the pendulum swings back the other way. I could be an old man by then.
In the end, politics is about gaining power and exercising authority over others. Many that become particularly adept at it are simply playing a game. The desired result seems to justify the tactics, even if an honest assessment of those tactics leaves one feeling ‘dirty.’ Moreover, it’s often a long game where small actions are taken in the hope of producing some future advantage, or where short-term losses are sometimes accepted as part of a long-term strategy to achieve larger goals.
With the passage of years, I have become more jaded — and perhaps even cynical — about politics in general. While there are sometimes virtuous players involved, the basic nature of politics in every political system throughout history remains essentially the same. And virtue is a term that can seldom be appropriately applied to it. Indeed, politics seems to stand in stark contrast to human freedom. It is only in rare fits — usually against the will of established power holders — that any political system increases freedom.
Many of our Founders understood the basic nature of politics. They worked to design a system that pits the interests of competing groups against each other in the hope of keeping factions in check and maintaining some semblance of balance. They never expected that politics would somehow transform into a bastion of virtue, as various people throughout the history of this nation have hoped.
While politics exist in every organization of any kind, the most significant check on political power is the availability of other options. If I find the political climate at my employer unacceptable, I am free to seek employment elsewhere. When alternatives are unavailable or options become limited, political machinations increase and reduce human freedom. For this reason, healthy competition is a cause that should be championed.
Options are naturally limited when it comes to geopolitical entities. Governments have arrogated to themselves the ability to control the most minute detail of the lives of their residents. If I dislike the political climate in my city enough, I am free to move elsewhere. The same with county and state politics. And people do so choose, frequently as the result of tax structures. People even do this with nations, but not so much in the USA. Many people simply live with what they have because they find the (monetary and/or social) cost of moving to be too high.
We can see that while various political factions may bicker about peripheral points, there is often general consensus about the most significant points, regardless of which faction is in charge. This is because politicians tend to respond to the incentives in the political system in which they operate, acting mainly in their own self interests rather than in the interests of their constituents. These interests sometimes happily coincide, but often they do not.
Which faction is on top at any given moment is far less important than the overall culture of the political system in which the various politicians find themselves and the amount of control the system can exert. Since politics — especially when it comes to the professional level — is inherently a dirty business, individuals are best served when strict limitations are placed on how much control the system may have over the lives of people.
Michael Barone writes, “You can sum up much of 20th-century history by saying that in the 1930s Americans decided that markets didn’t work and government did, and that in the 1970s Americans decided that government didn’t work and markets did.”
Barone opines that due to voters’ attention to recent history and ignorance of long-term history, we could be on the verge of once again significantly increasing government control over the economy and over our individual lives.
I agree with Barone that this would be the wrong direction. But it seems to me that we are headed that direction right now regardless of which faction has power. We will likely need to learn a bitter lesson before the pendulum swings back the other way. I could be an old man by then.
The Nature of Politics (part 1)
When I served as a chapter adviser in the Order of the Arrow (a fraternal Boy Scout service organization) I worked hard to get some of the adults to transition some of their authority to the elected youth leaders.
One of the key points of the OA is to develop youth leaders. As a boy, I had served as chapter chief (district level), lodge chief (council level), and section chief (part of an area). No doubt, it’s the adults that have the institutional memory and that provide the continuity for carrying out the program. But the program is mainly designed for the youth. Adults are to serve in support positions.
For the adults involved this can be challenging. Handing over the program to inexperienced youth can both decrease the adult volunteer’s level of enjoyment and increase the amount of work. It is essential to remember that the key purpose for being involved in the first place is to serve others.
The boys in the chapter once elected a young man to serve as chief that was very popular but was less dedicated than others. He expected the position because of his personality, not his performance. In a true example of the Peter Principle, this young man went on to become lodge chief. But I’m not particularly proud of the way it happened.
This boy came to me along with another of my chapter officers. They had decided that they wanted to run for lodge offices. The most powerful positions in our lodge at the time were chief and secretary. Having an understanding of the political lay of the situation, I suggested that they approach two other well liked, hard working young men that were from different parts of the lodge to fill the vice chief and treasurer positions. This would help shore up regional support. I suggested that they run a campaign as a team and I showed them how they could do this.
The two other boys accepted. The lodge had never seen ‘party’ politicking like that during lodge leadership elections before, so it was not difficult for the four boys to beat their opponents. But the results were less than optimal.
My lazy chapter chief became the lodge chief. He was popular (at least at first), but he shunted much of the actual work off to the other officers. Moreover, everything in the lodge became much more political. There was a general increase in contention about getting things done the way different factions wanted them done as opposed to actually accomplishing the mission of the order.
As these boys’ one-year term wore on, members of the lodge increasingly looked forward to a change in leadership. About that time I was approached by a couple of other boys about running an entire team for lodge leadership. I staunchly refused to help and advised against it. Open elections seemed to produce a better overall result.
A couple of years later, I had a chapter chief that was a very pure and genuine soul. Since adults don’t speak at executive meetings, I at first carefully coached him on what to say and how to maneuver to get things done at lodge executive committee meetings. One time, I was particularly proud of gaining some advantage in an executive committee meeting. I don’t even remember what it was.
On the way home from the meeting, my chief taught me an important lesson. When I congratulated him on his performance, he replied that he didn’t feel good about it. While the outcome had been desirable, the method of obtaining it wasn’t. He wasn’t involved to gain power over others or to engage in sly maneuvering. He was involved because he felt the need to serve others. This experience helped change my attitude about politics.
More in the next post.
One of the key points of the OA is to develop youth leaders. As a boy, I had served as chapter chief (district level), lodge chief (council level), and section chief (part of an area). No doubt, it’s the adults that have the institutional memory and that provide the continuity for carrying out the program. But the program is mainly designed for the youth. Adults are to serve in support positions.
For the adults involved this can be challenging. Handing over the program to inexperienced youth can both decrease the adult volunteer’s level of enjoyment and increase the amount of work. It is essential to remember that the key purpose for being involved in the first place is to serve others.
The boys in the chapter once elected a young man to serve as chief that was very popular but was less dedicated than others. He expected the position because of his personality, not his performance. In a true example of the Peter Principle, this young man went on to become lodge chief. But I’m not particularly proud of the way it happened.
This boy came to me along with another of my chapter officers. They had decided that they wanted to run for lodge offices. The most powerful positions in our lodge at the time were chief and secretary. Having an understanding of the political lay of the situation, I suggested that they approach two other well liked, hard working young men that were from different parts of the lodge to fill the vice chief and treasurer positions. This would help shore up regional support. I suggested that they run a campaign as a team and I showed them how they could do this.
The two other boys accepted. The lodge had never seen ‘party’ politicking like that during lodge leadership elections before, so it was not difficult for the four boys to beat their opponents. But the results were less than optimal.
My lazy chapter chief became the lodge chief. He was popular (at least at first), but he shunted much of the actual work off to the other officers. Moreover, everything in the lodge became much more political. There was a general increase in contention about getting things done the way different factions wanted them done as opposed to actually accomplishing the mission of the order.
As these boys’ one-year term wore on, members of the lodge increasingly looked forward to a change in leadership. About that time I was approached by a couple of other boys about running an entire team for lodge leadership. I staunchly refused to help and advised against it. Open elections seemed to produce a better overall result.
A couple of years later, I had a chapter chief that was a very pure and genuine soul. Since adults don’t speak at executive meetings, I at first carefully coached him on what to say and how to maneuver to get things done at lodge executive committee meetings. One time, I was particularly proud of gaining some advantage in an executive committee meeting. I don’t even remember what it was.
On the way home from the meeting, my chief taught me an important lesson. When I congratulated him on his performance, he replied that he didn’t feel good about it. While the outcome had been desirable, the method of obtaining it wasn’t. He wasn’t involved to gain power over others or to engage in sly maneuvering. He was involved because he felt the need to serve others. This experience helped change my attitude about politics.
More in the next post.
Friday, September 26, 2008
Well-Intended Tax Policy Helped Cause the Crisis
Plenty of blame has been passed around for the current financial crisis, mainly because there is plenty of blame to pass around and many share that blame. One factor that has not been much discussed is tax law.
GMU economist Russell Roberts in this post explains how a change in tax law created some of the perverse incentives that helped fuel the housing bubble. This piqued my interest, having had a career as a tax man earlier in life.
Years ago when I worked for IRS, people age 55 or older could exclude up to $125,000 capital gains on the sale of their home, provided it had been their primary residence in at least 3 of the preceding 5 years. But you could only do this once in your lifetime.
The way it worked back in those days was that each time you sold your home and bought a new one, you would reduce the basis of your new home by any long-term capital gain on the sale of your old home. There were limits on how much time you had to make the transition, but it worked out for most people. (Oddly, while taxpayers have always had to recognize the capital gain on the sale of their home, they are unable to recognize any capital loss should they sell at a loss.)
Then when you were a senior citizen and sold your home, you would take the lifetime $125,000 exclusion on the long-term capital gain from the sale. This prevented seniors from getting whacked with a big tax bill from simply selling their home because, arguably, the net present value of the capital gain over 30 or 40 years was roughly the rate of inflation. In other words, the home seller really didn’t make any money on the sale when the time value of money was figured in.
Then back during the Clinton/GOP Congress years, lobbyists for the real estate and banking industries were successful in getting Congress to change the exclusion as part of the Taxpayer Relief Act of 1997, which enjoyed broad bipartisan approval. Our nation had become far more mobile, went the argument. There are many people under age 55 that must sell their home for one reason or another and for various reasons are unable to purchase a new home within the legal time limit.
So the law was changed to permit the exclusion if the sold home was your primary (or in some cases even your secondary) residence in 2 of the preceding 5 years. The gain limit was raised to $500,000. The age requirement and the limit on using the exclusion once in a lifetime were dropped. Plus a plethora of “unforeseen events” were specified that allowed the exclusion to be taken even if the 2-year time period was not satisfied.
Here’s where the law of unintended consequences kicked in. This tax law change created a huge incentive for people to turn their homes into speculative investment properties as opposed to low- (or no-) growth savings mechanisms. Instead of having to wait 30 years to get tax-free gains from the sale of a home, you now only had to wait two years.
OK, children, let’s ask this question. If you invest in equities or bonds for two years and sell them at a profit, you’re going to pay 15% federal capital gains tax plus state and local taxes on that profit. If you invest in a house for two years and sell it at a profit, you’re going to pay no taxes on the gain at all. Which investment are you going to choose?
It’s true that our politicians probably felt that the law change would encourage more home ownership, which is viewed as a positive thing. But Chris Farrell at Business Week wrote in 2005 that as a result of the tax inequity, “Money is pouring into concrete foundations rather than high-tech innovation.” Once again, we see an example of how government action created incentives that perversely skewed the marketplace, based on the best of intentions and lots of lobbying money.
It was well known that the home building boom couldn’t go on forever, but many wanted to get as much out of it as they could for as long as they could. Just as a binge drinker knows he will have a hangover in the morning, it was widely known that the housing market would eventually bust. But only the doom-and-gloomers came close to accurately predicting how bad it would be.
The change in the tax law I have discussed was, of course, not the only source of the sub-prime crisis that we are experiencing today. It is just one factor that seems to have been overlooked in most analyses of the problem.
Now, here’s my prediction. You won’t see the Bush administration, the next administration, this Congress, or the next Congress rush to do anything to correct the capital gain tax inequity. Thus, the incentive for behavior harmful to the economy will continue to exist.
GMU economist Russell Roberts in this post explains how a change in tax law created some of the perverse incentives that helped fuel the housing bubble. This piqued my interest, having had a career as a tax man earlier in life.
Years ago when I worked for IRS, people age 55 or older could exclude up to $125,000 capital gains on the sale of their home, provided it had been their primary residence in at least 3 of the preceding 5 years. But you could only do this once in your lifetime.
The way it worked back in those days was that each time you sold your home and bought a new one, you would reduce the basis of your new home by any long-term capital gain on the sale of your old home. There were limits on how much time you had to make the transition, but it worked out for most people. (Oddly, while taxpayers have always had to recognize the capital gain on the sale of their home, they are unable to recognize any capital loss should they sell at a loss.)
Then when you were a senior citizen and sold your home, you would take the lifetime $125,000 exclusion on the long-term capital gain from the sale. This prevented seniors from getting whacked with a big tax bill from simply selling their home because, arguably, the net present value of the capital gain over 30 or 40 years was roughly the rate of inflation. In other words, the home seller really didn’t make any money on the sale when the time value of money was figured in.
Then back during the Clinton/GOP Congress years, lobbyists for the real estate and banking industries were successful in getting Congress to change the exclusion as part of the Taxpayer Relief Act of 1997, which enjoyed broad bipartisan approval. Our nation had become far more mobile, went the argument. There are many people under age 55 that must sell their home for one reason or another and for various reasons are unable to purchase a new home within the legal time limit.
So the law was changed to permit the exclusion if the sold home was your primary (or in some cases even your secondary) residence in 2 of the preceding 5 years. The gain limit was raised to $500,000. The age requirement and the limit on using the exclusion once in a lifetime were dropped. Plus a plethora of “unforeseen events” were specified that allowed the exclusion to be taken even if the 2-year time period was not satisfied.
Here’s where the law of unintended consequences kicked in. This tax law change created a huge incentive for people to turn their homes into speculative investment properties as opposed to low- (or no-) growth savings mechanisms. Instead of having to wait 30 years to get tax-free gains from the sale of a home, you now only had to wait two years.
OK, children, let’s ask this question. If you invest in equities or bonds for two years and sell them at a profit, you’re going to pay 15% federal capital gains tax plus state and local taxes on that profit. If you invest in a house for two years and sell it at a profit, you’re going to pay no taxes on the gain at all. Which investment are you going to choose?
It’s true that our politicians probably felt that the law change would encourage more home ownership, which is viewed as a positive thing. But Chris Farrell at Business Week wrote in 2005 that as a result of the tax inequity, “Money is pouring into concrete foundations rather than high-tech innovation.” Once again, we see an example of how government action created incentives that perversely skewed the marketplace, based on the best of intentions and lots of lobbying money.
It was well known that the home building boom couldn’t go on forever, but many wanted to get as much out of it as they could for as long as they could. Just as a binge drinker knows he will have a hangover in the morning, it was widely known that the housing market would eventually bust. But only the doom-and-gloomers came close to accurately predicting how bad it would be.
The change in the tax law I have discussed was, of course, not the only source of the sub-prime crisis that we are experiencing today. It is just one factor that seems to have been overlooked in most analyses of the problem.
Now, here’s my prediction. You won’t see the Bush administration, the next administration, this Congress, or the next Congress rush to do anything to correct the capital gain tax inequity. Thus, the incentive for behavior harmful to the economy will continue to exist.
Thursday, September 25, 2008
The Bailout: A Pattern Emerges
There are now oodles of articles about the bailout plan, both pro and con. Despite my personal opposition (and that of most Americans per polling), Congress seems poised to pass some form of the bill within the next few days (if not in the next few hours).
Yesterday, the Wall Street Journal editors laid out their support of the general bill, adding a few suggestions about certain details. On the same page, several respected financial big wigs expressed their concerns, but ultimately suggest that it could work if these issues are properly addressed. Even some hard core conservatives are saying that there is apparently no other way to deal with the financial crisis (see NRO article).
While some argue that this plan will actually turn a profit for taxpayers over time, the guys that ran the Resolution Trust Corp and the FDIC during the Savings & Loan bailout point out some realities that nobody else seems to be talking (or even thinking) about. And these guys at least have some experience in managing something similar to this proposed bailout.
Conservative U.S. Senator Jim DeMint (R-SC) has been an outspoken critic of the bailout. While others are warning of a massive recession if we don’t immediately cede great powers to the Treasury, DeMint warns:
The editor of the Myrtle Beach Sun News says DeMint’s plan is “faith-based,” in that no one can say for sure whether it would really work. But he also notes that the Bush plan is also in the same boat. He writes:
Despite these voices, I’m not holding my breath waiting for the Beltway crowd to actually pursue any of these avenues. They do not really believe in the free market (other than as a name for big businesses that give them cash in return for policies that create barriers for their competition). They obviously believe in Big Government. And they believe that, despite the unpopularity of the bailout plan, it will help them win their next election.
An anonymous commenter on Frank Staheli’s post about the bailout debacle writes that “the most striking in all this ordeal is not that our government, or our representatives are against their electorate but the ultimate impotence of the same electorate.” To the commenter, this is evidence that we are actually living in a feudal system. Others may look at this and conclude that it is evidence of a republic. (Do average Americans even know enough civics to know the difference?)
Regardless of what I or others that oppose this bailout think should happen, it seems almost certain that we will all be living with the results of the bailout for a long time to come. And I believe that means that the bailout will ultimately cause another crisis down the road a bit due to the law of unintended consequences. But don’t worry. Our political class in that day will swoop in, claiming to be the heroes that can solve that crisis. It’s a self-perpetuating pattern.
Yesterday, the Wall Street Journal editors laid out their support of the general bill, adding a few suggestions about certain details. On the same page, several respected financial big wigs expressed their concerns, but ultimately suggest that it could work if these issues are properly addressed. Even some hard core conservatives are saying that there is apparently no other way to deal with the financial crisis (see NRO article).
While some argue that this plan will actually turn a profit for taxpayers over time, the guys that ran the Resolution Trust Corp and the FDIC during the Savings & Loan bailout point out some realities that nobody else seems to be talking (or even thinking) about. And these guys at least have some experience in managing something similar to this proposed bailout.
Conservative U.S. Senator Jim DeMint (R-SC) has been an outspoken critic of the bailout. While others are warning of a massive recession if we don’t immediately cede great powers to the Treasury, DeMint warns:
“This plan will not only cause our nation to fall off the debt cliff, it could send the value of the dollar into a free-fall as investors around the world question our ability to repay our debts. It's also very likely that this plan will extend the cycle of bailouts, encouraging other companies to behave in reckless ways that create the need for even more bailouts, triggering an endless run on our treasury. This plan may make things look better for Wall Street in the next couple months, but the long-term consequences to our economy could be disastrous.”DeMint goes on to suggest that there are “much better ways of dealing with this problem than forcing American taxpayers to pay for every asset some investor doesn't want anymore.” He wants a more comprehensive approach that addresses the underlying causes of the problem and institutes “pro-growth reforms.” Besides, he has said that it is ridiculous to entrust the same people that created this mess with cleaning it up. The government simply doesn’t have the capacity to do it, he argues.
The editor of the Myrtle Beach Sun News says DeMint’s plan is “faith-based,” in that no one can say for sure whether it would really work. But he also notes that the Bush plan is also in the same boat. He writes:
“It all comes down to what kind of people we are. Are we Americans semi-shorn sheep, hoping that the gurus can save us from the chaos wrought, at heart, by the foolish belief that housing prices would always rise? Are we content to let the government, in effect, reward bad behavior by sparing us further losses on our home equity and our stock portfolios?DeMint isn’t the only voice out there proposing alternatives to the bailout. Even radio financial commentator Dave Ramsey offers a solution. Deroy Murdock writes that “there actually are desirable alternatives to building socialism and saddling every American man, woman, and child with another $2,300 in unjustified federal spending.” He outlines a cogent free-market alternative that some “practicing Reaganites” offer that won’t put the taxpayers deeply in (further) hock.
“Or, as DeMint and his cohorts are hoping, are we willing to risk a private-side solution that relies on the increased certainty of profit to draw fresh private money into the financial system? If we're really the democratic-capitalist true believers we say we are (at least when times are good), as he sees it, we should give the markets the tools they need to fix themselves then stand back and watch it happen.”
Despite these voices, I’m not holding my breath waiting for the Beltway crowd to actually pursue any of these avenues. They do not really believe in the free market (other than as a name for big businesses that give them cash in return for policies that create barriers for their competition). They obviously believe in Big Government. And they believe that, despite the unpopularity of the bailout plan, it will help them win their next election.
An anonymous commenter on Frank Staheli’s post about the bailout debacle writes that “the most striking in all this ordeal is not that our government, or our representatives are against their electorate but the ultimate impotence of the same electorate.” To the commenter, this is evidence that we are actually living in a feudal system. Others may look at this and conclude that it is evidence of a republic. (Do average Americans even know enough civics to know the difference?)
Regardless of what I or others that oppose this bailout think should happen, it seems almost certain that we will all be living with the results of the bailout for a long time to come. And I believe that means that the bailout will ultimately cause another crisis down the road a bit due to the law of unintended consequences. But don’t worry. Our political class in that day will swoop in, claiming to be the heroes that can solve that crisis. It’s a self-perpetuating pattern.
Monday, September 22, 2008
Bigger, Faster Legislation Is Not Better
A friend of mine once complained that our form of government is often far too slow in responding to issues. I answered that there are plenty of dictatorships where things get done rapidly.
Our Founders intended for government to be a thoughtful, deliberative process. It has been my observation that, except for a small handful of instances, we create bigger problems when everyone in Washington quickly agrees about major issues and politicians on both sides of the aisle line up to pass legislation Pall Mall.
Now, Congress is poised to pass the Bush Administration’s $700 billion “relief package” (aka bailout) of big Wall Street firms that have taken risky financial positions over the past few years (see AP article). You, the American taxpayer, are about to be put on the hook for more money than you can imagine. In a bizarre accounting action, it probably will even be excluded from the federal budget so that we don’t have to feel so bad about it year after year.
A few (apparently very few) are urging a slower, more deliberative approach. Others (including some that actively helped cause the crisis) are clamoring for stronger oversight than is planned by the administration. They also want caps on the salaries of executives of companies that receive a government bailout. But most Washington insiders expect the legislation to pass this week.
Democracy Lover noted in a comment on this post, “Now the "free market" Republicans (with Democratic assent) have engineered the largest nationalization in human history and created the largest socialist bank ever.” And that was before this latest power grab to assume even more control of U.S. financial markets.
Clinton confidante Lanny Davis writes in today’s Wall Street Journal:
The CEI’s John Berlau explains in this WSJ article and this subsequent post that mark-to-market rules have caused otherwise stable banks to write down the value of their mortgage assets. The rules were intended to prevent banks from hiding bad loans, but instead they have caused a wholesale devaluation of loans.
Think about it this way. A poorly cared for home in your neighborhood is foreclosed on and sold for 32% of its normal value. Instead of marginally affecting the general home values in the neighborhood, mark-to-market would essentially dictate that all homes in the neighborhood — including yours — are suddenly worth only 32% of what they were worth the day before the foreclosure sale took place.
Berlau goes on to explain that the proposed $700 billion power grab will not only fail to resolve the problem, but will actually function to make matters worse. It will cause more “fire sales,” causing loan values at even stable banks to be marked down to pennies on the dollar. Berlau suggests that this will not save the economy, but will “build a Big Government that serves Wall Street.”
The lesson is that when both parties line up to pass major legislation, you’d better hold onto your pocketbook. I have felt that divided government might generally prevent these kinds of actions, but we have divided government today and we’re still going to pass this bad deal. So just go back to your daily diversions and ignore the massive KA-CHING you hear coming from inside the Beltway and from Wall Street.
Our Founders intended for government to be a thoughtful, deliberative process. It has been my observation that, except for a small handful of instances, we create bigger problems when everyone in Washington quickly agrees about major issues and politicians on both sides of the aisle line up to pass legislation Pall Mall.
Now, Congress is poised to pass the Bush Administration’s $700 billion “relief package” (aka bailout) of big Wall Street firms that have taken risky financial positions over the past few years (see AP article). You, the American taxpayer, are about to be put on the hook for more money than you can imagine. In a bizarre accounting action, it probably will even be excluded from the federal budget so that we don’t have to feel so bad about it year after year.
A few (apparently very few) are urging a slower, more deliberative approach. Others (including some that actively helped cause the crisis) are clamoring for stronger oversight than is planned by the administration. They also want caps on the salaries of executives of companies that receive a government bailout. But most Washington insiders expect the legislation to pass this week.
Democracy Lover noted in a comment on this post, “Now the "free market" Republicans (with Democratic assent) have engineered the largest nationalization in human history and created the largest socialist bank ever.” And that was before this latest power grab to assume even more control of U.S. financial markets.
Clinton confidante Lanny Davis writes in today’s Wall Street Journal:
“Now I know what former Sen. Gary Hart meant when he told an audience of wealthy Republican businessmen during his 1984 presidential campaign, "I know why you are conservatives -- you favor private enterprise for the poor and socialism for the rich."”The knee-jerk reaction to all of this is to increase government regulation. The funny thing is that it was more regulation — brought on as the result of the Savings and Loan crisis in the 80s and 90s — that is at the heart of the current crisis.
The CEI’s John Berlau explains in this WSJ article and this subsequent post that mark-to-market rules have caused otherwise stable banks to write down the value of their mortgage assets. The rules were intended to prevent banks from hiding bad loans, but instead they have caused a wholesale devaluation of loans.
Think about it this way. A poorly cared for home in your neighborhood is foreclosed on and sold for 32% of its normal value. Instead of marginally affecting the general home values in the neighborhood, mark-to-market would essentially dictate that all homes in the neighborhood — including yours — are suddenly worth only 32% of what they were worth the day before the foreclosure sale took place.
Berlau goes on to explain that the proposed $700 billion power grab will not only fail to resolve the problem, but will actually function to make matters worse. It will cause more “fire sales,” causing loan values at even stable banks to be marked down to pennies on the dollar. Berlau suggests that this will not save the economy, but will “build a Big Government that serves Wall Street.”
The lesson is that when both parties line up to pass major legislation, you’d better hold onto your pocketbook. I have felt that divided government might generally prevent these kinds of actions, but we have divided government today and we’re still going to pass this bad deal. So just go back to your daily diversions and ignore the massive KA-CHING you hear coming from inside the Beltway and from Wall Street.
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