Government bailout turns a profit

According to Bloomberg news:

The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than they could have made buying 30-year Treasury bonds

I'll be honest; my first reaction to this was, "Oh no, I'm going to be forced to admit that the government did something right". Indeed, according to the article, the government invested $309 billion in Wall Street bailouts via the so-called TARP program, of which, about $200 billion has been repaid. Not only that, though. The government has also earned $25 billion on its investment. What's not to like?

How about the fact that the bailouts didn't actually work? Unemployment actually skyrocketed while the government was supposedly making this profit. These unemployment numbers are "official" ones, by the way. "Real" unemployment is actually nearly twice as high, and even that number doesn't paint a totally accurate picture of the economy. It fails to account for falling wages, part time workers who had and/or want full time work, and those who simply are no longer looking.

Here's the real reason to be upset about the bailout, though, and Bloomberg, to its credit, points it out.

One of those subsidies [to the banks] is the $350 billion that savers forgo each year because the Fed keeps interest rates near zero, according to Petzel’s calculations. While banks can borrow at close to zero from the Fed, they lend to consumers and corporations at almost 5 percent, or to the Treasury at 2.5 percent, and they get to keep the difference.

Take a second to do the math. The American taxpayers have given up over $700 billion (so far). That is more than double what the government originally invested and gained via that investment. So, we have the taxpayers, the government, and the banks. Government comes out $25 billion ahead. Banks come out $700 billion ahead. (This is debatable since the banks also took losses. However, those losses are mitigated by this $700 billion). Taxpayers come out $700 billion behind plus the wrecked economy.

It doesn't end there, though.

According to Prins’s tally, the money plowed into the financial system to prop it up peaked at $19.4 trillion. Banks have benefited from that cash, which helped keep prices of mortgage securities, house prices and other assets overvalued, Prins said in an interview. Even though some of the support has been withdrawn, part of it will likely be lost, such as the hundreds of billions of dollars put into Fannie Mae and Freddie Mac, she said.

"These are all indirect subsidies the banks got," Prins said. "So the TARP gains touted by the Treasury are only true if you ignore all the other costs."

Keep these other costs in mind the next time someone tries to tell you that the bailouts worked or that the government (and supposedly, by extension, the taxpayers) actually made money on the deal.

Men are not angels

For those who didn't pick up on the title of this post, it is a reference to a post from last week entitled "If Men Were Angels". That post's title and most of its content were shamelessly lifted from an article of the same name which itself gets the phrase from James Madison's writing in Federalist No. 51. The same day on which that article was posted, news of an excerpt from a book by former chairman of the Joint Chiefs of Staff under Clinton and then Bush, General Hugh Shelton, hit the Interwebs. This news was unfortunately buried by virtue of its coming out on a Friday.

In the book, the general relates a story of a conversation he had with a Clinton cabinet member during one of their weekly breakfasts.

At one of my very first breakfasts, while Berger and Cohen were engaged in a sidebar discussion down at one end of the table and Tenet and Richardson were preoccupied in another, one of the Cabinet members present leaned over to me and said, "Hugh, I know I shouldn’t even be asking you this, but what we really need in order to go in and take out Saddam is a precipitous event — something that would make us look good in the eyes of the world. Could you have one of our U-2s fly low enough — and slow enough — so as to guarantee that Saddam could shoot it down?"

The general doesn't explicitly say with whom he was speaking at the time, but the general consensus seems to be that it was the same person who gave this interview.

I was actually really surprised to hear of someone as far back as the Clinton administration suggesting something like allowing one of our own to be shot down in order to provoke war. To be honest, this is something I would have expected to hear come out of the Bush/Cheney White House. Not only was this person willing to purposely send one of our own to die, but he/she was willing to do so to enable the killing of probably tens, if not hundreds, of thousands more. It really is regrettable that stories like this don't get more play. I think it is imperative that people understand that this is what the State is capable of. Even if one is unwilling to accept the premise that such behavior is commonplace or routine and instead believes that false flag operations are the things of spy novels, it should be a very sobering thought that people at the highest levels of government are even capable of suggesting such a thing out loud and with a straight face.

Let's give credit where credit is due, though.

The hair on the back of my neck bristled, my teeth clenched, and my fists tightened. I was so mad I was about to explode. I looked across the table, thinking about the pilot in the U-2 and responded, "Of course we can ..." which prompted a big smile on the official’s face.

"You can?" was the excited reply.

"Why, of course we can," I countered. "Just as soon as we get your ass qualified to fly it, I will have it flown just as low and slow as you want to go."

Brav-o! The military, in some circles, gets a bad rap for being a bunch of warmongers and killers, and I don't know much about this particular general's career, but for this show of cojones, he earns a gold star in my book. I am in constant fear, though, that over time people like this will disappear or lose their sway within government. This quote, attributed to Edmund Burke, looms large:

All that is necessary for the triumph of evil is that good men do nothing.

Follow the money, part 1

I mentioned to my dad recently that money is the best way to determine what people really believe; he kind of chuckled at the notion. I made the same point again the other day when I posted a link to a story about Carl Paladino renting space to Planned Parenthood in spite of his anti-abortion political platform. The same could also be said of Al Gore's recently purchased ocean view property in Monticello, CA. If he believes the oceans are going to rise due to global warming, why would he live on the coast? Then again, maybe "believe" is the wrong word. Perhaps money is better at determining priorities. Maybe Al Gore really does believe that the oceans are going to rise, but it's probably a ways off and he'd really like to live by the beach until then. Maybe Mr. Paladino really does believe that abortion is murder, but he likes profit just a little bit more.

The concept certainly isn't new. Consider the phrases "put your money where your mouth is", "talk is cheap", "actions speak louder than words", etc. Note that the first two idioms make a direct reference to money. The latter refers to "actions" which take time to implement, and time is often equated with money. That's a kind of a stretch, though, so I'll generalize that people will make an "investment" in the things that they care about. Investment does not even necessarily have to refer to time or money. Rather investment, in this context, simply means the use of something valuable to further, reach, or effect an end.

My point in all of this is this: A person will invest in things relative to the importance of those things to him. As I've said, this investment doesn't necessarily have to be money, but money is easily quantifiable and is almost, if not completely, universally regarded as valuable. So, here are some examples (in addition to those above) of money showing what is really important to people:

• It's a generally accepted fact that Christians, on average, tithe 2-3% of their income rather than the commanded 10%. (The slightly bigger house, fast food, cable TV, etc. are arguably more important than the 10% "donation".) [By the way, please don't flame me. I fall into this group, and I know it's wrong.]
• Walmart is still in business (and profiting) despite its wide regard as a pariah among businesses by its employees and customers. (Low prices and employment are a bigger concern than Walmart's business practices and the "plight" of its workers.)
• Consumers have rejected the compostable Sun Chips bag because of its aesthetics despite the wide outcry for "green" products. (The loudness of the bag is a bigger factor than "saving the planet" via reducing waste.)

It is absolutely not my intention to "call anybody out" as a hypocrite for saying one thing and doing another (i.e. if you fall into one of the aforementioned groups). My point is simply that investment (usually money) is perhaps the best way to determine what is truly important to people.

If Men Were Angels

There was, what I considered to be, a truly outstanding article over on the Mises Daily this morning about the "disaster" that would befall mankind if the State were to disappear. I'm going to shamelessly reprint portions of it here. The author starts by quoting a portion of The Federalist No. 51:

The great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.[1]

and derives the following table from Madison's writing:

	Anarchy	State Control
Men == Angels	OK	OK
Men != Angels	Impossible	Best that can be done

The author then argues:

One need not spend much time, however, to find theoretical arguments — some of them worked out in great detail and at considerable length[4] — about why and how a stateless society could work successfully. Moreover, researchers have adduced historical examples of large stateless societies, ranging from the ancient Harappan civilization of the Indus Valley[5] to Somalia during the greater part of the past decade and a half.[6] Given the enormous literature that has accumulated on stateless societies in theory and in actual operation, we may conclude that, if nothing else, such societies are conceivable.[7]

and derives the following table in light of his argument:

	Anarchy	State Control
Men == Angels	OK	OK
Men != Angels	Bad	Worse

Finally, he supports his conclusion by stating:

Although I admit that the outcome in a stateless society will be bad, because not only are people not angels, but many of them are irredeemably vicious in the extreme, I conjecture that the outcome in a society under a state will be worse, indeed much worse, because, first, the most vicious people in society will tend to gain control of the state[8] and, second, by virtue of this control over the state's powerful engines of death and destruction, they will wreak vastly more harm than they ever could have caused outside the state.[9] It is unfortunate that some individuals commit crimes, but it is stunningly worse when such criminally inclined individuals wield state powers.

Lest anyone protest that the state's true "function" or "duty" or "end" is, as Locke, Madison, and countless others have argued, to protect individuals' rights to life, liberty, and property, the evidence of history clearly shows that, as a rule, real states do not behave accordingly. The idea that states actually function along such lines or that they strive to carry out such a duty or to achieve such an end resides in the realm of wishful thinking.

City gets up on its high horse

This morning I caught a story about a proposed jewelery/pawn shop trying to open in downtown Oceanside.

A plan to open an upscale pawn shop in the heart of downtown Oceanside ran into a wall of opposition from a citizens advisory group Wednesday whose members said a pawn shop wasn't what they had in mind for revitalizing the area.

[...]

The committee voted 5-0 to advise the City Council to reject a proposal to open a pawn shop in a vacant store at 205 N. Coast Highway.

This seemed like kind of a bummer to me. The last time my wife and I were in the downtown Oceanside area, we tried to go into a pawn shop. We thought it would be fun to look around. (The place was closed on the day that we were there, unfortunately.) And this place looks like it would be more of a jewelery than pawn shop, anyway.

The pawn shop ---- Coast Jewelry & More ---- would deal in "mostly high-end jewelry pieces and watches," said Jason Lambert, who would manage the store. "We want to fit in, and we want to make everyone happy."

Over time, the focus of the store would likely shift away from offering loans on pawned items to a more conventional retail operation, Lambert said, although he said it would continue offering collateral loans.

The advisory group sees it differently, though.

But committee members said a downtown pawn shop would harken back to a past the city is trying to leave behind, when downtown had a reputation for sleazy bars, strip joints and tattoo parlors.

"It's the wrong location, downtown, as we're trying to bring in more residential and tourists," said committee member Carolyn Krammer. "We don't want our tourists to be subject to people trying to pawn merchandise."

Is the committee afraid that people are going to begin trying to sell their wares to tourists right on the street (as if that weren't already possible)? Or do they just detest the "kind of people" who would patronize a pawn shop for a loan? One thing is clear; the group isn't actually interested in "redevelopment" or increased tax revenue.

[...] the owner of the proposed store, David Mueller, would remodel what has been a vacant space for more than four years and has been "kind of an area for people to hang out and maybe do things we're not crazy about."

Former Oceanside newspaper publisher Tom Missett, who presented the pawn shop plan to the committee, said Mueller would invest about $2 million on the pawn shop.

The committee would prefer that the building (already owned by Mr. Mueller!) remain vacant. His $2 million investment isn't the "kind of money" they want. But the insanity doesn't end with the committee.

Oceanside police also oppose the plan, fearing a new pawn shop would lead to more crime downtown and mean more work for a department already stretched thin, said Lt. Valencia Saadat.

According to police statistics, seven arrests have been made so far this year related to stolen property taken in by pawn shops and $21,000 in stolen property has been recovered.

Maybe I'm reading this wrong, but it seems to me that stolen goods were recovered and the offenders arrested and taken off the streets because of pawn shops. Those crimes likely would have never been solved if those goods had simply been sold on the street. The police don't want the extra work (doing what they're paid to do!), though. They don't want it even though the shop manager is willing to jump through all sorts of hoops to make their jobs easier in order to get his store opened.

Besides installing security cameras throughout the store, Lambert said anyone pawning items would have to show identification, sign a slip saying the property belonged to them and have photographs taken of themselves and whatever they're pawning. He said the photographs and other information would be made available to police daily.

Apparently the insanity isn't limited to the city. Sign a slip saying the property isn't stolen? If he thinks that is going to work, then why submit information to the police on a daily basis? Why not just go all the way and take finger prints and a DNA swab? It's too bad. I wouldn't sell anything to a shop that treats its customers like common criminals in this way.

And finally, we have the government serving its own interest.

Bartlett said he'd be fine with the business if it was a jewelry store, but the very use of the term pawn shop is troubling.

"That's semantics but it bothers me," said Bartlett, who lives downtown."I will be strung up if my neighbors are told we are going to have a pawn shop in downtown."

We certainly wouldn't want Mr. Bartlett to lose his position of power, looking down on honest people and crushing their entrepreneurial spirit because he doesn't like the type of business they would open or the clientele it might draw. That empty building will be a much better symbol of his ability to direct the redevelopment of the downtown area.

The state just can't win

I'm not sure how to feel about this:

The state [of California] announced Monday it is selling 24 government office buildings — including the Ronald Reagan State Building in Los Angeles and the San Francisco Civic Center — to a group of private investors for $2.3 billion.

One the one hand, I'm glad to see the state getting serious about trying to pay its bills, and all the more so because it is doing so by putting the land into private hands where it can be used to boost the economy:

"This sale will allow us to bring in desperately needed revenues and free the state from the ongoing costs and risks of owning real estate." Gov.Arnold Schwarzenegger and lawmakers included the sale as part of the state budget last week.

On the other hand, this only helps the state once and unfortunately it appears that the forest is being obscured by the trees:

The Associated Press reported earlier this year that the deal would end up costing the state $5.2 billion in rent over 20 years, perhaps saddling taxpayers with costs beyond whatever the state would net from the sale.

[...]

The nonpartisan legislative analyst's office also warned that selling the properties then renting back the space could cost the state an additional $1.5 billion, based on a 35-year projection.

Government serves its own interest

Last month, a federal district court judge struck down the military's "Don't Ask, Don't Tell" policy as unconstitutional. Yesterday, that same judge issued an injunction barring its enforcement. It's nice to see someone in government doing something right even when it is for the wrong reason(s). In her ruling, the judge wrote (emphasis mine):

Far from furthering the military's readiness, the discharge of these service men and women had a direct and deleterious effect on this governmental interest.

Governmental interest? What is that? Since when does the government have an interest? That's probably the wrong question; the idea of "governmental" interest goes back a long way. What I find interesting (and disturbing) is the idea, apparently codified in case law if not statutory law, that the government is a separate entity from the people. In reality, the people have an interest, and the government is supposed to serve that interest. At least, that is what our founding and governing documents would have us believe.

In addition, the government's interest appears to extend to preventing gays from marrying, not just serving in the military. President Obama has directed the justice department to appeal a July ruling against the 1996 Defense of Marriage Act:

"As a policy matter, the President has made clear that he believes DOMA is discriminatory and should be repealed," said Justice Department spokeswoman Tracy Schmaler. "The Justice Department is defending the statute, as it traditionally does when acts of Congress are challenged."

Essentially, what this spokesperson is saying is, "We don't like the law, but we have a duty to enforce it." That is an absolute cop out. Government employees take an oath to "support and defend the constitution". That is, no person has a duty to enforce unconstitutional laws. This law plainly violates the 1st, 10th, and 14th amendments, not to mention that involving itself in marriage is not one of the federal government's enumerated powers. Perhaps, however, the government can show that somehow this law constitutes an economic activity that falls under the commerce clause.

The idea of a government official saying one thing and doing another should come as no surprise to anyone, though, and while I don't mean to pick on Obama, specifically, he is currently the most prominent example of government officials doing exactly that.

• On closing Guantanamo Bay: says / does
• On habeas corpus rights: says / does
• On executive power: says / does

And in spite of that, he wants everyone to keep hoping for change:

"The question, once again, is going to be whether hope overcomes fear," Obama said at a webcast event meant to buck up young supporters who helped him to victory two years ago, but who are less enthused by mid-term polls.

The question should really be whether hope can overcome reality. This article, in my opinion, answers that question.

So while the electorate recognizes that they are electing at best incompetents and at worst crooks, the constant, naïve, prodemocracy mantra is that "we just need to elect the right people." But, the "right people" aren't (and won't be) running for office. Instead, we will continue to have "the average American legislator [who] is not only an ass," as Mencken wrote, "but also an oblique, sinister, depraved and knavish fellow."

Empire and its imminent demise

Glenn Greenwald writes today that the U.S is a collapsing empire. As evidence, he points to a number of surveys and studies showing the rapid decline in life expectancy, infant mortality, literacy in math and science, and the "soundness" of our banks and, by extension, financial system. He wrote a column a few months back on the same topic, though the examples provided there were more direct. On the bright side, though, he points out in the current column that the U.S. is only fifth in the world in executions and continues to best all comers in incarceration rates.

In addition, a few days ago, Ron Paul said that he thinks that a collapse of the U.S. currency system is "95% likely" and that a war with Iran would only hasten its demise. This all has a very "the sky is falling!" ring to it, but look back at the bank "soundness" rankings, mentioned earlier. The U.S. ranks 108th in the world, out of 133 countries on the list. That puts it 63 places behind Greece, a country that just received a 146 billion dollar bailout from the EU.

Peter Schiff, on a related subject, writes about the massive inflationary expedition on which the Federal Reserve is about to embark. Even I wrote about this a week or so ago. Unlike me, Mr. Schiff researches and writes about this stuff for a living (and does quite well at it), so when he speaks, it's probably a good idea to listen. Aside from the normal, "gold, silver, and commodities are rising; the dollar is falling" talk, he explains why bonds are currently acting the way they are:

A confounding factor is the strong performance of US dollar-denominated bonds. When the Fed creates inflation, that erodes the value of fixed-asset investments like bonds, which can't adjust their returns to the new price level. So many commentators are pointing to the record low bond yields as evidence that inflation is not a threat. But this is a misreading of the situation.

What is overlooked is that when the Fed prints more dollars, it typically uses them to buy bonds. Traders know this, so they are stocking up on bonds at ridiculous prices just to flip them to the Fed. They don't care that, in the long run, the Fed's policies will destroy the bonds' value because in the short run, the weak dollar policy serves as a tremendous subsidy to bond sellers.

I'll leave you with this quote, attributed to George Washington, and let you draw your own conclusion(s) about where our government is headed:

The last official act of any government is to loot the treasury.

If you don't vote, you might (still) be a statist

While eating lunch the other day, a friend of mine mentioned that he had intended to comment on one of my recent posts, or in his words, "get on there and argue with you". I asked if he simply wanted to argue with me or if he had a legitimate disagreement, to which he replied, "yes". Such is our relationship.

After heating up my spaghetti, leftovers from the previous night's dinner prepared by my lovely wife, we sat down to discuss the issue. He had concluded from my writing that it was my contention that the only way to change a government with which one disagreed was through revolution, specifically violent revolution. I said that that was not the message that I intended to convey with my writing. Instead, my writing was premised upon the language in the Declaration of Independence stating (implicitly) that a just government governs with/at the consent of the governed, and I consider the act of not voting a withdrawal of consent.

At this point, he almost  laughed at me and told me that I was sadly mistaken if I thought that any government would give up its power simply because the people failed to vote it into power. In fact, it would be easy and quite likely for a government to regard low voter turnout as apathy, not principled opposition to it. I think that any government, if it intends to pay any fidelity to the concept of the rule of law, would be hard pressed to continue "ruling" if nobody voted, but I conceded the point. However, I continued to argue that to continue to vote would perpetuate said government because the nature of government, over the long term, is to grow regardless of the particular office holders at any given time. He conceded this point. So, I asked him, "if voting is not an effective means to limit government over the long term, and one does not wish to engage in violent revolution, then what alternative does one have?"

He posed a different question, trying to further understand. "If one refused to vote on laws (think speed limits, drug prohibitions, and the like)," he asked, "is one exempt from following those laws?" I replied that regardless of my answer, in breaking these laws, one would find his case being adjudicated in a court instituted by the very government charged with enforcing them. That court's very existence is based on the legitimacy of the government, so a defense based on the illegitimacy of the government would likely be untenable.

This ultimately led back to the idea of revolution as the only viable means by which to oppose a government. I was still not willing to budge on this issue; I could not, in good conscience, advocate violence. In the end, we agreed on two points:

• Violent revolution may be the only viable means of opposing a government; however, it is an illegitimate remedy for someone who votes.
• The act of not voting is not necessarily a withdrawal of consent. For example, there are those who do not vote because they just do not care who governs or how.

In short: if you vote, you're a statist; if you don't, you might (still) be a statist.

[Let me be explicitly clear. I am not, in any way, advocating violence, even in the face of failed attempts at peaceful resistance or resolution.]

The arrival of the total state will not be televised

Yesterday, a federal judge in Michigan handed down a ruling upholding the new health care law. Here is an excerpt:

There is a rational basis to conclude that, in the aggregate, decisions to forego insurance coverage in preference to attempting to pay for health care out of pocket drive up the cost of insurance. The costs of caring for the uninsured who prove unable to pay are shifted to health care providers, to the insured population in the form of higher premiums, to governments, and to taxpayers. The decision whether to purchase insurance or to attempt to pay for health care out of pocket, is plainly economic. These decisions, viewed in the aggregate, have clear and direct impacts on health care providers, taxpayers, and the insured population who ultimately pay for the care provided to those who go without insurance. These are the economic effects addressed by Congress in enacting the Act and the minimum coverage provision.

The health care market is unlike other markets. No one can guarantee his or her health, or ensure that he or she will never participate in the health care market. Indeed, the opposite is nearly always true. [...]

The plaintiffs have not opted out of the health care services market because, as living, breathing beings, who do not oppose medical services on religious grounds, they cannot opt out of this market. [...]

The decision, in simpler terms, is this. Unless a person opposes the medical establishment on religious grounds, that person will at some point avail himself of services provided by the health care market. That person, at the time of service, may not be able to pay for the service. Therefore, that person's original refusal to participate in the market by purchasing insurance constitutes economic activity (because if he can't pay, his costs will be shifted to other participants) which the congress may regulate under the commerce clause. In even more simple terms, refusal to participate in an economic activity constitutes an economic activity that congress may regulate.

I want to address the mental gymnastics undertaken by the judge in arriving at this decision, e.g. that a person can't not get sick; that a person, once sick, can't avoid the health care market; and the fact that that person may not be able to pay means that he can be forced to buy insurance. I'm not going to, though. At least, I'm not going to any more than I just did.

Instead, I'll focus solely at the situation in which a person does get sick, does avail himself of the health care market, and can't pay for the service(s) since that is the situation on which the judge's upholding of the PPACA is based. So, what happens when an uninsured person arrives at a hospital emergency room? Under the EMTALA, that person must be treated. Nobody [explicitly] pays for this treatment, though. The federal government has mandated that hospitals treat such patients but does not reimburse them for these costs. Instead, hospitals can write this cost off as charity or bad debt on their taxes. They can also shift these costs to paying customers in the form of higher charges for service. (Note, too, that there is nothing preventing a hospital from doing both.)

So, the judge is correct that caring for uninsured patients creates additional costs for taxpayers (in the form of tax deductions taken by hospitals) and for paying participants in the health care market (in the form of increased costs for service). Here's the rub, though. The government created that additional cost in the first place by passing the EMTALA! The absurdity of trying to fix the problems created by government interference in the market by further interfering in the market should be obvious to everyone. The problem is more insidious than that, however.

The government has dropped all pretense of "legally" taking people's money via taxation. It is now explicitly assuming the ability to force people to spend money in the ways that it directs and is using its own policy as an excuse for the authority. By this logic, there is nothing that the government cannot regulate. The total state has arrived.

Unintended consequences revisited

Last week I wrote about how some people were actually going to lose their health insurance coverage as a result of the new health care law. USA Today reports today via Bloomberg that the government has reversed course and issued waivers to McDonald's and 29 other companies exempting them from the conditions imposed by the new law. Those employees will now get to keep their insurance, but they won't be afforded the "protections" of the new law. Look at it this way, though: the government actually helped these people more by doing nothing at all.

The whole debacle is a perfect example of the failure of central planning:

The most notable critique of economic planning came from Austrian economists Friedrich Hayek and Ludwig von Mises. Hayek argued that central planners could not possibly accrue the necessary information to formulate an effective plan for production because they are not exposed to the rapid changes in the particular time and place that take place in an economy, and are unfamiliar with these circumstances. Transmitting all the necessary information to planners to accumulate and form a comprehensive plan is therefore inefficient.^[13]

Centralized economic planning has also been criticized by proponents of de-centralized economic planning. For example, Leon Trotsky believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy would be unable to effectively coordinate all economic activity.^[14]

Ultimately, though, as reported in the USA Today article, it's highly unlikely that the government set out to help these people at all.

"The big political issue here is the president promised no one would lose the coverage they've got," says Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates. "Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they've got."

Those in office need to stay in office so that the can keep "helping" the people.

If you vote, you're a statist

I began reading a book called Moral Politics last night. (It can be found on Google Books, here.) I plowed through the first two chapters which basically comprise an introduction for the rest of the book relatively quickly. So far, it appears that the author divides politics, and those who participate in them, into two basic camps: conservative and liberal. He then introduces the idea that the nation, the U.S. in particular, is a family (or at least that it is viewed this way by its citizens) with the government acting as a parent and the citizenry as its children. Finally, he lays down his main thesis that people's view of government comes from the moral structure by which they live their own lives. Ultimately, he arrives at the conclusion that conservatives view the government as a "strict father", and liberals view it as a "nurturing mother" (or "parent").

The strict father model holds that the government's job is to give "tough love" to its citizens to prepare them to be self-sufficient. As such, it should be tough on crime and make sure that discipline is swift and decisive. It should also not get involved with "entitlement" programs like social security, health insurance, or unemployment benefits. The strict father view is not heartless. Social programs may have their place for short periods, but the emphasis is always on discipline and self-reliance.

The nurturing parent model holds that the role of government is to support its citizens by understanding their problems and the causes of them and helping them work through them so that they can become self-sufficient. In this role, the government would provide rehabilitation programs to criminals while they "do their time". It would be understanding that people's economic troubles are not necessarily of their own doing and that things like health insurance and unemployment benefits are necessary to help people get "back on their feet" and become self-sufficient. In short, discipline and self-reliance are good things, but the emphasis is always on helping people find their way back to those ideals.

As I read these first two chapters, I couldn't help but feel that I didn't fit into either category. And maybe that's not the point. I think the author's purpose is not to help people fit into one camp or the other but to explain why the two camps think the way they do. Nevertheless, I couldn't help trying to fit myself into some neat little box so that I could then decide how I felt about what the author was saying. Eventually, I realized that my problem with this book (at least so far) is that the author never questions the existence, legitimacy, or authority (moral or otherwise) of the government (or as I like to refer to it in these types of discussions, the State). (I'd like to explore this in later posts.)

In the context of the book, the conservative and liberal labels only apply insofar as they describe political views. As far as I am concerned, conservatives and liberals are the same. While they disagree about the means (strict vs. nurturing) by which to achieve their ends (a disciplined and self-reliant society), they do agree that those means are best carried out by the State. They're statists. I imagine that statism is most closely associated with fascism in many people's minds and therefore typically associated with conservatives and those on the political right. Statism, though is the belief that the State has a major role, economic or otherwise, to play in people's lives. Given this view, statism can be equally associated with socialism which is a commonly associated with liberals and those on the political left.

Now, let me connect the dots between the title of this post and everything I've written up to this point. When a person participates in the electoral system and votes, he legitimizes the system. As such, he agrees to be bound by the outcome, and regardless of which person is put into power or which law is enacted, the result is always the same: the State is legitimized. No matter which person or law a person votes for or against, that person is always voting for the State. The only way to vote against the State is to not vote at all.

If you're still reading, you've probably realized that I don't vote. If you were paying attention, then you'll realize that the old line, "if you don't vote, you can't complain" is exactly backwards. By voting, you agree that the process and the outcome are legitimate and to be bound by them. I, on the other hand, by refusing to vote lend no such legitimacy to the process or the outcome. Therefore, I'm actually the only one who can complain.

Currency wars

I hear a lot on the radio and in the news lately about the U.S. and other central banks' grumbling about China's refusal to let its currency rise. I have (what I think is) a pretty good understanding of inflation and deflation and how central banks' policies affect their currency, but I had never really put much thought into why China refusing to let their currency rise was a bad thing. This morning NPR did a story about possible coming currency wars, and finally spoon fed me the information that I was too lazy or apathetic to discover for myself.

The U.S. Federal Reserve wants to inflate the dollar, or in the parlance of the previous paragraph, make it fall. Make sure you really take that in; the Fed wants to devalue the dollar. It wants to do that because when the dollar is weak, then U.S. exports become cheaper overseas. This is because foreign currency, in relation to the dollar, rises. Therefore, that foreign currency can buy more of a given U.S. good than it could have previously. The thinking over at the Fed is that if our exports rise, then businesses will begin producing more which will require them to hire more which will eventually start the economy growing again.

The reason the U.S. is upset at China is that it is doing the exact same thing. By refusing to let its currency rise, China is making its exports cheap for foreign buyers. So, the U.S. is mad at China for doing the very thing that it is trying to do.

This is yet another case of "its okay when we do it but not when they do it", but it's so much worse than that. There's no guarantee that China will play along. There is no guarantee that the Fed will inflate the currency just enough to "goose" the economy but no so much that it creates hyperinflation. There's no guarantee that the Fed will "revalue" the dollar if the economy starts moving again; in fact, it's more likely that that value will be forever lost. Even more basic that that, does it concern anyone that twelve people at the Federal Reserve can take money out of everyone's pockets in the U.S. whenever they want by devaluing the dollar?

Moral Politics

A friend recently suggested that I read the book Moral Politics. In preparation for reading, I typed "moral politics" into Google, and this link was at the top. I clicked it, thinking that it was a website related to the book. It wasn't. Instead, it was a link to some kind of moral politics test that I couldn't resist taking. Here is the result:

This represents a score of -0.5 on the Moral Order axis and a -7 on the Moral Rules axis. It's still not clear to me what exactly each of those represents, but according to the website, I'm an "Ultra Liberal", which is interesting because I would consider myself a "Libertarian Capitalist". I'm guessing that expressing a belief that there is a higher power and that morality does have a place in my personal life means that I'm not sufficiently capitalistic. I blame the wording/interpretation of the questions.

What I found most interesting about the result, though, were the statistics that came along with it. According to the website, only 1% of the approximately 650,000 people who have taken the test are more conservative than me. On the other hand, only 1% of those same people are more liberal than me.

Take the test for yourself and see what it says about you.

Fire protection and the free market

Earlier this week, fire fighters in Obion County, Tennessee let a man's house burn to the ground because he hadn't paid his annual $75 fee to the nearby city of South Fulton for fire protection. Here is the short version:

In rural Obion County, homeowners must pay $75 annually for fire protection services from the nearby city of South Fulton. If they don't pay the fee and their home catches fire, tough luck -- even if firefighters are positioned just outside the home with hoses at the ready.

Gene Cranick found this out the hard way.

When Cranick's house caught fire last week, and he couldn't contain the blaze with garden hoses, he called 911. During the emergency call, he offered to pay all expenses related to the Fire Department's defense of his home, but the South Fulton firefighters refused to do anything

They did, however, come out when Cranick's neighbor -- who'd already paid the fee -- called 911 because he worried that the fire might spread to his property. Once they arrived, members of the South Fulton department stood by and watched Cranick's home burn; they sprang into action only when the fire reached the neighbor's property.

I was planning on writing about this, but smarter people have already done the heavy lifting:

I don’t get this debate at all. It is not even a real debate. The fire-protection services were government services. The fee in question was a government-mandated fee. The county lines in which the fee was applicable is a government-drawn line that is completely arbitrary. The policy of not putting out the fire was a government policy enforced by the mayor. As he said, in the words of a good bureaucrat, “Anybody that’s not in the city of South Fulton, it’s a service we offer, either they accept it or they don’t.”

So why is the market being criticized here? This was not a real market. Instead, this is precisely what we would expect from government. In a real market, there is no way that a free-enterprise fire service would have refused to provide the homeowner service. They would be in business to provide that service. The fire would have been put out and he would have been charged for the service. It is as simple as that.

Consumers go 'brown'

USA Today notes that Frito-Lay is sending their compostable Sun Chips bags back to the design team for some re-tooling. This story is illustrative of a couple of things. First, consumers, despite what popular sentiment would have us believe, actually have the power in the marketplace. And, second, consumers are concerned more with the aesthetics of the products they buy than with being 'green'. I think this second point is especially important because it is a perfect example of the power of the market to determine what people really care about. While everyone is out proclaiming the need to protect the environment, they're unwilling, in this particular case at least, to put their money where their mouths are.

For those unfamiliar with the new bags, check this out.

Wealth distribution

I came across the following image here a few days ago:

The above referenced link is to a story about the disconnect between Americans' belief(s) about wealth distribution in the U.S. and reality. Specifically, it says:

It's fine if reasonable people have different ideas about whether we should extend the Bush tax cuts for people making more than $250,000. Or think estate taxes are unfair. But when we have those debates, it's critical that everyone has a clear understanding of how things really are. We're becoming a plutocracy.

I'm not going to argue against that last sentence. Debating the merits of tax cuts for certain brackets or in certain situations in an effort to stave off a plutocracy, in my mind, though, ignores the bigger picture.

It seems to me that the dangers of a plutocracy lie, not necessarily with those that control the wealth, but with the government that can be controlled via that wealth. Specifically, there is very little that the U.S. federal government currently does not regulate. Under such a system, the aforementioned wealth can be very dangerous as it can be used to steer that regulation, which carries all the force of law, in directions that benefit only those controlling the wealth.

Contrast that with a government under which there is very little or even no economic regulation. In this system, plutocrats are not able to influence regulation to protect their wealth. They must simply produce goods and services that consumers are willing to buy; they must actually compete on the merits of their wares and business methods. The risk is that if they don't, other businesses will spring up in their place and eat their lunches, so to speak. Under such a system, consumers hold all of the power, and the "problem" of unequal distribution of wealth may work itself out.

I say "may" because, if we remove government from the equation, it's not immediately clear to me that the wealth distribution in the chart above is necessarily a problem. For example, the chart does not give the reader any indication that those in the lower quintiles do not have enough money to sustain their needs. Note that I'm not arguing that they currently do have sufficient money. Assuming for a moment that they do, though, and that there is no government to be influenced in economic matters, is there a problem?

Free Range Kids

I recently posted a link to the "Why FreeRange?" page of Lenore Skenazy's Free Range Kids blog on my wife's Facebook page.

Our child is still less than a year old, but my wife and I already disagree (don't worry, they're only minor disagreements) about how much we should "baby" our child. For instance, when he tries to pull himself up to a standing position and even when he reaches the standing position, my wife will hover over him to prevent his falling back to the ground. I, on the other hand, am constantly telling her to let him fall. The chances that he'll get hurt (he would most likely fall back onto his rear end, and at worst fall all the way back and hit his head on the carpet) are extremely low. Moreover, in the event that he does get hurt, the chances of him getting anything more than a small bump are so remote as to not cause me even a bit of worry.

Don't get me wrong. I'm not some kind of sadist who enjoys seeing his kid get hurt. In fact, it breaks my heart every time my child sheds even a single tear whether he's hungry, hurt, or just wants to be held. I don't, however, believe that it is my role as a parent to prevent anything and everything that could go wrong in my child's life. Eventually, he's going to have to stand on his own two feet (literally and figuratively), and I see letting him learn by failing as a way to help him achieve that goal, even at such an early age.

Back to the real point of this post, though. In response to the link on my wife's Facebook page, one of our good friends, herself, the mother of two teenage girls, responded that she'd prefer "her children living instead of visiting 'Fairhaven' every week" and referred to the number of attempted abductions, rapes, and gropings in the news this week as well as the recent deaths of Amber Dubois and Chelsea King. I have to admit that I don't understand the reference to "Fairhaven", but I took the entire statement to mean that if our friend has to be a bit overprotective to prevent her children from becoming victims, then so be it.

I hope that friend of ours, should she read this, doesn't take any of what I've written or what follows as an of indictment of or negative statement about the way she has raised and continues to raise her children. I think that her daughters are two of the nicest, most respectful and well behaved children I've ever met, and I should be so lucky to have my child(ren) grow up to be the same. Rather, this post is intended to defend the idea of "Free Range Kids".

Most of what this friend of ours wrote was the reason that "Free Range Kids" came about. As the news media becomes ever more accessible, we are able to hear about every crime and attempted crime all over the country. The media also tend to focus on stories that will grab people's attention and keep them engaged (read: reading, watching, and ultimately, paying). Since the news tends to focus on these types of stories, over time, people tend to regard such events as commonplace, when in reality, they are not.

According to census estimates over the last three years, there were approximately 80 million people aged 19 years or under in the U.S. According to this study, released in 2002, there were just under 60,000 "nonfamily abductions" during the year-long study. Of these, 115 were considered "stereotypical" kidnappings, and of those, approximately 40% were killed. Examples of abductions and kidnappings as defined in the study can be found here.

Now let's look at the numbers for the year of the study:

• Number of children in the U.S.: 70,000,000 (rounded down to exclude 18-19 year olds)
• Number of "stereotypical" kidnappings: 115, .0002% or 1 in 5,000
• Number of deaths from kidnappings: 46, .0001% or 1 in 10,000

To put these events in perspective, the yearly odds of dying in a car crash are 1 in 6,500. That is, they're just not that common. So, the point of all of this is not to persuade or dissuade you, necessarily, from what you're already doing. Rather, it is to help dispel the idea that children are in danger every minute of every day or that today's children are in any more danger than you or I were. This post, by the way, does not address the less quantifiable benefits of "free ranging" your kids. For that, you can visit FreeRangeKids.

P.S.: The New York Times (whatever you may think of it) endorsed this book today.

Gold, subsidies, and syphilis

There were a number of news stories that caught my attention today, and I decided to just lump them all into a single post. I'm sure at least two of them will get better treatment in the future.

Gold

Gold reached another high yesterday against the the U.S. dollar. Many seem to be blaming the weak dollar and actions by the Federal Reserve. The Fed over the last few days and weeks has been hinting that it may embark on another round of quantitative easing or QE. Wikipedia has a pretty good explanation of QE, but in the most basic terms, the Fed is preparing to print more money. Lest you think that the rise in gold is a strictly U.S.-related phenomenon, take a look at this chart. Inflation and/or economic troubles/concerns seem to be widespread.

Subsidies

Yesterday, I was able to catch various pieces of Marketplace on NPR while driving through the hills. The station cleared up enough for me to catch this particular piece. The government, as part of its "stimulus package" has been giving money to private businesses to induce them to hire people. It sounds like a good plan, but here is the problem: the government is distorting the market. By providing subsidies, the government is causing businesses to hire and expand because there is no financial risk to not doing so, not because the economy can actually support that expansion.

I have a number of problems with this, but let me just leave you with this thought: If this policy is good for the economy, why not keep it going?

Syphilis

For those who didn't know (and I have to include myself in that group), the U.S. government deliberately infected Guatemalan prison inmates with syphilis back in the 1940's as part of an experiment to test the effectiveness of penicillin in the prevention of the disease. Well, yesterday, Health and Human Services Secretary Kathleen Sebelius and others issued an apology for U.S. participation in those experiments. Perhaps these people can expect an apology sometime around the turn of the next century?

This is why I like economics

When I was in school (read: college), my focus was entirely on avoiding any kind of writing class(es). Except for my first year, in which I was forced to take remedial courses until I was able to pass the "Subject A" examination, this really wasn't a problem. In fact, I took it a step further and just avoided as much as I could that wasn't related to my major, computer science. During my third or fourth year, I had to take some kind of economics course to "round out" my education. I had a friend who had been taking environmental economics courses, and so I decided to try it out, thinking that even if I had trouble, I knew exactly where to go for help.

That was my first and, unfortunately, last experience with economics in college. Perhaps "unfortunately" is the wrong word, depending on how you view economics, as taught in school. At any rate, I say "unfortunately" because I found the course very interesting, and not necessarily because of the subject matter, per se. Rather, what I found interesting was the overwhelming number of examples of unintended consequences presented during the course. For whatever reason, I just found the fact that implementing some kind of pollution reduction scheme (remember this was environmental economics) would actually lead to an increase in pollution.

[As a quick aside, a cap and trade program is the example I remember most vividly presented in the course. In the example, companies generating more pollution would buy credits from lesser polluters, thus increasing their ability to pollute. So, in the end, the heavier polluters could continue polluting (albeit, at a higher cost) while the lesser polluters would just sell their unused credits while maintaining pollution at the same levels.]

Today I ran across an article describing some unintended consequences of the so-called "Obamacare" law. The short version is that the law requires that health insurers spend 80-85% of their revenue on patient care. Stated differently, they must limit their administrative costs (e.g. salaries of employees) to 15-20% of said revenue. Sounds great, right? Money spent on health care actually goes to health care, and CEO's can't pay themselves inflated salaries. Problem solved!

Not quite. It turns out the companies like McDonald's, Home Depot and others are actually planning on getting rid of their health benefits because of this requirement. "Those bastards!", you say. Well, hold on. These companies tend to have high turnover rates (meaning that administrative costs of health care are high due to putting people on the plan and then taking them back off), and their employees tend to be young (meaning that actual health care costs are low due to the employees not actually needing and using the services). Given that, it's all but impossible for the 15-20% administrative cost cap to be met by these companies, and if they can't comply with the law, the alternative is to just not run afoul of it by not providing coverage in the first place.

So, there you have it: a policy intended to achieve a certain outcome effecting the exact opposite. While I certainly feel for those without health care coverage and those about to lose it, on an academic level, I find the whole situation very interesting.

UPDATE: Here is a story on Marketplace's website about the same thing.

UPDATE (2): And another from Consumerist. I like Consumerist for the information, but they seem to have a very anti-business attitude in their writing. For example, look at the last sentence in the linked article. The author seems to think that McDonald's owes health insurance to its employees and is evil for not providing it. Hey Phil, why not point the finger at the government policy that upset the apple cart in the first place.