Don't trust his virtue

"If someone uses [the false choice ], and seems to do it deliberately, don't trust his virtue. He's not interested in a reasonable argument."

- Jay Heinrichs

"And I will not accept the status quo as a solution."

- President Barack Obama

So there we have it: the choice we have before us is to either forumulate and accept sweeping change, or keep the status quo. Incremental steps that introduce positive change, and that allow us to learn from and adjust as we go, are not an option. A plan that would allow us to gradually shift the responsibility of insuring from the employer to the person is not to be put forth. No, the President only gives us the choice between doing nothing and extreme reform.

I call that a false choice.

Few people object to health care portability-- that health care shouldn't be dependent on your job. To the contrary, most people believe that this arrangement has provided the misaligned incentives that have produced the miserable state of affairs we find ourselves in today.

Why not work on incrementally undoing the damage that our government has already caused in our health care system before turning them lose on their next best guess on what to do? The government has already proven that it can not create and maintain efficient and effective regulatory systems in banking, social insurance, limited health care (VA, medicare, medicaid), aviation (FAA), and, I argue, law. Why is the choice being limited to either doing nothing or letting the government birth another inefficient and ineffective system?

Give us more choices. Give us real choices. Give us smaller choices and you'll also be more likely to find more compromise and broader support.

Imagine if every time you had to buy shoes, you could only chose between $5 Velcro sneakers or $500 hand-made Ferragamos. It's not unreasonable that many would chose the $5 option. Likewise, it is not unreasonable that, given the choice the President is laying down before us, the status quo appears to be the better option.

In this case, the President's rhetorical False Choice may actually be working against him.


* quotes taken from Heinrichs, Jay. 2007. Thank You For Arguing. p. 178, and the President's speech before congress on September 10th, 2009.

A bridge into the unknown?

Remember when "journalism" meant objective, fact-based reporting? Yeah, me neither.

This is a slightly mean spirited post, and I'm not real proud of that, but this AP "article" is a great example of why my respect for the press is in a state of accelerating decline. Not only is it just "not news", it's crappy journalism, written in a style that suggests the author spends a lot of her free time working on a really bad novel. Some of my favorite (in a "least" sort of way) quotes:

"he (Obama) is seen as a bridge that leads toward the country's next era — a guide into the new unknown."

Well, at least we finally got rid of the old unknown. The new unknown is way better. Who the hell builds a bridge into the unknown?

And check out this remarkably continuous block of twaddle (that's my new favorite adjective):

"Why the middle ground, then? Does it hint at a new flexibility? Or is it quintessential American optimism, tempered by the pragmatism of a country growing up? Are the nation's problems subverting knee-jerk politics?

Or perhaps this is a reflection of Obama himself as he straddles issue after issue with a management style that's both pragmatic and idealistic, but also leaves him open to criticism that he's failing to lead.

Also perhaps this: Facing the possibility of American decline, people may simply be at a loss for what to do — and looking, as so often before, to their president to guide them."

Why all the questions? Do they hint at a lack of content? Or is it quintessential journalist trying to meet the editor's line count quota? Are the author's politics subverting her ability to do her job?

Or perhaps this is reflective of a journalist who tries to straddle issue after issue with a writing style that's both pseudo-objective and faux-insightful, but still leaves her open to criticism that she's failing in her role as a journalist.

And also perhaps this: Facing the possibility of American journalism decline, many people may be at a loss for who to read -- and looking, as so often before, to the AP to the guide them.

Yeah, I just did that.

The piece could be equally at home in either The Onion or in Time Magazine, but has no business coming through the AP wire as "news".

I still can't believe she opened a "news article" paragraph with "And also perhaps this:". Why not just say, "Oh, and here is some more crap I just thought up". Here is a tip to any journalists out there: "perhaps" is a flag word that says "I'm about to throw objectivity out the window and inject my own opinion, err, I mean, analysis".

The funny thing is, a quick search about the author, Liz Sidoti, reveals that those on the left and the right both despise her. Apparently, she bought Senator McCain some donuts when he was running for President.

I'm not mad at her, though. I am mad at her editor, and whoever hired her editor. They are the real problem. Writers write; it someone else's job to decide what actually gets published. Those are the people that are really destroying their industry.

Both Republicans and Democrats (not to mention us "Old Whigs") deserve better "journalism". Then again, perhaps a people gets the press corps it deserves...

Two Random Thoughts on Positive Rights

Part of the health care reform debate going on in the United States right now touches on whether health care is a right. As you can probably imagine, I state flatly that health care is not a right, and reject completely the notion of "positive rights" in general. A positive right is one which requires that you take from one, forcibly or under the threat of force (which includes taxes), in order to fulfill.

For those that do believe in positive rights (i.e., those that believe health care is a right), I offer this: do you also support the government provisioning of firearms to all who cannot afford them? By the prevailing logic of positive rights, the right to life (liberty, and the pursuit of happiness) is meaningless if not supported by the right to health care. Using that exact same pattern of logic, the U.S. Second Amendment, which provides the people the right to bear arms, is meaningless if not supported by the possession of arms.

The other problem I have with many of the supporters of positive rights is that they, generally speaking, assume that anyone who opposes health care as a right are against the poor, the disadvantaged, &c. However, the two issues are orthogonal. It is easy for me to reject the notion of positive rights, yet still believe that it is perfectly legitimate for a democracy to chose to provision for a certain level of basic health care to genuinely disadvantaged groups, much the same way that we, as a nation, try to feed and house those less fortunate. I just hold that this is a form of collective charity. The recipients of such benevolent benefits should be thankful that they have received something from others that they have no legitimate claim to. It is a big difference that simply recognizes the difference between a gift and an entitlement. Thus, to say that health care is not a right is not to say that we should not seek ways to help others.

An Inconvenient Consensus?

If you go against the consensus of climate change scientists, then the left will call you a traitor. But the left has no problem ignoring the consensus view of economists that price controls cause shortages and minimum wages increase unemployment among unskilled workers.

The latest affront to Economics 101 to come from the Hill appears to be a move to limit price increases for health insurance. As mentioned above, price controls lead to shortages (or black markets, or the very creative use of loopholes like you see for apartments in New York). You would think that the D.C. crowd would learn from Florida's mistakes, where insurance price controls forced the state's largest property insurer to seek an exit from writing policies in the state.

Now, here is the real question: are politicians really this ignorant of economics, or are they fully aware but count on the popularity of the measures getting them re-elected and hope that the failures won't amass before they retire? I used to believe the former, but lately I am thinking it may be the latter.

Rule of Law, or Military Coup?

I was in Europe when I learned of the ouster of Honduran President Zelaya and it was very quickly apparent to me that the media, CNN Europe in particular (which is horrendous enough to deserve its own post on my part), could not tell the difference between the rule of law and a military coup. For anyone who still holds that Zelaya was unlawfully removed from power, please read "The Path Forward For Honduras" over at the WSJ. Honduras should be praised for holding their own president subject to the rule of the law. Too many are too slow to realize that it is our constitution and the rule of law that protects our rights, not democracy. The Weimar Republic of 1930's Germany demonstrated quite well that a democracy is only as good as its constitution. I would say that Honduras's constitution has done what a good constitution should , even if its provisions are a little different from what we are used to (no impeachment process, the use of military instead of police forces to remove Zelaya).

Healthcare Solution?

It appears that some Democrats in power do not want you to see this chart:

Food Fascism

I love David Boaz's apt usage of the term "food fascism" in his post over at CATO regarding President Obama's selection of Thomas Friedman to lead the CDC.

I wonder how many supporters of socialized health care have fully thought through to the logical consequences. It reminds me of that phrase we likely all heard as teenagers: "If you live under my roof, you live by my rules." When we live under the government's roof of health care, how can we complain about all the new rules-of-the-house that will come with it? Of course, most want the best of both worlds: they want to live the lifestyle of their choosing, but want the government to pay for any ill consequences of those choices. That's likely what we'll end up with, at least for a while. When the unsustainability, economically speaking, of such a plan finally catches up with us, what then?

-WM

"Capitalism Still Has Legs"

Caroline Baum over at Bloomberg explores what Milton Friedman would say about the current financial crisis as it relates to capitalism. I believe it generally makes the same point as I made in my last post, but managed to avoid the word "socialism". The point that the federal government and the Federal Reserve failed to wisely manage the banking system is consistent with my post, though.

-WM

Socialism caused the financial crisis

"... the flaws inherent in capitalism led to the current crisis", says a socialist author espousing the renewed relevance of Marx.

That is an absurd conclusion.

The flaws inherent in socialism led to the current crisis.

Finance is quite likely* the most regulated industry in the United States. The United States does not have a "free market" banking system. What the United States has is a fractional reserve, fiat money system in which private deposits are insured by the government and the supply of money is openly manipulated by the Federal Reserve, a congressionaly chartered (yet private) institution.

Does that sound like a free market to you? As far as I can tell, nothing in the above paragraph is debatable, save my qualified use of the word "likely". The U.S. federal government attempts to centrally manage financial markets, especially our banking system and the money supply. This is "planning" in Hayek's worst sense of the word. This is the government thinking that it can do better than the free market. This is Keynes vision of "capitalism, wisely managed".

This is socialism, poorly managed.

Not convinced? Then let me mention the multiple "government sponsored enterprises" (GSEs): the Federal Finance Housing Agency, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Association (Freddie Mac), the Government National Mortgage Association (Ginnie Mae), the Federal Agriculture Mortgage Corporation (Farmer Mac), and the twelve different Federal Home Loan Banks. We also have the Community Reinvestment Act, the Public Company Accounting Reform and Investor Protection Act (Sarbanes-Oxley), and the Farm Credit Administration just to name a few more government interventions in the financial markets. In order to manage our financial system, the Federal government requires no fewer than four agencies (beyond the already mentioned Federal Reserve): the Securities and Exchange Commission, the Office of the Comptroller of Currency, the Office of Thrift Supervision (both offices are part of the U.S. Treasury Department), and the National Credit Union Association. There also exists the Commodoties Future Trading Commission and the Pension Benefit Guarantee Corporation. And then there is the Federal Financial Institutions Examination Counsel, an organization just to help keep regulations consistent across all the other organizations.

That list is far from exhaustive. I'm not even going to attempt to cover the regulatory agencies responsible for the insurance industry, and don't think that state governments aren't in on the action. Every state has their own banking commission.

Could one still hold that the U.S. financial system is a "free market"? Is it really possible to think that is what "capitalism" is all about? If so, then we've discovered the problem--a misunderstanding of the definition of capitalism. Fortunately, "the internets" can help: the first paragraph in the wikipedia entry on capitalism should clear things up.

I am not here, today, to discuss the merits of any of the above government agencies or regulations. Not all regulation is bad; the government is responsible for protecting property rights and protecting free, competitive markets. My intent for this post is merely to make clear that the U.S. government did not "deregulate" the financial services industry. That's just a silly notion. Given the level of government intervention and manipulation, I do not see how one can seriously refer to the U.S. financial system as capitalistic. As such, there is no support for the belief that capitalism led to the current crisis, no matter how often you hear it said.

To the contrary, it is easy to demonstrate that the banking system failed because of regulation. Bad regulation. Incompetent regulation. A failure of government planning. I believe most rational people, if they examine the facts, can quickly see how government intervention is the root cause of the meltdown. It distorted the market. It created perverse incentives. It privatized gains and passed losses on to the tax payers. It had the "Greenspan put". It coerced banks into extending credit into questionable areas (PDF link). The list goes on and on.

One last point: perhaps you generally agree with the position above (it is usually not too difficult to convince people that our government is incompetent), except hold on to the notion that our banking system is not a socialist institution. That is fine, because it means that now the debate is reduced to one merely of degree, with "perfectly free markets" on one side, and a "wholly centrally controlled economy" on the other. Clearly, we are somewhere in the middle. Our banking system is in the fashion of Keynes's "Third Way".

The current crisis in the financial system illustrates clearly the fatal flaw in Keynes's logic: specifically, who could you reasonably expect to be the wise managers of capitalism? Of course, Keynes envisioned the role being fulfilled by altruistic servants as educated and intelligent as himself. That flawed logic is to be found in all socialist thinking. How could such an intelligent man ignore the fact that the moment you invest such power in people is the same moment that you politicize the process, because everyone who has anything to be gained or lost by the ensuing decisions will mobilize to protect their interests? Just look at Keynes's theories in practice: How wisely managed is (was) the financial system? How politicized had the system become? How many groups had lobbied the decision makers to their own benefit? How many politicians peddled their influence?

As for me, I take the Hayekian view that planning is a form of socialism. If you do not (perhaps because you reserve the term socialism to refer to Marxian communism), then I am happy to propose a revised conclusion:

The flaws inherent in centralized planning led to the current crisis.

The result is the same. This "planning" is Keynes's "wise management". It is the notion that a centralized institution can make better decisions for the collective than if individuals are left to make decisions for themselves in the form of Adam Smith's "invisible hand". It's an emotionally attractive and politically expedient argument. Look where that logic got us. It failed.

-WM

* I say "quite likely", because I honestly don't know how you go about proving such a thing. Perhaps by measuring the number of words contained within all the relevant laws and regulations? Or perhaps by measuring how much money firms spend maintaining compliance. And then, of course, you'd need to normalize it somehow, perhaps by the industry's total revenues or number of employees. So, it might be possible that the manufacture of fissile material is more highly regulated than the U.S. banking system. Regardless, I doubt that few people with a modicum of knowledge about how the U.S. banking system works would disagree that the U.S. Government plays a heavy hand in our financial markets.

Paid Volunteers

"As long as it is admitted that the law may be diverted from its true purpose--that it may violate property instead of protecting it--then everyone will want to participate in making the law, either to protect himself against plunder or to use it for plunder"

-Frédéric Bastiat, The Law, 1848

Today, President Obama has signed into law a national service bill that comes with a $5.7 billion price tag. I honestly have a difficult time wrapping my head around spending $5,700,000,000 on volunteer programs. To make sure I wasn't missing something, I looked up the definition of volunteer over at dictionary.com:

–noun

1.	a person who voluntarily offers himself or herself for a service or undertaking.

2.	a person who performs a service willingly and without pay.

I think if you asked the average person on the street, you'd get something close to # 2.

It is even more amazing in the face of the President's directive to find $100 million, or $0.1 billion, in "efficiencies". Eliminating $100 million from the federal budget is something that any senate staffer could probably do over lunch. As Dr. Mankiw points out, that's about like a father asking his family for ideas on how to save $3 over the course of the next year. I don't mean to complain, mind you, I would just like to see some more zeros between the 1 and the decimal point on that initiative.

Back to the new bill (in more than one sense of the word); I'm not surprised, nor should anyone be. Bastiat explained this behavior 150 years ago and summed up quite well how we got to where we are today. President Obama has a history as a community organizer, so it only makes sense that he would see to it that his pet interest gets its turn at the teet of the American tax payer. This is not a partisan phenomena, as the previous president's faith based initiative can attest.

But Bastiat didn't stop there. He went on to describe this type of activity as a perversion of the law. Of course, we don't think that way anymore because we've become socialized to this type of thing. It's normal. No big deal. Forget that it forcibly takes money from one group of citizens, via taxes, such that it may be given to another set of citizens who had the political power to make it happen. We're all used to people asking us to make contributions to their favorite charity, but this charity didn't ask, it just took. If the charity had done that directly, it would rightfully be called theft. But when the law does it, does that make it less than theft? President Obama means well, I have no doubt. But in this time of economic crisis, is this sort of "philanthropic tyranny" (again, Bastiat's words) really what the country needs? Is this really the rightful role of the government, regardless of the merits of the cause?

-WM

The full English translation of Bastiat's "The Law" can be found here: http://bastiat.org/en/the_law.html

The Fed, in the parlor, with the candlestick

Point: The Fed did not cause the housing bubble. (commentary by Jeffrey Rogers Hummel and David R. Henderson in Forbes)

Counterpoint: The Fed deserves a major part of the blame. (response by Robert Higgs over that the Independent Institute)

I find Higgs' logic much more compelling.

-WM

Bank Machine Plunder

"men will resort to plunder whenever plunder is easier than work."
-Frédéric Bastiat, The Law, 1848

Notwithstanding Bastiat's claim above, the amount of work that goes into plunder, or outright theft in this case, need not be trivial: Check out Chris Walters' posts over at The Consumerist on what an ATM card skimmer looks like.

Having had a credit card recently stolen and fraudulently used, I see part of the attraction to this activity for criminals: law enforcement has grown apathetic. Note that it is now the credit card companies themselves that carry out the investigations into such activities; a great example of private markets filling the need for a service supposedly provided by the government. Notice the quote in the first story about the police telling the person to give the device to the bank. I find that appalling. The skimmer is a piece of evidence; a crime was committed (or at least attempted). Isn't that where they come in?

There is perhaps but one item 0n which people from almost any political belief can come to agreement: it is the government's responsibility, if not its primary function, to uphold and enforce the law. Yet our government appears more concerned about finding ways to increase its role in our lives while it continues to fall short in performing the roles we have collectively already granted to it.

-WM

Inflation is coming

Given the incredible surge in U.S. government debt, I cannot see how our wise managers will be successful in maintaining any control over inflation in the years to come. That was the topic on my mind as I went to bed last night, and as someone without a defined benefit pension plan to look forward to, I was considering what my investment strategy should be to capitalize on the inevitable inflation.

This morning, I read Greg Mankiw's "Economic View" article in the New York Times, "It May be Time for the Fed to Go Negative". I find it disheartening to see anyone advocate what amounts to the devaluation of the U.S. dollar, but I believe Dr. Mankiw's point is simply that before a recession can end, real wages have to find their proper place (i.e., they have to decline to where they would have been without a credit supply induced bubble in prices). There are two ways to accomplish this: 1) we all take pay cuts, or 2) devalue the dollar. The second is psychologically, and therefore politically, easier to accomplish, and we're on that course anyway. Dr. Mankiw is just airing an idea that could speed up the process. I think the metaphor of ripping off the Band-Aide applies here. It's better in the long run if prices find their equilibrium quickly. Government policies (unwise management) seem to be trying to artificially support prices instead of driving us to proper prices. In other words, current policies seem to favor a protracted, yet shallower recession over a quick, but deeper one.

About half way through the article, it became obvious that the appropriate response at the individual level was to take a position against the U.S. Dollar. As I'm currently doing research in Swiss banking, I'm thinking that the Swiss Franc might be a good place to take shelter. The intent of the Federal Reserve, of course, is to wisely manage inflation such that individuals spend or otherwise invest their money so as to spur the economy. However, it may not be the U.S economy that gets spurred if investors see better inflation control in other economies. In time, "flight to quality" will surely cease to mean US treasury securities, and therefore the US dollar will suffer in the long run.

How is it that the cause of our problems, the oversupply of credit, can also be the solution? What form of logic are intellectuals applying to reach this conclusion? The answer most likely lies in the short- versus the long-term view. Easy credit in the short term will, hopefully, get us out of the recession, then we can tighten the money supply to stop inflation after we are out of the woods.

We keep demonstrating, however, that we are incapable of wisely managing (manipulating) the credit supply. Maybe it's time we let market forces work their magic, even if it is painful in the short term. In the mean time, start thinking about your personal plan to cope with inflation. It's coming.

- WM

Four Bells

I find that I can no longer hold it all in. I believe that capitalism, and therefore the foundation of American society, is at a crossroad. I believe that neither party truly represents my interests and that debate on the topics most important to our future are uninformed and seldom grounded in logic.

It is my hope to bring logic, context, and some clarity to the discussion. I welcome debate from those who would strive for the same.

As you might have inferred from the blog title, a quote from Keynes, I am primarily here to discuss political economy. I am not dogmatic in any belief, but I believe the sudden up swell in the recycling of previously discredited Keynesian ideas demands debate more rigorous and considered than what we have witnessed thus far. I was hesitant to use a Keynes quote, as I fear it may imply approval of his ideas, but I ultimately decided that "capitalism, wisely managed" sums up the topic of debate quite well.

I have had an increasingly strong desire to start a political economy blog over the past several months, but I have been hindered primarily by time, but also by my rather non-confrontational character. Current events, being what they are, have compelled me to conclude that I have something to offer to the discussion, and it is therefore my duty to contribute.

So here I am. Damn the torpedoes. Four bells.

-WM